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 competitors are Altera Corporation, Anadigics Inc., Analog
Devices, Inc., Applied Micro Circuits Corporation, Conexant Systems Inc., Cygnal Integrated Products, Inc., Exar Corp., Fairchild
Semiconductor Corp., Infineon Technologies AG, Intel Corporation’s Level One Communications, Inc. Subsidiary, Intersil
Corporation, Linear Technology Corporation, Lucent Technologies, Micrel Inc., Microchip Technology Inc., Mitsubishi Corporation,
Mitsui & Co. Ltd., Motorola Inc., National Semiconductor Corporation, ON Semiconductor Corporation, Philips Electronics N.V.,
PMC-Sierra Inc., RF Micro Devices Inc., Ricoh Company Ltd., Seiko Corporation, Semtech Corporation, STMicroelectronics N.V.,
Silicon Laboratories Inc., Siliconix Inc., Sipex Corporation, Skyworks Solutions, Inc., Texas Instruments Inc., Vitesse
Semiconductor Corporation and others, including start-up companies. Some 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, price, 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 upon both
know-how and patents to develop and maintain its competitive position. There can be no assurance that others will not develop or
patent similar technology or reverse engineer the Company’s products or that the confidentiality agreements with employees,
consultants, silicon foundries and other suppliers and vendors will be adequate to protect the Company’s
interests.
The Company currently owns 429
U.S. patents and 55 foreign patents with expiration dates ranging from 2004 to 2022. In addition, the Company has applied for 77
U.S. patents, a large number of which have corresponding patent applications in multiple foreign jurisdictions. It is the
Company’s policy to seek patent protection for significant inventions that may be patented, though the Company may elect, in
appropriate cases, not to seek patent protection even for significant inventions if other protection, such as maintaining the
invention as a trade secret, is considered more advantageous. In addition, the Company has registered certain of its mask sets
under the Semiconductor Chip Protection Act of 1984.
There can be no assurance that
any patent will issue on pending applications or that any patent issued will provide substantive protection for the technology or
product covered by it. The Company believes that patent and mask work protection is of less significance in its business than
experience, innovation, and management skill.
Maxim has registered several of
its trademarks with the U.S. Patent and Trademark Office and in foreign jurisdictions.
Maxim is a party to a number of
licenses, including patent licenses and other licenses obtained from Tektronix in connection with its acquisition of
Tektronix’s Integrated Circuit Operation 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 “Item 1., Business — Trends, Risks and Uncertainties — Intellectual Property
Litigation and Claims,” and “Item 3., Legal Proceedings.”) If any such infringements were to exist, the Company
might be obligated to seek a license from the holder of the rights and might have liability for past infringement. In the past, it
has been common semiconductor industry practice for patent holders to offer licenses on reasonable terms and rates. Although in
some situations, typically where the patent directly relates to a specific product or family of products, patent holders have
refused to grant licenses, though the practice of offering licenses appears to be generally continuing. However, no assurance can
be given that the Company will be able to obtain licenses 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.
7
Environmental Regulation
Federal, state, and local
regulations impose a variety of environmental controls on the storage, handling, discharge and disposal of certain chemicals and
gases used in semiconductor manufacturing. The Company’s facilities have been designed to comply with these regulations, and
it believes that its activities are conducted in material compliance with such regulations. There can be no assurance, however,
that interpretation and enforcement of current or future environmental regulations will not impose costly requirements upon the
Company. Any failure of the Company to control adequately the storage, use, and disposal of regulated substances could result in
future liabilities.
Increasing public attention has
been focused on the environmental impact of electronic manufacturing operations. While the Company to date has not experienced any
materially adverse effects on its business from environmental regulations, there can be no assurance that changes in such
regulations will not have a materially adverse effect on the Company’s financial position or results of
operations.
Employees
The supply of skilled 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.
As of June 28, 2003, the Company
had 6,202 employees.
Trends, Risks and Uncertainties
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.
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 that
extended through fiscal year 2000, the semiconductor industry, including the portions in which the Company participates,
experienced dramatically decreased demand. Although some of the causes of that decrease are known, including significant excess
inventories in the hands of equipment manufacturers and other potential customers, it remains unclear what all the causes may have
been and whether that period of decreased demand has ended. In fiscal year 2003, Maxim achieved increases in net revenues and
profit over fiscal year 2002 levels of 12.5% and 19.5%, respectively. However, Maxim’s ability to achieve future revenue
growth depends on whether, and the extent to which, demand for its products increases and reflects real end user demand and whether
customer cancellations and delays of outstanding orders remain small.
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 other materials 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
8
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 or annual revenue goals.
In addition, in certain markets
where end-user demand may be particularly volatile and difficult to predict, such as notebook computers and cellular handsets, some
Maxim customers place orders that require Maxim to manufacture product and have it available for shipment, even though the customer
is unwilling to make a binding commitment to purchase all, or even any, of the product. At any given time, this situation could
affect a portion of the Company’s backlog. As a result, in any quarterly fiscal period, the Company is subject to the risk of
cancellation of orders leading to a sharp fall-off of sales and backlog. Further, those orders may be for products that meet the
customer’s unique requirements so that those cancelled orders would, in addition, result in an inventory of unsaleable
products, resulting in potential inventory write-offs. Because of lengthy manufacturing cycles for certain of the products subject
to these uncertainties, the amount of unsaleable product could be substantial. The Company routinely estimates inventory reserves
required for such product. Actual results may differ from these reserve estimates, and such differences may be material to
Maxim’s financial condition, gross margins, and results of operations. See Item 7 “Management’s Discussion and
Analysis of Financial Condition and Results of Operations — Critical Accounting Policies.”
Dependence on New Products and Process
Technologies
The Company’s future
success will continue to depend 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 portions of the semiconductor market in which the Company
participates are particularly challenging. The success of new product introductions is dependent on several factors, including
proper new product selection, timely product introduction, achievement of acceptable production yields, and market acceptance. From
time to time, Maxim has not fully achieved its new product introduction and process development goals. There can be no assurance
that the Company will successfully develop or implement new process technologies or that new products will be introduced on a
timely basis or receive substantial market acceptance.
In addition, the Company’s
growth is dependent on its continued ability to penetrate new markets where the Company has limited experience and competition is
intense. There can be no assurance that the markets being served by the Company will grow (for example, older markets do saturate
and decline); 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 profitability 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 in the wafer manufacturing process, manufacturing equipment failures, wafer
breakage, or other factors can cause a substantial percentage of wafers to be rejected or numerous dice on each wafer to be
nonfunctional. The Company has from time to time experienced lower-than-expected production yields and reliability problems, 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 reliability problems, or that the Company will be able to maintain acceptable manufacturing
yields and reliability in the future.
The number of shippable dice 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.
9
The Company is currently in the
process of upgrading and expanding certain of its wafer manufacturing capacity at its existing wafer manufacturing facilities in
order to convert to eight-inch wafers and develop new processes, which are necessary for the successful entry into significantly
large markets, in anticipation of increased customer demand for its products. Should the Company be unsuccessful in completing this
expansion on time or should customer demand fail to increase and the Company no longer needs the additional capacity, the
Company’s financial position and results of operations could be adversely impacted.
The Company manufactures
approximately 95% of its wafer production requirements internally. Given the nature of the Company’s products, it would be
very difficult and costly 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, unavailability of electric power
or otherwise, would have a material adverse effect on the Company’s results of operations and financial
condition.
Competition
The Company experiences intense
competition from a number of companies, some of which have significantly greater financial, manufacturing, and marketing resources
than the Company and some of which have greater technical resources than the Company and have intellectual property rights to which
the Company is not privy. To the extent that the Company’s proprietary products become more successful, competitors will offer
second source products for some of those products, possibly causing some erosion of profit margins. See “Item 1., Business
— Competition.”
Dependence on Independent Distributors and Sales
Representatives
A significant portion of the
Company’s sales is realized through independent electronics distributors and a limited portion of the Company’s sales is
realized through independent sales representatives that are not under the control of the Company. Dallas Semiconductor continues to
have a larger percentage of their sales through the distribution channel than the Maxim only business. 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 Company generally requires foreign
distributors to provide a letter of credit to the Company in an amount equal to the credit limit set for accounts receivable from
such foreign distributors. The letter of credit provides for collection on accounts receivable from the foreign distributor should
the foreign distributor default on their accounts receivable to the Company. The Company does not require letters of credit from
any of its domestic distributors and is not protected against accounts receivable default or bankruptcy by these distributors. The
inability to collect open accounts receivable could adversely affect the Company’s results of operations. Termination of a
significant distributor, whether at the Company’s or the distributor’s initiative, could be 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 “Item 1., Business — Sales and
Marketing.”
Dependence on Independent Foundries, Subcontractors,
Thailand Test Facility and Philippines Test and Shipping Facility
Although the Company has an
internal capability to fabricate most of its wafers, Maxim remains dependent on outside silicon foundries for a small but important
portion of its wafer fabrication. None of the foundries currently used by Maxim is affiliated with Maxim. 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 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 not be economically feasible.
Maxim relies on assembly
subcontractors located in the Philippines, Malaysia, Thailand, Hong Kong, Singapore, Taiwan and South Korea to separate wafers into
individual integrated circuits and package them. The
10
Company performs wafer sort operations for about half of its
wafers and final testing for about two-thirds of its products at a Philippines facility owned by the Company. During fiscal year
2002, the Company transferred a significant portion of the testing of Dallas Semiconductor product to the Company’s test
facility located in Cavite, the Philippines. In the past, South Korea and the Philippines have experienced 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. The Thailand test facility performs less than one-third of the Company’s final testing for its
products but would not provide sufficient capacity to make up for a significant disruption in the Philippines test facility.
Reliability problems experienced by the Company’s assemblers could cause serious problems in delivery and quality resulting in
potential product liability to the Company.
The Company performs
substantially all of its final testing at its facilities in the Philippines and Thailand. Given the nature of the Company’s
test operations, it would be very difficult and costly to arrange for independent testing facilities to supply such test services.
Any prolonged inability to utilize one of the Company’s testing facilities as a result of fire, natural disaster,
unavailability of electric power or otherwise, would have a material adverse effect on the Company’s results of operations and
financial condition.
As
previously noted, once testing has been completed on the Company’s product,
finished product from the Company’s test facility located in Samutprakarn
Province, Thailand is shipped to the Company’s finished goods location
at its test facility in Cavite, the Philippines. Finished product is either
shipped directly from Cavite, the Philippines to customers worldwide or to other
Company locations for sale to end customers or distributors. See “Item
1., Business — Manufacturing.” Should there be disruption for any
reason to the shipping operations in Cavite, the Philippines, the Company might
not be able to meet its revenue plan in the fiscal period impacted. Failure
to meet the revenue plan may materially adversely impact the Company’s
results of operations.
Availability and Quality of Materials, Supplies, and
Subcontract Services
The semiconductor industry has
experienced a very large expansion of fabrication capacity and production worldwide over time. As a result of increasing demand
from semiconductor manufacturers, availability of certain basic materials and supplies, such as polysilicon, silicon wafers,
ultra-pure metals, 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 in the future. Maxim devotes continuous efforts to
maintain availability of all required materials, supplies, and subcontract services. However, Maxim does not have long-term
agreements providing for all of these materials, supplies, and services, and shortages could occur as a result of capacity
limitations or production constraints on suppliers that could have a materially adverse effect on Maxim’s ability to achieve
its planned production.
A
number of Dallas Semiconductor products, including nonvolatile Static Random
Access Memory products (SRAMs), real time clocks, and iButtonTM
products use components such as static memory circuits, batteries, PC boards,
and crystals that are purchased from third parties. The Company anticipates
that from time to time supplies of these components may not be sufficient to
meet all customer requested delivery dates for products containing the components.
As a result of any such shortages, future sales and earnings from products using
these components could be adversely affected. Additionally, significant fluctuations
in the purchase price for these components could affect gross margins for the
products involved. Suppliers could also discontinue the manufacture of such
purchased products or could have quality problems that could affect the Company’s
ability to meet customer commitments. Quality problems experienced by suppliers
could be impossible to reproduce or detect in a controlled environment, or could
inadvertently not be detected by the Company’s quality control procedures.
Should this occur, such defects may become part of the Company’s finished
product which would ultimately be sold to customers. If such defects cause quality
control problems in the manufacture of customers’ end products or cause
direct or indirect damages to either the Company’s customers or the ultimate
end users, the Company may be liable for increased production costs at its customers
and both direct and indirect damages caused by the defective products. Such
liability could have a material adverse impact on the Company’s results
of operation and financial condition.
11
In addition, suppliers of
semiconductor manufacturing equipment are sometimes unable to deliver test and/or fabrication equipment to a schedule or equipment
performance specification that meets the Company’s requirements. Delays in delivery of equipment needed for planned growth
could adversely affect the Company’s ability to achieve its manufacturing and revenue plans in the future.
Protection of Proprietary Information
The Company relies upon both
know-how and 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, if such patents are found to be valid. There can be no assurance that Maxim would be able to
obtain licenses, if required, upon commercially reasonable terms. See “Item 1., Business — Patents, Licenses, and Other
Intellectual Property Rights,” and “Item 1., Trends, Risks and Uncertainties — 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. Maxim is currently a defendant in a lawsuit brought by Linear
Technology Corporation in which Linear alleges that Maxim has willfully infringed Linear Technology Corporation’s patent
relating to control circuits and methods for maintaining high efficiencies over broad current ranges in a switching regulator
circuit. Linear Technology Corporation seeks unspecified actual and treble monetary damages and a permanent injunction against
Maxim. In addition to the above, from time to time, the Company receives notices that its products or processes may be infringing
the intellectual property rights of others. See “Item 1., Business — Patents, Licenses, and Other Intellectual Property
Rights.”
If one or more of the
Company’s products or processes were determined to infringe any such intellectual property rights, a court might enjoin the
Company from further manufacture and/or sale of the affected products. The Company would then need to obtain a license from the
holders of the rights and/or to reengineer the Company’s products or processes in such a way as to avoid the alleged
infringement. In any of those cases, there can be no assurance that the Company would be able to obtain any necessary license on
commercially reasonable terms or that the Company able to reengineer its products or processes to avoid infringement. An
adverse result in litigation arising from such a claim could involve an injunction to prevent the sales of a material portion of
the Company’s products, a reduction or the elimination of the value of related inventories, and the assessment of a
substantial monetary award for damages related to past sales which could have a material adverse effect on the Company’s
result of operations and financial condition.
Insurance
The
Company has insurance contracts with independent insurance companies that provide
certain of its employees with health (medical and dental) benefits, long term
disability income coverage, life insurance coverage, and fiduciary insurance
coverage for employees and Company funds invested under the Employee Retirement
Income and Security Act. The Company also has insurance contracts with independent
insurance companies that provide coverage related to certain property insurance,
employee, third party liability, worker’s compensation insurance, and automobile
insurance. The Company is self-insured with respect to medical benefits for
most of its domestic (United States) employees subject to stop loss insurance
limitations. In addition, the Company has insurance contracts that provide officer
and director liability coverage for the Company’s officers and directors.
Other than the specific areas mentioned above, the Company is self-insured as
it relates to most other risks and exposures. Based on management’s assessment
and judgment, the Company has determined that it is more cost effective to self-insure
these risks than to incur the insurance premium costs. The risks and exposures
the Company self insures include, but are not limited to, fire, property and
casualty, natural disaster, product defects, political risk, general liability,
patent infringement, and employment issues. Should there be catastrophic loss
from events
12
such as fires, explosions, or earthquakes, among many
other risks, or adverse court or similar decisions in any area in which the Company is self-insured, the Company’s financial
condition, results of operations, and liquidity may be materially adversely affected. See “Item 3., Legal
Proceedings.”
Customer Supply Agreements
The Company enters into
contracts with certain customers whereby the Company commits to supply quantities of specified parts at a predetermined scheduled
delivery date. Should the Company be unable to supply the customer with the specific part at the quantity and product quality
desired at the scheduled delivery date, the customer may incur additional production costs. In addition, the customer may incur
lost revenues due to a delay in receiving the parts necessary to have the end product ready for sale to its customers or due to
product quality issues which may arise. Under the customer supply agreements, the Company may be liable for direct additional
production costs or lost revenues. The Company tries to limit such liabilities. However, if products were not shipped on time, the
Company may be liable for damages. Such liability, should it arise, may have a material adverse impact on the Company’s
results of operation and financial condition.
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 and Thailand. Approximately 67% of the Company’s net revenues in fiscal year
2003 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 are routinely
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. Although export sales are subject to government regulation,
those regulations have not caused the Company significant difficulties to date. See “Item 1., Business —
Manufacturing,” and “Item 1., 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 engineers and business unit managers, and on its ability to
continue to attract, retain, and motivate qualified personnel. The competition for such employees is intense. The loss of the
services of Mr. Gifford or several of the Company’s executive officers could have a material adverse effect on the Company. In
addition, there could be a material adverse effect on the Company should the turnover rates for engineers and other key personnel
increase significantly or should the Company be unable to continue to attract qualified personnel.
The Company does not maintain
any key person life insurance policy on any of its officers or employees.
Additional Information
Our internet address is
www.maxim-ic.com. We make available, via a link to the Securities and Exchange Commission’s website, through our investor
relations website located at www.maxim-ic.com/company/investor/sec.cfm, access to our annual report on Form 10-K, quarterly reports
on Form 10-Q, current reports on Form 8-K and any amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d)
of the Securities Exchange Act of 1934 as soon as reasonably practicable after they are electronically filed with or furnished to
the Securities and Exchange Commission. All such filings on our investor relations website are available free of charge. The
Company assumes no obligation to update or revise any forward-looking statements in this annual report on Form 10-K, whether as a
result of new information, future events or otherwise, unless we are required to do so by law. A copy of this annual report on Form
10-K is available without charge upon written request to: Investor Relations, Maxim Integrated Products, Inc., 120 San Gabriel
Drive, Sunnyvale, California 94086.
13
ITEM 2. PROPERTIES
Maxim’s headquarters is
located in Sunnyvale, California. Manufacturing and other operations are conducted in several locations worldwide. The following
table provides certain information as to the Company’s principal general offices and manufacturing
facilities.
Owned Property Location
|
|
|
|
Use
|
|
Floor Space
|
Sunnyvale, California |
|
|
|
|
Corporate headquarters, office space, engineering, manufacturing, administration, customer services, shipping, and
other |
|
|
|
319,000
sq. ft. |
|
San Jose, California |
|
|
|
|
Wafer fabrication, office space, and administration |
|
|
|
80,000
sq. ft. |
|
Chelmsford, Massachusetts |
|
|
|
|
Engineering, office space, and administration |
|
|
|
30,000
sq. ft. |
|
Beaverton, Oregon |
|
|
|
|
Wafer fabrication, engineering, office space, shipping, and administration |
|
|
|
226,000
sq. ft. |
|
Hillsboro, Oregon |
|
|
|
|
Engineering, manufacturing, office space and administration |
|
|
|
325,000
sq. ft. |
|
Dallas, Texas |
|
|
|
|
Dallas Semiconductor headquarters, office space, engineering, manufacturing, administration, wafer fabrication, customer
service, warehousing, shipping and other |
|
|
|
705,000
sq. ft. |
|
Cavite, the Philippines |
|
|
|
|
Manufacturing, engineering, office space, shipping, and administration |
|
|
|
234,000
sq. ft. |
|
Chonburi Province, Thailand |
|
|
|
Future site for manufacturing, engineering, office space, shipping and administration |
|
|
|
—
|
|
Leased Property Location
|
|
|
|
Use
|
|
Floor Space
|
Sunnyvale, California |
|
|
|
|
Engineering and office space |
|
|
|
30,000
sq. ft. |
|
Samutprakarn Province, Thailand |
|
|
|
|
Manufacturing, engineering, office space and administration |
|
|
|
25,000
sq. ft. |
|
In May 2003, the Company
purchased 6.4 acres of land located in Chonburi Province, Thailand. The Company plans to construct a 140,000 square feet test
facility on this site. Construction is expected to be completed and the test facility ready for test operations by the beginning of
fiscal year 2005. Once completed, the Company will relocate from its current leased site in Samutprakarn Province,
Thailand.
