1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 26, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _________ TO _________
COMMISSION FILE NO. 0-16538
MAXIM INTEGRATED PRODUCTS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 94-2896096
(State or Other Jurisdiction (I.R.S. Employer I.D. No.)
Incorporation or Organization)
120 SAN GABRIEL DRIVE,
SUNNYVALE, CA 94086
(Address of Principal Executives Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code:
(408) 737-7600
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days:
YES [X] NO[ ]
CLASS: COMMON STOCK, OUTSTANDING AT OCTOBER 28, 1998
$.001 PAR VALUE 130,757,574 SHARES
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MAXIM INTEGRATED PRODUCTS, INC.
INDEX
PAGE
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PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Consolidated Balance Sheets 3
As of September 26, 1998 and June 27, 1998
Consolidated Statements of Income 4
for the three months ended
September 26, 1998 and September 27, 1997
Consolidated Statements of Cash Flows 5
for the three months ended September 26,
1998 and September 27, 1997
Notes to Consolidated Financial Statements 6-8
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9-12
PART II. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K 13
SIGNATURES 14
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CONSOLIDATED BALANCE SHEETS
MAXIM INTEGRATED PRODUCTS, INC.
- --------------------------------------------------------------------------------
September 26, June 27,
1998 1998
(Amounts in thousands) (unaudited)
================================================================================
ASSETS
- --------------------------------------------------------------------------------
Current assets:
Cash and cash equivalents $ 52,275 $ 16,739
Short-term investments 289,784 306,209
- --------------------------------------------------------------------------------
Total cash, cash equivalents and short-term
investments 342,059 322,948
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Accounts receivable, net 99,479 101,921
Inventories 44,707 44,707
Deferred income taxes and other current assets 37,518 38,439
- --------------------------------------------------------------------------------
Total current assets 523,763 508,015
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Property, plant and equipment, at cost, less
accumulated depreciation 262,614 255,453
Other assets 5,991 6,024
- --------------------------------------------------------------------------------
TOTAL ASSETS $ 792,368 $ 769,492
================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 26,075 $ 35,169
Income taxes payable 25,280 27,412
Accrued salaries 25,425 21,421
Accrued expenses 26,537 22,604
Deferred income on shipments to distributors 24,256 23,686
- --------------------------------------------------------------------------------
Total current liabilities 127,573 130,292
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Other liabilities 4,000 4,000
Deferred income taxes 4,200 4,200
- --------------------------------------------------------------------------------
Stockholders' equity:
Common stock 131 131
Additional paid-in capital 56,614 81,118
Retained earnings 601,309 551,914
Translation adjustment (1,459) (2,163)
- --------------------------------------------------------------------------------
Total stockholders' equity 656,595 631,000
- --------------------------------------------------------------------------------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $ 792,368 $ 769,492
================================================================================
See accompanying Notes to Consolidated Financial Statements.
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CONSOLIDATED STATEMENTS OF INCOME
MAXIM INTEGRATED PRODUCTS, INC.
- --------------------------------------------------------------------------------
Three Months Ended
(Unaudited) September 26, September 27,
(Amounts in thousands, except per share data) 1998 1997
================================================================================
Net revenues $ 155,281 $ 125,000
Cost of goods sold 50,453 41,500
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Gross margin 104,828 83,500
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Operating expenses:
Research and development 21,051 15,480
Selling, general and administrative 13,487 10,934
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Total operating expenses 34,538 26,414
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Operating income 70,290 57,086
Interest income, net 4,551 3,466
- --------------------------------------------------------------------------------
Income before provision for
income taxes 74,841 60,552
Provision for income taxes 25,446 20,588
- --------------------------------------------------------------------------------
Net income $ 49,395 $ 39,964
================================================================================
Earnings per share:
Basic $ 0.38 $ 0.31
Diluted $ 0.33 $ 0.26
================================================================================
Shares used in the calculation of earnings per share:
Basic 130,581 128,564
Diluted 148,660 150,810
================================================================================
See accompanying Notes to Consolidated Financial Statements.
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CONSOLIDATED STATEMENTS OF CASH FLOWS
MAXIM INTEGRATED PRODUCTS, INC.
