MAXIM INTEGRATED PRODUCTS INC
10-Qs and 10-Ks
PROXIES
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the Fiscal Year Ended
June 25, 2011
OR
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£
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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Commission File Number 001-34192
MAXIM INTEGRATED PRODUCTS, INC.
(Exact name of Registrant as specified in its charter)
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Delaware
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94-2896096
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(State or other jurisdiction of
Incorporation or organization)
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(I.R.S. Employer
Identification No.)
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120 San Gabriel Drive
Sunnyvale, California 94086
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (408) 737-7600
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class
Common stock, $0.001 par value
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Name of each exchange on which registered
The NASDAQ Global Select Market
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Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes
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No
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Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes
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No
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes
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No
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Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes
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No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.
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Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check One):
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Large Accelerated Filer
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Accelerated Filer
£
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Non-accelerated Filer
£
(Do not check if a smaller reporting company)
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Smaller Reporting Company
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
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No
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The aggregate market value of the voting stock held by non-affiliates of the Registrant based upon the closing price of the common stock on
December 25, 2010
as reported by The NASDAQ Global Select Market was
$3,559,148,668
. Shares of voting stock held by executive officers, directors and holders of more than 5% of the outstanding voting stock have been excluded from this calculation because such persons may be deemed to be affiliates. Exclusion of such shares should not be construed to indicate that any of such persons possesses the power, direct or indirect, to control the Registrant, or that any such person is controlled by or under common control with the Registrant.
Number of shares outstanding of the Registrant's Common Stock, $.001 par value, as of July 31, 2011:
294,814,489
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Documents Incorporated By Reference:
(1)
Items 10, 11, 12, 13 and 14 of Part III incorporate information by reference from the Proxy Statement for the 2011 Annual Meeting of Stockholders, to be filed subsequently.
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MAXIM INTEGRATED PRODUCTS
INDEX
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Forward Looking Statements
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Part I
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Business
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Risk Factors
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Unresolved Staff Comments
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Properties
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Legal Proceedings
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[Removed and Reserved]
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Part II
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Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
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Selected Financial Data
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Management's Discussion and Analysis of Financial Condition and Results of Operations
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Quantitative and Qualitative Disclosures about Market Risk
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Financial Statements and Supplementary Data
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Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
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Controls and Procedures
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Other Information
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Part III
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Directors, Executive Officers, and Corporate Governance
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Executive Compensation
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Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
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Certain Relationships and Related Transactions, and Director Independence
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Principal Accountant Fees and Services
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Part IV
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Exhibits and Financial Statement Schedules
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FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These statements are based on our current expectations and could be affected by the uncertainties and risk factors described throughout this filing and particularly in Part I, Item 1A - Risk Factors and in Part II, Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations. These statements relate to, among other things, sales, gross margins, operating expenses, capital expenditures and requirements, liquidity, asset dispositions, product development and R&D efforts, manufacturing plans, pending litigation, effective tax rates, and tax reserves for uncertain tax positions, and are indicated by words or phrases such as "anticipate," "expect," "outlook," "foresee," "forecast," "believe," "could," "intend," "will," "plan," "seek," "project," and variations of such words and similar words or expressions. These statements involve risks and uncertainties that could cause actual results to differ materially from expectations. These forward-looking statements should not be relied upon as predictions of future events as we cannot assure you that the events or circumstances reflected in these statements will be achieved or will occur. For a discussion of some of the factors that could cause actual results to differ materially from our forward-looking statements, see the discussion on "Risk Factors" that appears in Part I, Item 1A of this Annual Report on Form 10-K and other risks and uncertainties detailed in this and our other reports and filings with the Securities and Exchange Commission ("SEC"). We undertake no obligation to update forward-looking statements to reflect developments or information obtained after the date hereof and disclaim any obligation to do so except as required by applicable laws.
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PART I
ITEM 1. BUSINESS
Overview
Maxim Integrated Products, Inc. ("Maxim" or the "Company" and also referred to as "we," "our" or "us") designs, develops, manufactures and markets a broad range of linear and mixed-signal integrated circuits, commonly referred to as analog circuits, for a large number of customers in diverse geographical locations. The analog market is fragmented and characterized by diverse applications, numerous product variations and, with respect to many circuit types, relatively long product life cycles. Our objective is to develop and market both proprietary and industry-standard analog integrated circuits that meet the increasingly stringent quality and performance standards demanded by customers.
We are a Delaware corporation originally incorporated in California in 1983. We are headquartered in Sunnyvale, California. The mailing address for our headquarters is 120 San Gabriel Drive, Sunnyvale, California 94086, and our telephone number is (408) 737-7600. Additional information about us is available on our website at www.maxim-ic.com.
We make available through our website, free of charge, our Annual Reports 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 amended (the "Exchange Act"), as soon as reasonably practicable after they are electronically filed with or furnished to the SEC. We assume 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 applicable laws. 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.
The Mixed Signal Analog Integrated Circuit Market
All electronic signals generally 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 distinction between linear and digital signals:
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digital devices, such as memories and microprocessors that operate primarily in the digital domain;
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linear devices such as amplifiers, references, analog multiplexers and switches that operate primarily in the analog domain; and
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mixed-signal devices such as data converter devices that combine linear and digital functions on the same integrated circuit and interface between the analog and digital domains.
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Our strategy has been to target both the linear and mixed-signal markets, often collectively referred to as the analog market. However, some of our products are exclusively or principally digital. While our focus continues to be on the linear and mixed signal market, our capabilities in the digital domain enable development of new mixed signal and other products with highly sophisticated digital characteristics. Risks associated with pursuing this strategy are discussed in Item 1A - Risk Factors.
We operate in one reportable segment - the design, development, marketing and manufacturing of a broad range of linear and mixed signal integrated circuits.
Our linear and mixed signal products serve four major end-markets. These major end-markets and their corresponding market segments are noted in the table below:
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MAJOR END-MARKET
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MARKET SEGMENT
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INDUSTRIAL
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Automatic Test Equipment
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Automotive
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Control & Automation
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Electronic Instrumentation
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Medical
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Military & Aerospace
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Security
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Utility & Other Meters
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Other Industrial
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COMMUNICATIONS
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Basestations
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Network & Datacom
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Telecom
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Other Communications
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CONSUMER
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Cell Phones
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Digital Cameras
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Handheld Computers
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Home Entertainment & Appliances
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Other Consumer
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COMPUTING
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Data Storage
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Financial Terminals
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Notebook Computers
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Server & Desktop Computers
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Peripherals & Other Computer
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Product Quality
We employ a system addressing quality and reliability of our products from initial design through wafer fabrication, assembly, testing and final shipment. We have received ISO 9001/2, TS 16949 and ISO 14001 certifications for all wafer fabrication, assembly, final test and shipping facilities. Reliability stress testing is performed on products manufactured and sold by Maxim, based on industry standard requirements, in an effort to detect and accelerate the presence of defects that may arise over the life of a product in order to ensure the reliability of our products.
Manufacturing
We primarily manufacture our own wafers and, to a lesser extent, utilize third-party silicon foundries to produce wafers. The majority of processed wafers are subjected to parametric and functional testing at our facilities. The broad range of products demanded by the analog integrated circuit market requires multiple manufacturing process technologies. As a result, many different process technologies are currently used for wafer fabrication of our products. Historically, wafer fabrication of analog integrated circuits has not required the state-of-the-art processing equipment, although newer processes do utilize and require such state-of-the-art facilities and equipment. In addition, hybrid and module products are manufactured using a complex multi-chip technology featuring thin-film, laser-trimmed resistors and other active or passive components. We rely on our own fabrication technologies and facilities to implement such manufacturing requirements. We also utilize unaffiliated manufacturing subcontractors. We are expanding our internal and external manufacturing and test capacity to meet future growth.
During fiscal years
2011
,
2010
and
2009
, most of our own wafer production occurred at one of our four owned wafer fabrication facilities consisting of the following:
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Facility Location
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Fiscal Year Acquired
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Beaverton, Oregon
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1994
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San Jose, California
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1998
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Dallas, Texas
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2001
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San Antonio, Texas
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2004
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At the end of fiscal year 2009, we ceased wafer fabrication efforts in our Dallas, Texas facility and converted it into a wafer bump manufacturing facility. In fiscal year 2007, we entered into a supply agreement with Seiko Epson Corporation ("Epson"). In fiscal year 2010, we entered into a supply agreement with Powerchip Technology Corporation ("Powerchip") and Maxchip Electronics Corp. ("Maxchip") to provide 300mm and 200mm wafer capacity. Under these agreements, partner foundries (Epson, Powerchip and Maxchip) have manufactured some of our mixed-signal semiconductor products. These products are manufactured under rights and licenses using our proprietary technology at Epson's fabrication facility located in Sakata, Japan and at Powerchip and Maxchip's fabrication facilities in Hsinchu, Taiwan. In fiscal years
2011
,
2010
and
2009
the products manufactured by our partner foundries represented
32%
,
19%
and
9%
, respectively, of our total wafer production.
Our wafer bump manufacturing facility located in Dallas, Texas is used to manufacture products that utilize chip scale packaging ("CSP") or wafer level packaging ("WLP"). CSP or WLP enables integrated circuits to be attached directly to a printed circuit board without the use of a traditional plastic package. In addition, we utilize independent subcontractors to perform wafer bump manufacturing to the extent we do not have the internal capacity or capabilities to perform such services.
Once wafer manufacturing has been completed, wafers are generally sorted in order to determine which integrated circuits on each wafer are functional and which are defective. We currently perform the majority of wafer sort, final test and shipping activities at two facilities located in Cavite, the Philippines and Chonburi Province, Thailand. Our finished products ship directly from either Cavite, the Philippines or Chonburi Province, Thailand to customers worldwide or to other Company locations for sale to end-customers or distributors. In addition, we utilize independent subcontractors to perform wafer sort.
Integrated circuit assembly is performed by foreign assembly subcontractors, located in the Philippines, Malaysia, Thailand, China, Taiwan, Singapore, South Korea and Japan, 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 back to our facilities located in Cavite, the Philippines or Chonburi Province, Thailand where the packaged integrated circuits undergo final testing and preparation for customer shipment. In addition, we utilize independent subcontractors to perform final testing.
With the introduction of 300mm wafers into our manufacturing network, we have enabled subcontractors located in Taiwan to perform wafer bumping and testing of 300mm wafers.
We currently perform substantially all of our module assembly operations in our facility in Batangas, Philippines. The Batangas, Philippines facility also performs wafer singulation and tape-and-reel of bumped (CSP or WLP) wafers.
Customers, Sales and Marketing
We market our products worldwide through a direct-sales and applications organization and through our own and other unaffiliated distribution channels to a broad range of customers in diverse industries. Our products typically require a sophisticated technical sales and marketing effort. Our sales organization is divided into domestic and international regions. Distributors and direct customers generally buy on an individual purchase order basis, rather than pursuant to long-term agreements.
Certain distributors have agreements with us which allow for price protection on certain inventory if we lower the price of our products. Certain distributor agreements also generally permit distributors to exchange a portion of certain purchases on a periodic basis. As is customary in the semiconductor industry, our distributors may market products which compete with our products.
Sales to certain international distributors are made under agreements which permit limited stock return privileges but not sales price rebates. The agreements generally permit distributors to exchange a portion of their purchases on a periodic basis. See "Critical Accounting Policies" in Part II, Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations and Note 2 to the Consolidated Financial Statements accompanying this Annual Report on Form 10-K, which contains information regarding our revenue recognition policy.
We derived approximately
30%
of our fiscal 2011 revenue from sales made through distributors. Our primary distributor is Avnet Electronics which accounted for
14%
and
12%
of our revenues in fiscal years 2011 and 2010, respectively. Avnet, like our other distributors is not an end customer, but rather serves as a channel of sale to many end users of the Company's products. Samsung, our largest single customer, excluding distributors, accounted for approximately
12%
of net revenues in fiscal years 2011 and 2010, and no other single customer accounted for more than
10%
of revenue in fiscal year 2011, 2010 and 2009, not including distributors. No single product accounted for more than
10%
of net revenues in fiscal years
2011
,
2010
and
2009
. Based on customers' ship-to locations, international sales accounted for approximately
85%
,
85%
and
82%
of net revenues in fiscal years
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2011
,
2010
and
2009
, respectively. See Note 12, "Segment Information" in the Notes to Consolidated Financial Statements in Item 15.
Seasonality
The seasonality for any specific period of time has generally not had a material impact on our results of operations. As explained in our risk factors in this report, our revenue is more likely to be influenced on a quarter to quarter basis by customer demand patterns.
Foreign Operations
We conduct business in numerous countries outside the United States. During fiscal 2011, we derived approximately
85%
of our net revenues from customers in international markets. Our international business is subject to numerous risks, including fluctuations in foreign currency exchange rates and controls, import and export controls, and other laws, policies and regulations of foreign governments as further described in the risk factors in this report.
Backlog
At
June 25, 2011
and
June 26, 2010
, our current quarter backlog was approximately
$460 million
and
$614
million, respectively. We include in our backlog orders with customer request dates within the next 3 months. As is customary in the semiconductor industry, these orders may be canceled in most cases without penalty to customers. In addition, our backlog includes orders from domestic distributors for which revenues are not recognized until the products are sold by the distributors. Accordingly, we believe that our backlog at any time should not be used as a measure of future revenues. All backlog numbers have been adjusted for estimated future U.S. distribution ship and debit pricing adjustments. Please refer to the Risk Factor titled “Incorrect forecasts, reductions, cancellations or delays in orders for our products could adversely affect our results of operations” for the risks associated with backlog.
Research and Development
We believe that research and development is critical to our future success. Objectives for the research and development function include:
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product definition and development of proprietary products;
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design of parts for high yield and reliability;
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development of, and access to, manufacturing processes and advanced packaging; and
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development of hardware and software to support the acceptance and design-in of our products in the end customer's system.
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Our research and development plans require engineering talent and tools for process technologies, test development, packaging development, product definition, electronic design automation ("EDA"), circuit design, software development and applications support. Research and development expenses were approximately
$525.3 million
,
$474.7 million
and
$520.2 million
in fiscal years
2011
,
2010
and
2009
, respectively.
See "Research and Development" under Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations, for more information.
Competition
The mixed signal analog integrated circuit industry is intensely competitive, and virtually all major semiconductor companies presently compete with, or conceivably could compete with, some portion of our business.
We believe the principal elements of competition include:
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technical innovation, service and support;
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time to market;
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product performance and features;
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quality and reliability;
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product pricing and delivery capabilities;
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customized design and applications;
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business relationship with customers;
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experience, skill and productivity of employees and management; and
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manufacturing competence and inventory management.
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Our principal competitors include, but are not limited to, Texas Instruments Inc., Analog Devices, Inc., Intersil Corporation, Linear Technology Corporation, and National Semiconductor Corporation which has entered into an agreement to be acquired by Texas Instruments. In addition, we expect increased competition in the future from other emerging and established companies. For further description of competitive factors that may affect our future business, please refer to the section entitled "Our operating results may be adversely affected by increased competition" contained in Part I, Item 1A of this Annual Report on Form 10-K.
Patents, Licenses, and Other Intellectual Property Rights
We rely upon both know-how and patents to develop and maintain our competitive position. There can be no assurance that others will not develop or patent similar technology or reverse engineer our products or that the confidentiality agreements with employees, consultants, silicon foundries and other suppliers and vendors will be adequate to protect our interests. Our products interface with other products, which may require us to obtain licenses that we do not have.
We hold and pursue intellectual property, including patents, trademarks and trade secrets, as appropriate for our markets and technologies. It is our policy to seek patent protection for significant inventions that may be patented, though we 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, we have registered certain of our mask sets under the Semiconductor Chip Protection Act of 1984, as amended. We hold a number of patents worldwide with expiration dates ranging from 2011 to 2031. We have also registered several of our trademarks with the U.S. Patent and Trademark Office and in foreign jurisdictions. Likewise, we have registered for and received certain copyrights.
There can be no assurance that any patent will be issued on pending applications or that any patent issued will provide substantive protection for the technology or product covered by it, please refer to the section entitled "We may be unable to adequately protect our proprietary rights, which may impact our ability to compete effectively" contained in Part I, Item 1A of this Annual Report on Form 10-K.
Employees
As of
June 25, 2011
, we employed
9,370
people of whom
4,468
were employed in the United States and
4,902
were employed outside the United States.
Environmental Regulations
To date, our compliance with foreign, federal, state and local laws and regulations that have been enacted to regulate the environment has not had a material adverse effect on our capital expenditures, earnings, or competitive or financial position. However, we could be subject to fines, suspension of production, alteration of our manufacturing processes or cessation of our operations if we fail to comply with present or future statutes and regulations governing the use, storage, handling, discharge or disposal of toxic, volatile or otherwise hazardous materials used in our manufacturing processes, please refer to the section entitled "Environmental liabilities could force us to expend significant capital and incur substantial costs" contained in Part I, Item 1A of this Annual Report on Form 10-K.
Executive Officers
For information regarding our current executive officers, please see Part III, Item 10 of this Annual Report on Form 10-K.
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ITEM 1A. RISK FACTORS
The following risk factors and other information included in this Annual Report on Form 10-K should be carefully considered. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties not presently known to us or that we presently deem less significant may also impair our business operations. Please also see the introductory section of this Annual Report on Form 10-K entitled "Forward-Looking Statements" for additional discussion regarding forward-looking statements. If any of the events or circumstances described in the following risk factors actually occurs, our business, operating results, and financial condition could be materially adversely affected.
Cyclicality in the semiconductor industry may adversely affect our results of operations
The semiconductor industry historically has been cyclical and subject to significant and often rapid increases and decreases in demand for products and services. These changes could have adverse effects on our results of operations and on the market price of our common stock. The results of our operations may be adversely affected in the future if demand for our products and services decreases or if we are unable to meet an increase in demand without significantly increasing the lead-time for the delivery of our products and services.
Incorrect forecasts, reductions, cancellations or delays in orders for our products could adversely affect our results of operations
As is customary in the semiconductor industry, customer orders may be canceled in most cases without penalty to the customers. Some customers place orders that require us to manufacture products and have available for shipment, even though the customer may be unwilling to make a binding commitment to purchase all, or even any, of the products. In other cases, we manufacture product based on forecasts of customer demands. As a result, we may incur inventory and manufacturing costs in advance of anticipated sales and are subject to the risk of cancellations of orders, potentially leading to an initial inflation of backlog followed by a sharp reduction. In addition, our backlog includes orders from domestic distributors for which revenues are not recognized until the ordered products are sold by the distributors. When combined with the risks of order cancellation, our backlog cannot be used as a measure of future revenue. Furthermore, orders or forecasts may be for products that meet the customer's unique requirements so that those canceled or unrealized orders would, in addition, result in an inventory of unsaleable products, causing potential inventory write-offs. As a result of lengthy manufacturing cycles for certain of the products, the amount of unsaleable products could be substantial. As a result, incorrect forecasts, reductions, cancellations or delays in orders for our products could adversely affect our operating results.
Our operating results may be adversely affected by unfavorable economic and market conditions
The economic environment could subject us to increased credit risk should customers be unable to pay us, or delay paying us, for previously purchased products. Accordingly, reserves for doubtful accounts and write-offs of accounts receivable may increase. In addition, weakness in the market for end users of our products could harm the cash flow of our distributors and resellers who could then delay paying their obligations to us or experience other financial difficulties. This would further increase our credit risk exposure and, potentially, cause delays in our recognition of revenue on sales to these customers.
If global economic and market conditions, or economic conditions in the United States or other key markets, deteriorate, we may experience material adverse effects on our business, operating results, and financial condition
Political conditions could materially affect our revenues and results of operations
We are subject to the political and legal risks inherent in international operations. Exposure to political instabilities, different business policies and varying legal standards could impact economic activity, which in turn, could lead to a contraction of customer demand or a disruption in our operations. We have been affected by these problems in the past, but none have materially affected our results of operations to date. Problems in the future or not-yet-materialized consequences of past problems, could affect deliveries of our product to our customers, possibly resulting in substantially delayed or lost sales and/or increased expenses that could materially adversely affect our financial condition and results of operations.
Our quarterly operating results may fluctuate, which could adversely impact our common stock price
We believe that period-to-period comparisons of our results of operations are not necessarily meaningful and should not be relied upon as indicators of future performance. Our operating results have in the past, and will continue to be, subject to quarterly fluctuations as a result of numerous factors, some of which may contribute to more pronounced fluctuations in an uncertain global economic environment. These factors include, but are not limited to, the following:
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Fluctuations in demand for our products and services, in part due to changes in general economic conditions and specific economic conditions in the semiconductor industry;
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Reduced visibility into our customers' spending plans and associated revenue;
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The level of price and product competition in our product markets;
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The impact of the uncertain economic and credit environment on our customers, channel partners, and suppliers, including their ability to obtain financing or to fund capital expenditures;
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The overall movement toward industry consolidations among our customers and competitors;
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Market acceptance of new products and product enhancements;
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Announcements and introductions of new products by us or our competitors;
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Deferrals of customer orders in anticipation of new products or product enhancements (introduced by us or our competitors);
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Our ability to meet increases in customer orders in a timely manner;
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Our ability to develop, introduce, and market new products and enhancements in a timely manner; and
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Our levels of operating expenses.
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Our products may fail to meet new industry standards or requirements and the efforts to meet such industry standards or requirements could be costly
Many of our products are based on industry standards that are continually evolving. Our ability to compete in the future will depend on our ability to identify and ensure compliance with these evolving industry standards. The emergence of new industry standards could render our products incompatible with products developed by major systems manufacturers. As a result, we could be required to invest significant time and effort and to incur significant expense to redesign our products to ensure compliance with relevant standards. If our products are not in compliance with prevailing industry standards or requirements, we could miss opportunities to achieve crucial design wins which in turn could have a material adverse effect on our business, operations and financial results.
We may encounter difficulties in the implementation of a new manufacturing execution system, which may adversely affect our operations and financial reporting
We are in the process of implementing a new manufacturing execution system (“MES”) in our testing facilities that is scheduled to be completed by the end of fiscal year 2013 as part of our ongoing efforts to improve the quality and productivity of our operations. Any difficulties in the implementation or operation of the MES system could increase the cost to test our products or disrupt the testing of our products which, in turn, could materially adversely affect our results of operation and financial reporting.
Our manufacturing operations may be interrupted or suffer yield problems
Given the nature of our products, it would be very time consuming, difficult, and costly to arrange for new manufacturing facilities to supply such products. Any prolonged inability to utilize one of our manufacturing facilities or a third party foundry, due to damages resulting from fire, natural disaster, unavailability of electric power, or labor unrest would have a material adverse effect on our results of operations and financial condition.
The manufacture and design of integrated circuits is highly complex. We may experience manufacturing problems in achieving acceptable yields or experience product delivery delays in the future as a result of, among other things, capacity constraints, equipment malfunctioning, construction delays, upgrading or expanding existing facilities or changing our process technologies, any of which could result in a loss of future revenues or increases in fixed costs. To the extent we do not achieve acceptable manufacturing yields or there are delays in wafer fabrication, our results of operations could be adversely affected. In addition, operating expenses related to increases in production capacity may adversely affect our operating results if revenues do not increase proportionately.
Our independent distributors and sales representatives may terminate their relationship with us or fail to make payments on outstanding accounts receivable to us, which would adversely affect our financial results
A portion of our sales is realized through independent electronics distributors that are not under our control. These independent sales organizations generally represent product lines offered by several companies and thus could reduce their sales efforts applied to our products or terminate their representation of us. We require certain foreign distributors to provide a letter of credit to us in
10
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 us. Where credit limits have been established above the amount of the letter of credit, we are exposed for the difference. We do not require letters of credit from any of our domestic distributors and are not protected against accounts receivable default or bankruptcy by these distributors. The inability to collect open accounts receivable could adversely affect our results of operations and financial condition. Termination of a significant distributor, whether at our or the distributor's initiative, could be disruptive to our current business.
Our operating results may be adversely affected by increased competition
We experience intense competition from a number of companies, some of which have significantly greater financial, manufacturing, and marketing resources than us, as well as greater technical resources and proprietary intellectual property rights than us. The principal elements of competition include product performance, functional value, quality and reliability, technical service and support, price, diversity of product line and delivery capabilities. We believe we compete favorably with respect to these factors, although we may be at a disadvantage in comparison to larger companies with broader product lines and greater technical service and support capabilities. We cannot assure you that we will be able to compete successfully in the future against existing or new competitors or that our operating results will not be adversely affected by increased competition.
Our dependence on subcontractors for assembly, test, freight, and logistic services and certain manufacturing services may cause delays beyond our control in delivering products to our customers
We rely on subcontractors located in various parts of the world for assembly and CSP packaging services, freight and logistic services, and, to a lesser extent, wafer fabrication and test services. None of the subcontractors we currently use are affiliated with us. Reliability problems experienced by our subcontractors or the inability to replace any subcontractor could cause serious problems in delivery and quality resulting in potential product liability to us. Such problems could impair our ability to meet our revenue plan in the fiscal period impacted by the disruption. Failure to meet the revenue plan may materially adversely impact our results of operations. (For more information on subcontractor locations, please see Item 1. Business - Manufacturing)
Any disruptions in our sort, assembly, test, freight and logistic operations or in the operations of our subcontractors, including, but not limited to, the inability or unwillingness of any of our subcontractors to produce adequate supplies of processed wafers, integrated circuit packages or tested product conforming to our quality standards or their inability to provide timely delivery of products or services required by us, could adversely affect the continuity of product supply as well as damage our reputation, relationship and goodwill with customers. This, in turn, could have a material adverse effect on our results of operations. Furthermore, finding alternate sources of supply or initiating internal wafer processing for these products may not be economically feasible.
Shortage of raw materials or supply disruption of such raw materials could harm our business
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, solar and other manufacturers, availability of certain basic materials and supplies, such as raw wafers and silicon on insulator wafers, chemicals, gases, polysilicon, silicon wafers, ultra-pure metals, lead frames and molding compounds, and of subcontract services, like epitaxial growth, ion implantation and assembly of integrated circuits into packages, has been limited from time to time over the past several years, and could come into short supply again if overall industry demand exceeds the supply of these materials and services in the future.
We purchase materials and supplies from many suppliers, some of which are sole-sourced. If the availability of these materials and supplies is interrupted, we may not be able to find suitable replacements. In addition, from time to time natural disasters can lead to a shortage of some of the above materials due to disruption of the manufacturer's production. We devote continuous efforts to maintain availability of all required materials, supplies and subcontract services. However, we do 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 material adverse effect on our ability to achieve our production requirements.
Environmental liabilities could force us to expend significant capital and incur substantial costs
Various foreign and United States federal, state, and local government agencies impose a variety of environmental regulations on the storage, handling, use, discharge and disposal of certain chemicals, gases and other substances used or produced in the semiconductor manufacturing process. Compliance with these regulations has not had a material adverse effect on our capital expenditures, earnings, competitive or financial position. There can be no assurance, however, that interpretation and enforcement
11
of current or future environmental regulations will not impose costly requirements upon us. Any failure by us to not adequately control the storage, handling, use, discharge or disposal of regulated substances could result in fines, suspension of production, alteration of wafer fabrication processes and legal liability, which may materially adversely impact our financial condition, results of operations or liquidity.
We may be unable to adequately protect our proprietary rights, which may impact our ability to compete effectively
We rely upon know-how, trade secrets, and patents to develop and maintain our competitive position. There can be no assurance that others will not develop or patent similar technology, reverse engineer our products or that the confidentiality agreements upon which we rely will be adequate to protect our interests. Moreover, the laws of some foreign countries generally do not protect proprietary rights to the same extent as the United States, and we may encounter problems in protecting our proprietary rights in those foreign countries. Other companies have obtained patents covering a variety of semiconductor designs and processes, and we might be required to obtain licenses under some of these patents or be precluded from making and selling the infringing products, if these patents are found to be valid. There can be no assurance that we would be able to obtain licenses, if required, upon commercially reasonable terms or at all.
From time to time, we have received, and in the future may receive, notice of claims of infringement by our products on intellectual property rights of third parties. If one or more of our products or processes were determined to infringe on any such intellectual property rights of a third party, a court might enjoin us from further manufacture and/or sale of the affected products. We would then need to obtain a license from the holders of the rights and/or to re-engineer our products or processes in such a way as to avoid the alleged infringement. In the past, it has been common in the semiconductor industry for patent holders to offer licenses on reasonable terms and rates. Although the practice of offering licenses appears to be generally continuing, in some situations, typically where the patent directly relates to a specific product or family of products, patent holders have refused to grant licenses. In any of those cases, there can be no assurance that we would be able to obtain any necessary license on commercially reasonable terms acceptable to us, if at all, or that we would be able to re-engineer our products or processes in a cost effective manner 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 our products, the reduction or elimination of the value of related inventories and the assessment of a substantial monetary award for damages related to past sales, all of which could have a material adverse effect on our results of operations and financial condition.
We may experience losses related to intellectual property indemnity claims
We provide intellectual property indemnification for 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 and copyrights. 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 been required to pay significant amounts for intellectual property indemnification claims. However, there can be no assurance that we will not have significant financial exposure under those intellectual property indemnification obligations.
Business interruptions from natural disasters could harm our business
We operate our business in worldwide locations. Some of our facilities and those of our subcontractors are located in geologically unstable areas of the world and are susceptible to damage from natural disasters. In the event of a natural disaster, we may suffer a disruption in our operations which could adversely affect our results of operations.
Our financial condition, operations and liquidity may be materially adversely affected in the event of a catastrophic loss for which we are self-insured
We are primarily self-insured with respect to many of our commercial risks and exposures. Based on management's assessment and judgment, we have determined that it is generally more cost effective to self-insure these risks. The risks and exposures we self-insure include, but are not limited to, fire, property and casualty, natural disasters, product defects, political risk, general liability, theft, counterfeits, patent infringement, certain employment practice matters and medical benefits for many of our domestic (United States) employees. We also maintain insurance contracts with independent insurance companies that provide certain of our employees with health (medical and dental) benefits, worker's compensation coverage, long-term disability income coverage, life insurance coverage and fiduciary insurance coverage for employee and Company funds invested under the Employee Retirement Income and Security Act. In addition, we maintain officer and director liability coverage and certain property insurance contracts with independent insurance companies. Should there be catastrophic loss from events such as fires, explosions or
12
earthquakes or other natural disasters, among many other risks, or adverse court or similar decisions in any area in which we are self-insured, our financial condition, results of operations and liquidity may be materially adversely affected.
