<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 April 2, 2000
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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 8, 2000:
60,176,898.
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<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 ended April 2, 2000 and April 4, 1999 ....................... 3
Condensed Consolidated Balance Sheets
April 2, 2000 (Unaudited) and January 2, 2000 ............................ 4
Condensed Consolidated Statements of Cash Flows (Unaudited)
Three months ended April 2, 2000 and April 4, 1999 ....................... 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 4. ....................................................... 10
ITEM 5. OTHER INFORMATION ................................................. 10
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K .................................. 10
SIGNATURE ................................................................. 11
</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
ended
-------------------------
(In thousands, except Apr. 2, Apr. 4,
per share amounts) 2000 1999
- --------------------- ---------- ----------
<S> <C> <C>
Net sales $ 118,115 $ 88,560
Operating costs and expenses:
Cost of sales 56,632 42,401
Research and development 14,489 11,653
Selling, general and administrative 17,578 14,092
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Total costs and expenses 88,699 68,146
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Operating income 29,416 20,414
Interest income, net 2,640 1,650
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Income before income taxes 32,056 22,064
Provision for income taxes 10,354 6,884
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Net income $ 21,702 $ 15,180
========== ==========
Net income per share, basic $ 0.36 $ 0.27
Net income per share, diluted $ 0.34 $ 0.25
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Shares used to calculate net income per share:
Basic 59,726 56,770
Diluted 63,818 60,762
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Dividends declared per share $ 0.0325 $ 0.025
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</TABLE>
See accompanying notes.
3
<PAGE> 4
DALLAS SEMICONDUCTOR CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
Apr. 2, Jan. 2,
(Dollars in thousands, except per share amounts) 2000 2000
- ------------------------------------------------ ---------- ----------
(Unaudited)
<S> <C> <C>
Assets
Current assets:
Cash and short-term investments $ 205,957 $ 192,403
Accounts receivable, net 64,981 54,188
Inventories 76,342 75,518
Deferred tax assets 16,629 16,597
Other current assets 10,101 9,306
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Total current assets 374,010 348,012
Property, plant and equipment, at cost:
Land 8,775 8,775
Building and improvements 83,728 82,991
Machinery and equipment 389,897 375,999
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482,400 467,765
Less accumulated depreciation (271,396) (257,549)
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Property, plant and equipment, net 211,004 210,216
Other assets 7,409 7,032
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$ 592,423 $ 565,260
========== ==========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 29,903 $ 29,064
Accrued salaries and benefits 12,281 16,215
Accrued taxes other than income 2,540 4,559
Other accrued liabilities 11,611 11,608
Income taxes payable 3,308 3,072
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Total current liabilities 59,643 64,518
Stockholders' equity:
Preferred stock, $0.10 par value;
5,000,000 shares authorized; no shares
issued and outstanding -- --
Common stock, $0.02 par value; 100,000,000
shares authorized; issued:
61,002,536 shares at April 2, 2000, and
60,100,166 shares at January 2, 2000 1,220 1,210
Additional paid-in capital 176,502 160,466
Retained earnings 378,605 358,847
Treasury stock, shares at cost:
1,048,812 shares at April 2, 2000
and 939,152 at January 2, 2000 (23,547) (19,781)
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Total stockholders' equity 532,780 500,742
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$ 592,423 $ 565,260
========== ==========
</TABLE>
See accompanying notes.
4
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DALLAS SEMICONDUCTOR CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
--------------------------
Apr. 2, Apr. 4,
(Thousands) 2000 1999
- ----------- ---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 21,702 $ 15,180
Adjustments to reconcile net income to net
cash provided by operating activities
Depreciation 13,847 12,038
Net change in working capital accounts (9,278) (1,299)
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Net cash provided by operating activities 26,271 25,919
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Cash flows from investing activities:
Additions to property, plant and equipment (14,635) (13,390)
Increase in other assets (377) (1,458)
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Net cash used in investing activities (15,012) (14,848)
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Cash flows from financing activities:
Proceeds from issuance of stock
upon exercise of stock options 8,005 1,871
Purchase of treasury stock (3,766) (3,117)
Dividends paid to shareholders (1,944) (1,423)
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Net cash provided by (used in) financing activities 2,295 (2,669)
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Net change in cash and equivalents 13,554 8,402
Cash and short-term investments at
beginning of period 192,403 127,996
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Cash and short-term investments at end of period $ 205,957 $ 136,398
========== ==========
Cash payments for income taxes $ 2,109 $ 2,485
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 $ 8,041 $ 2,272
</TABLE>
See accompanying notes.
5
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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 January 2,
2000. 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 April
2, 2000 and January 2, 2000, 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 January 2, 2000. Results of operations
for the three month period ended April 2, 2000 are not necessarily indicative of
results to be expected for the full year.
