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EXCEL - IDEA: XBRL DOCUMENT - DIONEX CORP /DE | Financial_Report.xls |
EX-31.2 - EX-31.2 - DIONEX CORP /DE | f57011exv31w2.htm |
EX-31.1 - EX-31.1 - DIONEX CORP /DE | f57011exv31w1.htm |
EX-32.2 - EX-32.2 - DIONEX CORP /DE | f57011exv32w2.htm |
EX-32.1 - EX-32.1 - DIONEX CORP /DE | f57011exv32w1.htm |
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2010
OR
o | 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) |
(408) 737-0700
(Registrants Telephone Number, including Area Code)
(Registrants Telephone Number, including Area Code)
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 þ NO o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such files). YES
þ NO o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated
filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
(Check one):
Large accelerated filer þ | Accelerated filer o | Non-accelerated filer o | Smaller reporting company o | |||
(Do not check if a smaller reporting company) |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act) YES o NO þ
Indicate the number of shares outstanding of each of the issuers classes of common stock, as of
November 4, 2010:
CLASS | NUMBER OF SHARES | |
Common Stock | 17,421,071 |
DIONEX CORPORATION
INDEX
INDEX
Page (s) | ||||||||
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28 | ||||||||
EX-31.1 | ||||||||
EX-31.2 | ||||||||
EX-32.1 | ||||||||
EX-32.2 | ||||||||
EX-101 INSTANCE DOCUMENT | ||||||||
EX-101 SCHEMA DOCUMENT | ||||||||
EX-101 CALCULATION LINKBASE DOCUMENT | ||||||||
EX-101 LABELS LINKBASE DOCUMENT | ||||||||
EX-101 PRESENTATION LINKBASE DOCUMENT |
2
Table of Contents
Part I. Financial Information
Item 1. Financial Statements
DIONEX CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
(Unaudited)
September 30, | June 30, | |||||||
2010 | 2010 | |||||||
ASSETS |
||||||||
Current assets: |
||||||||
Cash and cash equivalents |
$ | 76,852 | $ | 69,830 | ||||
Short-term investments |
176 | 448 | ||||||
Accounts receivable (net of allowance for doubtful accounts of $524 and $543 as of September 30,
2010 and June 30, 2010, respectively) |
86,752 | 86,780 | ||||||
Inventories |
41,562 | 37,458 | ||||||
Deferred taxes |
14,001 | 14,036 | ||||||
Prepaid expenses and other current assets |
21,576 | 18,991 | ||||||
Total current assets |
240,919 | 227,543 | ||||||
Property, plant and equipment, net |
80,623 | 76,062 | ||||||
Goodwill |
35,913 | 35,013 | ||||||
Intangible assets, net |
17,654 | 13,859 | ||||||
Other assets |
10,213 | 9,511 | ||||||
$ | 385,322 | $ | 361,988 | |||||
LIABILITIES AND STOCKHOLDERS EQUITY |
||||||||
Current liabilities: |
||||||||
Borrowings under line of credit |
$ | 17,371 | $ | 3,149 | ||||
Accounts payable |
14,633 | 17,303 | ||||||
Accrued liabilities |
32,993 | 33,980 | ||||||
Deferred revenue |
25,985 | 25,203 | ||||||
Income taxes payable |
3,605 | 5,247 | ||||||
Accrued product warranty |
2,617 | 2,532 | ||||||
Total current liabilities |
97,204 | 87,414 | ||||||
Deferred and other income taxes payable |
19,160 | 16,427 | ||||||
Other long-term liabilities |
7,616 | 7,272 | ||||||
Commitments and other contingencies (Note 12) |
||||||||
Stockholders equity: |
||||||||
Dionex Corporation 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: |
||||||||
17,301,892 shares as of September 30, 2010 and 17,437,276 shares as of June 30, 2010) and
capital in excess of par value |
210,507 | 207,855 | ||||||
Retained earnings |
33,435 | 34,195 | ||||||
Accumulated other comprehensive income |
15,128 | 6,733 | ||||||
Total Dionex Corporation stockholders equity |
259,070 | 248,783 | ||||||
Noncontrolling interests |
2,272 | 2,092 | ||||||
Total stockholders equity |
261,342 | 250,875 | ||||||
$ | 385,322 | $ | 361,988 | |||||
See notes to condensed consolidated financial statements.