Limitations in manufacturing capacity or delays in lead-time for delivery of products could adversely affect our future growth opportunities and results of operations
Our ability to successfully realize revenue growth relative to any future increase in customer demands for our products could be limited by our manufacturing capacity and other supply constraints. Our results of operations may be adversely affected if we fail to meet such increase in demand for our products without significantly increasing the lead-time required for our delivery of such products. Any significant increase in the lead-time for delivery of products may negatively affect our customer relationships, reputation as a dependable supplier of products and ability to obtain future design wins, while potentially increasing order cancellations, aged, unsaleable or otherwise unrealized backlog , and the likelihood of our breach of supply agreement terms. Any one of the foregoing factors could negatively affect our future revenue growth and results of operations.
We are subject to warranty claims and product liability
We face an inherent risk of exposure to product liability suits in connection with reliability problems which may be experienced by our customers. Our products are used by varying industries, including the transportation and medical industries. Failure of our products to perform to specifications could lead to substantial damage to both the end product in which our device has been placed and to the user of such end product. If a product liability claim is brought against us, the cost of defending the claim could be significant and any adverse determination could have a material adverse effect on our results of operations.
We manufacture and sell products into many global jurisdictions where our efforts to contractually limit liability for certain damages, including consequential, indirect and non-proximately caused damages, may not be enforceable or may be found by a court to not apply in a particular situation. Likewise, as we continue to partner with certain customers we may be required to accept increasing exposure for liability, including product liability. We believe these relationships with key customers will continue to increase. We continue to attempt to structure our customer relationships to reduce such liability exposures, however, any damages for such liability claims could materially adversely impact the Company financially. Should we choose to not enter into such relationships, our revenues and financial operations could be materially adversely affected.
We may be liable for additional production costs and lost revenues to certain customers with whom we have entered into customer supply agreements, if we are unable to provide a specific part at a certain quantity and product quality
We enter into contracts with certain customers whereby we commit to supply quantities of specified parts at a predetermined scheduled delivery date. The number of such arrangements continues to increase as this practice becomes more commonplace. Should we be unable to supply the customer with the specific part at the quantity and product quality desired on 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, we may be liable for direct additional production costs or lost revenues. If products were not shipped on time or were quality deficient, we may be liable for penalties and resulting damages. Such liability, should it arise, and/or our inability to meet these commitments to our customers may have a material adverse impact on our results of operations and financial condition and could damage our relationship, reputation and goodwill with the affected customers.
We may pursue acquisitions and investments that could harm our operating results and may disrupt our business
We have made and will continue to consider making strategic business investments, alliances and acquisitions we consider necessary to gain access to key technologies that we believe will augment our existing technical capability and support our business model objectives. Acquisitions, alliances and investments involve risks and uncertainties that may unfavorably impact our future financial performance. If integration of our acquired businesses is not successful, we may not realize the potential benefits of an acquisition or suffer other adverse effects that we currently do not foresee. We must implement our business processes and systems in the acquired operations and effectively integrate the different cultures of acquired business organizations into our own. We may also need to enter new markets in which we have no or limited experience and where competitors in such markets have stronger market positions.
Any of the foregoing, and other factors, could harm our ability to achieve anticipated levels of profitability from acquired businesses or to realize other anticipated benefits of acquisitions. In addition, because acquisitions of high technology companies are inherently risky, no assurance can be given that our previous or future acquisitions will be successful and will not adversely affect our business, operating results, or financial condition.
13
If we fail to enter into future vendor managed inventory arrangements or fail to supply the specific product or quantity under such arrangements, the results of our operations and financial condition may be materially adversely impacted
We enter into arrangements with certain original equipment manufacturers ("OEMs") and Electronic Manufacturing Services ("EMS") partners to consign quantities of certain products within close proximity of the OEMs and EMS partners' manufacturing location. The inventory is physically segregated at these locations and we retain title and risk of loss related to this inventory until such time as the OEM or EMS partner pulls the inventory for use in their manufacturing process. Once the inventory is pulled by the OEM or EMS partner, title and risk of loss pass to the customer, at which point we relieve inventory and recognize revenue and the related cost of goods sold. The specific quantities to be consigned are based on a forecast provided by the OEM or EMS partner. Generally, the arrangements with the OEMs and EMS partners provide for transfer of title and risk of loss once product has been consigned for a certain length of time.
We believe these arrangements will continue to grow in terms of number of customers and products and will increase in proportion to consolidated net revenues. It is our belief that revenues from such arrangements will eventually become significant to consolidated net revenues. Should we be unable or unwilling to enter into such agreements as requested by OEMs or EMS partners, our results of operations may be materially adversely impacted. Should we be unable to supply the specific product and quantity needed by the OEM or EMS partner as reflected in their forecast, we may be liable for damages, including, but not limited to, lost revenues and increased production costs which could have a material adverse impact on our results of operations and financial condition. Should we supply product in excess of the OEM or EMS partners actual usage, any inventory not consumed may become excess or obsolete which would result in an inventory write off that could materially adversely affect our results of operations.
Our stock price may be volatile
The market price of our common stock has fluctuated significantly. In the future, the market price of our common stock could be subject to significant fluctuations due to general economic and market conditions and in response to quarter-to-quarter variations including but not limited to the following:
|
•
|
our anticipated or actual results of operations;
|
|
•
|
announcements or introductions of new products by us or our competitors;
|
|
•
|
anticipated or actual operating results of our customers, peers or competitors;
|
|
•
|
technological innovations or setbacks by us or our competitors;
|
|
•
|
conditions in our four major markets;
|
|
•
|
the commencement or outcome of litigation or governmental investigations;
|
|
•
|
change in ratings and estimates of our performance by securities analysts;
|
|
•
|
announcements of merger or acquisition transactions;
|
|
•
|
dividend changes;
|
|
•
|
changes in our capital structure, including any decision we make in regard to the repurchase of our common stock;
|
|
•
|
management changes;
|
|
•
|
supply constraints;
|
|
•
|
semiconductor industry cyclicality;
|
|
•
|
our inclusion in certain stock indices;
|
|
•
|
our ability to maintain compliance with the SEC reporting requirements; and
|
|
•
|
other events or factors beyond our control.
|
The stock market in recent years has experienced extreme price and volume fluctuations that have affected the market prices of many high technology companies, particularly semiconductor companies. In some instances, these fluctuations appear to have been unrelated or disproportionate to the operating performance of the affected companies. Any such fluctuation could harm the market price of our common stock.
Our ability to service our debt obligations, including
$300 million
of senior unsecured notes, requires sufficient cash flow from our future operations
In June 2010, the Company issued
$300 million
in senior, unsecured debt due in 2013 with an effective interest rate of
3.49%
. Interest is payable semi-annually on December 14 and June 14. The debt indenture includes covenants that limit the Company's ability to grant liens on its facilities and to enter into sale and leaseback transactions, which could limit the Company's ability to secure debt funding in the future, if needed. In circumstances involving a change of control of the Company followed by a downgrade of the rating of the Company's notes, the Company would be required to make an offer to repurchase these notes at a
14
purchase price equal to
101%
of the aggregate principal amount, plus accrued and unpaid interest. The Company's ability to repurchase the notes in such events may be limited by the Company's then-available financial resources or by the terms of other agreements to which the Company is a party. Although the Company currently has the funds necessary to retire this debt, funds might not be available to repay the notes when they come due in the future.
If the Company fails to pay interest when due, or to repay the notes when due or materially breaches other loan covenants, it would constitute an event of default under the indenture governing the notes which, in turn, may also constitute an event of default under other obligations of the Company. Any event of default under the indenture or other obligations of the Company and any additional obligations and restrictions imposed as a result thereof could negatively impact our financial results.
Our financial results may be adversely affected by increased tax rates and exposure to additional tax liabilities
A number of factors may increase our future effective tax rates, including:
|
•
|
the jurisdictions in which profits are determined to be earned and taxed;
|
|
•
|
recent changes in our global structure that involve an increased investment in technology outside of the United States to better align asset ownership and business functions with revenues and profits;
|
|
•
|
the resolution of issues arising from tax audits with various tax authorities;
|
|
•
|
changes in the valuation of our deferred tax assets and liabilities;
|
|
•
|
adjustments to estimated taxes upon finalization of various tax returns;
|
|
•
|
increases in expenses not deductible for tax purposes, including impairments of goodwill in connection with acquisitions;
|
|
•
|
changes in available tax credits;
|
|
•
|
changes in share-based compensation;
|
|
•
|
changes in tax laws or the interpretation of such tax laws, and changes in generally accepted accounting principles; and
|
|
•
|
the repatriation of non-U.S. earnings for which we have not previously provided for U.S. taxes.
|
We are subject to taxation in various countries and jurisdictions. Significant judgment is required to determine tax liabilities on a worldwide basis. Our future tax rates could be affected by various changes in the composition of earnings in countries with different tax rates, changes in our global structure, changes in the valuation of our deferred tax assets and liabilities, or changes in the tax laws. Any significant increase in our future effective tax rates could reduce net income for future periods and may have a material adverse impact on our results of operations.
We may be subject to income tax liabilities under Section 409A of the Internal Revenue Code and other payroll taxes
In the past, a number of our outstanding stock option awards were granted at exercise prices below the fair market value of our stock on the appropriate accounting measurement date. Many of these options are potentially subject to option holder excise tax under Section 409A of the Internal Revenue Code (and, as applicable, similar excise taxes under state law or foreign law). In fiscal year 2008, we took action to cure certain options from exposure under Section 409A. However, there can be no assurance that such action cured all potential circumstances in which Section 409A would apply. Should it be determined that excise taxes under Section 409A were to apply and we decide to reimburse option holders for such taxes, our results of operations may be materially adversely affected. Also, we have determined that certain payroll taxes, interest and penalties may apply to us under various sections of the Internal Revenue Code, various state tax statutes, and tax statutes in various foreign jurisdictions. Maxim has reviewed these potential liabilities and accrued the estimated probable amount of such liabilities. There can be no assurance that our accruals covered all potential circumstances in which additional payroll taxes, interest and penalties would apply. Should it be found that additional payroll taxes, interest and penalties would apply, our results of operations may be materially adversely affected.
We may be materially adversely affected by currency fluctuations or changes in trade policies
We conduct our manufacturing and other operations in various worldwide locations. A portion of our operating costs and expenses at foreign locations are paid in local currencies. Many of the materials used in our products and much of the manufacturing process for our products are supplied by foreign companies or by our foreign operations, such as our test operations in the Philippines and Thailand. Approximately
85%
,
85%
and
82%
of our net revenues in fiscal years
2011
,
2010
and
2009
, respectively, were shipped to foreign locations. Accordingly, both manufacturing and sales of our 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 our foreign manufacturing
15
or marketing strategies. Currency exchange fluctuations could also decrease revenue and increase our operating costs, the cost of components manufactured abroad, and the cost of our products to foreign customers, or decrease the costs of products from our foreign competitors.
We are subject to U.S. Customs and Export Regulations
We are subject to U.S. Customs and Export Regulations, including U.S. International Traffic and Arms Regulations and similar laws, which collectively control import, export and sale of technologies by companies. Failure to comply with such regulations may result in civil and criminal enforcement, including monetary fines and possible injunctions against shipment of product, which could have a material adverse impact on our results of operations and financial condition.
If we fail to attract and retain qualified personnel, our business may be harmed
Our success depends to a significant extent upon the continued service of our chief executive officer, our other executive officers, and key management and technical personnel, particularly our experienced engineers and business unit managers, and on our ability to continue to attract, retain, and motivate qualified personnel. The loss of the services of one or several of our executive officers could have a material adverse effect on us. In addition, there could be a material adverse effect on us should the turnover rates for engineers and other key personnel increase significantly or should we be unable to continue to attract, motivate and retain qualified personnel. Should we lose an engineer who is key to a project's completion during the course of a particular project, the project's completion may be delayed. This delay could negatively affect customer relationships and goodwill and could have a material adverse effect on our results of operations.
Our certificate of incorporation contains certain anti-takeover provisions that may discourage, delay or prevent a hostile change in control of our Company
Our certificate of incorporation permits our Board of Directors to authorize the issuance of up to
2,000,000
shares of preferred stock and to determine the rights, preferences and privileges and restrictions applicable to such shares without any further vote or action by our stockholders. Any such issuance might discourage, delay or prevent a hostile change in control of our Company.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
Our headquarters is located in Sunnyvale, California. Manufacturing and other operations are conducted in several locations worldwide. The following table provides certain information regarding our principal owned general offices and manufacturing facilities at
June 25, 2011
:
16
|
Owned Property Location
|
Use(s)
|
Approximate
Floor Space
(sq. ft.)
|
|
|
Sunnyvale, California
|
Office space and engineering space
|
56,000
|
|
|
San Jose, California
|
Wafer fabrication, office space and administration
|
80,000
|
|
|
San Jose, California
|
Future Corporate headquarters, office space, engineering, manufacturing, administration, customer services, shipping, and other
|
435,000
|
|
|
N. Chelmsford, Massachusetts
|
Engineering, office space and administration
|
30,000
|
|
|
Beaverton, Oregon
|
Wafer fabrication, engineering, office space and administration
|
226,000
|
|
|
Hillsboro, Oregon
|
Engineering, manufacturing, office space and administration
|
325,000
|
|
|
Dallas, Texas
|
Dallas Semiconductor headquarters, office space, engineering, manufacturing, administration, wafer fabrication, customer service, warehousing, shipping, and other
|
657,000
|
|
|
Irving, Texas
|
Wafer fabrication space, office space and administration
|
622,000
|
|
|
San Antonio, Texas
|
Wafer fabrication, office space and administration
|
381,000
|
|
|
Cavite, the Philippines
|
Manufacturing, engineering, administration, office space, customer service, shipping, and other
|
234,000
|
|
|
Batangas, the Philippines
|
Manufacturing, engineering, office space and other
|
78,000
|
|
|
Chonburi Province, Thailand
|
Manufacturing, engineering, administration, office space, customer service, shipping, and other
|
144,000
|
|
|
Bangalore, India
|
Land
|
4.6 acres
|
|
|
Chandler, Arizona
|
Office space, engineering, and test
|
65,000
|
|
Several of the buildings at our corporate headquarters in Sunnyvale, California were sold in fiscal 2011 as we intend to relocate our corporate headquarters in 2012 to a location in San Jose, California. The buildings are being leased by us until renovations to our newly acquired campus in San Jose are complete and our employees are relocated to the new campus.
The Irving, Texas facility is not currently operational.
In addition to the property listed in the above table, we also lease sales, engineering, administration and manufacturing offices and other premises at various locations in the United States and overseas under operating leases, none of which are material to our future cash flows. These leases expire at various dates through 2025. We anticipate no difficulty in retaining occupancy of any of our manufacturing, office or sales facilities through lease renewals prior to expiration or through month-to-month occupancy or in replacing them with equivalent facilities.
We expect these facilities to be adequate for our business purposes through at least the next 12 months.
ITEM 3. LEGAL PROCEEDINGS
Legal Proceedings
The Company is subject to legal proceedings and claims that arise in the normal course of the Company's business. The Company does not believe that the ultimate outcome of such matters arising in the normal course of business will have a material adverse
17
effect on the financial position, results of operations or cash flows of the Company.
Indemnifications
The Company indemnifies certain customers, distributors, suppliers and subcontractors for attorney fees, damages and costs awarded against such parties in certain circumstances in which the Company's products are alleged to infringe third party intellectual property rights, including patents, registered trademarks or copyrights. The terms of the Company's indemnification obligations are generally perpetual from the effective date of the agreement. In certain cases, there are limits on and exceptions to the Company's potential liability for indemnification relating to intellectual property infringement claims.
Legal Fees Associated with Indemnification Obligations, Defense and Other Related Costs
Pursuant to the Company's charter documents and indemnification agreements, the Company has certain indemnification obligations to its officers and directors and certain former officers and directors. More specifically, the Company has separate written indemnification agreements with its current and former executive officers and directors. Pursuant to such obligations, the Company has incurred expenses related to legal fees and expenses advanced to certain former officers of the Company who were subject to civil suits and civil charges by the SEC in connection with Maxim's historical stock option granting practices. The Company expenses such amounts as incurred.
ITEM 4. [Removed and Reserved]
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Our common stock is traded on the NASDAQ Global Select Market (formerly the NASDAQ National Market) ("NASDAQ") under the symbol MXIM. At July 31, 2011, there were
912
stockholders of record of our common stock.
The following table sets forth the range of the high and low closing prices by quarter for fiscal years
2011
and
2010
:
|
|
High
|
Low
|
|
|
Fiscal Year ended June 25, 2011
|
|
|
|
|
First Quarter
|
$18.54
|
$15.87
|
|
|
Second Quarter
|
$24.82
|
$17.81
|
|
|
Third Quarter
|
$28.10
|
$23.58
|
|
|
Fourth Quarter
|
$28.34
|
$23.79
|
|
|
|
|
|
|
|
|
High
|
Low
|
|
|
Fiscal Year ended June 26, 2010
|
|
|
|
|
First Quarter
|
$19.31
|
$15.17
|
|
|
Second Quarter
|
$20.87
|
$16.67
|
|
|
Third Quarter
|
$20.59
|
$17.41
|
|
|
Fourth Quarter
|
$21.27
|
$16.66
|
|
The following table sets forth the dividends paid per share for fiscal years
2011
and
2010
:
|
|
Fiscal Years
|
||
|
|
2011
|
2010
|
|
|
|
|
|
|
|
First Quarter
|
$0.21
|
$0.20
|
|
|
Second Quarter
|
$0.21
|
$0.20
|
|
|
Third Quarter
|
$0.21
|
$0.20
|
|
|
Fourth Quarter
|
$0.21
|
$0.20
|
|
18
Issuer Purchases of Equity Securities
The following table summarizes the activity related to stock repurchases for the three months ended
June 25, 2011
:
|
Issuer Repurchases of Equity Securities
|
|||||||||||||
|
(in thousands, except per share amounts)
|
|||||||||||||
|
Total Number
of Shares
Purchased
|
Weighted Average Price Paid per Share
|
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs
|
Maximum Amount That May Yet Be Purchased Under the Plans or Programs
|
||||||||||
|
Mar. 27, 2011 - Apr. 23, 2011
|
725
|
|
$
|
25.24
|
|
725
|
|
$
|
134,506
|
|
|||
|
Apr. 24, 2011 - May 21, 2011
|
660
|
|
$
|
26.94
|
|
660
|
|
$
|
116,723
|
|
|||
|
May 22, 2011 - Jun. 25, 2011
|
890
|
|
$
|
25.77
|
|
890
|
|
$
|
93,791
|
|
|||
|
Total
|
2,275
|
|
$
|
25.94
|
|
2,275
|
|
$
|
93,791
|
|
|||
In October 2008, the Board of Directors authorized the Company to repurchase up to
$750 million
of the Company's common stock from time to time at the discretion of the Company's management. This stock repurchase authorization has no expiration date. All prior authorizations by the Company's Board of Directors for the repurchase of common stock were canceled and superseded by this authorization.
During fiscal year
2011
, the Company repurchased approximately
10.9 million
shares of its common stock for
$231.0 million
. As of June 25,
2011
, the Company had remaining authorization of
$93.8 million
for future share repurchases. 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 and general market and business conditions.
Equity Compensation Plan Information
For important information regarding our equity compensation plans, please see Note 6, "Stock-Based Compensation," in the Notes to the Consolidated Financial Statements accompanying this Annual Report on Form 10-K.
Stock Performance Graph
The line graph below compares the cumulative total stockholder return on our common stock with the cumulative total return of the NASDAQ Composite Stock Index and the Philadelphia Semiconductor Index for the five years ended June 25, 2011. The graph and table assume that $100 was invested on June 23, 2006 (the last day of trading for the year ended June 24, 2006) in each of our common stock, the NASDAQ Composite Stock Index and the Philadelphia Semiconductor Index, and that all dividends were reinvested. Cumulative total stockholder returns for our common stock, the NASDAQ Composite Stock Index and the Philadelphia Semiconductor Index are based on our fiscal year.
19
|
|
Base Year
|
Fiscal Year Ended
|
|||||||||||||||
|
|
June 24, 2006
|
June 30, 2007
|
June 28, 2008
|
June 27, 2009
|
June 26, 2010
|
June 25, 2011
|
|||||||||||
|
Maxim Integrated Products, Inc.
|
100.00
|
|
105.97
|
|
68.80
|
|
55.83
|
|
62.97
|
|
90.40
|
|
|||||
|
NASDAQ Composite
|
100.00
|
|
122.71
|
|
109.15
|
|
86.65
|
|
104.81
|
|
125.05
|
|
|||||
|
Philadelphia Semiconductor index
|
100.00
|
|
112.52
|
|
82.87
|
|
59.06
|
|
79.05
|
|
88.12
|
|
|||||
ITEM 6. SELECTED FINANCIAL DATA
Set forth below is a summary of certain consolidated financial information with respect to the Company as of the dates and for the periods indicated. The data set forth below as of
June 25, 2011
and
June 26, 2010
and for each of the three years in the period ended
June 25, 2011
are derived from and should be read in conjunction with, and are qualified by reference to, Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations and Item 8 - Financial Statements and Supplementary Data, and notes thereto included elsewhere in this Annual Report on Form 10-K. The following selected financial data as of
June 27, 2009
,
June 28, 2008
, and
June 30, 2007
and for the two years in the period ended June 28, 2008 is derived from our consolidated financial statements not included herein. The historical results are not necessarily indicative of the results to be expected in any future period.
20
|
|
Fiscal Year Ended
|
||||||||||||||||||
|
|
June 25, 2011
|
June 26, 2010
|
June 27, 2009
|
June 28, 2008
|
June 30, 2007
|
||||||||||||||
|
(Amounts in thousands, except percentages and per share data)
|
|||||||||||||||||||
|
Consolidated Statements of Income Data:
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
Net revenues
|
$
|
2,472,341
|
|
$
|
1,997,603
|
|
$
|
1,646,015
|
|
$
|
2,052,783
|
|
$
|
2,009,124
|
|
||||
|
Cost of goods sold
|
942,377
|
|
804,537
|
|
797,138
|
|
804,083
|
|
782,494
|
|
|||||||||
|
Gross margin
|
$
|
1,529,964
|
|
$
|
1,193,066
|
|
$
|
848,877
|
|
$
|
1,248,700
|
|
$
|
1,226,630
|
|
||||
|
Gross margin %
|
61.9
|
%
|
59.7
|
%
|
51.6
|
%
|
60.8
|
%
|
61.1
|
%
|
|||||||||
|
Operating income
|
$
|
673,039
|
|
$
|
292,050
|
|
$
|
17,378
|
|
$
|
426,053
|
|
$
|
352,413
|
|
||||
|
% of net revenues
|
27.2
|
%
|
14.6
|
%
|
1.1
|
%
|
20.8
|
%
|
17.5
|
%
|
|||||||||
|
Net income
|
$
|
489,009
|
|
$
|
125,139
|
|
$
|
10,455
|
|
$
|
317,725
|
|
$
|
286,227
|
|
||||
|
Earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
Basic net income per share
|
$
|
1.65
|
|
$
|
0.41
|
|
$
|
0.03
|
|
$
|
0.99
|
|
$
|
0.89
|
|
||||
|
Diluted net income per share
|
$
|
1.61
|
|
$
|
0.40
|
|
$
|
0.03
|
|
$
|
0.98
|
|
$
|
0.87
|
|
||||
|
Shares used in the calculation of
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
Basic
|
296,755
|
|
304,579
|
|
310,805
|
|
320,553
|
|
320,434
|
|
|||||||||
|
Diluted
|
303,377
|
|
310,016
|
|
311,479
|
|
325,846
|
|
329,883
|
|
|||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
Dividends paid per share
|
$
|
0.84
|
|
$
|
0.80
|
|
$
|
0.80
|
|
$
|
0.75
|
|
$
|
0.62
|
|
||||
|
|
As of
|
||||||||||||||||||
|
|
June 25, 2011
|
June 26, 2010
|
June 27, 2009
|
June 28, 2008
|
June 30, 2007
|
||||||||||||||
|
|
(Amounts in thousands)
|
||||||||||||||||||
|
Consolidated Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
Cash and cash equivalents
|
$
|
962,541
|
|
$
|
826,512
|
|
$
|
709,348
|
|
$
|
1,013,119
|
|
$
|
577,068
|
|
||||
|
Short-term investments
|
50,346
|
|
—
|
|
204,055
|
|
205,079
|
|
722,286
|
|
|||||||||
|
Total cash, cash equivalents and short-term investments
|
$
|
1,012,887
|
|
$
|
826,512
|
|
$
|
913,403
|
|
$
|
1,218,198
|
|
$
|
1,299,354
|
|
||||
|
Working capital
|
$
|
1,313,512
|
|
$
|
1,174,096
|
|
$
|
1,316,175
|
|
$
|
1,627,406
|
|
$
|
1,615,669
|
|
||||
|
Total assets
|
$
|
3,527,743
|
|
$
|
3,482,325
|
|
$
|
3,081,775
|
|
$
|
3,708,390
|
|
$
|
3,606,784
|
|
||||
|
Long-term debt
|
$
|
300,000
|
|
$
|
300,000
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
||||
|
Stockholders' equity
|
$
|
2,510,818
|
|
$
|
2,352,958
|
|
$
|
2,594,465
|
|
$
|
3,147,811
|
|
$
|
3,131,934
|
|
||||
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion and analysis in conjunction with our Consolidated Financial Statements and notes thereto included in Part II, Item 8 of this report and the risk factors included in Part I, Item 1A of this report, as well as "forward-looking statements" and other risks described herein and elsewhere in this report, before making an investment decision regarding our common stock.
Overview
We are a global company with manufacturing facilities in the United States, Philippines and Thailand, and sales offices and design centers throughout the world. We design, develop, manufacture and market linear and mixed-signal integrated circuits, commonly referred to as analog circuits, for a large number of customers in diverse geographical locations and are incorporated in the state of Delaware. We also provide a range of high-frequency process technologies and capabilities for use in custom designs. The analog market is fragmented and characterized by diverse applications, a great number of product variations and, with respect to many circuit types, relatively long product life cycles. The major end-markets in which we sell our products are the industrial,
21
communications, consumer and computing markets.
Critical Accounting Policies
The methods, estimates and judgments we use in applying our most critical accounting policies have a significant impact on the results we report in our financial statements. The SEC has defined the most critical accounting policies as the ones that are most important to the portrayal of our financial condition and results of operations, and that require us to make our 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, our most critical accounting policies include revenue recognition, which impact 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; assessment of recoverability of intangible assets and goodwill which impacts write-offs of goodwill and intangible assets; accounting for stock- based compensation, which impacts cost of goods sold, gross margins and operating expenses; accounting for income taxes, which impacts the income tax provision; and assessment of litigation and contingencies, which impacts charges recorded in cost of goods sold, selling, general and administrative expenses and income taxes. These policies and the estimates and judgments involved are discussed further below. We have other significant 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 our reported results of operations for a given period. Our significant accounting policies are described in Note 2 to the Consolidated Financial Statements accompanying this Annual Report on Form 10-K.
Revenue Recognition
The Company recognizes revenue for sales to direct customers and sales to distributors upon shipment, provided that persuasive evidence of a sales arrangement exists, the price is fixed or determinable, title and risk of loss has transferred, collectability of the resulting receivable is reasonably assured, there are no customer acceptance requirements and we do not have any significant post-shipment obligations. We estimate returns for sales to direct customers and international distributors based on historical returns rates applied against current period gross revenues. Specific customer returns and allowances are considered within this estimate.
Sales to certain distributors are made pursuant to agreements allowing for the possibility of certain sales price rebates and for non-warranty product return privileges. The non-warranty product return privileges include allowing certain U.S. distributors to return a small portion of our products in their inventory based on their previous 90 days of purchases. Given the uncertainties associated with the levels of non-warranty product returns and sales price rebates that could be issued to U.S. distributors, we defer recognition of such revenue and related cost of goods sold until the product is sold by the U.S. distributors to their end-customers. Accounts receivable from direct customers, domestic distributors and international distributors are recognized and inventory is relieved upon shipment as title to inventories generally transfers upon shipment at which point we have a legally enforceable right to collection under normal terms. Accounts receivable related to consigned inventory is recognized when the customer takes title of such inventory from its consigned location at which point inventory is relieved, title transfers, and we have a legally enforceable right to collection under the terms of our agreement with the related customers.
The Company estimates potential future 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 returns and sales allowances. Estimates made by us may differ from actual returns and sales allowances. These differences may materially impact reported revenue and amounts ultimately collected on accounts receivable. Historically, such differences have not been material. At
June 25, 2011
and
June 26, 2010
, the Company had
$16.0 million
and
$15.0 million
accrued for returns and allowances against accounts receivable, respectively. During fiscal years
2011
and
2010
, the Company recorded
$74.5 million
and
$67.5 million
for estimated returns and allowances against revenues, respectively. These amounts were offset by
$73.5 million
and
$62.8 million
actual returns and allowances given during fiscal years
2011
and
2010
, respectively.
Inventories
Inventories are stated at the lower of (i) standard cost, which approximates actual cost on a first-in-first-out basis, or (ii) market value. Our standard cost revision policy is to continuously monitor manufacturing variances and periodically revise standard costs. Because of the cyclical nature of the market, inventory levels, obsolescence of technology, and product life cycles, we generally write-down inventories to net realizable value based on 12 months forecasted product demand. Actual demand and market conditions may be lower than those projected by us. This difference could have a material adverse effect on our 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 us, gross margin could be favorably impacted. Historically, such differences have not been material. During fiscal years
2011
,
2010
and
2009
, we had inventory write-downs of
$13.8 million
,
$3.7 million
and
$38.6 million
, respectively.
22
Long-Lived Assets
We evaluate the recoverability of property, plant and equipment in accordance with ASC ("Accounting Standards Codification") No. 360,
Accounting for the Property, Plant, and Equipment
("ASC No. 360"). We perform 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, we compare projected undiscounted net cash flows associated with the related asset or group of assets over their estimated remaining useful lives 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 our property, plant and equipment could differ from our estimates used in assessing the recoverability of these assets. These differences could result in impairment charges, which could have a material adverse impact on our results of operations. We recorded impairment charges of
$0.0 million
,
$8.3 million
and
$51.1 million
during fiscal years
2011
,
2010
and
2009
, respectively.
Intangible Assets and Goodwill
We account for intangible assets in accordance with ASC No. 360. We review goodwill and purchased intangible assets with indefinite lives for impairment annually and whenever events or changes in circumstances indicate the carrying value of an asset may not be recoverable, such as when reductions in demand or significant economic slowdowns in the semiconductor industry are present. Reviews are performed to determine whether the carrying value of an asset is impaired, based on comparisons to undiscounted expected future cash flows. If this comparison indicates that there is impairment, the impaired asset is written down to fair value, which is typically calculated using: (i) quoted market prices or (ii) discounted expected future cash flows utilizing a discount rate consistent with the guidance provided in FASB Concepts Statement No. 7,
Using Cash Flow Information and Present Value in Accounting Measurements.
