ITEM 1. BUSINESS
Maxim Integrated Products, Inc. ("Maxim" or the "Company") designs, develops, manufactures, and markets a broad range of linear and mixed-signal integrated circuits, commonly referred to as analog circuits. The Company also provides a range of high-frequency design processes and capabilities that can be used in custom design. The analog market is highly fragmented and characterized by many diverse applications, a great number of product variations, and, as to many circuit types, relatively long product life cycles. Maxim's objective is to develop and market both proprietary and industry-standard analog integrated circuits that meet the increasingly stringent quality standards demanded by customers. Based on product announcements by its competitors, Maxim believes that in the past 18 years it has developed more products for the analog market, including proprietary and second-source products, than any of its competitors over the same period.
On April 11, 2001, the Company acquired Dallas Semiconductor Corporation. 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 assumed all stock options to purchase Dallas Semiconductor common stock for options to purchase approximately 5.9 million shares of the Company's common stock. The transaction has been accounted for as a pooling-of-interests. Accordingly, unless specifically stated otherwise, all financial data of the Company has been restated to include the historical financial data of Dallas Semiconductor. See Note 3 "Business Combination" of the Notes to Consolidated Financial Statements as set forth in the Company's Annual Report to Stockholders for the fiscal year ended June 30, 2001. At the time of the acquisition, Dallas Semiconductor's product line consisted of 390 proprietary base products sold to over 15,000 customers worldwide. Applications for those products include battery management, broadband telecommunications, wireless handsets, cellular base stations, networking, servers, data storage, and a wide variety of industrial equipment.
The Company is a Delaware corporation that was originally incorporated in California in 1983. It is headquartered in Sunnyvale, California. The mailing address for the Company's headquarters is 120 San Gabriel Drive, Sunnyvale, California 94086, and the Company's telephone number is (408) 737-7600. Additional information about the Company is available on the Company's website at www.maxim-ic.com.
THE ANALOG INTEGRATED CIRCUIT MARKET
All electronic signals fall into one of two categories, linear or digital. Linear (or analog) signals represent real world phenomena, such as temperature, pressure, sound, or speed, and are continuously variable over a wide range of values. Digital signals represent the "ones" and "zeros" of binary arithmetic and are either on or off.
Three general classes of semiconductor products arise from this partitioning of signals into linear or digital. There are those, such as memories and microprocessors, that operate only in the digital domain. There are linear devices such as amplifiers, references, analog multiplexers, and switches that operate primarily in the analog domain. Finally, there are mixed-signal devices that combine linear and digital functions on the same integrated circuit and interface between the analog and
digital worlds. Maxim's strategy has been to target both the linear and mixed-signal markets, often collectively referred to as the analog market. With the acquisition of Dallas Semiconductor, Maxim has expanded its product offerings in the mixed signal area, which represented more than 90% of the revenues of Dallas Semiconductor during its last three fiscal years. In addition, Maxim has added some Dallas Semiconductor products that are exclusively or principally digital as well as a significant number of engineers skilled in digital design and software development. Although the acquisition has not substantially affected Maxim's strong focus on the linear and mixed signal market, it has significantly supplemented Maxim's capabilities in the digital area in ways that should enable development of new products, mixed signal and other, with very sophisticated digital characteristics. Risks associated with fulfilling this expectation are discussed in "Item 1., Trends, Risks and Uncertainties" below.
The Company believes that, compared to the digital integrated circuit market, the analog market has generally been characterized by a wider range of standard products used in smaller quantities by a larger number of customers, and in many cases, by longer product life cycles and lower capital requirements as a result of generally using more mature manufacturing technologies. The Company believes that the widespread application of low-cost microprocessor-based systems and of digital communication technologies has affected the market for analog integrated circuits by increasing the need for interfaces with the analog world.
The analog market is a highly fragmented group of niche markets, serving numerous and widely differing applications for instrumentation, industrial control, data processing, communications, military, video, and selected medical equipment. For each application, different users may have unique requirements for circuits with specific resolution, accuracy, linearity, speed, power, and signal amplitude capability, which results in a high degree of market complexity. Maxim's products can be used in a variety of applications, but serve only certain portions of the total analog market.
PRODUCTS AND APPLICATIONS
The Company believes that it addresses the requirements of the market by providing competitively priced products that add value to electronic equipment with superior quality and reliability.
The Company's research and development programs emphasize development of technically innovative proprietary products. In addition, the Company also develops second source products used for industry-standard parts. In the Company's fiscal year 2001 product introduction year ending July 28, 2001, the Company introduced over 500 products compared to over 400 products in the Company's fiscal year 2000 product introduction year. The Company's products are available with numerous packaging alternatives, including packages for surface mount technology.