3
Table of Contents
DIONEX CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
(Unaudited)
Three Months Ended | ||||||||
September 30, | ||||||||
2010 | 2009 | |||||||
Net sales |
$ | 102,874 | $ | 90,664 | ||||
Cost of sales |
36,472 | 31,041 | ||||||
Gross profit |
66,402 | 59,623 | ||||||
Operating expenses: |
||||||||
Selling, general and administrative |
40,266 | 35,983 | ||||||
Research and product development |
8,013 | 7,172 | ||||||
Total operating expenses |
48,279 | 43,155 | ||||||
Operating income |
18,123 | 16,468 | ||||||
Interest income |
60 | 83 | ||||||
Interest expense |
(33 | ) | (36 | ) | ||||
Other income (expense), net |
(1,038 | ) | 40 | |||||
Income before taxes |
17,112 | 16,555 | ||||||
Taxes on income |
5,790 | 5,969 | ||||||
Net income |
11,322 | 10,586 | ||||||
Less: Net income attributable to noncontrolling interests |
361 | 250 | ||||||
Net income attributable to Dionex Corporation |
$ | 10,961 | $ | 10,336 | ||||
Basic earnings per share attributable to Dionex Corporation |
$ | 0.63 | $ | 0.58 | ||||
Diluted earnings per share attributable to Dionex Corporation |
$ | 0.62 | $ | 0.57 | ||||
Shares used in computing per share amounts: |
||||||||
Basic |
17,388 | 17,712 | ||||||
Diluted |
17,698 | 18,050 |
See notes to condensed consolidated financial statements.
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Table of Contents
DIONEX CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Three Months Ended | ||||||||
September 30, | ||||||||
2010 | 2009 | |||||||
Cash flows from operating activities: |
||||||||
Net income |
$ | 11,322 | $ | 10,586 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||
Depreciation and amortization |
3,380 | 2,478 | ||||||
Stock-based compensation |
1,972 | 1,578 | ||||||
Bad debt recoveries |
(114 | ) | (155 | ) | ||||
Loss on disposal of fixed assets |
341 | 29 | ||||||
Tax benefit related to stock transactions |
(337 | ) | (165 | ) | ||||
Deferred income taxes |
89 | (5 | ) | |||||
Changes in assets and liabilities, net of acquired assets and assumed liabilities: |
||||||||
Accounts receivable |
4,500 | 2,435 | ||||||
Inventories |
(734 | ) | (1,656 | ) | ||||
Prepaid
expenses and other current assets |
(543 | ) | 753 | |||||
Prepaid income taxes |
(1,756 | ) | 2,521 | |||||
Accounts payable |
(2,854 | ) | 783 | |||||
Accrued liabilities |
(3,186 | ) | (1,685 | ) | ||||
Deferred revenue |
(317 | ) | 1,101 | |||||
Income taxes payable |
(1,214 | ) | 4,457 | |||||
Accrued product warranty |
(59 | ) | (173 | ) | ||||
Net cash provided by operating activities |
10,490 | 22,882 | ||||||
Cash flows from investing activities: |
||||||||
Proceeds from sale of marketable securities |
288 | 232 | ||||||
Purchase of property, plant and equipment |
(5,178 | ) | (2,751 | ) | ||||
Purchase of intangible assets |
(4,512 | ) | (21,100 | ) | ||||
Net cash used for investing activities |
(9,402 | ) | (23,619 | ) | ||||
Cash flows from financing activities: |
||||||||
Net borrowings under line-of-credit |
14,222 | 15,075 | ||||||
Proceeds from issuance of common stock |
2,577 | 3,261 | ||||||
Tax benefit related to stock transactions |
337 | 165 | ||||||
Repurchase of common stock |
(13,952 | ) | (11,175 | ) | ||||
Dividends paid to noncontrolling interests |
| (104 | ) | |||||
Net cash provided by financing activities |
3,184 | 7,222 | ||||||
Effect of exchange rate changes on cash |
2,750 | 2,065 | ||||||
Net increase in cash and cash equivalents |
7,022 | 8,550 | ||||||
Cash and cash equivalents, beginning of period |
69,830 | 69,684 | ||||||
Cash and cash equivalents, end of period |
$ | 76,852 | $ | 78,234 | ||||
Supplemental disclosures of cash flow information: |
||||||||
Income taxes paid |
$ | 8,907 | $ | 1,803 | ||||
Interest expense paid |
28 | 28 | ||||||
Supplemental schedule of non-cash investing and financing activities: |
||||||||
Accrued purchases of property, plant and equipment |
106 | 588 |
See notes to condensed consolidated financial statements
5
Table of Contents
DIONEX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1: Summary of Significant Accounting Policies