In addition to the leased
property listed in the table, the Company also leases sales, engineering, and manufacturing offices and other premises at various
locations in the United States and overseas under operating leases. These leases expire at various dates through the year 2010. The
Company anticipates no difficulty in retaining occupancy of any of its manufacturing, office or sales facilities through lease
renewals prior to expiration or through month-to-month occupancy or in replacing them with equivalent facilities.
The Company expects these
buildings and the contiguous land to be adequate for its business purposes through fiscal year 2004.
14
ITEM 3. LEGAL
PROCEEDINGS
Linear Technology Corporation vs. Maxim Integrated
Products, Inc. et al., in the Federal District Court for the Northern District of California.
On June 26, 1997, a complaint
was filed by Linear Technology Corporation (“LTC”) naming the Company and certain other unrelated parties as defendants.
The complaint alleges that each of the defendants, including the Company, has willfully infringed, induced infringement and
contributorily infringed LTC’s United States Patent 5,481,178 relating to control circuits and methods for maintaining high
efficiencies over broad current ranges in a switching regulator circuit, all of which has allegedly damaged LTC in an unspecified
amount. The complaint further alleges that the Company’s actions have been, and continue to be, willful and deliberate and
seeks a permanent injunction against the Company as well as unspecified actual and treble damages including costs, expenses, and
attorneys fees. The Company answered the complaint on October 20, 1997, denying all of LTC’s substantive allegations and
counterclaiming for a declaration that LTC’s patent is invalid and not infringed.
On September 21, 2001, the
Federal District Court for the Northern District of California issued an order dismissing the patent litigation action by LTC. The
court found that the Company did not infringe any of the claims of the asserted patent. The Company had moved for summary judgment
on a number of subjects, including noninfringement, invalidity and unenforceability of the patent. The court found that the
Company’s remaining summary judgment motions were rendered moot by its noninfringement ruling. LTC has appealed the decision.
Maxim filed a cross-appeal in response to LTC’s appeal. Appellate briefs have been filed by both Maxim and LTC. The Company
filed its Reply Brief on April 2, 2003 and its Response Brief on June 20, 2003. While the Company continues to believe the claims
are without merit, no assurance can be given as to the outcome of the appeal. The Company does not believe that the ultimate
outcome of these matters will have a material adverse effect on the financial position or liquidity of the Company. If, however,
the appellate court in the action brought by LTC were to reverse the trial court’s dismissal of the patent litigation claims
brought by LTC against the Company, and were LTC to prevail in its claims against the Company, the Company’s operating results
could be materially adversely affected.
Qualcomm Inc. vs. Maxim Integrated Products, Inc., in the
Federal District Court for the Southern District of California
On December 12, 2002, Qualcomm
Inc. filed and on February 4, 2003, Qualcomm Inc. served the Company with a complaint for patent infringement claiming that certain
of the Company’s products infringe one or all of three Qualcomm Inc. patents. Qualcomm seeks a preliminary and permanent
injunction as well as unspecified actual and treble damages including costs, expenses and attorneys fees. Qualcomm withdrew one of
its patents from the claim in June 2003. Qualcomm recently filed a Motion for Leave to Amend the complaint to add three new
transmission related patents. The Company is presently reviewing these claims and does not believe that the products in question
infringe upon Qualcomm Inc. patents noted above. While no assurance can be given in this regard, the Company does not believe that
the ultimate outcome of the action will have a material adverse effect on the Company’s financial condition, liquidity, or
results of operation.
ITEM 4. SUBMISSION OF MATTERS TO A
VOTE OF SECURITY HOLDERS
None.
15
PART II
| ITEM 5. |
|
MARKET FOR THE REGISTRANT’S COMMON
EQUITY AND RELATED STOCKHOLDER MATTERS |
The Company’s common stock
is traded on the Nasdaq National Market under the symbol “MXIM”. At June 28, 2003, there were approximately 1,680
stockholders of record of the Company’s common stock.
The following table sets forth
the range of the high and low closing prices by quarter for fiscal years 2003 and 2002:
|
|
|
|
Quarter Ended
|
|
Fiscal Year 2003
|
|
|
|
6/28/03
|
|
3/29/03
|
|
12/28/02
|
|
9/28/02
|
High |
|
|
|
$ |
41.15 |
|
|
$ |
40.51 |
|
|
$ |
43.38 |
|
|
$ |
41.72 |
|
Low |
|
|
|
$ |
33.85 |
|
|
$ |
30.14 |
|
|
$ |
21.35 |
|
|
$ |
23.54 |
|
|
|
|
|
Quarter Ended
|
|
Fiscal Year 2002
|
|
|
|
6/29/02
|
|
3/30/02
|
|
12/29/01
|
|
9/29/01
|
High |
|
|
|
$ |
57.01 |
|
|
$ |
59.35 |
|
|
$ |
61.42 |
|
|
$ |
51.19 |
|
Low |
|
|
|
$ |
35.92 |
|
|
$ |
45.76 |
|
|
$ |
33.40 |
|
|
$ |
33.68 |
|
The Company paid $25.9 million
($0.08 per share) in cash dividends in fiscal year 2003. The Company paid no cash dividends in fiscal year 2002. In fiscal year
2001, Dallas Semiconductor paid $6.0 million ($0.02 per share) in cash dividends.
16
ITEM 6. SELECTED FINANCIAL
DATA
The selected financial data set
forth below should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results
of Operations” and the Financial Statements and notes thereto included elsewhere in this Report.
|
|
|
|
Fiscal Year
|
|
|
|
|
|
2003
|
|
2002
|
|
2001
|
|
2000
|
|
1999
|
|
|
|
|
(Amounts in thousands, except per share data)
|
|
Net revenues |
|
|
|
$ |
1,153,219 |
|
|
$ |
1,025,104 |
|
|
$ |
1,576,613 |
|
|
$ |
1,376,085 |
|
|
$ |
1,002,849 |
|
Cost of goods sold |
|
|
|
|
348,264 |
|
|
|
312,223 |
|
|
|
537,148 |
|
|
|
503,801 |
|
|
|
379,242 |
|
| |
|
|
|
|
|
|
|
|
|
|
Gross margin |
|
|
|
$ |
804,955 |
|
|
$ |
712,881 |
|
|
$ |
1,039,465 |
|
|
$ |
872,284 |
|
|
$ |
623,607 |
|
Gross margin % |
|
|
|
|
69.8 |
% |
|
|
69.5 |
% |
|
|
65.9 |
% |
|
|
63.4 |
% |
|
|
62.2 |
% |
| |
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
|
$ |
447,036 |
|
|
$ |
345,352 |
|
|
$ |
445,166 |
|
|
$ |
508,560 |
|
|
$ |
370,158 |
|
% of net revenues |
|
|
|
|
38.8 |
% |
|
|
33.7 |
% |
|
|
28.2 |
% |
|
|
37.0 |
% |
|
|
36.9 |
% |
| |
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
$ |
309,601 |
|
|
$ |
259,183 |
|
|
$ |
334,939 |
|
|
$ |
373,083 |
|
|
$ |
265,281 |
|
| |
|
|
|
|
|
|
|
|
|
|
Earnings per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
|
$ |
0.96 |
|
|
$ |
0.80 |
|
|
$ |
1.03 |
|
|
$ |
1.18 |
|
|
$ |
0.88 |
|
| |
|
|
|
|
|
|
|
|
|
|
Diluted |
|
|
|
$ |
0.91 |
|
|
$ |
0.73 |
|
|
$ |
0.93 |
|
|
$ |
1.04 |
|
|
$ |
0.77 |
|
| |
|
|
|
|
|
|
|
|
|
|
Shares used in the calculation of earnings per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
|
|
322,106 |
|
|
|
325,527 |
|
|
|
325,736 |
|
|
|
316,887 |
|
|
|
303,038 |
|
| |
|
|
|
|
|
|
|
|
|
|
Diluted |
|
|
|
|
341,253 |
|
|
|
355,821 |
|
|
|
361,620 |
|
|
|
359,548 |
|
|
|
344,360 |
|
| |
|
|
|
|
|
|
|
|
|
|
Dividends declared per share |
|
|
|
$ |
0.08 |
|
|
$ |
— |
|
|
$ |
0.02 |
|
|
$ |
0.02 |
|
|
$ |
0.02 |
|
| |
|
|
|
|
|
|
|
|
|
|
Cash, cash equivalents and short-term investments |
|
|
|
$ |
1,164,007 |
|
|
$ |
765,501 |
|
|
$ |
1,220,352 |
|
|
$ |
896,936 |
|
|
$ |
710,074 |
|
Working capital |
|
|
|
$ |
1,348,725 |
|
|
$ |
1,006,637 |
|
|
$ |
1,373,715 |
|
|
$ |
1,045,548 |
|
|
$ |
886,697 |
|
Total assets |
|
|
|
$ |
2,367,962 |
|
|
$ |
2,010,812 |
|
|
$ |
2,430,531 |
|
|
$ |
2,087,438 |
|
|
$ |
1,603,122 |
|
Stockholders’ equity |
|
|
|
$ |
2,070,412 |
|
|
$ |
1,741,151 |
|
|
$ |
2,101,154 |
|
|
$ |
1,719,939 |
|
|
$ |
1,369,449 |
|
Net income for fiscal year 2001
included merger and special charges of $163.4 million ($0.30 diluted earnings per share). See Note 14 to the Notes to Consolidated
Financial Statements for additional information on the “Merger and Special Charges.”
17
| ITEM 7. |
|
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
The following discussion should
be read in conjunction with the Consolidated Financial Statements and Notes to Consolidated Financial Statements as noted in Item
15 (a) (1).
Nature of Operations
Maxim Integrated Products, Inc.
(the “Company”) designs, develops, manufactures, and markets linear and mixed-signal integrated circuits and is
incorporated in the state of Delaware. The Company’s products include data converters, interface circuits, microprocessor
supervisors, operational amplifiers, power supplies, multiplexers, delay lines, real-time clocks, microcontrollers, switches,
battery chargers, battery management circuits, RF circuits, fiber optic transceivers, sensors, and voltage references. The Company
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 automotive,
communications, consumer, data processing, industrial control, and instrumentation.
Critical Accounting Policies
The methods, estimates and
judgments the Company uses in applying its most critical accounting policies have a significant impact on the results the Company
reports in its financial statements. The Securities and Exchange Commission has defined the most critical accounting policies as
the ones that are most important to the portrayal of the Company’s financial condition and results of operations, and require
the Company to make its most difficult and subjective accounting judgments, often as a result of the need to make estimates of
matters that are inherently uncertain. Based on this definition, the Company’s most critical accounting policies include
revenue recognition and accounts receivable allowances, which impacts the recording of revenues; valuation of inventories, which
impacts costs of goods sold and gross margins; the assessment of recoverability of long-lived assets, which impacts write-offs of
fixed assets; accounting for income taxes, which impacts the income tax provision; and assessment of contingencies, which impacts
charges recorded in cost of goods sold and selling, general and administrative expenses. These policies and the estimates and
judgments involved are discussed further below. The Company has other key accounting policies that either do not generally require
estimates and judgments that are as difficult or subjective, or it is less likely that such accounting policies would have a
material impact on the Company’s reported results of operations for a given period.
Revenue Recognition and Accounts Receivable
Allowances
Revenue from product sales to
the Company’s direct customers is recognized upon shipment, provided that persuasive evidence of a sales arrangement exists,
the price is fixed and determinable, title has transferred, collection of resulting receivables is reasonably assured, there are no
customer acceptance requirements, and there are no remaining significant obligations.
A portion of the Company’s
sales is made to domestic distributors under agreements that provide the possibility of certain sales price rebates and limited
product return privileges. Given the uncertainties associated with the levels of returns and other credits that will be issued to
these distributors, the Company defers recognition of such sales until the product is sold by the domestic distributors to their
end customers. The Company estimates the provision for returns and price rebates based on historical experience and known future
returns and price rebates. Revenue on all shipments to international distributors is recognized upon shipment to the distributor,
when the above criteria are met, with appropriate provision of reserves for returns and allowances, as these distributors generally
do not have price rebate or product return privileges. Accounts receivable from both domestic and international distributors are
recognized and inventory is relieved upon shipment as title to inventories generally transfers upon shipment at which point the
Company has a legally enforceable right to collection under normal terms.
The Company must make estimates
of potential future product returns and sales allowances related to current period product revenue. Management analyzes historical
returns, changes in customer demand, and acceptance of products when evaluating the adequacy of sales returns and allowances.
Estimates made by the Company may differ from actual product returns and sales allowances. These differences may materially impact
reported revenue and
18
amounts ultimately collected on accounts receivable. In
addition, the Company monitors collectibility of accounts receivable primarily through review of the accounts receivable aging.
When facts and circumstances indicate the collection of specific amounts or from specific customers is at risk, the Company
assesses the impact on amounts recorded for bad debts and, if necessary, will record a charge in the period such determination is
made. To date, the Company has not experienced material write-offs of accounts receivable due to uncollectibility.
Inventories
Inventories are stated at the
lower of cost, which approximates actual cost on a first-in-first-out basis, or market value. Because of the cyclicality of the
market, inventory levels, obsolescence of technology, and product life cycles, the Company writes down inventories to net
realizable value based on backlog, forecasted product demand, and historical sales levels. Backlog is subject to revisions,
cancellations, and rescheduling. Actual demand and market conditions may be lower than those projected by the Company. This
difference could have a material adverse effect on the Company’s gross margin should inventory write downs beyond those
initially recorded become necessary. Alternatively, should actual demand and market conditions be more favorable than those
estimated by the Company, gross margin could be favorably impacted. During fiscal year 2002, the Company had inventory write downs
of $12.5 million due to decreases in backlog and forecasted demand due to a downturn in certain industry segments (particularly
telecom and information technology businesses) and the general economy. During fiscal year 2003, the Company had inventory write
downs of $11.9 million due primarily to work in process and finished goods inventory manufactured in excess of forecasted
demand.
The Company’s standard cost
revision policy is to continuously monitor manufacturing variances and revise standard costs when necessary. The Company’s
policy for recording a write down of inventory is generally to write down, at standard cost, finished goods inventory in excess of
estimated demand based on backlog, historical sales levels and forecasted demand and work in process that is greater than 90 days
old, which has no forecasted product demand.
Long-Lived Assets
The Company evaluates the
recoverability of property, plant and equipment in accordance with Statement of Financial Accounting Standards No. 144 (SFAS 144),
“Accounting for the Impairment or Disposal of Long-Lived Assets.” The Company performs periodic reviews to determine
whether facts and circumstances exist that would indicate that the carrying amounts of property, plant and equipment might not be
fully recoverable. If facts and circumstances indicate that the carrying amount of property, plant and equipment might not be fully
recoverable, the Company compares projected undiscounted net cash flows associated with the related asset or group of assets over
their estimated remaining useful life against their respective carrying amounts. In the event that the projected undiscounted cash
flows are not sufficient to recover the carrying value of the assets, the assets are written down to their estimated fair values
based on the expected discounted future cash flows attributable to the assets. Evaluation of impairment of property, plant and
equipment requires estimates in the forecast of future operating results that are used in the preparation of the expected future
undiscounted cash flows. Actual future operating results and the remaining economic lives of the Company’s property, plant and
equipment could differ from the Company’s estimates used in assessing the recoverability of these assets. These differences
could result in additional impairment charges, which could have a material adverse impact on the Company’s results of
operations.
In fiscal year 2001, the Company
recorded a charge of $124.4 million for the impairment of Dallas Semiconductor wafer fabrication equipment and test equipment. The
impairment charge was determined based on the difference between the fair value and the carrying value attributable to such assets.
Additionally, in fiscal year 2001, the Company recorded charges of $50.4 million to reduce the carrying value of plant and
equipment that was abandoned, no longer in use, or whose estimated useful lives were shortened, resulting in accelerated
depreciation. The charges noted above were classified as operating expenses in the consolidated statements of
income.
Accounting for Income Taxes
The Company records a valuation
allowance to reduce the net deferred tax assets to the amount that is more likely than not to be realized. In assessing the need
for a valuation allowance, historical levels of income, expectations and risks associated with estimates of future taxable income
and ongoing prudent and practicable tax
19
planning strategies are considered. In the event it is
determined that the deferred tax assets to be realized in the future would be in excess of the net recorded amount, an adjustment
to the deferred tax asset valuation allowance would be recorded. This adjustment would increase income in the period such
determination was made. Likewise, should it be determined that all or part of the net deferred tax asset would not be realized in
the future, an adjustment to increase the deferred tax asset valuation allowance would be charged to income in the period such
determination would be made. At June 28, 2003, the Company recorded a valuation allowance against the net deferred tax asset of
$109.8 million attributable to the expected tax benefits on gains to be realized from the exercise of stock options, which if and
when realized, will be recorded as a credit to additional paid-in-capital.
On a periodic basis the Company
evaluates its deferred tax asset balance for realizability. To the extent the Company believes it is more likely than not that some
portion of its deferred tax assets will not be realized, the Company will increase the valuation allowance against the deferred tax
assets. Realization of the Company’s deferred tax assets is dependent primarily upon future U.S. taxable income. The
Company’s judgments regarding future profitability may change due to future market conditions, changes in U.S. or
international tax laws and other factors. These changes, if any, may require possible material adjustments to these deferred tax
assets, resulting in a reduction in net income or an increase in net loss in the period when such determinations are
made.
Contingencies
From time to time, the Company
receives notices that its products or manufacturing processes may be infringing the patent or intellectual property rights of
others. The Company periodically assesses each matter in order to determine if a contingent liability in accordance with Statement
of Financial Accounting Standards No. 5 (SFAS 5), “Accounting for Contingencies,” should be recorded. In making this
determination, management may, depending on the nature of the matter, consult with internal and external legal counsel and
technical experts. Based on the information obtained combined with management’s judgment regarding all the facts and
circumstances of each matter, the Company determines whether it is probable that a contingent loss may be incurred and whether the
amount of such loss can be estimated. Should a loss be probable and estimable, the Company records a contingent loss in accordance
with SFAS 5. In determining the amount of a contingent loss, the Company takes into consideration advice received from experts in
the specific matter, current status of legal proceedings, settlement negotiations which may be ongoing, prior case history and
other factors. Should the judgments and estimates made by management be incorrect, the Company may need to record additional
contingent losses that could materially adversely impact the Company’s results of operations. Alternatively, if the judgments
and estimates made by management are incorrect and a particular contingent loss does not occur, the contingent loss recorded would
be reversed thus favorably impacting the Company’s results of operations. See “Item 3., Legal
Proceedings.”
Results of Operations
Net Revenues
The Company reported net
revenues of $1,153.2 million in fiscal year 2003, a 12.5% increase from net revenues of $1,025.1 million in fiscal year 2002. Net
revenue increased by 2.1% from the fourth quarter of fiscal year 2002 to the first quarter of fiscal year 2003 and remained flat
during the second and third quarters of fiscal year 2003. Net revenue increased by 3.1% from the third to fourth quarter of fiscal
year 2003. The increase in quarterly net revenue for fiscal year 2003 is primarily related to higher unit shipments resulting from
the introduction of new proprietary products and increased order rates in the Company’s already existing proprietary and
second-source products.
The Company reported net
revenues of $1,025.1 million in fiscal year 2002, a 35.0% decrease from net revenues of $1,576.6 million in fiscal year 2001. This
decrease was primarily related to downturns in certain industry segments (particularly telecom and information technology
businesses) and in the general economy. This downturn, which began in fiscal year 2001, resulted in sequential quarter-over-quarter
decreases in net revenues through the first quarter of fiscal year 2002. Order rates stabilized during the first quarter of and
throughout fiscal year 2002 resulting in net revenues increasing slightly quarter-over-quarter from the second quarter through the
fourth quarter of fiscal year 2002.