The following table illustrates the major industries served by the Company and typical applications for which the Company's products can be used:
The Company also sells products for military, video, and selected medical equipment.
While Maxim's proprietary products have received substantial market acceptance, Maxim has experienced additional competition as Maxim's competitors have developed second source products for some of Maxim's successful innovative proprietary products. Typically in the semiconductor industry, when a proprietary product becomes second sourced, the credibility of the original design is enhanced, and there is an opportunity to increase total revenues as the potential customers' reluctance to design in a sole-source product is removed, but gross margins may be adversely affected due to increased price competition.
PRODUCT QUALITY
Maxim places strong emphasis on product quality from initial design through final quality assurance for the end product. In the product design phase, Maxim applies a set of circuit design rules that it believes result in enhanced product reliability. Upon receipt from Maxim's own fabrication facilities or from silicon foundries, a majority of processed wafers are tested for conformance with specific parameters. Products are individually tested using specialized test equipment and complex programs to ensure that they meet data sheet performance levels. In addition, long-term operating life and mechanical stress tests are routinely performed on samples to assure continued, long-term product performance. Maxim is in the process of making the design, fabrication, test operations, and quality assurance of Dallas Semiconductor consistent with Maxim's methodologies.
MANUFACTURING
Maxim uses its own wafer fabrication and, to a small extent, silicon foundries to produce wafers. The majority of processed wafers are subjected to parametric and functional testing at the Company's facilities. As is customary in the industry, the Company ships most of its processed wafers to foreign assembly subcontractors, located in the Philippines, Malaysia, Thailand and South Korea, where wafers are separated into individual integrated circuits and assembled into a variety of packages.
After assembly has been completed, the majority of the assembled product is shipped to the Company's test facilities located in Cavite, the Philippines. During fiscal 2001, the Company doubled the square footage, which tripled the manufacturing space at its test facilities in Cavite, the Philippines. This expansion provided space to accommodate Dallas Semiconductor's offshore test
and shipping operations. In addition, the Company established wafer sort operations at this facility with the capacity to electronically test and laser trim the majority of the Company's wafers. Prior to the merger, product assembled from wafers manufactured in the Dallas, Texas wafer fabrication facility was tested primarily at subcontractors located in the Philippines. Testing for Dallas product was also performed in a test facility located in Dallas, Texas. At the end of fiscal 2001, the majority of the testing of Dallas product was transferred to the Company's test facilities located in Cavite, the Philippines. Except for low volume Dallas product which will continue to be tested in Dallas, Texas, the Company intends to transfer the testing operations for remaining Dallas product to the Company's test facilities located in Cavite, the Philippines during the first quarter of fiscal 2002. The success of this move will depend in part on the Company's ability to effect the physical move of very sophisticated equipment and to bring that equipment into efficient operation quickly.
In fiscal 2001, the Company hired employees and purchased capital equipment for a second test facility located in Samutprakam, Thailand. It is expected that this facility, as well as the facility in Cavite, the Philippines, will continue to expand test capacity as demand dictates. Currently, the Company's facilities located in Cavite, the Philippines and Samutprakam, Thailand combined have enough test manufacturing and shipping space to meet the Company's fiscal year 2002 plan, subject always to normal and to unforeseen challenges in effecting such expansions.
Once testing has been completed, the finished product is either shipped directly to customers worldwide or to other Company locations for ultimate sale to end customers.
The broad range of products demanded by the analog integrated circuit market requires multiple manufacturing process technologies. Many different process technologies are currently used for wafer fabrication of the Company's products. Historically, wafer fabrication of analog integrated circuits has not required the state-of-the-art processing equipment necessary for the fabrication of advanced digital integrated circuits, although newer processes do utilize and require some of these facilities and equipment. In addition, hybrid products are manufactured using a complex multichip technology featuring thin-film, thick-film, and laser-trimmed resistors.
For the majority of these technologies, the Company relies on its fabrication facilities in San Jose, California, Beaverton, Oregon, Dallas, Texas and, to a small extent, manufacturing subcontractors. The Company currently uses four subcontract silicon foundries that represent less than 5% of wafer production. None of the subcontractors currently used by Maxim is affiliated with Maxim.
