<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 July 2, 2000
------------
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 7,
2000: 60,421,457.
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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 six months ended July 2, 2000
and July 4, 1999 .................................................... 3
Condensed Consolidated Balance Sheets
July 2, 2000 (Unaudited) and January 2, 2000 ........................ 4
Condensed Consolidated Statements of Cash Flows (Unaudited)
Six months ended July 2, 2000 and July 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 3. ................................................... 10
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS .......... 10
ITEM 5. OTHER INFORMATION ............................................ 10
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K ............................. 10
SIGNATURE ............................................................. 11
EXHIBIT 27.1 .......................................................... FDS
</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
--------------------- ---------------------
(In thousands, except July 2, July 4, July 2, July 4,
per share amounts) 2000 1999 2000 1999
--------------------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales $129,768 $ 93,622 $247,370 $181,569
Operating costs and expenses:
Cost of sales 61,596 45,221 118,228 87,622
Research and development 16,039 12,381 30,528 24,034
Selling, general and administrative 19,438 14,769 37,016 28,861
-------- -------- -------- --------
Total costs and expenses 97,073 72,371 185,772 140,517
-------- -------- -------- --------
Operating income 32,695 21,251 61,598 41,052
License fees, net 590 393 1,103 1,006
Interest income, net 2,857 1,637 5,497 3,287
-------- -------- -------- --------
Income before income taxes 36,142 23,281 68,198 45,345
Provision for income taxes 11,746 7,264 22,100 14,148
-------- -------- -------- --------
Net income $ 24,396 $ 16,017 $ 46,098 $ 31,197
======== ======== ======== ========
Net income per share, basic $ 0.41 $ 0.28 $ 0.77 $ 0.55
Net income per share, diluted $ 0.38 $ 0.26 $ 0.72 $ 0.51
-------- -------- -------- --------
Shares used to calculate net income per share:
Basic 60,148 57,444 59,937 57,106
Diluted 64,200 61,554 64,009 61,158
-------- -------- -------- --------
Dividends declared per share $ 0.0325 $ 0.025 $ 0.065 $ 0.05
-------- -------- -------- --------
</TABLE>
See accompanying notes.
3
<PAGE> 4
DALLAS SEMICONDUCTOR CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(In thousands, except share July 2, Jan. 2,
and per share amounts) 2000 2000
--------------------------- --------- ---------
(Unaudited)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 32,768 $ 17,083
Short-term investments 211,527 175,320
Accounts receivable, net 82,669 54,188
Inventories 76,124 75,518
Deferred tax assets 17,688 16,597
Other current assets 10,923 9,306
--------- ---------
Total current assets 431,699 348,012
Property, plant and equipment, at cost:
Land 8,775 8,775
Building and improvements 90,821 82,991
Machinery and equipment 412,771 375,999
--------- ---------
512,367 467,765
Less accumulated depreciation (285,981) (257,549)
--------- ---------
Property, plant and equipment, net 226,386 210,216
Other assets 11,153 7,032
--------- ---------
$ 669,238 $ 565,260
========= =========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 50,206 $ 29,064
Accrued salaries and benefits 17,375 16,215
Accrued taxes other than income 3,158 4,559
Other accrued liabilities 27,205 11,608
Income taxes payable 11,434 3,072
--------- ---------
Total current liabilities 109,378 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:
61,355,965 shares at July 2, 2000, and
60,100,166 shares at January 2, 2000 1,227 1,210
Additional paid-in capital 183,813 160,466
Retained earnings 401,044 358,847
Treasury stock, shares at cost:
1,111,163 shares at July 2, 2000
and 939,152 at January 2, 2000 (26,224) (19,781)
--------- ---------
Total stockholders' equity 559,860 500,742
--------- ---------
$ 669,238 $ 565,260
========= =========
</TABLE>
See accompanying notes.