20
Approximately 67%, 66%, and 57%
of the Company’s net revenues in fiscal years 2003, 2002, and 2001, respectively, were derived from customers located outside
the United States, primarily in the Pacific Rim, Europe, and Japan. 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 years 2003, 2002, and 2001 was immaterial.
Gross Margin
The Company’s gross margin
as a percentage of net revenues was 69.8% in fiscal year 2003 compared to 69.5% in fiscal year 2002. The improvement in gross
margin as a percentage of net revenues from fiscal year 2002 to fiscal year 2003 was attributable to cost saving measures
implemented by the Company. These cost saving measures included, but were not limited to, salary and wage reductions, reduced
headcount and reductions in certain salary related expenses. These reductions were slightly offset by revenue growth in lower
margin products. Gross margins for both fiscal 2003 and fiscal 2002 were negatively impacted due to $11.9 million and $12.5 million
of inventory write downs, respectively.
The Company’s gross margin
as a percentage of net revenues was 69.5% in fiscal year 2002 compared to 65.9% in fiscal year 2001. The improvement in gross
margin as a percentage of net revenues from fiscal year 2001 to fiscal year 2002 was attributable to lower fixed asset and
inventory charges recorded during fiscal year 2002 as compared to fiscal year 2001. This was offset slightly by a decrease in the
Company’s gross margin in the fourth quarter of fiscal year 2002 primarily as a result of revenue growth in lower margin
products. Gross margin for fiscal year 2002 was negatively impacted by inventory write downs of $12.5 million. Gross margin for
fiscal year 2001 was negatively impacted by $39.2 million recorded to reduce the carrying value of plant and equipment that was
abandoned, no longer in use, or whose estimated useful lives were shortened, resulting in accelerated depreciation, and inventory
write downs of $39.9 million. See “Critical Accounting Policies — Inventories.”
Research and Development
Research and development
expenses were $272.3 million and $275.5 million for fiscal years 2003 and 2002, respectively, which represented 23.6% and 26.9% of
net revenues, respectively. The decrease in research and development expenses in absolute dollars is due to cost saving measures
implemented by the Company as mentioned above.
Research and development
expenses were $275.5 million and $280.2 million for fiscal years 2002 and 2001, respectively, which represented 26.9% and 17.8% of
net revenues, respectively. The decrease in research and development expenses in absolute dollars was due to no fixed asset charges
recorded during fiscal year 2002 as compared to fiscal year 2001. This was offset by increased headcount related expenses to
continue product development to support revenue growth and increased wafer and mask expenses to support new product development.
Included in research and development expenses in fiscal year 2001 was $11.2 million recorded to reduce the carrying value of
equipment, that was abandoned, no longer in use, or whose estimated useful lives were shortened, resulting in accelerated
depreciation.
The level of research and
development expenditures as a percentage of net revenues will vary from period to period, depending, in part, on the level of net
revenues and, in part, on the Company’s success in recruiting the technical personnel needed for its new product introductions
and process development. The Company continuously attempts to control and, if possible, reduce expense levels in all areas
including research and development. However, the Company views research and development expenditures as critical to maintaining a
high level of new product introductions, which in turn are critical to the Company’s plan for future growth.
Selling, General and Administrative
Selling, general and
administrative expenses were $85.6 million and $92.0 million in fiscal years 2003 and 2002, respectively, which represented 7.4%
and 9.0% of net revenues, respectively. The decrease in selling, general and administrative expenses both in terms of absolute
dollars and as a percentage of net revenues in fiscal year 2003 is primarily due to the cost saving measures implemented by the
Company during fiscal year 2003 as mentioned above.
21
Selling, general and
administrative expenses were $92.0 million and $150.6 million in fiscal years 2002 and 2001, respectively, which represented 9.0%
and 9.6% of net revenues, respectively. The decrease in selling, general and administrative expenses both in terms of absolute
dollars and as a percentage of net revenues in fiscal year 2002 was primarily due to lower sales representative commissions and
decreased headcount related expenses due mainly to a reorganization of the combined Company’s sales organization completed in
the fourth quarter of fiscal year 2001. In addition, there was a decrease of $5.5 million in charges recorded for technology
licensing.
Merger and Special Charges
As a result of the merger with
Dallas Semiconductor, during the fourth quarter of fiscal year 2001, the Company recorded merger costs of approximately $26.4
million. These costs consist of approximately $14.1 million intended to satisfy the change in control payments under previously
existing employment contracts and other non-employee director arrangements for which there was no future economic benefit; a $5.8
million payment to be made under a change in control provision in a previously existing life insurance arrangement for which there
was no future economic benefit; and $6.5 million for fees related to investment banking, legal, accounting, filings with regulatory
agencies, financial printing, and other related costs. Approximately $0.1 million of the direct transaction costs were paid out of
existing cash reserves in fiscal year 2003. The remaining unpaid direct transaction costs of approximately $1.6 million are related
to change in control payments under previously existing employment contracts and other non-employee director arrangements that will
be paid out in future periods according to the terms of the related agreement.
During the fourth quarter of
fiscal year 2001, the Company recorded a special charge of $124.4 million to reduce the net book value of Dallas
Semiconductor’s long-lived assets to fair value. This impairment charge resulted from the significant decrease in demand that
occurred during the fourth quarter of fiscal 2001 in combination with the Company’s intention to close Dallas
Semiconductor’s 6-inch wafer manufacturing facility and dispose of the related equipment. The Company’s intention was to
complete construction of a 8-inch wafer manufacturing facility located in Dallas, Texas that was under construction when the merger
was consummated between the Company and Dallas Semiconductor. Once complete, the 8-inch wafer manufacturing facility will serve as
Dallas Semiconductor’s primary wafer manufacturing facility. In addition, in fiscal year 2001, the Company planned to
concentrate a significant portion of its test operations of the combined company at the Company’s test facilities located in
the Philippines and Thailand. The Company concluded that the above facts indicated that Dallas Semiconductor’s long-lived
assets might be impaired, and as required by accounting principles generally accepted in the United States, performed a cash flow
analysis of the related assets. Based on the cash flows analysis, an impairment charge was recorded as noted above. The Company
continued construction of the 8-inch wafer manufacturing facility located in Dallas, Texas during fiscal year 2002 although at a
slower pace than originally anticipated due to unforeseen complexities and resource constraints related to converting existing
6-inch processes to 8-inch processes. Construction was completed in fiscal year 2003 and the Company began manufacturing 8-inch
wafers. Conversion from 6-inch wafer production to 8-inch wafer production at Dallas Semiconductor’s wafer manufacturing
facilities will continue throughout fiscal year 2004. The concentration of test operations of the combined company noted above was
completed in fiscal year 2002 as planned.
In addition to the above, during
the fourth quarter of fiscal year 2001, the Company recorded special charges of $12.6 million to reflect the reorganization of the
Company’s sales organization, purchase order cancellation fees, and the reduction in the Company’s manufacturing
workforce. The above actions directly impacted employees in the Company’s sales, marketing, and manufacturing organizations.
The Company terminated 137 employees and 93 employees in fiscal years 2002 and 2001, respectively, and paid $0.5 million and $2.0
million in termination benefits in fiscal years 2002 and 2001, respectively, related to the above actions.
During fiscal year 2002, the
Company recorded additional special charges of $4.1 million related to additional reductions in the Company’s manufacturing
workforce. These additional reductions were required to better match capacity with demand for the Company’s product. In fiscal
year 2002, the Company terminated an additional 350 employees and paid an additional $4.0 million of termination benefits related
to these actions, bringing the total number of employees terminated to 487 and the total termination benefits paid to $4.5 million
in fiscal year 2002. In fiscal year 2003, the Company paid $0.1 million of termination benefits related to the above
actions.
22
Based on developments that
occurred during fiscal year 2002 related to the special charges recorded during the fourth quarter of fiscal year 2001, the Company
revised its estimate of the reserve balance needed for purchase order cancellation fees. Based on the status of negotiations, the
amount that will ultimately be paid will be approximately $4.3 million less than the amount recorded for such charges at June 30,
2001. Accordingly, the Company decreased the amount recorded for purchase order cancellation fees by $4.3 million to reflect this
change in estimate. During fiscal year 2003, the Company paid $0.2 million against amounts reserved for purchase order cancellation
fees leaving a remaining reserve balance for purchase order cancellation fees of $3.0 million at June 28, 2003. The Company is
currently in negotiation to resolve the remaining purchase order cancellation fees. In addition to the above, at June 28, 2003, the
Company has a reserve balance of $1.7 million remaining related primarily to unresolved claims that resulted from the termination
of certain sales representatives.
Interest Income and Other, Net
Interest income and other, net
decreased to $15.1 million in fiscal year 2003 from $41.5 million in fiscal year 2002. This decrease was due to significantly lower
average interest rates combined with lower average levels of invested cash, cash equivalents, and short-term
investments.
Interest income and other, net
decreased to $41.5 million in fiscal year 2002 from $59.8 million in fiscal year 2001. This decrease was due to lower levels of
invested cash, cash equivalents, and short-term investment combined with lower average interest rates.
Provision for Income Taxes
The effective tax rate was
33.0%, 33.0%, and 33.7% for fiscal years 2003, 2002, and 2001, respectively. The fiscal years 2003, 2002 and 2001 effective rates
were lower than the U.S. federal and state combined statutory rate primarily due to tax benefits on export sales.
Realization of the net deferred
tax asset of $58.5 million at June 28, 2003 is dependent primarily upon achieving future U.S. taxable income of $167 million. The
Company believes it is more likely than not that the net deferred tax assets will be realized based on historical earnings and
expected levels of future taxable income. Levels of future taxable income are subject to the various risks and uncertainties
discussed in “Item 1., Business — Trends, Risks and Uncertainties.” An increase in the valuation allowance against
net deferred tax assets may be necessary if it is more likely than not that all or a portion of the net deferred tax assets will
not be realized. The Company periodically assesses the need for increases to the deferred tax asset valuation
allowance.
Inventory
During the three months ended
December 28, 2002, the Company’s perpetual inventory system reported inventories approximately $2.2 million greater than the
general ledger. This difference was resolved during the three months ended June 28, 2003. The reconciliation of this difference did
not have a material effect on the financial condition or results of operation for the three and twelve months ended June 28,
2003.
The Company has experienced the
theft of inventory at its test facility in Cavite, the Philippines. This theft of inventory did not have a material impact on the
Company’s results of operation for the year ended June 28, 2003, and the Company has implemented additional control procedures
to prevent and detect such theft. There can be no assurance, however, that these additional control procedures will be effective in
preventing and detecting future theft and that such future theft will not have a material adverse impact on the Company’s
results of operations.
Recently Issued Accounting
Pronouncements
In June 2002, the Financial
Accounting Standards Board (FASB) issued SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities (SFAS
146). SFAS 146 addresses the timing and amount of costs recognized as a result of restructuring and similar activities. SFAS 146 is
effective for all exit or disposal activities initiated after December 31, 2002. The Company adopted SFAS 146 effective June 30,
2002. The adoption had no impact on the Company’s financial condition, results of operation or liquidity.
In November 2002, the FASB
issued Interpretation No. 45 (FIN 45), “Guarantor’s Accounting and Disclosure Requirements for Guarantees.” FIN 45
requires a guarantor to recognize, at the inception of a guarantee, a liability
23
it has undertaken in issuing the guarantee. In addition, FIN 45
requires a guarantor to make disclosures of its obligations under the guarantees that a company has issued. The disclosure
requirements of FIN 45 are effective for financial statements for periods ending after December 15, 2002. The initial recognition
and initial measurement provision of FIN 45 are applicable on a prospective basis to guarantees issued or modified after December
31, 2002. Maxim adopted FIN 45 in fiscal year 2003. Our adoption of FIN 45 did not have a material impact on the Company’s
financial condition, results of operation or liquidity.
In December 2002, the FASB
issued Statement of Financial Accounting Standards No. 148 (SFAS 148), “Accounting for Stock-Based Compensation —
Transition and Disclosure — an amendment of FASB Statement No. 123.” SFAS 148 amends Statement of Financial Accounting
Standards No. 123 (SFAS 123), “Accounting for Stock-Based Compensation,” to provide alternative methods of transition for
a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, SFAS 148 amends
the disclosure requirements of SFAS 123 to require prominent disclosures in both annual and interim financial statements about the
method of accounting for stock-based employee compensation and the effect of the method used on reported results. The transition
provisions and pro forma disclosures of SFAS 148 are effective for fiscal years ending after December 15, 2002. The pro forma
disclosures of SFAS 148 are effective for financial reports containing condensed consolidated financial statements for interim
periods beginning after December 15, 2002. The Company continues to use the intrinsic value method of accounting for stock-based
employee compensation in fiscal year 2003. The adoption of SFAS 148 had no impact on the Company’s financial condition,
results of operations or liquidity.
In January 2003, the FASB issued
Interpretation No. 46 (FIN 46), “Consolidation of Variable Interest Entities.” FIN 46 requires an investor with a
majority of the variable interests in a variable interest entity to consolidate the entity and also requires majority and
significant variable interest investors to provide certain disclosures. A variable interest entity is an entity in which the equity
investors do not have a controlling interest or the equity investment at risk is insufficient to finance the entity’s
activities without receiving additional subordinated financial support from the other parties. FIN 46 applies to all new variable
interest entities existing after January 31, 2003. For variable interest entities existing prior to February 1, 2003, FIN 46 must
be applied beginning July 1, 2003. The maximum exposure of any investment that may be determined to be in a variable interest
entity is limited to the amount invested. The Company believes the adoption of FIN 46 will not have a material impact on the
Company’s financial condition, results of operation or liquidity.
In April 2003, the FASB issued
Statement of Financial Accounting Standards No. 149 (SFAS 149), “Amendment of Statement 133 on Derivative Instruments and
Hedging Activities.” SFAS 149 amends and clarifies accounting for derivative instruments and hedging activities under
Statement of Financial Accounting Standards No. 133 (SFAS 133), “Accounting for Derivative Instruments and Hedging
Activities.” SFAS 149 is effective for contracts entered into or modified and for hedging relationships designated after June
30, 2003. The Company believes the adoption of SFAS 149 will not have a material impact on the Company’s financial condition,
results of operations or liquidity.
In May 2003, the FASB issued
Statement of Financial Accounting Standards No. 150 (SFAS 150), “Accounting for Certain Financial Instruments and
Characteristics of both Liabilities and Equity.” SFAS 150 establishes standards on the classification and measurement of
financial instruments with characteristics as both liabilities and assets. SFAS 150 is effective for instruments entered into or
modified after May 31, 2003 and pre-existing instruments as of the beginning of the first interim period after June 15, 2003. The
adoption of SFAS 150 had no material impact on the Company’s financial condition, results of operations or
liquidity.
Outlook
At the end of the fourth quarter
of fiscal year 2003, backlog shippable within the next 12 months was approximately $227 million (compared to $239 million at the
end of fiscal year 2002), including approximately $199 million (compared to $210 million at the end of fiscal year 2002) requested
for shipment in the first quarter of fiscal year 2004. 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.
During the fourth quarter of
fiscal year 2003, bookings were approximately $313 million, a 2% increase over the previous quarter’s level of $308 million.
Turns orders remained high during the fourth quarter of fiscal year
24
2003 at 51% of bookings (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). The Company’s customers continue to order to support near-term requirements. Turns orders received
during the fourth quarter of fiscal year 2003 were $161 million. Bookings increased in Pacific Rim and were approximately flat with
the third quarter of fiscal year 2003 in other geographic areas.
The fourth quarter of fiscal
year 2003 results were generally consistent with the Company’s expectations. Revenues increased approximately 3% over the
third quarter of fiscal year 2003. The Company forecasts that revenues will be up sequentially for the first quarter of fiscal year
2004 and that end market consumption of its products is close to its current bookings level. As of the date of the filing of this
report, the Company believes that its net revenues will be higher in the first quarter of fiscal year 2004 than in the fourth
quarter of fiscal year 2003, but the Company does not have sufficient visibility based on current backlog and bookings to make
confident predictions for future periods.
Financial Condition
Overview
Total assets increased to
$2,368.0 million at the end of fiscal year 2003, up from $2,010.8 million at the end of fiscal year 2002. The increase is primarily
due to cash generated from operations of $581.8 million in fiscal 2003 and $83.7 million from employee stock option exercises and
stock purchase plan purchases. This increase was offset by the repurchase of 4.5 million shares of the Company’s common stock
for $153.9 million and the purchase of $84.1 million of property, plant and equipment. Net inventory declined to $121.2 million in
fiscal year 2003 from $139.2 million in fiscal year 2002 due to better matching of capacity with demand. Income tax refund
receivable declined to $11.2 million at the end of fiscal year 2003 from $53.2 million at the end of fiscal year 2002 primarily due
to refunds received from tax authorities. Noncurrent deferred tax liabilities increased to $77.6 million at the end of fiscal year
2003 from $36.6 million at the end of fiscal year 2002 due to timing differences between tax and financial
reporting.
Liquidity and Capital Resources
The Company’s primary
sources of funds for fiscal years 2003, 2002, and 2001 has been from net cash generated from operating activities of approximately
$581.8 million, $403.8 million, and $809.6 million, respectively. In addition, the Company received approximately $83.7 million,
$109.3 million, and $114.3 million of proceeds from the exercises of stock options and purchases of common stock under the Employee
Stock Participation Plan during fiscal years 2003, 2002, and 2001, respectively.
Another source of cash from the
Company’s stock option programs is the tax deductions that arise from exercise of options. These tax benefits amounted to
$113.5 million, $140.0 million, and $238.9 million in fiscal years 2003, 2002, and 2001, respectively.
The principal uses of funds for
fiscal years 2003, 2002, and 2001 were repurchases of $153.9 million, $864.0 million, and $250.7 million of the Company’s
common stock, purchases of property, plant and equipment of $84.1 million, $90.4 million, and $336.5 million and dividends paid of
$25.9 million, $0 and $6.0 million, respectively.
In the past, it was 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. That stock
repurchase policy was discontinued in the third quarter of fiscal year 2001. During the first and second quarters of fiscal year
2002, the Company repurchased common stock in response to actions taken by the Securities and Exchange Commission following the
extraordinary events of September 11, 2001. During the third and fourth quarters of fiscal year 2002 and fiscal year 2003, the
Company repurchased common stock as it was determined to be a more effective use of the Company’s funds due to the relatively
low investment yields currently available. The Company will continue to repurchase its common stock in fiscal year 2004. The number
of shares to be repurchased and the timing of such repurchases will be based on several factors, including the price of the
Company’s common stock, general market conditions, and other factors. See Note 15 “Common Stock Repurchases” of the
Notes to Consolidated Financial Statements regarding repurchases of common stock.
25
The Company is subject to
pending legal proceedings. See Note 9 “Commitments and Contingencies” of the Notes to Consolidated Financial Statements
for information regarding pending patent litigation. Although the results of such legal proceedings are unpredictable, the Company
does not believe that any pending legal proceedings will have a material adverse impact on its liquidity or financial position. If,
however, the appellate court in the action brought by Linear Technology Corporation were to reverse the trial court’s
dismissal of the patent litigation claims brought by Linear Technology Corporation against the Company, and were Linear Technology
Corporation to prevail in its claims against the Company, the Company’s operating results could be materially adversely
affected.
As of June 28, 2003, the
Company’s available funds consisted of $1,164.0 million in cash, cash equivalents, and highly liquid investment 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 and common stock repurchases, for the next twelve
months.
The following table provides a
summary of the effect on liquidity and cash flows from the Company’s contractual obligation as of June 28,
2003
(Amounts in thousands)
|
|
|
|
Fiscal Year:
2004
|
|
2005
|
|
2006
|
|
2007
|
|
2008
|
|
2009 and
thereafter
|
|
Total
|
Contractual obligations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncancellable operating leases |
|
|
|
$ |
2,675 |
|
|
$ |
1,817 |
|
|
$ |
1,281 |
|
|
$ |
996 |
|
|
$ |
659 |
|
|
$ |
267 |
|
|
$ |
7,695 |
|
ITEM 7A. QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK
Interest Rate Risk
The
Company’s exposure to market risk for changes in interest rates relates
primarily to the Company’s investment portfolio, which includes primarily
U.S. Treasury and Federal Agency debt securities. Investments mature at frequent
intervals during the year, at which time the funds are available for use in
the business, or for reinvestment, as cash demands dictate. The Company places
its investments only in high-quality financial instruments, limits the amount
invested in any one institution or instrument, and limits portfolio duration.