Most of the wafers produced in fiscal 2001 were manufactured at one of the Company's three wafer fabrication facilities. The Company's wafer fabrication facility located in Dallas, Texas was originally built in 1986 and expanded in 1989, 1994 and 2001. This facility currently produces six-inch wafers. The Company is in the process of replacing six-inch production capacity at this facility with eight-inch wafer production. Once the production of eight-inch wafers has been fully implemented, it is the Company's intention to discontinue production of six-inch wafers at this facility. See Note 13 "Merger and Special Charges" of the Notes to Consolidated Financial Statements as set forth in the Company's Annual Report to Stockholders for the fiscal year ended June 30, 2001. In December 1989, the Company acquired a wafer fabrication facility in Sunnyvale, California capable of producing 3 micron CMOS and bipolar products. In May 1994, the Company acquired a mixed-class wafer fabrication facility in Beaverton, Oregon capable of producing CMOS and bipolar products. In November 1997, the company acquired a sub-micron wafer fabrication
facility in San Jose, California. The Company transferred production from the Sunnyvale facility to the Beaverton facility and suspended wafer production at the Sunnyvale facility in December 1998. The Beaverton, Oregon and San Jose, California wafer fabrication facilities currently manufacture six-inch wafers. The Company is in the process of expanding production capacity at its San Jose, California facility to include eight-inch wafer production. Once this has been completed, the Company intends to discontinue six-inch wafer production at this facility. See "Item 2.
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.
In addition to the leased property listed in the table, the Company also leases sales 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.
In October of 1999, the Company began construction of a 120,000 square foot office building at its headquarters, with a parking structure adjacent to the building. These structures became available for use at the end of fiscal 2001. The Company expects these buildings and the contiguous land to be adequate for its business purposes through fiscal year 2002.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
Linear Technology Corporation vs. Maxim Integrated Products, Inc. et al., Action No. C-98-1727 FMS in the Federal District Court for the Northern District of California.
On June 26, 1997, a complaint was filed by Linear Technology Corporation ("LTC") naming the Company and certain other unrelated parties as defendants. The complaint alleges that each of the defendants, including the Company, has willfully infringed, induced infringement and contributorily infringed LTC's United States Patent 5,481,178 relating to control circuits and methods for maintaining high efficiencies over broad current ranges in a switching regulator circuit, all of which has allegedly damaged LTC in an unspecified amount.
The complaint further alleges that the Company's actions have been, and continue to be, willful and deliberate and seeks a permanent injunction against the Company as well as unspecified actual and treble damages including costs, expenses, and attorneys fees.
The Company answered the complaint on October 20, 1997, denying all of LTC's substantive allegations and counterclaiming for a declaration that LTC's patent is invalid and not infringed. The parties are still involved in discovery proceedings. The case has been bifurcated into separate liability and damages trials, with the issues of liability and willfulness likely to go to jury trial in calendar year 2002.
The Company has asserted in its answer, and continues to believe, that the allegations in the complaint are without merit. Although the outcome of a jury trial involving patents and intellectual property involves complex issues of law and fact and is therefore inherently uncertain, the Company does not believe that the ultimate outcome of the matter will have a material adverse effect on the Company's financial position.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II -------
ITEM 5.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The information required by this item is incorporated by reference from the Company's Annual Report to Stockholders for the fiscal year ended June 30, 2001 under the headings "Financial Information - Financial Highlights by Quarter" and "Corporate Data, Stockholder Information."
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
The information required by this item is incorporated by reference from the Company's Annual Report to Stockholders for the fiscal year ended June 30, 2001 under the heading "Financial Information - Selected Financial Data."
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The information required by this item is incorporated by reference from the Company's Annual Report to Stockholders for the fiscal year ended June 30, 2001 under the heading "Financial Information - Management's Discussion and Analysis of Financial Condition and Results of Operations."
ITEM 7A.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information required by this item is incorporated by reference from the Company's Annual Report to Stockholders for the fiscal year ended June 30, 2001 under the subheading "Interest Income and Other, Net," and under the heading "Financial Information - Management's Discussion and Analysis of Financial Condition and Results of Operations. "
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this item is incorporated by reference from the Company's Annual Report to Stockholders for the fiscal year ended June 30, 2001 under the headings:
"Financial Information" o Consolidated Balance Sheets o Consolidated Statements of Income o Consolidated Statements of Stockholders' Equity o Consolidated Statements of Cash Flows o Notes to Consolidated Financial Statements o Report of Ernst & Young LLP, Independent Auditors o Financial Highlights by Quarter o The report of KPMG LLP with respect to the consolidated financial statements of Dallas Semiconductor Corporation for the year ended December 31, 2000 is part of this item and is included in Exhibit 99.1.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III --------
ITEM 10.
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 2001 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:
Mr. Gifford, a founder of the Company, has served as Maxim's 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.
Mr. Hood, a founder of the Company, joined the Company in June 1983 and was promoted to Vice President in February 1997. Prior to February 1997, he served in a number of engineering and manufacturing positions.
Mr. Huening joined Maxim in December 1983 and was promoted to Vice President in December 1993. Prior to December 1993, he served in a number of quality assurance positions.
Mr. Jasper joined Maxim in May 1998 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 wireless communications product line management positions.
Mr. Parvarandeh joined Maxim in August 1988 and was promoted to Vice President in July 1997. Prior to July 1997, he served in a number of integrated circuit development positions.