========================================================================================
For the three months ended
(Amounts in thousands)(Unaudited) September 26, September 27,
Increase (decrease) in cash and cash equivalents 1998 1997
========================================================================================
Cash flows from operating activities:
Net income $ 49,395 $ 39,964
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation, amortization and translation adjustment 4,787 3,445
Changes in assets and liabilities:
Accounts receivable 2,442 (4,120)
Inventories -- (180)
Deferred income taxes and other current assets 921 (972)
Accounts payable (9,094) 2,979
Income taxes payable 8,377 14,901
Deferred income on shipments to distributors 570 (1,303)
All other accrued liabilities 7,937 8,185
- ---------------------------------------------------------------------------------------
Net cash provided by operating activities 65,335 62,899
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Cash flows from investing activities:
Additions to property, plant and equipment (11,244) (12,206)
Other assets 33 24
Purchases of available-for-sale securities (59,517) (104,267)
Proceeds from maturities of held-to-maturity securities -- 5,800
Proceeds from sales/maturities of available-for-sale
securities 75,942 50,747
- ---------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities 5,214 (59,902)
- ---------------------------------------------------------------------------------------
Cash flows from financing activities:
Issuance of common stock 8,489 11,188
Repurchase of common stock (43,502) (10,550)
- ---------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities (35,013) 638
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Net increase (decrease) in cash and cash equivalents 35,536 3,635
Cash and cash equivalents:
Beginning of year 16,739 18,562
- ---------------------------------------------------------------------------------------
End of period $ 52,275 $ 22,197
=======================================================================================
See accompanying Notes to Consolidated Financial Statements.
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MAXIM INTEGRATED PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: BASIS OF PRESENTATION
The unaudited consolidated financial statements included herein have been
prepared by the Company pursuant to the rules and regulations of the Securities
and Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations. In the opinion of management, all adjustments (consisting of normal
recurring items) considered necessary for a fair presentation have been
included. The results of operations for the three months ended September 26,
1998 are not necessarily indicative of the results to be expected for the entire
year. These consolidated financial statements should be read in conjunction with
the consolidated financial statements and the notes thereto included in the
Annual Report on Form 10-K for the year ended June 27, 1998. Effective July 1,
1997, the Company adopted a 52-53 week fiscal year that will end on the last
Saturday in June, and in which each accounting quarter will end on the last
Saturday of the quarter.
NOTE 2: INVENTORIES
Inventories consist of (in thousands):
September 26, June 27,
1998 1998
(unaudited)
------------- --------
Raw materials $ 4,469 $ 4,826
Work-in-process 29,746 29,575
Finished goods 10,492 10,306
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$ 44,707 $ 44,707
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MAXIM INTEGRATED PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
NOTE 3: EARNINGS PER SHARE
Beginning in the second quarter of fiscal 1998, the Company was required to
report two separate earnings per share numbers, basic and diluted, in compliance
with the Statement of Financial Accounting Standard No. 128 (SFAS 128) Earnings
Per Share which was issued in February 1997. Basic earnings per share is
calculated based only on weighted average common shares outstanding. Diluted
earnings per share is calculated based on the weighted average number of common
and dilutive common equivalent shares outstanding during each respective period.
The number of dilutive common equivalent shares which became issuable pursuant
to the grant of stock options has been calculated using the treasury stock
method. Diluted earnings per share is the same number the Company previously
reported as income per share.
- --------------------------------------------------------------------------------
Three Months Ended
September 26, September 27,
(Amounts in thousands) 1998 1997
================================================================================
Numerator for basic earnings per share
and diluted earnings per share
Net income $ 49,395 $ 39,964
================================================================================
Denominator for basic earnings per share 130,581 128,564
Effect of dilutive securities:
Stock options and warrants 18,079 22,246
Denominator for diluted earnings per share 148,660 150,810
================================================================================
Earnings per share:
Basic $ 0.38 $ 0.31
Diluted $ 0.33 $ 0.26
================================================================================
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MAXIM INTEGRATED PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
NOTE 4: SHORT-TERM INVESTMENTS
All short-term investment owned at September 26, 1998 are classified as
available-for-sale and consist of U.S. Treasury and Federal Agency debt
securities maturing within one year. Unrealized gains and losses, net of tax, on
securities in this category are reportable as a separate component of
stockholders' equity. Because of the short term to maturity and relative price
insensitivity to changes in market interest rates, amortized cost approximates
fair market value and no unrealized gains or losses have been recorded at
September 26, 1998. The cost of securities sold is based on the specific
identification method. Interest earned on securities is included in interest
income, net in the consolidated statements of income.
NOTE 5: COMPREHENSIVE INCOME
The Company has adopted Statement of Financial Accounting Standards No. 130
(SFAS 130) Reporting Comprehensive Income, as of the first quarter of fiscal
1999. SFAS No. 130 establishes standards for the reporting and disclosure of
comprehensive income and its components, however it has no impact on the
Company's consolidated results of operations, financial position or cash flows.
The difference between net income and comprehensive income is from foreign
currency translation adjustments.
