UNITED STATES 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 31, 2002
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
Commission File Number 0-11250
DIONEX CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 94-2647429
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1228 Titan Way, Sunnyvale, California 94085
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (408) 737-0700
NONE
(Former name, former address and former fiscal year, if changed since last
report.)
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 |_|
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of May 10, 2002:
CLASS NUMBER OF SHARES
----- ----------------
Common Stock 21,282,272
Page 1 of 22
DIONEX CORPORATION
INDEX
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS Page
CONDENSED CONSOLIDATED BALANCE SHEETS
March 31, 2002 and June 30, 2001................. 3
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended March 31, 2002 and 2001....... 4
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
Nine Months Ended March 31, 2002 and 2001........ 5
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended March 31, 2002 and 2001........ 6
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS....................................... 7-13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS................ 14-20
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISKS................................. 21
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K................... 21
SIGNATURES.................................................. 22
2
DIONEX CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except per share amounts)
March 31, June 30,
2002 2001
--------- ---------
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents (including invested cash of $10,465
at March 31, 2002 and $7,853 at June 30, 2001) ............. $ 18,508 $ 17,311
Marketable equity securities ................................. 3,146 5,858
Accounts receivable (net of allowance for doubtful accounts
of $978 at March 31, 2002 and $890 at June 30, 2001) ....... 41,188 45,142
Inventories .................................................. 22,203 25,017
Deferred tax assets .......................................... 9,120 8,619
Prepaid expenses and other ................................... 2,983 2,810
--------- ---------
Total current assets .................................. 97,148 104,757
Property, plant and equipment, net ............................. 42,495 42,327
Goodwill ....................................................... 17,349 13,233
Intangible assets, net ......................................... 5,599 6,423
Other assets ................................................... 7,471 6,942
--------- ---------
$ 170,062 $ 173,682
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable to banks ....................................... $ 3,161 $ 2,495
Accounts payable ............................................. 5,171 6,250
Accrued liabilities .......................................... 22,063 21,533
Income taxes payable ......................................... 4,065 3,425
Accrued product warranty ..................................... 2,967 2,983
--------- ---------
Total current liabilities ............................. 37,427 36,686
Deferred taxes and other liabilities ........................... 6,191 6,172
Long-term debt ................................................. 1,018 966
Stockholders' equity:
Preferred stock (par value $.001 per share; 1,000,000 shares
authorized; none outstanding) .............................. -- --
Common stock (par value $.001 per share; 80,000,000 shares
authorized; issued and outstanding: 21,352,272 shares at
March 31, 2002 and 22,177,005 shares at June 30, 2001) ..... 67,691 67,282
Retained earnings ............................................ 66,559 70,204
Accumulated other comprehensive loss ......................... (8,824) (7,628)
--------- ---------
Total stockholders' equity ............................ 125,426 129,858
--------- ---------
$ 170,062 $ 173,682
========= =========
See notes to condensed consolidated financial statements.
3
DIONEX CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
THREE MONTHS ENDED MARCH 31, 2002 AND 2001
(In thousands, except per share amounts)
March 31,
----------------------
2002 2001
-------- --------
(unaudited)
Net sales ........................................... $ 45,060 $ 48,184
Cost of sales ....................................... 15,388 16,212
-------- --------
Gross profit ........................................ 29,672 31,972
-------- --------
Operating expenses:
Selling, general and administrative ............... 15,878 16,314
Research and product development .................. 3,775 3,771
-------- --------
Total operating expenses ....................... 19,653 20,085
-------- --------
Operating income .................................... 10,019 11,887
Interest income ..................................... 62 270
Interest expense .................................... (56) --
Other income ........................................ 570 1,405
-------- --------
Income before taxes on income ....................... 10,595 13,562
Taxes on income ..................................... 3,447 4,408
-------- --------
Net income ..................................... $ 7,148 $ 9,154
======== ========
Basic earnings per share ............................ $ 0.33 $ 0.41
======== ========
Diluted earnings per share .......................... $ 0.33 $ 0.40
======== ========
Shares used in computing per share amounts:
Basic ............................................. 21,491 22,191
======== ========
Diluted ........................................... 21,944 23,033
======== ========
See notes to condensed consolidated financial statements.