Mr. Rigg joined Maxim in August 1996 as managing director and general counsel and was promoted to Vice President in April 1999. Prior to joining Maxim, he was with Ropers, Majeski, Kohn and Bentley from 1970 to 1996 where he held various positions, including director.
Mr. Scheer joined Maxim in June 1983 and was promoted to Vice President in June 1992.
Ms. Smith-Lenox joined Maxim in October 1999 as Principal Accounting Officer. Prior to joining Maxim, she was with Hewlett Packard Company from September 1983 to October 1999, where she held various management positions in Accounting and Finance, most recently that of Controller. Prior to that she was with KPMG, San Francisco from 1980 to 1983.
Mr. Ullal joined Maxim in December 1989 and was promoted to Vice President in March 1996. Prior to March 1996, he served in a number of wafer fab operation positions.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated by reference from the Company's Proxy Statement for the 2001 Annual Meeting of Stockholders under the headings "Executive Compensation" and "Performance Graph."
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated by reference from the Company's Proxy Statement for the 2001 Annual Meeting of Stockholders under the heading "Security Ownership of Certain Beneficial Owners and Management."
ITEM 13.
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 2001 Annual Meeting of Stockholders under the heading "Certain Relationships and Related Transactions."
PART IV
ITEM 14.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following financial statements are included in the Company's 2001 Annual Report to Stockholders and are incorporated herein by reference pursuant to Item 8:
(1) Consolidated Balance Sheets at June 30, 2001 and June 24, 2000.
Consolidated Statements of Income for each of the three years in the period ended June 30, 2001.
Consolidated Statements of Stockholders' Equity for each of the three years in the period ended June 30, 2001.
Consolidated Statements of Cash Flows for each of the three years in the period ended June 30, 2001.
Notes to Consolidated Financial Statements.
(2) 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
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) Exhibits. See attached Exhibit Index.
(b) Reports on Form 8-K
(1) In the fourth quarter of fiscal 2001, the Company filed with the Securities and Exchange Commission a Current Report on Form 8-K. The Current Report was dated April 11, 2001 and was filed in connection with the merger with Dallas Semiconductor Corporation. No financial statements were filed with this Current Report.
(2) In the fourth quarter of fiscal 2001, the Company filed with the Securities and Exchange Commission Amendment No. 1 to its Current Report on Form 8-K dated April 11, 2001. This Current Report on Form 8-K/A was dated June 8, 2001. Filed with this Current Report on Form 8-K/A were the audited financial statements and notes thereto included in Dallas Semiconductor Corporation's Annual Report on Form 10-K for the year ended December 31, 2000 and the Unaudited Pro Forma Combined Financial Statements that give effect to the merger of the Company and Dallas Semiconductor on a pooling-of-interests basis.
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 21, 2001 MAXIM INTEGRATED PRODUCTS, INC.
By: /s/ Carl W. Jasper ------------------------------------------ Carl W. Jasper Vice President and Chief Financial Officer (For the Registrant and as Principal Financial Officer)
By: /s/ Sharon E. Smith-Lenox ------------------------------------------ Sharon E. Smith-Lenox Corporate Controller (Principal Accounting Officer)
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints each of John F. Gifford, Carl W. Jasper and Sharon E. Smith-Lenox as his or her true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him or her and in his or her 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 or she 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 or her 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.
EXHIBIT INDEX
------------ (A) Management contract or compensatory plan or arrangement.
(B) Schedules and certain attachments omitted pursuant to Item 601(b) of Registration S-K. The Company hereby undertakes to furnish supplemental copies of any of the omitted schedules upon request by the Commission. Certain material omitted pursuant to the request for confidential treatment by the Company.
-------------------------- (1) Incorporated by reference to the exhibit with the corresponding exhibit number in the Company's Report on Form 8-K filed with the Securities and Exchange Commission on April 12, 2001.
(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, 1995 and the Company's Quarterly Report on Form 10-Q for the quarter ended December 25, 1999.
(3) Incorporated by reference 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.
(4) Incorporated by reference to the exhibit with the corresponding exhibit number in the Company's Quarterly Report on Form 10-Q for the quarter ended September 23, 2000.
(5) 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.
(6) Incorporated by reference to the Company's Annual Report on Form 10-K for the year ended June 30, 1991.
(7) Incorporated by reference to the Company's Registration Statement on Form S-1 No. 33-19561.
(8) Incorporated by reference to the Company's Report on Form 8-K filed with the Securities and Exchange Commission on June 11, 1994.
(9) 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.
MAXIM INTEGRATED PRODUCTS, INC. SCHEDULE II - VALUATION AND QUALIFYING
ACCOUNTS (amounts in thousands)
(1) Uncollectible accounts written off.