<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 September 28, 1997
------------------
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 2, 1997: 27,459,162.
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<PAGE> 2
DALLAS SEMICONDUCTOR CORPORATION
INDEX TO FORM 10-Q
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS PAGE NO.
--------
<S> <C>
Condensed Consolidated Statements of Income (Unaudited)
Three months and nine months ended September 28, 1997 and
September 29, 1996 ............................................... 3
Condensed Consolidated Balance Sheets
September 28, 1997 (Unaudited) and December 29, 1996 ................ 4
Condensed Consolidated Statements of Cash Flows (Unaudited)
Nine months ended September 28, 1997 and September 29, 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 6. ................................................... 10
SIGNATURE ............................................................. 11
EXHIBIT 27. ART. 5 FDS 3RD QUARTER 10-Q ............................... 12
</TABLE>
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<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
DALLAS SEMICONDUCTOR CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three months Nine months
ended ended
------------------- --------------------
Sept. 28, Sept. 29, Sept. 28, Sept. 29,
(Thousands except per share amounts) 1997 1996 1997 1996
- ------------------------------------ -------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales $ 93,069 $ 72,023 $272,813 $207,969
Operating costs and expenses:
Cost of sales 44,710 41,490 134,104 112,450
Research and development 11,517 9,057 33,890 25,341
Selling, general, and administrative 13,531 10,535 39,715 30,756
-------- -------- -------- --------
Total costs and expenses 69,758 61,082 207,709 168,547
-------- -------- -------- --------
Operating income 23,311 10,941 65,104 39,422
Interest income, net 1,287 708 3,326 2,256
-------- -------- -------- --------
Income before income taxes 24,598 11,649 68,430 41,678
Provision for income taxes 7,687 3,844 21,823 13,754
-------- -------- -------- --------
Net income $ 16,911 $ 7,805 $ 46,607 $ 27,924
======== ======== ======== ========
Net income per share $ 0.57 $ 0.28 $ 1.59 $ 1.00
======== ======== ======== ========
Weighted average common and common
equivalent shares outstanding 29,659 27,826 29,300 27,912
======== ======== ======== ========
Dividends declared per share $ 0.035 $ 0.03 $ 0.105 $ 0.09
======== ======== ======== ========
</TABLE>
See accompanying notes.
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<PAGE> 4
DALLAS SEMICONDUCTOR CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
Sept. 28, Dec. 29,
(Thousands except share amounts) 1997 1996
- -------------------------------------------- ---------- ----------
(Unaudited)
<S> <C> <C>
Assets
Current assets:
Cash and short-term investments $ 110,974 $ 70,274
Accounts receivable, net 55,178 42,812
Inventories 57,247 49,629
Deferred tax assets 6,867 3,457
Other current assets 3,855 3,791
---------- ----------
Total current assets 234,121 169,963
Property, plant and equipment, at cost:
Land 7,804 7,429
Building and improvements 46,267 43,145
Machinery and equipment 247,494 223,439
---------- ----------
301,565 274,013
Less accumulated depreciation (160,581) (135,114)
---------- ----------
Property, plant and equipment, net 140,984 138,899
Other assets 5,237 5,001
---------- ----------
$ 380,342 $ 313,863
========== ==========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 19,193 $ 22,475
Accrued salaries and benefits 17,999 8,641
Accrued taxes other than income 2,866 831
Other accrued liabilities 9,320 5,824
Income taxes payable 1,150 3,354
---------- ----------
Total current liabilities 50,528 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:
27,436,833 shares at September 28, 1997, and
26,696,807 shares at December 29, 1996 548 534
Additional paid-in capital 101,907 88,601
Retained earnings 228,977 185,221
Treasury stock, shares at cost:
91,525 shares at September 28, 1997 and
91,525 shares at December 29, 1996 (1,618) (1,618)
---------- ----------
Total stockholders' equity 329,814 272,738
---------- ----------
$ 380,342 $ 313,863
========== ==========
</TABLE>
See accompanying notes
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<PAGE> 5
DALLAS SEMICONDUCTOR CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
------------------------
Sept. 28, Sept. 29,
(Thousands) 1997 1996
- -------------------------------------------- ---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 46,607 $ 27,924
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 26,104 20,460
Deferred tax (benefit)/expense (3,410) 3,113
Increase in receivables (12,366) (9,455)
Increase in inventories (7,618) (3,501)
Increase in other current assets (64) (77)
(Decrease) increase in accounts payable (3,282) 420
Increase (decrease) in accrued salaries
and benefits 9,358 (1,462)
Increase (decrease) in accrued taxes
other than income 2,035 (182)
Increase in other accrued liabilities 3,496 925
Increase in income taxes payable 3,146 101
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Net cash provided by operating activities 64,006 38,266
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Cash flows from investing activities:
Additions to property, plant and equipment (28,189) (46,627)
Increase in other assets (236) (718)
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Net cash used in investing activities (28,425) (47,345)
---------- ----------
Cash flows from financing activities:
Proceeds from issuance of stock
upon exercise of stock options 7,970 1,257
Purchase of treasury stock -- (137)
Dividends paid to shareholders (2,851) (2,379)
---------- ----------
Net cash provided by (used in)financing
activities 5,119 (1,259)
---------- ----------
Net change in cash and short-term investments 40,700 (10,338)
Cash and short-term investments
at beginning of period 70,274 69,304
---------- ----------
Cash and short-term investments at end of period $ 110,974 $ 58,966
========== ==========
Cash payments for income taxes $ 22,087 $ 10,540
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 $ 5,350 $ 500
Disposition of assets $ 696 $ --
</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
