<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 October 1, 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 November 3,
2000: 60,756,113.
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DALLAS SEMICONDUCTOR CORPORATION
INDEX TO FORM 10-Q
<TABLE>
<CAPTION>
PAGE NO.
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<S> <C>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Condensed Consolidated Statements of Income (Unaudited)
Three months and nine months ended October 1, 2000 and October 3, 1999 ................ 3
Condensed Consolidated Balance Sheets
October 1, 2000 (Unaudited) and January 2, 2000 ....................................... 4
Condensed Consolidated Statements of Cash Flows (Unaudited)
Nine months ended October 1, 2000 and October 3, 1999 ................................. 5
Notes to Condensed Consolidated Financial Statements .................................... 6 - 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS ............................................ 7 - 9
ITEM 3. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK ..................... 10
PART II. OTHER INFORMATION
ITEMS 1. THROUGH 5. ..................................................................... 10
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K ............................................... 10
SIGNATURE ............................................................................... 11
EXHIBIT 27.1
</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 Nine months
Ended Ended
--------------------- ---------------------
(In thousands, except Oct. 1, Oct. 3, Oct. 1, Oct. 3,
per share amounts) 2000 1999 2000 1999
---------------------------------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales $139,456 $101,180 $386,826 $282,748
Operating costs and expenses:
Cost of sales 65,729 48,978 183,957 136,600
Research and development 17,510 12,799 48,038 36,833
Selling, general and administrative 20,591 15,845 57,607 44,706
-------- -------- -------- --------
Total costs and expenses 103,830 77,622 289,602 218,139
-------- -------- -------- --------
Operating income 35,626 23,558 97,224 64,609
License fees, net 590 393 1,693 1,399
Interest income, net 3,428 1,739 8,925 5,027
-------- -------- -------- --------
Income before income taxes 39,644 25,690 107,842 71,035
Provision for income taxes 12,684 8,015 34,784 22,163
-------- -------- -------- --------
Net income $ 26,960 $ 17,675 $ 73,058 $ 48,872
======== ======== ======== ========
Net income per share, basic $ 0.45 $ 0.31 $ 1.22 $ 0.85
Net income per share, diluted $ 0.42 $ 0.29 $ 1.14 $ 0.80
-------- -------- -------- --------
Shares used to calculate net income per share:
Basic 60,392 57,870 60,089 57,360
Diluted 64,187 61,986 64,068 61,434
-------- -------- -------- --------
Dividends declared per share $ 0.0325 $ 0.025 $ 0.0975 $ 0.075
-------- -------- -------- --------
</TABLE>
See accompanying notes.
3
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DALLAS SEMICONDUCTOR CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
Oct. 1, Jan. 2,
(In thousands, except share and per share amounts) 2000 2000
-------------------------------------------------- ----------- --------
(Unaudited)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 21,282 $ 17,083
Short-term investments 213,399 175,320
Accounts receivable, net 93,418 54,188
Inventories 77,497 75,518
Deferred tax assets 23,519 16,597
Other current assets 12,947 9,306
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Total current assets 442,062 348,012
Property, plant and equipment, at cost:
Land 8,799 8,775
Building and improvements 97,407 82,991
Machinery and equipment 432,417 375,999
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538,623 467,765
Less accumulated depreciation (301,424) (257,549)
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Property, plant and equipment, net 237,199 210,216
Other assets 11,411 7,032
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$ 690,672 $ 565,260
========= =========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 45,077 $ 29,064
Accrued salaries and benefits 24,065 16,215
Accrued taxes other than income 4,053 4,559
Other accrued liabilities 25,215 11,608
Income taxes payable 5,225 3,072
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Total current liabilities 103,635 64,518
Stockholders' equity:
Preferred stock, $0.10 par value;
5,000,000 shares authorized; no shares
issued and outstanding -- --
Common stock, $0.02 par value; 100,000,000
shares authorized; issued:
61,627,630 shares at October 1, 2000, and
60,100,166 shares at January 2, 2000 1,232 1,210
Additional paid-in capital 189,635 160,466
Retained earnings 426,041 358,847
Treasury stock, shares at cost:
1,193,579 shares at October 1, 2000
and 939,152 at January 2, 2000 (29,871) (19,781)
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Total stockholders' equity 587,037 500,742
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$ 690,672 $ 565,260
========= =========
</TABLE>
See accompanying notes.