Impairment is based on the excess of the carrying amount over the fair value of those assets.
Goodwill is recorded as the difference, if any, between the aggregate consideration paid for an acquisition and the fair value of the net tangible and intangible assets acquired. In accordance with ASC No. 350,
Intangibles-Goodwill and Other (
"ASC 350"), we test goodwill for impairment at the reporting unit level (operating segment or one level below an operating segment) on an annual basis in the first quarter or more frequently if we believe indicators of impairment exist. The performance of the test involves a two-step process. The first step of the impairment test involves comparing the fair values of the applicable reporting units with their aggregate carrying values, including goodwill. We generally determine the fair value of our reporting units using the income approach methodology of valuation that includes the discounted cash flow method as well as other generally accepted valuation methodologies. If the carrying amount of a reporting unit exceeds the reporting unit's fair value, we perform the second step of the goodwill impairment test to determine the amount of impairment loss. The second step of the goodwill impairment test involves comparing the implied fair value of the affected reporting unit's goodwill with the carrying value of that goodwill. No impairment charges were recorded associated with our goodwill and intangible assets during fiscal years
2011
,
2010
, and
2009
, respectively.
Stock-Based Compensation
We account for stock-based compensation in accordance with ASC 718,
Compensation in Stock Compensation
, ("ASC 718"). ASC 718 requires the recognition of the fair value of stock-based compensation for all stock-based payment awards, including grants of stock options and other awards made to our employees and directors in exchange for services, in the income statement. It also addresses transactions in which an entity incurs liabilities in exchange for goods or services that are based on the fair value of the entity's equity instruments or that may be settled by the issuance of those equity instruments. Accordingly, stock-based compensation cost is measured at the grant date, based on the fair value of the awards ultimately expected to vest and is recognized as an expense, on a straight-line basis, over the requisite service period. We use the Black-Scholes valuation model to measure the fair value of our stock-based awards utilizing various assumptions with respect to expected holding period, risk-free interest rates, stock price volatility and dividend yield. ASC 718 also requires forfeitures to be estimated at the time of grant and revised if necessary in subsequent periods if actual forfeitures or vesting differ from those estimates. Such revisions could have a material effect on our operating results. The assumptions we use in the valuation model are based on subjective future expectations combined with management judgment. If any of the assumptions used in the Black-Scholes model changes significantly, stock-based compensation for future awards may differ materially compared to the awards granted previously.
Accounting for Income Taxes
We must make certain estimates and judgments in the calculation of income tax expense, determination of uncertain tax positions,
23
and in the determination of whether deferred tax assets are more likely than not to be realized. The calculation of our income tax expense and income tax liabilities involves dealing with uncertainties in the application of complex tax laws and regulations.
ASC 740-10, Income Taxes, prescribes a recognition threshold and measurement framework for financial statement reporting and disclosure of tax positions taken or expected to be taken on a tax return. Under ASC 740-10, a tax position is recognized in the financial statements when it is more-likely-than not, based on the technical merits, that the position will be sustained upon examination, including resolution of any related appeals or litigation processes. A tax position that meets the recognition threshold is then measured to determine the largest amount of the benefit that has a greater than 50% likelihood of being realized upon settlement. Although we believe that the Company's computation of tax benefits to be recognized and realized are reasonable, no assurance can be given that the final outcome will not be different from what was reflected in our income tax provisions and accruals. Such differences could have a material impact on our net income and operating results in the period in which such determination is made. See Note 16 to the Consolidated Financial Statements accompanying this Annual Report on Form 10-K for further information related to ASC 740-10.
We evaluate our deferred tax asset balance and record a valuation allowance to reduce the net deferred tax assets to the amount that is more likely than not to be realized. 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, or additional paid in capital, as appropriate, 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 is made. 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 planning strategies are considered. Realization of our deferred tax asset is dependent primarily upon future U.S. taxable income. Our 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 the net deferred tax asset and an accompanying reduction or increase in net income in the period in which such determinations are made.
Litigation and Contingencies
From time to time, we receive notices that our products or manufacturing processes may be infringing the patent or intellectual property rights of others, notices of stockholder litigation or other lawsuits or claims against us. We periodically assess each matter in order to determine if a contingent liability in accordance with ASC No. 450,
Accounting for Contingencies
("ASC 450"), 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. We expense legal fees associated with consultations and defense of lawsuits as incurred. Based on the information obtained combined with management's judgment regarding all the facts and circumstances of each matter, we determine whether a contingent loss is probable and whether the amount of such loss can be estimated. Should a loss be probable and estimable, we record a contingent loss in accordance with ASC 450. In determining the amount of a contingent loss, we take 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, we may need to record additional contingent losses that could materially adversely impact our 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 thereby favorably impacting our results of operations.
Pursuant to the Company's charter documents and indemnification agreements, we have certain indemnification obligations to our officers and directors, and certain former officers and directors. More specifically, we have separate written indemnification agreements with our current and former executive officers and directors. Pursuant to such obligations, we have incurred substantial expenses related to legal fees for certain former officers of the Company subject to civil charges by the SEC and other governmental agencies in connection with Maxim's historical stock option granting practices. During fiscal year 2010, the Company recorded a
$173.0 million
charge in connection with an agreement to settle the class action complaint regarding its historical stock option granting practices and on July 23, 2010, the Company paid such amount into an escrow fund in accordance with the terms of the settlement. Please refer to Item 3, Legal Proceedings and Note 13, "Commitments and Contingencies" in the Notes to Consolidated Financial Statements included elsewhere in this report for more information on the litigation and associated settlement.
Results of Operations
The following table sets forth certain Consolidated Statements of Income data expressed as a percentage of net revenues for the periods indicated:
24
|
|
June 25,
2011 |
June 26,
2010 |
June 27,
2009 |
|||||
|
|
|
|
|
|
|
|
||
|
Net revenues
|
100
|
%
|
100
|
%
|
100
|
%
|
||
|
Cost of goods sold
|
38.1
|
%
|
40.3
|
%
|
48.4
|
%
|
||
|
Gross margin
|
61.9
|
%
|
59.7
|
%
|
51.6
|
%
|
||
|
Operating expenses:
|
|
|
|
|
|
|
||
|
Research and development
|
21.2
|
%
|
23.8
|
%
|
31.6
|
%
|
||
|
Selling, general and administrative
|
11.8
|
%
|
12.1
|
%
|
12.1
|
%
|
||
|
Intangible asset amortization
|
0.8
|
%
|
0.5
|
%
|
0.4
|
%
|
||
|
In process research & development
|
—
|
%
|
—
|
%
|
0.2
|
%
|
||
|
Impairment of long-lived assets
|
—
|
%
|
0.4
|
%
|
3.1
|
%
|
||
|
Severance and restructuring expenses
|
0.1
|
%
|
—
|
%
|
1.7
|
%
|
||
|
Other operating expenses, net
|
0.8
|
%
|
8.3
|
%
|
1.4
|
%
|
||
|
Total operating expenses
|
34.7
|
%
|
45.1
|
%
|
50.6
|
%
|
||
|
Operating income
|
27.2
|
%
|
14.6
|
%
|
1.1
|
%
|
||
|
Interest (expense) income and other, net
|
(0.5
|
)%
|
0.4
|
%
|
1.0
|
%
|
||
|
Income before provision for income taxes
|
26.7
|
%
|
15.0
|
%
|
2.1
|
%
|
||
|
Provision for income taxes
|
7.0
|
%
|
8.8
|
%
|
1.5
|
%
|
||
|
Net income
|
19.7
|
%
|
6.2
|
%
|
0.6
|
%
|
||
The following table shows pre-tax stock-based compensation included in the components of the Consolidated Statements of Income reported above as a percentage of net revenues for the periods indicated:
|
|
For the Year Ended
|
|||||||
|
|
June 25,
2011 |
June 26,
2010 |
June 27,
2009 |
|||||
|
|
|
|
|
|
|
|
||
|
Cost of goods sold
|
0.6
|
%
|
0.8
|
%
|
3.5
|
%
|
||
|
Research and development
|
2.2
|
%
|
2.7
|
%
|
6.1
|
%
|
||
|
Selling, general and administrative
|
1.0
|
%
|
1.2
|
%
|
2.3
|
%
|
||
|
|
3.8
|
%
|
4.7
|
%
|
11.9
|
%
|
||
Net Revenues
We reported net revenues of
$2,472.3 million
,
$1,997.6 million
and
$1,646.0 million
in fiscal years
2011
,
2010
and
2009
, respectively. Our net reven
ues in fiscal year
2011
increased by
24%
compared to our net revenues in fiscal year
2010
. This increase occurred in three of our end markets
due to increased demand for our products, resulting in increased units shipped and increased average selling prices.
Revenue from ind
ustrial products were up
35%
, consumer products were up
28%
and communications products were up
26%
. Computing products were flat year over year mainly due to exiting certain notebook products with low gross margin and focusing on a better mix, which resulted in a
16%
decrease in notebook revenue that offset the growth in other market segments.
Our net revenues in fiscal year
2010
increased by
21%
compared to our net revenues in fiscal year
2009
. This increase occurred in all four of our end markets due to the increased demand for our products, an increase in units shipped, attributable to the overall recovery in the global economic environment. Revenue from communications products were up
15%
, computing products were up
9%
, consumer products were up
35%
and industrial products were up
22%
.
Approximately
85%
,
85%
and
82%
of the Company's net revenues in fiscal years
2011
,
2010
and
2009
, 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
2011
,
2010
and
2009
were immaterial.
Gross Margin
Our gross margin as a percentage of net revenue was
61.9%
in fiscal year
2011
compared to
59.7%
in fiscal year
2010
. The year over year improvements in gross margin is primarily due to improved factory utilization, product mix and decreased stock-based
25
compensation as a percentage of revenue.
Our gross margin as a percentage of net revenue was
59.7%
in fiscal year
2010
compared to
51.6%
in fiscal year
2009
. The gross margin percentage increased in fiscal year
2010
from fiscal year
2009
primarily due to improved overall factory utilization, a decrease of
$52.9 million
or
3.2%
of revenues in accelerated depreciation expense attributable to the closure of our Dallas wafer fabrication facility at the end of fiscal year 2009, decreased inventory write-downs of
$34.9 million
or
2.2%
of revenues primarily due to improved inventory turnover and better management of our inventory levels, and decreased stock-based compensation expenses of
$41.9 million
or
2.7%
of revenues, as described below under Stock-based Compensation. These gross margin improvements were partially offset by an increase in sales of lower margin products.
Research and Development
Research and development expenses were
$525.3 million
and
$474.7 million
for fiscal years
2011
and
2010
, respectively, which represented
21.2%
and
23.8%
of net revenues, respectively. The increase in research and development expenses was largely attributable to an increase in salaries and bonuses of
$28.1 million
, primarily due to increased headcount and higher bonus levels in connection with increased profitability for fiscal year
2011
.
Research and development expenses were
$474.7 million
and
$520.2 million
for fiscal years
2010
and
2009
, respectively, which represented
23.8%
and
31.6%
of net revenues, respectively. The decrease in research and development expenses was primarily attributable to a reduction in stock-based compensation expenses of
$46.8 million
, as described below under Stock-based Compensation. Other contributing factors include a
$19.3 million
decrease in salaries, bonuses and benefits attributable to the transition of our field applications engineers and our business managers from research and development to selling, general and administrative functions, which was offset by an increase of
$17.2 million
in salaries, bonuses and benefits, primarily due to higher bonus levels in connection with increased profitability for fiscal year
2010
.
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 on our success in recruiting the technical personnel needed for our new product introductions and process development. We view research and development expenditures as critical to maintaining a high level of new product introductions, which in turn are critical to our plans for future growth.
Selling, General and Administrative
Selling, general and administrative expenses were
$292.5 million
and
$242.1 million
in fiscal years
2011
and
2010
, respectively, which represented
11.8%
and
12.1%
of net revenues, respectively. The increase in selling, general, and administrative expenses for fiscal year
2011
as compared to fiscal year
2010
was largely attributable to an increase in salaries, bonuses, and benefits of
$35.5 million
, primarily due to increased headcount and higher bonus levels in connection with increased profitability for fiscal year
2011
. In addition travel and expensed equipment increased
$6.9 million
due to our headcount and business growth requirements.
Selling, general and administrative expenses were
$242.1 million
and
$199.2 million
in fiscal years
2010
and
2009
, respectively, which represented
12.1%
of net revenues in both periods. The increase in selling, general, and administrative expenses for fiscal year
2010
as compared to fiscal year
2009
was largely attributable to an increase in salaries, bonuses, and benefits of
$33.7 million
, of which
$14.4 million
related to higher bonus levels in connection with increased profitability for fiscal year
2010
, and an increase of
$19.3 million
was attributable to the transition of our field applications engineers and our business managers from research and development to selling, general and administrative functions. These increases were partially offset by decreased stock-based compensation expenses of
$13.9 million
, as described below under Stock-based Compensation.
The level of selling, general and administrative expenditures as a percentage of net revenues will vary from period to period, depending on the level of net revenues and our success in recruiting sales and administrative personnel needed to support our operations.
Intangible Asset Amortization Expenses
Intangible asset amortization expenses were
$18.8 million
and
$10.5 million
in fiscal years
2011
and
2010
, respectively. The increase in intangible asset amortization expenses is primarily attributable to the acquisition of Teridian in the fourth quarter of fiscal year 2010 and Phyworks in the first quarter of fiscal year 2011.
Intangible asset amortization expenses were
$10.5 million
and
$6.0 million
in fiscal years
2010
and
2009
, respectively. The increase in intangible asset amortization expenses is primarily attributable to the acquisition of Teridian in the fourth quarter of fiscal year 2010 and a full year of amortization of intangible assets associated with the fiscal year 2009 Zilog and Innova Card
26
acquisitions.
Impairment of Long-lived Assets
There were no impairment charges relating to long-lived assets in fiscal year 2011.
Impairment of long lived assets was
$8.3 million
in fiscal year
2010
and
$51.1 million
in the fiscal year
2009
. The decrease in impairments during fiscal year
2010
was mainly due to write downs of the San Jose fabrication facility equipment and charges associated with excess testers and handlers in
2009
. In fiscal year 2010, there was a charge of
$5.0 million
associated with end of line sorting and testing equipment due to changes in manufacturing technology. Additionally,
$3.3 million
was recorded in 2010 in relation to our Oregon wafer fabrication facility as a result of reduced wafer output requirements.
Severance and Restructuring Expenses
Severance and restructuring expenses were
$1.2 million
and
$(0.7) million
in fiscal years
2011
and
2010
, respectively. The increase in severance and restructuring expenses is largely due to severance costs associated with the reorganization of one of Maxim's business units and to employees from the Teridian acquisition who remained employed for a temporary period following the completion of the acquisition for transitional purposes.
Severance and restructuring expenses were
$(0.7) million
and
$28.1 million
in fiscal years
2010
and
2009
, respectively. The decrease in severance and restructuring expenses was largely due to the completion of the fiscal year 2009 restructuring program announced in the third quarter of fiscal year 2009 as a result of the global economic downturn and the resulting reduction in severance and medical benefit costs.
Other Operating Expenses, Net
Other operating expenses, net include legal and accounting fees directly attributable to the restatement of our previously filed financial statements completed in fiscal year 2009, cost reductions due to the reversal of accruals established in prior years for payroll taxes, interest and penalties related to the misdating of option grants and exercises and losses associated with our sale of the Maxim headquarters.
Other operating expenses, net were
$19.1 million
and
$166.2 million
in fiscal years
2011
and
2010
, respectively, which represented
0.8%
and
8.3%
of net revenues, respectively. The decrease in other operating expenses, net was attributable to a
$173.0 million
fiscal 2010 charge in connection with an agreement to settle the class action complaint. See Note 13: Commitments and Contingencies. This was partially offset by
$14.3 million
loss on sale of our Sunnyvale headquarters in the second quarter of 2011.
Other operating expenses, net were
$166.2 million
and
$23.0 million
in fiscal years
2010
and
2009
, respectively, which represented
8.3%
and
1.4%
of net revenues, respectively. The increase in other operating expenses, net was attributable to a
$173.0 million
charge in connection with an agreement to settle the class action complaint. This was partially offset by
$16.4 million
in income attributable to gains directly related to proceeds received as a result of the settlement of the derivative litigation during fiscal year 2010. See Note 13 "Commitments and Contingencies" to the Consolidated Financial Statements accompanying this report.
Interest (expense) income and Other, Net
Interest (expense) income and other, net were
$(11.4) million
in fiscal year
2011
and
$8.0 million
in fiscal year
2010
, which represented
(0.5)%
and
0.4%
of net revenues, respectively. The change is partially attributable to an increase of interest expense of
$10.7 million
related to our
$300 million
long-term debt issued in June 2010, a
$4.6 million
increase in foreign exchange losses in 2011 as compared to foreign exchange gains in 2010, and a reduction in interest income of
$2.9 million
resulting from lower average interest rates and reduced average cash and short term investment balances.
Interest income and other, net decreased to
$8.0 million
in fiscal year
2010
from
$17.2 million
in fiscal year
2009
, which represented
0.4%
and
1.0%
of net revenues, respectively. The decrease is partially attributable to a reduction in interest income of
$13.3 million
resulting from lower average interest rates and reduced average cash and short term investment balances.
Provision for Income Taxes
Our annual income tax expense was
$172.7 million
,
$174.9 million
, and
$24.2 million
, in fiscal years
2011
,
2010
, and
2009
, respectively. The effective tax rate was
26.1%
,
58.3%
and
69.8%
for fiscal years
2011
,
2010
, and
2009
, respectively. The Company's federal statutory tax rate is
35%
.
27
The Company's income tax provision for the fiscal year 2011 was lower than the amount computed by applying the statutory tax rate primarily because of a
$39.4 million
benefit for the release of unrecognized tax benefits, including related interest, and earnings of foreign subsidiaries taxed at lower tax rates, partially offset by
$8.1 million
relating to fiscal year 2010 adjustments for differences between our finalized tax return and the tax provision originally recorded. The income tax provision for the fiscal year 2011 also included a
$3.6 million
one-time benefit for the retroactive extension of the federal research tax credit to January 1, 2010 by legislation that was signed into law on December 17, 2010.
The fiscal year
2010
and
2009
effective tax rates were higher than the statutory tax rate primarily due to losses of a foreign subsidiary for which no tax benefit was available. These foreign losses represent costs of ongoing research and development efforts as well as licensing rights to preexisting intangibles. The tax rate increase generated by the fiscal year 2009 foreign losses was partially offset by tax benefits from the retroactive extension of the Federal research tax credit by legislation enacted in the fiscal year
2009
; certain executive compensation benefits in the fiscal year
2009
; and prior year state tax provision to return adjustments recorded in the fiscal year
2009
.
Stock-based Compensation
The following tables show stock-based compensation expense by type of award, resulting tax effect, and related impact on earnings per share included in the Consolidated Statements of Income for fiscal years
2011
,
2010
, and
2009
:
|
|
For the Year Ended
|
||||||||||
|
|
June 25, 2011
|
June 26, 2010
|
June 27, 2009
|
||||||||
|
|
(in thousands)
|
||||||||||
|
Cost of goods sold
|
|
|
|
|
|
|
|||||
|
Stock options
|
$
|
2,625
|
|
$
|
3,330
|
|
$
|
33,380
|
|
||
|
Restricted stock units
|
9,820
|
|
10,825
|
|
23,350
|
|
|||||
|
Employee stock purchase plan
|
1,556
|
|
1,065
|
|
370
|
|
|||||
|
Total
|
14,001
|
|
15,220
|
|
57,100
|
|
|||||
|
|
|
|
|
|
|
|
|||||
|
Research and development expense
|
|
|
|
|
|
|
|||||
|
Stock options
|
11,325
|
|
15,085
|
|
38,237
|
|
|||||
|
Restricted stock units
|
36,925
|
|
33,834
|
|
61,151
|
|
|||||
|
Employee stock purchase plan
|
5,436
|
|
5,146
|
|
1,442
|
|
|||||
|
Total
|
53,686
|
|
54,065
|
|
100,830
|
|
|||||
|
|
|
|
|
|
|
|
|||||
|
Selling, general and administrative expense
|
|
|
|
|
|
|
|||||
|
Stock options
|
6,120
|
|
8,130
|
|
21,390
|
|
|||||
|
Restricted stock units
|
18,944
|
|
15,056
|
|
16,665
|
|
|||||
|
Employee stock purchase plan
|
1,546
|
|
1,054
|
|
123
|
|
|||||
|
Total
|
26,610
|
|
24,240
|
|
38,178
|
|
|||||
|
|
|
|
|
|
|
|
|||||
|
Total stock-based compensation expense
|
|
|
|
|
|
|
|||||
|
Stock options
|
20,070
|
|
26,545
|
|
93,007
|
|
|||||
|
Restricted stock units
|
65,689
|
|
59,715
|
|
101,166
|
|
|||||
|
Employee stock purchase plan
|
8,538
|
|
7,265
|
|
1,935
|
|
|||||
|
Pre-tax stock-based compensation expense
|
94,297
|
|
93,525
|
|
196,108
|
|
|||||
|
Less: Income tax effect
|
25,457
|
|
25,041
|
|
67,430
|
|
|||||
|
Net stock-based compensation expense
|
$
|
68,840
|
|
$
|
68,484
|
|
$
|
128,678
|
|
||
Pre-tax stock based compensation increased to
$94.3 million
in fiscal year
2011
from
$93.5 million
in fiscal year
2010
, which represented
3.8%
and
4.7%
of net revenues, respectively. The decrease in pre-tax stock based compensation as a percentage of revenue was primarily due to the increase in revenue by 24% while the pre-tax stock based compensation was relatively flat.
Pre-tax stock based compensation decreased to
$93.5 million
in fiscal year
2010
from
$196.1 million
in fiscal year
2009
, which represented
4.7%
and
11.9%
of net revenues, respectively. The decrease in pre-tax stock based compensation was partially due to the recognition of
$75.9 million
in stock-based compensation expenses associated with the Company's tender offer and the recognition of
$18.6 million
associated with the Company's offer to cash settle stock options expiring in October 2008 offset by
28
a reversal of
$52.2 million
in expenses related to the true-up for previously forfeited options during the second quarter 2009 which did not recur in 2010. In addition expenses associated with restricted stock units and stock options declined due to the completion of vesting associated with higher priced grants offset by expense related to newer grants.
Recently Issued Accounting Pronouncements
In June 2011, the FASB issued Accounting Standards Update (“ASU”) relating to Comprehensive Income (Topic 220)-Presentation of Comprehensive Income (ASU 2011-05), to require an entity to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. The ASU is effective for us in our third quarter of fiscal 2012 and should be applied retrospectively. We are currently evaluating the impact of our pending adoption of ASU 2011-05 on our consolidated financial statements.
In May 2011, the FASB issued ASU No. 2011-04, Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and International Financial Reporting Standards (Topic 820)-Fair Value Measurement (ASU 2011-04), to provide a consistent definition of fair value and ensure that the fair value measurement and disclosure requirements are similar between U.S. GAAP and International Financial Reporting Standards. ASU 2011-04 changes certain fair value measurement principles and enhances the disclosure requirements particularly for level 3 fair value measurements. ASU 2011-04 is effective for us in our first quarter of fiscal 2013 and should be applied prospectively. We are currently evaluating the impact of our pending adoption of ASU 2011-04 on our consolidated financial statements.
Backlog
At
June 25, 2011
and
June 26, 2010
, our current quarter backlog was approximately
$460 million
and
$614 million
, respectively. We include in our backlog orders with customer request dates within the next three months. As is customary in the semiconductor industry, these orders may be canceled in most cases without penalty to the customers. In addition, our backlog includes orders from domestic distributors for which revenues are not recognized until the products are sold by the distributors. Accordingly, we believe that our backlog at any time should not be used as a measure of future revenues. All backlog amounts have been adjusted for estimated future U.S. distribution ship and debit pricing adjustments. Please refer to the Risk Factor titled “Incorrect forecasts, reductions, cancellations or delays in orders for our products could adversely affect our results of operations” for the risks associated with backlog.
Financial Condition, Liquidity and Capital Resources
As of
June 25, 2011
, our available funds consisted of
$1,013 million
in cash, cash equivalents and short-term investments. We anticipate that the available funds and cash generated from operations will be sufficient to meet cash and working capital requirements, including the anticipated level of capital expenditures, common stock repurchases, and dividend payments for at least the next twelve months.
Financial Condition
Cash flows were as follows:
|
June 25,
2011 |
June 26,
2010 |
June 27,
2009 |
|||||||||
|
(in thousands)
|
|||||||||||
|
Net cash provided by operating activities
|
$
|
861,454
|
|
$
|
490,953
|
|
$
|
445,795
|
|
||
|
Net cash used in investing activities
|
(278,334
|
)
|
(241,648
|
)
|
(191,717
|
)
|
|||||
|
Net cash used in financing activities
|
(447,091
|
)
|
(132,141
|
)
|
(557,849
|
)
|
|||||
|
Net increase (decrease) in cash and cash equivalents
|
$
|
136,029
|
|
$
|
117,164
|
|
$
|
(303,771
|
)
|
||
Operating activities
Cash provided by operating activities is net income adjusted for certain non-cash items and changes in certain assets and liabilities.
Cash from operations for the year ended
June 25, 2011
increased by approximately
$370.5 million
compared with the year ended June 26, 2010. This was due to an increase in net income of
$363.9 million
, a reduction in the receivables by
$167.5 million
and a reduction in other current assets by
$132.6 million
, over the year ended
June 25, 2011
, as compared to an increase over the year
29
ended June 26, 2010. These increases were offset by the payment of
$173.0 million
in July, 2010 relating to the litigation settlement, which was accrued for in fiscal 2010. (For more information on contingencies, see Note 13 to the Consolidated Financial Statements accompanying this report).
Cash from operations for the year ended June 26, 2010 increased by approximately
$45.2 million
compared with the year ended June 27, 2009. The increase was primarily attributable to an increase in net income and decreased non-cash charges of
$167.5 million
, offset by an increase in working capital of
$97.9 million
. This increase in working capital is primarily due to the accounts receivable increase of
$131.5 million
at the end of fiscal year
2010
compared to fiscal year
2009
. Additionally, inventories decreased by
$11.8 million
compared to fiscal year
2009
. Current liabilities increased by
$263.7 million
primarily due to the litigation settlement and an increase in income taxes payable, and to a lesser extent an increase in anticipated bonuses.
Investing activities
Investing cash flows consist primarily of capital expenditures, net investment purchases and maturities and acquisitions.
Cash used in investing activities increased by
$36.7 million
for the year ended
June 25, 2011
compared with the year ended June 26, 2010. The increase was primarily due to
$200.2 million
proceeds from maturity of short-term investments in the fiscal year ended 2010, that did not recur in fiscal year 2011,
$49.8 million
relating to purchase of short-term investments and an increase of
$26.5 million
in net capital expenditures relating to Property, plant and equipment , including the proceeds from the sale of our Sunnyvale headquarters. The increase was offset by
$235.9 million
representing less cash used for acquisitions.
Cash used in investing activities was
$241.6 million
in fiscal year
2010
while cash used in investing activities was
$191.7 million
in fiscal year
2009
. The increase in cash from investing activities was primarily attributable to the acquisition of Teridian for
$312.8 million
, net of cash, in the fourth quarter of fiscal year 2010, which was partially offset by proceeds from the maturities of available-for-sale securities of
$200.2 million
.
Financing activities
Financing cash flows consist primarily of repurchases of common stock, payment of dividends to stockholders and withholding tax payments associated with net share settlements of equity awards.
Net cash used in financing activities increased by approximately
$315.0 million
for the year ended
June 25, 2011
compared with the year ended June 26, 2010. This increase was primarily due to cash proceeds from issuance of debt in 2010 of
$298.6 million
which did not reoccur in 2011.
Cash used in financing activities was
$132.1 million
in fiscal year
2010
and
$557.8 million
in fiscal year
2009
. The decrease in cash used from financing activities was primarily due to the issuance of debt of
$300 million
in the fourth quarter of fiscal year 2010, the issuance of ESPP of
$24.8 million
, a decrease in repurchases of common stock of
$44.2 million
and a decrease in cash used pursuant to the RSU loan program of
$35.6 million
.
Liquidity and Capital Resources
Debt Levels
On June 17, 2010, we completed a public offering of
$300 million
aggregate principal amount of the Company's
3.45%
senior unsecured and unsubordinated notes (the"Notes") due on June 14, 2013, with an effective interest rate of
3.49%
. Interest on the Notes is payable semi-annually in arrears on June 14 and December 14 of each year.
The underwriting agreements governing the Notes contain covenants that provide limitations over the Company's creation or incurrence of liens or sale and lease-back transactions on any of its properties, or properties of its subsidiaries. Upon the occurrence of a change of control triggering event, each holder shall have the right to require the Company to buy their Notes at a purchase price equal to 101% of the principal amount, plus accrued and unpaid interest. The Company's ability to repurchase the senior notes in such event may be limited by law, by the indenture associated with the senior notes, by the Company's then-available financial resources or by the terms of other agreements to which the Company may be party at such time. If the Company fails to repurchase the senior notes as required by the indenture, it would constitute an event of default. In the event of default, the principal amount and interest will become due and payable immediately.
Available borrowing resources
As of June 25, 2011, we had the capacity to issue an unspecified amount of additional debt securities, common stock, preferred
30
stock, warrants, rights and units under the 2010 Shelf Registration Statement.
Subsequent acquisition
On July 18, 2011, we acquired SensorDynamics, a semiconductor company that develops proprietary sensor and microelectromechanical ("MEMS") solutions. SensorDynamics is based in Lebring, near Graz, Austria. The total cash consideration associated with the acquisition was approximately
$130.0 million
plus the assumption of approximately
$34.0 million
in debt.