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 and related
interest income would vary by approximately $12 million by a change in market
interest rates of 100 basis points, due to the primarily short-term nature of
the Company’s investment portfolio. At June 28, 2003, the Company’s
investment portfolio had an expected weighted average return of 1.5% (2.8% at
June 29, 2002) and a weighted maturity of 440 days (147 days at June 29, 2002).
Foreign Currency Risk
The Company transacts business
in various non-U.S. currencies, primarily the Japanese Yen, British Pound, and the Euro. The Company is exposed to fluctuations in
foreign currency exchange rates on accounts receivable from sales in these foreign currencies and the net monetary assets and
liabilities of the related foreign subsidiary. The Company has established risk management strategies designed to protect against
reductions in value and volatility of future cash flows caused by changes in exchange rates. These strategies reduce, but do not
always entirely eliminate, the impact of currency exchange movements.
Currency
forward contracts are used to offset the currency risk of non-U.S. dollar-denominated
assets and liabilities. Changes in fair value of the underlying assets and liabilities
are generally offset by the changes in fair value of the related currency forward
contract. The net realized and unrealized gains or losses from hedging non-U.S.
dollar denominated assets and liabilities were immaterial in fiscal year 2003.
The Company had forward contracts to buy and sell foreign currencies with a
U.S. dollar equivalent of $60.5 million at June 28, 2003. The fair value of
these contracts, which generally have maturities of less than 6 months, at June
28, 2003 was $60.9 million.
26
ITEM 8. CONSOLIDATED FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA
Reference is made to the
financial statements and supplemental data required by this item and set forth at the pages indicated in item 15 (a) of this
Report.
| ITEM 9. |
|
CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE |
Not applicable.
ITEM 9A. CONTROLS AND
PROCEDURES
As of the end of the period
covered by this report, the Company carried out an evaluation, under the supervision and with the participation of our Chief
Executive Officer (CEO) and Chief Financial Officer (CFO), of the effectiveness of the design and operation of our disclosure
controls and procedures. The Company’s disclosure controls and procedures are designed to provide reasonable assurance that
information required to be disclosed in the Company’s reports filed under the Securities Exchange Act of 1934 is properly and
timely recorded, processed, summarized and reported. Based on this evaluation, our Chief Executive Officer and Chief Financial
Officer concluded that our disclosure controls and procedures are effective in timely alerting them to material information
required to be included in this report at the reasonable assurance level.
It should be noted that any
control system, no matter how well designed and operated, can provide only reasonable assurance to the tested objectives. The
design of any control systems is based in part upon certain assumptions about the likelihood of future events, and there can be no
assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how
remote.
There has been no change in the
Company’s internal control over financial reporting that occurred during our most recent fiscal quarter that has materially
affected or is reasonably likely to materially affect the Company’s internal control over financial
reporting.
27
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 2003 Annual Meeting
of Stockholders under the headings “Proposal 1 — Election of Directors” and “Compliance with Section 16(a) of
the Securities Exchange Act of 1934.”
The officers of the Company,
including executive officers and other Vice Presidents, are as follows:
Name
|
|
|
|
Age
|
|
Position
|
John F. Gifford |
|
|
|
|
62 |
|
|
|
President, Chief Executive Officer and Chairman of the Board |
|
Frederick G. Beck |
|
|
|
|
65 |
|
|
|
Vice President |
|
Tunc Doluca |
|
|
|
|
45 |
|
|
|
Vice President |
|
Laszlo V. Gal, Ph.D. |
|
|
|
|
55 |
|
|
|
Vice President |
|
Rob B. Georges |
|
|
|
|
45 |
|
|
|
Vice President |
|
Parviz Ghaffaripour |
|
|
|
|
40 |
|
|
|
Vice President |
|
Jennifer E. Gilbert |
|
|
|
|
37 |
|
|
|
Vice President |
|
Alan P. Hale |
|
|
|
|
42 |
|
|
|
Vice President |
|
Richard C. Hood |
|
|
|
|
53 |
|
|
|
Vice President |
|
Kenneth J. Huening |
|
|
|
|
42 |
|
|
|
Vice President |
|
Carl W. Jasper |
|
|
|
|
47 |
|
|
|
Vice President, Chief Financial Officer and
Principal Accounting Officer |
|
Nasrollah Navid, Ph. D. |
|
|
|
|
54 |
|
|
|
Vice President |
|
Pirooz Parvarandeh |
|
|
|
|
43 |
|
|
|
Vice President |
|
Charles G. Rigg |
|
|
|
|
59 |
|
|
|
Vice President |
|
Vijay Ullal |
|
|
|
|
44 |
|
|
|
Vice President |
|
Mr. Gifford, a founder of the
Company, has served as President, Chief Executive Officer and Chairman of the Board since the Company’s 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. Doluca joined Maxim in
October 1984 and was promoted to Vice President in July 1994. Prior to July 1994, he served in a number of integrated circuit
development positions.
Dr. Gal joined Maxim in April
1999 as Vice President. Prior to joining Maxim, he was with Applied Micro Circuits Corporation where he served as Vice President of
Engineering from January 1997 to April 1999. Before joining Applied Micro Circuits Corporation, Dr. Gal’s tenure included
eleven years at Unisys Corporation (1983-1994) and three years at Motorola Inc. (1994-1997) in various technical and management
positions.
Mr. Georges joined Maxim in June
1983 and was promoted to Vice President in June 2000.
Mr. Ghaffaripour joined Maxim in
March 1999 and was promoted to Vice President in January 2001. Prior to joining Maxim, he was with National Semiconductor
Corporation from 1990 to 1999 where he held various technical and management positions, most recently including that of Product
Line Director for the Audio Business Unit.
Ms. Gilbert joined Maxim in
November 1986 and was promoted to Vice President in July 2001.
Mr. Hale joined Dallas
Semiconductor Corporation in June 1987 and served as Vice President and Chief Financial Officer of Dallas Semiconductor Corporation
since 1992. He became an officer of Maxim upon the consummation of the merger between the Company and Dallas Semiconductor
Corporation in April 2001.
28
Mr. Hood, a founder of the
Company, joined the Company in May 1983 and was promoted to Vice President in February 1997. Prior to February 1997, he served in a
number of engineering and manufacturing positions.
Mr. Huening joined Maxim in
December 1983 and was promoted to Vice President in December 1993. Prior to December 1993, he served in a number of quality
assurance positions.
Mr. Jasper joined Maxim in May
1998 as the Principal Accounting Officer and was promoted in April 1999 to Vice President and Chief Financial Officer. Prior to
joining Maxim, he was with Read-Rite Corporation from November 1995 to April 1998, where he held the position of Vice President,
Corporate Controller, and prior to that was with Ernst & Young LLP from September 1983 to November 1995.
Dr. Navid joined Maxim in May
1997 as Vice President. Prior to joining Maxim and since 1980, he was with Philips Semiconductors, where he served in a number of
technical and management positions for the wireless communications product line.
Mr. Parvarandeh joined Maxim in
July 1987 and was promoted to Vice President in July 1997. Prior to July 1997, he served in a number of integrated circuit
development positions.
Mr. Rigg joined Maxim in August
1996 as Managing Director and General Counsel and was promoted to Vice President in April 1999. Prior to joining Maxim, he was with
Ropers, Majeski, Kohn and Bentley from 1970 to 1996 where he held various positions, including director.
Mr. 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 fabrication
operation positions.
The information required by this
item is incorporated by reference from the Company’s Proxy Statement for the 2003 Annual Meeting of Stockholders under the
headings “Executive Compensation” and “Performance Graph.”
| ITEM 12. |
|
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS |
The information required by this
item is incorporated by reference from the Company’s Proxy Statement for the 2003 Annual Meeting of Stockholders under the
heading “Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters.”
| 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 2003 Annual Meeting of Stockholders under the
heading “Certain Relationships and Related Transactions.”
| ITEM 14. |
|
PRINCIPAL ACCOUNTANT FEES AND
SERVICES |
The information required by this
item is incorporated by reference from the Company’s Proxy Statement for the 2003 Annual Meeting of Stockholders under the
heading “Principal Accountant Fees and Services.”
29
PART IV
| ITEM 15. |
|
EXHIBITS, FINANCIAL STATEMENT SCHEDULES,
AND REPORTS ON FORM 8-K |
(a) |
|
The following are filed as part of this
Report: |
|
|
|
|
Page
|
(1) Financial Statements
|
|
|
|
|
|
|
Consolidated Balance Sheets at June 28, 2003 and June 29, 2002 |
|
|
|
|
31 |
|
Consolidated Statements of Income for each of the three years in the period ended June 28, 2003 |
|
|
|
|
32 |
|
Consolidated Statements of Stockholders’ Equity for each of the three years in the period ended June 28,
2003 |
|
|
|
|
33 |
|
Consolidated Statements of Cash Flows for each of the three years in the period ended June 28, 2003 |
|
|
|
|
34 |
|
Notes to Consolidated Financial Statements |
|
|
|
|
35 – 53 |
|
Report of Ernst & Young LLP, Independent Auditors |
|
|
|
|
54 |
|
(2) Financial Statement Schedule.
|
|
|
|
|
|
|
The following financial statement schedule is filed as part of this Annual Report on Form
10-K and should be read in
conjunction with the financial statements.
|
|
|
|
|
|
|
Schedule II — Valuation and Qualifying Accounts |
|
|
|
|
55 |
|
All other schedules are omitted because they are not applicable, or because the required
information is included in the
consolidated financial statements or notes thereto.
|
|
|
|
|
|
|
(3) The Exhibits filed as a part of this Report are listed in the attached Index to
Exhibits.
|
|
|
|
|
|
|
(b) Reports on Form
8-K.
None
See attached Index to
Exhibits.
(d) Financial Statement
Schedules.
The financial statement schedule
required by this Item is listed under Item 15 (a), above.
30
CONSOLIDATED BALANCE SHEETS
|
|
|
|
June 28,
2003
|
|
June 29,
2002
|
|
|
|
|
(Amounts in thousands,
except par value) |
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
|
|
$ |
210,841 |
|
|
$ |
173,807 |
|
Short-term investments |
|
|
|
|
953,166 |
|
|
|
591,694 |
|
| |
|
|
|
|
Total cash, cash equivalents and short-term investments |
|
|
|
|
1,164,007 |
|
|
|
765,501 |
|
| |
|
|
|
|
Accounts receivable, (net of allowance for doubtful accounts of $2,607 in 2003 and $3,176 in 2002) |
|
|
|
|
126,760 |
|
|
|
129,812 |
|
Inventories |
|
|
|
|
121,192 |
|
|
|
139,206 |
|
Deferred tax assets |
|
|
|
|
136,180 |
|
|
|
144,717 |
|
Income tax refund receivable |
|
|
|
|
11,246 |
|
|
|
53,164 |
|
Other current assets |
|
|
|
|
5,257 |
|
|
|
3,264 |
|
| |
|
|
|
|
Total current assets |
|
|
|
|
1,564,642 |
|
|
|
1,235,664 |
|
| |
|
|
|
|
Property, plant and equipment, at cost, less accumulated depreciation |
|
|
|
|
769,885 |
|
|
|
746,161 |
|
Other assets |
|
|
|
|
33,435 |
|
|
|
28,987 |
|
| |
|
|
|
|
TOTAL ASSETS |
|
|
|
$ |
2,367,962 |
|
|
$ |
2,010,812 |
|
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
| |
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
Accounts payable |
|
|
|
$ |
42,041 |
|
|
$ |
45,284 |
|
Income taxes payable |
|
|
|
|
10,900 |
|
|
|
10,633 |
|
Accrued salary and related expenses |
|
|
|
|
70,468 |
|
|
|
64,321 |
|
Accrued expenses |
|
|
|
|
70,926 |
|
|
|
81,606 |
|
Deferred income on shipments to distributors |
|
|
|
|
21,582 |
|
|
|
27,183 |
|
| |
|
|
|
|
Total current liabilities |
|
|
|
|
215,917 |
|
|
|
229,027 |
|
| |
|
|
|
|
Other liabilities |
|
|
|
|
4,000 |
|
|
|
4,000 |
|
Deferred tax liabilities |
|
|
|
|
77,633 |
|
|
|
36,634 |
|
| |
|
|
|
|
Total liabilities |
|
|
|
|
297,550 |
|
|
|
269,661 |
|
| |
|
|
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ equity:
|
|
|
|
|
|
|
|
|
|
|
Preferred stock, $0.001 par value
|
|
|
|
|
|
|
|
|
|
|
Authorized: 2,000 shares
|
|
|
|
|
|
|
|
|
|
|
Issued and outstanding: none |
|
|
|
|
— |
|
|
|
— |
|
Common stock, $0.001 par value
|
|
|
|
|
|
|
|
|
|
|
Authorized: 960,000 shares
|
|
|
|
|
|
|
|
|
|
|
Issued and outstanding: 324,637 in 2003 and 320,061 in 2002 |
|
|
|
|
325 |
|
|
|
320 |
|
Additional paid-in capital |
|
|
|
|
112,172 |
|
|
|
54,935 |
|
Retained earnings |
|
|
|
|
1,956,491 |
|
|
|
1,686,816 |
|
Accumulated other comprehensive income (loss) |
|
|
|
|
1,424 |
|
|
|
(920 |
) |
| |
|
|
|
|
Total stockholders’ equity |
|
|
|
|
2,070,412 |
|
|
|
1,741,151 |
|
| |
|
|
|
|
TOTAL LIABILITIES & STOCKHOLDERS’ EQUITY |
|
|
|
$ |
2,367,962 |
|
|
$ |
2,010,812 |
|
| |
|
|
|
|
31
CONSOLIDATED STATEMENTS OF INCOME
|
|
|
|
For the Years Ended
|
|
|
|
|
|
June 28,
2003
|
|
June 29,
2002
|
|
June 30,
2001
|
|
|
|
|
(Amounts in thousands, except per share data) |
|
Net revenues |
|
|
|
$ |
1,153,219 |
|
|
$ |
1,025,104 |
|
|
$ |
1,576,613 |
|
Cost of goods sold |
|
|
|
|
348,264 |
|
|
|
312,223 |
|
|
|
537,148 |
|
| |
|
|
|
|
|
|
Gross margin |
|
|
|
|
804,955 |
|
|
|
712,881 |
|
|
|
1,039,465 |
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development |
|
|
|
|
272,322 |
|
|
|
275,547 |
|
|
|
280,228 |
|
Selling, general and administrative |
|
|
|
|
85,597 |
|
|
|
91,982 |
|
|
|
150,622 |
|
Merger and special charges |
|
|
|
|
— |
|
|
|
— |
|
|
|
163,449 |
|
| |
|
|
|
|
|
|
Total operating expenses |
|
|
|
|
357,919 |
|
|
|
367,529 |
|
|
|
594,299 |
|
| |
|
|
|
|
|
|
Operating income |
|
|
|
|
447,036 |
|
|
|
345,352 |
|
|
|
445,166 |
|
Interest income and other, net |
|
|
|
|
15,055 |
|
|
|
41,488 |
|
|
|
59,822 |
|
| |
|
|
|
|
|
|
Income before provision for income taxes |
|
|
|
|
462,091 |
|
|
|
386,840 |
|
|
|
504,988 |
|
Provision for income taxes |
|
|
|
|
152,490 |
|
|
|
127,657 |
|
|
|
170,049 |
|
| |
|
|
|
|
|
|
Net income |
|
|
|
$ |
309,601 |
|
|
$ |
259,183 |
|
|
$ |
334,939 |
|
| |
|
|
|
|
|
|
Earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
|
$ |
0.96 |
|
|
$ |
0.80 |
|
|
$ |
1.03 |
|
| |
|
|
|
|
|
|
Diluted |
|
|
|
$ |
0.91 |
|
|
$ |
0.73 |
|
|
$ |
0.93 |
|
| |
|
|
|
|
|
|
Shares used in the calculation of earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
|
|
322,106 |
|
|
|
325,527 |
|
|
|
325,736 |
|
| |
|
|
|
|
|
|
Diluted |
|
|
|
|
341,253 |
|
|
|
355,821 |
|
|
|
361,620 |
|
| |
|
|
|
|
|
|
Dividends declared per share |
|
|
|
$ |
0.08 |
|
|
$ |
— |
|
|
$ |
0.02 |
|
| |
|
|
|
|
|
|
32
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’
EQUITY
|
|
|
|
Common Stock
|
|
|
|
|
|
Shares
|
|
Par Value
|
|
Additional
Paid-In
Capital
|
|
Retained
Earnings
|
|
Other
Accumulated
Comprehensive
Income
(Loss)
|
|
Total
|
|
|
|
|
(Amounts in thousands) |
|
Balance, June 24, 2000 |
|
|
|
|
322,439 |
|
|
$ |
322 |
|
|
$ |
258,092 |
|
|
$ |
1,461,618 |
|
|
$ |
(93 |
) |
|
$ |
1,719,939 |
|
Components of comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
334,939 |
|
|
|
— |
|
|
|
334,939 |
|
Unrealized gain on forward-exchange contracts |
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
406 |
|
|
|
406 |
|
Unrealized gain on available-for-sale investments |
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
4,598 |
|
|
|
4,598 |
|
Total comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
339,943 |
|
Adjustments to conform fiscal year
of pooled entity |
|
|
|
|
(384 |
) |
|
|
— |
|
|
|
(8,950 |
) |
|
|
(44,942 |
) |
|
|
(1,377 |
) |
|
|
(55,269 |
) |
Exercises under the Stock Option
and purchase Plans |
|
|
|
|
12,207 |
|
|
|
12 |
|
|
|
114,257 |
|
|
|
— |
|
|
|
— |
|
|
|
114,269 |
|
Repurchase of common stock |
|
|
|
|
(4,026 |
) |
|
|
(4) |
|
|
|
(250,681 |
) |
|
|
— |
|
|
|
— |
|
|
|
(250,685 |
) |
Tax benefit on exercise of non-qualified stock options and disqualifying dispositions under stock plans |
|
|
|
|
— |
|
|
|
— |
|
|
|
238,934 |
|
|
|
— |
|
|
|
— |
|
|
|
238,934 |
|
Dividends declared |
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(5,977 |
) |
|
|
— |
|
|
|
(5,977 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
Balance, June 30, 2001 |
|
|
|
|
330,236 |
|
|
|
330 |
|
|
|
351,652 |
|
|
|
1,745,638 |
|
|
|
3,534 |
|
|
|
2,101,154 |
|
Components of comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
259,183 |
|
|
|
— |
|
|
|
259,183 |
|
Unrealized loss on forward-exchange contracts |
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(1,911 |
) |
|
|
(1,911 |
) |
Unrealized loss on available-for-sale investments |
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(2,543 |
) |
|
|
(2,543 |
) |
Total comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
254,729 |
|
Exercises under the Stock Option
and purchase Plans |
|
|
|
|
9,959 |
|
|
|
10 |
|
|
|
109,283 |
|
|
|
— |
|
|
|
— |
|
|
|
109,293 |
|
Repurchase of common stock |
|
|
|
|
(20,134 |
) |
|
|
(20 |
) |
|
|
(545,987 |
) |
|
|
(318,005 |
) |
|
|
— |
|
|
|
(864,012 |
) |
Tax benefit on exercise of non-qualified stock options and disqualifying dispositions under stock plans |
|
|
|
|
— |
|
|
|
— |
|
|
|
139,987 |
|
|
|
— |
|
|
|
— |
|
|
|
139,987 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
Balance, June 29, 2002 |
|
|
|
|
320,061 |
|
|
|
320 |
|
|
|
54,935 |
|
|
|
1,686,816 |
|
|
|
(920 |
) |
|
|
1,741,151 |
|
Components of comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
309,601 |
|
|
|
— |
|
|
|
309,601 |
|
Unrealized gain on forward-exchange contracts |
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1,383 |
|
|
|
1,383 |
|
Unrealized gain on available-for-sale investments |
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
961 |
|
|
|
961 |
|
Total comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
311,945 |
|
Exercises under the Stock Option
and purchase Plans |
|
|
|
|
9,047 |
|
|
|
9 |
|
|
|
83,662 |
|
|
|
— |
|
|
|
— |
|
|
|
83,671 |
|
Repurchase of common stock |
|
|
|
|
(4,471 |
) |
|
|
(4) |
|
|
|
(139,898 |
) |
|
|
(14,047 |
) |
|
|
— |
|
|
|
(153,949 |
) |
Tax benefit on exercise of non-qualified stock options and disqualifying dispositions under stock plans |
|
|
|
|
— |
|
|
|
— |
|
|
|
113,473 |
|
|
|
— |
|
|
|
— |
|
|
|
113,473 |
|
Dividends declared |
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(25,879 |
) |
|
|
— |
|
|
|
(25,879 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
Balance, June 28, 2003 |
|
|
|
|
324,637 |
|
|
$ |
325 |
|
|
$ |
112,172 |
|
|
$ |
1,956,491 |
|
|
$ |
1,424 |
|
|
$ |
2,070,412 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
33
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
|
|
Increase (Decrease) in Cash and Cash Equivalents
For the Years Ended
|
|
|
|
|
|
June 28, 2003
|
|
June 29, 2002
|
|
June 30, 2001
|
|
|
|
|
(Amounts in thousands) |
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
$ |
309,601 |
|
|
$ |
259,183 |
|
|
$ |
334,939 |
|
Adjustments to reconcile net income to net cash provided
by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation, amortization, and other |
|
|
|
|
60,336 |
|
|
|
56,252 |
|
|
|
90,861 |
|
Plant and equipment charges |
|
|
|
|
— |
|
|
|
— |
|
|
|
50,365 |
|
Charges for impairment of long-lived assets |
|
|
|
|
— |
|
|
|
— |
|
|
|
124,432 |
|
Adjustment to conform fiscal year of pooled entity |
|
|
|
|
— |
|
|
|
— |
|
|
|
3,608 |
|
Changes in assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
|
|
3,052 |
|
|
|
22,676 |
|
|
|
77,365 |
|
Inventories |
|
|
|
|
18,014 |
|
|
|
23,450 |
|
|
|
(27,939 |
) |
Deferred taxes |
|
|
|
|
48,404 |
|
|
|
6,404 |
|
|
|
27,385 |
|
Income tax refund receivable |
|
|
|
|
41,918 |
|
|
|
(2,977 |
) |
|
|
(43,937 |
) |
Other current assets |
|
|
|
|
106 |
|
|
|
4,044 |
|
|
|
7,225 |
|
Accounts payable |
|
|
|
|
(3,243 |
) |
|
|
(55,637 |
) |
|
|
(3,602 |
) |
Income tax payable |
|
|
|
|
113,740 |
|
|
|
132,751 |
|
|
|
163,263 |
|
Deferred income on shipments to distributors |
|
|
|
|
(5,601 |
) |
|
|
(18,213 |
) |
|
|
7,428 |
|
All other accrued liabilities |
|
|
|
|
(4,533 |
) |
|
|
(24,170 |
) |
|
|
(1,745 |
) |
| |
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
|
|
581,794 |
|
|
|
403,763 |
|
|
|
809,648 |
|
| |
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions to property, plant and equipment, net |
|
|
|
|
(84,060 |
) |
|
|
(90,374 |
) |
|
|
(336,545 |
) |
Other non-current assets |
|
|
|
|
(4,448 |
) |
|
|
(9,587 |
) |
|
|
(4,845 |
) |
Purchases of available-for-sale securities |
|
|
|
|
(1,620,085 |
) |
|
|
(1,298,660 |
) |
|
|
(1,352,264 |
) |
Proceeds from sales/maturities of available-for-sale Securities |
|
|
|
|
1,259,990 |
|
|
|
1,829,588 |
|
|
|
1,037,978 |
|
| |
|
|
|
|
|
|
Net cash provided by (used in) investing activities |
|
|
|
|
(448,603 |
) |
|
|
430,967 |
|
|
|
(655,676 |
) |
| |
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock |
|
|
|
|
83,671 |
|
|
|
109,293 |
|
|
|
114,269 |
|
Repurchase of common stock |
|
|
|
|
(153,949 |
) |
|
|
(864,012 |
) |
|
|
(250,685 |
) |
Dividends paid |
|
|
|
|
(25,879 |
) |
|
|
— |
|
|
|
(5,977 |
) |
| |
|
|
|
|
|
|
Net cash used in financing activities |
|
|
|
|
(96,157 |
) |
|
|
(754,719 |
) |
|
|
(142,393 |
) |
| |
|
|
|
|
|
|
Net increase in cash and cash equivalents |
|
|
|
|
37,034 |
|
|
|
80,011 |
|
|
|
11,579 |
|
Cash and cash equivalents:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning of year |
|
|
|
|
173,807 |
|
|
|
93,796 |
|
|
|
82,217 |
|
| |
|
|
|
|
|
|
End of year |
|
|
|
$ |
210,841 |
|
|
$ |
173,807 |
|
|
$ |
93,796 |
|
| |
|
|
|
|
|
|
Supplemental disclosures of cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid (refunds received), net during the year for:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes |
|
|
|
$ |
(51,562 |
) |
|
$ |
(9,106 |
) |
|
$ |
21,796 |
|
| |
|
|
|
|
|
|
34
NOTE 1: NATURE OF
OPERATIONS
Maxim Integrated Products, Inc.