4
DIONEX CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
NINE MONTHS ENDED MARCH 31, 2002 AND 2001
(In thousands, except per share amounts)
March 31,
----------------------
2002 2001
--------- ---------
(unaudited)
Net sales ............................................ $ 133,855 $ 139,399
Cost of sales ........................................ 46,775 47,499
Revaluation of acquired inventory .................... -- 121
--------- ---------
Gross profit ......................................... 87,080 91,779
--------- ---------
Operating expenses:
Selling, general and administrative ................ 47,657 46,315
Research and product development ................... 11,358 10,954
Write-off of in-process research and development ... -- 865
--------- ---------
Total operating expenses ........................ 59,015 58,134
--------- ---------
Operating income ..................................... 28,065 33,645
Interest income ...................................... 309 694
Interest expense ..................................... (164) (283)
Other income ......................................... 1,569 2,258
--------- ---------
Income before taxes on income ........................ 29,779 36,314
Taxes on income ...................................... 9,678 11,802
--------- ---------
Income before cumulative effect of change in
accounting principle ............................... 20,101 24,512
Cumulative effect of change in accounting principle .. -- (359)
--------- ---------
Net income ...................................... $ 20,101 $ 24,153
========= =========
Basic earnings per share:
Income before cumulative effect of change in
accounting principle ............................. $ 0.92 $ 1.11
Cumulative effect of change in accounting principle -- (0.02)
--------- ---------
Net income ....................................... $ 0.92 $ 1.09
========= =========
Diluted earnings per share:
Income before cumulative effect of change in
accounting principle ............................. $ 0.90 $ 1.07
Cumulative effect of change in accounting principle -- (0.02)
--------- ---------
Net income ....................................... $ 0.90 $ 1.05
========= =========
Shares used in computing per share amounts:
Basic .............................................. 21,851 22,119
========= =========
Diluted ............................................ 22,355 22,908
========= =========
See notes to condensed consolidated financial statements.
5
DIONEX CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED MARCH 31, 2002 AND 2001
(In thousands)
March 31,
------------------------
2002 2001
--------- ---------
(unaudited)
Cash and cash equivalents provided by (used for):
Cash flows from operating activities:
Net income ......................................................... $ 20,101 $ 24,153
Adjustments to reconcile net income to net cash provided by
operating activities:
Write-off of in-process research and development ................. -- 865
Gain on sale of marketable securities ............................ (1,597) (2,170)
Depreciation and amortization .................................... 3,530 3,807
Deferred taxes ................................................... (1,047) (1,191)
Tax benefit related to stock option plans ........................ 656 1,095
Changes in assets and liabilities:
Accounts receivable ............................................ 3,959 (6,967)
Inventories .................................................... 2,936 (8,937)
Prepaid expenses and other assets .............................. (1,195) (2,218)
Accounts payable ............................................... (1,108) 386
Accrued liabilities ............................................ 902 843
Income taxes payable ........................................... 497 2,834
Accrued product warranty ....................................... (29) (1,317)
--------- ---------
Net cash provided by operating activities .......................... 27,605 11,183
--------- ---------
Cash flows from investing activities:
Proceeds from sale of marketable securities ...................... 2,531 2,484
Purchase of property, plant and equipment ........................ (3,315) (6,253)
Acquisition of LC Packings, net of cash acquired ................. (2,500) (12,404)
Other ............................................................ 74 --
--------- ---------
Net cash used for investing activities ............................. (3,210) (16,173)
--------- ---------
Cash flows from financing activities:
Net change in borrowings under lines of credit ................... 821 2,001
Proceeds from long-term debt ..................................... 483 2,691
Principal payments on long-term debt ............................. (333) (439)
Sale of common stock ............................................. 2,916 3,209
Repurchase of common stock ....................................... (26,909) (3,464)
Other ............................................................ -- --
--------- ---------
Net cash provided by (used for) financing activities ............... (23,022) 3,998
--------- ---------
Effect of exchange rate changes on cash ............................ (176) 1,144
--------- ---------
Net increase in cash and cash equivalents .......................... 1,197 152
Cash and cash equivalents, beginning of period ..................... 17,311 9,386
--------- ---------
Cash and cash equivalents, end of period ........................... $ 18,508 $ 9,538
========= =========
Supplemental disclosures of cash flow information:
Income taxes paid ................................................ $ 9,403 $ 9,952
Interest paid .................................................... $ 165 $ 509
See notes to condensed consolidated financial statements.