The components of comprehensive income for the three months ended September 26,
1998 and September 27, 1997 are as follows (in thousands):
September 26, September 27,
1998 1997
------------- -------------
Net income $49,395 $39,964
Cumulative translation
adjustments 704 (643)
------- -------
Comprehensive income $50,099 $39,321
======= =======
Accumulated other comprehensive income presented on the accompanying
consolidated balance sheets consists of cumulative translation adjustments.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Net revenues for the three months ended September 26, 1998 increased 24.2% to
$155.3 million compared to $125.0 million the same period last year. The
increase is primarily attributable to higher unit shipments resulting from
continued introduction of new proprietary products and increased market
acceptance of the Company's proprietary and second-source products.
During the quarter, 59% of net revenues were derived from customers outside of
the United States. While the majority of these sales are denominated in US
dollars, the Company enters into foreign currency forward contracts to mitigate
its risks on firm commitments and net monetary assets denominated in foreign
currencies; as a result, the impact of changes in foreign exchange rates on
revenue and the Company's results of operations for the quarter was minimal.
Gross margin was 67.5% in the three months ended September 26, 1998, compared to
66.8% for the three months ended September 27, 1997. The increase in gross
margin for the three month period ended September 26, 1998 was due to production
efficiencies obtained through economies of scale offset to some extent by a $2.2
million increase in inventory reserves. The Company also recorded charges of
$2.3 million related to obsoleting of a 4-inch wafer fabrication facility which
was replaced by a 6-inch sub-micron facility acquired in November 1997. In
addition, the Company expensed approximately $2.8 million of negative
manufacturing variances.
Research and development expenses were 13.6% of net revenues in the three months
ended September 26, 1998, compared to 12.4% for the three months ended September
27, 1997. Research and development expenses increased approximately $5.6 million
in absolute dollars for the three month period ended September 26, 1998 over the
comparable period last year. The increase is attributable primarily to continued
investments in product development efforts.
Selling, general and administrative expenses remained constant at 8.7% of net
revenues for both the three months ended September 26, 1998 and September 27,
1997. Selling, general and administrative expenses increased in absolute dollars
primarily as a result of increased headcount and related employee expenses to
support the Company's higher revenues.
The Company's operating income decreased slightly to 45.3% of net revenues for
the three months ended September 26, 1998, compared to 45.7% for the three
months ended September 27, 1998.
Net interest income increased to $4.6 million in the three months ended
September 26, 1998 compared to $3.5 million for the comparable period a year ago
as a result of higher levels of invested cash, cash equivalents and short-term
investments.
The effective income tax rate for both the three months ended September 26, 1998
and September 27, 1997 was 34%. This rate differs from the federal statutory
rate primarily due to state income taxes and tax exempt earnings of the
Company's Foreign Sales Corporation.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONT'D)
OUTLOOK
During the first quarter of fiscal 1999, shipments to customers remained at
fourth quarter 1998 levels despite global economic conditions and lower end
market bookings than in the previous quarter. Turns orders received during the
quarter increased 21% over the fourth quarter 1998 level and were approximately
$42.0 million (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).
In addition to the increased level of turns orders received during the quarter,
the Company also experienced a higher percentage of orders requesting near-term
delivery (customer orders for delivery in the first or second quarter of fiscal
1999). The Company attributes the prevalence of short-term orders to its reduced
lead times, and limited customer expectations for short-term improvement in
demand for end-market equipment. The Company also believes that the economic
uncertainty in the world markets is negatively affecting the inventory and
purchasing psychology of the Company's customers, resulting in less long-term
ordering.
Net bookings during the quarter were approximately $127 million, a 7% decline
from the fourth quarter of fiscal 1998. First quarter ending backlog shippable
within the next 12 months was approximately $143.2 million, a decline from
$181.0 million reported at the end of the fourth quarter of fiscal 1998. Eighty
percent of the ending first quarter backlog consists of orders that were
requested for shipment in the second quarter of fiscal 1999 or earlier.
The Company believes that current worldwide economic uncertainties are impacting
its customers' ability to predict the demand for their products. In this
environment, prudence dictates that the Company remain cautious about its
short-term revenue outlook. To maintain the Company's current revenue level, it
will need a continued increase in turns orders that match available supply and
an overall increase in the order rate from the first quarter of 1999. In the
first quarter of 1999, none of the geographic or end equipment markets broke out
of the downward booking trend of the last three quarters. The Company continues
to watch for a leading indicator predicting a change in the ordering rates from
the last nine months.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of funds for the first three months of fiscal 1999
have been from net cash generated from operating activities of $65.3 million,
$16.4 million net proceeds from investment activities and the issuance of common
stock of $8.5 million associated with the Company's stock option programs.
The principal uses of funds have been the repurchase of $43.5 million of common
stock and the purchase of $11.2 million in property, plant and equipment.
