During the quarter, cash and short-term investments increased $116.5 million after the Company repurchased approximately 598,000 shares of its common stock for $24.5 million, paid dividends of $32.7 million, and acquired $13.8 million in capital equipment. At quarter end, cash and cash equivalents totaled $1.4 billion. Accounts receivable increased $12.7 million to $192.4 million, and inventories increased $12.9 million to $159.5 million in the third quarter.
Gross margin for the third quarter was 72.0%, down from the 72.6% reported for the second quarter of fiscal year 2005. Research and development expense was $83.1 million or 20.8% of net revenues in the third quarter, compared to $81.0 million or 18.6% of net revenues in the second quarter of fiscal year 2005. Selling, general and administrative expenses decreased slightly from $25.3 million or 5.8% of net revenue in the second quarter to $24.7 million in the third quarter, or 6.2% of net revenue.
In the third quarter, the Company recorded a $5.0 million discretionary employee bonus to be paid out at the end of calendar 2005, which increased cost of goods sold by $1.6 million, increased research and development expense by $2.7 million, and increased selling, general and administrative expenses by $0.7 million. The effect of this bonus reduced earnings by $0.01 per share.
Also, during the quarter, Maxim reached an agreement with Linear Technology, Inc. regarding a patent in the battery management area. The settlement agreement did not require the restatement of prior reported income as Maxim had accrued funds covering this license cost. Going forward for the next 8 years, the license charge will be immaterial and partially offset by other new license fees received in the fourth quarter from other licensees.
Third quarter bookings were approximately $373 million, a 6% increase from the second quarter's level of $353 million. Turns orders received in the quarter were approximately $156 million or 42% of net bookings, a 28% increase over the $122 million or 35% of net bookings received in the prior quarter (turns orders are customer orders that are for delivery within the same quarter and may result in revenue within the same quarter if the Company has available inventory that matches those orders). Bookings increased in 15 out of the Company's 20 end equipment segments and in all geographic locations except Europe. Third quarter ending backlog shippable within the next 12 months was approximately $328 million, including approximately $284 million requested for shipment in the fourth quarter of fiscal year 2005. The Company's second quarter ending backlog shippable within the next 12 months was approximately $370 million, including approximately $300 million that was requested for shipment in the third quarter of fiscal year 2005.
The following reconciles free cash flow to net income, and it depicts the Company's free cash flow for the three and nine months ended March 26, 2005 and March 27, 2004, respectively.
RECONCILIATION OF FREE CASH FLOW TO NET INCOME
(in millions, except per share For the For the For the For the
data) three three nine nine
months months months months
ended ended ended ended
3/26/05 3/27/04 3/26/05 3/27/04
------- ------- ------- --------
Net income, as reported $126 $109 $415 $295
Add adjustments to reconcile net
income to net cash provided by
operating activities:
Depreciation, amortization,
and other 19 14 57 44
Tax benefit related to stock plans 29 37 87 113
Accounts receivable (13) (29) 5 (36)
Inventories (13) 5 (42) 18
Accounts Payable (11) 28 (44) 43
Income taxes payable and
deferred taxes 19 16 32 20
Other assets and liabilities 14 10 22 21
------- ------- ------- --------
Total of adjustments 44 81 117 223
------- ------- ------- --------
Cash generated by operating
activities, as reported 170 190 532 518
Deduct:
Capital expenditures (14) (70) (112) (163)
------- ------- ------- --------
Free cash flow $156 $120 $420 $355
======= ======= ======= ========
Fully diluted shares, as reported 343 354 344 352
Free cash flow per fully diluted
share $0.45 $0.34 $1.22 $1.01
Fully diluted earnings per share, as
reported $0.37 $0.31 $1.21 $0.84
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, free cash flow is not a term defined
by GAAP and as a result the Company's measure of free cash flow
might not be comparable to similarly titled measures used by other
companies.
Free cash flow is used by management to evaluate, assess, and
benchmark the Company's operating results, and the Company
believes that free cash flow is relevant and useful information
that is often widely used by analysts, investors, and other
interested parties in the semiconductor industry. Accordingly, the
Company is disclosing this information to permit a more
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 meet future share repurchases, dividend
payments, and working capital requirements.
Jack Gifford, Chairman, President, and Chief Executive Officer, commented: "As expected, third quarter bookings improved over the previous quarter. It is a positive sign that a significant majority of our business units participated in this bookings increase. Turns orders accelerated in the quarter as compared to the previous quarter leading us to believe that inventory levels have come further in line with consumption levels."
Mr. Gifford continued: "Design-in activity of Maxim's proprietary products remains strong which we believe positions us to gain market share over the next few years. During the third quarter, the Company introduced 738 engineering man-months of new products, a Company record and a 31% increase over the second quarter.."