2. SHORT-TERM INVESTMENTS (In thousands)
<TABLE>
<CAPTION>
Three Months Ended
--------------------------
Apr. 2, Apr. 4,
2000 1999
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<S> <C> <C>
Short-term investments at beginning of period $ 175,320 $ 123,780
Purchases of short-term investments 7,578 22,638
Maturities of short-term investments (1,470) (475)
Sales of short-term investments (2,624) (15,122)
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Short-term investments at end of period $ 178,804 $ 130,821
========== ==========
</TABLE>
The Company considers all liquid interest-earning investments with a maturity of
three months or less at the date of purchase to be cash equivalents. Short-term
investments generally mature between three months and five years from the
purchase date. Short-term investments consist of corporate notes, municipal
bonds, commercial paper and money market funds. Such investments are carried at
amounts that approximate their fair market value based on quoted market prices.
3. INVENTORIES (In thousands)
<TABLE>
<CAPTION>
Apr. 2, Jan. 2,
2000 2000
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<S> <C> <C>
Raw materials $ 11,855 $ 8,760
Work-in-process 52,096 54,065
Finished goods 12,391 12,693
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$ 76,342 $ 75,518
========== ==========
</TABLE>
Inventories are stated at the lower of standard cost, which approximates actual
cost (first-in, first-out), or market.
6
<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 2000 were $118,115,000, an increase of 33%
over the first quarter of 1999. The Company's revenue by product group is shown
in the table below.
<TABLE>
<CAPTION>
NET SALES
(In millions)
- -------------
Change
Product Groups Q199 Q299 Q399 Q499 Q100 Q100-Q199
- -------------- ------ ------ ------ ------ ------ ---------
<S> <C> <C> <C> <C> <C> <C>
Communications $ 13.2 $ 14.7 $ 17.3 $ 23.0 $ 25.1 90%
1-Wire & Network Computing 20.5 21.8 23.4 25.2 22.4 9%
Mixed Signal 54.9 57.5 60.9 60.0 70.6 29%
------ ------ ------ ------ ------ ------
Company Total $ 88.6 $ 94.0 $101.6 $108.2 $118.1 33%
------ ------ ------ ------ ------ ------
</TABLE>
Gross margins were 52.1% during both the first three months of 2000 and the same
period in 1999. Gross margins remained stable as efficiencies resulting from
higher production volumes were offset by some duplicate production costs related
to the transition of certain testing and module assembly processes to
subcontractors in the Philippines.
Research and development ("R&D") expenses for the first quarter of 2000
increased 24% from the first quarter of 1999. The increase resulted primarily
from an increase in headcount and the associated costs. R&D expenses as a
percent of sales decreased to 12.3% in the first quarter of 2000 from 13.2% for
the same period in 1999. This was primarily due to higher sales volume.
Selling, general, and administrative ("SG&A") expenses for the first quarter of
2000 increased 25% compared with the first quarter of 1999. The increase was due
primarily to both higher personnel costs and a higher headcount. SG&A expenses
as a percent of net sales decreased to 14.9% for the first quarter of 2000 from
15.9% for the first quarter of 1999 primarily due to higher sales volume.
7
<PAGE> 8
DALLAS SEMICONDUCTOR CORPORATION
RESULTS OF OPERATIONS (CONTINUED)
Operating income increased 44% for the first quarter of 2000 compared to the
first quarter of 1999. Increased sales and stable gross margins, partially
offset by higher operating expenses, produced higher operating income. Operating
income as a percent of sales increased to 24.9% for the first quarter of 2000
from 23.1% for the first quarter of 1999.
Net interest income for the first quarter of 2000 increased by $989,000 or 60%
over the first quarter of 1999. The increase in net interest income is due
primarily to higher average cash balances. Any substantial change in the
Company's cash and short term investments and changes in interest rates will
continue to affect net interest income.
The Company's effective tax rate increased to 32.3% in the first quarter of 2000
from 31.2% in the first quarter of 1999. This increase was primarily due to a
decline in tax exempt interest income.
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, accelerated declines in the average selling price of the Company's
existing products, changes in customer order patterns, market acceptance of the
Company's new products, distributor and sales representative performance, the
ability of the Company to continue diversifying its product line, accelerated
growth of inventory leading to excess inventory and salability and/or
obsolescence write-downs, excess production capacity, 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 $206.0 million at the end of the first
quarter of 2000, compared with $192.4 million at the end of fiscal year 1999.
The increase in cash and short-term investments was primarily the result of net
cash provided by operations during the first three months of 2000 of $26.3
million offset by investments in property, plant and equipment of $14.6 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.