(the Company) designs, develops, manufactures, and markets linear and mixed-signal integrated circuits and is incorporated in the
state of Delaware. The Company’s products include data converters, interface circuits, microprocessor supervisors, operational
amplifiers, power supplies, multiplexers, delay lines, real-time clocks, microcontrollers, switches, battery chargers, battery
management circuits, RF circuits, fiber optic transceivers, sensors, and voltage references. The Company 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 automotive, communications, consumer, data
processing, industrial control, and instrumentation.
NOTE 2: SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
Basis of Presentation
The consolidated financial
statements include the accounts of the Company 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 of June. Accordingly, every sixth
or seventh year will be a 53-week fiscal year. Fiscal years 2003 and 2002 were 52-week years. Fiscal year 2001 was a 53-week year.
The impact of the additional week on the Company’s operating results consisted primarily of additional salary-related
expenses. These additional expenses were not material.
Certain prior-year amounts in
the Notes to Consolidated Financial Statements have been reclassified to conform to the current year’s
presentation.
Cash Equivalents and Short-term
Investments
The Company considers all highly
liquid debt instruments purchased with an original maturity of three months or less at the date of purchase to be cash equivalents.
Cash and cash equivalents consist of demand accounts, government securities, and money market funds. Short-term investments consist
primarily of U.S. Treasury and Federal Agency debt securities with original maturities beyond three months.
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 reported 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 and other, net” in the consolidated statements of income.
Derivative Instruments
The Company transacts business
in various non-U.S. currencies, primarily the Japanese Yen, British Pound, and the Euro. The Company is exposed to fluctuations in
foreign currency exchange rates on accounts receivable from sales in these foreign currencies and the net monetary assets and
liabilities of the related foreign subsidiary. The Company has established risk management strategies designed to protect against
reductions in value and volatility of future cash flows caused by changes in exchange rates. These strategies reduce, but do not
always entirely eliminate, the impact of currency exchange movements.
Currency forward contracts that
are used to hedge exposure to variability in anticipated non-U.S.-dollar-denominated cash flows are designated as cash flow hedges.
The maturities of these instruments are generally less than 6 months. The Company had forward contracts to buy and sell foreign
currencies with a U.S. dollar equivalent of $60.5 million and $59.3 million at June 28, 2003 and June 29, 2002, respectively. For
these derivatives, the effective portion of the gain or loss is reported as a component of other comprehensive income (loss) in
stockholders’ equity and is reclassified into earnings in the same period or periods in which the hedged transaction affects
earnings. The ineffective portion of the gain or loss on the derivative in excess of the cumulative change in the present value of
future cash flows of the hedged item, if any, is recognized in earnings, net during the period of change.
35
Currency
forward contracts are used to offset the currency risk of non-U.S. dollar-denominated
assets and liabilities. Changes in fair value of the underlying assets and liabilities
are generally offset by the changes in fair value of the related derivatives.
The net realized and unrealized gains or losses from hedging non-U.S. dollar
denominated assets and liabilities were immaterial in fiscal year 2003 and fiscal
year 2002. The realized and unrealized amounts will fluctuate based on changes
in the fair value of open contracts at the end of each reporting period.
For currency forward contracts,
effectiveness of the hedge is measured using forward rates to value the forward contract and the forward value of the underlying
hedged transaction. Any ineffective portions of the hedge, as well as amounts not included in the assessment of effectiveness, are
recognized currently in interest and other income, net. If a cash flow hedge were to be discontinued because it is probable that
the original hedged transaction will not occur as anticipated, the unrealized gains or losses would be reclassified into earnings.
Subsequent gains or losses on the related derivative instrument would be recognized in income in each period until the instrument
matures, is terminated or is sold. In fiscal year 2003, no cash flow hedges were discontinued as a result of forecasted transactions
that did not occur.
Inventories
Inventories are stated at the
lower of cost, which approximates actual cost on a first-in-first-out basis, or market value. Because of the cyclicality of the
market, inventory levels, obsolescence of technology, and product life cycles, the Company writes down inventories to net
realizable value based on backlog, forecasted product demand, and historical sales levels. The Company’s policy for recording
a write down of inventory is generally to write down, at standard cost, finished goods inventory in excess of estimated demand
based on backlog, historical sales levels and forecasted demand and work in process that is greater than 90 days old, which has no
forecasted product demand.
Property, Plant and Equipment
Property, plant and equipment
are stated at cost. Depreciation is computed on the straight-line method over the estimated useful lives of the assets, which range
from 2 to 40 years. Leasehold improvements are amortized over the lesser of their useful lives or the remaining term of the related
lease.
Effective
June 30, 2002, the Company evaluates the recoverability of property, plant and
equipment in accordance with Statement of Financial Accounting Standards No.
144 (SFAS 144), “Accounting for the Impairment or Disposal of Long-Lived
Assets.” The Company performs periodic reviews to determine whether facts
and circumstances exist that would indicate that the carrying amounts of property,
plant and equipment exceed their fair values. If facts and circumstances indicate
that the carrying amount of property, plant and equipment might not be fully
recoverable, projected undiscounted net cash flows associated with the related
asset or group of assets over their estimated remaining useful life is compared
against their respective carrying amounts. In the event that the projected undiscounted
cash flows are not sufficient to recover the carrying value of the assets, the
assets are written down to their estimated fair values based on the expected
discounted future cash flows attributable to the assets.
Revenue Recognition and Accounts Receivables
Allowances
Revenue from product sales to
the Company’s direct customers is recognized upon shipment provided that persuasive evidence of a sales arrangement exists,
the price is fixed and determinable, title has transferred, collection of resulting receivables is reasonably assured, there are no
customer acceptance requirements and there are no remaining significant obligations.
A portion of the Company’s
sales is made to domestic distributors under agreements that provide the possibility of certain sales price rebates and limited
product return privileges. Given the uncertainties associated with the levels of returns and other credits that will be issued to
these distributors, the Company defers recognition of such sales until the product is sold by the domestic distributors to their
end customers. The Company estimates the provision for returns and price rebates based on historical experience and known future
returns and price rebates. Revenue
36
on all shipments to international distributors is recognized
upon shipment to the distributor, when the above criteria are met, with appropriate provision of reserves for returns and
allowances, as these distributors generally do not have price rebate or product return privileges. Accounts receivable from both
domestic and international distributors are recognized and inventory is relieved upon shipment as title to inventories generally
transfers upon shipment at which point the Company has a legally enforceable right to collection under normal terms.
The Company must make estimates
of potential future product returns and sales allowances related to current period product revenue. Management analyzes historical
returns, changes in customer demand, and acceptance of products when evaluating the adequacy of sales returns and allowances.
Estimates made by the Company may differ from actual product returns and sales allowances. These differences may materially impact
reported revenue and amounts ultimately collected on accounts receivable. In addition, the Company monitors collectibility of
accounts receivable primarily through review of the accounts receivable aging. When facts and circumstances indicate the collection
of specific amounts or from specific customers is at risk, the Company assesses the impact on amounts recorded for bad debts and,
if necessary, will record a charge in the period such determination is made. To date, the Company has not experienced material
write-offs of accounts receivable due to uncollectibility.
Advertising
Advertising costs are expensed
as incurred and included in selling, general and administrative expenses in the Consolidated Statements of Income. Advertising
expenses were $13.2 million, $16.7 million, and $22.2 million in fiscal years 2003, 2002, and 2001, respectively.
Shipping Costs
Shipping costs are charged to
cost of goods sold as incurred.
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.
Employee Stock Plans
The Company accounts for its
stock option and employee stock purchase plans using the intrinsic value method prescribed in Accounting Principles Board’s
Opinion No. 25 (APB 25), “Accounting for Stock Issued to Employees.” Accordingly, employee and director compensation
expense is recognized only for those options whose price is less than fair market value at the measurement date. 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,” as amended by SFAS No. 148, “Accounting for Stock Based
Compensation — Transition and Disclosure.” See Note 3 “Earnings Per Share and Stock Based Compensation” and
Note 11 “Employee Stock and Benefit Plans” of these 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. The number of incremental shares from the assumed
issuance of stock options is calculated applying the treasury stock method. See Note 3 “Earnings Per Share and Stock Based
Compensation” of these Notes to Consolidated Financial Statements.
37
Indemnifications and Product Warranty
We indemnify certain customers,
distributors, suppliers, and subcontractors for attorney fees and damages and costs awarded against these parties in certain
circumstances in which our products are alleged to infringe third party intellectual property rights, including patents, registered
trademarks, or copyrights. The terms of our indemnification obligations are generally perpetual from the effective date of the
agreement. In certain cases, there are limits on and exceptions to our potential liability for indemnification relating to
intellectual property infringement claims. We cannot estimate the amount of potential future payments, if any, that we might be
required to make as a result of these agreements. To date, we have not paid or been required to defend any indemnification claims,
and accordingly, we have not accrued any amounts for our indemnification obligations. However, there can be no assurances that we
will not have any future financial exposure under those indemnification obligations.
We generally warrant our
products against defects in materials and workmanship for a period of 12 months. If there is a material increase in the rate of
customer claims or our estimates of probable losses relating to specifically identified warranty exposures are inaccurate, we may
record a charge against future cost of sales. Warranty expense has historically been immaterial to our financial
statements.
New Accounting Pronouncements
In June 2002, the Financial
Accounting Standards Board (FASB) issued SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities (SFAS
146). SFAS 146 addresses the timing and amount of costs recognized as a result of restructuring and similar activities. SFAS 146 is
effective for all exit or disposal activities initiated after December 31, 2002. The Company adopted SFAS 146 effective June 30,
2002. The adoption had no impact on the Company’s financial condition, results of operation or liquidity.
In November 2002, the FASB
issued Interpretation No. 45 (FIN 45), “Guarantor’s Accounting and Disclosure Requirements for Guarantees.” FIN 45
requires a guarantor to recognize, at the inception of a guarantee, a liability it has undertaken in issuing the guarantee. In
addition, FIN 45 requires a guarantor to make disclosures of its obligations under the guarantees that a company has issued. The
disclosure requirements of FIN 45 are effective for financial statements for periods ending after December 15, 2002. The initial
recognition and initial measurement provision of FIN 45 are applicable on a prospective basis to guarantees issued or modified
after December 31, 2002. Maxim adopted FIN 45 in fiscal year 2003. Our adoption of FIN 45 did not have a material impact on the
Company’s financial condition, results of operation or liquidity.
In December 2002, the FASB
issued Statement of Financial Accounting Standards No. 148 (SFAS 148), “Accounting for Stock-Based Compensation —
Transition and Disclosure — an amendment of FASB Statement No. 123.” SFAS 148 amends Statement of Financial Accounting
Standards No. 123 (SFAS 123), “Accounting for Stock-Based Compensation,” to provide alternative methods of transition for
a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, SFAS 148 amends
the disclosure requirements of SFAS 123 to require prominent disclosures in both annual and interim financial statements about the
method of accounting for stock-based employee compensation and the effect of the method used on reported results. The transition
provisions and pro forma disclosures of SFAS 148 are effective for fiscal years ending after December 15, 2002. The pro forma
disclosures of SFAS 148 are effective for financial reports containing condensed consolidated financial statements for interim
periods beginning after December 15, 2002. The Company continues to use the intrinsic value method of accounting for stock-based
employee compensation in fiscal year 2003. The adoption of SFAS 148 had no impact on the Company’s financial condition,
results of operations or liquidity.
In January 2003, the FASB issued
Interpretation No. 46 (FIN 46), “Consolidation of Variable Interest Entities.” FIN 46 requires an investor with a
majority of the variable interests in a variable interest entity to consolidate the entity and also requires majority and
significant variable interest investors to provide certain disclosures. A variable interest entity is an entity in which the equity
investors do not have a controlling interest or the equity investment at risk is insufficient to finance the entity’s
activities without receiving additional subordinated financial support
38
from the other parties. FIN 46 applies to all new variable
interest entities existing after January 31, 2003. For variable interest entities existing prior to February 1, 2003, FIN 46 must
be applied beginning July 1, 2003. The maximum exposure of any investment that may be determined to be in a variable interest
entity is limited to the amount invested. The Company believes adoption of FIN 46 will not have a material impact on the
Company’s financial condition, results of operation or liquidity.
In April 2003, the FASB issued
Statement of Financial Accounting Standards No. 149 (SFAS 149), “Amendment of Statement 133 on Derivative Instruments and
Hedging Activities.” SFAS 149 amends and clarifies accounting for derivative instruments and hedging activities under
Statement of Financial Accounting Standards No. 133 (SFAS 133), “Accounting for Derivative Instruments and Hedging
Activities.” SFAS 149 is effective for contracts entered into or modified and for hedging relationships designated after June
30, 2003. The Company believes the adoption of SFAS 149 will not have a material impact on the Company’s financial condition,
results of operations and liquidity.
In May 2003, the FASB issued
Statement of Financial Accounting Standards No. 150 (SFAS 150), “Accounting for Certain Financial Instruments and
Characteristics of both Liabilities and Equity.” SFAS 150 establishes standards on the classification and measurement of
financial instruments with characteristics as both liabilities and assets. SFAS 150 is effective for instruments entered into or
modified after May 31, 2003 and pre-existing instruments as of the beginning of the first interim period after June 15, 2003. The
adoption of SFAS 150 had no material impact on the Company’s financial condition, results of operations and
liquidity.
Use of Estimates
The preparation of financial
statements in conformity with accounting principles generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and 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 and fair value of fixed assets, allowances for doubtful accounts and customer returns,
inventory reserves, potential reserves relating to litigation matters, accrued liabilities, and other reserves. The Company bases
its estimates and judgments on its historical experience, knowledge of current conditions and its beliefs of what could occur in
the future given available information. Actual results may differ from those estimates, and such differences may be material to the
financial statements.
Concentration of Credit Risk
Due to the Company’s credit
evaluation and collection process, bad debt expenses have not been significant. Credit risk with respect to trade receivables is
limited, because a large number of geographically diverse customers make up the Company’s customer base, thus spreading the
credit risk. While a significant portion of the Company’s revenues is made through domestic and international distributors, no
single customer has accounted for greater than 10% of net revenues in the last three fiscal years.