4
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DALLAS SEMICONDUCTOR CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
-----------------------------
October 1, October 3,
(In thousands) 2000 1999
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<S> <C> <C>
Cash flows from operating activities:
Net income $ 73,058 $ 48,872
Adjustments to reconcile net income to net
cash provided by operating activities:
Tax benefit of stock option exercises 15,009 12,503
Depreciation 43,875 36,998
Net change in working capital accounts (12,655) (2,849)
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Net cash provided by operating activities 119,287 95,524
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Cash flows from investing activities:
Purchases of short-term investments (121,873) (52,666)
Sales and maturities of short-term investments 83,794 16,147
Additions to property, plant and equipment (70,858) (39,850)
Increase in other assets (4,379) (1,427)
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Net cash used in investing activities (113,316) (77,796)
--------- ---------
Cash flows from financing activities:
Proceeds from issuance of stock
upon exercise of stock options 14,182 9,142
Purchase of treasury stock (10,090) (9,485)
Dividends paid to shareholders (5,864) (4,310)
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Net cash used in financing activities (1,772) (4,653)
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Net change in cash and cash equivalents 4,199 13,075
Cash and cash equivalents at beginning of period 17,083 4,216
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Cash and cash equivalents at end of period 21,282 17,291
Short-term investments at end of period 213,399 160,299
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Cash and short-term investments at end of period $ 234,681 $ 177,590
========= =========
Cash payments for income taxes $ 24,544 $ 14,247
</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 October 1, 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 nine month periods ended October 1, 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>
October 1, Jan. 2,
2000 2000
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<S> <C> <C>
Raw materials $14,160 $ 8,760
Work-in-process 50,077 54,065
Finished goods 13,260 12,693
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$77,497 $75,518
======= =======
</TABLE>
Inventories are stated at the lower of standard cost, which approximates actual
cost (first-in, first-out), or market.
5. NEW ACCOUNTING PRONOUNCEMENTS
In December 1999, the Securities and Exchange Commission released Staff
Accounting Bulletin No. 101, Revenue Recognition in Financial Statements (SAB
101), providing the staff's views in applying generally accepted accounting
principles to selected revenue recognition issues. SAB 101 becomes effective for
the fourth quarter of fiscal year 2000. The Company believes that the adoption
of SAB 101 will not have a material effect on the Company's financial position
or overall trends in results of operations.
6
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DALLAS SEMICONDUCTOR CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." This new
standard requires companies to record derivatives on the balance sheet as assets
or liabilities, measured at fair value. Under SFAS No. 133, gains or losses
resulting from changes in the values of derivatives are to be reported in the
statement of operations or as a deferred item, depending on the use of the
derivatives and whether they qualify for hedge accounting. The Company is
required to adopt SFAS No. 133 in the first quarter of 2001. The Company is not
currently engaged in any hedging activity and does not believe that the adoption
of SFAS No. 133 will have any effect on the Company's financial position or
overall trends in results of operations.
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 2000 were $139,456,000, an increase of 38%
over the third quarter of 1999. The Company's revenue by product group is shown
in the table below.
Product Group Information
(In millions)
<TABLE>
<CAPTION>
Change
Q399 Q499 Q100 Q200 Q300 Q300-Q399
------ ------ ------ ------ ------ ---------
<S> <C> <C> <C> <C> <C> <C>
Communications $ 17.3 $ 23.0 $ 25.1 $ 28.1 $ 26.6 54%
1-Wire & Network Computing 23.0 24.5 21.9 20.6 23.3 1%
Mixed Signal 60.9 60.0 70.6 81.1 89.6 47%
------ ------ ------ ------ ------ ---
Net Sales $101.2 $107.5 $117.6 $129.8 $139.5 38%
------ ------ ------ ------ ------ ---
Orders $114.4 $115.0 $152.4 $177.7 $157.4 38%
------ ------ ------ ------ ------ ---
90 day Order Backlog $ 51.9 $ 59.3 $ 69.7 $ 94.9 $107.5 107%
------ ------ ------ ------ ------ ---
</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.