Contractual Obligations
The following table summarizes the Company's significant contractual obligations at
June 25, 2011
, and the effect such obligations are expected to have on the Company's liquidity and cash flows in future periods. This table excludes amounts already recorded on our Consolidated Balance Sheet as current liabilities at
June 25, 2011
:
|
|
Total
|
Less than
1 year
|
2-3 years
|
4-5 years
|
More than
5 years
|
||||||||||||||
|
|
(Amounts in thousands)
|
||||||||||||||||||
|
Operating lease obligations (1)
|
$
|
44,489
|
|
$
|
12,808
|
|
$
|
15,478
|
|
$
|
8,005
|
|
$
|
8,198
|
|
||||
|
Royalty obligations (2)
|
20,000
|
|
10,000
|
|
10,000
|
|
—
|
|
—
|
|
|||||||||
|
Long-term debt obligations (3)
|
300,000
|
|
—
|
|
300,000
|
|
—
|
|
—
|
|
|||||||||
|
Interest payments associated with long-term debt obligations (4)
|
20,441
|
|
10,350
|
|
10,091
|
|
—
|
|
—
|
|
|||||||||
|
Capital equipment and inventory related purchase obligations (5)
|
33,899
|
|
17,515
|
|
3,752
|
|
3,752
|
|
8,880
|
|
|||||||||
|
Total
|
$
|
418,829
|
|
$
|
50,673
|
|
$
|
339,321
|
|
$
|
11,757
|
|
$
|
17,078
|
|
||||
(1) The Company leases some facilities under non-cancelable operating lease agreements that expire at various dates through
2025.
(2) Royalty obligations represent payments for licensed patents.
(3) Long-term debt represents amount due for the Company's
3.45%
senior unsecured notes due 2013.
(4) Interest payments associated with the Company's
3.45%
senior unsecured notes due 2013.
(5) Capital equipment purchase obligations represent commitments for purchase of property, plant and equipment. The Company orders some materials and supplies in advance or with minimum purchase quantities. The Company is obligated to pay for the materials and supplies when received.
Purchase orders for the purchase of the majority of our raw materials and other goods and services are not included above. Our purchase orders generally allow for cancellation without significant penalties. We do not have significant agreements for the purchase of raw materials or other goods specifying minimum quantities or set prices that exceed our expected short-term requirements.
As of
June 25, 2011
, our gross unrecognized income tax benefits were
$117.4 million
, which excludes
$3.3 million
of accrued interest and penalties. At this time, we are unable to make a reasonably reliable estimate of the timing of payments of these amounts, if any, in individual years due to uncertainties in the timing or outcomes of either actual or anticipated tax audits. As a result, these amounts are not included in the table above.
Off-Balance-Sheet Arrangements
As of
June 25, 2011
, the Company did not have any material off-balance-sheet arrangements, as defined in Item 303(a)(4)(ii) of SEC Regulation S-K.
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 cash and cash equivalents and the
3.45%
fixed rate senior unsecured notes issued in June 2010 (See Note 5 "Financial Instruments" to the Consolidated Financial Statements accompanying this report). The Company does not use derivative financial instruments to hedge the risk of interest rate volatility. At
June 25, 2011
, the Company maintained a significant portfolio of money market fund investments, which
31
are included in cash and cash equivalents. These money market funds are all available on a daily basis.
Foreign Currency Risk
The Company generates revenues in various global markets based on orders obtained in non-U.S. currencies, primarily the Japanese Yen, the Euro and the British Pound. Maxim incurs expenditures denominated in non-US currencies, principally Philippine Pesos and Thailand Baht associated with the Company's manufacturing activities in the Philippines and Thailand, respectively, and expenditures for sales offices and research and development activities undertaken outside of the U.S. Maxim is exposed to fluctuations in foreign currency exchange rates primarily on orders and accounts receivable from sales in these foreign currencies and cash flows for expenditures in these foreign currencies. Maxim has established risk management strategies designed to reduce the impact of volatility of future cash flows caused by changes in the exchange rates for these currencies. These strategies reduce, but do not entirely eliminate, the impact of currency exchange rates movements. Maxim does not use derivative financial instruments for speculative or trading purposes. The Company routinely hedges its exposures to certain foreign currencies with various financial institutions in an effort to minimize the impact of certain currency exchange rate fluctuations. If a financial counter party to any of the Company's hedging arrangements experiences financial difficulties or is otherwise unable to honor the terms of the foreign currency hedge, the Company may experience financial losses.
For derivative instruments that are designated and qualify as cash flow hedges under ASC No. 815- Derivatives and Hedging, the effective portion of the gain or loss on the derivative is reported as a component of accumulated other comprehensive income (loss) and reclassified into earnings into the same financial statement line as the item being hedged, and in the same period or periods during which the hedged transaction affects earnings. Gains and losses on the derivative representing either hedge ineffectiveness or hedge components excluded from the assessment of effectiveness are recognized in interest and other (expense) income, net.
For derivative instruments that are not designated as hedging instruments under ASC No. 815, gains and losses are recognized in interest and other (expense) income, net. All derivatives are foreign currency forward contracts to hedge certain foreign currency denominated assets or liabilities. The gains and losses on these derivatives largely offset the changes in the fair value of the assets or liabilities being hedged.
Foreign exchange contracts
The net unrealized gain or loss, if any, is potentially subject to market and credit risk as it represents appreciation (decline) of the hedge position against the spot exchange rates. The net realized and unrealized gains or losses from hedging foreign currency denominated assets and liabilities were immaterial during the year ended
June 25, 2011
and
June 26, 2010
.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary data required by this Item are 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
None.
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our chief executive officer ("CEO") and our chief financial officer ("CFO"), evaluated the effectiveness of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act as of
June 25, 2011
. The purpose of these controls and procedures is to ensure that information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC rules, and that such information is accumulated and communicated to our management, including our CEO and our CFO, to allow timely decisions regarding required disclosures. Based on the evaluation, our management, including our CEO and our CFO, concluded that our disclosure controls and procedures were effective as of
June 25, 2011
.
32
Management's Annual Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Internal control over financial reporting is a process designed by, or under the supervision of, the Company's CEO and CFO and effected by the Company's Board of Directors, management, and others to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements
for external purposes in accordance with GAAP. Our management, with the participation of our CEO and our CFO, assessed the effectiveness of our internal control over financial reporting as of
June 25, 2011
. Management's assessment of internal control over financial reporting was conducted using the criteria in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO"). Our management has concluded that, as of
June 25, 2011
, our internal control over financial reporting was effective, in all material respects, based on these criteria. Deloitte & Touche LLP, an Independent Registered Public Accounting Firm, audited the effectiveness of the Company's internal control over financial reporting, as stated within their report which is included herein.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting during the quarter ended
June 25, 2011
that have materially affected or are reasonably likely to materially affect, our internal control over financial reporting.
Inherent Limitations on the Effectiveness of Internal Controls
A system of internal control over financial reporting is intended to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with GAAP and no control system, no matter how well designed and operated, can provide absolute assurance. The design of any control system 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. Because of its inherent limitations, internal control over financial reporting may not prevent or detect financial statement errors and misstatements. Also, projection of any evaluation of effectiveness to future periods is subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate.
33
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Maxim Integrated Products, Inc.
Sunnyvale, CA
We have audited the internal control over financial reporting of Maxim Integrated Products, Inc. and subsidiaries (the "Company") as of June 25, 2011, based on the criteria established in
Internal Control - Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company's internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company's internal control over financial reporting is a process designed by, or under the supervision of, the company's principal executive and principal financial officers, or persons performing similar functions, and effected by the company's board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.
Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of June 25, 2011, based on the criteria established in
Internal Control - Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements and financial statement schedule as of and for the year ended June 25, 2011 of the Company and our report dated August 5, 2011 expressed an unqualified opinion on those financial statements and financial statement schedule.
DELOITTE & TOUCHE LLP
San Jose, California
August 5, 2011
34
ITEM 9B. OTHER INFORMATION
None.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Other than as follows, the information required by this Item is incorporated by reference from the Company's Proxy Statement for the
2011
Annual Meeting of Stockholders under the headings "Audit Committee and Audit Committee Financial Expert," "Proposal 1 - Election of Directors" and "Compliance with Section 16(a) of the Securities Exchange Act of 1934."
Executive Officers of the Registrant
The following is information regarding our executive officers, including their positions and their ages as of
June 25, 2011
.
|
Name
|
Age
|
Position
|
||
|
Tunc Doluca
|
53
|
President and Chief Executive Officer
|
||
|
Bruce E. Kiddoo
|
50
|
Senior Vice President, Chief Financial Officer
|
||
|
David A. Caron
|
51
|
Vice President and Principal Accounting Officer
|
||
|
Vivek Jain
|
51
|
Senior Vice President, Manufacturing
|
||
|
Edwin Medlin
|
54
|
Vice President, General Counsel
|
||
|
Matthew J. Murphy
|
38
|
Vice President, Worldwide Sales and Marketing
|
||
|
Christopher J. Neil
|
45
|
Division Vice President, Conversion, Computer and Secure Products Division
|
||
|
Pirooz Parvarandeh
|
51
|
Group President, High Performance Analog Division
|
||
|
Charles G. Rigg
|
67
|
Senior Vice President
|
||
|
Vijay Ullal
|
52
|
Group President, Consumer Solutions Division
|
||
|
Steven Yamasaki
|
56
|
Vice President, Human Resources
|
||
Mr. Doluca has served as a director of Maxim as well as the President and Chief Executive Officer since January 2007. He joined Maxim in October 1984 and served as Vice President from 1994 to 2004. He was promoted to Senior Vice President in 2004 and Group President in May 2005. Prior to 1994, he served in a number of integrated circuit development positions.
Mr. Kiddoo joined Maxim in September 2007 as Vice President of Finance. On October 1, 2008, immediately following the completion of Maxim's restatement of previously filed financial statements, Mr. Kiddoo was appointed Chief Financial Officer and Principal Accounting Officer of Maxim and was appointed Senior Vice President in September 2009. Prior to joining Maxim, Mr. Kiddoo held various positions at Broadcom Corporation, a global semiconductor company, beginning in December 1999. Mr. Kiddoo served as Broadcom's Corporate Controller and Principal Accounting Officer from July 2002 and served as Vice President from January 2003. He also served as Broadcom's Acting Chief Financial Officer from September 2006 to March 2007.
Mr. Caron has served as Maxim's Corporate Controller since July 2003 and, prior to that, served as Maxim's Director of Accounting from December 1998 to July 2003. Mr. Caron was appointed Vice President and Principal Accounting Officer in August 2010. Mr. Caron is a Certified Public Accountant in the state of California and holds a Bachelor of Science in Accounting from San Jose State University.
Mr. Jain joined Maxim in April 2007 as Vice President responsible for our wafer fabrication operations. In June 2009 Mr. Jain was promoted to Senior Vice President with expanded responsibility for managing test and assembly operations in addition to wafer fabrication operations. Prior to joining Maxim, Mr. Jain was Plant Manager for several years at Intel Corporation's Technology Development and Manufacturing facility in Santa Clara, California responsible for 65nm flash manufacturing/transfer and development of 45nm flash technology. Mr. Jain has published over 30 papers and holds over 10 patents in the field of semiconductor technology.
Mr. Medlin joined Maxim in November 1999 as Director and Associate General Counsel. He was promoted to Vice President and Senior Counsel in April 2006 and appointed General Counsel in August 2010. Prior to joining Maxim, he was with the law firm of Ropers, Majeski, Kohn and Bentley from 1987 to 1994 where he held various positions, including director. From 1994 to 1997 he was with Fox Factory, Inc., a privately held manufacturing company where he held the positions of General Counsel, and later,
35
General Manager. From 1997 to 1999 he was with RockShox, Inc., a publicly traded corporation, where he held the positions of General Counsel and then Vice President of Global Sales and Marketing.
Mr. Murphy joined Maxim in July 1994 and was promoted to Vice President in November 2006. Prior to 2006, he served in a number of business unit and executive management positions.
Mr. Neil joined Maxim in September 1990 and was promoted to Vice President in April 2006. Prior to 2006, he held several engineering and executive management positions.
Mr. Parvarandeh joined Maxim in July 1987 and served as Vice President from 1997 to 2005. He was promoted to Senior Vice President in 2004 and Group President in May 2005. Prior to 1997, he served in a number of integrated circuit development positions.
Mr. Rigg joined Maxim in August 1996 as Managing Director and General Counsel. He was promoted to Vice President in April 1999 and Senior Vice President in January 2007. 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 served as Vice President from 1996 to 2004. He was promoted to Senior Vice President in 2004 and Group President in January 2007. Prior to 2004, he served in a number of wafer fabrication operation and management positions.
Mr. Yamasaki
joined Maxim in April 2010 as Vice President of Human Resources. Prior to joining Maxim, he was Corporate Vice President of Human Resources of Applied Materials from 2008 to 2010, and was Executive Vice President of Human Resources of YRC Worldwide from 2004 to 2008. Before joining YRC Worldwide, Mr. Yamasaki was Vice President of Human Resources at ConAgra Foods Inc. and Honeywell International.
Code of Business Conduct and Ethics
We have a Code of Business Conduct and Ethics (the "Code of Ethics"), which applies to all directors and employees, including but not limited to our principal executive officer, principal financial officer and principal accounting officer. The Code of Ethics is designed to promote: (i) honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest arising from personal and professional relationships, (ii) full, fair, accurate, timely and understandable disclosure in reports and documents that we are required to file with the SEC and in other public communications, (iii) compliance with applicable governmental laws, rules and regulations, (iv) the prompt internal reporting of violations of the Code of Ethics to an appropriate person or group, and (v) accountability for adherence to the Code of Ethics. A copy of the Code of Ethics is available on our website at http://www.maxim-ic.com/company/policy. A hard copy of the Code of Ethics will be sent free of charge upon request.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated by reference from the Company's Proxy Statement for the
2011
Annual Meeting of Stockholders under the headings "Director Compensation," "Compensation Discussion and Analysis," "Report of Compensation Committee" and "Executive Compensation."
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
2011
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, AND DIRECTOR INDEPENDENCE
The information required by this item is incorporated by reference from the Company's Proxy Statement for the
2011
Annual Meeting of Stockholders under the heading "Corporate Governance" and "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
2011
Annual Meeting of Stockholders under the headings "Report of the Audit Committee" and "Principal Accountant Fees and Services."
36
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) The following are filed as part of this Report:
|
Page
|
||||
|
(1)
|
Financial Statements.
|
|||
|
|
Consolidated Balance Sheets at June 25, 2011 and June 26, 2010
|
|||
|
|
Consolidated Statements of Income for each of the three years in the period ended June 25, 2011
|
|||
|
|
Consolidated Statements of Stockholders' Equity for each of the three years in the period ended June 25, 2011
|
|||
|
|
Consolidated Statements of Cash Flows for each of the three years in the period ended June 25, 2011
|
|||
|
|
Notes to Consolidated Financial Statements
|
|||
|
Report of Independent Registered Public Accounting Firm
|
||||
|
(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
|
||||
|
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)
Exhibits
.
See attached Index to Exhibits.
37
MAXIM INTEGRATED PRODUCTS, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except par value)
|
|
June 25,
2011 |
June 26,
2010 |
|||||
|
|
|
|
|
|
|||
|
ASSETS
|
|||||||
|
Current assets:
|
|
|
|
|
|||
|
Cash and cash equivalents
|
$
|
962,541
|
|
$
|
826,512
|
|
|
|
Short-term investments
|
50,346
|
|
—
|
|
|||
|
Total cash, cash equivalents and short-term investments
|
1,012,887
|
|
826,512
|
|
|||
|
Accounts receivable, net of allowances of $17,697 in 2011 and $17,438 in 2010
|
297,632
|
|
339,322
|
|
|||
|
Inventories
|
237,928
|
|
206,040
|
|
|||
|
Deferred tax assets
|
113,427
|
|
217,017
|
|
|||
|
Income tax refund receivable
|
483
|
|
83,813
|
|
|||
|
Other current assets
|
65,495
|
|
33,909
|
|
|||
|
Total current assets
|
1,727,852
|
|
1,706,613
|
|
|||
|
Property, plant and equipment, net
|
1,308,850
|
|
1,324,436
|
|
|||
|
Intangible assets, net
|
204,263
|
|
194,728
|
|
|||
|
Goodwill
|
265,125
|
|
226,223
|
|
|||
|
Other assets
|
21,653
|
|
30,325
|
|
|||
|
TOTAL ASSETS
|
$
|
3,527,743
|
|
$
|
3,482,325
|
|
|
|
|
|
|
|||||
|
LIABILITIES AND STOCKHOLDERS' EQUITY
|
|||||||
|
Current liabilities:
|
|
|
|||||
|
Accounts payable
|
$
|
110,153
|
|
$
|
107,797
|
|
|
|
Income taxes payable
|
3,912
|
|
13,053
|
|
|||
|
Accrued salary and related expenses
|
215,627
|
|
175,858
|
|
|||
|
Accrued expenses
|
47,767
|
|
37,030
|
|
|||
|
Deferred income on shipments to distributors
|
36,881
|
|
25,779
|
|
|||
|
Accrual for litigation settlement
|
—
|
|
173,000
|
|
|||
|
Total current liabilities
|
414,340
|
|
532,517
|
|
|||
|
Long term debt
|
300,000
|
|
300,000
|
|
|||
|
Income taxes payable
|
96,099
|
|
132,400
|
|
|||
|
Deferred tax liabilities
|
183,715
|
|
136,524
|
|
|||
|
Other liabilities
|
22,771
|
|
27,926
|
|
|||
|
Total liabilities
|
1,016,925
|
|
1,129,367
|
|
|||
|
Commitments and contingencies (Note 13)
|
|
|
|
|
|||
|
|
|||||||
|
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: 295,780 in 2011 and 300,848 in 2010
|
296
|
|
301
|
|
|||
|
Additional paid-in capital
|
—
|
|
—
|
|
|||
|
Retained earnings
|
2,524,790
|
|
2,364,598
|
|
|||
|
Accumulated other comprehensive loss
|
(14,268
|
)
|
(11,941
|
)
|
|||
|
Total stockholders' equity
|
2,510,818
|
|
2,352,958
|
|
|||
|
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY
|
$
|
3,527,743
|
|
$
|
3,482,325
|
|
|
See accompanying Notes to Consolidated Financial Statements.
38
MAXIM INTEGRATED PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
|
|
For the Years Ended
|
||||||||||
|
|
June 25,
2011 |
June 26,
2010 |
June 27,
2009 |
||||||||
|
|
|||||||||||
|
Net revenues
|
$
|
2,472,341
|
|
$
|
1,997,603
|
|
$
|
1,646,015
|
|
||
|
Cost of goods sold (1)
|
942,377
|
|
804,537
|
|
797,138
|
|
|||||
|
Gross margin
|
1,529,964
|
|
1,193,066
|
|
848,877
|
|
|||||
|
Operating expenses:
|
|
|
|
|
|
|
|||||
|
Research and development (1)
|
525,308
|
|
474,652
|
|
520,228
|
|
|||||
|
Selling, general and administrative (1)
|
292,494
|
|
242,144
|
|
199,151
|
|
|||||
|
Intangible asset amortization
|
18,752
|
|
10,477
|
|
6,019
|
|
|||||
|
In process research & development
|
—
|
|
—
|
|
3,900
|
|
|||||
|
Impairment of long-lived assets
|
—
|
|
8,291
|
|
51,112
|
|
|||||
|
Severance and restructuring expenses
|
1,247
|
|
(699
|
)
|
28,124
|
|
|||||
|
Other operating expenses, net
|
19,124
|
|
166,151
|
|
22,965
|
|
|||||
|
Total operating expenses
|
856,925
|
|
901,016
|
|
831,499
|
|
|||||
|
Operating income
|
673,039
|
|
292,050
|
|
17,378
|
|
|||||
|
Interest (expense) income and other, net
|
(11,368
|
)
|
8,013
|
|
17,241
|
|
|||||
|
Income before provision for income taxes
|
661,671
|
|
300,063
|
|
34,619
|
|
|||||
|
Provision for income taxes
|
172,662
|
|
174,924
|
|
24,164
|
|
|||||
|
Net income
|
$
|
489,009
|
|
$
|
125,139
|
|
$
|
10,455
|
|
||
|
|
|
|
|
|
|
|
|||||
|
Earnings per share:
|
|
|
|
|
|
|
|||||
|
Basic net income per share
|
1.65
|
|
0.41
|
|
0.03
|
|
|||||
|
Diluted net income per share
|
1.61
|
|
0.40
|
|
0.03
|
|
|||||
|
Shares used in the calculation of earnings per share:
|
|
|
|
|
|
|
|||||
|
Basic
|
296,755
|
|
304,579
|
|
310,805
|
|
|||||
|
Diluted
|
303,377
|
|
310,016
|
|
311,479
|
|
|||||
|
|
|
|
|
|
|
|
|||||
|
Dividends paid per share
|
$0.84
|
$0.80
|
$0.80
|
||||||||
(1) Includes stock-based compensation charges as follows:
|
Cost of goods sold
|
$
|
14,001
|
|
$
|
15,220
|
|
$
|
57,100
|
|
||
|
Research and development
|
$
|
53,686
|
|
$
|
54,065
|
|
$
|
100,830
|
|
||
|
Selling, general and administrative
|
$
|
26,610
|
|
$
|
24,240
|
|
$
|
38,178
|
|
||
See accompanying Notes to Consolidated Financial Statements.
39
MAXIM INTEGRATED PRODUCTS, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
|
|
Common Stock
|
Additional
|
Accumulated other
|
Total
|
||||||||||||||||||
|
(In thousands)
|
Shares
|
Par Value
|
Paid-In Capital
|
Retained Earnings
|
Comprehensive Loss
|
Stockholders' Equity
|
||||||||||||||||
|
Balance, June 28, 2008
|
320,553
|
|
321
|
|
251,478
|
|
2,901,139
|
|
(5,127
|
)
|
3,147,811
|
|
||||||||||
|
Components of comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
|
Net income
|
|
|
|
|
|
|
10,455
|
|
|
|
10,455
|
|
||||||||||
|
Unrealized actuarial loss on post-retirement benefits, net of tax
|
|
|
|
|
|
|
|
|
(3,762
|
)
|
(3,762
|
)
|
||||||||||
|
Tax effect of the unrealized exchange loss on long-term intercompany receivable
|
|
|
|
|
|
|
|
|
552
|
|
552
|
|
||||||||||
|
Unrealized gain on available-for-sale investments, net of tax
|
|
|
|
|
|
|
|
|
681
|
|
681
|
|
||||||||||
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
7,926
|
|
||||||||||
|
Repurchase of common stock
|
(18,132
|
)
|
(18
|
)
|
(174,172
|
)
|
(60,942
|
)
|
|
|
(235,132
|
)
|
||||||||||
|
Common stock issued under stock plans, net of shares withheld for employee taxes
|
3,598
|
|
3
|
|
(20,590
|
)
|
|
|
|
|
(20,587
|
)
|
||||||||||
|
Stock based compensation
|
|
|
|
|
162,010
|
|
|
|
|
|
162,010
|
|
||||||||||
|
Tax shortfall on settlement of equity instruments
|
|
|
|
|
(195,294
|
)
|
(21,541
|
)
|
|
|
(216,835
|
)
|
||||||||||
|
Modification of equity instruments to liability
|
|
|
|
|
(18,658
|
)
|
|
|
|
|
(18,658
|
)
|
||||||||||
|
Modification of liability instruments to equity
|
|
|
|
|
16,431
|
|
|
|
|
|
16,431
|
|
||||||||||
|
Dividends paid
|
|
|
|
|
|
|
(248,501
|
)
|
|
|
(248,501
|
)
|
||||||||||
|
Balance, June 27, 2009
|
306,019
|
|
306
|
|
21,205
|
|
2,580,610
|
|
(7,656
|
)
|
2,594,465
|
|
||||||||||
|
Components of comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
|
Net income
|
125,139
|
|
125,139
|
|
||||||||||||||||||
|
Unrealized actuarial loss on post-retirement benefits, net of tax
|
(896
|
)
|
(896
|
)
|
||||||||||||||||||
|
Tax effect of the unrealized exchange gain on long-term intercompany receivable
|
(1,893
|
)
|
(1,893
|
)
|
||||||||||||||||||
|
Unrealized loss on available-for-sale investments, net of tax
|
(1,346
|
)
|
(1,346
|
)
|
||||||||||||||||||
|
Unrealized loss on forward-exchange contracts, net of tax
|
(150
|
)
|
(150
|
)
|
||||||||||||||||||
|
Total comprehensive income
|
120,854
|
|
||||||||||||||||||||
|
Repurchase of common stock
|
(10,303
|
)
|
(10
|
)
|
(93,499
|
)
|
(97,396
|
)
|
(190,905
|
)
|
||||||||||||
|
Common stock issued under stock plans, net of shares withheld for employee taxes
|
3,295
|
|
3
|
|
(29,475
|
)
|
(29,472
|
)
|
||||||||||||||
|
Stock based compensation
|
90,440
|
|
90,440
|
|
||||||||||||||||||
|
Tax shortfall on settlement of equity instruments
|
(15,748
|
)
|
(15,748
|
)
|
||||||||||||||||||
|
Derivative settlement, net of tax
|
3,512
|
|
3,512
|
|
||||||||||||||||||
|
Modification of equity instruments to liability
|
(1,205
|
)
|
(1,205
|
)
|
||||||||||||||||||
|
Common stock issued under Employee Stock Purchase Plan
|
1,837
|
|
2
|
|
24,770
|
|
24,772
|
|
||||||||||||||
|
Dividends paid
|
(243,755
|
)
|
(243,755
|
)
|
||||||||||||||||||
|
Balance, June 26, 2010
|
300,848
|
|
$
|
301
|
|
$
|
—
|
|
$
|
2,364,598
|
|
$
|
(11,941
|
)
|
$
|
2,352,958
|
|
|||||
|
Components of comprehensive income:
|
||||||||||||||||||||||
|
Net income
|
489,009
|
|
489,009
|
|
||||||||||||||||||
|
Unrealized actuarial loss on post-retirement benefits, net of tax
|
(289
|
)
|
(289
|
)
|
||||||||||||||||||
|
Tax effect of the unrealized exchange gain on long-term intercompany receivable
|
(2,369
|
)
|
(2,369
|
)
|
||||||||||||||||||
|
Unrealized loss on available-for-sale investments, net of tax
|
331
|
|
331
|
|
||||||||||||||||||
|
Total comprehensive income
|
486,682
|
|
||||||||||||||||||||
|
Repurchase of common stock
|
(10,880
|
)
|
(11
|
)
|
(151,329
|
)
|
(79,672
|
)
|
(231,012
|
)
|
||||||||||||
|
Common stock issued under stock plans, net of shares withheld for employee taxes
|
2,660
|
|
3
|
|
(28,839
|
)
|
(28,836
|
)
|
||||||||||||||
|
Stock Options Exercised
|
1,461
|
|
1
|
|
24,829
|
|
24,830
|
|
||||||||||||||
|
Stock based compensation
|
93,623
|
|
93,623
|
|
||||||||||||||||||
|
Tax benefit on settlement of equity instruments
|
30,546
|
|
30,546
|
|
||||||||||||||||||
|
Modification of liability instruments to equity
|
2,350
|
|
2,350
|
|
||||||||||||||||||
|
Common stock issued under Employee Stock Purchase Plan
|
1,691
|
|
2
|
|
28,820
|
|
28,822
|
|
||||||||||||||
|
Dividends paid
|
(249,145
|
)
|
(249,145
|
)
|
||||||||||||||||||
|
Balance, June 25, 2011
|
295,780
|
|
$
|
296
|
|
$
|
—
|
|
$
|
2,524,790
|
|
$
|
(14,268
|
)
|
$
|
2,510,818
|
|
|||||
See accompanying Notes to Consolidated Financial Statements.
40
MAXIM INTEGRATED PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
|
|
For the Years Ended
|
||||||||||
|
|
June 25,
2011 |
June 26,
2010 |
June 27,
2009 |
||||||||
|
Cash flows from operating activities:
|
|
|
|
||||||||
|
Net income
|
$
|
489,009
|
|
$
|
125,139
|
|
$
|
10,455
|
|
||
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
|
|||||||
|
Stock-based compensation
|
94,297
|
|
93,525
|
|
196,108
|
|
|||||
|
Depreciation and amortization
|
205,062
|
|
167,523
|
|
205,423
|
|
|||||
|
Deferred taxes
|
140,084
|
|
29,090
|
|
202,352
|
|
|||||
|
In process research & development
|
—
|
|
—
|
|
3,900
|
|
|||||
|
Loss from sale of property, plant and equipment
|
12,946
|
|
272
|
|
2,695
|
|
|||||
|
Loss (gain) from sale of equity investments
|
—
|
|
148
|
|
(529
|
)
|
|||||
|
Tax benefit (shortfall) related to stock-based compensation
|
30,546
|
|
(15,748
|
)
|
(216,835
|
)
|
|||||
|
Excess tax benefit related to stock-based compensation
|
(12,869
|
)
|
(7,005
|
)
|
(670
|
)
|
|||||
|
Impairment of long lived assets
|
—
|
|
8,291
|
|
51,112
|
|
|||||
|
Changes in assets and liabilities:
|
|
|
|
|
|||||||
|
Accounts receivable
|
43,256
|
|
(124,258
|
)
|
65,288
|
|
|||||
|
Inventories
|
(29,435
|
)
|
22,681
|
|
49,124
|
|
|||||
|
Other current assets
|
53,255
|
|
(79,319
|
)
|
3,226
|
|
|||||
|
Accounts payable
|
(4,746
|
)
|
41,191
|
|
(5,988
|
)
|
|||||
|
Income taxes payable
|
(45,318
|
)
|
17,384
|
|
15,545
|
|
|||||
|
Deferred income on shipments to distributors
|
11,102
|
|
9,020
|
|
(4,687
|
)
|
|||||
|
Accrued liabilities- tender offer payments above settlement date fair value
|
—
|
|
—
|
|
(8,665
|
)
|
|||||
|
Accrued liabilities - goodwill payments above settlement date fair value
|
(164
|
)
|
(1,328
|
)
|
(32,016
|
)
|
|||||
|
Accrued liabilities - litigation settlement
|
(173,000
|
)
|
173,000
|
|
—
|
|
|||||
|
All other accrued liabilities
|
47,429
|
|
31,347
|
|
(90,043
|
)
|
|||||
|
Net cash provided by operating activities
|
861,454
|
|
490,953
|
|
445,795
|
|
|||||
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|||||
|
Purchases of property, plant and equipment
|
(175,253
|
)
|
(123,901
|
)
|
(135,429
|
)
|
|||||
|
Proceeds from sale of property, plant, and equipment
|
27,624
|
|
2,802
|
|
947
|
|
|||||
|
Acquisitions
|
(80,918
|
)
|
(316,784
|
)
|
(61,010
|
)
|
|||||
|
Other non-current assets
|
—
|
|
(3,998
|
)
|
873
|
|
|||||
|
Purchases of available-for-sale securities
|
(49,787
|
)
|
—
|
|
(5,524
|
)
|
|||||
|
Proceeds from sales/maturities of available-for-sale securities
|
—
|
|
200,233
|
|
8,426
|
|
|||||
|
Net cash used in investing activities
|
(278,334
|
)
|
(241,648
|
)
|
(191,717
|
)
|
|||||
|
Cash flows from financing activities
|
|
|
|
|
|
|
|||||
|
Excess tax benefit from stock-based compensation plans
|
12,869
|
|
7,005
|
|
670
|
|
|||||
|
Mortgage liability
|
(3,237
|
)
|
(40
|
)
|
(40
|
)
|
|||||
|
Equity settlements and payouts under the RSU loan program
|
26
|
|
(784
|
)
|
(50,432
|
)
|
|||||
|
Proceeds from derivative litigation settlement
|
—
|
|
2,460
|
|
—
|
|
|||||
|
Repayment of notes payable
|
(1,422
|
)
|
—
|
|
(3,827
|
)
|
|||||
|
Long-term debt, net of issuance costs
|
—
|
|
298,578
|
|
—
|
|
|||||
|
Issuance of common stock
|
24,830
|
|
(4,700
|
)
|
(20,587
|
)
|
|||||
|
Repurchase of common stock
|
(231,012
|
)
|
(190,905
|
)
|
(235,132
|
)
|
|||||
|
Dividends paid
|
(249,145
|
)
|
(243,755
|
)
|
(248,501
|
)
|
|||||
|
Net cash used in financing activities
|
(447,091
|
)
|
(132,141
|
)
|
(557,849
|
)
|
|||||
|
Net increase (decrease) in cash and cash equivalents
|
136,029
|
|
117,164
|
|
(303,771
|
)
|
|||||
|
Cash and cash equivalents:
|
|
|
|
|
|
|
|||||
|
Beginning of year
|
826,512
|
|
709,348
|
|
1,013,119
|
|
|||||
|
End of year
|
$
|
962,541
|
|
$
|
826,512
|
|
$
|
709,348
|
|
||
|
|
|
|
|
|
|
|
|||||
|
Supplemental disclosures of cash flow information:
|
|
|
|
|
|
|
|||||
|
Cash (refunded) paid, net during the year for income taxes
|
$
|
(15,529
|
)
|
$
|
217,140
|
|
$
|
21,650
|
|
||
|
Cash paid for interest
|
10,264
|
|
—
|
|
—
|
|
|||||
|
|
|
|
|
|
|||||||
|
Noncash financing and investing activities:
|
|
|
|
|
|||||||
|
Accounts payable related to property, plant and equipment purchases
|
$
|
22,841
|
|
$
|
6,894
|
|
$
|
15,712
|
|
||
See accompanying Notes to Consolidated Financial Statements.