The Company maintains cash, cash
equivalents, and short-term investments with various high credit quality financial institutions, limits the amount of credit
exposure to any one financial institution or instrument, and is exposed to credit risk in the event of default by these
institutions to the extent of amounts recorded at the balance sheet date. To date, the Company has not incurred losses related to
these investments.
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
39
products; implementation of new manufacturing technologies;
manufacturing capacity; the ability to manufacture efficiently; the availability of materials, supplies, machinery and equipment;
competition; the ability to safeguard patents and intellectual property in a rapidly evolving market; and reliance on assembly and,
to a small extent, 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.
NOTE 3: EARNINGS PER SHARE AND STOCK
BASED COMPENSATION
The following table sets forth
the computation of basic and diluted earnings per share:
|
|
|
|
For the Years Ended
|
|
|
|
|
|
June 28, 2003
|
|
June 29, 2002
|
|
June 30, 2001
|
|
|
|
|
(Amounts in thousands, except per share data) |
|
Numerator for basic earnings per share and diluted earnings per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
$ |
309,601 |
|
|
$ |
259,183 |
|
|
$ |
334,939 |
|
| |
|
|
|
|
|
|
Denominator for basic earning per share |
|
|
|
|
322,106 |
|
|
|
325,527 |
|
|
|
325,736 |
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options |
|
|
|
|
19,147 |
|
|
|
30,294 |
|
|
|
35,884 |
|
| |
|
|
|
|
|
|
Denominator for diluted earnings per share |
|
|
|
|
341,253 |
|
|
|
355,821 |
|
|
|
361,620 |
|
| |
|
|
|
|
|
|
Earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
|
$ |
0.96 |
|
|
$ |
0.80 |
|
|
$ |
1.03 |
|
| |
|
|
|
|
|
|
Diluted |
|
|
|
$ |
0.91 |
|
|
$ |
0.73 |
|
|
$ |
0.93 |
|
| |
|
|
|
|
|
|
Approximately 38.8 million, 11.8
million, and 3.9 million of the Company’s stock options were excluded from the calculation of diluted earnings per share for
fiscal years 2003, 2002, and 2001, respectively. These options were excluded, as they were antidilutive; however, such options
could be dilutive in the future.
Under SFAS 148, 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 148, the Company is, however, required to provide pro forma disclosure regarding net income and earnings per
share as if the Company had accounted for its employee stock options (including shares issued under the 1996 Stock Incentive Plan,
1993 Officer and Director Stock Option Plan, 1987 Stock Option Plan, 1987 Supplemental Stock Option Plan, 1988 Nonemployee Director
Stock Option Plan, and Supplemental Nonemployee Stock Option Plan, collectively called “options”) granted subsequent to
June 30, 1995, under the methodology prescribed by that statement. Since the Company has elected to account for the grant of
options under APB Opinion No. 25, the following information is for disclosure purposes only.
The valuation of options granted
in fiscal years 2003, 2002, and 2001 reported below has been estimated at the date of grant using the Black-Scholes option pricing
model with the following weighted average assumptions:
|
|
|
|
Stock Option Plans
|
|
Employee Stock
Participation Plan
|
|
|
|
|
|
2003
|
|
2002
|
|
2001
|
|
2003
|
|
2002
|
|
2001
|
Expected option holding period (in years) |
|
|
|
|
4.5 |
|
|
|
4.5 |
|
|
|
4.5 |
|
|
|
0.5 |
|
|
|
0.5 |
|
|
|
0.5 |
|
Risk-free interest rate |
|
|
|
|
3.0 |
% |
|
|
4.4 |
% |
|
|
5.1 |
% |
|
|
1.3 |
% |
|
|
2.2 |
% |
|
|
5.1 |
% |
Stock price volatility |
|
|
|
|
0.43 |
|
|
|
0.61 |
|
|
|
0.59 |
|
|
|
0.43 |
|
|
|
0.61 |
|
|
|
0.59 |
|
Dividend yield |
|
|
|
|
.46 |
% |
|
|
— |
|
|
|
.04 |
% |
|
|
.46 |
% |
|
|
— |
|
|
|
.04 |
% |
40
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 provide a reliable single measure of the value of the options. The following is a summary of weighted
average grant values generated by application of the Black-Scholes model:
|
|
|
|
Weighted Average Grant Date Value
For the Years
Ended
|
|
|
|
|
|
June 28, 2003
|
|
June 29, 2002
|
|
June 30, 2001
|
Stock Option Plans |
|
|
|
$ |
10.25 |
|
|
$ |
19.58 |
|
|
$ |
23.86 |
|
Employee Stock Participation Plans |
|
|
|
$ |
6.23 |
|
|
$ |
13.15 |
|
|
$ |
12.29 |
|
As required under SFAS 148, the
reported net income and earnings per share have been presented to reflect the impact had the Company been required to include the
amortization of the Black-Scholes option value as an expense. The adjusted amounts are as follows:
|
|
|
|
For the Years Ended
|
|
|
|
|
|
June 28, 2003
|
|
June 29, 2002
|
|
June 30, 2001
|
Net income — as reported |
|
|
|
$ |
309,601 |
|
|
$ |
259,183 |
|
|
$ |
334,939 |
|
Deduct: Total stock-based employee compensation expense determined under the fair value method, net of
tax |
|
|
|
|
139,684 |
|
|
|
171,713 |
|
|
|
129,525 |
|
| |
|
|
|
|
|
|
Net income — pro forma |
|
|
|
$ |
169,917 |
|
|
$ |
87,470 |
|
|
$ |
205,414 |
|
| |
|
|
|
|
|
|
Basic earnings per share — pro forma |
|
|
|
$ |
0.53 |
|
|
$ |
0.27 |
|
|
$ |
0.63 |
|
| |
|
|
|
|
|
|
Diluted earnings per share — pro forma |
|
|
|
$ |
0.50 |
|
|
$ |
0.25 |
|
|
$ |
0.57 |
|
| |
|
|
|
|
|
|
NOTE 4: BUSINESS
COMBINATION
In the fourth quarter of fiscal
year 2001, the Company acquired Dallas Semiconductor, a leading supplier of specialty semiconductors. The Company issued
approximately 41.0 million shares of its common stock in exchange for all the outstanding common stock of Dallas Semiconductor. In
addition, the Company exchanged all options to purchase Dallas Semiconductor common stock for options to purchase approximately 5.9
million shares of the Company’s common stock. The transaction was accounted for as a pooling-of-interests and qualifies as a
tax-free reorganization. As a result of the acquisition, during the fourth quarter of fiscal year 2001, the Company recorded merger
costs of $26.4 million. In addition, the Company recorded special charges of $137.0 million in the fourth quarter of fiscal year
2001. The special charges resulted from the significant decrease in demand that occurred during the fourth quarter of fiscal year
2001 for Dallas Semiconductor products in combination with the Company’s plan for the utilization of Dallas
Semiconductor’s long-lived assets. See “Merger and Special Charges” in Note 14 of these Notes to Consolidated
Financial Statements.
All financial data of the
Company presented in these financial statements was restated to include the historical financial data of Dallas Semiconductor in
accordance with accounting principles generally accepted in the United States and pursuant to Regulation S-X of the Securities and
Exchange Commission. Adjustments relating to deferral of income on shipments to distributors were required to conform the
accounting policies of the acquired company. Both the Company and Dallas Semiconductor have sales to domestic distributors under
agreements that provide for certain price rebates, allowances and return privileges. The Company defers recognition of these sales
until the merchandise is sold by the domestic distributors. Dallas Semiconductor recognized these sales, which were reduced by
estimated future price reductions and returns, upon shipment to domestic distributors. These adjustments reflect the conformity of
Dallas Semiconductor’s accounting policies and presentation to that of the Company’s.
41
NOTE 5: FINANCIAL
INSTRUMENTS
Investments
In accordance with Statement of
Financial Accounting Standard No. 115 (SFAS 115), “Accounting for Certain Investments in Debt and Equity Securities,” the
Company recorded an unrealized holding gain of $4.6 million on short-term investments at June 28, 2003 ($3.2 million at June 29,
2002). The unrealized holding gain resulted from a decline in interest rates that occurred during fiscal years 2003 and 2002. Fair
market values are calculated based upon prevailing market quotes at the end of each fiscal year.
Available-for-sale investments
at June 28, 2003 were as follows:
|
|
|
|
Cost
|
|
Unrealized
Gain
|
|
Unrealized
Loss
|
|
Estimated
Fair Value
|
|
|
|
|
(Amounts in thousands) |
|
U.S. Treasury securities |
|
|
|
$ |
751,079 |
|
|
$ |
4,022 |
|
|
|
— |
|
|
$ |
755,101 |
|
Federal Agency Debt securities |
|
|
|
|
197,483 |
|
|
|
582 |
|
|
|
— |
|
|
|
198,065 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
948,562 |
|
|
$ |
4,604 |
|
|
$ |
— |
|
|
$ |
953,166 |
|
| |
|
|
|
|
|
|
|
|
Available-for-sale investments
at June 29, 2002 were as follows:
|
|
|
|
Cost
|
|
Unrealized
Gain
|
|
Unrealized
Loss
|
|
Estimated
Fair Value
|
|
|
|
|
(Amounts in thousands) |
|
U.S. Treasury securities |
|
|
|
$ |
271,918 |
|
|
$ |
1,473 |
|
|
$ |
— |
|
|
$ |
273,391 |
|
Federal Agency Debt securities |
|
|
|
|
316,048 |
|
|
|
1,747 |
|
|
|
— |
|
|
|
317,795 |
|
Municipal bonds |
|
|
|
|
502 |
|
|
|
6 |
|
|
|
— |
|
|
|
508 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
588,468 |
|
|
$ |
3,226 |
|
|
$ |
— |
|
|
$ |
591,694 |
|
| |
|
|
|
|
|
|
|
|
Gross realized gains or losses
for fiscal years 2003, 2002, and 2001 were immaterial. The Company’s portfolio of marketable securities by contractual
maturity is as follows:
|
|
|
|
June 28,
2003
|
|
June 29,
2002
|
|
|
|
|
(Amounts in thousands) |
|
Due in one year or less |
|
|
|
$ |
612,235 |
|
|
$ |
591,694 |
|
Due after one year through three years |
|
|
|
|
340,931 |
|
|
|
— |
|
| |
|
|
|
|
Total |
|
|
|
$ |
953,166 |
|
|
$ |
591,694 |
|
| |
|
|
|
|
Foreign exchange contracts
At June 28, 2003, and June 29,
2002, 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 $60.5 million and $59.3 million, respectively. 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 years 2003 and 2002. The net unrealized gain or loss approximates the carrying value of these contracts.
42
|
|
|
|
June 28, 2003
|
|
June 29, 2002
|
|
|
|
|
|
Notional
Amounts
|
|
Unrealized
Gain (Loss)
|
|
Notional
Amounts
|
|
Unrealized
Gain (Loss)
|
|
|
|
|
(Amounts in thousands) |
|
Currency:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Japanese Yen |
|
|
|
$ |
27,622 |
|
|
$ |
393 |
|
|
$ |
28,162 |
|
|
$ |
(1,489 |
) |
British Pound Sterling |
|
|
|
|
18,203 |
|
|
|
(297 |
) |
|
|
18,137 |
|
|
|
(823 |
) |
Euro |
|
|
|
|
13,627 |
|
|
|
221 |
|
|
|
12,272 |
|
|
|
(938 |
) |
Swiss Franc |
|
|
|
|
1,047 |
|
|
|
34 |
|
|
|
739 |
|
|
|
(46 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
60,499 |
|
|
$ |
351 |
|
|
$ |
59,310 |
|
|
$ |
(3,296 |
) |
| |
|
|
|
|
|
|
|
|
The net unrealized gain, if any,
is potentially subject to market and credit risk as it represents appreciation of the hedge position over the spot exchange rates
at year-end. The Company controls credit risk through credit approvals and monitoring procedures.
NOTE 6: INVENTORIES
The components of inventories
are:
|
|
|
|
June 28, 2003
|
|
June 29, 2002
|
|
|
|
|
(Amounts in thousands) |
|
Raw material |
|
|
|
$ |
10,249 |
|
|
$ |
12,742 |
|
Work-in-process |
|
|
|
|
79,687 |
|
|
|
95,460 |
|
Finished goods |
|
|
|
|
31,256 |
|
|
|
31,004 |
|
| |
|
|
|
|
|
|
|
|
$ |
121,192 |
|
|
$ |
139,206 |
|
| |
|
|
|
|
NOTE 7: PROPERTY, PLANT AND
EQUIPMENT
Property, plant and equipment
consist of:
|
|
|
|
June 28, 2003
|
|
June 29, 2002
|
|
|
|
|
(Amounts in thousands) |
|
Land |
|
|
|
$ |
56,387 |
|
|
$ |
55,300 |
|
Buildings and building improvements |
|
|
|
|
322,803 |
|
|
|
316,087 |
|
Machinery and equipment |
|
|
|
|
1,128,356 |
|
|
|
1,060,797 |
|
| |
|
|
|
|
|
|
|
|
|
1,507,546 |
|
|
|
1,432,184 |
|
Less accumulated depreciation |
|
|
|
|
(737,661 |
) |
|
|
(686,023 |
) |
| |
|
|
|
|
|
|
|
|
$ |
769,885 |
|
|
$ |
746,161 |
|
| |
|
|
|
|
During fiscal year 2001, the
Company recorded charges of $39.2 million to cost of goods sold and $11.2 million to research and development costs to reduce the
carrying value of plant and equipment that was abandoned, no longer in use, or whose estimated useful lives were shortened,
resulting in accelerated depreciation. In addition, in the fourth quarter of fiscal year 2001, the Company recorded impairment
charges of $124.4 million related to the long-lived assets of Dallas Semiconductor. See Note 14 “Merger and Special
Charges” of these Notes to Consolidated Financial Statements.
43
NOTE 8: OTHER ASSETS
Included in Other Assets in the
Condensed Consolidated Balance Sheets at June 28, 2003 is $13.4 million of 4% senior secured convertible notes resulting from
amounts loaned to a privately held semiconductor company. The notes are secured by a first priority lien on, or security interest
in, substantially all the assets, including intellectual property, of this company. During the three months ended June 28, 2003,
this privately held semiconductor company ceased operations due to insolvency. Per the terms of the 4% senior secured convertible
notes, the Company accelerated the maturity of said notes and foreclosed on its first priority lien and security interest.
Subsequent to June 28, 2003, the Company acquired substantially all the assets, including intellectual property, and converted
substantially all of the $13.4 million of 4% senior secured convertible notes to a long-term intangible asset which will be
amortized over the estimated useful life of the associated intellectual property.
It is the Company’s
intention to use the intellectual property acquired in designing and developing new products. As required by Statement of Financial
Accounting Standards No. 144 “Accounting for the Impairment or Disposal of Long-Lived Assets” (SFAS 144), the Company
assessed the recoverability of the intellectual property. Based on this assessment, as of June 28, 2003, the intellectual property
is fully recoverable based on the projected discounted cash flows attributable to products designed and developed with this
intellectual property. Should it be determined in a future period that the projected remaining discounted cash flows attributable
to products designed and developed with the acquired intellectual property are less than the net book value represented by the
intellectual property, the Company’s results of operations could be materially adversely impacted in the period such
determination is made.
Also included in Other Assets in
the Condensed Consolidated Balance Sheets at June 28, 2003, and at June 29, 2002 are loans to employees of approximately $7.9
million and $8.9 million, respectively. These loans are collateralized primarily by employee stock options held by the respective
employees. To the extent such collateral is not sufficient to cover the amounts owed, there is risk of loss to the Company. To
date, the Company has not experienced any material losses related to these employee loans.
NOTE 9: COMMITMENTS AND
CONTINGENCIES
On June 26, 1997, a complaint
was filed by Linear Technology Corporation (“LTC”) naming the Company and certain other unrelated parties as defendants.
The complaint alleges that each of the defendants, including the Company, has willfully infringed, induced infringement and
contributorily infringed LTC’s United States Patent 5,481,178 relating to control circuits and methods for maintaining high
efficiencies over broad current ranges in a switching regulator circuit, all of which has allegedly damaged LTC in an unspecified
amount. The complaint further alleges that the Company’s actions have been, and continue to be, willful and deliberate and
seeks a permanent injunction against the Company as well as unspecified actual and treble damages including costs, expenses, and
attorneys fees. The Company answered the complaint on October 20, 1997, denying all of LTC’s substantive allegations and
counterclaiming for a declaration that LTC’s patent is invalid and not infringed.
On September 21, 2001, the
Federal District Court for the Northern District of California issued an order dismissing the patent litigation action by LTC. The
court found that the Company did not infringe any of the claims of the asserted patent. The Company had moved for summary judgment
on a number of subjects, including noninfringement, invalidity and unenforceability of the patent. The court found that the
Company’s remaining summary judgment motions were rendered moot by its noninfringement ruling. LTC has appealed the decision.
Maxim filed a cross-appeal in response to LTC’s appeal. Appellate briefs have been filed by both Maxim and LTC. The Company
filed its reply brief on April 2, 2003 and its response brief on June 20, 2003. The Company does not believe that the ultimate
outcome of these matters will have a material adverse effect on the financial position or liquidity of the Company. If, however,
the appellate court in the action brought by LTC were to reverse the trial court’s dismissal of the patent litigation claims
brought by LTC against the Company, and were LTC to prevail in its claims against the Company, the Company’s operating results
could be materially adversely affected.
44
On December 12, 2002, Qualcomm
Inc. filed and on February 4, 2003, Qualcomm Inc. served the Company with a complaint for patent infringement claiming that certain
of the Company’s products infringe one or all of three Qualcomm Inc. patents. Qualcomm seeks a preliminary and permanent
injunction as well as unspecified actual and treble damages including costs, expenses and attorneys fees. Qualcomm withdrew one of
its patents from the claim in June 2003. Qualcomm recently filed a Motion for Leave to Amend the complaint to add three new
transmission related patents. The Company is presently reviewing these claims and does not believe that the products in question
infringe upon Qualcomm Inc. patents noted above. While no assurance can be given in this regard, the Company does not believe that
the ultimate outcome of the action will have a material adverse effect on the Company’s financial condition, liquidity, or
results of operation.
In addition to the above, the
Company is subject to other legal proceedings and claims that arise in the normal course of its business. The Company does not
believe that the ultimate outcome of these matters will have a material adverse effect on the financial position of the
Company.
The Company leases certain of
its facilities under various operating leases that expire at various dates through 2010. 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:
Fiscal Year
|
|
|
|
(Amounts in thousands)
|
2004 |
|
|
|
$ |
2,675 |
|
2005 |
|
|
|
|
1,817 |
|
2006 |
|
|
|
|
1,281 |
|
2007 |
|
|
|
|
996 |
|
2008 |
|
|
|
|
659 |
|
2009–2010 |
|
|
|
|
267 |
|
|
|
|
|
$ |
7,695 |
|
Rent expense was approximately
$3.2 million, $3.0 million, and $3.7 million in fiscal years 2003, 2002, and 2001, respectively.
NOTE 10: COMPREHENSIVE
INCOME
Comprehensive income consists of
net income and net unrealized gains (losses) on available-for-sale investments and forward exchange contracts. The components of
other comprehensive income (loss) and related tax effects were as follows:
|
|
|
|
For the Years Ended
|
|
|
|
|
|
June 28, 2003
|
|
June 29, 2002
|
|
June 30, 2001
|
|
|
|
|
(Amounts in thousands) |
|
Change in unrealized gains (losses) on investments, net of tax of $416 in 2003, $(1,391) in 2002, and $2,618 in
2001 |
|
|
|
$ |
961 |
|
|
$ |
(2,543 |
) |
|
$ |
4,598 |
|
Change in unrealized gains (losses) on forward exchange contracts, net of tax of $716 in 2003, $(985) in 2002, and $209 in
2001 |
|
|
|
|
1,383 |
|
|
|
(1,911 |
) |
|
|
406 |
|
Adjustment to conform fiscal year of pooled entity |
|
|
|
|
— |
|
|
|
— |
|
|
|
(1,377 |
) |
| |
|
|
|
|
|
|
Other comprehensive income (loss) |
|
|
|
$ |
2,344 |
|
|
$ |
(4,454 |
) |
|
$ |
3,627 |
|
| |
|
|
|
|
|
|
45
Accumulated other comprehensive
income presented in the Consolidated Balance Sheets at June 28, 2003 and June 29, 2002 consists of net unrealized gains on
available-for-sale investments of $3.0 million and $2.1 million, respectively, net unrealized losses on forward exchange contracts
of $(0.1) million and $(1.5) million, respectively, and foreign currency translation adjustments of $(1.5) million and $(1.5)
million, respectively. Foreign currency translation adjustments are not tax affected.
