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 June 30, 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: (214) 450-0400
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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
August 4, 1996: 26,462,776.
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<PAGE> 2
DALLAS SEMICONDUCTOR CORPORATION
INDEX TO FORM 10-Q
PART I. FINANCIAL INFORMATION
- ------- ---------------------
Item 1. FINANCIAL STATEMENTS Page No.
- ------- ------------------------------------------------------ --------
Condensed Consolidated Statements of Income (Unaudited)
Three months and six months ended June 30, 1996 and July 2, 1995 .... 3
Condensed Consolidated Balance Sheets
June 30, 1996 (Unaudited) and December 31, 1995 ..................... 4
Condensed Consolidated Statements of Cash Flows (Unaudited)
Six months ended June 30, 1996 and July 2, 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
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PART II. OTHER INFORMATION
- -------- -----------------
Items 1. through 3. .................................................. 10
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Item 4. Submission of Matters to a Vote of Security Holders .......... 10
- ------------------------------------------------------------
Items 5. through 6. ................................................. 10
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SIGNATURE ............................................................. 11
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EXHIBIT 27. ART. 5 FDS 2ND QUARTER 10-Q ............................... 12
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<PAGE> 3
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
- ------- --------------------
DALLAS SEMICONDUCTOR CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three months Six months
ended ended
----------------- ------------------
Jun. 30, Jul. 2, Jun. 30, Jul. 2,
(Thousands except per share amounts) 1996 1995 1996 1995
- ------------------------------------ ------- ------- -------- --------
Net sales $70,362 $57,036 $135,946 $109,071
Operating costs and expenses:
Cost of sales 37,263 28,818 70,960 54,863
Research and development 8,409 6,957 16,284 13,489
Selling, general, and administrative 10,427 8,738 20,221 16,643
------- ------- -------- --------
Total costs and expenses 56,099 44,513 107,465 84,995
------- ------- -------- --------
Operating income 14,263 12,523 28,481 24,076
Interest income, net 748 789 1,548 1,522
------- ------- -------- --------
Income before income taxes 15,011 13,312 30,029 25,598
Provision for income taxes 4,954 4,459 9,910 8,575
------- ------- -------- --------
Net income $10,057 $ 8,853 $ 20,119 $ 17,023
======= ======= ======== ========
Net income per share $ 0.36 $ 0.32 $ 0.72 $ 0.62
======= ======= ======== ========
Weighted average common and common
equivalent shares outstanding 27,951 27,674 27,955 27,459
======= ======= ======== ========
Dividends declared per share $ 0.03 $ 0.025 $ 0.06 $ 0.05
======= ======= ======== ========
See accompanying notes.
<PAGE> 4
DALLAS SEMICONDUCTOR CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
Jun. 30, Dec. 31,
(Thousands except share amounts) 1996 1995
- -------------------------------------------- -------- --------
(Unaudited)
Assets
Current assets:
Cash and short-term investments $ 56,666 $ 69,304
Accounts receivable, net 39,911 36,702
Inventories 57,069 48,290
Deferred tax assets 960 2,774
Other current assets 4,220 4,216
-------- --------
Total current assets 158,826 161,286
Property, plant and equipment, at cost:
Land 6,998 6,963
Building and improvements 39,024 35,735
Machinery and equipment 201,693 170,864
-------- --------
247,715 213,562
Less accumulated depreciation (119,878) (106,735)
-------- --------
Property, plant and equipment, net 127,837 106,827
Other assets 5,118 4,312
-------- --------
$291,781 $272,425
======== ========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 23,682 $ 20,418
Accrued salaries and benefits 5,729 8,544
Accrued taxes other than income 1,534 2,337
Other accrued liabilities 3,706 3,804
Income taxes payable 2,629 2,340
-------- --------
Total current liabilities 37,280 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:
26,537,554 shares at June 30, 1996, and
26,438,883 shares at December 31, 1995 531 529
Additional paid-in capital 87,019 85,900
Retained earnings 168,569 150,034
Treasury stock, shares at cost:
91,525 shares at June 30, 1996 and
83,425 shares at December 31, 1995 (1,618) (1,481)
-------- --------
Total stockholders' equity 254,501 234,982
-------- --------
$291,781 $272,425
======== ========
See accompanying notes.