Mr. Gifford continued: "The Company expects fiscal 2005 to contribute significant profit and cash flow to the Company over fiscal 2004. Our employees need and deserve some expression of profit sharing reward for this result. Since stock price appreciation during the last 4 years has not recognized our Company's performance, we expect to accrue $0.01 per share for each quarter through the balance of the calendar year. Officers, vice presidents and other senior executives will not receive this bonus."
Mr. Gifford concluded: "The Company's Board of Directors has declared a quarterly cash dividend of $0.10 per share. Payment will be made on June 1, 2005 to stockholders of record on May 16, 2005."
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. They include statements regarding the Company's profitability and business outlook, the Company's belief that inventory levels have further come in line with consumption levels, and the Company's belief that the Company's proprietary products will continue to be well accepted in the marketplace. 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, including, without limitation, declines in customer forecasts or greater than expected cyclical downturns within the mixed-signal analog segment of the semiconductor market; the inability of the Company's customers to consume their inventory of Maxim products in the next one or two quarters; an unexpected decrease in revenue or increase in expenses; and the Company's success in the markets its products are introduced in and the Company's ability to effectively and successfully manage manufacturing operations, as well as other risks described in the Company's Annual Report on Form 10-K filed with the SEC for the fiscal year ended June 26, 2004.
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.
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) 3/26/05 6/26/04
(unaudited) (audited)
Assets Current assets:
Cash and cash equivalents $ 142,482 $ 147,734
Short-term investments 1,260,744 948,879
----------- -----------
Total cash, cash equivalents
and short-term investments 1,403,226 1,096,613
Accounts receivable, net 192,380 197,158
Inventories 159,463 117,785
Deferred tax assets
and other current assets 157,605 166,558
----------- -----------
Total current assets 1,912,674 1,578,114
Property, plant and equipment,
at cost, less accumulated
depreciation 999,403 942,186
Other assets 27,624 29,162
----------- -----------
Total assets $2,939,701 $2,549,462
=========== ===========
Liabilities Current liabilities:
and
Stockholders'
Equity
Accounts payable $ 50,157 $ 93,856
Accrued expenses 205,332 182,692
Deferred income on
shipments to distributors 20,095 22,858
Income taxes payable 16,145 19,339
----------- -----------
Total current liabilities 291,729 318,745
Deferred tax liabilities 140,107 114,399
Other liabilities 4,000 4,000
----------- -----------
Total liabilities 435,836 437,144
----------- -----------
Stockholders' equity:
Common stock 153,153 80,462
Retained earnings 2,362,317 2,038,820
Accumulated other
comprehensive loss (11,605) (6,964)
----------- -----------
Total stockholders' equity 2,503,865 2,112,318
----------- -----------
Total liabilities and
stockholders' equity $2,939,701 $2,549,462
=========== ===========
Consolidated Statements of Income
(In thousands Three Months Ending Nine Months Ending
except per share data)
3/26/2005 3/27/2004 3/26/2005 3/27/2004
(unaudited) (unaudited)(unaudited) (unaudited)
Net revenues $400,188 $370,023 $1,271,316 $1,018,300
Cost of goods sold 111,896 111,761 351,585 307,818
----------- ---------- ----------- -----------
Gross margin 288,292 258,262 919,731 710,482
72.0% 69.8% 72.3% 69.8%
Operating expenses:
Research and
development 83,141 77,255 243,273 218,562
Selling, general
and
administrative 24,713 23,546 75,099 67,128
----------- ---------- ----------- -----------
Operating income 180,438 157,461 601,359 424,792
45.1% 42.6% 47.3% 41.7%
Interest income, net 7,492 5,469 19,446 15,589
Income before
provision ----------- ---------- ----------- -----------
for income taxes 187,930 162,930 620,805 440,381
Provision for income
taxes 62,393 53,767 206,108 145,326
----------- ---------- ----------- -----------
Net income $125,537 $109,163 $414,697 $295,055
=========== ========== =========== ===========
Basic earnings per
share $0.38 $0.33 $1.27 $0.90
=========== ========== =========== ===========
Shares used in the
calculation of
basic earnings
per share 326,945 328,247 325,758 327,894
=========== ========== =========== ===========
Diluted earnings per
share $0.37 $0.31 $1.21 $0.84
=========== ========== =========== ===========
Shares used in the
calculation of
diluted earnings
per share 342,720 354,183 343,607 351,801
=========== ========== =========== ===========
Dividends declared
per share $0.10 $0.08 $0.28 $0.24
=========== ========== =========== ===========
Contact:
Maxim Integrated Products, Inc. John F. Gifford, 408-737-7600 Chairman, President and Chief Executive Officer