6
DIONEX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation
The condensed consolidated financial statements included herein have been
prepared by the Company, without audit, pursuant to the rules and regulations of
the Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with accounting principles generally accepted in the United States of America
have been condensed or omitted pursuant to such rules and regulations, although
the Company believes the disclosures which are made are adequate to make the
information presented not misleading. It is suggested that these condensed
consolidated financial statements be read in conjunction with the consolidated
financial statements and the notes thereto included in the Company's Annual
Report to Stockholders for the fiscal year ended June 30, 2001.
The unaudited condensed consolidated financial statements included herein
reflect all adjustments (which include only normal, recurring adjustments) which
are, in the opinion of management, necessary to state fairly the results for the
periods presented. The results for such periods are not necessarily indicative
of the results to be expected for the entire fiscal year ending June 30, 2002.
2. Revenue Recognition Policy
We derive revenue from the sale of products and from services rendered to
our customers including installation, training and maintenance. Generally, our
products contain embedded software that is essential to their functionality.
We recognize revenue in accordance with Staff Accounting Bulletin No. 101,
Revenue Recognition in Financial Statements, ("SAB 101") and Statement of
Position 97-2, Software Revenue Recognition, ("SOP 97-2") when persuasive
evidence of an arrangement exists, the product has been delivered, the price is
fixed or determinable, collection is probable and vendor specific objective
evidence exists to allocate revenue to the various elements of the arrangement.
Vendor specific objective evidence is based on the price charged when an element
is sold separately or, if not yet sold separately, when the price is established
by authorized management. Delivery is generally considered to have occurred when
shipped.
7
DIONEX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
We sell our equipment through our direct sales force and through
distributors and resellers. Sales through distributors and resellers are
recognized as revenue upon sale to the distributor or reseller as these sales
are considered to be final and no right of return or price protection exists.
Customer acceptance is generally limited to performance under our published
product specifications. When additional customer acceptance conditions apply,
all revenue related to the sale is deferred until acceptance is obtained. Our
equipment typically includes a one-year warranty. The estimated cost of product
warranty claims is accrued at the time the sale is recognized, based on
historical experience.
Installation and training services are not considered to be essential to
the functionality of our products, and revenue related to these items is
recognized when the services are completed. We recognize maintenance fees
ratably over the period of the related maintenance contract. Maintenance
consists of product repair services, unspecified software upgrades and telephone
support.
3. Acquisition
On October 17, 2000, the Company purchased all of the issued and
outstanding shares of LC Packings Nederland B.V. and LC Packings (U.S.A.), Inc.
(collectively referred to as "LC Packings") for a purchase price of $12 million.
In addition, the shareholders of LC Packings have the right to receive
additional contingent purchase consideration, to be paid in varying amounts at
the end of calendar years 2000 through 2004, in the event LC Packings achieves
certain revenue goals. If the entire additional contingent purchase
consideration is achieved, the shareholders of LC Packings will be paid an
additional amount not to exceed $13 million. At March 31, 2002, $7.8 million of
the additional contingent purchase consideration had been earned and was
recorded as goodwill.
The acquisition of LC Packings was accounted for using the purchase method
of accounting and its results of operations have been included in the Company's
results of operations since the date of acquisition.
LC Packings, which markets its products primarily in the United States and
Europe, specializes in micro, capillary and nano liquid chromatography used by
proteomics and genomics researchers in pharmaceutical, biotechnology and
scientific laboratories to analyze and separate proteins, glycoproteins and
other complex compounds.
8
DIONEX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
4. New Accounting Pronouncements
In June 2001, the Financial Accounting Standards Board issued SFAS No.
141, Business Combinations, which eliminates the pooling method of accounting
for all business combinations initiated after June 30, 2001 and addresses the
initial recognition and measurement of goodwill and other intangible assets
acquired in a business combination. The Company adopted this accounting standard
for business combinations on July 1, 2001. The adoption of SFAS No. 141 did not
have a significant impact on the Company's results of operations.