Organization and Basis of Presentation
The condensed consolidated financial statements included herein have been prepared by Dionex
Corporation, 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 (GAAP) have been condensed or omitted pursuant to such rules and regulations. These
condensed consolidated financial statements should be read in conjunction with the condensed
consolidated financial statements and the notes thereto included in our Annual Report on Form 10-K
for the fiscal year ended June 30, 2010. Unless the context otherwise requires, the terms Dionex,
we, our and us and words of similar import as used in these notes to condensed consolidated
financial statements include Dionex Corporation and its consolidated subsidiaries.
The unaudited condensed consolidated financial statements included herein reflect all adjustments
(which include only normal, recurring adjustments) that 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,
2011.
New Accounting Standards Adopted
Transfers of Financial Assets
In June 2009, the Financial Accounting Standards Board (FASB) issued new standards for the
accounting for transfers of financial assets. These new standards amend the criteria for a transfer
of a financial assets to be accounted for as a sale, establish more stringent conditions for
reporting a transfer of a portion of a financial asset as a sale, change the initial measurement
of a transferors interest in transferred financial assets, eliminate the qualifying
special-purpose entity concept and require enhanced disclosures. Dionex adopted these standards in
the first quarter of fiscal 2011 and they did not have a material impact on our consolidated
financial statements but did expand our disclosures about transfers of financial assets. Refer to
Note 7 for additional information.
Financial Instruments
In January 2010, the FASB issued a new accounting standard to amend the disclosure requirements
related to recurring and nonrecurring fair value measurements. The guidance requires new
disclosures on the transfers of assets and liabilities between Level 1 and Level 2 of the fair
value measurement hierarchy, including the reasons and the timing of the transfers. Additionally,
the guidance requires a roll forward of activities on purchases, sales, issuance, and settlements
of the assets and liabilities measured using significant unobservable inputs (Level 3 fair value
measurements). The guidance became effective for us with the reporting period beginning January 1,
2010, except for the disclosure on the roll forward activities for Level 3 fair value measurements,
which is effective for us in the first quarter of fiscal 2011. Other than requiring additional
disclosures, adoption of this new standard did not have a material impact on our financial
statements or any additional disclosures as Dionex did not have any financial instruments transfers
between Level 1 and 2 during the three months ended September 30, 2010.
Revenue Recognition
Net sales are derived primarily from sales of products, software licenses, and services (including
installation, training, other consulting services, and extended maintenance contracts on our
products). The following revenue recognition policies define the manner in which Dionex accounts
for sales transactions.
Dionex recognizes revenue when persuasive evidence of an arrangement exists, the product has been
delivered or service has been performed, the sales price is fixed or determinable, and collection
is reasonably assured. Delivery of the product is generally considered to have occurred when
shipped. Shipping charges billed to customers are included in net sales, and the related costs are
included in cost of sales. Sales from products are typically not subject to rights of return and,
historically, actual sales returns have not been significant. Dionex sells products through its
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.
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Table of Contents
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.