41
MAXIM INTEGRATED PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: NATURE OF OPERATIONS
Maxim Integrated Products, Inc. ("Maxim," the "Company," "we," "us" or "our"), incorporated in Delaware, designs, develops, manufactures, and markets a broad range of linear and mixed-signal integrated circuits, commonly referred to as analog circuits, for a large number of customers in diverse geographical locations. The Company also provides a range of high-frequency process technologies and capabilities for use in custom designs. The analog market is fragmented and characterized by diverse applications, a great number of product variations and, with respect to many circuit types, relatively long product life cycles. Maxim is a global company with manufacturing facilities in the United States, testing facilities in the Philippines and Thailand, and sales and circuit design offices throughout the world. Integrated circuit assembly is performed by foreign assembly subcontractors, located in the Philippines, Malaysia, Thailand, China, Taiwan, Singapore, Indonesia, South Korea and Japan, where wafers are separated into individual integrated circuits and assembled into a variety of packages. The major end-markets the Company's products are sold in are the communications, computing, consumer and industrial markets.
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Fiscal Year
The Company has a 52-to-53-week fiscal year that ends on the last Saturday of June. Accordingly, every fifth or sixth year will be a 53-week fiscal year. Fiscal years
2011
,
2010
and
2009
were 52-week fiscal years. Fiscal year 2012 will be a 53-week fiscal year.
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, 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, valuation allowance for deferred tax assets, reserves relating to uncertain tax positions, allowances for doubtful accounts, customer returns and allowances, inventory valuation, reserves relating to litigation matters, assumptions about the fair value of reporting units, accrued liabilities and reserves and assumptions related to the calculation of stock-based compensation. 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.
Basis of Presentation
The consolidated financial statements include the accounts of the Company and all of its majority-owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. The condition for control of entities is the ownership of a majority voting interest and ability to otherwise exercise control over the entity.
Cash Equivalents and Short-term Investments
The Company considers all highly liquid financial 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 and money market funds. Short-term investments consist primarily of U.S. Agency debt securities with original maturities beyond three months at the date of purchase.
The Company's 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. Realized gains and losses on sales of investment securities are determined based on the specific identification method and are included in "Interest (expense) income and other, net" in the Consolidated Statements of Income.
Derivative Instruments
The Company generates revenues in various global markets based on orders obtained in non-U.S. currencies, primarily the Japanese Yen, the British Pound and the Euro. Maxim incurs expenditures denominated in non-US currencies, principally Philippine Pesos and Thailand Baht associated with the Company's manufacturing activities in the Philippines and Thailand, respectively. Maxim
42
MAXIM INTEGRATED PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
is exposed to fluctuations in foreign currency exchange rates primarily on orders and accounts receivable from sales in these foreign currencies and cash flows for expenditures in these foreign currencies. Maxim has established risk management strategies designed to reduce the impact of volatility of future cash flows caused by changes in the exchange rates for these currencies. These strategies reduce, but do not entirely eliminate, the impact of currency exchange rates movements.
Currency forward contracts are used to offset the currency risk of non-U.S. dollar-denominated assets and liabilities. The Company typically enters into currency forward contracts quarterly to hedge exposures associated with its expenditures denominated in Philippine Pesos and Thailand Baht. The Company enters into contracts each quarter for its accounts receivable and backlog denominated in Japanese Yen, British Pound and Euro. 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 Company uses currency forward contracts to hedge exposure to variability in anticipated non-U.S. dollar denominated cash flows. These contracts are designated as cash flow hedges and recorded on the Consolidated Balance Sheets at their fair market value. The maturities of these instruments are generally less than
6
months. For derivative instruments that are designated and qualify as cash flow hedges, the effective portion of the gain or loss on the derivative is reported as a component of accumulated other comprehensive income (loss) and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. For derivative instruments that are not designated as hedging instruments gains and losses are recognized in "interest (expense) income and other, net" in the Consolidated Statements of Income.
Fair Value of Financial Instruments
Maxim measures certain financial assets and liabilities at fair value based on the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants. See Note 5 for a further discussion on fair value of financial instruments.
Inventories
Inventories are stated at the lower of (i) standard cost, which approximates actual cost on a first-in-first-out basis, or (ii) market value. Because of the cyclical nature of the market, inventory levels, obsolescence of technology, and product life cycles, the Company generally writes down inventories to net realizable value based on
12
months forecasted product demand.
Property, Plant and Equipment
Property, plant and equipment are stated at cost. Depreciation is primarily computed on the straight-line method over the estimated useful lives of the assets, which range from
2
to
15
years for machinery and equipment and up to
40
years for buildings and building improvements. Leasehold improvements are amortized over the lesser of their useful lives or the remaining term of the related lease. When assets are retired or otherwise disposed of, the cost and accumulated depreciation or amortization is removed from the accounts and any resulting gain or loss is reflected in operating expense in the Consolidated Statements of Income in the period recognized.
The Company evaluates the recoverability of property, plant and equipment in accordance with Accounting Standards Codification ("ASC") No. 360,
Accounting for the Property, Plant, and Equipment
. ("ASC No. 360"). The Company performs periodic reviews to determine whether facts and circumstances exist that would indicate that the carrying amounts of property, plant and equipment exceeds 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 lives are 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. All long-lived assets to be disposed of are reported at the lower of carrying amount or fair market value, less expected selling costs.
Intangible Assets and Goodwill
The Company accounts for intangible assets in accordance with ASC No. 360. The Company reviews goodwill and purchased intangible assets with indefinite lives for impairment annually and whenever events or changes in circumstances indicate the carrying value of an asset may not be recoverable, such as when reductions in demand or significant economic slowdowns in the semiconductor industry are present. Reviews are performed to determine whether the carrying value of an asset is impaired, based on comparisons to undiscounted expected future cash flows. If this comparison indicates that there is impairment, the impaired asset is written down to fair value, which is typically calculated using: (i) quoted market prices or (ii) discounted expected future cash flows utilizing a discount rate consistent with the guidance provided in FASB Concepts Statement No. 7,
Using Cash Flow
43
MAXIM INTEGRATED PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Information and Present Value in Accounting Measurements
. Impairment is based on the excess of the carrying amount over the fair value of those assets.
Goodwill is recorded as the difference, if any, between the aggregate consideration paid for an acquisition and the fair value of the net tangible and intangible assets acquired. In accordance with ASC No. 350,
Intangibles-Goodwill and Other,
("ASC 350"), the Company tests goodwill for impairment at the reporting unit level (operating segment or one level below an operating segment) on an annual basis in the first quarter or more frequently if the Company believes indicators of impairment exist. The performance of the test involves a two-step process. The first step of the impairment test involves comparing the fair values of the applicable reporting units with their aggregate carrying values, including goodwill. The Company generally determines the fair value of the Company's reporting units using the income approach methodology of valuation that includes the discounted cash flow method as well as other generally accepted valuation methodologies. If the carrying amount of a reporting unit exceeds the reporting unit's fair value, the Company performs the second step of the goodwill impairment test to determine the amount of impairment loss. The second step of the goodwill impairment test involves comparing the implied fair value of the affected reporting unit's goodwill with the carrying value of that goodwill. No impairment charges were recorded associated with our goodwill and intangible assets during fiscal years
2011
,
2010
, and
2009
, respectively.
Product Warranty
The Company warrants its products to its customers generally for one year from the date of shipment, but in certain cases for longer periods. In certain other cases, the Company's product warranty may include significant financial responsibility beyond the cost of replacing the product. If there is a material increase in the rate of customer claims or the Company's estimates of probable losses relating to specifically identified warranty exposures are inaccurate, the Company may record a charge against future cost of sales. Warranty expense has historically been immaterial to the Company's financial statements.
Self-Insurance Accruals
The Company is self-insured with respect to defective product claims, employment practice claims, property and casualty and general liability. The Company's workers' compensation insurance has a
$1.0 million
deductible per case. Accruals are primarily based on the estimated, undiscounted cost of claims, which includes incurred-but-not-reported claims. Amounts accrued for defective product claims, employment practice claims, workers' compensation claims, property and casualty and general liability of
$4.7 million
and
$4.4 million
are included in accrued expenses as of
June 25, 2011
and
June 26, 2010
, respectively.
In addition to the above, the Company is primarily self-insured with respect to healthcare benefits for most of its domestic employees. Accruals are primarily based on estimated incurred-but-not-reported claims. Amounts accrued for employee healthcare claims of
$5.9 million
and
$5.6 million
are included in accrued salary and related expenses as of
June 25, 2011
and
June 26, 2010
, respectively.
Retirement Benefits
The Company periodically provides medical benefits to former employees pursuant to retirement agreements and other post-employment arrangements. The Company accounts for medical benefits to individuals pursuant to a documented plan under ASC No. 715,
Compensation- Retirement Benefits,
while one-off employment arrangements are treated as post-employment benefits recognized when the liability is incurred and the amount is estimable under ASC No. 712,
Compensation-Nonretirement Postemployment Benefits, an amendment of ASC No. 715
("ASC 712")
.
Income Taxes
The Company accounts for income taxes using an asset and liability approach as prescribed in ASC 740,
Income Taxes
. The Company records the amount of taxes payable or refundable for the current and prior years and deferred tax assets and liabilities for the future tax consequences of events that have been recognized in the Company's financial statements or tax returns. A valuation allowance is recorded to reduce deferred tax assets when it is more likely than not that a tax benefit will not be realized.
ASC 740-10 prescribes a recognition threshold and measurement framework for the financial statement reporting and disclosure of an income tax position taken or expected to be taken on a tax return. Under ASC 740-10, a tax position is recognized in the financial statements when it is more-likely-than-not, based on the technical merits, that the position will be sustained upon examination, including resolution of any related appeals or litigation processes. A tax position that meets the recognition threshold is then measured to determine the largest amount of the benefit that has a greater than 50% likelihood of being realized upon settlement.
44
MAXIM INTEGRATED PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The calculation of tax liabilities involves significant judgment in estimating the impact of uncertainties in the application of complex tax laws across multiple tax jurisdictions. Although ASC 740-10 provides clarification on the accounting for uncertainty in income taxes recognized in the financial statements, the threshold and measurement attributes will continue to require significant judgment by management. Resolution of these uncertainties in a manner inconsistent with the Company's expectations could have a material impact on the Company's results of operations.
Revenue Recognition
The Company recognizes revenue for sales to direct customers and sales to distributors upon shipment, provided that persuasive evidence of a sales arrangement exists, the price is fixed or determinable, title and risk of loss has transferred, collectability of the resulting receivable is reasonably assured, there are no customer acceptance requirements and we do not have any significant post-shipment obligations. The Company estimates returns for sales to direct customers and international distributors based on historical returns rates applied against current period gross revenues. Specific customer returns and allowances are considered within this estimate.
Sales to certain distributors are made pursuant to agreements allowing for the possibility of certain sales price rebates and for non-warranty product return privileges. The non-warranty product return privileges include allowing certain U.S. distributors to return a small portion of our products in their inventory based on their previous
90
days of purchases. Given the uncertainties associated with the levels of non-warranty product returns and sales price rebates that could be issued to U.S. distributors, the Company defers recognition of such revenue and related cost of goods sold until the product is sold by the U.S. distributors to their end-customers. Accounts receivable from direct customers, domestic distributors 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. Accounts receivable related to consigned inventory is recognized when the customer takes title of such inventory from its consigned location at which point inventory is relieved, title transfers, and the Company has a legally enforceable right to collection under the terms of our agreement with the related customers.
The Company estimates potential future 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 returns and sales allowances. Estimates made by the Company may differ from actual returns and sales allowances. These differences may materially impact reported revenue and amounts ultimately collected on accounts receivable. Historically, such differences have not been material. At
June 25, 2011
and
June 26, 2010
, the Company had
$16.0 million
and
$15.0 million
reserved for returns and allowances against accounts receivable, respectively. During fiscal years
2011
and
2010
, the Company recorded
$74.5 million
and
$67.5 million
for estimated returns and allowances against revenues, respectively. These amounts were offset by
$73.5 million
and
$62.8 million
actual returns and allowances given during fiscal years
2011
and
2010
, respectively.
Research and Development Costs
Research and development costs are expensed as incurred. Such costs consist primarily of expenditures for labor and benefits, masks, prototype wafers and depreciation.
Advertising
Advertising costs are expensed as incurred and included in selling, general and administrative expenses in the Consolidated Statements of Income. Advertising expenses were immaterial in fiscal years
2011
,
2010
, and
2009
, respectively.
Shipping Costs
Shipping costs billed to customers are included in net revenues and the related shipping costs are included in cost of goods sold.
Stock-Based Compensation
Stock-based compensation cost is measured at the grant date, based on the fair value of the awards ultimately expected to vest and is recognized as an expense, on a straight-line basis, over the requisite service period. The Company uses the Black-Scholes valuation model to measure the fair value of its stock-based awards utilizing various inputs with respect to expected holding period, risk-free interest rates, stock price volatility and dividend yield.
ASC 718 also requires forfeitures to be estimated at the time of grant and revised if necessary in subsequent periods if actual
45
MAXIM INTEGRATED PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
forfeitures or vesting differ from those estimates. Such revisions could have a material effect on the Company's operating results. The assumptions the Company uses in the valuation model are based on subjective future expectations combined with management judgment. If any of the assumptions used in the Black-Scholes model changes, stock-based compensation for future awards may differ materially compared to the awards granted previously.
Restructuring
Post-employment benefits accrued for workforce reductions related to restructuring activities in the United States are accounted for under ASC 712. A liability for post-employment benefits is recorded when payment is probable, the amount is reasonably estimable, and the obligation relates to rights that have vested or accumulated. In accordance with ASC No. 420,
Exit or Disposal Cost Obligations
("ASC 420"), generally costs associated with restructuring activities initiated outside the United States have been recognized when they are incurred.
The Company continually evaluates the adequacy of the remaining liabilities under its restructuring initiatives. Although the Company believes that these estimates accurately reflect the costs of its restructuring plans, actual results may differ, thereby requiring the Company to record additional provisions or reverse a portion of such provisions.
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 Income are remeasured at the average exchange rates during the year.
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 incorporate the potentially dilutive incremental shares issuable upon the assumed exercise of stock options, the assumed vesting of outstanding restricted stock units, and the assumed issuance of common stock under the stock purchase plan. The number of incremental shares from the assumed issuance of stock options is calculated by applying the treasury stock method. See Note 7 "Earnings Per Share" of these Notes to the Consolidated Financial Statements.
Litigation and 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, notices of stockholder litigation or other lawsuits or claims against the Company. The Company periodically assesses each matter in order to determine if a contingent liability in accordance with ASC 450, 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. The Company expenses legal fees associated with consultations and defense of lawsuits as incurred. Based on the information obtained combined with management's judgment regarding all the facts and circumstances of each matter, the Company determines whether a contingent loss is probable 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 ASC 450. 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 its 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 thereby favorably impacting the Company's results of operations.
Pursuant to the Company's charter documents and indemnification agreements, the Company has certain indemnification obligations to its officers and directors, and certain former officers and directors. More specifically, the Company has separate written indemnification agreements with its current and former executive officers and directors. Pursuant to such obligations, the Company has incurred substantial expenses related to legal fees and expenses to certain former officers of the Company subject to civil charges by the SEC in connection with Maxim's historical stock option granting practices. The Company has also incurred substantial expenses related to legal fees and expenses advanced to certain current and former officers and directors who were defendants in the civil actions described above. The Company expenses such amounts as incurred.
46
MAXIM INTEGRATED PRODUCTS, INC.
NOTES TO CONSOLIDATED 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. The company derived approximately
30%
of our fiscal
2011
revenue from sales made through distributors. Our primary distributor is Avnet Electronics. Avnet, like our other distributors are not end customers, but rather serve as a channel of sale to many end users of the Company's products. Avnet accounted for
14%
and
12%
of revenues in fiscal years
2011
and
2010
, respectively, and
11%
and
10%
of accounts receivable in fiscal years
2011
and 2010, respectively. Samsung, our largest single customer, excluding distributors, accounted for approximately
12%
and
12%
of net revenues in fiscal year
2011
and
2010
, respectively, and
18%
and
13%
of accounts receivable as of
June 25, 2011
and June 26, 2010, respectively. No other single customer accounted for more than
10%
of revenue or receivables in fiscal years
2011
,
2010
and
2009
.
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 in the United States and abroad; economic conditions specific to the semiconductor industry and to the analog and mixed signal portion of that industry; demand for the Company's products; the timely introduction of new products; implementation of new manufacturing technologies; manufacturing capacity; the ability to manufacture efficiently; the 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.
Recently Issued Accounting Pronouncements
In June 2011, the FASB issued Accounting Standards Update (“ASU”) relating to Comprehensive Income (Topic 220)-Presentation of Comprehensive Income (ASU 2011-05), to require an entity to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. The ASU is effective for us in our third quarter of fiscal 2012 and should be applied retrospectively. The Company is currently evaluating the impact of its pending adoption of ASU 2011-05 on its consolidated financial statements.
In May 2011, the FASB issued ASU No. 2011-04, Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and International Financial Reporting Standards (Topic 820)-Fair Value Measurement (ASU 2011-04), to provide a consistent definition of fair value and ensure that the fair value measurement and disclosure requirements are similar between U.S. GAAP and International Financial Reporting Standards. ASU 2011-04 changes certain fair value measurement principles and enhances the disclosure requirements particularly for level 3 fair value measurements. ASU 2011-04 is effective for us in our first quarter of fiscal 2013 and should be applied prospectively. The Company is currently evaluating the impact of its pending adoption of ASU 2011-04 on its consolidated financial statements.
NOTE 3: BALANCE SHEET COMPONENTS
Accounts receivables, net consist of:
|
June 25, 2011
|
June 26, 2010
|
||||||
|
(in thousands)
|
|||||||
|
Accounts receivable
|
$
|
315,329
|
|
$
|
356,760
|
|
|
|
Returns and allowances
|
(17,697
|
)
|
(17,438
|
)
|
|||
|
$
|
297,632
|
|
$
|
339,322
|
|
||
47
MAXIM INTEGRATED PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The components of inventories consist of:
|
|
June 25, 2011
|
|
June 26, 2010
|
||||
|
Inventory:
|
(In thousands)
|
||||||
|
Raw materials
|
$
|
18,419
|
|
|
$
|
16,747
|
|
|
Work-in-process
|
162,245
|
|
|
140,497
|
|
||
|
Finished goods
|
57,264
|
|
|
48,796
|
|
||
|
|
$
|
237,928
|
|
|
$
|
206,040
|
|
Property, plant and equipment, net consist of:
|
|
June 25, 2011
|
|
June 26, 2010
|
||||
|
Property and equipment:
|
(In thousands)
|
||||||
|
Land
|
$
|
86,257
|
|
|
$
|
87,237
|
|
|
Buildings and building improvements
|
313,642
|
|
|
341,734
|
|
||
|
Machinery and equipment
|
1,978,827
|
|
|
1,872,349
|
|
||
|
|
2,378,726
|
|
|
2,301,320
|
|
||
|
Less accumulated depreciation
|
(1,069,876
|
)
|
|
(976,884
|
)
|
||
|
|
$
|
1,308,850
|
|
|
$
|
1,324,436
|
|
The Company recorded
$156.3 million
,
$146.1 million
and
$191.1 million
of depreciation expense in fiscal years
2011
,
2010
and
2009
, respectively.
NOTE 4: FAIR VALUE MEASUREMENTS
The FASB established a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. This hierarchy requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. Three levels of inputs that may be used to measure fair value are:
Level 1
- Quoted (unadjusted) prices in active markets for identical assets or liabilities.
The Company's Level 1 assets consist of certain money market funds.
Level 2
- Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the asset or liability.
The Company's Level 2 assets and liabilities consist of certain money market funds, government agency securities and foreign currency forward contracts.
Level 3
- Unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities.
Assets and liabilities measured at fair value on a recurring basis were as follows:
48
MAXIM INTEGRATED PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
As of June 25, 2011
|
As of June 26, 2010
|
||||||||||||||||||||||||||||||
|
Fair Value
|
Fair Value
|
||||||||||||||||||||||||||||||
|
Measurements Using
|
Total
|
Measurements Using
|
Total
|
||||||||||||||||||||||||||||
|
Level 1
|
Level 2
|
Level 3
|
Balance
|
Level 1
|
Level 2
|
Level 3
|
Balance
|
||||||||||||||||||||||||
|
(in thousands)
|
|||||||||||||||||||||||||||||||
|
Assets
|
|||||||||||||||||||||||||||||||
|
Money market funds (1)
|
$
|
603,180
|
|
$
|
3,457
|
|
$
|
—
|
|
$
|
606,637
|
|
$
|
634,358
|
|
$
|
2,997
|
|
$
|
—
|
|
$
|
637,355
|
|
|||||||
|
Government agency securities (2)
|
—
|
|
50,346
|
|
—
|
|
50,346
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|||||||||||||||
|
Foreign currency forward contracts
|
—
|
|
326
|
|
—
|
|
326
|
|
—
|
|
18
|
|
—
|
|
18
|
|
|||||||||||||||
|
Total Assets
|
$
|
603,180
|
|
$
|
54,129
|
|
$
|
—
|
|
$
|
657,309
|
|
$
|
634,358
|
|
$
|
3,015
|
|
$
|
—
|
|
$
|
637,373
|
|
|||||||
|
Liabilities
|
|||||||||||||||||||||||||||||||
|
Foreign currency forward contracts
|
$
|
—
|
|
$
|
309
|
|
$
|
—
|
|
$
|
309
|
|
$
|
—
|
|
$
|
851
|
|
$
|
—
|
|
$
|
851
|
|
|||||||
|
Total Liabilities
|
$
|
—
|
|
$
|
309
|
|
$
|
—
|
|
$
|
309
|
|
$
|
—
|
|
$
|
851
|
|
$
|
—
|
|
$
|
851
|
|
|||||||
(1) Included in Cash and cash equivalents in the accompanying Consolidated Balance Sheets.
(2) Included in Short-term investments in the accompanying Consolidated Balance Sheets.
As of
June 25, 2011
and
June 26, 2010
, none of the company's assets and liabilities were measured at fair value on a non-recurring basis.
NOTE 5: Financial Instruments
Short-term investments
Fair value as of
June 25, 2011
were as follows:
|
June 25, 2011
|
|||||||||||||||
|
Amortized Cost
|
Gross
Unrealized
Gain
|
Gross
Unrealized
Loss
|
Estimated
Fair Value
|
||||||||||||
|
(in thousands)
|
|||||||||||||||
|
Available‑for‑sale investments
|
|||||||||||||||
|
Government agency securities
|
$
|
49,826
|
|
$
|
520
|
|
$
|
—
|
|
$
|
50,346
|
|
|||
|
Total available‑for‑sale investments
|
$
|
49,826
|
|
$
|
520
|
|
$
|
—
|
|
$
|
50,346
|
|
|||
Short-term investments as of
June 26, 2010
; none held.
Maxim did not recognize any impairment charges on such investments in fiscal years
2011
,
2010
and
2009
.
Contractual maturities of investments in available-for-sale debt securities at
June 25, 2011
were as follows:
|
June 25, 2011
|
|||||||
|
Amortized Cost
|
Estimated
Fair Value
|
||||||
|
(in thousands)
|
|||||||
|
Due February 26, 2013
|
$
|
49,826
|
|
$
|
50,346
|
|
|
|
$
|
49,826
|
|
$
|
50,346
|
|
||
The Company's interest (expense) income and other, net of
$(11.4) million
,
$8.0 million
and
$17.2 million
in fiscal years
2011
,
2010
and
2009
, respectively, include interest income and amortization and accretion of discounts and premiums, as well as realized gains and losses.
49
MAXIM INTEGRATED PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Gross gains and losses realized upon the sale of marketable securities were immaterial during fiscal years
2011
,
2010
and
2009
.
Derivative instruments and hedging activities
Foreign Currency Risk
The Company generates revenues in various global markets based on orders obtained in non-U.S. currencies, primarily the Japanese Yen, the Euro and the British Pound. Maxim incurs expenditures denominated in non-US currencies, principally Philippine Pesos and Thailand Baht associated with the Company's manufacturing activities in the Philippines and Thailand, respectively, and expenditures for sales offices and research and development activities undertaken outside of the U.S. Maxim is exposed to fluctuations in foreign currency exchange rates primarily on orders and accounts receivable from sales in these foreign currencies and cash flows for expenditures in these foreign currencies. Maxim has established risk management strategies designed to reduce the impact of volatility of future cash flows caused by changes in the exchange rates for these currencies. These strategies reduce, but do not entirely eliminate, the impact of currency exchange rates movements. Maxim does not use derivative financial instruments for speculative or trading purposes. The Company routinely hedges its exposures to certain foreign currencies with various financial institutions in an effort to minimize the impact of certain currency exchange rate fluctuations. If a financial counter party to any of the Company's hedging arrangements experiences financial difficulties or is otherwise unable to honor the terms of the foreign currency hedge, the Company may experience financial losses.
For derivative instruments that are designated and qualify as cash flow hedges under ASC No. 815- Derivatives and hedging, the effective portion of the gain or loss on the derivative is reported as a component of accumulated other comprehensive income (loss) and reclassified into earnings into the same financial statement line as the item being hedged, and in the same period or periods during which the hedged transaction affects earnings. Gains and losses on the derivative representing either hedge ineffectiveness or hedge components excluded from the assessment of effectiveness are recognized in interest and other (expense) income, net.
For derivative instruments that are not designated as hedging instruments under ASC No. 815, gains and losses are recognized in interest and other (expense) income, net. All derivatives are foreign currency forward contracts to hedge certain foreign currency denominated assets or liabilities. The gains and losses on these derivatives largely offset the changes in the fair value of the assets or liabilities being hedged.
Fair Value of Derivative Instruments in the Consolidated Balance Sheets
Maxim estimates the fair value of derivatives primarily based on pricing models using current market rates and records all derivatives on the balance sheet at fair value. The gross notional and fair value of derivative financial instruments in the Consolidated Balance Sheets were recorded as follows:
|
As of June 25, 2011
|
As of June 26, 2010
|
||||||||||||||||||||||
|
Gross Notional (1)
|
Other Current Assets
|
Accrued Expenses
|
Gross Notional (1)
|
Other Current Assets
|
Accrued Expenses
|
||||||||||||||||||
|
(in thousands)
|
|||||||||||||||||||||||
|
Derivatives designated as hedging instruments
|
|||||||||||||||||||||||
|
Cash flow hedges:
|
|||||||||||||||||||||||
|
Foreign exchange contracts
|
$
|
35,629
|
|
$
|
53
|
|
$
|
287
|
|
$
|
20,085
|
|
$
|
2
|
|
$
|
237
|
|
|||||
|
Derivatives not designated as hedging instruments
|
|||||||||||||||||||||||
|
Foreign exchange contracts
|
26,342
|
|
273
|
|
22
|
|
32,281
|
|
16
|
|
614
|
|
|||||||||||
|
Total derivatives
|
$
|
61,971
|
|
$
|
326
|
|
$
|
309
|
|
$
|
52,366
|
|
$
|
18
|
|
$
|
851
|
|
|||||
(1) Represents the face amounts of contracts that were outstanding as of
June 25, 2011
and
June 26, 2010
, respectively.
50
MAXIM INTEGRATED PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Derivatives designated as hedging instruments
The following table provides the balances and changes in the accumulated other comprehensive income (loss) related to derivative instruments during the years ended
June 25, 2011
and
June 26, 2010
.
|
June 25,
2011 |
June 26,
2010 |
|||||||
|
(in thousands)
|
||||||||
|
Beginning balance
|
|
$
|
(235
|
)
|
$
|
—
|
|
|
|
Loss reclassified to income
|
514
|
|
—
|
|
||||
|
Amount recorded in other comprehensive loss
|
|
(513
|
)
|
(235
|
)
|
|||
|
Ending balance
|
|
$
|
(234
|
)
|
$
|
(235
|
)
|
|
Maxim expects to reclassify an estimated net accumulated other comprehensive loss of
$0.2 million
, net of taxes, to earnings in the next twelve months along with the earnings effects of the related forecasted transactions in association with cash flow hedges.
