SOURCE: Maxim Integrated Products

November 01, 2006 16:00 ET

Maxim Reports Revenues and Earnings for the First Quarter of Fiscal 2007

SUNNYVALE, CA -- (MARKET WIRE) -- November 1, 2006 -- Maxim Integrated Products, Inc. (NASDAQ: MXIM) reported net revenues of $502.7 million for its fiscal first quarter ended September 23, 2006, a 1.5% decrease over the fourth quarter of fiscal 2006 and a 18.5% increase over the first quarter of fiscal 2006.

Net income for the first quarter of fiscal 2007 was $107.5 million or $0.33 diluted earnings per share including stock based compensation. For comparison purposes, net income for the fourth quarter of fiscal 2006 was $124.3 million or $0.37 diluted earnings per share and net income for the same period a year ago was $105.4 million or $0.31 per share including stock based compensation.

Details of stock based compensation for the pertinent quarters are shown in the following table:


                                                 Three months ended
                                         ---------------------------------
(Amounts in thousands)                   9/24/2005   6/24/2006   9/23/2006
                                         ---------   ---------   ---------
Stock Option Plans                       $  37,602   $  38,597   $  36,425
Stock Purchase Plans                         3,857       2,506         952
Restricted Stock Units                           -      10,230      13,710
                                         ---------   ---------   ---------
 Pre-tax stock-based compensation
  expense                                   41,459      51,333      51,087
Less: Income Tax Benefits                  (13,599)    (16,786)    (17,727)
                                         ---------   ---------   ---------
 Net stock-based compensation expense    $  27,860   $  34,547   $  33,360
                                         =========   =========   =========
Gross margin was 63.9% for the first quarter compared to 66.3% in the fourth quarter of fiscal 2006. Sequential gross margins declined as a result of recording $5.0 million in additional inventory reserves during the first quarter, $2.5 million from a one-time benefit received in the fourth quarter from a settlement with a vendor that was not repeated in the first quarter, and a $2.0 million increase in stock based compensation for a retention grant of RSUs to manufacturing employees. The remaining decline was due to the mix change towards higher volume products.

Research and development expense was $130.2 million or 25.9% of net revenue. This compares to $127.2 million or 24.9% in the fourth quarter of fiscal 2006. The increase in research and development was primarily due to additional headcount and related expenses to support future product development.

Selling, general and administrative expense was $40.1 million or 8.0% of net revenue. This compares to $37.9 million or 7.4% in the fourth quarter of fiscal 2006. The increase in selling, general and administrative expense was primarily due to $3.0 million associated with the audit of the Company's stock option program.

Total operating profit for the first quarter was $150.8 million or 30.0% of net revenues compared to $173.3 million or 34.0% for the fourth quarter and $145.8 million or 34.4% for the first quarter of fiscal 2006.

The 2 percentage point sequential increase in our tax rate was due to the old tax deduction for extra territorial income being replaced with the deduction for domestic production that is phased in over several years and the U.S. government's failure to extend the Research & Development tax credit. This resulted in a $3.3 million reduction in net income or $0.01 diluted earnings per share.

During the quarter, cash and cash equivalents increased $51.4 million to $1.4 billion after the Company repurchased 2.1 million shares of its common stock for $60.8 million, paid dividends of $50.0 million, and paid $94.9 million for capital equipment. Accounts receivable decreased $0.8 million in the first quarter to $291.7 million and inventories for the first quarter increased $10.6 million to $217.9 million and includes $15.6 million of stock based compensation.

Mr. Gifford commented: "The Company's Board of Directors has declared a cash dividend for the second quarter of fiscal 2007 of $0.156 per share. Payment will be made on December 5, 2006 to stockholders of record on November 21, 2006."

The following table reconciles free cash flow to net income, and depicts the Company's free cash flow for the three months ended September 23, 2006 and September 24, 2005.

RECONCILIATION OF FREE CASH FLOW TO NET INCOME


                                                      Three months ended
(Amounts in millions, except                         ---------------------
 per share data)                                     9/23/2006   9/24/2005
                                                     ---------   ---------
Net income as reported                               $   107.5   $   105.4
Add adjustments to reconcile
 net income to net cash
 provided by operating activities:
   Stock-based compensation                               51.1        41.5
   Depreciation, amortization & other                     24.2        20.6
   Tax benefit related to stock plans                      2.4         0.3
   Accounts receivable                                     0.8       (20.6)
   Inventories                                            (9.0)       (7.7)
   Accounts payable                                       (8.5)        8.4
   Income taxes payable                                   44.5        19.5
   Other assets and liabilities                            0.9         3.5
                                                     ---------   ---------
Total of adjustments                                     106.4        65.5
                                                     ---------   ---------
Cash generated by operating
 activities, as reported                                 213.9       170.9
Adjustments:
 Capital expenditures                                    (94.9)      (18.0)
 Additional tax benefit related to stock plans             9.2        21.5
                                                     ---------   ---------
Free cash flow                                       $   128.2   $   174.4
                                                     =========   =========

Diluted shares, as reported                              328.0       344.9
Free cash flow per diluted share                     $    0.39   $    0.51
                                                     =========   =========
Diluted earnings per share, as reported              $    0.33   $    0.31
                                                     =========   =========
Free cash flow is a non-GAAP measure that represents cash that the Company generates after certain adjustments. Free cash flow is used by management to make fundamental decisions with regard to the operation of the Company's business, including working capital requirements, share repurchases and dividend payments. In addition, free cash flow is used by management to evaluate and assess the Company's operating results and for budget and planning purposes. The Company believes that free cash flow is relevant and useful information that is widely used by analysts, investors, and other interested parties in the semiconductor industry to measure financial performance. Accordingly, the Company is disclosing this information to permit a comprehensive and objective analysis of the Company's operating performance, to provide an additional measure of performance and liquidity, and to provide additional information with respect to the Company's ability to make future share repurchases and dividend payments and to meet future working capital requirements.

