<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 March 29, 1998
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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 [ ]
Number of shares outstanding of the registrant's Common Stock as of May
3, 1998: 27,969,894.
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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 ended March 29, 1998 and March 30, 1997 ............... 3
Condensed Consolidated Balance Sheets
March 29, 1998 (Unaudited) and December 28, 1997 .................... 4
Condensed Consolidated Statements of Cash Flows (Unaudited)
Three months ended March 29, 1998 and March 30, 1997 ................ 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 1ST 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 ended
-----------------------------
Mar. 29, Mar. 30,
(Thousands except per share amounts) 1998 1997
- ------------------------------------ ------------ ------------
<S> <C> <C>
Net sales $ 87,448 $ 88,704
Operating costs and expenses:
Cost of sales 41,498 44,767
Research and development 12,567 10,902
Selling, general, and administrative 14,649 12,733
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Total costs and expenses 68,714 68,402
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Operating income 18,734 20,302
Interest income, net 1,137 914
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Income before income taxes 19,871 21,216
Provision for income taxes 6,359 6,842
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Net income $ 13,512 $ 14,374
============ ============
Net income per share, basic $ 0.49 $ 0.54
Net income per share, diluted $ 0.45 $ 0.50
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Shares used to calculate
net income per share:
Basic 27,825 26,821
Diluted 30,010 28,758
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Dividends declared per share $ 0.04 $ 0.035
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</TABLE>
See accompanying notes.
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<PAGE> 4
DALLAS SEMICONDUCTOR CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
Mar. 29, Dec. 28,
(Thousands except share amounts) 1998 1997
- ------------------------------------------------------- ------------ ------------
(Unaudited)
<S> <C> <C>
Assets
Current assets:
Cash and short-term investments $ 108,624 $ 114,608
Accounts receivable, net 54,194 62,337
Inventories 65,875 59,131
Deferred tax assets 9,431 9,689
Other current assets 4,948 4,475
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Total current assets 243,072 250,240
Property, plant and equipment, at cost:
Land 8,757 8,757
Building and improvements 55,311 52,067
Machinery and equipment 294,092 269,767
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358,160 330,591
Less accumulated depreciation (176,279) (168,836)
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Property, plant and equipment, net 181,881 161,755
Other assets 5,654 5,147
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Total Assets $ 430,607 $ 417,142
============ ============
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 31,182 $ 29,711
Accrued salaries and benefits 12,661 19,979
Accrued taxes other than income 2,078 3,678
Other accrued liabilities 9,046 10,345
Income taxes payable 3,312 2,372
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Total current liabilities 58,279 66,085
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:
28,042,119 shares at March 29, 1998, and
27,639,784 shares at December 28, 1997 561 553
Additional paid-in capital 115,026 106,161
Retained earnings 258,359 245,961
Treasury stock, shares at cost:
91,525 shares at March 29, 1998 and
91,525 shares at December 28, 1997 (1,618) (1,618)
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Total stockholders' equity 372,328 351,057
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Total Liabilities and Stockholders' Equity $ 430,607 $ 417,142
============ ============
</TABLE>
See accompanying notes
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<PAGE> 5
DALLAS SEMICONDUCTOR CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
------------------------------
Mar. 29, Mar.30,
(Thousands) 1998 1997
- ----------------------------------------------------------------- ------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 13,512 $ 14,374
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 10,296 8,424
Deferred tax expense 258 488
Decrease (increase) in receivables 8,143 (3,960)
Increase in inventories (6,744) (2,029)
Increase in other current assets (473) (346)
Increase in accounts payable 1,471 1,965
(Decrease) increase in accrued salaries and benefits (7,318) 2,321
(Decrease) increase in accrued taxes
other than income (1,600) 727
(Decrease) increase in other accrued liabilities (1,299) 2,012
Increase in income taxes payable 5,320 4,971
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Net cash provided by operating activities 21,566 28,947
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Cash flows from investing activities:
Additions to property, plant and equipment (30,422) (9,310)
Increase in other assets (507) (282)
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Net cash used in investing activities (30,929) (9,592)
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Cash flows from financing activities:
Proceeds from issuance of stock
upon exercise of stock options 4,493 2,656
Dividend paid to shareholders (1,114) (940)
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Net cash provided by financing activities 3,379 1,716
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Net change in cash and short-term investments (5,984) 21,071
Cash and short-term investments
at beginning of period 114,608 70,274
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Cash and short-term investments at end of period $ 108,624 $ 91,345
============ ============
Cash payments for income taxes $ 782 $ 1,384
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 $ 4,380 $ 1,587
Disposition of assets $ 85 $ 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 28,
1997. 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
29, 1998 and December 28, 1997, 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 28, 1997. Results of operations
for the three months ended March 29, 1998 are not necessarily indicative of
results to be expected for the full year.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information." SFAS 131 establishes standards for the
manner in which public business enterprises report information about operating
segments in financial statements. SFAS 131 is effective for fiscal years
beginning after December 15, 1997. The effect of SFAS 131 on the Company has not
been determined.