NOTE 11: EMPLOYEE STOCK AND BENEFIT
PLANS
Stock option and purchase plans
At June 28, 2003, the Company
has reserved a total of 100,974,576 of its common shares for issuance to employees and certain others under its 1996 Stock
Incentive Plan, 1993 Officer and Director Stock Option Plan, 1987 Stock Option Plan, 1987 Supplemental Stock Option Plan, 1983
Incentive Stock Option Plan, 1987 Employee Stock Participation Plan (ESP 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 of Directors
or Plan administrator at the date of grant. Subject to certain limitations, the Board of Directors or Plan administrator 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 and, until April 11, 2001, the Dallas Semiconductor Stock Purchase
Plan, employees of the Company could 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 year 2003, the
Company recorded $113,473,000 of tax payable benefit on the exercise of nonqualified stock options and on disqualifying
dispositions under stock plans ($139,987,000 in fiscal year 2002 and $238,934,000 in fiscal year 2001).
Information with respect to
activity under the stock option plans and ESP Plan is set forth below:
|
|
|
|
|
|
Outstanding Options
|
|
|
|
|
|
Shares
Available
for Grant
|
|
Numbers of
Shares
|
|
Weighted
Average Price
Per Share
|
Balance, June 24, 2000 |
|
|
|
|
12,058,862 |
|
|
|
83,200,978 |
|
|
$ |
14.86 |
|
Adjustment to conform fiscal year of
pooled entity |
|
|
|
|
(2,374,944 |
) |
|
|
(941,841 |
) |
|
|
— |
|
Shares reserved |
|
|
|
|
13,607,256 |
|
|
|
— |
|
|
|
— |
|
Options granted |
|
|
|
|
(23,022,427 |
) |
|
|
23,022,427 |
|
|
$ |
46.78 |
|
Options terminated |
|
|
|
|
3,789,540 |
|
|
|
(3,789,540 |
) |
|
$ |
25.31 |
|
Options exercised |
|
|
|
|
— |
|
|
|
(12,206,590 |
) |
|
$ |
9.44 |
|
Balance, June 30, 2001 |
|
|
|
|
4,058,287 |
|
|
|
89,285,434 |
|
|
$ |
24.20 |
|
Shares reserved |
|
|
|
|
13,200,000 |
|
|
|
— |
|
|
|
— |
|
Options granted |
|
|
|
|
(17,948,876 |
) |
|
|
17,948,876 |
|
|
$ |
39.12 |
|
Options terminated |
|
|
|
|
2,730,123 |
|
|
|
(3,019,006 |
) |
|
$ |
33.50 |
|
Options exercised |
|
|
|
|
— |
|
|
|
(9,959,279 |
) |
|
$ |
10.27 |
|
Balance, June 29, 2002 |
|
|
|
|
2,039,534 |
|
|
|
94,256,025 |
|
|
$ |
28.25 |
|
Shares reserved |
|
|
|
|
14,000,000 |
|
|
|
— |
|
|
|
— |
|
Options granted |
|
|
|
|
(19,432,732 |
) |
|
|
19,432,732 |
|
|
$ |
28.32 |
|
Options terminated |
|
|
|
|
6,132,895 |
|
|
|
(6,406,967 |
) |
|
$ |
37.94 |
|
Options exercised |
|
|
|
|
— |
|
|
|
(9,046,911 |
) |
|
$ |
9.73 |
|
Balance, June 28, 2003 |
|
|
|
|
2,739,697 |
|
|
|
98,234,879 |
|
|
$ |
29.30 |
|
46
At June 28, 2003, 40,797,090
options to purchase shares of common stock were exercisable. Options exercisable at June 29, 2002 and June 30, 2001 were 36,116,676
and 33,070,686, respectively.
The following table summarizes
information about options outstanding at June 28, 2003:
|
|
|
|
Outstanding Options
|
|
Options Exercisable
|
|
Range of Exercise Prices
|
|
|
|
Number
Exercisable at
June 28, 2003
|
|
Weighted
Average
Remaining
Contractual
Life (Years)
|
|
Weighted
Average
Exercise
Price
|
|
Number
Exercisable at
June 28, 2003
|
|
Weighted
Average
Exercise
Price
|
$ 2.23 – $14.99 |
|
|
|
|
24,136,634 |
|
|
|
3.1 |
|
|
$ |
9.26 |
|
|
|
22,548,199 |
|
|
$ |
9.04 |
|
$15.00 – $24.99 |
|
|
|
|
17,908,949 |
|
|
|
6.9 |
|
|
$ |
20.78 |
|
|
|
6,725,573 |
|
|
$ |
19.17 |
|
$25.00 – $34.99 |
|
|
|
|
22,299,648 |
|
|
|
8.4 |
|
|
$ |
32.73 |
|
|
|
3,239,470 |
|
|
$ |
32.40 |
|
$35.00 – $44.99 |
|
|
|
|
17,576,845 |
|
|
|
7.9 |
|
|
$ |
38.94 |
|
|
|
5,891,738 |
|
|
$ |
39.36 |
|
$45.00 – $87.06 |
|
|
|
|
16,312,803 |
|
|
|
7.7 |
|
|
$ |
53.25 |
|
|
|
2,392,110 |
|
|
$ |
55.00 |
|
|
|
|
|
|
98,234,879 |
|
|
|
6.6 |
|
|
$ |
29.30 |
|
|
|
40,797,090 |
|
|
$ |
19.64 |
|
401(k) retirement plan
The Company sponsors a 401(k)
retirement plan (401(k) Plan) through Fidelity, under which full-time U.S. employees may contribute, on a pretax basis, between 1%
and 20% of their total annual income from the Company, subject to a maximum aggregate annual contribution imposed by the Internal
Revenue Code. The administration charge of the service provider was immaterial for fiscal year 2003. Company contributions to the
401(k) Plan were $0.7 million, $2.6 million, and $3.0 million in fiscal years 2003, 2002 and 2001, respectively.
NOTE 12: INCOME TAXES
The provision for income taxes
consists of the following:
|
|
|
|
For the Years Ended
|
|
|
|
|
|
June 28, 2003
|
|
June 29, 2002
|
|
June 30, 2001
|
|
|
|
|
(Amounts in thousands) |
|
Federal
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current |
|
|
|
$ |
95,032 |
|
|
$ |
118,136 |
|
|
$ |
175,874 |
|
Deferred |
|
|
|
|
45,685 |
|
|
|
(3,931 |
) |
|
|
(22,800 |
) |
State
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current |
|
|
|
|
5,000 |
|
|
|
6,732 |
|
|
|
16,195 |
|
Deferred |
|
|
|
|
2,710 |
|
|
|
1,483 |
|
|
|
(2,100 |
) |
Foreign
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current |
|
|
|
|
4,063 |
|
|
|
5,292 |
|
|
|
3,313 |
|
Deferred |
|
|
|
|
— |
|
|
|
(55 |
) |
|
|
(433 |
) |
| |
|
|
|
|
|
|
|
|
|
|
$ |
152,490 |
|
|
$ |
127,657 |
|
|
$ |
170,049 |
|
| |
|
|
|
|
|
|
Pretax income from foreign
operations was approximately $9.2 million, $17.0 million, and $9.2 million for the years ended June 28, 2003, June 29, 2002, and
June 30, 2001, respectively.
The Company enjoys tax holidays
with respect to its operations in Thailand and certain of its operations in the Philippines. Some of the Company’s tax
holidays expired in fiscal year 2002 and some will expire in fiscal year 2004. The impact of these tax holidays was to increase net
income by approximately $0.2 million ($0.0006 diluted earnings per share), $1.6 million ($0.005 diluted earnings per share), and
$1.1 million ($0.003 diluted earnings per
47
share) during fiscal years 2003, 2002, and 2001, respectively.
At June 28, 2003, accumulated undistributed earnings of approximately $17.8 million 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:
|
|
|
|
For the Years Ended
|
|
|
|
|
|
June 28,
2003
|
|
June 29,
2002
|
|
June 30,
2001
|
Federal statutory rate |
|
|
|
|
35.0 |
% |
|
|
35.0 |
% |
|
|
35.0 |
% |
State tax, net of federal benefit |
|
|
|
|
1.3 |
|
|
|
1.5 |
|
|
|
1.8 |
|
General business credits |
|
|
|
|
(1.1) |
|
|
|
(0.5) |
|
|
|
(1.3) |
|
Export sales benefit |
|
|
|
|
(2.5) |
|
|
|
(2.7) |
|
|
|
(2.5) |
|
Other |
|
|
|
|
0.3 |
|
|
|
(0.3) |
|
|
|
0.7 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
33.0 |
% |
|
|
33.0 |
% |
|
|
33.7 |
% |
| |
|
|
|
|
|
|
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:
|
|
|
|
June 28,
2003
|
|
June 29,
2002
|
|
|
|
|
(Amounts in thousand) |
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
|
|
Inventory valuation and reserves |
|
|
|
$ |
60,164 |
|
|
$ |
49,123 |
|
Distributor related accruals and sales return and allowance accruals |
|
|
|
|
22,406 |
|
|
|
29,021 |
|
Deferred revenue |
|
|
|
|
3,727 |
|
|
|
4,390 |
|
Accrued compensation |
|
|
|
|
18,173 |
|
|
|
16,490 |
|
Net operating loss carryovers |
|
|
|
|
11,751 |
|
|
|
62,546 |
|
Tax credit carryovers |
|
|
|
|
98,008 |
|
|
|
79,112 |
|
Impairment charge |
|
|
|
|
13,125 |
|
|
|
20,002 |
|
Other reserves and accruals not currently deductible for tax reporting |
|
|
|
|
16,016 |
|
|
|
17,223 |
|
Other |
|
|
|
|
6,390 |
|
|
|
13,001 |
|
| |
|
|
|
|
Total deferred tax assets |
|
|
|
|
249,760 |
|
|
|
290,908 |
|
| |
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
|
|
Fixed assets cost recovery |
|
|
|
|
(76,003 |
) |
|
|
(36,634 |
) |
Other |
|
|
|
|
(5,451 |
) |
|
|
(4,533 |
) |
| |
|
|
|
|
Net deferred tax assets before valuation allowance |
|
|
|
|
168,306 |
|
|
|
249,741 |
|
Valuation allowance |
|
|
|
|
(109,759 |
) |
|
|
(141,658 |
) |
| |
|
|
|
|
Net deferred tax assets |
|
|
|
$ |
58,547 |
|
|
$ |
108,083 |
|
| |
|
|
|
|
The decrease in the valuation
allowance of $31.9 million in fiscal year 2003 is primarily due to the utilization and recognition of loss carryovers attributable
to stock option deductions, the benefit of which was credited to Additional paid-in capital when recognized.
The valuation allowance of
$109.8 million is attributable to the tax benefits on gains realized from the exercise of stock options, and when realized, will be
recorded as a credit to additional paid-in-capital. Realization of the net deferred tax assets is dependent upon the Company’s
ability to generate future taxable income.
48
As of June 28, 2003, the Company
has $11.1 million of federal net loss carryovers expiring in fiscal year 2022, foreign net operating loss carryforwards of $7.8
million expiring at various dates between fiscal year 2004 and fiscal year 2008 and various state net operating loss carryforwards
with varying expiration dates.
As of June 28, 2003, the Company
has $45.4 million of federal general business credit carryforwards expiring at various dates between fiscal year 2019 and fiscal
year 2023, $10.3 million of other federal credit carryforwards expiring at various dates between fiscal year 2004 and fiscal year
2008, $40.2 million of state credit carryforwards with no expiration date and various other federal and state credit carryforwards
with varying expiration dates.
NOTE 13: SEGMENT
INFORMATION
The Company operates and tracks
its results in one reportable segment. The Company designs, develops, manufactures and markets a broad range of linear and
mixed-signal integrated circuits. The Chief Executive Officer has been identified as the Chief Operating Decision Maker as defined
by Statement of Financial Accounting Standard No. 131 (SFAS 131), “Disclosures about Segments of an Enterprise and Related
Information.”
Enterprise-wide information is
provided in accordance with SFAS 131. Geographical revenue information is based on the customer’s bill-to location. Long-lived
assets consist of property, plant and equipment. Property, plant and equipment information is based on the physical location of the
assets at the end of each fiscal year.
Net revenues from unaffiliated
customers by geographic region were as follows:
|
|
|
|
For the Years Ended
|
|
|
|
|
|
June 28,
2003
|
|
June 29,
2002
|
|
June 30,
2001
|
|
|
|
|
(Amounts in thousands) |
|
United States |
|
|
|
$ |
380,748 |
|
|
$ |
353,126 |
|
|
$ |
682,670 |
|
Europe |
|
|
|
|
226,023 |
|
|
|
226,672 |
|
|
|
384,827 |
|
Pacific Rim |
|
|
|
|
535,177 |
|
|
|
433,648 |
|
|
|
486,407 |
|
Rest of World |
|
|
|
|
11,271 |
|
|
|
11,658 |
|
|
|
22,709 |
|
| |
|
|
|
|
|
|
|
|
|
|
$ |
1,153,219 |
|
|
$ |
1,025,104 |
|
|
$ |
1,576,613 |
|
| |
|
|
|
|
|
|
Net long-lived assets by
geographic region were as follows:
|
|
|
|
June 28,
2003
|
|
June 29,
2002
|
|
|
|
|
(Amounts in thousands) |
|
United States |
|
|
|
$ |
694,454 |
|
|
$ |
681,256 |
|
Rest of World |
|
|
|
|
75,431 |
|
|
|
64,905 |
|
| |
|
|
|
|
|
|
|
|
$ |
769,885 |
|
|
$ |
746,161 |
|
| |
|
|
|
|
NOTE 14: MERGER AND SPECIAL
CHARGES
As a result of the merger with
Dallas Semiconductor, during the fourth quarter of fiscal year 2001, the Company recorded merger costs of approximately $26.4
million. These costs consist of approximately $14.1 million intended to satisfy the change in control payments under previously
existing employment contracts and other non-employee director arrangements for which there was no future economic benefit; a $5.8
million payment to be made under a change in control provision in a previously existing life insurance arrangement for which there
was no future economic benefit; and $6.5 million for fees related to investment banking, legal, accounting, filings with regulatory
agencies, financial printing, and other related costs. Approximately $0.1 million of the direct transaction costs were paid out of
existing cash reserves in fiscal year 2003. The remaining unpaid direct transaction costs of approximately $1.6 million are related
to change in control payments under previously existing employment contracts and other non-employee director arrangements that will
be paid out in future periods according to the terms of the related agreement.
49
During the fourth quarter of
fiscal year 2001, the Company recorded a special charge of $124.4 million to reduce the net book value of Dallas
Semiconductor’s long-lived assets to fair value. This impairment charge resulted from the significant decrease in demand that
occurred during the fourth quarter of fiscal 2001 in combination with the Company’s intention to close Dallas
Semiconductor’s 6-inch wafer manufacturing facility and dispose of the related equipment. The Company’s intention was to
complete construction of a 8-inch wafer manufacturing facility located in Dallas, Texas that was under construction when the merger
was consummated between the Company and Dallas Semiconductor. Once complete, the 8-inch wafer manufacturing facility will serve as
Dallas Semiconductor’s primary wafer manufacturing facility. In addition, in fiscal year 2001, the Company planned to
concentrate a significant portion of its test operations of the combined company at the Company’s test facilities located in
the Philippines and Thailand. The Company concluded that the above facts indicated that Dallas Semiconductor’s long-lived
assets might be impaired, and as required by accounting principles generally accepted in the United States, performed a cash flow
analysis of the related assets. Based on the cash flows analysis, an impairment charge was recorded as noted above. The Company
continued construction of the 8-inch wafer manufacturing facility located in Dallas, Texas during fiscal year 2002 although at a
slower pace than originally anticipated due to unforeseen complexities and resource constraints related to converting existing
6-inch processes to 8-inch processes. Construction was completed in fiscal year 2003 and the Company began manufacturing 8-inch
wafers. Conversion from 6-inch wafer production to 8-inch wafer production at Dallas Semiconductor’s wafer manufacturing
facilities will continue throughout fiscal year 2004. The concentration of test operations of the combined company noted above was
completed in fiscal year 2002 as planned.
In addition to the above, during
the fourth quarter of fiscal year 2001, the Company recorded special charges of $12.6 million to reflect the reorganization of the
Company’s sales organization, purchase order cancellation fees, and the reduction in the Company’s manufacturing
workforce. The above actions directly impacted employees in the Company’s sales, marketing, and manufacturing organizations.
The Company terminated 137 employees and 93 employees in fiscal years 2002 and 2001, respectively, and paid $0.5 million and $2.0
million in termination benefits in fiscal years 2002 and 2001, respectively, related to the above actions.
During fiscal year 2002, the
Company recorded additional special charges of $4.1 million related to additional reductions in the Company’s manufacturing
workforce. These additional reductions were required to better match capacity with demand for the Company’s product. In fiscal
year 2002, the Company terminated an additional 350 employees and paid an additional $4.0 million of termination benefits related
to these actions, bringing the total number of employees terminated to 487 and the total termination benefits paid to $4.5 million
in fiscal year 2002. In fiscal year 2003, the Company paid $0.1 million of termination benefits related to the above
actions.
Based on developments that
occurred during fiscal year 2002 related to the special charges recorded during the fourth quarter of fiscal year 2001, the Company
revised its estimate of the reserve balance needed for purchase order cancellation fees. Based on the status of negotiations, the
amount that will ultimately be paid will be approximately $4.3 million less than the amount recorded for such charges at June 30,
2001. Accordingly, the Company decreased the amount recorded for purchase order cancellation fees by $4.3 million to reflect this
change in estimate. During fiscal year 2003, the Company paid $0.2 million against amounts reserved for purchase order cancellation
fees leaving a remaining reserve balance for purchase order cancellation fees of $3.0 million at June 28, 2003. The Company is
currently in negotiation to resolve the remaining purchase order cancellation fees. In addition to the above, at June 28, 2003, the
Company has a reserve balance of $1.7 million remaining related primarily to unresolved claims that resulted from the termination
of certain sales representatives.