The Company anticipates that it will spend approximately $70 million for capital
equipment in fiscal 1999 and believes that it possesses sufficient liquidity and
capital resources to fund these purchases and its operations for the foreseeable
future. In addition, the Company intends to continue to repurchase its common
stock from time to time consistent with its policy and practice of using the
proceeds or anticipated proceeds from the exercise of stock options and the
resulting tax benefit to repurchase its common stock.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONT'D)
YEAR 2000 ISSUE
As a result of certain computer programs being written using two digits rather
than four to define the applicable year, any of the Company's computer programs
that have date-sensitive software may recognize a date using "00" as the year
1900 rather than the year 2000 (the "Year 2000 Issue"). This could result in a
system failure or miscalculations causing disruptions of operations, including,
among other things, a temporary inability to process transactions, send
invoices, or engage in normal business activities.
The Company is in the process of evaluating the modifications to both new and
existing software and hardware required to mitigate the Year 2000 Issue. The
Company has also initiated formal communications with its significant suppliers
and large customers to determine the extent to which the Company is vulnerable
to those third parties' failure to minimize their own Year 2000 Issue. The
Company expects to have any required modifications completed prior to December
31, 1999. However, if such modifications are not made, or are not completed in a
timely fashion, the Year 2000 Issue could have a material impact on the
operations of the Company. In addition, there can be no assurance that the
systems of other companies on which the Company's systems rely will be timely
converted, or that a failure to convert by another company, or a conversion that
is incompatible with the Company's systems, would not have a material adverse
effect on the Company. The Company currently has no contingency plan in the
event it or third parties are unable to complete system modifications to address
the Year 2000 Issue. Costs incurred to date have been minimal. While the Company
has not fully completed the evaluation of its Year 2000 Issue, it does not
anticipate that the future cost of these efforts will be material.
The date on which the Company plans to complete any necessary Year 2000
modifications is based on management's best estimates, which were derived
utilizing numerous assumptions of future events, including the continued
availability of certain resources, third party modification plans, and other
factors. However, there can be no assurance that these estimates will be
achieved, and actual results could differ materially from those plans. Specific
factors that might cause such material differences include, but are not limited
to, the availability and cost of personnel trained in this area, the ability to
locate and correct all relevant computer codes, and similar uncertainties.
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FORWARD LOOKING INFORMATION
Forward-looking statements in this report, including this Management's
Discussion and Analysis section, involve risk and uncertainty. There are
numerous factors that could cause the Company's actual results to differ
materially from results predicted or implied in this report.
Important factors affecting the Company's ability to achieve future revenue
growth include whether, and the extent to which, demand for the Company's
products increases and reflects real end-user demand; whether customer
cancellations and delays of outstanding orders increase; and whether the Company
is able to manufacture in a correct mix to respond to orders on hand and new
orders received in the future; whether the Company is able to achieve its new
product development and introduction goals, including, without limitation, goals
for recruiting, retaining, training, and motivating engineers, particularly
design engineers, and goals for conceiving and introducing timely new products
that are well received in the marketplace; and whether the Company is able to
successfully commercialize its new technologies, such as its new
second-generation high frequency technologies, that it has been investing in by
designing and introducing new products based on these new technologies.
Other important factors that could cause actual results to differ materially
from those predicted include overall economic conditions, such as the currency
and other economic issues affecting Asian countries; demand for electronic
products and semiconductors generally; demand for the end-user products for
which the Company's semiconductors are suited; timely availability of raw
materials, equipment, supplies and services; unanticipated manufacturing
problems; technological and product development risks; competitors' actions; and
other risk factors described in the Company's filings with the Securities and
Exchange Commission and in particular its recent report on Form 10-K.
All forward-looking statements included in this document 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.
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PART II. OTHER INFORMATION
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
3.4 Bylaws of the Registrant as amended (Section 15 amended on September 28, 1998).
27 Financial Data Schedule.
(b) No Reports on Form 8-K were filed during the quarter ended September
26, 1998.
ITEMS 1, 2, 3, 4 AND 5 HAVE BEEN OMITTED AS THEY ARE NOT APPLICABLE.
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SIGNATURES
Pursuant to the requirements 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.
NOVEMBER 6, 1998 MAXIM INTEGRATED PRODUCTS, INC.
- ---------------- ----------------------------------
(Date) (Registrant)
/s/ Michael J. Byrd
----------------------------------
MICHAEL J. BYRD
Vice President and Chief Financial
Officer (For the Registrant and as
Principal Financial Officer)
/s/ Carl W. Jasper
----------------------------------
CARL W. JASPER
Corporate Controller (Principal
Accounting Officer)
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EXHIBIT INDEX
Exhibit
Number Description
- ------- -----------
3.4 Bylaws of the Registrant as amended (Section 15 amended on September 28, 1998).
27 Financial Data Schedule.
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