<PAGE> 1
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 29, 1997
-------------
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 number 1-10464
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DALLAS SEMICONDUCTOR CORPORATION
------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 75-1935715
-------- ----------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
4401 SOUTH BELTWOOD PARKWAY, DALLAS, TEXAS 75244-3292
------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (972) 371-4000
-------------------
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
----- -----
Number of shares outstanding of the registrant's Common Stock as of
August 3, 1997: 27,316,637.
-----------
<PAGE> 2
DALLAS SEMICONDUCTOR CORPORATION
INDEX TO FORM 10-Q
PART I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
ITEM 1. FINANCIAL STATEMENTS PAGE NO.
--------
<S> <C>
Condensed Consolidated Statements of Income (Unaudited)
Three months and six months ended June 29, 1997 and June 30, 1996 ... 3
Condensed Consolidated Balance Sheets
June 29, 1997 (Unaudited) and December 29, 1996 ..................... 4
Condensed Consolidated Statements of Cash Flows (Unaudited)
Six months ended June 29, 1997 and June 30, 1996 .................... 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
ITEMS 1. THROUGH 3. .................................................. 10
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS .......... 10
ITEMS 5. THROUGH 6. ................................................. 10
SIGNATURE ............................................................. 11
EXHIBIT 27. ART. 5 FDS 2ND QUARTER 10-Q ............................... 12
</TABLE>
- 2 -
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
DALLAS SEMICONDUCTOR CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three months Six months
ended ended
----------------- ------------------
Jun. 29, Jun. 30, Jun. 29, Jun. 30,
(Thousands except per share amounts) 1997 1996 1997 1996
- ------------------------------------ ------- ------- -------- --------
<S> <C> <C> <C> <C>
Net sales $91,040 $70,362 $179,744 $135,946
Operating costs and expenses:
Cost of sales 44,627 37,263 89,394 70,960
Research and development 11,471 8,409 22,373 16,284
Selling, general, and administrative 13,451 10,427 26,184 20,221
------- ------- -------- --------
Total costs and expenses 69,549 56,099 137,951 107,465
------- ------- -------- --------
Operating income 21,491 14,263 41,793 28,481
Interest income, net 1,125 748 2,039 1,548
------- ------- -------- --------
Income before income taxes 22,616 15,011 43,832 30,029
Provision for income taxes 7,294 4,954 14,136 9,910
------- ------- -------- --------
Net income $15,322 $10,057 $ 29,696 $ 20,119
======= ======= ======== ========
Net income per share $ 0.52 $ 0.36 $ 1.02 $ 0.72
======= ======= ======== ========
Weighted average common and common
equivalent shares outstanding 29,482 27,951 29,120 27,955
======= ======= ======== ========
Dividends declared per share $ 0.035 $ 0.03 $ 0.07 $ 0.06
======= ======= ======== ========
</TABLE>
See accompanying notes.
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<PAGE> 4
DALLAS SEMICONDUCTOR CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
Jun. 29, Dec. 29,
(Thousands except share amounts) 1997 1996
- -------------------------------------------- -------- --------
(Unaudited)
<S> <C> <C>
Assets
Current assets:
Cash and short-term investments $ 98,027 $ 70,274
Accounts receivable, net 47,658 42,812
Inventories 55,098 49,629
Deferred tax assets 4,793 3,457
Other current assets 4,396 3,791
-------- --------
Total current assets 209,972 169,963
Property, plant and equipment, at cost:
Land 7,779 7,429
Building and improvements 44,787 43,145
Machinery and equipment 239,164 223,439
-------- --------
291,730 274,013
Less accumulated depreciation (151,705) (135,114)
-------- --------
Property, plant and equipment, net 140,025 138,899
Other assets 5,438 5,001
-------- --------
$355,435 $313,863
======== ========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 16,541 $ 22,475
Accrued salaries and benefits 16,192 8,641
Accrued taxes other than income 2,240 831
Other accrued liabilities 8,260 5,824
Income taxes payable (722) 3,354
-------- --------
Total current liabilities 42,511 41,125
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:
27,394,614 shares at June 29, 1997, and
26,696,807 shares at December 29, 1996 548 534
Additional paid-in capital 100,972 88,601
Retained earnings 213,022 185,221
Treasury stock, shares at cost:
91,525 shares at June 29, 1997 and
91,525 shares at December 29, 1996 (1,618) (1,618)
-------- --------
Total stockholders' equity 312,924 272,738
-------- --------
$355,435 $313,863
======== ========
</TABLE>
See accompanying notes.