4
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DALLAS SEMICONDUCTOR CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
------------------------
July 2, July 4,
(In thousands) 2000 1999
-------------- --------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 46,098 $ 31,197
Adjustments to reconcile net income to net
cash provided by operating activities:
Tax benefit of stock option exercises (11,575) (7,761)
Depreciation 28,432 24,346
Net change in working capital accounts 36,215 9,395
--------- ---------
Net cash provided by operating activities 99,170 57,177
--------- ---------
Cash flows from investing activities:
Purchases of short-term investments (78,516) (33,657)
Sales and maturities of short-term investments 42,309 15,922
Additions to property, plant and equipment (44,602) (24,751)
Increase in other assets (4,121) (1,343)
--------- ---------
Net cash used in investing activities (84,930) (43,829)
--------- ---------
Cash flows from financing activities:
Proceeds from issuance of stock
upon exercise of stock options 11,789 6,111
Purchase of treasury stock (6,443) (7,588)
Dividends paid to shareholders (3,901) (2,863)
--------- ---------
Net cash provided by (used in) financing activities 1,445 (4,340)
--------- ---------
Net change in cash and cash equivalents 15,685 9,008
Cash and cash equivalents at beginning of period 17,083 4,216
--------- ---------
Cash and cash equivalents at end of period 32,768 13,224
Short-term investments at end of period 211,527 141,515
--------- ---------
Cash and short-term investments at end of period $ 244,295 $ 154,739
========= =========
Cash payments for income taxes $ 3,256 $ 10,683
</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. Certain reclassifications have been made to prior period balances to
conform with the current period presentation. 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 July 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 and six month periods ended July 2, 2000 are not necessarily
indicative of results to be expected for the full year.
2. LICENSE FEES
Revenue from the licensing of the Company's intellectual property is recognized
as contractual obligations are met and revenue is earned.
3. SHORT-TERM INVESTMENTS
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.
4. INVENTORIES (In thousands)
<TABLE>
<CAPTION>
July 2, Jan. 2,
2000 2000
------- -------
<S> <C> <C>
Raw materials $12,493 $ 8,760
Work-in-process 52,497 54,065
Finished goods 11,134 12,693
------- -------
$76,124 $75,518
======= =======
</TABLE>
Inventories are stated at the lower of standard cost, which approximates actual
cost (first-in, first-out), or market.
6
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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 2000 were $129,768,000, an increase of 39%
over the second quarter of 1999. The Company's revenue by product group is shown
in the table below.
Product Group Information
(In millions)
<TABLE>
<CAPTION>
Change
Q299 Q399 Q499 Q100 Q200 Q200-Q299
------ ------ ------ ------ ------ ---------
<S> <C> <C> <C> <C> <C> <C>
Communications $ 14.7 $ 17.3 $ 23.0 $ 25.1 $ 28.1 91%
1-Wire & Network Computing 21.4 23.0 24.5 21.9 20.6 (4)%
Mixed Signal 57.5 60.9 60.0 70.6 81.1 41%
------ ------ ------ ------ ------ ---
Net Sales $ 93.6 $101.2 $107.5 $117.6 $129.8 39%
------ ------ ------ ------ ------ ---
Orders $ 96.6 $114.4 $115.0 $152.4 $177.7 84%
------ ------ ------ ------ ------ ---
90 day Order Backlog $ 44.7 $ 51.9 $ 59.3 $ 69.7 $ 94.9 112%
------ ------ ------ ------ ------ ---
</TABLE>
The Company's backlog at any particular date may not be representative of actual
sales for any succeeding period because lead times for the release of purchase
orders depend upon the scheduling practices of individual customers, the
delivery times can be affected by scheduling factors and other manufacturing
considerations, the rate of booking new orders can vary significantly from month
to month, and the possibility of customer changes in delivery schedules or
cancellations of orders.
Gross margins increased for the first six months of 2000 to 52.2% from 51.7%
during the same period in 1999. Gross margins increased in the second quarter of
2000 to 52.5% from 51.7% in the second quarter of 1999. Gross margins increased
primarily due to efficiencies resulting from higher production volumes.
Research and development ("R&D") expenses for the second quarter of 2000
increased 30% from the second quarter of 1999 due primarily to higher personnel
costs. R&D expenses for the first six months of 2000 increased 27%, as compared
to the same period in 1999. R&D expenses as a percent of sales decreased to
12.4% from 13.2% for the second quarter of 2000 and 1999, respectively. R&D
expenses as a percent of net sales decreased to 12.3% for the first six months
of 2000 from 13.2% during the same period in 1999.