In October 2009, the FASB issued a new accounting standard for multiple deliverable revenue
arrangements. The new standard changes the requirements for establishing separate units of
accounting in a multiple element arrangement and requires the allocation of arrangement
consideration to each deliverable to be based on the relative selling price. The FASB also issued a
new accounting standard for certain revenue arrangements that include software elements. This new
standard excludes software that is contained on a tangible product from the scope of software
revenue guidance if the software is essential to the tangible products functionality. Dionex
prospectively adopted both these standards in the first quarter of fiscal 2011 for new and
materially modified arrangements originating after July 1, 2010. The impact of adopting these
standards was not material to net sales on our condensed consolidated financial statements for the
three-months ended September 30, 2010. The new accounting standard for revenue recognition if
applied in the same manner to the year ended June 30, 2010 would not have had a material impact on
net sales or to our consolidated financial statements for that fiscal year. Dionex anticipates the
effect of the adoption of these standards in future periods will primarily depend upon the nature
and volume of new or materially modified arrangements.
Under these new standards, when a sales arrangement contains multiple elements, such as products,
software licenses and/or services, Dionex allocates revenue to each element based on a selling
price hierarchy. Using the selling price hierarchy, Dionex determines selling price of each
deliverable using vendor specific objective evidence (VSOE), if it exists, and otherwise
third-party evidence (TPE). If neither VSOE nor TPE of selling price exists, Dionex uses
estimated selling price (ESP). Dionex generally expects that it will not be able to establish TPE
due to the nature of the markets in which we compete, and, as such, Dionex typically will determine
selling price using VSOE or if not available, ESP.
Dionexs basis for establishing VSOE of a deliverables selling price consists of standalone sales
transactions when the same or similar product or service is sold separately. However, when services
are never sold separately, such as product installation services, VSOE is based on the products
estimated installation hours based on historical experience multiplied by the standard service
billing rate. In determining VSOE, Dionex requires that a substantial majority of the selling
price for a product or service fall within a reasonably narrow price or hour range, as defined by
Dionex. Dionex also considers the geographies in which the products or services are sold, major
product and service groups, and other environmental variables in determining VSOE. Absent the
existence of VSOE and TPE, our determination of a deliverables ESP involves evaluating several
factors based on the specific facts and circumstances of these arrangements, which include pricing
strategy and policies driven by geographies, market conditions, competitive landscape, correlation
between proportionate selling price and list price established by management having the relevant
authority, and other environmental variables in which the deliverable is sold.
For multiple element arrangements which include extended maintenance contracts, Dionex allocates
and defers the amount of consideration equal to the separately stated price and recognizes revenue
on a straight-line basis over the contract period.
For multiple element arrangements which contain software deliverables and non-software deliverables
(i.e. instruments) where the instruments essential functionality is not dependent on both
deliverables functioning together, revenue is allocated to the software deliverables as a group
using the relative selling prices of each deliverable in the arrangement based on the selling price
hierarchy. The consideration allocated to the software deliverable group is then allocated to each
software deliverable within that group in accordance with software revenue recognition guidance.
For perpetual software licenses, Dionex recognizes revenue at the inception of the license term
assuming all revenue recognition criteria have been met. Dionex uses the residual method to
allocate revenue to software licenses at the inception of the license term when VSOE of fair value
for the undelivered elements exists, such as software installations, and all other revenue
recognition criteria have been satisfied. If Dionex cannot objectively determine the VSOE of fair
value of any undelivered elements included in these multiple-element arrangements, revenue is
deferred until all elements are delivered, or until VSOE of fair value can be objectively
determined for the remaining undelivered elements.
Note 2: Earnings Per Share
Basic earnings per share attributable to Dionex Corporation are determined by dividing net income
attributable to Dionex Corporation by the weighted average number of common shares outstanding
during the period. Diluted earnings per share attributable to Dionex Corporation are determined by
dividing net income attributable to Dionex Corporation by the weighted average number of common
shares used in the basic earnings per share calculation, plus the number of common shares that
would be issued assuming conversion of all potentially dilutive securities outstanding under the
treasury stock method.