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<PAGE> 5
DALLAS SEMICONDUCTOR CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
--------------------
Jun. 29, Jun. 30,
(Thousands) 1997 1996
- -------------------------------------------- -------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 29,696 $ 20,119
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 17,042 13,143
Deferred tax (benefit)/expense (1,336) 1,814
Increase in receivables (4,846) (3,209)
Increase in inventories (5,469) (8,779)
Increase in other current assets (605) (4)
(Decrease) increase in accounts payable (5,934) 3,264
Increase (decrease) in accrued salaries and benefits 7,551 (2,815)
Increase (decrease) in accrued taxes
other than income 1,409 (803)
Increase (decrease) in other accrued liabilities 2,436 (98)
Increase in income taxes payable 878 618
-------- --------
Net cash provided by operating activities 40,822 23,250
-------- --------
Cash flows from investing activities:
Additions to property, plant and equipment (18,168) (34,153)
Increase in other assets (437) (806)
-------- --------
Net cash used in investing activities (18,605) (34,959)
-------- --------
Cash flows from financing activities:
Proceeds from issuance of stock
upon exercise of stock options 7,431 792
Purchase of treasury stock 0 (137)
Dividend paid to shareholders (1,895) (1,584)
-------- --------
Net cash provided by or used in financing activities 5,536 (929)
-------- --------
Net change in cash and short-term investments 27,753 (12,638)
Cash and short-term investments
at beginning of period 70,274 69,304
-------- --------
Cash and short-term investments at end of period $ 98,027 $ 56,666
======== ========
Cash payments for income taxes $ 14,594 $ 7,477
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 $ 4,954 $ 329
Disposition of Assets $ 542 $ --
</TABLE>
See accompanying notes.
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<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
29, 1996. 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 29, 1997 and December 29, 1996, 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 29, 1996. Results of
operations for the three and six month periods ended June 29, 1997 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 as historically calculated under APB No. 15.
In February 1997, the Financial Accounting Standards Review Board issued
Statement No. 128 (FASB 128), Earnings Per Share, which is effective for both
interim and annual periods ending after December 15, 1997. FASB 128 changes
the calculation of primary and fully diluted earnings per share. Primary
earnings per share excludes the dilutive effect of stock options and is
expected to increase reported primary earnings per share for the quarters ended
June 29, 1997 and June 30, 1996 by $0.04 and $0.02 per share, respectively.
Fully diluted earnings per share includes the dilutive effect of stock options
and is equivalent to our historically reported earnings per share amounts.
2. INVENTORIES (Thousands)
<TABLE>
<CAPTION>
Jun. 29, Dec. 29,
1997 1996
-------- ---------
<S> <C> <C>
Raw materials $ 9,546 $ 6,688
Work-in-process 31,460 32,309
Finished goods 14,092 10,632
-------- --------
$ 55,098 $ 49,629
======== ========
</TABLE>
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 benefit for the three and six month
periods ended June 29, 1997 of $1,824,000 and $1,336,000, respectively. The
Company's effective tax rate decreased to 32.3% in the second quarter and first
six months of 1997 from 33.0% for the same periods in 1996. This decrease was a
result of the reinstatement and modification of the federal research and
development tax credit by the Small Business Jobs Protection Act of 1996 and
anticipated differences between income for financial statement purposes and
taxable income for the two periods.
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<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 1997 were $91,040,000 an increase of 29%
over the second quarter of 1996. 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)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
Growth
Product Family Q296 Q396 Q496 Q197 Q297 Q297 - Q296
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Telecom $11.3 $13.3 $15.0 $20.0 $20.0 77%
System Extension 8.3 9.6 12.5 14.6 14.6 76%
Commercial Timekeeping 9.7 7.7 9.3 10.1 14.0 44%
NV SRAMs 9.5 8.9 9.5 12.3 13.0 37%
Other Families 8.2 6.9 8.1 8.9 9.6 17%
Auto Information 5.0 5.1 5.3 7.0 8.6 72%
Microcontrollers 8.4 7.6 5.9 7.7 6.1 -27%
Computer Timekeeping 10.0 12.9 14.8 8.1 5.1 -49%
- ------------------------------------------------------------------------------
Company Total $70.4 $72.0 $80.4 $88.7 $91.0 29%
- ------------------------------------------------------------------------------
</TABLE>
Gross margins increased for the first six months of 1997 to 50% from 48% during
the same period in 1996. Gross margins increased in the second quarter of 1997
to 51% from 47% in the second quarter of 1996. The gross margin increase for
both periods was caused primarily by increased efficiency in factory operations
and a sales-mix shift toward higher margin products.
Research and development ("R&D") expenses for the second quarter of 1997
increased 36% from the second quarter of 1996. R&D expenses increased 37% for
the first six months of 1997 over the same period in 1996. The increase
resulted primarily from increased personnel costs due to increased headcount.
R&D expenses as a percent of sales increased to 13% from 12% for the second
quarter of 1997 and 1996, respectively. R&D expenses as a percent of sales
remained constant at 12% for the six month periods ended June 29, 1997 and June
30, 1996, respectively.
- 7 -
<PAGE> 8
DALLAS SEMICONDUCTOR CORPORATION
RESULTS OF OPERATIONS (CONTINUED)
Selling, general, and administrative ("SG&A") expenses increased 29% for the
three and six month periods ended June 29, 1997 over the same periods ended
June 30, 1996. The increase in SG&A expenses resulted primarily from increased
sales commission amounts due to higher net sales and increased personnel costs.
SG&A expenses as a percent of net sales remained constant at 15% for the three
and six month periods ended June 29, 1997 and June 30, 1996, respectively.
