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 March 30, 1997
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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
May 4, 1997: 27,236,750.
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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 ended March 30, 1997 and
March 31, 1996......................................................... 3
Condensed Consolidated Balance Sheets
March 30, 1997 (Unaudited) and December 29, 1996 ...................... 4
Condensed Consolidated Statements of Cash Flows (Unaudited)
Three months ended March 30, 1997 and March 31, 1996 .................. 5
Notes to Condensed Consolidated Financial Statements ................... 6
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
- ------- ----------------------------------------
FINANCIAL CONDITION AND RESULTS OF OPERATIONS .......... 7 - 8
---------------------------------------------
PART II. OTHER INFORMATION
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Items 1. through 6. ................................................... 9
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SIGNATURE .............................................................. 10
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EXHIBIT 27. ART. 5 FDS 1ST QUARTER 10-Q ................................ 11
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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 ended
----------------------
Mar. 30, Mar. 31,
(Thousands except per share amounts) 1997 1996
- ------------------------------------ -------- --------
Net sales $ 88,704 $ 65,584
Operating costs and expenses:
Cost of sales 44,767 33,697
Research and development 10,902 7,875
Selling, general, and administrative 12,733 9,794
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Total 68,402 51,366
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Operating income 20,302 14,218
Interest income, net 914 800
-------- --------
Income before income taxes 21,216 15,018
Provision for income taxes 6,842 4,956
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Net income $ 14,374 $ 10,062
======== ========
Net income per share $ 0.50 $ 0.36
======== ========
Weighted average common and common
equivalent shares outstanding 28,758 27,959
======== ========
Dividends declared per share $ 0.035 $ 0.03
======== ========
See accompanying notes.
<PAGE> 4
DALLAS SEMICONDUCTOR CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
Mar. 30, Dec. 29,
(Thousands except share amounts) 1997 1996
- -------------------------------------------- -------- --------
(Unaudited)
Assets
Current assets:
Cash and short-term investments $ 91,345 $ 70,274
Accounts receivable, net 46,772 42,812
Inventories 51,658 49,629
Deferred tax assets, net 2,969 3,457
Other current assets 4,137 3,791
-------- --------
Total current assets 196,881 169,963
Property, plant and equipment, at cost:
Land 7,429 7,429
Building and improvements 44,096 43,145
Machinery and equipment 231,347 223,439
-------- --------
282,872 274,013
Less accumulated depreciation (143,087) (135,114)
-------- --------
Property, plant and equipment, net 139,785 138,899
Other assets 5,283 5,001
-------- --------
$341,949 $313,863
======== ========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 24,440 $ 22,475
Accrued salaries and benefits 10,962 8,641
Accrued taxes other than income 1,558 831
Other accrued liabilities 7,836 5,824
Income taxes payable 6,738 3,354
-------- --------
Total current liabilities 51,534 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:
26,987,638 shares at March 30, 1997, and
26,696,807 shares at December 29, 1996 539 534
Additional paid-in capital 92,839 88,601
Retained earnings 198,655 185,221
Treasury stock, shares at cost:
91,525 shares at March 30, 1997 and
91,525 shares at December 29, 1996 (1,618) (1,618)
-------- --------
Total stockholders' equity 290,415 272,738
-------- --------
$341,949 $313,863
======== ========
See accompanying notes.
<PAGE> 5
DALLAS SEMICONDUCTOR CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three months ended
----------------------
Mar. 30, Mar. 31,
(Thousands) 1997 1996
- ------------------------------------ -------- --------
Cash flows from operating activities:
Net income $ 14,374 $ 10,062
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 8,424 6,395
Deferred tax expense 488 541
Increase in receivables (3,960) (3,780)
Increase in inventories (2,029) (4,053)
Increase in other current assets (346) (460)
Increase in accounts payable 1,965 5,981
Increase (decrease) in accrued salaries and benefits 2,321 (3,582)
Increase (decrease)in accrued taxes other than income 727 (1,336)
Increase (decrease) in other accrued liabilities 2,012 (585)
Increase in income taxes payable 4,971 3,765
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Net cash provided by operating activities 28,947 12,948
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Cash flows from investing activities:
Additions to property, plant and equipment, net (9,310) (19,954)
Increase in other assets (282) (722)
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Net cash used in investing activities (9,592) (20,676)
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Cash flows from financing activities:
Proceeds from issuance of stock
upon exercise of stock options 2,656 198
Purchase of treasury stock -- (137)
Dividends paid to shareholders (940) (792)
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Net cash provided by (used in) financing activities 1,716 (731)
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Net change in cash and short-term investments 21,071 (8,459)
Cash and short-term investments
at beginning of period 70,274 69,304
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Cash and short-term investments at end of period $ 91,345 $ 60,845
========= ========
Cash payments for income taxes $ 1,384 $ 650
Supplementary schedule of non-cash investing and financing activities:
Reduction of income tax payable and increase
in paid-in capital resulting from the tax
benefit of stock option exercises $ 1,587 $ 117
Disposition of assets $ 542 $ --
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 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 March 30, 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 months ended
March 30, 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 March 30, 1997 and March 31, 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)
Mar. 30, Dec. 29,
1997 1996
-------- --------
Raw materials $ 8,258 $ 6,688
Work-in-process 32,725 32,309
Finished goods 10,675 10,632
-------- --------
$ 51,658 $ 49,629
======== ========
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 of $488,000 and $541,000
for the first quarter of 1997 and 1996, respectively. The Company's effective
tax rate decreased from 33.0% in the first quarter of 1996 to 32.2% in the
first quarter of 1997. 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 achieved.