<PAGE> 5
DALLAS SEMICONDUCTOR CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended
--------------------
Jun. 30, Jul. 2,
(Thousands) 1996 1995
- -------------------------------------------- -------- --------
Cash flows from operating activities:
Net income $ 20,119 $ 17,023
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 13,143 9,829
Deferred tax expense 1,814 666
Increase in receivables (3,209) (2,469)
Increase in inventories (8,779) (3,762)
(Increase) decrease in other current assets (4) 588
Increase (decrease) in accounts payable 3,264 (1,788)
(Decrease) increase in accrued salaries and benefits (2,815) 583
Decrease in accrued taxes other than income (803) (1,115)
Decrease in other accrued liabilities (98) (133)
Increase in income taxes payable 618 551
-------- --------
Net cash provided by operating activities 23,250 19,973
-------- --------
Cash flows from investing activities:
Additions to property, plant and equipment (34,153) (15,614)
Increase in other assets (806) (903)
-------- --------
Net cash used by investing activities (34,959) (16,517)
-------- --------
Cash flows from financing activities:
Proceeds from issuance of stock
upon exercise of stock options 792 2,886
Purchase of treasury stock (137) (420)
Dividend paid to shareholders (1,584) (1,294)
-------- --------
Net cash (used) provided by financing activities (929) 1,172
-------- --------
Net change in cash and short-term investments (12,638) 4,628
Cash and short-term investments
at beginning of period 69,304 64,520
-------- --------
Cash and short-term investments at end of period $ 56,666 $ 69,148
======== ========
Cash payments for income taxes $ 7,477 $ 7,358
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 $ 329 $ 1,298
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 June 30, 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 six months
ended June 30, 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.
2. INVENTORIES (Thousands)
Jun. 30, Dec. 31,
1996 1995
-------- ---------
Raw materials $ 7,099 $ 7,765
Work-in-process 39,526 30,120
Finished goods 10,444 10,405
-------- --------
$ 57,069 $ 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 six
month period ended June 30, 1996 of $1,273,000 and $1,814,000, respectively.
The Company's effective tax rate decreased to 33% in the second quarter and
first six months of 1996 from 33.5% for the same periods 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
- ---------------------
Net sales for the second quarter of 1996 were $70,362,000 an increase of
23% over the second 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 Q295 Q395 Q495 Q196 Q296 Q296 - Q295
- ---------------------------------------------------------------------------
Telecom $ 7.6 $ 8.4 $ 9.2 $10.5 $11.3 49%
PC Timekeeping 8.9 8.5 12.4 9.5 10.0 12%
Non-PC Timekeeping 7.6 7.9 7.7 9.1 9.7 28%
NV SRAMs 8.2 8.5 7.7 9.9 9.5 16%
Other Families 10.3 10.7 9.6 9.6 9.2 -11%
Microcontrollers 4.3 5.7 5.5 6.9 8.4 95%
System Extension 6.5 7.4 7.6 7.1 8.3 28%
Auto Identification 3.6 3.4 3.9 3.0 4.0 11%
- ---------------------------------------------------------------------------
Company Total $57.0 $60.5 $63.6 $65.6 $70.4 23%
- ---------------------------------------------------------------------------
Gross margins declined for the first six month's of 1996 to 48% from 50%
during the same periods in 1995. Gross margins declined in the second
quarter of 1996 to 47% from 49% in the second quarter of 1995. The gross
margin decline was caused primarily by start up yields for rising production
quantities for some of our most complex products and increasingly
competitive market conditions.
Research and development ("R&D") expenses for the second quarter of 1996
increased 21% from the second quarter of 1995. The increase resulted
primarily from increased personnel costs due to increased headcount.
R&D expenses as a percent of sales remained constant at 12% for the three
and six month periods ended June 30, 1996 and July 2, 1995, respectively.
<PAGE> 8
DALLAS SEMICONDUCTOR CORPORATION
RESULTS OF OPERATIONS (continued)
- ------------------------------
Selling, general, and administrative ("SG&A") expenses for the second quarter
of 1996 increased 19% compared with the second quarter of 1995. In the first
six months of 1996, SG&A expenses increased 21% over the same period in 1995.
SG&A expenses as a percent of net sales remained constant at 15% for the
three and six month periods ended June 30, 1996 and July 2, 1995. The
increase in SG&A expenses resulted primarily from increased sales commission
amounts due to higher net sales and increased personnel costs.