Operating income increased 51% and 47% for the second quarter of 1997 and the
first six months of 1997 over the same periods in 1996, respectively. The
increase for both periods was due primarily to higher gross profit margins.
Operating income as a percent of sales increased to 23% from 21% for the first
six months of 1997 and 1996, respectively.
Net interest income for the second quarter of 1997 increased by $377,000 or 50%
over the second quarter of 1996. Net interest income increased by $491,000 or
32% for the first six months of 1997 over the same period in 1996. 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 benefit for the three and six month
periods ended June 29, 1997 of $1,824,000 and $1,336,000, respectively. The
Company's effective tax rate decreased to 32.3% in the second quarter and first
six months of 1997 from 33.0% for the same periods in 1996. This decrease was a
result of the reinstatement and modification of the federal research and
development tax credit by the Small Business Jobs Protection Act of 1996, and
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, alternative
technologies, the Company's success in developing new products and process
technologies, market acceptance of the Company's new products, distributor and
sales representative performance, the ability of the Company to continue
diversifying its product line, manufacturing performance, subcontractor
performance, availability and price fluctuations of raw materials, and other
factors. Any of these uncertainties could cause a severe near-term impact on
the Company's order growth, net sales growth, or results of operations.
FINANCIAL CONDITION
Cash and short-term investments were $98.0 million at the end of the
second quarter of 1997, compared with $70.3 million at the end of fiscal year
1996. The increase in cash and short-term investments were primarily the result
of net cash provided from operations during the first six months of 1997 of
$40.8 million offset by investments in property, plant and equipment of $18.6
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.
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<PAGE> 9
DALLAS SEMICONDUCTOR CORPORATION
FINANCIAL CONDITION (CONTINUED)
Capital additions were $9 million in the second quarter of 1997, compared to
$14 million for the same period of 1996. Capital expenditures for the second
quarter of 1997 related primarily to wafer fabrication and test equipment.
Capital expenditures for 1997 are estimated to total approximately $55 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 29, 1997, a total of 215,900 shares, totaling $3,446,000 have
been purchased pursuant to this stock repurchase program.
On June 2, 1997, a $0.035 dividend was paid on each outstanding share of common
stock, to shareholders of record on May 15, 1997. On July 22, 1997, a $0.035
dividend was declared on each outstanding share of common stock, payable on
September 2, 1997, to shareholders of record on August 15, 1997.
The Company had no long-term debt at the end of the second quarter of 1997 or
at the end of fiscal 1996.
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<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 22, 1997.
(b) (c) (d) The following items were presented to the stockholders with the
following results.
<TABLE>
<CAPTION>
Election of Directors: Votes
Votes For Withheld
---------- --------
<S> <C> <C>
C.V. Prothro 24,539,003 383,929
Chao C. Mai 24,538,907 384,025
Michael L. Bolan 24,539,363 383,569
Richard L. King 24,530,291 392,641
M.D. Sampels 24,532,311 390,621
Carmelo J. Santoro 24,532,001 390,931
E.R. Zumwalt, Jr. 24,491,770 431,162
</TABLE>
<TABLE>
<CAPTION>
Votes Broker
Votes For Against Abstentions Non-Votes
---------- --------- ----------- ---------
<S> <C> <C> <C> <C>
Selection of
Ernst & Young LLP as
independent auditors for
the 1997 fiscal year 24,811,110 94,495 17,327 --
</TABLE>
<TABLE>
<CAPTION>
Votes Broker
Votes For Against Abstentions Non-Votes
--------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
Stockholder proposal
that the shareholders
assembled in person and by
proxy, recommend 1.) that all
future non-employee directors
not be granted any company
paid or financed pension
benefits and 2.) current
non-employee directors
relinquish their pension
benefits. 1,947,554 18,996,397 261,928 3,717,053
</TABLE>
ITEM 5. OTHER INFORMATION
Not Applicable
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBIT 27 - FINANCIAL DATA SCHEDULE
(b) Reports on Form 8-K
-------------------
No Reports on Form 8-K were filed during the period for which this
report is filed.
- 10 -
<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 8, 1997
--------------
- 11 -
<PAGE> 12
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER ITEM
- ------ ----
<S> <C>
27 ARTICLE 5 FINANCIAL DATA SCHEDULE SECOND QUARTER 10-Q
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-28-1997
<PERIOD-END> JUN-29-1997
<CASH> 98,027
<SECURITIES> 0
<RECEIVABLES> 47,658
<ALLOWANCES> 0
<INVENTORY> 55,098
<CURRENT-ASSETS> 209,972
<PP&E> 291,730
<DEPRECIATION> 151,705
<TOTAL-ASSETS> 355,435
<CURRENT-LIABILITIES> 42,511
<BONDS> 0
0
0
<COMMON> 548
<OTHER-SE> 312,924
<TOTAL-LIABILITY-AND-EQUITY> 355,435
<SALES> 91,040
<TOTAL-REVENUES> 91,040
<CGS> 44,627
<TOTAL-COSTS> 69,549
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 22,616
<INCOME-TAX> 7,294
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 15,322
<EPS-PRIMARY> .52
<EPS-DILUTED> 0
</TABLE>