On July 1, 2001, the Company adopted SFAS No. 142, Goodwill and Other
Intangible Assets, which addresses the financial accounting and reporting
standards for the acquisition of intangible assets outside of a business
combination and for goodwill and other intangible assets subsequent to their
acquisition. This accounting standard requires that goodwill be separately
disclosed from other intangible assets in the statement of financial position,
and no longer be amortized but tested for impairment on a periodic basis.
The provisions of this accounting standard also require the completion of
a transitional impairment test within six months of adoption, with any
impairment identified treated as a cumulative effect of a change in accounting
principle. The Company completed the transitional impairment test and concluded
that recorded amounts were not impaired.
9
DIONEX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
In accordance with SFAS No. 142, the Company discontinued the amortization
of goodwill effective July 1, 2001. A reconciliation of previously reported net
income and earnings per share to the amounts adjusted for the exclusion of
goodwill amortization net of the related income tax effect follows:
Three Months Ended Nine Months Ended
March 31, March 31,
----------------- -----------------
2002 2001 2002 2001
------- ------- ------- -------
(in thousands, (in thousands,
except except
per share amounts) per share amounts)
Reported net income $ 7,148 $ 9,154 $20,101 $24,153
Add: Goodwill amortization,
net of tax -- 163 -- 249
------- ------- ------- -------
Adjusted net income $ 7,148 $ 9,317 $20,101 $24,402
======= ======= ======= =======
Diluted earnings per share:
As reported $ 0.33 $ 0.40 $ 0.90 $ 1.05
Goodwill amortization,
net of tax -- 0.01 -- 0.02
------- ------- ------- -------
$ 0.33 $ 0.41 $ 0.90 $ 1.07
======= ======= ======= =======
In October 2001, the Financial Accounting Standards Board issued SFAS No.
144, Impairment on Disposal of Long-Lived Assets, effective for fiscal years
beginning after December 31, 2001. Under SFAS No. 144, the criteria required for
classifying an asset as held-for-sale have been significantly changed. Assets
held-for-sale are stated at the lower of their fair values or carrying amounts,
and depreciation is no longer recognized. In addition, the expected future
operating losses from discontinued operations will be displayed in discontinued
operations in the period in which the losses are incurred rather than as of the
measurement date. More dispositions will qualify for discontinued operations
treatment in the income statement under the new rules. The Company is currently
evaluating the impact of SFAS No. 144 to its consolidated financial statements.
10
DIONEX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
5. Inventories
Inventories consist of (in thousands):
March 31, 2002 June 30, 2001
-------------- -------------
Finished goods $ 9,524 $ 9,342
Work in process 3,245 4,469
Raw materials 9,434 11,206
------- -------
$22,203 $25,017
======= =======
6. Income Taxes
The effective income tax rate for the first nine months of fiscal 2002 was
32.5%, unchanged from the same period in fiscal 2001.
7. Cumulative Effect of Change in Accounting Principle
During the nine months ended March 31, 2001, the Company adopted Staff
Accounting Bulletin No. 101, Revenue Recognition in Financial Statements, ("SAB
101"). SAB 101 outlines the basic criteria that must be met to recognize revenue
and provides guidance for disclosures related to revenue recognition policies.
The Company's policy prior to fiscal year 2001 was to recognize product
installation revenue upon shipment and to accrue product installation costs at
the time revenue was recognized. Under the provisions of SAB 101, the Company
defers installation revenue until installation has been completed and recognizes
installation costs as incurred.
The cumulative effect of the change, totaling $359,000, is shown as a
one-time charge to income in the first quarter's income statement of fiscal
2001. If SAB 101 had been adopted at the beginning of fiscal 2000, the effect on
the results of operations for the three and nine month periods ended March 31,
2001 would not have been material.
11
DIONEX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
8. Comprehensive Income
Components of comprehensive income include net income, foreign currency
translation adjustments and unrealized gains or losses on equity securities
available for sale. As such, Accumulated Other Comprehensive Income in the
Condensed Consolidated Balance Sheets represents cumulative foreign currency
translation adjustments and unrealized gains or losses on equity securities
available for sale. Comprehensive income was $6,024,000 and $1,069,000 for the
three months ended March 31, 2002 and 2001, respectively, and $18,906,000 and
$13,756,000 for the nine months ended March 31, 2002 and 2001, respectively.