Operating income increased 14% and 18% for the second quarter of 1996 and
the first six months of 1996 over the same periods in 1995, respectively.
Operating income as a percent of sales decreased to 21% from 22% for the
first six months of 1996 and 1995, respectively. The decrease in both
periods resulted primarily from lower gross profit margins.
Net interest income for the second quarter of 1996 declined by $41,000
or 5% over the second quarter of 1995. Net interest income increased by
$26,000 or 2% for the first six months of 1996 over 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 six month periods. Changes
in interest rates will continue to effect net interest income as well as
any substantial change in the Company's cash and short-term investments
or any substantial change in borrowings.
The provision for income taxes includes estimated federal and state income
taxes at statutory rates and a deferred tax expense for the three and six
month periods ended June 30, 1996 of $1,273,000 and 1,814,000, respectively.
The Company's effective tax rate decreased to 33% in the second quarter and
first six months of 1996 from 33.5% for the same periods 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.
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 $56.7 million at the end of the
second 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 six months
of 1996 of $23.3 million offset by investments in property, plant and
equipment of $34.2 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 $14.2 million in the second quarter of 1996,
compared to $15.6 million for the same period of 1995. Capital expenditures
for the second quarter of 1996 related primarily to wafer fabrication and
test equipment. Capital expenditures for 1996 are estimated to total
approximately $65.0 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 June 30, 1996, a total of 215,900 shares, totaling
$3,445,856 have been purchased pursuant to this stock repurchase program.
On June 1, 1996, a $0.03 dividend was paid on each outstanding share of
common stock, to shareholders of record on May 15,1996. On August 1, 1996,
a $0.03 dividend was declared on each outstanding share of common stock,
payable on September 1,1996, to shareholders of record on August 15,1996.
The Company had no long-term debt at the end of the second quarter of 1996
or at the end of fiscal 1995.
<PAGE> 10
DALLAS SEMICONDUCTOR CORPORATION
PART II. OTHER INFORMATION
- --------------------------
Items 1.- 3.
- ------------
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
- -----------------------------------------------------------
(a) The Company's annual meeting of stockholders was held on
April 23, 1996.
(b) (c) (d) The following items were presented to the stockholders with
the following results.
Election of Directors: Votes
Votes For Withheld
---------- --------
C.V. Prothro 20,064,188 499,758
Chao C. Mai 20,070,985 492,961
Michael L. Bolan 20,071,780 492,166
Richard L. King 20,068,555 495,391
M.D. Sampels 20,056,285 507,661
Carmelo J. Santoro 20,071,390 492,556
E.R. Zumwalt, Jr. 20,198,939 365,007
Votes Broker
Votes For Against Abstentions Non-Votes
---------- --------- ----------- ---------
Proposal to ammend the
1987 Stock Option Plan: 10,344,783 5,981,337 183,342 4,054,484
Votes Broker
Votes For Against Abstentions Non-Votes
---------- --------- ----------- ---------
Selection of
Ernst & Young LLP as
independent auditors for
the 1996 fiscal year 20,497,422 36,594 30,841 --
Item 5. Other information
- -------------------------
Not Applicable
Item 6. Exhibits and Reports on Form 8-K
- -----------------------------------------
(a) Exhibit 27 - Financial Data Schedule
------------------------------------
None.
(b) Reports on Form 8-K
-------------------
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: August 9, 1996
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<PAGE> 12
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-29-1996
<PERIOD-END> JUN-30-1996
<CASH> 56,666
<SECURITIES> 0
<RECEIVABLES> 39,911
<ALLOWANCES> 0
<INVENTORY> 57,069
<CURRENT-ASSETS> 158,826
<PP&E> 247,715
<DEPRECIATION> 119,878
<TOTAL-ASSETS> 291,781
<CURRENT-LIABILITIES> 37,280
<BONDS> 0
<COMMON> 531
0
0
<OTHER-SE> 254,501
<TOTAL-LIABILITY-AND-EQUITY> 291,781
<SALES> 70,362
<TOTAL-REVENUES> 70,362
<CGS> 37,263
<TOTAL-COSTS> 56,099
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 15,011
<INCOME-TAX> 4,954
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,057
<EPS-PRIMARY> .36
<EPS-DILUTED> 0
</TABLE>
