SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 29, 1996
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 1-10464
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DALLAS SEMICONDUCTOR CORPORATION
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(Exact name of registrant as specified in its charter)
Delaware 75-1935715
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
4401 South Beltwood Parkway, Dallas, Texas 75244-3292
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (972) 371-4000
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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 (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 X No
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Number of shares outstanding of the registrant's Common Stock as of
November 3, 1996: 26,544,173.
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<PAGE> 2
DALLAS SEMICONDUCTOR CORPORATION
INDEX TO FORM 10-Q
PART I. FINANCIAL INFORMATION
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Item 1. FINANCIAL STATEMENTS Page No.
- ------- -------------------------------------------------------- --------
Condensed Consolidated Statements of Income (Unaudited)
Three months and nine months ended September 29, 1996 and
October 1, 1995 ....................................................... 3
Condensed Consolidated Balance Sheets
September 29, 1996 (Unaudited) and December 31, 1995 .................. 4
Condensed Consolidated Statements of Cash Flows (Unaudited)
Nine months ended September 29, 1996 and October 1, 1995 .............. 5
Notes to Condensed Consolidated Financial Statements ................... 6
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
- ------- ----------------------------------------
FINANCIAL CONDITION AND RESULTS OF OPERATIONS .......... 7 - 9
---------------------------------------------
PART II. OTHER INFORMATION
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Items 1. through 6. ................................................... 10
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SIGNATURE .............................................................. 11
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EXHIBIT 27. ART. 5 FDS 3RD QUARTER 10-Q ................................ 12
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<PAGE> 3
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
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DALLAS SEMICONDUCTOR CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three months Nine months
ended ended
------------------ -------------------
Sept. 29, Oct. 1, Sept. 29, Oct. 1,
(Thousands except per share amounts) 1996 1995 1996 1995
- ------------------------------------ --------- ------- --------- --------
Net sales $ 72,023 $60,512 $ 207,969 $169,582
Operating costs and expenses:
Cost of sales 41,490 30,429 112,450 85,292
Research and development 9,057 7,436 25,341 20,925
Selling, general, and administrative 10,535 9,292 30,756 25,934
--------- ------- --------- --------
Total costs and expenses 61,082 47,157 168,547 132,151
--------- ------- --------- --------
Operating income 10,941 13,355 39,422 37,431
Interest income, net 708 894 2,256 2,417
--------- ------- --------- --------
Income before income taxes 11,649 14,249 41,678 39,848
Provision for income taxes 3,844 4,702 13,754 13,278
--------- ------- --------- --------
Net income $ 7,805 $ 9,547 $ 27,924 $ 26,570
========= ======= ========= ========
Net income per share $ 0.28 $ 0.34 $ 1.00 $ 0.96
========= ======= ========== ========
Weighted average common and common
equivalent shares outstanding 27,826 28,083 27,912 27,667
========= ======= ========= ========
Dividends declared per share $ 0.03 $ 0.025 $ 0.09 $ 0.075
========= ======= ========= ========
See accompanying notes.
<PAGE> 4
DALLAS SEMICONDUCTOR CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
Sept. 29, Dec. 31,
(Thousands except share amounts) 1996 1995
- -------------------------------------------- --------- --------
(Unaudited)
Assets
Current assets:
Cash and short-term investments $ 58,966 $ 69,304
Accounts receivable, net 46,157 36,702
Inventories 51,791 48,290
Deferred tax assets, net -- 2,774
Other current assets 4,293 4,216
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Total current assets 161,207 161,286
Property, plant and equipment, at cost:
Land 6,999 6,963
Building and improvements 40,358 35,735
Machinery and equipment 212,832 170,864
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260,189 213,562
Less accumulated depreciation (127,195) (106,735)
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Property, plant and equipment, net 132,994 106,827
Other assets 5,030 4,312
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$299,231 $272,425
======== ========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 20,838 $ 20,418
Accrued salaries and benefits 7,082 8,544
Accrued taxes other than income 2,155 2,337
Other accrued liabilities 4,729 3,804
Deferred tax liabilities, net 339 --
Income taxes payable 1,941 2,340
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Total current liabilities 37,084 37,443
Stockholders' equity:
Preferred stock, $0.10 par value;
5,000,000 shares authorized; no shares
issued and outstanding -- --
Common stock, $0.02 par value; 40,000,000
shares authorized; issued:
26,615,193 shares at September 29, 1996, and
26,438,883 shares at December 31, 1995 532 529
Additional paid-in capital 87,654 85,900
Retained earnings 175,579 150,034
Treasury stock, shares at cost:
91,525 shares at September 29, 1996 and
83,425 shares at December 31, 1995 (1,618) (1,481)
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Total stockholders' equity 262,147 234,982
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$299,231 $272,425
======== ========
See accompanying notes.