7
Table of Contents
The following table is a reconciliation of the numerators and denominators used in computing basic
and diluted earnings per share attributable to Dionex Corporation (in thousands, except per share
data):
Three Months Ended | ||||||||
September 30, | ||||||||
2010 | 2009 | |||||||
Numerator: |
||||||||
Net income attributable to Dionex Corporation |
$ | 10,961 | $ | 10,336 | ||||
Denominator: |
||||||||
Weighted average shares used to compute earnings per share attribution to Dionex Corporation basic |
17,388 | 17,712 | ||||||
Effect of dilutive stock options |
310 | 338 | ||||||
Weighted average shares used to compute earnings per share attribution to Dionex Corporation diluted |
17,698 | 18,050 | ||||||
Basic earnings per share attributable to Dionex Corporation |
$ | 0.63 | $ | 0.58 | ||||
Diluted earnings per share attributable to Dionex Corporation |
$ | 0.62 | $ | 0.57 | ||||
Antidilutive common equivalent shares related to stock awards are excluded from the calculation of
diluted earnings per share attribution to Dionex Corporation |
594 | 622 |
Note 3: Fair Value Measurements
In accordance with the accounting standards for fair value measurements and disclosures, assets and
liabilities are measured at fair value on a recurring basis as of the end of each reporting period.
Dionex applies the following fair value hierarchy, which prioritizes the inputs used to measure
fair value into three levels and bases the categorization within the hierarchy upon the lowest
level of input that is available and significant to the fair value measurement:
| Level 1 input utilize observable data such as quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date. | ||
| Level 2 inputs utilize data points other than quoted prices in active markets that are observable for the asset or liability, either directly or indirectly. | ||
| Level 3 inputs utilize unobservable data points for the asset of liability in which there is little or no market data, which require the reporting entity to develop its own assumptions. |
The following table summarizes our assets and liabilities measured at fair value on a recurring
basis as of September 30, 2010:
(in thousands) | Total | Level 1 | Level 2 | Level 3 | ||||||||||||
Assets: |
||||||||||||||||
Money market (1) |
$ | 81 | $ | 81 | $ | | $ | | ||||||||
Equity indexed derivatives (2) |
176 | | 176 | | ||||||||||||
Total |
$ | 257 | $ | 81 | $ | 176 | $ | | ||||||||
Liabilities: |
||||||||||||||||
Foreign currency contracts (3) |
$ | 5,709 | $ | | $ | 5,709 | $ | | ||||||||
(1) | Included in cash and cash equivalents in the condensed consolidated balance sheets | |
(2) | Included in short-term investments in the condensed consolidated balance sheets. The gross unrealized loss is not material. | |
(3) | Included in other long-term liabilities or other accrued liabilities in the condensed consolidated balance sheets |
Note 4: Derivative Securities
All derivatives, whether designated in hedging relationships or not, are required to be recorded on
the consolidated balance sheets at fair value as either assets or liabilities. If the derivative is
designated as a fair-value hedge, the changes in the fair value of the derivative and of the hedged
item attributable to the hedged risk are recognized in earnings. If the derivative is designated as
a cash flow hedge or net investment hedge, the effective portions of changes in the fair value of
the derivative are recorded in other comprehensive income and are recognized in earnings when the
hedged item affects earnings; ineffective portions of changes in fair
value are recognized in earnings.
8
Table of Contents
Dionex operates on a global basis and is exposed to foreign currency exchange rate fluctuations in
the normal course of its business. As part of its risk management strategy, Dionex uses derivative
instruments to manage exposures to foreign currency. The objective is to offset gains and losses
resulting from these exposures with losses and gains on the derivative contracts used to hedge
them, thereby reducing volatility of earnings or protecting fair value of assets and liabilities.
Dionex does not have any leveraged derivatives nor use derivative contracts for speculative
purposes.