September 28, 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 nine month periods ended September 28, 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 September 28, 1997
and September 29, 1996 by $0.05 and $0.01 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>
Sept. 28, Dec. 29,
1997 1996
--------- --------
<S> <C> <C>
Raw materials $ 10,439 $ 6,688
Work-in-process 31,000 32,309
Finished goods 15,808 10,632
--------- --------
$ 57,247 $ 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 nine
month periods ended September 28, 1997 of $2,074,000 and $3,410,000,
respectively. The Company's effective tax rate decreased to 31.3% for the third
quarter of 1997 and to 31.9% for the first nine months of 1997 from 33.0% for
the same periods in 1996, respectively. This decrease was the result of the
reinstatement, modification and extension of the federal research and
development tax credit by the Small Business Jobs Protection Act of 1996 and the
Taxpayer Relief Act of 1997 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 third quarter of 1997 were $93,069,000, an increase of 29%
over the third 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:
<TABLE>
<CAPTION>
NET SALES
(Millions)
- ----------------------------------------------------------------------------------------
Growth
Product Family Q396 Q496 Q197 Q297 Q397 Q397 - Q396
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Telecom $ 13.3 $ 15.0 $ 20.0 $ 20.0 20.7 56%
System Extension 9.6 12.5 14.6 14.6 16.2 69%
Commercial Timekeeping 7.7 9.3 10.1 14.0 12.9 68%
Auto Information 5.1 5.3 7.0 8.6 10.5 106%
NV SRAMs 8.9 9.5 12.3 13.0 10.4 17%
Microcontrollers 7.7 5.9 7.8 6.2 9.6 25%
Other Families 6.8 8.1 8.8 9.5 7.7 13%
Computer Timekeeping 12.9 14.8 8.1 5.1 5.1 (60%)
- ----------------------------------------------------------------------------------------
Company Total $ 72.0 $ 80.4 $ 88.7 $ 91.0 $ 93.1 29%
- ----------------------------------------------------------------------------------------
</TABLE>
Gross margins increased for the first nine months of 1997 to 51% from 46% during
the same period in 1996. Gross margins increased in the third quarter of 1997 to
52% from 42% in the third 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 third quarter of 1997
increased 27% from the third quarter of 1996. R&D expenses increased 34%
for the first nine months of 1997 over the same period in 1996. The increase for
both periods resulted primarily from increased personnel costs due to increased
headcount. R&D expenses as a percent of sales decreased to 12% from 13% for the
third quarter of 1997 and 1996, respectively. R&D expenses as a percent of sales
remained constant at 12% for the nine month periods ended September 28, 1997 and
September 29, 1996, respectively.
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<PAGE> 8
DALLAS SEMICONDUCTOR CORPORATION
RESULTS OF OPERATIONS (CONTINUED)
Selling, general, and administrative ("SG&A") expenses increased 28% and 29% for
the third quarter of 1997 and the first nine months of 1997 over the same
periods in 1996, respectively. 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 nine month periods ended September 28, 1997 and September
29, 1996, respectively.
Operating income increased 113% and 65% for the third quarter of 1997 and the
first nine 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 24% from 19% for the first
nine months of 1997 and 1996, respectively.
Net interest income for the third quarter of 1997 increased by $579,000 or 82%
over the third quarter of 1996. Net interest income increased by $1,070,000 or
47% for the first nine 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 nine 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 nine month
periods ended September 28, 1997 of $2,074,000 and $3,410,000, respectively. The
Company's effective tax rate decreased to 31.3% in the third quarter of 1997 and
to 31.9% for the first nine months of 1997 from 33.0% for the same periods in
1996, respectively. This decrease was a result of the reinstatement,
modification and extension 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 $111 million at the end of the third
quarter of 1997, compared with $70 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 nine months of 1997 of $64
million offset by investments in property, plant and equipment of $28 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 $10 million in the third quarter of 1997, compared to $12
million for the same period of 1996. Capital expenditures for the third quarter
of 1997 related primarily to wafer fabrication and test equipment. Capital
expenditures for 1997 are estimated to total approximately $50 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 28, 1997, a total of 215,900 shares, totaling $3,446,000
have been purchased pursuant to this stock repurchase program.
On September 2, 1997, a $0.035 dividend was paid on each outstanding share of
common stock, to shareholders of record on August 15, 1997. On October 21, 1997,
a $0.035 dividend was declared on each outstanding share of common stock,
payable on December 1, 1997, to shareholders of record on November 14, 1997.
The Company had no long-term debt at the end of the third quarter of 1997 or at
the end of fiscal year 1996.
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<PAGE> 10
DALLAS SEMICONDUCTOR CORPORATION
PART II. OTHER INFORMATION
ITEMS 1.- 5.
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.
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<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 10, 1997
----------------------------
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<PAGE> 12
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
27 FINANCIAL DATA SCHEDULE
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-28-1997
<PERIOD-END> SEP-28-1997
<CASH> 110,974
<SECURITIES> 0
<RECEIVABLES> 55,178
<ALLOWANCES> 0
<INVENTORY> 57,247
<CURRENT-ASSETS> 234,121
<PP&E> 301,565
<DEPRECIATION> 160,581
<TOTAL-ASSETS> 380,342
<CURRENT-LIABILITIES> 50,528
<BONDS> 0
0
0
<COMMON> 548
<OTHER-SE> 329,814
<TOTAL-LIABILITY-AND-EQUITY> 380,342
<SALES> 93,069
<TOTAL-REVENUES> 93,069
<CGS> 44,710
<TOTAL-COSTS> 69,758
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 24,598
<INCOME-TAX> 7,687
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 16,911
<EPS-PRIMARY> .57
<EPS-DILUTED> 0.00
</TABLE>