Free cash flow should not be construed as a substitute for net income or as a better measure of liquidity than cash flow from operating activities, both of which are determined in accordance with GAAP. Free cash flow excludes components that are significant in understanding and assessing the Company's results of operations and cash flows. In addition, some of the limitations associated with the use of free cash flow are that it is not a term defined by GAAP, and the Company's measure of free cash flow might not be comparable to similarly titled measures used by other companies. In addition, the Company's measure of free cash flow omits certain actual cash expenditures, such as dividends paid, cash used for share repurchases and cash generated from employee stock option exercises. Management compensates for these limitations by considering net income derived in accordance with GAAP.

Certain statements in this press release are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements involve risk and uncertainty. Actual results could differ materially from those forecasted based upon, among other things, general market conditions and market developments that could adversely affect the growth of the mixed-signal analog market, such as declines in customer forecasts or greater than expected cyclical downturns within the mixed-signal analog segment of the semiconductor market, as well as other risks described in the Company's Annual Report on Form 10-K for the fiscal year ended June 25, 2005.

All forward-looking statements included in this news release are made as of the date hereof, based on the information available to the Company as of the date hereof, and the Company assumes no obligation to update any forward-looking statement.

As previously announced, our historical stock option practices and grants are being reviewed by a special committee of the Board of Directors, and our financial results for the first quarter of fiscal 2007 could change as a result of that review.

Maxim Integrated Products is a leading international supplier of quality analog and mixed-signal products for applications that require real world signal processing.


Consolidated Balance Sheets
(In thousands)                                  9/23/2006      6/24/2006
                                               (unaudited)    (unaudited)
Assets                                         ------------   ------------
   Current assets:
    Cash and cash equivalents                  $    467,424   $    422,333
    Short-term investments                          926,654        920,317
                                               ------------   ------------
    Total cash, cash equivalents
     and short-term investments                   1,394,078      1,342,650
                                               ------------   ------------
    Accounts receivable, net                        291,744        292,592
    Inventories                                     217,948        207,352
    Deferred tax assets
     and other current assets                       144,028        144,176
                                               ------------   ------------
        Total current assets                      2,047,798      1,986,770
                                               ------------   ------------
   Property, plant and equipment,
    at cost, less accumulated
    depreciation                                  1,251,112      1,159,322
   Other assets                                      33,119         37,045
        Total assets                           $  3,332,029   $  3,183,137
                                               ------------   ------------
Liabilities and Stockholders' Equity
   Current liabilities:
      Accounts payable                         $    138,783   $    127,081
      Accrued expenses                              196,154        186,027
      Deferred income on
       shipments to distributors                     22,253         21,127
      Income taxes payable                           94,771         50,228
                                               ------------   ------------
        Total current liabilities                   451,961        384,463
                                               ------------   ------------
   Deferred tax liabilities                          87,122         93,482
                                               ------------   ------------
        Total liabilities                           539,083        477,945
                                               ------------   ------------
   Stockholders' equity:
    Common stock                                    138,909        111,780
    Retained earnings                             2,659,026      2,601,531
    Accumulated other
     comprehensive loss                              (4,989)        (8,119)
                                               ------------   ------------
        Total stockholders' equity                2,792,946      2,705,192
                                               ------------   ------------
        Total liabilities and
         stockholders' equity                  $  3,332,029   $  3,183,137
                                               ------------   ------------



Consolidated Statements of Income

(In thousands except per share data and
 percentages)                                      Three Months Ended
                                                9/23/2006      9/24/2005
                                               (unaudited)    (unaudited)
                                               ------------   ------------

Net revenues                                   $    502,745   $    424,364
Cost of goods sold (1)                              181,610        132,615
                                               ------------   ------------
        Gross margin                                321,135        291,749
                                                       63.9%          68.7%
                                               ------------   ------------
Operating expenses:
   Research and
    development (1)                                 130,168        117,053
   Selling, general and
    administrative (1)                               40,139         28,865
                                               ------------   ------------
     Operating income                               150,828        145,831
                                                       30.0%          34.4%
Interest income, net                                 13,820         10,967
                                               ------------   ------------
     Income before provision
      for income taxes                              164,648        156,798
Provision for income taxes                           57,133         51,430
                                               ------------   ------------
     Net income                                $    107,515   $    105,368
                                               ------------   ------------
Basic earnings per share                       $       0.34   $       0.32
                                               ------------   ------------
Shares used in the calculation of basic
 earnings per share                                 320,067        327,959
                                               ------------   ------------
Diluted earnings per share                     $       0.33   $       0.31
                                               ------------   ------------
Shares used in the calculation of diluted
 earnings per share                                 328,025        344,860
                                               ------------   ------------
Dividends declared per share                   $      0.156   $      0.100
                                               ------------   ------------

(1) Includes stock-based compensation charges
    as follows:

 Cost of goods sold                            $     11,196   $     10,454
 Research and development                            30,499         26,478
 Selling, general and administrative                  9,392          4,527

Contact Information

  • Contact:
    John F. Gifford
    Chairman, President and Chief Executive Officer
    (408) 737-7600