9. Net Income Per Share
Basic earnings per share excludes dilution and is computed by dividing net
income by the weighted average of common shares outstanding for the period.
Diluted earnings per share reflects the potential dilution from securities and
other contracts which are exercisable or convertible into common stock. Diluted
earnings per share is computed by dividing net income by the weighted average
number of common shares that would have been outstanding during the period
assuming the issuance of common shares for all dilutive potential common shares
outstanding using the treasury stock method. The difference between the number
of shares outstanding for basic and diluted earnings per share is due to stock
options outstanding during the periods presented. At March 31, 2002 and 2001,
there were 1,484,239 and 49,485 options, respectively, excluded from the diluted
earnings per share calculation due to being anti-dilutive.
10. Common Stock Repurchases
During the first nine months of fiscal 2002, the Company repurchased
1,029,070 shares of its common stock on the open market, compared with 126,600
shares repurchased in the first nine months of the previous fiscal year. During
all of fiscal 2001, the Company repurchased 361,000 shares.
12
DIONEX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
11. Goodwill and Other Intangible Assets
Changes in the carrying amount of goodwill for the nine months ended March
31, 2002 are as follows (in thousands):
Total
-----
Balance as of July 1, 2001 $13,233
Goodwill acquired during the period 3,955
Translation adjustments and other 161
-------
Balance as of March 31, 2002 $17,349
=======
In connection with the adoption of SFAS No. 142, the company performed a
transitional impairment test on goodwill and determined that goodwill was not
impaired.
Information regarding the Company's other intangible assets having a
finite life is as follows (in thousands):
As of March 31, 2002 As of June 30,2001
-------------------- ------------------
Carrying Accumulated Carrying Accumulated
Amount Amortization Net Amount Amortization Net
------ ------------ --- ------ ------------ ---
Patents and
Trademarks $ 379 $ (375) $ 4 $ 375 $ (375) $ --
Developed
Technology 5,383 (2,039) 3,344 5,295 (1,428) 3,867
Core
Technology 2,844 (593) 2,251 2,844 (288) 2,556
------- ------- ------ ------ ------- ------
Total $ 8,606 $(3,007) $5,599 $8,514 $(2,091) $6,423
======= ======= ====== ====== ======= ======
Amortization expense of other intangible assets was $881,000 and $683,000
respectively, for the nine months ended March 31, 2002 and 2001. The estimated
amortization for each of the five fiscal years subsequent to June 30, 2001 is as
follows:
Year Ended Amortization
June 30, Expense
---------- ------------
2002 $1,180
2003 1,180
2004 1,180
2005 1,180
2006 860
------
Total $5,580
======
13
DIONEX CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Results of Operations - Three Months Ended March 31, 2002 and 2001
Net sales for the third quarter of fiscal 2002 were $45.1 million, a decrease of
6% from the $48.2 million reported for the same period last year. Sales in North
America were essentially unchanged compared with the same period last year.
Sales in Japan decreased significantly over the prior year period. Sales
increased in Europe in local currency but were down slightly in reported
dollars. In constant currency, sales growth would have been 4% higher.
Gross margin for the third quarter of fiscal 2002 was 65.8%, down from the 66.4%
reported for the same period last year. Gross margin was lower primarily due to
the unfavorable effect of currency fluctuations.
Operating expenses of $19.7 million for the third quarter of fiscal 2002 were
down $0.4 million, or 2%, from the $20.1 million reported in the same quarter
last year. As a percentage of sales, operating expenses were 44%, slightly
higher than the 42% reported for the third quarter last year. Selling, general
and administrative (SG&A) expenses decreased $0.4 million, or 3%, to $15.9
million in the third quarter of fiscal 2002. The decrease was due to lower
selling costs.
Research and development (R&D) costs of $3.8 million were essentially unchanged
from the $3.8 million reported in the same period last year. The level of R&D
spending varies depending on both the breadth of the Company's R&D efforts and
the stage of specific product development.