7
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DALLAS SEMICONDUCTOR CORPORATION
RESULTS OF OPERATIONS (CONTINUED)
Gross margins increased for the first nine months of 2000 to 52.4% from 51.7%
during the same period in 1999. Gross margins increased in the third quarter of
2000 to 52.9% from 51.6% in the third quarter of 1999. Gross margins increased
primarily due to efficiencies resulting from higher production volumes.
Research and development ("R&D") expenses increased 37% for the third quarter of
2000 and 30% for the first nine months of 2000 as compared to the same periods
in 1999. The increase was due primarily to higher personnel costs. R&D expenses
as a percent of net sales was 12.6% and 12.4% for the three and nine month
periods ended October 1, 2000 as compared to 12.6% and 13.0% respectively, for
the same periods ended October 3, 1999.
Selling, general, and administrative ("SG&A") expenses increased 30% for the
third quarter of 2000 and 29% for the first nine 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 14.8% and 14.9% for the three
and nine month periods ended October 1, 2000 as compared to 15.7% and 15.8%
respectively, for the same periods ended October 3, 1999.
Operating income increased 51% for both the third quarter of 2000 and the first
nine months of 2000 as compared to the same periods in 1999. 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
25.5% and 25.1% for the three and nine month periods ended October 1, 2000 as
compared to 23.3% and 22.9% respectively, for the same periods ended October 3,
1999.
Net license fees, were $590,000 and $1,693,000 for the third quarter and nine
months of 2000 as compared to $393,000 and $1,399,000 respectively, for the
third quarter and nine months of 1999. License fees are a direct result of
successful and ongoing efforts to license some of the Company's patents to third
parties. The amount and timing of future income from licensing agreements cannot
be precisely forecast.
Net interest income for the third quarter of 2000 increased by $1,689,000 or 97%
over the third quarter of 1999. Net interest income increased by $3,898,000 or
78% for the first nine 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 short-term investment 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 32.0% in the third quarter and 32.3% for
first nine 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.
8
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DALLAS SEMICONDUCTOR CORPORATION
RESULTS OF OPERATIONS (CONTINUED)
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 $234.7 million at the end of the third
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 nine months of 2000 of $119.3
million being offset by investments in property, plant and equipment of $70.9
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 $26 million in the third quarter of 2000, compared to $15
million for the same period of 1999. Capital expenditures for the third 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 October 1, 2000, a total of 1,442,329 shares,
totaling $31,698,497 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 September 1, 2000, to shareholders of record on August 15, 2000.
9
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DALLAS SEMICONDUCTOR CORPORATION
ITEM 3. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
The following discusses our exposure to market risk related to changes in
interest rates and foreign currency exchange rates.
As of October 1, 2000, the Company had short-term investments in debt securities
of $213.4 million. These investments are subject to interest rate risk and will
decrease in value if market interest rates increase. A hypothetical increase or
decrease in market interest rates by 10% (E.g. an increase in rates from say 6%
to 6.6% or a decrease in rates to 5.4%) from the October 1, 2000 rates would
cause the fair value of these short-term investments to change by an immaterial
amount as compared to the Company's total assets. This is mainly due to the
short-term nature of the major portion of the Company's investment portfolio.
The Company anticipates that it has the ability to hold these investments until
maturity, and therefore does not expect the value of these investments to be
affected to any significant degree by the effect of a sudden change in market
interest rates. Declines in interest rates over time will, however, reduce
interest income.
All of the Company's revenues are realized currently in U.S. dollars. In
addition, the Company does not maintain significant asset or cash account
balances in currencies other than the United States dollar. Therefore, the
Company does not believe there is currently any significant direct foreign
currency exchange rate risk.
PART II. OTHER INFORMATION
ITEMS 1.- 5.
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: November 14, 2000
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INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
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<S> <C>
27.1 Financial Data Schedule
</TABLE>