<PAGE> 5
DALLAS SEMICONDUCTOR CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended
---------------------
Sept. 29, Oct. 1,
(Thousands) 1996 1995
- -------------------------------------------- --------- --------
Cash flows from operating activities:
Net income $ 27,924 $ 26,570
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 20,460 15,231
Deferred tax expense (benefit) 3,113 (84)
Increase in receivables (9,455) (4,464)
Increase in inventories (3,501) (2,726)
(Increase) decrease in other current assets (77) 1,368
Increase in accounts payable 420 4,245
(Decrease) increase in accrued salaries and benefits (1,462) 1,606
Decrease in accrued taxes other than income (182) (605)
Increase in other accrued liabilities 925 788
Increase in income taxes payable 101 2,156
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Net cash provided by operating activities 38,266 44,085
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Cash flows from investing activities:
Additions to property, plant and equipment (46,627) (29,383)
Increase in other assets (718) (1,509)
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Net cash used by investing activities (47,345) (30,892)
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Cash flows from financing activities:
Proceeds from issuance of stock
upon exercise of stock options 1,257 3,855
Purchase of treasury stock (137) (420)
Dividends paid to shareholders (2,379) (1,951)
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Net cash (used) provided by financing activities (1,259) 1,484
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Net change in cash and short-term investments (10,338) 14,677
Cash and short-term investments
at beginning of period 69,304 64,520
--------- --------
Cash and short-term investments at end of period $ 58,966 $ 79,197
========= ========
Cash payments for income taxes $ 10,540 $ 11,206
Supplementary schedule of non-cash financing activities:
Reduction of income tax payable and increase
in paid-in capital resulting from the tax
benefit of stock option exercises $ 500 $ 1,943
See accompanying notes.
<PAGE> 6
DALLAS SEMICONDUCTOR CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. INTERIM ACCOUNTING POLICY
The accompanying condensed consolidated financial statements have not
been audited by independent auditors, except for the balance sheet as
of December 31, 1995. In the opinion of the Company's management, the
accompanying financial statements reflect all adjustments (consisting only
of normal recurring accruals) necessary to present fairly the Company's
financial position at September 29, 1996 and December 31, 1995, and results
of operations and cash flows for the periods presented.
Certain footnote information has been condensed or omitted from these
financial statements. Therefore, these financial statements should be
read in conjunction with the financial statements and related notes
included in the Company's Annual Report on Form 10-K for the year ended
December 31, 1995. Results of operations for the three and nine months
ended September 29, 1996 are not necessarily indicative of results to be
expected for the full year.
The difference between primary and fully diluted net income per share
was not material in any period presented.
2. INVENTORIES (Thousands)
Sept. 29, Dec. 31,
1996 1995
--------- ---------
Raw materials $ 6,954 $ 7,765
Work-in-process 35,442 30,120
Finished goods 9,395 10,405
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$ 51,791 $ 48,290
========= =========
Inventories are stated at the lower of standard cost, which approximates
actual cost (first-in, first-out), or market.