Other income was $570,000 in the third quarter of fiscal 2002 compared with $1.4
million reported for the same period last year. Other income resulted primarily
from the sale of marketable equity securities.
The effective tax rate for the third quarter of fiscal 2002 was 32.5%, unchanged
from the third quarter a year ago. The consistent tax rate reflects stability in
the mix of taxable income among the various tax jurisdictions in which the
Company does business.
Net income in the third quarter of fiscal 2002 was $7.1 million, compared with
$9.2 million reported for the same period last year. Diluted earnings per share
were $0.33 compared with $0.40 in the same period last year.
14
Results of Operations - Nine Months Ended March 31, 2002 and 2001
Net sales for the first nine months of fiscal 2002 were $133.9 million, a
decrease of 4% from the $139.4 million reported for the same period last year.
Sales decreased slightly over the prior year period in our North American
market. Sales increased in Europe in local currency and reported dollars. Sales
in Japan declined sharply in both local currency and reported dollars. In
constant currency, sales would have declined 2%.
Gross margin for the first nine months of fiscal 2002 was 65.1%, down from the
65.8% reported for the same period last year. Gross margin was lower due to the
unfavorable effect of currency fluctuations.
Operating expenses of $59.0 million for the first nine months of fiscal 2002
were up $0.9 million, or 2%, from the $58.1 million reported in the same period
last year. As a percentage of sales, operating expenses were 44%, up from the
42% reported for the first nine months last year. Selling, general and
administrative (SG&A) expenses increased $1.3 million, or 3%, to $47.7 million
in the first nine months of fiscal 2002. The increase was due to the addition of
LC Packings, higher selling costs, primarily personnel and related costs,
partially offset by the favorable effect of currency fluctuations on
international selling expenses.
Research and development (R&D) costs of $11.4 million were up from the $11.0
million reported in the same period last year. The level of R&D spending varies
depending on both the breadth of the Company's R&D efforts and the stage of
specific product development.
Write-off of in-process research and development represents a nonrecurring
charge of $865,000 associated with the acquisition of LC Packings completed in
October 2000 for technology which had not reached technological feasibility and
had no alternative future use.
Other income was $1.6 million in the first nine months of fiscal 2002 compared
with $2.3 million reported for the same period last year. Other income resulted
primarily from the sale of marketable equity securities.
The effective tax rate for the first nine months of fiscal 2002 was 32.5%,
unchanged from the first nine months a year ago. The consistent tax rate
reflects stability in the mix of taxable income among the various tax
jurisdictions in which the Company does business.
15
Cumulative effect of change in accounting principle reflects the adoption of
Staff Accounting Bulletin No. 101, Revenue Recognition in Financial Statements,
("SAB 101") in the first nine months of fiscal 2001. SAB 101 outlines the basic
criteria that must be met to recognize revenue and provides guidance for
disclosures related to revenue recognition policies. The cumulative effect of
the change, totaling $359,000, is shown as a one-time charge to income in the
first nine months of fiscal 2001.
Net income in the first nine months of fiscal 2002 was $20.1 million, compared
with $24.2 million reported for the same period last year. Diluted earnings per
share before the cumulative effect of change in accounting principle were $0.90
compared with $1.07 for the same period last year. After the effect of the
change, diluted earnings per share were $0.90 compared with $1.05 in the same
period last year. Net income per share was favorably impacted by the Company's
stock repurchase program.
Liquidity and Capital Resources
At March 31, 2002, the Company had cash and cash investments of $18.5 million.
The Company's working capital was $59.7 million, a decrease of $8.4 million from
the $68.1 million reported at June 30, 2001. Cash generated by operating
activities for the nine months ended March 31, 2002 was $27.6 million compared
with $11.2 million for the same period last year. The increase in operating cash
flow was primarily due to a decrease in receivables and inventory.
Cash used for investing activities was $3.2 million and $16.2 million in the
first nine months of fiscal 2002 and 2001, respectively. The decrease is
primarily attributable to $12.4 million used in fiscal 2001 for the acquisition
of LC Packings. Capital expenditures were $3.3 million and $6.3 million during
the first nine months of fiscal 2002 and 2001, respectively. The amount in
fiscal 2002 includes $1.8 million related to an expansion of a manufacturing
site in Germering, Germany.