Net Investment Hedge
Dionex uses a $10 million cross-currency swap arrangement for Japanese yen that expires in March
2012 to hedge the exchange rate exposure of our net investment in our Japanese subsidiary. Dionex
considers the impact of its counterpartys credit risk on the fair value of the contract as well as
the ability of each party to execute under the contract. Dionex assessed and documented hedge
effectiveness of the contract and designated it as a net investment hedge at the inception date,
January 1, 2008. We reassess hedge effectiveness on a quarterly basis. The gain or loss related to
the effective portion of the hedge is reported in accumulated other comprehensive income as part of
the foreign currency translation adjustment, and the gain or loss related to the ineffective
portion, if any, is reported in other income (expense).
Other Derivatives
Other derivatives not designated as hedging instruments consist primarily of foreign exchange
forward contracts with high quality financial institutions to manage our exposure to the impact of
fluctuations in foreign currency exchange rates on our intercompany receivables balances. Principal
hedged currencies include the Euro, Japanese yen, Australian dollar and Canadian dollar. The
periods of these forward contracts is approximately 30 days and have varying notional amounts that
are intended to be consistent with changes in the underlying exposures and require Dionex to
exchange foreign currencies for U.S. dollars at maturity. Gains (losses) on these contracts are
reported as other income (expense) in the current period earnings.
Total gross notional amounts for outstanding derivatives were as follows:
September 30, | June 30, | |||||||
(in thousands) | 2010 | 2010 | ||||||
Derivatives not designated as hedging instruments |
||||||||
Currency forwards: |
||||||||
Euro |
$ | 23,793 | $ | 17,659 | ||||
Japanese yen |
6,683 | 4,282 | ||||||
Australian dollar |
1,052 | 791 | ||||||
Canadian dollar |
1,205 | 853 | ||||||
Derivatives designated as hedging instruments |
||||||||
Currency swaps |
10,000 | 10,000 | ||||||
Total |
$ | 42,733 | $ | 33,585 | ||||
The following table shows derivative instruments measured at gross fair value and balance sheet
location on the condensed consolidated balance sheet:
September 30, 2010 | June 30, 2010 | |||||||||||||||
Accrued | Other Long- | Accrued | Other Long- | |||||||||||||
(In thousands) | Liabilities | Term Liabilities | Liabilities | Term Liabilities | ||||||||||||
Derivatives designated as hedging instruments |
||||||||||||||||
Currency swaps |
$ | | $ | 4,211 | $ | | $ | 3,390 | ||||||||
Derivatives not designated as hedging instruments |
||||||||||||||||
Currency forwards |
$ | 1,498 | $ | | $ | 290 | $ | |
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Table of Contents
The following table shows the effect of derivative instruments designated as hedging instruments
and not designated as hedging instruments in the condensed consolidated statements of operations in
the three months ended September 30:
(In thousands) | 2010 | 2009 | ||||||
Derivatives designated as hedging instruments |
||||||||
Net investment hedges |
||||||||
Unrealized gain/ (loss) recognized in other comprehensive income on derivatives |
$ | (821 | ) | $ | (901 | ) | ||
Realized gain/ (loss) reclassified from other comprehensive income into income |
$ | | $ | | ||||
Derivatives not designated as hedging instruments |
||||||||
Currency forwards |
||||||||
Realized gain / (loss) included other income/(expense), net |
$ | (2,161 | ) | $ | (661 | ) |
Note 5: Balance Sheet Details
The following tables provide details of selected balance sheet items:
September 30, | June 30, | |||||||
(in thousands) | 2010 | 2010 | ||||||
Inventories: |
||||||||
Finished goods |
$ | 25,733 | $ | 23,788 | ||||
Work in process |
1,542 | 1,781 | ||||||
Raw materials |
14,287 | 11,889 | ||||||
$ | 41,562 | $ | 37,458 | |||||
September 30, | June 30, | |||||||
2009 | 2010 | |||||||
Property, Plant and Equipment, net: |
||||||||
Land |
$ | 27,859 | $ | 25,098 | ||||
Buildings and improvements |
50,407 | 48,396 | ||||||
Machinery, equipment and tooling |
53,082 | 50,411 | ||||||
Furniture and fixtures |
13,219 | 12,194 | ||||||
Construction-in-progress |
25 | 13 | ||||||
144,592 | 136,112 | |||||||
Accumulated depreciation and amortization |
(63,969 | ) | (60,050 | ) | ||||
Property, plant and equipment, net |
$ | 80,623 | $ | 76,062 | ||||
Depreciation expense was $2.6 million and $2.2 million in three months ended September 30, 2010 and
2009, respectively.