3. INCOME TAXES
The provision for income taxes includes estimated federal and state income
taxes at statutory rates and a deferred tax expense for the three and nine
month periods ended September 29, 1996 of $1,299,000 and $3,113,000
respectively. The Company's effective tax rate remained constant at 33%
for the third quarter of 1996 and 1995. In the first nine months of 1996,
the effective tax rate decreased to 33% from 33.3% for the same period in
1995. This decrease was a result of changes in anticipated differences
between income for financial statement purposes and taxable income for
the two periods.
<PAGE> 7
DALLAS SEMICONDUCTOR CORPORATION
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This report contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. Actual results could differ materially
from those projected in the forward-looking statements as a result of the
factors set forth elsewhere in this report. Although the Company believes
that the expectations reflected in such forward-looking statements are
based on reasonable assumptions, there can be no assurance that such
expectations will be achieved.
RESULTS OF OPERATIONS
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Net sales for the third quarter of 1996 were $72,023,000 an increase of
19% over the third quarter of 1995. The Company's revenue growth is
supported by increased unit sales of new and existing products in several
product families as shown in the table below:
NET SALES
(Millions)
- ---------------------------------------------------------------------------
Growth
Product Family Q395 Q495 Q196 Q296 Q396 Q396 - Q395
- ---------------------------------------------------------------------------
Telecommunications $ 8.4 $ 9.2 $10.5 $11.3 $13.3 58%
PC Timekeeping 8.5 12.4 9.5 10.0 12.9 52%
System Extension 7.4 7.6 7.1 8.3 9.6 30%
NV SRAMs 8.5 7.7 9.9 9.5 8.9 5%
Non-PC Timekeeping 7.9 7.7 9.1 9.7 7.7 - 3%
Other Families 10.7 9.6 9.6 9.2 7.7 -28%
Microcontrollers 5.7 5.5 6.9 8.4 7.6 33%
Automatic I.D. 3.4 3.9 3.0 4.0 4.3 26%
- ---------------------------------------------------------------------------
Company Total $60.5 $63.6 $65.6 $70.4 $72.0 19%
- ---------------------------------------------------------------------------
Gross margins declined for the first nine months of 1996 to 46% from 50%
during the same period in 1995. Gross margins declined in the third
quarter of 1996 to 42% from 50% in the third quarter of 1995. The gross
margin decline was caused primarily by higher wafer production costs,
increasingly competitive market conditions and a sales-mix shift toward
lower margin products.
Research and development ("R&D") expenses for the third quarter of 1996
increased 22% from the third quarter of 1995. The increase resulted
primarily from increased personnel costs due to increased headcount.
R&D expenses as a percent of net sales increased to 13% in the third quarter
of 1996 from 12% in the third quarter of 1995. R&D expenses as a percent
of net sales remained constant at 12% for the nine month periods ended
September 29, 1996 and October 1, 1995, respectively.
<PAGE> 8
DALLAS SEMICONDUCTOR CORPORATION
RESULTS OF OPERATIONS (continued)
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Selling, general, and administrative ("SG&A") expenses for the third quarter
of 1996 increased 13% compared with the third quarter of 1995. In the first
nine months of 1996, SG&A expenses increased 19% over the same period in 1995.
SG&A expenses as a percent of net sales remained constant at 15% for the
three and nine month periods ended September 29, 1996 and October 1, 1995.
The increase in SG&A expenses resulted primarily from increased sales
commissions due to higher net sales and increased personnel costs.
Operating income increased 5% for the first nine months of 1996 over the same
period in 1995. Operating income decreased 18% in the third quarter of 1996
over the third quarter of 1995 due primarily to lower gross profit margins.
Operating income as a percent of net sales decreased to 19% from 22% for the
first nine months of 1996 and 1995, respectively.
Net interest income for the third quarter of 1996 declined by $186,000
or 21% compared to the third quarter of 1995. Net interest income decreased
by $161,000 or 7% for the first nine months of 1996 compared to the same
period in 1995. The changes in net interest income are due primarily to
changes in the average cash balances for the three and nine month periods.
Changes in interest rates, cash and short-term investments, or borrowings,
will continue to affect net interest income.