Cash provided by (used for) financing activities was $(23.0) million and $4.0
million in the first nine months of fiscal 2002 and 2001, respectively. The
decrease is primarily attributable to the repurchase of common stock for $26.9
million in fiscal 2002, compared with $3.5 million in fiscal 2001. Net
borrowings increased from $3.5 million at June 30, 2001 to $4.2 million at March
31, 2002.
16
At March 31, 2002, the Company had utilized $4.2 million of the Company's $34.8
million in committed bank lines of credit, mainly due to borrowings related to
the Company's operations. The Company believes that its cash flow from
operations, current cash and cash investments and the remainder of its bank
lines of credit will be adequate to meet its cash requirements for the next 12
months. During the nine months of fiscal 2002, the Company repurchased 1,029,070
shares of its common stock for $26.9 million.
The impact of inflation on Dionex Corporation's financial position and results
of operations was not significant during the nine months ended March 31, 2002.
Forward-looking Statements
Except for historical information contained herein, the above discussion and the
letter to shareholders contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, Section 21E of the
Securities Exchange Act of 1934, as amended and the Private Securities
Litigation Reform Act of 1995, and are made under the safe harbor provisions
thereof. Such statements are subject to certain risks and uncertainties that
could cause actual results to differ materially from those discussed here. Such
risks and uncertainties include: general economic conditions, foreign currency
fluctuations, competition from other products, existing product obsolescence,
fluctuation in worldwide demand for analytical instrumentation, new product
development, including market receptiveness, the ability to manufacture products
on an efficient and timely basis and at a reasonable cost and in sufficient
volume, the ability to attract and retain talented employees and other risks as
described in more detail in the Company's Form 10-K for the year ended June 30,
2001. Readers are cautioned not to place undue reliance on these forward-looking
statements which reflect management's analysis only as of the date herein. The
Company undertakes no obligation to publicly release the results of any revision
to these forward-looking statements which may be made to reflect events or
circumstances after the date herein or to reflect the occurrence of
unanticipated events.
17
Critical Accounting Policies and Estimates
Summary:
The preparation of consolidated financial statements requires the Company to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. The Company evaluates its estimates on an on-going
basis, including those related to product returns and allowances, bad debts,
inventory valuation, goodwill and intangible assets, income taxes, warranty and
installation provisions, and contingencies.
The Company bases its estimates on historical experience and on various other
assumptions that are believed to be reasonable under the circumstances, the
results of which form the basis for making judgments about the carrying values
of assets and liabilities that are not readily apparent from other sources.
Actual results may differ from these estimates. The Company believes the
following critical accounting policies affect its more significant judgments and
estimates used in the preparation of its consolidated financial statements.
Revenue Recognition Policy:
We derive revenue from the sale of products and from services rendered to our
customers including installation, training and maintenance. Generally, our
products contain embedded software that is essential to their functionality.
We recognize revenue in accordance with Staff Accounting Bulletin No. 101,
Revenue Recognition in Financial Statements, ("SAB 101") and Statement of
Position 97-2, Software Revenue Recognition, ("SOP 97-2") when persuasive
evidence of an arrangement exists, the product has been delivered, the price is
fixed or determinable, collection is probable and vendor specific objective
evidence exists to allocate revenue to the various elements of the arrangement.
Vendor specific objective evidence is based on the price charged when an element
is sold separately or, if not yet sold separately, when the price is established
by authorized management. Delivery is generally considered to have occurred when
shipped.
We sell our equipment through our direct sales force and through distributors
and resellers. Sales through distributors and resellers are recognized as
revenue upon sale to the distributor or reseller as these sales are considered
to be final and no right of return or price protection exists. Customer
acceptance is generally limited to performance under our published product
specifications. When additional customer acceptance conditions apply, all
revenue related to the sale is deferred until acceptance is obtained. Our
equipment typically includes a one-year warranty. The estimated cost of product
warranty claims is accrued at the time the sale is recognized, based on
historical experience.
18
Installation and training services are not considered to be essential to the
functionality of our products, and revenue related to these items is recognized
when the services are completed. We recognize maintenance fees ratably over the
period of the related maintenance contract. Maintenance consists of product
repair services, unspecified software upgrades and telephone support.