2. INVENTORIES (Thousands)
<TABLE>
<CAPTION>
Mar. 29, Dec. 28,
1998 1997
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<S> <C> <C>
Raw materials $ 9,413 $ 8,761
Work-in-process 33,832 31,187
Finished goods 22,630 19,183
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$ 65,875 $ 59,131
========== ==========
</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 expense of $258,000 and $488,000 for
the first quarter of 1998 and 1997, respectively. The Company's effective tax
rate decreased from 32.2% in the first quarter of 1997 to 32.0% in the first
quarter of 1998 as a result of changes in 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 first quarter of 1998 were $87,448,000 a decrease of one
percent from the first quarter of 1997. The Company's revenue by product
category is shown in the table below:
<TABLE>
<CAPTION>
NET SALES
(Millions)
- --------------------------------------------------------------------------------------
Growth
Product Categories Q197 Q297 Q397 Q497 Q198 Q198 - Q197
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Communications $20.0 $20.0 $20.7 $21.9 $20.5 3%
Commercial Timekeeping 10.1 14.0 12.9 13.9 13.7 36%
System Extension 14.6 14.6 16.2 16.2 13.2 -10%
Automatic Information 7.0 8.6 10.5 12.7 12.4 77%
Nonvolatile RAM 12.3 13.0 10.4 10.5 9.6 -22%
Others 8.8 9.5 7.7 8.6 8.0 -9%
Microcontrollers 7.8 6.2 9.6 7.1 6.8 -13%
Computer Timekeeping 8.1 5.1 5.1 4.5 3.2 -60%
- --------------------------------------------------------------------------------------
Company Total $88.7 $91.0 $93.1 $95.4 $87.4 -1%
- --------------------------------------------------------------------------------------
</TABLE>
Gross margins increased for the first three months of 1998 to 53% from 50%
during the same period in 1997. The gross margin increase 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 first quarter of 1998
increased 15% from the first quarter of 1997. The increase resulted primarily
from increased personnel costs due to increased headcount. R&D expenses as a
percent of sales increased to 14% in the first quarter of 1998 from 12% for the
same period in 1997 due to lower sales volume and higher R&D expenditures.
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<PAGE> 8
DALLAS SEMICONDUCTOR CORPORATION
RESULTS OF OPERATIONS (CONTINUED)
Selling, general, and administrative ("SG&A") expenses for the first quarter of
1998 increased 15% compared with the first quarter of 1997. The increase in SG&A
expenses resulted primarily from increased personnel costs. SG&A expenses as a
percent of net sales increased to 17% for the first quarter of 1998 from 14% for
the first quarter of 1997 due to lower sales volume and higher SG&A
expenditures.
Operating income decreased 8% for the first quarter of 1998 compared to the
first quarter of 1997. The decrease was due primarily to improved gross profit
margins on slightly lower sales being more than offset by higher operating
expenditures. Operating income as a percent of sales decreased from 23% for the
first quarter of 1997 to 21% for the first quarter of 1998.
Net interest income for the first quarter of 1998 increased by $223,000
or 24% over the first quarter of 1997. The increase in net interest income is
due primarily to higher average cash balances. 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 of $258,000 and $488,000 for
the first quarter of 1998 and 1997, respectively. The Company's effective tax
rate decreased from 32.2% in the first quarter 1997 to 32.0% in the first
quarter of 1998 as 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 $108.6 million at the end of the first
quarter of 1998, compared with $114.6 million at the end of fiscal year 1997.
The decrease in cash and short-term investments was primarily the result of net
cash provided by operations during the first three months
of 1998 of $21.6 million being more than offset by investments in property,
plant and equipment of $30.4 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 $30 million in the first quarter of 1998 compared to $10
million for the same period of 1997. Capital expenditures for the first quarter
of 1998 related primarily to wafer fabrication and test equipment. Capital
expenditures for 1998 are estimated to total approximately $75 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, of up to 500,000 shares of the Company's common
stock. As of March 29, 1998, a total of 215,900 shares, totaling $3,446,000 have
been purchased pursuant to this stock repurchase program.
On March 2, 1998, a $0.04 dividend was paid on each outstanding share of
common stock, to shareholders of record on February 13, 1998. On April 21, 1998,
a $0.04 dividend was declared on each outstanding share of common stock, payable
on June 1, 1998, to shareholders of record on May 15, 1998.
The Company had no long-term debt at the end of the first quarter of 1998 or at
the end of fiscal year 1997.
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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: May 11, 1998
--------------------------------
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<PAGE> 12
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<S> <C>
EXHIBIT 27 - FINANCIAL DATA SCHEDULE
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-03-1999
<PERIOD-END> MAR-29-1998
<CASH> 108,624
<SECURITIES> 0
<RECEIVABLES> 54,194
<ALLOWANCES> 0
<INVENTORY> 65,875
<CURRENT-ASSETS> 243,072
<PP&E> 358,160
<DEPRECIATION> 176,279
<TOTAL-ASSETS> 430,607
<CURRENT-LIABILITIES> 58,279
<BONDS> 0
0
0
<COMMON> 561
<OTHER-SE> 372,328
<TOTAL-LIABILITY-AND-EQUITY> 430,607
<SALES> 87,448
<TOTAL-REVENUES> 87,448
<CGS> 41,498
<TOTAL-COSTS> 68,714
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 19,871
<INCOME-TAX> 6,359
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 13,512
<EPS-PRIMARY> .49
<EPS-DILUTED> .45
</TABLE>