50
The following table summarizes
the activity related to the above actions for the fiscal years ended June 28, 2003, June 29, 2002 and June 30,
2001:
|
|
|
|
Merger
Costs
|
|
Impairment
Charges
|
|
Severance
|
|
Purchase Order
Cancellation Fees
|
|
Other
|
|
Total
|
|
|
|
|
(Amounts in thousands) |
|
Merger and special charges |
|
|
|
$ |
26,434 |
|
|
$ |
124,432 |
|
|
$ |
2,542 |
|
|
$ |
7,797 |
|
|
$ |
2,244 |
|
|
$ |
163,449 |
|
Non-cash charges |
|
|
|
|
(2,622 |
) |
|
|
(124,432 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(127,054 |
) |
Cash payments |
|
|
|
|
(15,671 |
) |
|
|
— |
|
|
|
(1,989 |
) |
|
|
(284 |
) |
|
|
— |
|
|
|
(17,944 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
Reserve balance at June 30, 2001 |
|
|
|
|
8,141 |
|
|
|
— |
|
|
|
553 |
|
|
|
7,513 |
|
|
|
2,244 |
|
|
|
18,451 |
|
Special charges |
|
|
|
|
— |
|
|
|
— |
|
|
|
4,097 |
|
|
|
— |
|
|
|
— |
|
|
|
4,097 |
|
Adjustment |
|
|
|
|
141 |
|
|
|
— |
|
|
|
— |
|
|
|
(4,285 |
) |
|
|
47 |
|
|
|
(4,097 |
) |
Cash payments |
|
|
|
|
(6,559 |
) |
|
|
— |
|
|
|
(4,548 |
) |
|
|
— |
|
|
|
(572 |
) |
|
|
(11,679 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
Reserve balance at June 29, 2002 |
|
|
|
|
1,723 |
|
|
|
— |
|
|
|
102 |
|
|
|
3,228 |
|
|
|
1,719 |
|
|
|
6,772 |
|
Cash payments |
|
|
|
|
(117 |
) |
|
|
— |
|
|
|
(102 |
) |
|
|
(189 |
) |
|
|
— |
|
|
|
(408 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
Reserve balance at June 28, 2003 |
|
|
|
$ |
1,606 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
3,039 |
|
|
$ |
1,719 |
|
|
$ |
6,364 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
NOTE 15: COMMON STOCK
REPURCHASES
First and second quarters of fiscal year
2002
Following the extraordinary
events on September 11, 2001, the Securities and Exchange Commission issued an Emergency Order pursuant to Section 12(k)(2) of the
Securities Exchange Act of 1934. This Emergency Order was issued to temporarily ease the restrictions of Rule 10 b-18 during the
five business days following the opening of the U.S. securities market on September 17, 2001. The Emergency Order also provided
that, despite pooling-of-interests provisions in Accounting Principles Board Opinion No. 16, Business Combinations, and the
related interpretations of the American Institute of Certified Public Accountants, consensuses of the Financial Accounting
Standards Board’s Emerging Issues Task Force, rules and regulations of the Commission and interpretations by its staff, and
other authoritative accounting guidance, a company could continue to account for its business combination transactions as a
pooling-of-interests if it repurchased its own common stock pursuant to the Emergency Order. Subsequently, the Securities Exchange
Commission extended this Emergency Order to September 28, 2001. As a result of the Emergency Order, the Company authorized the
repurchase of up to 10 million shares of its common stock for the ten business days following the opening of the U.S. securities
markets on September 17, 2001. During the period from September 17, 2001 to September 28, 2001, the Company repurchased
approximately 8.2 million shares of its common stock for $286.6 million.
On September 28, 2001, the
Securities and Exchange Commission issued an Exemptive Order to respond to market developments. Similar to its previously issued
Emergency Order, the Exemptive Order eased the restrictions of Rule 10b-18 and provided that, despite pooling-of-interests
provisions in Accounting Principles Board Opinion No. 16, Business Combinations, and the related interpretations of the
American Institute of Certified Public Accountants, consensuses of the Financial Accounting Standards Board’s Emerging Issues
Task Force, rules and regulations of the Commission and interpretations by its staff, and other authoritative accounting guidance,
a company could continue to account for its business combination transactions as a pooling-of-interests if it repurchased its own
common stock pursuant to the Exemptive Order during the period from October 1, 2001 to October 12, 2001. On October 1, 2001 the
Company increased the number of shares authorized to be repurchased to 15 million, and during the period from October 1, 2001 to
October 12, 2001, the Company repurchased 2.0 million shares of its common stock for $67.8 million. To the extent that the
Board’s authorization on October 1, 2001 to repurchase shares of the Company’s common stock was not fully executed by
October 12, 2001, that authorization was rescinded.
51
Third and fourth quarters of fiscal year
2002
Due to decreases in market
interest rates that occurred during fiscal 2002, in combination with investments maturing during the six months ended June 29,
2002, which had a high rate of return that would have been reinvested at a much lower rate of return, the Company determined it
would be a more effective use of its funds to repurchase its common stock rather than reinvesting maturing amounts. Given
prevailing market interest rates combined with the market price of the Company’s common stock, the Company concluded that
repurchases of common stock would be accretive to earnings. In light of the above, on February 28, 2002, the Board of Directors
authorized the repurchase of the Company’s common stock from time to time at the discretion of the Company’s management.
The Board of Directors further defined this authority during the third and fourth quarters of fiscal year 2002, when it approved
extensions of the share repurchase authorization announced on February 28, 2002. These extensions authorize the Company to
repurchase up to 20 million shares of its common stock from time to time between the dates of such authorization and the end of the
Company’s fiscal year 2003.
During the six months ended June
29, 2002, the Company repurchased approximately 10.0 million shares of its common stock for $509.6 million. As of June 29, 2002,
approximately 10.9 million shares remained available under the repurchase authorization.
Fiscal year 2003
On May 22, 2003, the Board of
Directors extended the share repurchase authorization noted above to the end of the Company’s fiscal year 2004. During fiscal
year 2003, the Company repurchased approximately 4.5 million shares of its common stock for $153.9 million. As of June 28, 2003,
approximately 6.4 million shares remained available under the repurchase authorization. The number of shares to be repurchased and
the timing of such repurchases will be based on several factors, including the price of the Company’s common stock, general
market and business conditions, and other factors.
NOTE 16: SUBSEQUENT EVENT (UNAUDITED)
On July 23, 2003, the Board of
Directors declared a cash dividend of $0.08 per share on the Company’s common stock payable on September 5, 2003 to
stockholders of record on August 22, 2003.
52
NOTE 17: QUARTERLY FINANCIAL DATA
(UNAUDITED)
|
|
|
|
Quarter Ended
|
|
Fiscal Year 2003
|
|
|
|
6/28/03
|
|
3/29/03
|
|
12/28/02
|
|
9/28/02
|
|
|
|
|
Unaudited |
|
|
|
|
|
(Amounts in thousands, except per share data) |
|
Net revenues |
|
|
|
$ |
295,029 |
|
|
$ |
286,232 |
|
|
$ |
286,077 |
|
|
$ |
285,881 |
|
Cost of goods sold |
|
|
|
|
88,454 |
|
|
|
86,146 |
|
|
|
86,541 |
|
|
|
87,123 |
|
| |
|
|
|
|
|
|
|
|
Gross margin |
|
|
|
$ |
206,575 |
|
|
$ |
200,086 |
|
|
$ |
199,536 |
|
|
$ |
198,758 |
|
Gross margin % |
|
|
|
|
70.0 |
% |
|
|
69.9 |
% |
|
|
69.7 |
% |
|
|
69.5 |
% |
| |
|
|
|
|
|
|
|
|
Operating income |
|
|
|
$ |
118,374 |
|
|
$ |
112,216 |
|
|
$ |
111,095 |
|
|
$ |
105,351 |
|
% of net revenues |
|
|
|
|
40.1 |
% |
|
|
39.2 |
% |
|
|
38.8 |
% |
|
|
36.9 |
% |
| |
|
|
|
|
|
|
|
|
Net income |
|
|
|
$ |
81,743 |
|
|
$ |
77,604 |
|
|
$ |
77,077 |
|
|
$ |
73,177 |
|
| |
|
|
|
|
|
|
|
|
Earnings per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
|
$ |
0.25 |
|
|
$ |
0.24 |
|
|
$ |
0.24 |
|
|
$ |
0.23 |
|
| |
|
|
|
|
|
|
|
|
Diluted |
|
|
|
$ |
0.24 |
|
|
$ |
0.23 |
|
|
$ |
0.23 |
|
|
$ |
0.22 |
|
| |
|
|
|
|
|
|
|
|
Shares used in the calculation of earnings per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
|
|
324,821 |
|
|
|
322,905 |
|
|
|
321,199 |
|
|
|
319,498 |
|
| |
|
|
|
|
|
|
|
|
Diluted |
|
|
|
|
344,882 |
|
|
|
341,863 |
|
|
|
340,322 |
|
|
|
337,946 |
|
| |
|
|
|
|
|
|
|
|
Dividends declared per share |
|
|
|
$ |
0.04 |
|
|
$ |
0.02 |
|
|
$ |
0.02 |
|
|
$ |
— |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
Fiscal Year 2002
|
|
|
|
6/29/02
|
|
3/30/02
|
|
12/29/01
|
|
9/29/01
|
|
|
|
|
Unaudited |
|
|
|
|
|
(Amounts in thousands, except per share data) |
|
Net revenues |
|
|
|
$ |
280,089 |
|
|
$ |
258,481 |
|
|
$ |
247,108 |
|
|
$ |
239,426 |
|
Cost of goods sold |
|
|
|
|
89,428 |
|
|
|
76,989 |
|
|
|
73,961 |
|
|
|
71,845 |
|
| |
|
|
|
|
|
|
|
|
Gross margin |
|
|
|
$ |
190,661 |
|
|
$ |
181,492 |
|
|
$ |
173,147 |
|
|
$ |
167,581 |
|
Gross margin % |
|
|
|
|
68.1 |
% |
|
|
70.2 |
% |
|
|
70.1 |
% |
|
|
70.0 |
% |
| |
|
|
|
|
|
|
|
|
Operating income |
|
|
|
$ |
96,546 |
|
|
$ |
90,567 |
|
|
$ |
81,723 |
|
|
$ |
76,516 |
|
% of net revenues |
|
|
|
|
34.5 |
% |
|
|
35.0 |
% |
|
|
33.1 |
% |
|
|
32.0 |
% |
| |
|
|
|
|
|
|
|
|
Net income |
|
|
|
$ |
68,608 |
|
|
$ |
66,727 |
|
|
$ |
62,554 |
|
|
$ |
61,294 |
|
| |
|
|
|
|
|
|
|
|
Earnings per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
|
$ |
0.21 |
|
|
$ |
0.20 |
|
|
$ |
0.19 |
|
|
$ |
0.19 |
|
| |
|
|
|
|
|
|
|
|
Diluted |
|
|
|
$ |
0.20 |
|
|
$ |
0.19 |
|
|
$ |
0.18 |
|
|
$ |
0.17 |
|
| |
|
|
|
|
|
|
|
|
Shares used in the calculation of earnings per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
|
|
321,273 |
|
|
|
326,228 |
|
|
|
323,897 |
|
|
|
330,711 |
|
| |
|
|
|
|
|
|
|
|
Diluted |
|
|
|
|
349,387 |
|
|
|
358,598 |
|
|
|
355,799 |
|
|
|
359,499 |
|
| |
|
|
|
|
|
|
|
|
Dividends declared per share |
|
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
| |
|
|
|
|
|
|
|
|
53
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 28, 2003 and June 29, 2002, and the related consolidated
statements of income, stockholders’ equity, and cash flows for each of the three fiscal years in the period ended June 28,
2003. Our audits also included the financial statement schedule listed in the Index at Item 15(a). These financial statements and
schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial
statements and schedule 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 consolidated
financial statements referred to above present fairly, in all material respects, the consolidated financial position of Maxim
Integrated Products, Inc., at June 28, 2003 and June 29, 2002, and the consolidated results of its operations and its cash flows
for each of the three years in the period ended June 28, 2003, in conformity with accounting principles generally accepted in the
United States. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the information set forth therein.
/s/ Ernst & Young
LLP
San Jose, California
August 4, 2003
54
MAXIM INTEGRATED PRODUCTS, INC.
SCHEDULE II — VALUATION AND QUALIFYING
ACCOUNTS
|
|
|
|
Balance at
Beginning
of Period
|
|
Additions
Charged
to Costs and
Expenses
|
|
Deductions (1)
|
|
Balance at
End of
Period
|
|
|
|
|
(Amounts in thousands) |
|
Allowance for doubtful accounts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended June 28, 2003 |
|
|
|
$ |
3,176 |
|
|
$ |
— |
|
|
$ |
569 |
|
|
$ |
2,607 |
|
Year ended June 29, 2002 |
|
|
|
$ |
3,280 |
|
|
$ |
— |
|
|
$ |
104 |
|
|
$ |
3,176 |
|
Year ended June 30, 2001 |
|
|
|
$ |
2,248 |
|
|
$ |
1,032 |
|
|
$ |
— |
|
|
$ |
3,280 |
|
(1) |
|
Uncollectible accounts written
off. |
55
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 19, 2003
MAXIM INTEGRATED PRODUCTS, INC.
Carl W. Jasper
Vice
President, Chief Financial Officer
and Principal Accounting Officer
(For the Registrant, as Principal Financial
Officer
and as Principal Accounting Officer)
56
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE
PRESENTS, that each person whose signature appears below constitutes and appoints each of John F. Gifford and Carl W. Jasper as his
true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place
and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to this Report on Form
10-K, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform
each and every act and thing requisite and necessary to be done in connection therewith and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents,
or any of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
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
John F. Gifford |
|
|
|
|
President, Chief Executive Officer and Chairman of the Board (Principal Executive Officer) |
|
|
|
September
19, 2003 |
|
|
/s/ James R. Bergman
James R. Bergman |
|
|
|
|
Director |
|
|
|
September
19, 2003 |
|
|
/s/ B. Kipling Hagopian
B. Kipling Hagopian |
|
|
|
|
Director |
|
|
|
September
19, 2003 |
|
|
/s/ M.D. Sampels
M.D. Sampels |
|
|
|
|
Director |
|
|
|
September
19, 2003 |
|
|
/s/ A.R. Wazzan
A. R. Wazzan |
|
|
|
|
Director |
|
|
|
September
19, 2003 |
|
57
CORPORATE DATA AND STOCKHOLDER INFORMATION
Independent Auditors
Ernst & Young LLP
San Jose, California
Registrar/Transfer Agent
EquiServe Trust Company, N.A.
Boston,
Massachusetts
Corporate Headquarters
120 San Gabriel Drive
Sunnyvale, California 94086
(408)
737-7600
Stock Listing
At June 28, 2003, there were approximately 1,680 stockholders
of record of the Company’s common stock. Maxim common stock is traded on the Nasdaq National Market under the symbol
“MXIM”.
Annual Meeting
The annual meeting of stockholders will be on Thursday,
November 13, 2003 at 11:00 a.m. at the Company’s Event Center, 433 N. Mathilda Avenue, Sunnyvale, California 94086.
58
EXHIBIT INDEX
Exhibit
Number
|
|
|
|
Description
|
3.1 (1) |
|
|
|
|
Restated Certificate of Incorporation of the Company |
|
3.3 (2) |
|
|
|
|
Amendments to Restated Certificate of Incorporation of the Company |
|
3.4 (3) |
|
|
|
|
Amended and Restated Bylaws of the Company, as amended |
|
4.1 |
|
|
|
|
Reference is made to Exhibits 3.1, 3.3 and 3.4 |
|
10.5 (4) |
|
|
|
|
Agreement between John F. Gifford and the Company, dated as of July 14, 1987, as amended and restated(A) |
|
10.8 (5) |
|
|
|
|
The Company’s Form of Indemnity Agreement(A) |
|
10.11 (6) |
|
|
|
|
The Company’s Incentive Stock Option Plan, as amended(A) |
|
10.12 (7) |
|
|
|
|
The Company’s 1987 Supplemental Stock Option Plan, as amended(A) |
|
10.13 (7) |
|
|
|
|
The Company’s Supplemental Nonemployee Stock Option Plan, as amended(A) |
|
10.14 (8) |
|
|
|
|
The Company’s 1987 Employee Stock Participation Plan, as amended(A) |
|
10.16 (8) |
|
|
|
|
The Company’s 1996 Stock Incentive Plan, as amended(A) |
|
10.17 (8) |
|
|
|
|
Dallas Semiconductor Corporation — 1993 Officer and Director Stock Option Plan, as amended, together with forms of
stock option agreements thereunder(A) |
|
10.18 (8) |
|
|
|
|
Dallas Semiconductor Corporation Amended 1987 Stock Option Plan, together with forms of stock option agreements
thereunder(A) |
|
10.19 (8) |
|
|
|
|
Assumption Agreement relating to the Split Dollar Insurance Agreement between Dallas Semiconductor Corporation and Alan P.
Hale, dated July 20, 2000, as amended (A) |
|
10.20 (8) |
|
|
|
|
Assumption Agreement relating to the Split Dollar Insurance Agreement between Dallas Semiconductor Corporation and M.D.
Sampels, dated July 20, 2000, as amended (A) |
|
10.21 (8) |
|
|
|
|
Form of Shareholder Agreements between Dallas Semiconductor Corporation and employee stockholders, as
amended(A) |
|
10.22 (8) |
|
|
|
|
Agreement between Dallas Semiconductor Corporation and Alan P. Hale, dated May 20, 1999, as amended(A) |
|
10.23 (8) |
|
|
|
|
Employment Agreement between Dallas Semiconductor Corporation and Alan P. Hale, dated April 11, 2001 (A) |
|
10.24 (8) |
|
|
|
|
Split Dollar Insurance Agreement between Dallas Semiconductor Corporation and Alan P. Hale, dated July 20, 2000, as
amended |
|
10.25 (8) |
|
|
|
|
Split Dollar Insurance Agreement between Dallas Semiconductor Corporation and M.D. Sampels, dated July 20, 2000, as
amended(A) |
|
10.26 (8) |
|
|
|
|
Assumption Agreement, dated April 11, 2001, relating to Dallas Semiconductor Corporation Executives Retiree Medical Plan,
as amended(A) |
|
10.27 (8) |
|
|
|
|
Assumption Agreement, dated April 11, 2001, relating to Dallas Semiconductor Corporation stock
options(A) |
|
10.28 (8) |
|
|
|
|
Dallas Semiconductor Corporation Executives Retiree Medical Plan, as amended(A) |
|
10.29 (8) |
|
|
|
|
Form of Indemnification Agreement between Dallas Semiconductor Corporation and its directors and
officers(A) |
|
21.1 |
|
|
|
|
Subsidiaries of the Company |
|
23 |
|
|
|
|
Consent of Ernst & Young LLP, Independent Auditors |
|
24.1 |
|
|
|
|
Power of Attorney (see page 57) |
|
31.1 |
|
|
|
|
Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
|
59
Exhibit
Number
|
|
|
|
Description
|
31.2 |
|
|
|
|
Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
|
32.1 |
|
|
|
|
Certification of Chief Executive Officer Pursuant to Section 1350, Chapter 63 of Title 18 United States Code, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
|
32.2 |
|
|
|
|
Certification of Chief Financial Officer Pursuant to Section 1350, Chapter 63 of Title 18 United States Code, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
|
(A) |
|
Management contract or compensatory plan or
arrangement. |
(1) |
|
Incorporated by reference to the exhibit with
the corresponding exhibit number in the Company’s Annual Report on Form 10-K for the year ended June 30, 1995. |
(2) |
|
Incorporated by reference to the exhibit with
the corresponding exhibit number in the Company’s Annual Report on Form 10-K for the year ended June 30, 1997, to the exhibit
with the corresponding exhibit number in the Company’s Annual Report on Form 10-K for the year ended June 30, 1998, to the
exhibit with the corresponding exhibit number in the Company’s Quarterly Report on Form 10-Q for the quarter ended December
25, 1999, and to the exhibit with the corresponding exhibit number in the Company’s Quarterly Report on Form 10-Q for the
quarter ended December 30, 2000. |
(3) |
|
Incorporated by reference to exhibit 3.4 in
the Company’s Annual Report on Form 10-K for the year ended June 29, 2002 |
(4) |
|
Incorporated by reference to exhibit 10.7 in
the Company’s Annual Report on Form 10-K for the year ended June 30, 1994. |
(5) |
|
Incorporated by reference to exhibit 10.34 in
the Company’s Registration Statement on Form S-1 (File No. 33-19561). |
(6) |
|
Incorporated by reference to the exhibit with
the corresponding exhibit number in the Company’s Annual Report on Form 10-K for the year ended June 30, 1995. |
(7) |
|
Incorporated by reference to the exhibit with
the corresponding exhibit number in the Company’s Annual Report on Form 10-K for the year ended June 27, 1998. |
(8) |
|
Incorporated by reference to the exhibit with
the corresponding exhibit number in the Company’s Annual Report on Form 10-K for the year ended June 30, 2001. |
60