The before-tax effect of cash flow derivative instruments for the years ended
June 25, 2011
and
June 26, 2010
was as follows:
|
Gain (Loss) Reclassified from Accumulated OCI into Income (Effective portion)
|
||||||||||
|
Year Ended
|
||||||||||
|
Location
|
June 25,
2011 |
June 26,
2010 |
||||||||
|
(in thousands)
|
||||||||||
|
Cash Flow hedges:
|
||||||||||
|
Foreign exchange contracts
|
Net Revenues
|
$
|
(1,152
|
)
|
$
|
—
|
|
|||
|
Foreign exchange contracts
|
Cost of goods sold
|
638
|
|
—
|
|
|||||
|
Total cash flow hedges
|
$
|
(514
|
)
|
$
|
—
|
|
||||
The before-tax effect of cash flow derivative instruments not designated as hedging instruments on the Consolidated Statements of Income for the year ended
June 25, 2011
and
June 26, 2010
was as follows:
|
Gain ( Loss) Recognized in Income on Derivative Instrument
|
|||||||||
|
Years Ended
|
|||||||||
|
Location
|
June 25,
2011 |
June 26,
2010 |
|||||||
|
(in thousands)
|
|||||||||
|
Foreign exchange contracts
|
Interest and other (expense) income, net
|
$
|
(1,893
|
)
|
$
|
1,444
|
|
||
|
Total
|
$
|
(1,893
|
)
|
$
|
1,444
|
|
|||
Volume of Derivative Activity
Total net U.S. Dollar notional amounts for foreign currency forward contracts, presented by net currency purchase (sell), are as follows:
51
MAXIM INTEGRATED PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
In United States Dollars
|
June 25, 2011
|
June 26, 2010
|
||||||
|
|
(in thousands)
|
|||||||
|
Euro
|
$
|
1,542
|
|
$
|
(17,874
|
)
|
||
|
Japanese Yen
|
(5,156
|
)
|
(17,923
|
)
|
||||
|
British Pound
|
(10,928
|
)
|
(3,512
|
)
|
||||
|
Philippine Peso
|
17,140
|
|
6,576
|
|
||||
|
Thai Bhat
|
3,523
|
|
2,327
|
|
||||
|
Total
|
$
|
6,121
|
|
$
|
(30,406
|
)
|
||
Long- term debt
On June 17, 2010, the Company completed a public offering of
$300 million
aggregate principal amount of the Company's
3.45%
senior unsecured and unsubordinated notes (the "Notes") due on June 14, 2013, with an effective interest rate of
3.49%
. Interest on the Notes is payable semi-annually in arrears on June 14 and December 14 of each year, commencing December 14, 2010. The Notes are governed by a base and supplemental indenture dated June 10, 2010 and June 17, 2010, respectively, between the Company and Wells Fargo Bank, National Association, as trustee. The Company accounts for the Notes based on their amortized cost. The discount and expenses are being amortized to Interest and other (expense) income, net over the life of the Notes. Interest expenses associated with the Notes was
$10.4 million
and
$0.3 million
in fiscal years
2011
and
2010
, respectively, and is recorded in Interest (expense) income and other, net in the Consolidated Statements of Income.
The estimated fair value of Maxim's long-term debt was approximately
$311 million
at
June 25, 2011
. The estimated fair value of the debt is based primarily on quoted market prices observed for comparable notes that were recently traded as of the Balance sheet date.
As of June 25, 2011, Maxim had the capacity to issue an unspecified amount of additional debt securities, common stock, preferred stock, warrants, rights and units under the 2010 Shelf Registration Statement.
Other Financial Instruments
For the balance of Maxim's financial instruments, cash equivalents, accounts receivable, accounts payable and other accrued liabilities, the carrying amounts approximate fair value due to their short maturities.
NOTE 6: STOCK-BASED COMPENSATION
At
June 25, 2011
, the Company had five stock option plans and one employee stock purchase plan, including the Company's 1996 Stock Incentive Plan (the "1996 Plan"), 1993 Officer and Director Stock Option Plan, 1987 Stock Option Plan, 1987 Supplemental Stock Option Plan, Supplemental Non-employee Stock Option Plan and 2008 Employee Stock Purchase Plan ("2008 ESPP").
The following tables present stock-based compensation expense by type of award and resulting tax effect included in the Consolidated Statements of Income for fiscal year
2011
,
2010
, and
2009
:
52
MAXIM INTEGRATED PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
For the Year Ended
|
||||||||||
|
|
June 25,
2011 |
June 26,
2010 |
June 27,
2009 |
||||||||
|
|
(in thousands)
|
||||||||||
|
Cost of goods sold
|
|
|
|
|
|
|
|||||
|
Stock options
|
$
|
2,625
|
|
$
|
3,330
|
|
$
|
33,380
|
|
||
|
Restricted stock units
|
9,820
|
|
10,825
|
|
23,350
|
|
|||||
|
Employee stock purchase plan
|
1,556
|
|
1,065
|
|
370
|
|
|||||
|
|
14,001
|
|
15,220
|
|
57,100
|
|
|||||
|
|
|
|
|
|
|
|
|||||
|
Research and development expense
|
|
|
|
|
|
|
|||||
|
Stock options
|
11,325
|
|
15,085
|
|
38,237
|
|
|||||
|
Restricted stock units
|
36,925
|
|
33,834
|
|
61,151
|
|
|||||
|
Employee stock purchase plan
|
5,436
|
|
5,146
|
|
1,442
|
|
|||||
|
|
53,686
|
|
54,065
|
|
100,830
|
|
|||||
|
|
|
|
|
|
|
|
|||||
|
Selling, general and administrative expense
|
|
|
|
|
|
|
|||||
|
Stock options
|
6,120
|
|
8,130
|
|
21,390
|
|
|||||
|
Restricted stock units
|
18,944
|
|
15,056
|
|
16,665
|
|
|||||
|
Employee stock purchase plan
|
1,546
|
|
1,054
|
|
123
|
|
|||||
|
|
26,610
|
|
24,240
|
|
38,178
|
|
|||||
|
Total stock-based compensation expense
|
|
|
|
|
|
|
|||||
|
Stock options
|
20,070
|
|
26,545
|
|
93,007
|
|
|||||
|
Restricted stock units
|
65,689
|
|
59,715
|
|
101,166
|
|
|||||
|
Employee stock purchase plan
|
8,538
|
|
7,265
|
|
1,935
|
|
|||||
|
Pre-tax stock-based compensation expense
|
94,297
|
|
93,525
|
|
196,108
|
|
|||||
|
Less: Income tax effect
|
25,457
|
|
25,041
|
|
67,430
|
|
|||||
|
Net stock-based compensation expense
|
$
|
68,840
|
|
$
|
68,484
|
|
$
|
128,678
|
|
||
Modifications and Settlements
Tender Offer
In November 2008, the Company offered to purchase from employees up to
52.8 million
shares underlying certain outstanding stock options for cash payments for the total potential cash consideration of
$22.4 million
. The amount of the cash payment was determined based on the Black-Scholes value of the eligible options utilizing the average stock price over the 20 trading days period preceding the date of the offer.
In December 2008, upon the closing of the offer, a total of
31.9 million
shares underlying the eligible options had been tendered requiring the Company to remit an aggregate payment totaling
$13.6 million
. The Company accounted for the offer as a settlement under ASC Topic-718 Stock Based Compensation ("ASC 718"), which resulted in the recognition of
$75.9 million
in stock-based compensation expenses consisting of
$8.7 million
in
additional expense from settlements above fair value and
$67.2 million
associated with the unamortized compensation expense on the previously unvested tendered options. Settlement of the tendered options reduced deferred tax assets by
$129.4 million
, generated a tax benefit of
$4.7 million
, and resulted in a
$124.7 million
charge to additional paid in capital for the difference between the deferred tax assets and tax benefits associated with the tendered options.
The
$75.9 million
expense recognized in connection with the tender offer in the second quarter of fiscal year 2009 included the final true-up for
$31.9 million
tendered options, therefore, the Company also recorded in the same period a reversal of stock based compensation of
$52.2 million
related to the true-up for previously forfeited options.
53
MAXIM INTEGRATED PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Officer Option Repurchase
In December 2008, the Company repurchased
6.2 million
outstanding stock options from officers for
$1.8 million
payable in installments over the greater of two years or the remaining vesting period associated with the options prior to their repurchase. The Company accounted for the repurchase as a modification under ASC 718 resulting in incremental compensation of
$1.1 million
which will be recognized over the payment period.
2009 Goodwill Program
In January 2009, the Company approved a program ("Goodwill Program") wherein non-officer employees holding options that were outstanding as of November 1, 2008 and which reached or will reach their contractual
10
-year expiration term between November 2008 and December 2009 would be eligible for a payment in the form of cash or restricted stock units ("RSUs"). Payments exceeding
$5,000
would be settled in restricted stock units that vest over three quarters and are contingent upon continued employment, while amounts below
$5,000
would be settled in cash in a lump sum payment. The program was extended to officers in May 2009 except that payments exceeding
$5,000
to officers were settled in restricted stock units vesting over six quarters.
The Company recorded a liability for the options settling in cash under the Goodwill Program. Options associated with payments being made in the form of restricted stock units under the Goodwill Program, which contain market and service conditions, are accounted for under the provisions of ASC 718. The Company recognized
$0.2 million
, and
$5.4 million
in stock based compensation expense related to this program during fiscal year 2011 and fiscal year 2010, respectively.
Share-Based Compensation and Other Adjustments resulting from the Blackout Period
On September 8, 2006, the SEC was notified that the Company would delay filing its Annual Report on Form 10K for the fiscal year ended June 24, 2006 as a result of the ongoing investigation into the Company's historical stock option granting practices. As a result of such delay, the Company suspended the issuance of shares upon exercise of stock options, vesting of RSUs and purchases of stock under the 1987 Employee Stock Participation Plan, as amended ("1987 ESPP") until the Company became current with all of its required SEC filings and its registration statements on Form S-8 became effective ("Blackout Period"). The Company instituted multiple programs in an attempt to compensate employees during the Blackout Period, as described below. The Company became current in its SEC filings, and its registration statements on Form S-8 became effective on September 30, 2008.
RSU Loan Program
In October 2006, the Company offered certain domestic employees an opportunity to receive cash in the form of a non-recourse loan ("RSU Loan") for common stock that they would have otherwise been able to receive in settlement for RSUs that vested during the Blackout Period. The program was not offered to executive officers or members of the Company's Board of Directors. Employees accepting the offer were also entitled to additional shares of common stock if the Company's stock price appreciated between the vesting date and the settlement date at the end of the Blackout Period. Employees foregoing the loan received shares of common stock at the conclusion of the Blackout Period. The Company also offered to cash-settle RSUs vesting during the Blackout Period held by foreign employees. The aforementioned loan offers were considered modifications of the RSUs triggering a change in the classification from equity to liability for all eligible awards vesting during the Blackout Period. The Company recorded a reclassification from additional paid-in-capital to accrued salary and related expenses of
$19.4 million
on the modification date and incremental compensation expense of
$2.2 million
from the modifications. Vesting of eligible awards and changes in stock price resulted in additional reclassifications from additional paid-in-capital to accrued salary and related expenses and additional compensation expenses in periods in which they occurred. The Company recorded
$6.8 million
and
$50.2 million
in stock based compensation expense in fiscal year 2009, and 2008, respectively. During fiscal years 2009 and 2008, the Company made cash payments of
$35.6 million
and
$25.3 million
pursuant to the RSU Loan program and
$1.9 million
and
$4.3 million
to cash-settle restricted stock units held by employees located outside the United States.
Extension of Options that Would Have Expired after Reaching 10-Year Contractual Term and Cash-Settlements of Expired Options
In September 2006, the Company approved the extension of the terms of vested stock options that would have expired during the Blackout Period as a result of the expiration of the 10-year contractual term. The extension was considered a modification under ASC 718. The incremental compensation expense of the modification was equal to the fair value of the option at the modification date after the extension compared to the fair value of the option prior to modification. The Company recognized additional compensation expense totaling
$118.9 million
for
8.3 million
options in the three months ended September 23, 2006. The stock-based compensation expense adjustment was based on modified vested options held by employees that expired during the period
54
MAXIM INTEGRATED PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
from September 22, 2006 through the end of the Blackout Period.
In September 2007, as a result of changes in NASDAQ regulations, the Company decided to cash-settle substantially all options expiring during the Blackout Period ("goodwill payment") based on the price at which 10% of the daily close prices of the Company's common stock fall above this price for trading days from August 7, 2006 (the date on which the Company initiated a trading suspension on officers and other individuals) through the expiration date of the option. The cash payment is subject to the option holder executing a release of all claims relating to the option. The goodwill payment modification changed the classification of the associated awards from equity to liability instruments. The modification resulted in a reclassification from additional paid-in capital to accrued salary and related expenses of
$126.8 million
and incremental compensation expenses of
$27.5 million
. At the end of each period, the Company recognized changes in fair value of the options in its Consolidated Statements of Operations in the period of change until the options were settled.
On September 26, 2008, the Company offered certain employees, including certain officers of the Company, holding vested stock options that expired due to reaching their maximum 10-year terms in October 2008, certain cash goodwill payments contingent upon employee acceptance and signing of a release of claims related to the option. The Company cash-settled options to purchase
1.1 million
option shares that expired in October 2008, with employees that accepted the offer. The cash-settlement resulted in a reduction of additional paid-in-capital of
$0.3 million
for the fair value of the underlying options on the settlement dates and incremental compensation expense of
$4.3 million
during the year ended
June 26, 2010
.
Fair Value
The fair value of share-based awards granted to employees under the Company's 1996 Plan and 2008 ESPP is estimated on the date of grant using the Black-Scholes option valuation model. Expected volatilities are based on the implied volatilities from traded options of the Company's common stock before the Company's common stock was delisted from NASDAQ on October 2, 2007. Subsequent to the Company's delisting, the Company began analyzing its expected volatilities based on historical volatilities from its traded common stock over a period equal to the expected term. The Company analyzed historical exercise patterns of relatively homogeneous groups of employees to estimate the expected holding period for options granted through December 29, 2008. Subsequent to the end of the second quarter of 2009, the Company began utilizing the simplified method under ASC-718, to estimate expected holding periods. This change was attributable to the significant impact resulting from the completion of the tender offer and the Company reducing the contractual term associated with new option grants from ten years to seven years. The risk-free interest rate is based on the U.S. Treasury yield. The Company determines the dividend yield by dividing the annualized dividends per share by the prior quarter's average stock price. The result is analyzed by the Company to decide whether it represents expected future dividend yield. As required by ASC 718, the Company also estimates forfeitures at the time of grant and makes revisions if the estimates change or the actual forfeitures differ from those estimates.
The fair value of each award granted in fiscal years
2011
,
2010
and
2009
has been estimated at the date of grant using the Black-Scholes option valuation model and the following weighted-average assumptions:
|
|
Stock Option Plan For the Year Ended
|
|||||||
|
|
June 25,
2011 |
June 26,
2010 |
June 27,
2009 |
|||||
|
Expected holding period (in years)
|
5.2
|
|
5.2
|
|
6.3
|
|
||
|
Risk-free interest rate
|
1.7
|
%
|
2.3
|
%
|
3.0
|
%
|
||
|
Expected stock price volatility
|
37.1
|
%
|
38.0
|
%
|
39.0
|
%
|
||
|
Dividend yield
|
4.2
|
%
|
4.5
|
%
|
4.1
|
%
|
||
|
|
|
|
|
|||||
|
|
ESP Plan For the Year Ended
|
|||||||
|
|
June 25, 2011
|
June 26, 2010
|
June 27, 2009
|
|||||
|
Expected holding period (in years)
|
0.5
|
|
0.7
|
|
1.0
|
|
||
|
Risk-free interest rate
|
0.1
|
%
|
0.3
|
%
|
4.0
|
%
|
||
|
Expected stock price volatility
|
24.7
|
%
|
35.0
|
%
|
57.0
|
%
|
||
|
Dividend yield
|
3.3
|
%
|
4.4
|
%
|
6.1
|
%
|
||
The weighted-average fair value of stock options granted was
$4.02
,
$4.23
and
$3.61
per share for fiscal years
2011
,
2010
and 2009, respectively. The weighted-average fair value of RSUs granted was
$16.61
,
$16.20
and
$11.91
per share for fiscal years
55
MAXIM INTEGRATED PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2011
, 2010 and 2009, respectively.
Stock Option Plans
1996 Stock Incentive Plan
The Company's 1996 Plan, which was previously approved by the Company's stockholders, permits the grant of up to
113.1 million
shares. The 1996 Plan provides for the grant of stock options, restricted stock units and restricted stock. To date, the Company has only issued stock options and restricted stock units. Under the 1996 Plan, the exercise price for all stock options will not be less than the fair market value of the Company's common stock on the date of grant. Options granted under the 1996 Plan, as well as under the Company's other stock plans described above, generally vest over a period of up to five years and expire from five to ten years from the date of the grant or such shorter term as may be provided in the agreement.
At
June 25, 2011
, the Company had
15.5 million
shares of its common stock available for issuance to employees and other option recipients under its 1996 Stock Incentive Plan, 1993 Officer and Director Stock Option Plan, 1987 Stock Option Plan, 1987 Supplemental Stock Option Plan, and Supplemental Non-employee Stock Option Plan.
The following table summarizes stock options outstanding, exercisable and vested and expected to vest as of
June 25, 2011
:
|
|
Options
|
Weighted Average
Remaining
Contractual Term
(In Years)
|
Aggregate
Intrinsic
Value (1)
|
|||||||||
|
|
Number of Shares
|
Weighted Average
Exercise Price
|
||||||||||
|
Balance at June 28, 2008
|
76,906,882
|
|
35.59
|
|
|
|
|
|||||
|
Options Granted
|
8,309,163
|
|
13.06
|
|
|
|
|
|||||
|
Options Exercised
|
(2,377
|
)
|
11.39
|
|
|
|
|
|||||
|
Options Cancelled
|
(55,613,752
|
)
|
35.89
|
|
|
|
|
|||||
|
|
|
|
|
|||||||||
|
Balance at June 27, 2009
|
29,599,916
|
|
28.83
|
|
|
|
|
|||||
|
Options Granted
|
3,671,459
|
|
18.08
|
|
|
|
|
|||||
|
Options Exercised
|
(47,327
|
)
|
12.86
|
|
|
|
|
|||||
|
Options Cancelled
|
(4,061,541
|
)
|
32.38
|
|
|
|
|
|||||
|
Balance at June 26, 2010
|
29,162,507
|
|
27.05
|
|||||||||
|
Options Granted
|
3,559,132
|
|
17.61
|
|
||||||||
|
Options Exercised
|
(1,460,652
|
)
|
17.22
|
|
||||||||
|
Options Cancelled
|
(2,928,501
|
)
|
33.67
|
|
||||||||
|
Balance at June 25, 2011
|
28,332,486
|
|
25.62
|
|
3.7
|
|
$
|
119,500,252
|
|
|||
|
|
||||||||||||
|
Exercisable at June 25, 2011
|
16,468,585
|
|
$32.33
|
2.7
|
|
$
|
25,036,590
|
|
||||
|
Vested and expected to vest, June 25, 2011
|
27,345,574
|
|
$25.93
|
3.7
|
|
$
|
112,428,729
|
|
||||
|
(1)
|
Aggregate intrinsic value represents the difference between the exercise price and the closing price per share of the Company's common stock on June 24, 2011, the last business day preceding the fiscal year end, multiplied by the number of options outstanding, exercisable or vested and expected to vest as of June 25, 2011.
|
56
MAXIM INTEGRATED PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table summarizes information about stock options that were outstanding and exercisable at
June 25, 2011
:
|
|
Outstanding Options
|
Options Exercisable
|
|||||||||||||
|
Range of Exercise Prices
|
Number
Outstanding at
June 25, 2011
|
Weighted Average
Remaining
Contractual Term
(In years)
|
Weighted
Average
Exercise
Price
|
Number
Exercisable at
June 25, 2011
|
Weighted
Average
Exercise
Price
|
||||||||||
|
$12.00 - $18.04
|
9,496,988
|
|
5.03
|
|
$14.10
|
1,731,327
|
|
$12.95
|
|||||||
|
$18.11 - $27.45
|
6,428,859
|
|
4.19
|
|
20.49
|
|
2,603,082
|
|
22.40
|
|
|||||
|
$28.52 - $43.00
|
10,614,912
|
|
2.52
|
|
35.57
|
|
10,357,209
|
|
35.69
|
|
|||||
|
$49.95 - $52.33
|
1,791,727
|
|
1.93
|
|
46.12
|
|
1,776,967
|
|
46.12
|
|
|||||
|
|
28,332,486
|
|
|
|
|
16,468,585
|
|
|
|||||||
During fiscal year
2011
, the Company granted approximately
3.6 million
stock options from its 1996 Plan with an estimated total grant date fair value of
$14.3 million
. The weighted average grant date fair values of stock options granted during fiscal years
2011
,
2010
and
2009
were
$4.02
,
$4.23
and
$3.61
, respectively. The total intrinsic value of options exercised during fiscal year
2011
was
$11.8 million
and insignificant in fiscal years
2010
and
2009
, respectively. The total fair value of options vested during fiscal year
2011
was
$23.0 million
and insignificant in fiscal years
2010
and
2009
, respectively. As of
June 25, 2011
, there was
$33.2 million
of total unrecognized compensation costs related to
11.9 million
unvested stock options expected to be recognized over a weighted average period of approximately
2.5
years.
Restricted Stock Units
Restricted stock units ("RSUs") generally vest on a quarterly basis over a service period of up to five years from the grant date. The restricted stock units represent a promise by the Company to the employees to issue shares of its common stock in the future, provided the vesting criteria are satisfied. RSUs granted reduce the total number of shares available for issuance under the 1996 Plan by a factor of two. To the extent RSUs are returned back to the 1996 Plan, for example, due to cancellations, such RSUs would increase the number of shares available to grant by a factor of two.
The following table summarizes outstanding and expected to vest RSUs as of
June 25, 2011
and their activity during fiscal year
2011
,
2010
and
2009
:
57
MAXIM INTEGRATED PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
Number of
Shares
|
Weighted
Average
Remaining
Contractual Term
(In Years)
|
Aggregate
Intrinsic
Value (1)
|
|||||
|
Balance at June 28, 2008
|
10,266,201
|
|
|
|
|
|
||
|
Restricted stock units granted
|
10,738,846
|
|
|
|
|
|
||
|
Restricted stock units released
|
(8,160,302
|
)
|
|
|
|
|
||
|
Restricted stock units cancelled
|
(977,416
|
)
|
|
|
|
|
||
|
Balance at June 27, 2009
|
11,867,329
|
|
||||||
|
Restricted stock units granted
|
4,259,756
|
|
||||||
|
Restricted stock units released
|
(4,813,738
|
)
|
||||||
|
Restricted stock units cancelled
|
(737,930
|
)
|
||||||
|
Balance at June 26, 2010
|
10,575,417
|
|
||||||
|
Restricted stock units granted
|
4,171,372
|
|
||||||
|
Restricted stock units released
|
(3,922,768
|
)
|
||||||
|
Restricted stock units cancelled
|
(823,283
|
)
|
||||||
|
Balance at June 25, 2011
|
10,000,738
|
|
2.5
|
|
239,894,343
|
|
||
|
Expected to vest at June 25, 2011
|
8,897,935
|
|
2.4
|
|
213,906,362
|
|
||
(1) Aggregate intrinsic value for RSUs represents the closing price per share of the Company's common stock on June 24, 2011, the last business day preceding the fiscal year end, multiplied by the number of RSUs outstanding, or expected to vest as of June 25, 2011.
The Company withheld shares worth
$8.9 million
related to employee withholding taxes based on the value of the RSUs on their vesting date as determined by the Company's closing stock price during the year ended
June 25, 2011
. The total payments for the employees' tax obligations to the taxing authorities are reflected as financing activities within the Consolidated Statements of Cash Flows.
The weighted average grant-date fair value of RSUs granted during fiscal years
2011
,
2010
and
2009
was
$16.61
,
$16.20
and
$11.91
, respectively. As of
June 25, 2011
, there was
$122.8 million
of unrecognized compensation cost related to
10.0 million
unvested RSUs, which is expected to be recognized over a weighted average period of approximately
2.5
years.
2008 Employee Stock Purchase Plan
In December 2008, stockholders of the Company approved the creation of the 2008 Employee Stock Purchase Plan ("2008 ESPP"). Under the 2008 ESPP, the Company has reserved to date
8.0 million
shares of its common stock for future issuance. The 2008 ESPP permits two purchases over a twelve month offer period. Pursuant to the terms of the 2008 ESPP, eligible employees may elect withholdings of up to
25%
of eligible compensation to purchase shares of common stock at the lower of (i)
85%
of the fair market value of the shares on the offer date or (ii)
85%
of the fair market value of the shares on the purchase date. The 2008 ESPP does not permit employees to buy more than
$25,000
worth of stock annually or
1,600
shares during an offer period.
The Company issued
1.7 million
shares of its common stock for total consideration of
$29.0 million
related to the ESPP plan during the fiscal year ended
June 25, 2011
. As of June 25, 2011, the Company has remaining
4.0 million
shares of its common stock reserved and available for future issuance under the 2008 ESPP.
NOTE 7: EARNINGS PER SHARE
Basic earnings per share are computed using the weighted average number of common shares outstanding during the period. For purposes of computing basic earnings per share, the weighted average number of outstanding shares of common stock excludes unvested RSUs. Diluted earnings per share incorporates the incremental dilutive shares issuable upon the assumed exercise of stock options, assumed release of unvested RSUs and assumed issuance of common stock under the employee stock purchase plans using the treasury stock method. As discussed in Note 6 herein, the Company cash-settled options that expired (reached the
58
MAXIM INTEGRATED PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ten year contractual term) during the Blackout Period and cash-settled vested RSUs. These options and RSUs are considered liability instruments under ASC 718 and as such are excluded from the diluted earnings per share calculation.
The following table sets forth the computation of basic and diluted earnings per share:
|
|
For the Year Ended
|
||||||||||
|
|
June 25,
2011 |
June 26,
2010 |
June 27,
2009 |
||||||||
|
|
(In thousands, except per share data)
|
||||||||||
|
Numerator for basic earnings per share and diluted earnings
|
|
|
|
|
|
|
|||||
|
per share
|
|
|
|
|
|
|
|||||
|
Net income
|
$
|
489,009
|
|
$
|
125,139
|
|
$
|
10,455
|
|
||
|
Denominator for basic earnings per share
|
296,755
|
|
304,579
|
|
310,805
|
|
|||||
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|||||
|
Stock options, RSUs, and ESPP
|
6,622
|
|
5,437
|
|
674
|
|
|||||
|
Denominator for diluted earnings per share
|
303,377
|
|
310,016
|
|
311,479
|
|
|||||
|
Earnings per share:
|
|
|
|
|
|
|
|||||
|
Basic
|
$
|
1.65
|
|
$
|
0.41
|
|
$
|
0.03
|
|
||
|
Diluted
|
$
|
1.61
|
|
$
|
0.40
|
|
$
|
0.03
|
|
||
Approximately
14.9 million
,
21.1 million
, and
29.6 million
of the Company's stock awards were excluded from the calculation of diluted earnings per share for fiscal years
2011
,
2010
, and
2009
, respectively. These options were excluded, as they were antidilutive. However, such options could be dilutive in the future.
NOTE 8: GOODWILL AND INTANGIBLE ASSETS
Goodwill
The Company classifies goodwill and acquired intangible assets within other assets in the Consolidated Balance Sheets. The Company's carrying value of goodwill was
$265.1 million
and
$226.2 million
at
June 25, 2011
and
June 26, 2010
, respectively.
|
Goodwill
|
|||
|
Balance at June 26, 2010
|
$
|
226,223
|
|
|
Acquisition
|
42,564
|
|
|
|
Adjustments
|
(3,662
|
)
|
|
|
Balance at June 25, 2011
|
$
|
265,125
|
|
Intangible Assets
The useful lives of the significant definite lived intangible assets are as follows:
|
Asset
|
Life
|
|
|
Intellectual Property
|
5-10 years
|
|
|
Customer Relationships
|
5-10 years
|
|
|
Tradename
|
3 years
|
|
|
Backlog
|
1 year
|
|
59
MAXIM INTEGRATED PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Intangible assets consisted of the following:
|
June 25, 2011
|
June 26, 2010
|
||||||||||||||||||||||
|
Original
Cost
|
Accumulated
Amortization
|
Net
|
Original
Cost
|
Accumulated
Amortization
|
Net
|
||||||||||||||||||
|
(in thousands)
|
|||||||||||||||||||||||
|
Intellectual property
|
$
|
195,912
|
|
$
|
64,996
|
|
$
|
130,916
|
|
$
|
145,262
|
|
$
|
33,305
|
|
$
|
111,957
|
|
|||||
|
Customer relationships
|
88,630
|
|
24,915
|
|
63,715
|
|
87,030
|
|
11,745
|
|
75,285
|
|
|||||||||||
|
Backlog
|
6,400
|
|
5,687
|
|
713
|
|
4,500
|
|
2,350
|
|
2,150
|
|
|||||||||||
|
Tradename
|
1,700
|
|
981
|
|
719
|
|
1,400
|
|
264
|
|
1,136
|
|
|||||||||||
|
Total amortizable purchased intangible assets
|
292,642
|
|
96,579
|
|
196,063
|
|
238,192
|
|
47,664
|
|
190,528
|
|
|||||||||||
|
IPR&D
|
8,200
|
|
—
|
|
8,200
|
|
4,200
|
|
—
|
|
4,200
|
|
|||||||||||
|
Total purchased intangible assets
|
$
|
300,842
|
|
$
|
96,579
|
|
$
|
204,263
|
|
$
|
242,392
|
|
$
|
47,664
|
|
$
|
194,728
|
|
|||||
The following table presents the amortization expense of intangible assets and its presentation in the Consolidated Statements of Income:
|
For the Year Ended
|
|||||||||||
|
June 25, 2011
|
June 26, 2010
|
June 27, 2009
|
|||||||||
|
(in thousands)
|
|||||||||||
|
Cost of goods sold
|
$
|
30,164
|
|
$
|
10,999
|
|
$
|
8,024
|
|
||
|
Intangible Asset Amortization
|
18,752
|
|
10,477
|
|
6,019
|
|
|||||
|
Total Intangible Asset Amortization Expenses
|
$
|
48,916
|
|
$
|
21,476
|
|
$
|
14,043
|
|
||
|
The following table represents the estimated future amortization expense of intangible assets as of the end of fiscal year 2011:
|
||||
|
Fiscal Year
|
Amount
|
|||
|
|
(in thousands)
|
|||
|
2012
|
$
|
46,853
|
|
|
|
2013
|
42,022
|
|
||
|
2014
|
35,439
|
|
||
|
2015
|
33,131
|
|
||
|
2016
|
21,011
|
|
||
|
Thereafter
|
17,607
|
|
||
|
Total intangible assets
|
$
|
196,063
|
|
|
NOTE 9: ACQUISITIONS
Acquisitions in fiscal 2011
The purchase price allocation for acquisitions completed in fiscal year 2011 are set forth in the table below and reflects various preliminary fair value estimates and analysis, including preliminary work performed by third-party valuation specialists, which are subject to change within the measurement period as valuations are finalized.