8
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DALLAS SEMICONDUCTOR CORPORATION
FINANCIAL CONDITION (CONTINUED)
Capital additions were $14.6 million in the first quarter of 2000, compared to
$13.4 million for the same period of 1999. Capital expenditures for the first
quarter of 2000 related primarily to wafer fabrication and test equipment. Total
capital expenditures for 2000 are estimated to be approximately $120 million and
will be used primarily for wafer fabrication, manufacturing and test equipment.
Included in estimated capital expenditures for fiscal 2000 is approximately $30
million relating to the structural expansion of the Company's wafer fabrication
facility. This expansion is expected to be completed in the first quarter of
2001.
As amended in 1998, the Board of Directors authorized the purchase from
time-to-time, depending on market conditions, of up to 2,000,000 shares of the
Company's common stock. As of April 2, 2000, a total of 1,297,562 shares,
totaling $25,344,945 have been purchased under this stock repurchase program and
recorded using the cost method.
On February 28, 2000 a two-for-one stock split in the form of a 100% stock
dividend was paid to stockholders of record on February 7, 2000. Also a cash
dividend of $0.065 on each outstanding share of common stock, was paid on
February 28, 2000, to shareholders of record on February 7, 2000. The cash
dividend paid on February 28, 2000 was paid on a pre-split basis. All share and
per share information included in the accompanying condensed consolidated
financial statements and related notes have been restated to reflect this stock
split.
9
<PAGE> 10
DALLAS SEMICONDUCTOR CORPORATION
PART II. OTHER INFORMATION
ITEMS 1.-4. Not Applicable
ITEM 5. OTHER INFORMATION
YEAR 2000 DISCLOSURE
During 1999, the Company completed all remediation projects related to
Year 2000 issues and has not experienced any material adverse impact to
its mission critical systems, including information systems and
production and manufacturing systems. Also, the Company is not aware of
any third party with a Year 2000 issue that would materially impact the
Company's results of operations, liquidity, or capital resources. In
addition, the Company is not currently aware of any claims of breach of
contract or warranty, potential product return issues or impairment of
assets relating to Year 2000 noncompliance that would materially impact
the Company's results of operations, liquidity, or capital resources.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit 27.1 - Financial Data Schedule
(b) Reports on Form 8-K
A Current Report on Form 8-K was filed on March 24, 2000,
reporting with respect to changes in the Registrant's certifying
accountant. Said Form 8-K was amended by a Form 8-K/A filed on
April 6, 2000, reporting as follows: At a meeting held on March
22, 2000, the Audit Committee of the Board of Directors of the
Registrant determined not to renew the engagement of Ernst & Young
LLP to audit the consolidated financial statements of the
Registrant for the 2000 fiscal year and selected KPMG LLP to audit
the Registrant's consolidated financial statements for the 2000
fiscal year. KPMG, LLP has accepted the engagement. This change in
accountants may be construed as "dismissal" of Ernst & Young LLP
within the meaning of Item 304(a)(1)(i) of Regulation S-K of the
Securities and Exchange Commission. The reports of Ernst & Young
LLP on the financial statements of the Registrant for the past two
fiscal years ended January 2, 2000, and January 3, 1999, did not
contain an adverse opinion or a disclaimer of opinion and were not
qualified or modified as to uncertainty, audit scope, or
accounting principles. During the Registrant's two most recent
fiscal years ended January 2, 2000 and January 3, 1999, and the
subsequent interim period ended March 22, 2000, there were no
disagreements with Ernst & Young LLP on any matter of accounting
principles or practices, financial statement disclosure, or
auditing scope and procedures, which disagreement(s), if not
resolved to the satisfaction of Ernst & Young LLP, would have
caused Ernst & Young LLP to make reference to the subject matter
of the disagreement(s) in its reports. None of the reportable
events listed in Item 304(a)(1)(v) of Regulation S-K occurred.
Other than the engagement of KPMG LLP to audit the Registrant's
consolidated financial statements for the 2000 fiscal year
reported in paragraph two above, none of the reportable events
listed in Item 304(a)(2) of Regulation S-K occurred.
10
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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 15, 2000
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11
<PAGE> 12
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
27.1 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> APR-02-2000
<CASH> 205,957
<SECURITIES> 0
<RECEIVABLES> 64,981
<ALLOWANCES> 0
<INVENTORY> 76,342
<CURRENT-ASSETS> 374,010
<PP&E> 482,400
<DEPRECIATION> 271,396
<TOTAL-ASSETS> 592,423
<CURRENT-LIABILITIES> 59,643
<BONDS> 0
0
0
<COMMON> 1,220
<OTHER-SE> 532,780
<TOTAL-LIABILITY-AND-EQUITY> 592,423
<SALES> 118,115
<TOTAL-REVENUES> 118,115
<CGS> 56,632
<TOTAL-COSTS> 88,699
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 32,056
<INCOME-TAX> 10,354
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 21,702
<EPS-BASIC> 0.36
<EPS-DILUTED> 0.34
</TABLE>