Loss Provisions on Accounts Receivable and Inventory:
The Company maintains allowances for doubtful accounts for estimated losses
resulting from the inability of its customers to make required payments. If the
financial condition of our customers were to deteriorate, resulting in an
impairment of their ability to make payments, additional allowances may be
required. We assess collectibility based on a number of factors including, but
not limited to, past transaction history with the customer, the
credit-worthiness of the customer, independent credit reports, industry trends
and the macro-economic environment. Sales returns and allowances are estimates
of future product returns related to current period revenue. Material
differences may result in the amount and timing of our revenue for any period.
Historically, the Company has not experienced significant sales returns or bad
debt losses.
The Company values all of its inventories at the lower of standard cost (which
approximates to cost on a first-in, first-out basis) or market. The Company
estimates revisions to its inventory valuations based on technical obsolescence,
historical demand, projections of future demand, and industry and market
conditions. If actual future demand or market conditions are less favorable than
those projected by management, additional valuation provisions may be required.
Long-Lived Assets, Intangible Assets with Finite Lives and Goodwill:
We assess the impairment of long-lived assets, intangible assets with finite
lives and goodwill whenever events or changes in circumstances indicate that the
carrying value may not be recoverable. In addition, we assess goodwill for
impairment at least annually. Factors we consider important which could trigger
an impairment review include but are not limited to the following:
o significant underperformance relative to expected historical or
projected future operating results;
o significant negative industry or economic trends;
o significant changes or developments in strategic technology.
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When we determine that the carrying value of long-lived assets and intangible
assets with finite lives may not be recoverable based upon the existence of one
or more of the above or other indicators, we measure any impairment based on a
projected discounted cash flow method using a discount rate determined by our
management to be commensurate with the risk inherent in our current business
model. Goodwill is tested for impairment by comparing the fair value of related
reporting units to its carrying value. As of July 1, 2001, the Company adopted
SFAS No. 142, Goodwill and Other Intangible Assets and as a result, we ceased to
amortize approximately $13.2 million of goodwill at June 30, 2001. In lieu of
amortization, we are required to perform an impairment review at least annually.
We completed our initial review during the first half of fiscal 2002 and no
impairment was necessary.
Warranty:
Product warranties are recorded at the time revenue is recognized for certain
product shipments. While the Company engages in extensive product quality
programs and processes, our warranty obligation is affected by product failure
rates, material usage and service costs incurred in correcting a product
failure. Should actual product failure rates, material usage or service costs
differ from our previous estimates, revisions to the estimated warranty
liability would be required.
Income Taxes:
As part of the process of preparing our consolidated financial statements we are
required to estimate our income taxes in each of the jurisdictions in which we
operate. This process involves us estimating our actual current tax exposure
together with assessing temporary differences resulting from differing treatment
of items, such as depreciation, amortization, and inventory reserves, for tax
and accounting purposes. These differences result in deferred tax assets and
liabilities, which are included within our consolidated balance sheets. We must
then assess the likelihood that our deferred tax assets will be recovered from
future taxable income and to the extent we believe that recovery is not likely,
we must establish a valuation allowance. In the event that actual results differ
from these estimates, we may need to revise the valuation allowance which could
materially impact our financial position and results of operations.
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DIONEX CORPORATION
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
The Company is exposed to financial market risks, including changes in foreign
currency rates, interest rates and marketable equity securities.
For a detailed analysis of these market risks see the discussion in the
Company's Annual Report to Stockholders for the year ended June 30, 2001 and the
Company's Form 10-K for the year ended June 30, 2001 filed with the Securities
and Exchange Commission.
There have been no material changes to these financial market risks since June
30, 2001.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
(b) Reports on Form 8-K.
The Company did not file any reports on Form 8-K during the quarter
ended March 31, 2002.
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SIGNATURES
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.
DIONEX CORPORATION
(Registrant)
Date: May 14, 2002 By: /s/ A. Blaine Bowman
---------------------------
A. Blaine Bowman
President, Chief Executive
Officer
By: /s/ Craig A. McCollam
---------------------------
Craig A. McCollam
Vice President, Finance and
Administration
(Principal Financial and
Accounting Officer)
22