Note 6: Goodwill and Other Intangible Assets
Changes in the carrying amount of goodwill were as follows for the three months ended September 30,
2010:
(in thousands) | ||||
Balance as of June 30, 2010 |
$ | 35,013 | ||
Additions |
12 | |||
Foreign currency translation impact |
888 | |||
Balance as of September 30, 2010 |
$ | 35,913 | ||
Intangible assets (net of accumulated amortization) were as follows:
As of September 30, 2010 | As of June 30, 2010 | |||||||||||||||||||||||
Carrying | Accumulated | Carrying | Accumulated | |||||||||||||||||||||
(in thousands) | Amount | Amortization | Net | Amount | Amortization | Net | ||||||||||||||||||
Patents and trademarks |
$ | 8,788 | $ | (2,730 | ) | $ | 6,058 | $ | 8,788 | $ | (2,580 | ) | $ | 6,208 | ||||||||||
Developed technology |
9,840 | (1,332 | ) | 8,508 | 14,893 | (10,456 | ) | 4,437 | ||||||||||||||||
Customer relationships |
5,322 | (2,234 | ) | 3,088 | 5,119 | (1,905 | ) | 3,214 | ||||||||||||||||
Total |
$ | 23,950 | $ | (6,296 | ) | $ | 17,654 | $ | 28,800 | $ | (14,941 | ) | $ | 13,859 | ||||||||||
As a
result of certain acquisitions, Dionex recorded trade names
(intangible assets) totaling $2.8 million, which is
not subject to amortization and is included in Patent and trademarks.
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Amortization expense related to all finite intangible assets was $0.8 million and $0.3 million in
three months ended September 30,
2010 and 2009, respectively. Estimated future amortization expense related to finite lived
intangible assets as of September 30, 2010 is as follows:
Remaining | ||||
Amortization | ||||
(in thousands) | Expense | |||
Remainder of Fiscal 2011 |
$ | 2,394 | ||
Fiscal 2012 |
2,878 | |||
Fiscal 2013 |
2,234 | |||
Fiscal 2014 |
1,775 | |||
Fiscal 2015 |
1,374 | |||
After Fiscal 2015 |
4,179 | |||
Total |
$ | 14,834 | ||
Note 7: Financing Arrangements
Dionex has unsecured credit agreements with domestic and international financial institutions. The
agreements provide for revolving unsecured lines of credit that we utilize primarily for our
general corporate purposes, including stock repurchases and working capital needs. As of September
30, 2010, we had a total of $29.2 million in available lines of credit, maturing on December 31,
2010 at an annual interest rate of 1.9%, under which we had borrowed $17.4 million.
One of our foreign subsidiaries transfers certain customer receivables to financial institutions at
a discount up to approximately 2% (discounted notes) and accounts for these transfers as sales.
The purpose of these transfers is to facilitate the funding of outstanding customer receivables by
the Company. In the unlikely event that there is failure by the customers to repay the financial
institutions for the discounted notes sold by Dionex, Dionex would be required to repurchase the
discounted notes back, up to the specified amount outstanding. Under no other circumstance is
Dionex obligated or do we have a right to repurchase these discounted notes. Dionex has determined that
the fair value of these contingent liabilities under these arrangements are not material as of
September 30, 2010 based on past experience of transferring discounted notes, which considers
customers credit quality, historical loss experience, and whether the repurchase (if required in
the event of a default) is probable and reasonably estimable. The length of time that these
discounted notes are outstanding is approximately 90 days and during the three-months ended
September 30, 2010, Dionex recorded no losses as a result of customers failures to repay the
financial institutions. Total discounted notes transferred to the financial institutions during the
three months ended September 30, 2010 was $1.2 million and outstanding discounted notes sold as of
September 30, 2010 was approximately $1.2 million.