The provision for income taxes includes estimated federal and state income
taxes at statutory rates and a deferred tax expense for the three and nine
month periods ended September 29, 1996 of $1,299,000 and 3,113,000,
respectively. The Company's effective tax rate remained constant at 33% in
the third quarter of both 1996 and 1995. In the first nine months of 1996,
the effective tax rate decreased to 33% from 33.3%. This decrease was a
result of changes in anticipated differences between income for financial
statement purposes and taxable income for the two periods.
A number of uncertainties exist that may influence the Company's future
operating results, including general economic conditions, changes in
conditions affecting original equipment manufacturers, competition
(including alternative technologies), the Company's success in developing
new products and process technologies, market acceptance of the Company's
new products, the ability of the Company to continue diversifying its
product line, manufacturing performance, availability and price
fluctuations of raw materials, and other factors.
FINANCIAL CONDITION
- -------------------
Cash and short-term investments were $59.0 million at the end of the
third quarter of 1996, compared with $69.3 million at the end of fiscal
year 1995. The decline in cash and short-term investments were primarily
the result of net cash provided from operations during the first nine months
of 1996 of $38.3 million offset by investments in property, plant and
equipment of $46.6 million. The Company continues to invest in financial
instruments having maturities in excess of one year in order to obtain
yields higher than those available in the short-term market.
<PAGE> 9
DALLAS SEMICONDUCTOR CORPORATION
Capital additions were $12.5 million in the third quarter of 1996,
compared to $13.8 million for the same period of 1995. Capital expenditures
for the third quarter of 1996 related primarily to wafer fabrication and
test equipment. Capital expenditures for 1996 are estimated to total
approximately $60.0 million and will be used primarily for wafer fabrication,
manufacturing and test equipment, and computer hardware and software.
In 1994, the board of directors authorized the purchase from time-to-time,
depending on market conditions, up to 500,000 shares of the Company's
common stock. As of September 29, 1996, a total of 215,900 shares, totaling
$3,445,856, have been purchased pursuant to this stock repurchase program.
On September 3, 1996, a $0.03 dividend was paid on each outstanding share of
common stock, to shareholders of record on August 15,1996. On October 24,
1996, a $0.03 dividend was declared on each share of common stock, payable
on December 2, 1996, to shareholders of record on November 15, 1996.
The Company had no long-term debt at the end of the third quarter of 1996
or at the end of fiscal 1995.
<PAGE> 10
DALLAS SEMICONDUCTOR CORPORATION
PART II. OTHER INFORMATION
- --------------------------
Items 1.- 5.
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Not applicable.
Item 6. Exhibits and Reports on Form 8-K
- -----------------------------------------
(a) Exhibit 27 - Financial Data Schedule
------------------------------------
(b) Reports on Form 8-K
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No Reports on Form 8-K were filed during the period
for which this report is filed.
<PAGE> 11
DALLAS SEMICONDUCTOR CORPORATION
SIGNATURE
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.
DALLAS SEMICONDUCTOR CORPORATION
By: /s/ Alan P. Hale
----------------
Alan P. Hale
Vice President, Finance
Date: November 8, 1996
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<PAGE> 12
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-29-1996
<PERIOD-END> SEP-29-1996
<CASH> 58,966
<SECURITIES> 0
<RECEIVABLES> 46,157
<ALLOWANCES> 0
<INVENTORY> 51,791
<CURRENT-ASSETS> 161,207
<PP&E> 260,189
<DEPRECIATION> 127,195
<TOTAL-ASSETS> 299,231
<CURRENT-LIABILITIES> 37,084
<BONDS> 0
<COMMON> 532
0
0
<OTHER-SE> 262,147
<TOTAL-LIABILITY-AND-EQUITY> 299,231
<SALES> 207,969
<TOTAL-REVENUES> 207,969
<CGS> 112,450
<TOTAL-COSTS> 168,547
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 41,678
<INCOME-TAX> 13,754
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 27,924
<EPS-PRIMARY> 1.00
<EPS-DILUTED> 0
</TABLE>