Pro forma results of operations for these acquisitions have not been presented because they are not material to Maxim's consolidated results of operations, either individually or in the aggregate. Goodwill, which represents the excess of the purchase price over the net tangible and intangible assets acquired, is not deductible for tax purposes.
Aggregate purchase price allocation for Maxim's fiscal 2011 acquisitions:
60
MAXIM INTEGRATED PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
In millions
|
|||
|
Net tangible assets
|
$
|
(11.5
|
)
|
|
|
Amortizable intangible assets
|
|
52.6
|
|
|
|
In-process research and development ("IPR&D")
|
|
6.0
|
|
|
|
Goodwill
(1)
|
|
42.6
|
|
|
|
|
|
|||
|
Total purchase price
(1)
|
$
|
89.7
|
|
|
(1) Includes
$8.8 million
of contingent consideration relating to the Calvatec acquisition.
CALVATEC
On May 31, 2011, the Company acquired Calvatec Ltd, based in Edinburgh, Scotland. Calvatec is a developer of highly integrated, analog, mixed-signal solutions, as well as design methods and flows for analog system-on-a-chip (SoCs). The total cash consideration associated with the acquisition was
$8.2 million
. The acquired assets included cash of
$0.4 million
. Maxim also recorded
$8.8 million
, representing the fair value of contingent consideration that would be payable in the future should Calvatec meets certain specified project milestones. Total contingent consideration that could be paid out under the agreement amounts to
$12.5 million
.
PHYWORKS
On September 7, 2010, the Company acquired Phyworks Limited. (“Phyworks”), a developer of high-speed communications integrated circuits. The total cash consideration associated with the acquisition was
$76.0 million
. The acquired assets included cash of
$4.6 million
, accounts receivable of
$1.2 million
, inventories of
$2.9 million
,
$0.1 million
in prepaid expenses and other current assets, and
$0.4 million
in fixed assets. The Company preliminarily allocated
$1.9 million
to customer order backlog,
$47.1 million
to Intellectual Property,
$5.8 million
to in-process research and development (“IPR&D”),
$1.6 million
to customer relationships,
$0.3 million
to tradename, and
$26.1 million
to goodwill. The Company also assumed
$3.8 million
in accounts payable and accrued liabilities and
$12.2 million
in deferred tax liabilities. We have included the financial results of Phyworks in our consolidated financial statements from the date of acquisition. The Company expects that none of the goodwill will be deductible for tax purposes.
Subsequent acquisition
SENSORDYNAMICS
On July 18, 2011, the Company acquired SensorDynamics, a semiconductor company that develops proprietary sensor and microelectromechanical ("MEMS") solutions. SensorDynamics is based in Lebring, near Graz, Austria. The total cash consideration associated with the acquisition was approximately
$130.0 million
plus the assumption of approximately
$34.0 million
in debt. The Company is in the process of preparing the preliminary purchase price allocation. Given the timing of the acquisition, further details to support these estimates are not yet available.
Acquisitions in prior years
TERIDIAN
On May 11, 2010, the Company completed its purchase of Teridian Semiconductor, Inc. (“Teridian”), a fabless mixed-signal semiconductor company focused on electricity metering and energy measurement for the smart grid. The total cash consideration associated with the acquisition was
$314.9 million
. The acquired assets included cash of
$2.1 million
, accounts receivable of
$7.3 million
, inventories of
$14.0 million
,
$2.7 million
in prepaid expenses and other current assets,
$2.1 million
in fixed assets,
$4.3 million
in customer order backlog,
$85.6 million
in Intellectual Property,
$3.1 million
of in process research and development,
$44.7 million
in customer relationships,
$1.0 million
in tradename,
$13.8 million
in deferred tax assets and
$196.6 million
in goodwill. The Company also assumed
$14.1 million
in accounts payable and accrued liabilities and
$48.3 million
in deferred tax liabilities. The company expects that none of the goodwill will be deductible for tax purposes.
61
MAXIM INTEGRATED PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ZILOG
On February 18, 2009, the Company acquired the remote and secure product lines of Zilog Corporation, a publicly traded, fabless semiconductor company. The total cash consideration associated with the acquisition was
$22.6 million
consisting of
$21.7 million
in cash and
$0.9 million
in direct legal costs associated with the acquisition. The acquired assets included inventories of
$2.9 million
,
$0.5 million
in customer order backlog,
$12.9 million
in customer relationships, and
$6.3 million
in goodwill. The Company expects that all of the goodwill will be deductible for tax purposes.
INNOVA CARD
On December 29, 2008, the Company acquired Innova Card, a privately held, fabless semiconductor company focusing on advanced secure microcontroller technology for financial terminals. The total consideration associated with the acquisition was
$13.5 million
(including
$8.1 million
remitted to Innova Card equity shareholders upon close of the acquisition,
$1.1 million
to repay Innova Card debt,
$3.8 million
in future payments, and
$0.5 million
for legal and related acquisition costs). The acquired assets and liabilities included net working capital of
$0.6 million
,
$0.2 million
in fixed assets and other assets,
$0.2 million
in customer order backlog,
$5.3 million
in intellectual property,
$3.0 million
in customer relationships, and
$4.2 million
in goodwill.
During the fourth quarter of 2009, the Company remitted an additional
$1.1 million
to shareholders of Innova Card for additional working capital received pursuant to the agreement. The additional payment resulted in a corresponding increase in goodwill associated with the acquisition. The Company expects that none of the goodwill will be deductible for tax purposes.
MOBILYGEN
On October 27, 2008, the Company acquired Mobilygen Corporation ("Mobilygen"), a privately held, fabless semiconductor company with technology in H.264 video compression. The total consideration associated with the acquisition was
$33.5 million
consisting of
$33.0 million
cash and
$0.5 million
in direct legal costs associated with the acquisition. A portion of the cash consideration paid by the Company was used to retire all outstanding indebtedness of Mobilygen.
The Company allocated the acquisition cost to assets acquired and liabilities assumed based on their estimated fair values at the date of acquisition. The acquired assets included
$1.5 million
in tangible assets,
$7.8 million
of net deferred tax assets,
$0.2 million
in customer order backlog,
$14.7 million
in intellectual property,
$4.2 million
in customer relationships,
$0.4 million
in trademark and
$2.2 million
in goodwill. The Company recognized
$3.9 million
of research and development expense during the fiscal year 2009 in connection with this acquisition. In addition, the Company assumed
$4.2 million
of liabilities including
$2.7 million
in debt, which the Company paid off immediately after the acquisition was consummated.
The Company expects that none of the goodwill will be deductible for tax purposes.
NOTE 10: IMPAIRMENT OF LONG-LIVED ASSETS
End-of-Line Sorting and Testing Facilities
During the first quarter of fiscal year 2010, the Company identified certain assets as excess or obsolete, primarily due to changes in certain manufacturing technology. In connection with these circumstances, the Company recorded a charge for the write-down of equipment to its estimated fair value. The total charge of
$5.0 million
was included in impairment of long-lived assets in the Company's Consolidated Statements of Income. The Company has ceased depreciation and classified these assets as held for sale based on its intentions to sell the assets and has included
$0.6 million
in other assets in the Consolidated Balance Sheet as of June 26, 2010.
During the second quarter of fiscal year 2009, the Company identified certain assets as excess as a result of reductions in demand for product tested and sorted on certain equipment. In connection with these circumstances, the Company incurred an asset impairment charge of
$43.8 million
which is included in impairment of long-lived assets in the Company's Consolidated Statements of Income. The Company has classified these assets as held for sale based on their intentions to sell the assets and has included
$3.6 million
in other assets in the Consolidated Balance Sheet as of June 27, 2009.
Wafer Fabrication Facility, Oregon
During the first quarter of fiscal year 2010, as a result of reduced future wafer output requirements associated with equipment utilizing certain process technologies, the Company recorded a write-down of equipment to be sold to the equipment's estimated
62
MAXIM INTEGRATED PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
fair value. This charge of
$3.3 million
was included in impairment of long-lived assets in the Company's Consolidated Statements of Income. The Company has ceased depreciation and classified these assets as held for sale based on its intentions to sell the assets and has included
$0.5 million
in other assets in the Consolidated Balance Sheet as of June 26, 2010.
Wafer Fabrication Facility, San Jose
During the first quarter of fiscal year 2009, the Company recorded a
$7.3 million
asset impairment charge as a result of transferring certain wafer manufacturing production from its San Jose, California, wafer manufacturing facility to an outsourced Japanese manufacturing facility, Epson's Sakata, Japan, facility, and reductions in demand and reduced future capacity requirements.
The Company reached its conclusions regarding the asset impairment after conducting evaluations of the recoverability of the related manufacturing assets in accordance with ASC No. 360,
Accounting for Property, Plant, and Equipment
. The fair value of the equipment was determined after consideration of equipment specifications, quoted market prices of similar equipment and management's perception of demand for the equipment. The Company applied present value techniques to estimate fair value for certain of the equipment which they believe has limited marketability.
Dallas Wafer Fab Closure
In connection with the closure of the Dallas facility, the Company evaluated the recoverability of the facilities' manufacturing assets and concluded that there was no impairment. The Company also reevaluated the useful lives and salvage values of the fixed assets used in this manufacturing facility based on the new period of intended use. As a result of this review, the Company changed its depreciable lives and salvage values and recognized additional depreciation expense of
$54.7 million
for fiscal year 2009 related to this change in accounting estimate.
NOTE 11: RESTRUCTURING ACTIVITIES
Significant FY'10 Activities
Ireland Sales Operations Restructuring
In fiscal year 2010, the Company recorded approximately
$3.0 million
in restructuring costs associated with the reorganization of its international sales operations to Ireland.
Shutdown of Dallas Wafer Fabrication Facility
In fiscal year 2010, the Company recorded approximately
$1.6 million
in restructuring costs associated with the closure of the Dallas, Texas wafer manufacturing facility. These costs consisted of decommissioning of equipment at the facility and estimated severance and benefits associated with employees of the facility.
Change in Estimate
During fiscal year 2010, the Company recognized reversals of expense of approximately
$5.3 million
related to reductions in estimated benefits costs compared to amounts originally estimated.
Significant FY'09 Activities
San Jose Fab Rampdown
In fiscal year 2009, the Company continued its transfer of wafer manufacturing production from its San Jose, California wafer manufacturing facility to Epson's Sakata, Japan facility. In connection with the resulting termination of
78
employees, the Company recorded and paid approximately
$2.1 million
in severance and benefit arrangements.
Dallas Fab Closure
In fiscal year 2009, the Company recorded approximately
$3.1 million
in severance and benefit expenses in connection with the closure of the Dallas, Texas wafer manufacturing facility during the fourth quarter of fiscal year 2009.
63
MAXIM INTEGRATED PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Test Operation Cost Reduction
The Company continued its cost reduction efforts within the test operations function during fiscal year 2009 resulting in the recording of
$3.4 million
in severance and benefit expenses in connection with the involuntary termination of approximately
95
employees.
Cost Reduction of Business Units
In order to improve operational and selling efficiency, the Company reviewed its relative long term goals and decided to reduce development efforts in certain product lines and increase investment in others. During the second quarter of fiscal year 2009, the Company consolidated several product lines in business units which resulted in the termination of approximately
128
employees in the United States and total costs of approximately
$6.1 million
, consisting principally of severance and benefit payments.
The Company terminated certain international employees in certain business units during the third quarter of fiscal year 2009 and recognized an additional
$0.6 million
consisting principally of severance and benefit payments.
Cost Reduction of Selling, General and Administrative Groups
The Company also previously announced the decision to consolidate certain selling, general and administrative functions throughout the world, which resulted in the termination of approximately
44
employees and total costs consisting principally of severance and benefit payments of approximately
$1.7 million
in fiscal year 2009.
Cost Reduction in Domestic Manufacturing & Support Functions
During the third quarter of fiscal year 2009, as a result of the continued global economic weakness, the Company announced restructuring programs primarily in the manufacturing and support functions. These activities resulted in the eventual termination of approximately
382
employees (
189
fab employees and
193
other employees in the US) between March and April 2009 and total costs of approximately
$11.3 million
, consisting principally of severance and medical benefit costs. These costs are included in restructuring expenses in the Consolidated Statements of Income.
Lease Restructuring
In addition to the Company's severance activities, the Company also decided to vacate certain leased offices in Greensboro, North Carolina, Santa Clara, California, Irving, Texas, and Swindon, United Kingdom, which resulted in a lease impairment of approximately
$0.5 million
during fiscal year 2009.
Change in Estimate
During fiscal year 2009 the Company recognized reversals of expense of approximately
$4.6 million
related to reductions in estimated benefits costs compared to amounts originally estimated.
Activity and liability balances related to the restructuring activity for fiscal year 2010 and fiscal year 2011 follows:
|
|
Severance and Benefits
|
||
|
|
(in thousands)
|
||
|
Balance at June 27, 2009
|
$
|
7,694
|
|
|
Restructuring accrual
|
4,558
|
|
|
|
Cash payments
|
(6,247
|
)
|
|
|
Changes in estimates
|
(5,257
|
)
|
|
|
Balance at June 26, 2010
|
$
|
748
|
|
|
Restructuring accrual
|
3,007
|
|
|
|
Cash payments
|
(3,640
|
)
|
|
|
Balance at June 25, 2011
|
$
|
115
|
|
64
MAXIM INTEGRATED PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company has included this amount in accrued salary and related expenses in the Consolidated Balance Sheets.
NOTE 12: 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 ASC No. 280,
Disclosures about Segments Reporting
("ASC 280").
The Company has fifteen operating segments which aggregate into one reportable segment under ASC 280. Under ASC 280, two or more operating segments may be aggregated into a single operating segment for financial reporting purposes if aggregation is consistent with the objective and basic principles of ASC 280, if the segments have similar economic characteristics, and if the segments are similar in each of the following areas:
|
•
|
the nature of products and services;
|
|
•
|
the nature of the production processes;
|
|
•
|
the type or class of customer for their products and services; and
|
|
•
|
the methods used to distribute their products or provide their services.
|
The Company meets each of the aggregation criteria for the following reasons:
|
•
|
the sale of analog and mixed signal integrated circuits is the primary source of revenue for each of the Company's fifteen operating segments,
|
|
•
|
the integrated circuits sold by each of the Company's operating segments are manufactured using similar semiconductor manufacturing processes;
|
|
•
|
the integrated circuits marketed by each of the Company's operating segments are sold to the same types of customers; and
|
|
•
|
all of the Company's integrated circuits are sold through a centralized sales force and common wholesale distributors.
|
All of the Company's operating segments share similar economic characteristics as they have a similar long term business model. The causes for variation among the Company's operating segments are the same and include factors such as (i) life cycle and price and cost fluctuations, (ii) number of competitors, (iii) product differentiation and (iv) size of market opportunity. Additionally, each operating segment is subject to the overall cyclical nature of the semiconductor industry. The number and composition of employees and the amounts and types of tools and materials required are similar for each operating segment. Finally, even though the Company periodically reorganizes the Company's operating segments based upon changes in customers, end-markets or products, acquisitions, long-term growth strategies, and the experience and bandwidth of the senior executives in charge, the common financial goals for each operating segment remain constant.
Enterprise-wide information is provided in accordance with ASC 280. Geographical revenue information is based on customers' ship-to location. Long-lived assets consist of property, plant and equipment. Property, plant and equipment information is based on the physical location of the assets at the end of each fiscal year.
Net revenues from unaffiliated customers by geographic region were as follows:
|
|
For the Year Ended
|
||||||||||
|
|
June 25, 2011
|
June 26, 2010
|
June 27, 2009
|
||||||||
|
|
(in thousands)
|
||||||||||
|
United States
|
$
|
360,310
|
|
$
|
291,539
|
|
$
|
302,648
|
|
||
|
China
|
915,628
|
|
685,908
|
|
496,091
|
|
|||||
|
Japan
|
163,061
|
|
131,513
|
|
120,763
|
|
|||||
|
Korea
|
294,006
|
|
311,928
|
|
229,833
|
|
|||||
|
Rest of Asia
|
283,121
|
|
223,786
|
|
169,203
|
|
|||||
|
Europe
|
379,173
|
|
288,675
|
|
291,524
|
|
|||||
|
Rest of World
|
77,042
|
|
64,254
|
|
35,953
|
|
|||||
|
|
$
|
2,472,341
|
|
$
|
1,997,603
|
|
$
|
1,646,015
|
|
||
65
MAXIM INTEGRATED PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Net long-lived assets by geographic region were as follows:
|
|
Fiscal Year Ended
|
||||||
|
|
June 25, 2011
|
June 26, 2010
|
|||||
|
|
(in thousands)
|
||||||
|
United States
|
$
|
972,380
|
|
$
|
983,761
|
|
|
|
Philippines
|
204,581
|
|
216,738
|
|
|||
|
Thailand
|
120,838
|
|
116,050
|
|
|||
|
Rest of World
|
11,051
|
|
7,887
|
|
|||
|
|
$
|
1,308,850
|
|
$
|
1,324,436
|
|
|
NOTE 13: COMMITMENTS AND CONTINGENCIES
Stock Option Litigation
Beginning on or about May 22, 2006, several derivative actions were filed against certain current and former executive officers and directors of the Company alleging, among other things, wrongful conduct of back-dating stock options as well as security law violations, and named the Company as a nominal defendant against whom the plaintiffs sought no recovery.
The parties to the derivative litigation in the Delaware Court of Chancery entered into a stipulated settlement agreement, which was approved by the Delaware Court of Chancery on September 16, 2008. All derivative actions pending in the California Superior Court have since been dismissed, with prejudice. Net settlement proceeds of
$18.9 million
were received by the Company on September 10, 2009. The Company recognized an increase to additional paid in capital of
$2.5 million
related to excess gains while the remainder of the proceeds of
$16.4 million
was recorded as a reduction to Other operating (income) expenses, net.
On February 6, 2008, a putative class action complaint was filed against the Company and certain former officers and employees in the U.S. District Court for the Northern District of California alleging claims under the federal securities laws based on certain alleged misrepresentations and omissions in the Company's public disclosures concerning its stock option accounting practices. On June 18, 2010, lead plaintiffs and the Company entered into a stipulation of settlement settling the action and providing for the payment of
$173.0 million
in cash by the Company. The Company made the payment in July, 2010. On September 29, 2010, the Court issued a Final Order and Judgment approving the settlement.
Other Legal Proceedings
In addition to the above proceedings, the Company is subject to other legal proceedings and claims that arise in the normal course of the Company's business. The Company does not believe that the ultimate outcome of such matters arising in the normal course of business will have a material adverse effect on the financial position, results of operations or cash flows of the Company.
Commitments
The Company leases certain of its facilities under various operating leases that expire at various dates through October 2025. The lease agreements generally include renewal provisions and require the Company to pay property taxes, insurance, and maintenance costs.
66
MAXIM INTEGRATED PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Future annual minimum payments for all commitments are as follows:
|
|
Total
|
|
Less than
1 year
|
|
2-3 years
|
|
4-5 years
|
|
More than
5 years
|
||||||||||
|
|
(Amounts in thousands)
|
||||||||||||||||||
|
Operating lease obligations (1)
|
$
|
44,489
|
|
|
$
|
12,808
|
|
|
$
|
15,478
|
|
|
$
|
8,005
|
|
|
$
|
8,198
|
|
|
Royalty obligations (2)
|
20,000
|
|
|
10,000
|
|
|
10,000
|
|
|
—
|
|
|
—
|
|
|||||
|
Long-term debt obligations (3)
|
300,000
|
|
—
|
|
300,000
|
|
—
|
|
—
|
|
|||||||||
|
Interest payments associated with long-term debt obligations (4)
|
20,441
|
|
10,350
|
|
10,091
|
|
—
|
|
—
|
|
|||||||||
|
Capital equipment and inventory related purchase obligations (5)
|
33,899
|
|
|
17,515
|
|
|
3,752
|
|
|
3,752
|
|
|
8,880
|
|
|||||
|
Total
|
$
|
418,829
|
|
|
$
|
50,673
|
|
|
$
|
339,321
|
|
|
$
|
11,757
|
|
|
$
|
17,078
|
|
(1) The Company leases some facilities under non-cancelable operating lease agreements that expire at various dates through 2025.
(2) Royalty obligations represent payments for licensed patents.
(3) Long-term debt represents amount due for the Company's
3.45%
senior unsecured notes due 2013.
(4) Interest payments associated with the Company's
3.45%
senior unsecured notes due 2013.
(5) Capital equipment purchase obligations represent commitments for purchase of property, plant and equipment. The Company orders some materials and supplies in advance or with minimum purchase quantities. The Company is obligated to pay for the materials and supplies when received.
Purchase orders for the purchase of the majority of our raw materials and other goods and services are not included in the table. Our purchase orders generally allow for cancellation without significant penalties. We do not have significant agreements for the purchase of raw materials or other goods specifying minimum quantities or set prices that exceed our expected short-term requirements.
Rental expense amounted to approximately
$12.7 million
,
$8.2 million
, and
$7.7 million
in fiscal years
2011
,
2010
and
2009
, respectively.
Potential Income Tax Liabilities Under Section 409A of the Internal Revenue Code and Other Payroll Taxes
In the past, a number of our outstanding stock option awards were granted at exercise prices below the fair market value of our stock on the appropriate accounting measurement date. Many of these options are potentially subject to option holder excise tax under Section 409A of the Internal Revenue Code (and, as applicable, similar excise taxes under state law or foreign law). In fiscal year 2008, we took action to cure certain options from exposure under Section 409A. However, there can be no assurance that such action cured all potential circumstances in which Section 409A would apply. Should it be determined that excise taxes under Section 409A were to apply and we decide to reimburse option holders for such taxes, our results of operations may be materially adversely affected. Also, we have determined that certain payroll taxes, interest and penalties may apply under various sections of the Internal Revenue Code, various state tax statutes, and tax statutes in various foreign jurisdictions. Maxim has reviewed these potential liabilities and accrued the estimated probable amount of the liability. There can be no assurance that our accruals covered all potential circumstances in which additional payroll taxes, interest and penalties would apply. Should it be found that additional payroll taxes, interest and penalties would apply, our results of operations may be materially adversely affected.
Indemnifications
The Company indemnifies certain customers, distributors, suppliers and subcontractors for attorney fees and damages and costs awarded against such parties in certain circumstances in which the Company's products are alleged to infringe third party intellectual property rights, including patents, registered trademarks or copyrights. The terms of the Company's indemnification obligations are generally perpetual from the effective date of the agreement. In certain cases, there are limits on and exceptions to the Company's potential liability for indemnification relating to intellectual property infringement claims.
67
MAXIM INTEGRATED PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Legal fees associated with indemnification obligations, defense and other related costs
Pursuant to the Company's charter documents and indemnification agreements, the Company has certain indemnification obligations to its officers and directors and certain former officers and directors. More specifically, we have separate written indemnification agreements with our current and former executive officers and directors. Pursuant to such obligations, the Company has incurred expenses related to legal fees and expenses advanced to certain former officers of the Company subject to civil charges by the SEC in connection with Maxim's historical stock option granting practices. The Company expenses such amounts as incurred.
NOTE 14: COMPREHENSIVE INCOME
The changes in the components of OCI, net of taxes, were as follows:
|
|
For the Year Ended
|
||||||||||
|
|
June 25,
2011 |
June 26,
2010 |
June 27,
2009 |
||||||||
|
|
(in thousands)
|
||||||||||
|
Net income, as reported
|
$
|
489,009
|
|
$
|
125,139
|
|
$
|
10,455
|
|
||
|
Change in unrealized gains (losses) on investments, net of tax benefit (expense) of $(189) in 2011, $770 in 2010, and $(383) in 2009
|
331
|
|
(1,346
|
)
|
681
|
|
|||||
|
Change in unrealized gains (losses) on forward exchange contracts,
net of tax benefit (expense) of $(1) in 2011, $85 in 2010, and $0 in 2009
|
—
|
|
(150
|
)
|
—
|
|
|||||
|
Deferred tax on unrealized exchange gain (loss) on intercompany receivables
|
(2,369
|
)
|
(1,893
|
)
|
552
|
|
|||||
|
Actuarial gain (loss) on post-retirement benefits, net of tax benefit (expense)
of $(132) in 2011, $515 in 2010 and $2,153 in 2009
|
(289
|
)
|
(896
|
)
|
(3,762
|
)
|
|||||
|
Total comprehensive income
|
$
|
486,682
|
|
$
|
120,854
|
|
$
|
7,926
|
|
||
The components of Accumulated Other Comprehensive Loss, were as follows:
|
June 25, 2011
|
June 26, 2010
|
||||||
|
(in thousands)
|
|||||||
|
Deferred tax on unrealized exchange loss on long-term intercompany receivables
|
$
|
(8,081
|
)
|
$
|
(5,712
|
)
|
|
|
Unrealized components of post-retirement benefits
|
(4,841
|
)
|
(4,552
|
)
|
|||
|
Cumulative translation adjustment
|
(1,527
|
)
|
(1,527
|
)
|
|||
|
Net unrealized loss on cash flow hedges
|
(150
|
)
|
(150
|
)
|
|||
|
Net unrealized gain on available-for-sale securities
|
331
|
|
—
|
|
|||
|
Accumulated Other Comprehensive Loss
|
$
|
(14,268
|
)
|
$
|
(11,941
|
)
|
|
NOTE 15: COMMON STOCK REPURCHASES
In October 2008, the Board of Directors authorized the Company to repurchase up to
$750 million
of the Company's common stock from time to time at the discretion of the Company's management. This stock repurchase authorization has no expiration date. All prior authorizations by the Company's Board of Directors for the repurchase of common stock were canceled and superseded by this authorization.
During fiscal year
2011
and fiscal year
2010
, the Company repurchased approximately
10.9 million
, and
10.3 million
shares of its common stock for
$231.0 million
and
$190.9 million
, respectively. As of June 25, 2011, the Company had remaining authorization of
$93.8 million
for future share repurchases. 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 and general market and business conditions.
68
MAXIM INTEGRATED PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 16: INCOME TAXES
The provision for income taxes consisted of the following:
|
|
For the Year Ended
|
||||||||||
|
|
June 25, 2011
|
June 26, 2010
|
June 27, 2009
|
||||||||
|
|
(in thousands)
|
||||||||||
|
Federal
|
|
|
|
|
|
|
|||||
|
Current
|
$
|
44,579
|
|
$
|
151,786
|
|
$
|
30,237
|
|
||
|
Deferred
|
118,351
|
|
12,340
|
|
(7,447
|
)
|
|||||
|
State
|
|||||||||||
|
Current
|
781
|
|
4,092
|
|
(2,056
|
)
|
|||||
|
Deferred
|
4,204
|
|
(1,464
|
)
|
(681
|
)
|
|||||
|
Foreign
|
|||||||||||
|
Current
|
2,810
|
|
14,345
|
|
2,995
|
|
|||||
|
Deferred
|
1,937
|
|
(6,175
|
)
|
1,116
|
|
|||||
|
|
$
|
172,662
|
|
$
|
174,924
|
|
$
|
24,164
|
|
||
Pretax income (loss) from the Company's foreign subsidiaries was approximately
$285.0 million
,
$(95.5) million
and
$(63.3) million
for fiscal years ended
June 25, 2011
,
June 26, 2010
and
June 27, 2009
, respectively.
The Company has tax holidays with respect to certain operations in Thailand and the Philippines. The Thailand and Philippines tax holidays will expire at various dates between the fiscal years 2012 and 2019. The impact of the tax holidays on net income was not material for fiscal years
2011
,
2010
, and
2009
.
As of
June 25, 2011
, the Company's foreign subsidiaries have accumulated undistributed earnings of approximately
$123.8 million
that are intended to be indefinitely reinvested outside the U.S. and, accordingly, no provision for U.S. federal and state tax has been made for the distribution of these earnings. At
June 25, 2011
the amount of the unrecognized deferred tax liability on the indefinitely reinvested earnings was
$39.9 million
.
The provision for income taxes differs from the amount computed by applying the statutory rate as follows:
|
|
For the Year Ended
|
|||||||
|
|
June 25, 2011
|
|
June 26, 2010
|
|
June 27, 2009
|
|
||
|
|
|
|||||||
|
Federal statutory rate
|
35.0
|
%
|
35.0
|
%
|
35.0
|
%
|
||
|
State tax, net of federal benefit
|
0.7
|
|
0.4
|
|
(10.8
|
)
|
||
|
General business credits
|
(1.5
|
)
|
(1.2
|
)
|
(25.6
|
)
|
||
|
Domestic production deduction benefit
|
(0.1
|
)
|
(2.1
|
)
|
(16.1
|
)
|
||
|
Foreign earnings and losses taxed or benefitted at different rates
|
(4.6
|
)
|
21.0
|
|
76.5
|
|
||
|
Stock-based compensation
|
1.3
|
|
3.0
|
|
8.4
|
|
||
|
Acquired in process R&D
|
—
|
|
—
|
|
3.9
|
|
||
|
Executive compensation
|
0.1
|
|
0.1
|
|
(11.2
|
)
|
||
|
Release of unrecognized tax benefits
|
(4.1
|
)
|
—
|
|
—
|
|
||
|
Interest accrual for unrecognized tax benefits
|
(1.6
|
)
|
0.9
|
|
9.9
|
|
||
|
Other
|
0.9
|
|
1.2
|
|
(0.2
|
)
|
||
|
Income tax rate
|
26.1
|
%
|
58.3
|
%
|
69.8
|
%
|
||
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:
69
MAXIM INTEGRATED PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
For the Year Ended
|
||||||
|
|
June 25, 2011
|
June 26, 2010
|
|||||
|
|
(in thousands)
|
||||||
|
Deferred tax assets:
|
|
|
|
|
|||
|
Inventory valuation and reserves
|
$
|
11,768
|
|
$
|
66,087
|
|
|
|
Distributor related accruals and sales return and allowance accruals
|
21,334
|
|
14,168
|
|
|||
|
Deferred revenue
|
2,233
|
|
3,187
|
|
|||
|
Accrued compensation
|
56,467
|
|
47,500
|
|
|||
|
Stock-based compensation
|
73,295
|
|
84,225
|
|
|||
|
Net operating loss carryovers
|
20,827
|
|
31,450
|
|
|||
|
Tax credit carryovers
|
43,285
|
|
46,025
|
|
|||
|
Other reserves and accruals not currently deductible for tax purposes
|
10,608
|
|
75,782
|
|
|||
|
Other
|
8,940
|
|
18,437
|
|
|||
|
Total deferred tax assets
|
248,757
|
|
386,861
|
|
|||
|
Deferred tax liabilities:
|
|
|
|
|
|||
|
Fixed assets cost recovery, net
|
(257,647
|
)
|
(240,463
|
)
|
|||
|
Other
|
(12,168
|
)
|
(10,524
|
)
|
|||
|
Net deferred tax assets /(liabilities) before valuation allowance
|
(21,058
|
)
|
135,874
|
|
|||
|
Valuation allowance
|
(44,562
|
)
|
(47,006
|
)
|
|||
|
Net deferred tax assets/(liabilities)
|
$
|
(65,620
|
)
|
$
|
88,868
|
|
|
The valuation allowance decreased by
$2.4 million
in fiscal year
2011
primarily due to benefits realized for state research tax credit carryforwards.