7
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DALLAS SEMICONDUCTOR CORPORATION
RESULTS OF OPERATIONS (CONTINUED)
Selling, general, and administrative ("SG&A") expenses increased 32% for the
second quarter of 2000 and 28% for the first six months of 2000 as compared to
the same periods in 1999. The increase was due primarily to higher personnel
costs. SG&A expenses as a percent of net sales was 15.0% for the three and six
month periods ended July 2, 2000 as compared to 15.8% and 15.9% respectively,
for the same periods ended July 4, 1999.
Operating income increased 54% and 50% for the second quarter of 2000 and the
first six months of 2000 over the same periods in 1999, respectively. Increased
sales and gross margins, partially offset by higher operating expenses, produced
higher operating income in both periods. Operating income as a percent of sales
was 24.6% and 24.9% for the three and six month periods ended July 2, 2000 as
compared to 23.1% and 22.6% respectively, for the same periods ended July 4,
1999.
Net license fees, previously reported as a component of net sales, were
reclassified for all periods presented as a separate line item on the income
statement. Net license fees, were $590,000 and $1,103,000 for the first three
and six months of 2000 as compared to $393,000 and $1,006,000 for the first
three and six months of 1999. License fees are a direct result of successful and
ongoing efforts to license the Company's battery charger patents to third
parties. The amount and timing of future income from licensing agreements cannot
be precisely forecast.
Net interest income for the second quarter of 2000 increased by $1,220,000 or
75% over the second quarter of 1999. Net interest income increased by $2,210,000
or 67% for the first six months of 2000 over the same period in 1999. The
increase in net interest income is due primarily to gains on the sales of
investments, higher average cash balances and an increase in the ratio of
taxable to tax exempt investments. Changes in interest rates will continue to
affect net interest income as well as any substantial change in the Company's
cash and short term investments.
The Company's effective tax rate was 32.5% in the second quarter and 32.4% for
first six months of 2000 as compared to 31.2% for the same periods in 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.
8
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DALLAS SEMICONDUCTOR CORPORATION
FINANCIAL CONDITION
Cash and short-term investments were $244.3 million at the end of the second
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 six months of 2000 of $99.2 million
being offset by investments in property, plant and equipment of $44.6 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.
Capital additions were $30.0 million in the second quarter of 2000, compared to
$11.4 million for the same period of 1999. Capital expenditures for the second
quarter of 2000 related primarily to wafer fabrication and test equipment. Total
capital expenditures for 2000 are estimated to be approximately $125 million and
will be used primarily for wafer fabrication, manufacturing and test equipment.
Included in estimated capital expenditures for fiscal 2000 is approximately $25
million relating to the structural expansion of the Company's wafer fabrication
facility. This structural expansion, expected to be completed in March 2001 for
a total cost of approximately $40 million, will create additional clean room
space and related support areas needed for higher production levels. Depending
on wafer process complexity, the new space when fully equipped will expand the
Company's wafer production capacity by approximately 40 percent.
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 July 2, 2000, a total of 1,359,913 shares,
totaling $28,051,590 have been purchased under this stock repurchase program and
recorded using the cost method.
A cash dividend of $0.0325 on each outstanding share of common stock, was paid
on June 1, 2000, to shareholders of record on May 15, 2000.
9
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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 25, 2000.
(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 55,053,517 428,236
Chao C. Mai 55,052,911 428,842
Michael L. Bolan 55,043,241 438,512
Richard L. King 55,305,631 176,122
M.D. Sampels 55,297,111 184,642
Carmelo J. Santoro 55,301,311 180,442
</TABLE>
<TABLE>
<CAPTION>
Votes Broker
Votes For Against Abstentions Non-Votes
---------- ------- ----------- ---------
<S> <C> <C> <C> <C>
Approval of the
Employee Stock Purchase
Plan 54,420,391 657,188 403,173 1,001
</TABLE>
<TABLE>
<CAPTION>
Votes Broker
Votes For Against Abstentions Non-Votes
---------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
Approval of the 1993
Officer and Director Stock
Option Plan, as Amended 33,085,109 21,965,151 429,952 1,541
</TABLE>
ITEM 5. OTHER INFORMATION
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit 27.1 - 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
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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 and Chief Financial Officer
Date: August 15, 2000
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11
<PAGE> 12
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
27.1 Financial Data Schedule
</TABLE>