RESULTS OF OPERATIONS
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Net sales for the first quarter of 1997 were $88,704,000 an increase of 35%
over the first quarter of 1996. The Company's revenue growth is supported by
increased unit sales of new and existing products in several product
categories as shown in the table below:
NET SALES
(Dollars in millions)
- -----------------------------------------------------------------------------
Growth
Product Categories Q196 Q296 Q396 Q496 Q197 Q197 - Q196
- -----------------------------------------------------------------------------
Telecommunications $10.5 $11.3 $13.3 $15.0 $20.0 90%
System Extension 7.1 8.3 9.6 12.5 14.6 106%
NV SRAMs 9.9 9.5 8.9 9.5 12.3 24%
Commercial Timekeeping 8.9 9.7 7.7 9.3 10.1 13%
Others 8.8 9.2 7.7 8.1 8.9 1%
Computer Timekeeping 9.4 10.0 12.9 14.8 8.1 -14%
Microcontrollers 6.9 8.4 7.6 5.9 7.7 12%
Automatic Information 4.1 4.0 4.3 5.3 7.0 71%
- -----------------------------------------------------------------------------
Company Total $65.6 $70.4 $72.0 $80.4 $88.7 35%
- -----------------------------------------------------------------------------
Gross margins increased for the first three months of 1997 to 50% from 49%
during the same period in 1996. The gross margin increase was caused
primarily by increased efficiency of factory operations and a sales-mix shift
toward higher margin products.
Research and development ("R&D") expenses for the first quarter of 1997
increased 38% from the first quarter of 1996. The increase resulted primarily
from increased personnel costs due to increased headcount. R&D expenses as a
percent of net sales remained constant at 12% for the first quarter of 1997
and 1996, respectively.
Selling, general, and administrative ("SG&A") expenses for the first quarter
of 1997 increased 30% compared with the first quarter of 1996. The increase
in SG&A expenses resulted primarily from increased sales commissions due to
higher net sales and increased personnel costs. SG&A expenses as a percent of
net sales decreased from 15% for the first quarter of 1996 to 14% for the first
quarter of 1997.
Operating income increased 43% for the first three months of 1997 over the
same period in 1996 due primarily to higher gross profit margins on increased
sales. Operating income as a percent of net sales increased to 23% from 22%
for the first three months of 1997 and 1996, respectively.
<PAGE> 8
DALLAS SEMICONDUCTOR CORPORATION
RESULTS OF OPERATIONS (continued)
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Net interest income for the first quarter of 1997 increased by $114,000 or 14%
compared to the first quarter of 1996. The increase in net interest income is
due primarily to changes in the average cash balances for the three month
periods. Changes in interest rates will continue to affect net interest
income as will any substantial change in the amount of the Company's cash and
short-term investments or borrowings.
The provision for income taxes includes estimated federal and state income
taxes at statutory rates and a deferred tax expense of $488,000 and $541,000
for the first quarter of 1997 and 1996, respectively. The Company's effective
tax rate decreased from 33.0% in the first quarter of 1996 to 32.2% in the
first quarter of 1997. 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,
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 $91 million at the end of the first
quarter of 1997, compared with $70 million at the end of fiscal year of 1996.
The increase in cash and short-term investments was primarily the result of
net cash provided from operations during the first three months of 1997 of
$29 million offset by investments in property, plant and equipment of
$10 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.
Capital additions were $10 million in the first quarter of 1997, compared to
$20 million for the same period of 1996. Capital expenditures for the first
quarter of 1997 related primarily to wafer fabrication and test equipment.
Capital expenditures for 1997 are estimated to total approximately $60
million and will be used primarily for wafer fabrication equipment,
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 March 30, 1997, a total of 215,900 shares, totaling
$3,446,000, has been purchased pursuant to this stock repurchase program.
On March 3, 1997, a $0.035 dividend was paid on each outstanding share of
common stock, to shareholders of record on February 14, 1997. On April 24,
1997, a $0.035 dividend was declared on each share of common stock, payable
on June 2, 1997, to shareholders of record on May 15, 1997.
The Company had no long-term debt at the end of the first quarter of 1997
or at the end of fiscal 1996.
<PAGE> 9
DALLAS SEMICONDUCTOR CORPORATION
PART II. OTHER INFORMATION
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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
-------------------
No Reports on Form 8-K were filed during the period
for which this report is filed.
<PAGE> 10
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: May 14, 1997
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<PAGE> 11
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-28-1997
<PERIOD-END> MAR-30-1997
<CASH> 91,345
<SECURITIES> 0
<RECEIVABLES> 46,772
<ALLOWANCES> 0
<INVENTORY> 51,658
<CURRENT-ASSETS> 196,881
<PP&E> 282,872
<DEPRECIATION> 143,087
<TOTAL-ASSETS> 341,949
<CURRENT-LIABILITIES> 51,534
<BONDS> 0
<COMMON> 539
0
0
<OTHER-SE> 290,415
<TOTAL-LIABILITY-AND-EQUITY> 341,949
<SALES> 88,704
<TOTAL-REVENUES> 88,704
<CGS> 44,767
<TOTAL-COSTS> 68,402
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 21,216
<INCOME-TAX> 6,842
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 14,374
<EPS-PRIMARY> 0.50
<EPS-DILUTED> 0
</TABLE>