$37.4 million
of the valuation allowance is attributable to the tax benefits of income tax deductions generated by the exercise of stock options that when realized, will be recorded as a credit to additional paid-in-capital.
As of
June 25, 2011
, the Company has
$29.1 million
of federal net operating loss carryforwards expiring at various dates between fiscal years 2024 and 2028,
$57.7 million
of state net operating loss carryforwards expiring at various dates through the fiscal years 2029,
$22.5 million
of foreign net operating losses with no expiration date,
$8.3 million
of state credit carryforwards expiring at various dates between fiscal years 2012 and 2026 and
$62.9 million
of state credit carryforwards with no expiration date.
The Company classifies unrecognized tax benefits as (i) a current liability to the extent that payment is anticipated within one year; (ii) a non current liability to the extent that payment is not anticipated within one year; or (iii) as a reduction to deferred tax assets to the extent that the unrecognized tax benefit relates to deferred tax assets such as operating loss or tax credit carryforwards.
A reconciliation of the change in gross unrecognized tax benefits, excluding interest, penalties and the federal benefit for state unrecognized tax benefits, is as follows:
70
MAXIM INTEGRATED PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
For the Year Ended
|
|||||||
|
|
June 25, 2011
|
June 26, 2010
|
||||||
|
|
(in thousands)
|
|||||||
|
Balance as of beginning of year
|
$
|
151,464
|
|
$
|
137,298
|
|
||
|
Tax positions related to current year:
|
||||||||
|
Addition
|
59,345
|
|
31,491
|
|
||||
|
Tax positions related to prior year:
|
||||||||
|
Addition
|
7,935
|
|
5,696
|
|
||||
|
Reduction
|
(21,399
|
)
|
(190
|
)
|
||||
|
Settlements
|
(16,636
|
)
|
(22,831
|
)
|
||||
|
Lapses in statutes of limitations
|
(63,296
|
)
|
—
|
|
||||
|
Balance as of end of year
|
$
|
117,413
|
|
$
|
151,464
|
|
||
The total amount of gross unrecognized tax benefits as of
June 25, 2011
that, if recognized, would affect the effective tax rate and additional paid in capital is
$107.9 million
and
$9.5 million
, respectively. During fiscal year 2011,
$33.1 million
of prior year unrecognized tax benefits were recognized, due to the lapse of the statute of limitations, and credited to additional paid in capital.
Consistent with prior years, the Company reports interest and penalties related to unrecognized tax benefits as a component of income tax expense. The gross amount of interest and penalties recognized in income tax expense during fiscal years ended
June 25, 2011
,
June 26, 2010
, and
June 27, 2009
was
$(17.1) million
,
$4.4 million
and
$5.5 million
, respectively, and the total amount of interest and penalties accrued as of
June 25, 2011
,
June 26, 2010
, and
June 27, 2009
was
$3.3 million
,
$20.4 million
, and
$21.8 million
, respectively. The fiscal year 2011 interest and penalty net benefit of
$17.1 million
is primarily due to a
$19.5 million
reversal of prior year interest and penalties due to the expiration of the statute of limitations.
Management estimates that it is reasonably possible that the liability for gross unrecognized tax benefits, including accrued interest and penalties, could decrease within the next 12 months by
$3.4 million
. Such changes could occur based on the expiration of various statutes of limitations and the possible conclusion of ongoing tax audits.
During the second quarter of fiscal year 2011 the Internal Revenue Service ("IRS") completed its examination of the Company's federal corporate income tax returns for the fiscal years 2007- 2008 and issued a Revenue Agents Report ("RAR"). The Company agreed with the RAR findings and made a payment of
$0.8 million
that reduced the Company's liability for unrecognized tax benefits. During the fourth quarter of fiscal year 2011, an examination of the Company's California corporate income tax returns for the fiscal years 2006 - 2007 was completed. The Company agreed with the examination results, which reduced California research tax credit carryforwards and unrecognized tax benefits by
$14.5 million
.
In the first quarter of fiscal year 2012 the IRS intends to commence an examination of the Company's federal corporate income tax returns for the fiscal years 2009 and 2010. Management believes that it has adequately provided for any adjustments that may result from the IRS examination, however, the outcome of tax examinations cannot be predicted with certainty.
A summary of the fiscal tax years that remain subject to examination, as of
June 25, 2011
, for the Company's major tax jurisdictions are:
|
United States - Federal
|
2008 - forward
|
|
United States - Various States
|
2007 - forward
|
|
Japan
|
2006 - forward
|
|
Philippines
|
2008 - forward
|
|
Thailand
|
2009 - forward
|
|
United Kingdom
|
2008 - forward
|
71
MAXIM INTEGRATED PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 17: BENEFITS
Defined contribution plan:
Starting January 1, 2011, Maxim reinstated its 401(k) employer matching contribution for U.S. employees. U.S. employees are automatically enrolled in the plan when they meet eligibility requirements, unless they decline participation. Under the terms of the plan Maxim matches
100%
of the employee contributions up to
3%
of employee eligible compensation and
50%
of additional employee contributions up to
5%
of employee eligible compensation,
up to the IRS Annual Compensation Limits. Total defined contribution expense was
$6.0 million
in fiscal 2011.
Non-U.S. Pension Benefits
We provide defined-benefit pension plans in certain countries. Consistent with the requirements of local law, we deposit funds for certain plans with insurance companies, with third-party trustees, or into government-managed accounts, and/or accrue for the unfunded portion of the obligation.
Former CEO Retirement Benefits
The Company's former CEO, John F. Gifford, now deceased, resigned in fiscal year 2007. As part of his resignation, he was provided with certain retirement benefits which included office space, administrative assistance, and health benefits. In accordance with ASC 712, the Company recorded a charge for the net present value of these benefits of
$3.1 million
in fiscal year 2007. During the fiscal year ended
June 27, 2009
, the Company reversed
$2.4 million
of accrued retirement benefits as a change in estimate as a result of the death of Mr. Gifford.
Post-Employment Benefits
The Company maintained an outstanding obligation associated with certain former Maxim employees to provide post-employment medical benefits. The total amount of this obligation was
$4.8 million
and
$5.6 million
and included in Other liabilities in the Consolidated Balance Sheet as of
June 25, 2011
and
June 26, 2010
, respectively.
Post-Retirement Benefits
As a result of the Company's 2001 acquisition of Dallas Semiconductor, the Company assumed the obligation to continue medical coverage for certain former officers and directors. The Company accounted for the obligation under GAAP applicable to post-retirement benefits.
72
MAXIM INTEGRATED PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Medical Expense & Funded Status Reconciliation
|
|
June 26
2010 |
Fiscal 2011
Expense
|
Current Year end
|
Estimated
Fiscal 2012
Expense
|
|||||||||||
|
|
(in thousands, except percentages)
|
||||||||||||||
|
Accumulated Postretirement Benefit Obligation [APBO]:
|
|
|
|
|
|||||||||||
|
Retirees and beneficiaries
|
$
|
(9,239
|
)
|
|
$
|
(9,989
|
)
|
|
|||||||
|
Funded status
|
$
|
(9,239
|
)
|
|
$
|
(9,989
|
)
|
|
|||||||
|
Actuarial loss
|
$
|
521
|
|
||||||||||||
|
|
|
|
|
|
|||||||||||
|
Amounts Recognized in Accumulated Other Comprehensive Income:
|
|
|
|
|
|||||||||||
|
Net actuarial loss
|
$
|
7,327
|
|
|
$
|
7,484
|
|
|
|||||||
|
Total
|
$
|
7,327
|
|
|
$
|
7,484
|
|
|
|||||||
|
|
|
|
|
|
|||||||||||
|
Net Periodic Postretirement Benefit Cost/(Income):
|
|
|
|
|
|||||||||||
|
Interest cost
|
|
471
|
|
|
500
|
|
|||||||||
|
Amortization:
|
|
|
|||||||||||||
|
Net actuarial loss (1)
|
|
364
|
|
|
388
|
|
|||||||||
|
Total net periodic postretirement benefit cost
|
|
$
|
835
|
|
|
$
|
888
|
|
|||||||
|
Employer contributions
|
|
$
|
241
|
|
|
$
|
388
|
|
|||||||
|
|
|
|
|
|
|||||||||||
|
Economic Assumptions:
|
|
|
|
|
|||||||||||
|
Discount rate
|
5.2%
|
5.1%
|
|||||||||||||
|
Medical trend
|
10.0% in 2011,
declining to 5% at the rate of 0.5%/yr. |
9.5% in 2012,
declining to 5% at the rate of 0.5%/yr. |
|||||||||||||
|
Dental trend
|
5.0%
|
5.0%
|
|||||||||||||
(1) Unrecognized losses are amortized over an average remaining life expectancy of
16.7
years at
June 25, 2011
.
The following benefit payments are expected to be paid:
|
Non-Pension Benefits
|
|||
|
2012
|
$
|
388
|
|
|
2013
|
428
|
|
|
|
2014
|
469
|
|
|
|
2015
|
508
|
|
|
|
2016
|
546
|
|
|
|
Thereafter
|
7,650
|
|
|
|
$
|
9,989
|
|
|
Dallas Semiconductor Split-Dollar Life Insurance
As a result of the Company's 2001 acquisition of Dallas Semiconductor, the Company assumed responsibility associated with
73
MAXIM INTEGRATED PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
certain split-dollar life insurance policies held by certain former Dallas Semiconductor officers and directors. The policies are owned by the individuals with the Company maintaining a limited collateral assignment on each policy. As a result of the adoption of ASC 715,
Accounting for Compensation in retirement benefits,
during the first quarter of fiscal year 2008 (effective July 1, 2007), the Company recognized a
$14.1 million
cumulative reduction to retained earnings. No corporate income tax benefit was netted against the charge to retained earnings because the liabilities being accrued are not deductible for corporate income tax purposes.
During the fourth quarter of 2009, the Company entered into contractual arrangements to settle certain of these split- dollar life insurance policies for cash consideration of
$6.4 million
. Pursuant to the arrangements the Company released rights to their limited collateral assignment on the policies and was relieved of its obligation to continue funding the policies.
The Company had
$2.9 million
and
$2.7 million
included in Other Assets as of
June 25, 2011
and
June 26, 2010
, respectively, associated with the limited collateral assignment to the policies. The Company had a
$4.4 million
and
$4.2 million
obligation included in Other Liabilities as of
June 25, 2011
and
June 26, 2010
, respectively, related to the anticipated continued funding associated with these policies.
NOTE 18: QUARTERLY FINANCIAL DATA (UNAUDITED)
|
|
Quarter Ended
|
||||||||||||||
|
Fiscal Year 2011
|
6/25/2011
|
3/26/2011
|
12/25/2010
|
9/25/2010
|
|||||||||||
|
|
(In thousands, except percentages and per share data)
|
||||||||||||||
|
Net revenues
|
$
|
626,491
|
|
$
|
606,775
|
|
$
|
612,936
|
|
$
|
626,139
|
|
|||
|
Cost of goods sold
|
235,666
|
|
234,125
|
|
232,661
|
|
239,925
|
|
|||||||
|
Gross margin
|
$
|
390,825
|
|
$
|
372,650
|
|
$
|
380,275
|
|
$
|
386,214
|
|
|||
|
Gross margin %
|
62.4
|
%
|
61.4
|
%
|
62.0
|
%
|
61.7
|
%
|
|||||||
|
Operating income
|
$
|
177,922
|
|
$
|
163,995
|
|
$
|
151,999
|
|
$
|
179,123
|
|
|||
|
% of net revenues
|
28.4
|
%
|
27.0
|
%
|
24.8
|
%
|
28.6
|
%
|
|||||||
|
Net income
|
$
|
125,593
|
|
$
|
136,276
|
|
$
|
109,590
|
|
$
|
117,550
|
|
|||
|
Earnings per share:
|
|
|
|
|
|
|
|
|
|||||||
|
Basic
|
0.42
|
|
0.46
|
|
0.37
|
|
0.39
|
|
|||||||
|
|
|
|
.
|
|
|
|
|
|
|||||||
|
Diluted
|
0.41
|
|
0.45
|
|
0.36
|
|
0.39
|
|
|||||||
|
|
|
|
|
|
|
|
|||||||||
|
Shares used in the calculation of earnings per share:
|
|
|
|
|
|
|
|
|
|||||||
|
Basic
|
295,751
|
|
296,511
|
|
296,550
|
|
298,216
|
|
|||||||
|
Diluted
|
303,944
|
|
304,515
|
|
303,260
|
|
301,688
|
|
|||||||
|
|
|
|
|
|
|
|
|
|
|||||||
|
Dividends paid per share
|
$
|
0.21
|
|
$
|
0.21
|
|
$
|
0.21
|
|
$
|
0.21
|
|
|||
The following table presents details of the total stock-based compensation expense that is included in the quarterly financial data above (in thousands):
|
|
Quarter Ended
|
||||||||||||||
|
|
6/25/2011
|
3/26/2011
|
12/25/2010
|
9/25/2010
|
|||||||||||
|
Cost of goods sold
|
$
|
3,022
|
|
$
|
3,336
|
|
$
|
3,748
|
|
$
|
3,895
|
|
|||
|
Research and development expenses
|
11,922
|
|
11,743
|
|
13,916
|
|
16,105
|
|
|||||||
|
Selling, general and administrative expenses
|
6,464
|
|
6,149
|
|
6,858
|
|
7,139
|
|
|||||||
|
Total
|
$
|
21,408
|
|
$
|
21,228
|
|
$
|
24,522
|
|
$
|
27,139
|
|
|||
74
MAXIM INTEGRATED PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
Quarter Ended
|
|||||||||||||||
|
Fiscal Year 2010
|
6/26/2010
|
3/27/2010
|
12/26/2009
|
9/26/2009
|
||||||||||||
|
|
(In thousands, except percentages and per share data)
|
|||||||||||||||
|
Net revenues
|
$
|
565,962
|
|
$
|
508,880
|
|
$
|
473,515
|
|
$
|
449,246
|
|
||||
|
Cost of goods sold
|
225,014
|
|
200,177
|
|
181,727
|
|
197,619
|
|
||||||||
|
Gross margin
|
$
|
340,948
|
|
$
|
308,703
|
|
$
|
291,788
|
|
$
|
251,627
|
|
||||
|
Gross margin %
|
60.2
|
%
|
60.7
|
%
|
61.6
|
%
|
56.0
|
%
|
||||||||
|
Operating income (loss)
|
$
|
141,083
|
|
$
|
(48,261
|
)
|
(1
|
)
|
$
|
109,129
|
|
$
|
90,099
|
|
||
|
% of net revenues
|
24.9
|
%
|
(9.5
|
)%
|
23.0
|
%
|
20.1
|
%
|
||||||||
|
Net income (loss)
|
$
|
58,455
|
|
$
|
(33,903
|
)
|
$
|
58,635
|
|
$
|
41,952
|
|
||||
|
Earnings (loss) per share:
|
|
|
|
|
|
|
|
|
||||||||
|
Basic
|
$
|
0.19
|
|
$
|
(0.11
|
)
|
$
|
0.19
|
|
$
|
0.14
|
|
||||
|
Diluted
|
$
|
0.19
|
|
$
|
(0.11
|
)
|
$
|
0.19
|
|
$
|
0.13
|
|
||||
|
Shares used in the calculation of earnings (loss) per share:
|
|
|
|
|
|
|
|
|
||||||||
|
Basic
|
302,188
|
|
304,518
|
|
305,324
|
|
306,276
|
|
||||||||
|
Diluted
|
306,803
|
|
304,518
|
|
310,090
|
|
312,162
|
|
||||||||
|
Dividends paid per share
|
$
|
0.20
|
|
$
|
0.20
|
|
$
|
0.20
|
|
$
|
0.20
|
|
||||
(1) Includes
$173.0 million
litigation settlement expense included in other operating expenses, net in the Consolidated Statement of Income.
The following table presents details of the total stock-based compensation expense that is included in the quarterly financial date above (in thousands):
|
|
Quarter Ended
|
||||||||||||||
|
|
6/26/2010
|
3/27/2010
|
12/26/2009
|
9/26/2009
|
|||||||||||
|
Cost of goods sold
|
$
|
3,423
|
|
$
|
1,071
|
|
$
|
5,265
|
|
$
|
5,461
|
|
|||
|
Research and development expenses
|
13,983
|
|
8,691
|
|
14,650
|
|
16,741
|
|
|||||||
|
Selling, general and administrative expenses
|
7,442
|
|
5,517
|
|
7,018
|
|
4,263
|
|
|||||||
|
Total
|
$
|
24,848
|
|
$
|
15,279
|
|
$
|
26,933
|
|
$
|
26,465
|
|
|||
75
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Maxim Integrated Products, Inc.
Sunnyvale, CA
We have audited the accompanying consolidated balance sheets of Maxim Integrated Products, Inc. and subsidiaries (the "Company") as of June 25, 2011 and June 26, 2010, and the related consolidated statements of income, stockholders' equity, and cash flows for each of the three years in the period ended June 25, 2011. Our audits also included the financial statement schedule listed in the Index at Item 15. These financial statements and financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on the financial statements and financial statement schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (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, such consolidated financial statements present fairly, in all material respects, the financial position of Maxim Integrated Products, Inc. and subsidiaries at June 25, 2011 and June 26, 2010, and the results of their operations and their cash flows for each of the three years in the period ended June 25, 2011, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company's internal control over financial reporting as of June 25, 2011, based on the criteria established in
Internal Control-Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated August 5, 2011 expressed an unqualified opinion on the Company's internal control over financial reporting.
DELOITTE & TOUCHE LLP
San Jose, California
August 5, 2011
76
MAXIM INTEGRATED PRODUCTS, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
|
|
Balance at
Beginning of
Period
|
Additions (Deductions)
Charged (Credited)
to Costs and Expenses
|
Deductions (1)
|
Balance at
End of
Period
|
|||||||||||
|
|
(In thousands)
|
||||||||||||||
|
Doubtful accounts
|
|
|
|
|
|||||||||||
|
Year ended June 25, 2011
|
$
|
2,446
|
|
$
|
(362
|
)
|
$
|
379
|
|
$
|
1,705
|
|
|||
|
Year ended June 26, 2010
|
$
|
2,831
|
|
$
|
457
|
|
$
|
842
|
|
$
|
2,446
|
|
|||
|
Year ended June 27, 2009
|
$
|
3,174
|
|
$
|
(9
|
)
|
$
|
334
|
|
$
|
2,831
|
|
|||
|
|
Balance at
Beginning of
Period
|
Additions (Deductions)
Charged (Credited)
to Costs and Expenses
|
Deductions
|
Balance at
End of
Period
|
|||||||||||
|
(In thousands)
|
|||||||||||||||
|
Returns and Allowances
|
|
|
|
|
|
|
|
|
|||||||
|
Year ended June 25, 2011
|
$
|
14,992
|
|
$
|
74,456
|
|
$
|
73,456
|
|
$
|
15,992
|
|
|||
|
Year ended June 26, 2010
|
$
|
10,332
|
|
$
|
67,505
|
|
$
|
62,845
|
|
$
|
14,992
|
|
|||
|
Year ended June 27, 2009
|
$
|
12,054
|
|
$
|
45,220
|
|
$
|
46,942
|
|
$
|
10,332
|
|
|||
(1) Uncollectible accounts written off.
77
SIGNATURE
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.
|
August 5, 2011
|
MAXIM INTEGRATED PRODUCTS, INC.
|
|
|
By:/s/ Bruce Kiddoo
|
||
|
Bruce Kiddoo
|
||
|
|
Senior Vice President, Chief Financial Officer
|
|
|
August 5, 2011
|
MAXIM INTEGRATED PRODUCTS, INC.
|
|
|
By:/s/ David A. Caron
|
||
|
David A. Caron
|
||
|
|
Vice President and Principal Accounting Officer
(For the Registrant, as Principal Accounting Officer)
|
|
78
P
OWER OF
A
TTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints each of Tunc Doluca and Bruce Kiddoo as his true and lawful attorneys-in-fact and agents, with full power of substitution and re-substitution, 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 Annual 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.
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Signature
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Title
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Date
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/s/ Tunc Doluca
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President and Chief Executive Officer
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August 5, 2011
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Tunc Doluca
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(Principal Executive Officer)
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/s/ James R. Bergman
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Director
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August 5, 2011
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James R. Bergman
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/s/ Joseph R. Bronson
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Director
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August 5, 2011
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Joseph R. Bronson
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/s/ Robert E. Grady
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Director
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August 5, 2011
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Robert E. Grady
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/s/ B. Kipling Hagopian
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Director and Chairman of the Board
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August 5, 2011
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B. Kipling Hagopian
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/s/ William D. Watkins
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Director
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August 5, 2011
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William D. Watkins
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/s/ A.R. Wazzan
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Director
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August 5, 2011
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A.R. Wazzan
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79
C
ORPORATE
D
ATA AND
S
TOCKHOLDER
I
NFORMATION
Independent Registered Public Accounting Firm
Deloitte & Touche LLP
San Jose, California
Registrar/Transfer Agent
Computershare
Canton, Massachusetts
Corporate Headquarters
120 San Gabriel Drive
Sunnyvale, California 94086
(408) 737-7600
Stock Listing
At July 31, 2011, there were
912
stockholders of record of the Company's common stock as reported by Computershare. Maxim common stock is traded on the Nasdaq Global Select Market under the symbol "MXIM".
80
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Exhibit
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Number
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Description
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3.1 (1)
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Restated Certificate of Incorporation of the Company
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3.3 (2)
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Amendments to Restated Certificate of Incorporation of the Company
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3.4 (3)
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Amended and Restated Bylaws of the Company, as amended
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4.1
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Reference is made to Exhibits 3.1, 3.3, and 3.4
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10.8 (5)
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The Company's Forms of Indemnity Agreement
(A)
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10.11 (1)
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The Company's Incentive Stock Option Plan, as amended
(A)
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10.12 (6)
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The Company's 1987 Supplemental Stock Option Plan, as amended
(A)
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10.13 (6)
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The Company's Supplemental Nonemployee Stock Option Plan, as amended
(A)
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10.15 (6)
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The Company's 1988 Nonemployee Director Stock Option Plan, as amended
(A)
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10.16 (4)
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The Company's 1996 Stock Incentive Plan, as amended and restated
(A)
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10.17 (7)
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Dallas Semiconductor Corporation - 1993 Officer and Director Stock Option Plan, as amended, together with forms of stock option agreements thereunder
(A)
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10.18 (7)
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Dallas Semiconductor Corporation Amended 1987 Stock Option Plan, together with forms of stock option agreements thereunder
(A)
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10.21 (7)
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Form of Shareholder Agreements between Dallas Semiconductor Corporation and employee stockholders, as amended
(A)
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10.26 (7)
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Assumption Agreement, dated April 11, 2001, relating to Dallas Semiconductor Corporation Executives Retiree Medical Plan
(A)
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10.27 (7)
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Assumption Agreement, dated April 11, 2001, relating to Dallas Semiconductor Corporation stock options
(A)
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10.28 (7)
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Dallas Semiconductor Corporation Executives Retiree Medical Plan
(A)
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10.29 (7)
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Form of Indemnification Agreement between Dallas Semiconductor Corporation and its directors and officers
(A)
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81
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10.30 (13)
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Form of Non-Statutory Option Agreement, as amended and restated, under the Company's 1996 Stock Incentive Plan, for U.S. Option Optionees
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10.31 (13)
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Form of Restricted Stock Unit Agreement under the Company's 1996 Stock Incentive Plan, for U.S. Holders
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10.32 (8)
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Employment Agreement between the Company and Tunc Doluca dated as of September 30, 1993
(A)
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10.33 (8)
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Employment Agreement between the Company and Vijay Ullal dated as of April 1, 1995
(A)
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10.34 (8)
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Employment Agreement between the Company and Pirooz Parvarandeh dated as of November 1, 1994
(A)
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10.40 (9)
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Employment Letter Agreement between the Company and Bruce Kiddoo dated as of August 6, 2007
(A)
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10.41 (3)
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Form of Non-Statutory Option Agreement, as amended and restated, under the Company's 1996 Stock Incentive Plan, for Non-U.S. Option Optionees
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10.42 (3)
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Form of Restricted Stock Unit Agreement under the Company's 1996 Stock Incentive Plan, for Non-U.S. Holders
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10.43 (10)
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The Company's 2008 Employee Stock Purchase Plan, as amended
(A)
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10.44 (11)
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Release of Claims and Vesting Agreement for Officer Goodwill Payment
(A)
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10.45 (12)
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Amendment to Dallas Semiconductor Corporation Executives Retiree Medical Plan
(A)
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10.46 (14)
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Agreement and Plan of Merger dated April 12, 2010, relating to the acquisition of Teridian Semiconductor Corp. by the Company
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10.47 (15)
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Underwriting Agreement, dated June 10, 2010, between the Company and J.P. Morgan Securities Inc. and Goldman, Sachs & Co.
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10.48 (16)
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Supplemental Indenture, dated as of June 17, 2010, between the Company and Wells Fargo Bank, National Association, as trustee
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10.49 (17)
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Change In Control Employee Severance Plan for U.S. Based Employees
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10.50 (17)
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Change In Control Employee Severance Plan for Non-U.S. Based Employees
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10.51 (17)
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Equity Award Policy Acceleration Of Vesting In The Event of A Change In Control For Employees Based Outside The U.S.
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12.1
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14 (17)
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Code of Business Conduct and Ethics
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21.1
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23.1
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24.1
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Power of Attorney (see page 81)
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82
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31.1
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31.2
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32.1
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32.2
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(A) Management contract or compensatory plan or arrangement.
_________________
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(1)
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Incorporated by reference to the Company's Annual Report on Form 10-K for the year ended June 30, 1995.
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(2)
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Incorporated by reference to the Company's Annual Report on Form 10-K for the year ended June 30, 1997, to the Company's Annual Report on Form 10-K for the year ended June 30, 1998, to the Company's Quarterly Report on Form 10-Q for the quarter ended December 25, 1999, and to the Company's Quarterly Report on Form 10-Q for the quarter ended December 30, 2000.
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(3)
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Incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended September 27, 2008.
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(4)
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Incorporated by reference to the Company's Period Report on Form 8-K filed on November 24, 2009.
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(5)
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Incorporated by reference to the Company's Registration Statement on Form S-1 No. 33-19561 and to the Company's Annual Report on Form 10-K for the year ended June 25, 2005.
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(6)
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Incorporated by reference to the Company's Annual Report on Form 10-K for the year ended June 27, 1998.
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(7)
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Incorporated by reference to the Company's Annual Report on Form 10-K for the year ended June 30, 2001.
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(8)
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Incorporated by reference to the Company's Annual Report on Form 10-K for the year ended June 24, 2006.
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(9)
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Incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended September 29, 2007.
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(10)
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Incorporated by reference as Appendix A to the Company's Definitive Proxy Statement on Schedule 14A filed on October 26, 2009.
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(11)
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Incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended March 28, 2009.
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(12)
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Incorporated by reference to the Company's Annual Report on Form 10-K for the year ended June 27, 2009.
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(13)
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Incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended September 26, 2009.
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(14)
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Incoporated by reference to the Company's Period Report on Form 8-K filed on April 14, 2010.
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(15)
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Incorporated by reference to the Company's Period Report on Form 8-K filed on June 16, 2010.
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(16)
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Incorporated by reference to the Company's Period Report on Form 8-K filed on June 18, 2010.
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(17)
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Incorporated by reference to the Company's Annual Report on Form 10-K for the year ended June 26, 2010.
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83
TABLE OF CONTENTS
Part IprintItem 1. BusinessprintItem 1A. Risk FactorsprintItem 1B. Unresolved Staff CommentsprintItem 2. PropertiesprintItem 3. Legal ProceedingsprintItem 4. [removed and Reserved]printPart IIprintItem 5. Market For Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases Of Equity SecuritiesprintItem 6. Selected Financial DataprintItem 7. Management's Discussion and Analysis Of Financial Condition and Results Of OperationsprintItem 7A. Quantitative and Qualitative Disclosures About Market RiskprintItem 8. Financial Statements and Supplementary DataprintItem 9. Changes in and Disagreements with Accountants on Accounting and Financial DisclosureprintItem 9A. Controls and ProceduresprintItem 9B. Other InformationprintPart IIIprintItem 10. Directors, Executive Officers and Corporate GovernanceprintItem 11. Executive CompensationprintItem 12. Security Ownership Of Certain Beneficial Owners and Management and Related Stockholder MattersprintItem 13. Certain Relationships and Related Transactions, and Director IndependenceprintItem 14. Principal Accountant Fees and ServicesprintPart IVprintItem 15. Exhibits and Financial Statement SchedulesprintNote 1: Nature Of OperationsprintNote 2: Summary Of Significant Accounting PoliciesprintNote 3: Balance Sheet ComponentsprintNote 4: Fair Value MeasurementsprintNote 5: Financial InstrumentsprintNote 6: Stock-based CompensationprintNote 7: Earnings Per ShareprintNote 8: Goodwill and Intangible AssetsprintNote 9: AcquisitionsprintNote 10: Impairment Of Long-lived AssetsprintNote 11: Restructuring ActivitiesprintNote 12: Segment InformationprintNote 13: Commitments and ContingenciesprintNote 14: Comprehensive IncomeprintNote 15: Common Stock RepurchasesprintNote 16: Income TaxesprintNote 17: BenefitsprintNote 18: Quarterly Financial Data (unaudited)print