Note 8: Warranty
Dionex accrues estimated product warranty costs at the time of sale, which are included in cost of
sales in the consolidated statements of operations. While Dionex engages in extensive product
quality programs and processes, including actively monitoring and evaluating the quality of its
component supplies, our warranty obligation is affected by product failure rates, material usage
and service delivery costs incurred in correcting a product failure. The amount of the accrued
warranty liability is based on historical information, such as past experience, product failure
rates, number of units repaired and estimated costs of material and labor. The liability is
reviewed for reasonableness at least quarterly.
The changes in the warranty provision were as follows during the three months ended September 30:
(in thousands) | 2010 | 2009 | ||||||
Balance, beginning |
$ | 2,532 | $ | 3,028 | ||||
Additions |
1,266 | 881 | ||||||
Effects of foreign currencies exchange |
144 | 98 | ||||||
Settlements |
(1,325 | ) | (1,020 | ) | ||||
Balance, end |
$ | 2,617 | $ | 2,987 | ||||
Note 9: Stock-Based Compensation
Dionexs Board of Directors authorized the 2004 Equity Incentive Plan (the 2004 Plan). Shares
reserved for future issuance under
the 2004 Plan may be used for grants of stock options (options), restricted stock units (RSU),
and other types of awards.
Dionex also sponsors the Employee Stock Purchase Plan (the ESPP) in which eligible employees may
contribute up to 10% of their base compensation to purchase shares of common stock at a price equal
to 85% of the lower of the market value of the stock at the beginning or end of each six-month
offer period, subject to certain annual limitations. Employees purchased 18,831 shares during the
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three months ended September 30, 2011 for approximately $1.1 million under the ESPP.
Performance Stock Units
Starting in the first quarter of fiscal 2011, Dionex issued performance stock units (PSUs) to
certain executive officers. The number of shares ultimately received will depend on specified
performance targets related to revenue and diluted earnings per share growth rates over a two-year
performance period (the performance period). Fifty percent of the shares awarded vest at the end
of the performance period and remaining shares vest twenty-five percent on each of the following
two anniversaries after the performance period assuming continued service by the employee. Delivery
of the shares occurs upon achievement of the targets and as of the
vesting date.
Dionex estimates the fair value of the PSUs based on the number of PSUs that are expected to be
earned multiplied by the market price of Dionexs common stock on the date of grant. As the
performance targets are considered performance conditions, the expense for these awards, net of
estimated forfeitures, is recorded over the four year vesting period based on a graded accelerated
vesting method.
The following table summarizes PSU activity under the 2004 Plan during the three months ended
September 30, 2010:
Wtd. Avg. | ||||||||
Grant-Date | ||||||||
Shares | Fair Value | |||||||
PSUs outstanding as of June 30, 2010 |
| | ||||||
Granted |
11,688 | $ | 76.30 | |||||
Vested |
| | ||||||
Changes in PSUs due to performance conditions |
| | ||||||
Forfeited |
| | ||||||
PSUs outstanding as of September 30, 2010 |
11,688 | $ | 76.30 | |||||
As of September 30, 2010, there was $0.8 million in unrecognized compensation costs related to PSU
granted under the 2004 Plan. These costs are expected to be recognized over a weighted average
period of 3.8 years.
Restricted Stock Units
The following table summarizes RSU activity under the 2004 Plan during the three months ended
September 30, 2010:
Wtd. Avg. | ||||||||
Grant-Date | ||||||||
Shares | Fair Value | |||||||
RSUs outstanding as of June 30, 2010 |
87,776 | $ | 64.21 | |||||
Granted |
34,241 | 76.30 | ||||||
Released |
| | ||||||
Canceled |
(2,325 | ) | 67.18 | |||||
RSUs outstanding as of September 30, 2010 |
119,692 | $ | 67.61 | |||||
As of September 30, 2010, there was $5.9 million in unrecognized compensation costs related to RSU
granted under the 2004 Plan. These costs are expected to be recognized over a weighted average
period of 3.6 years.
Stock Options
The following table summarizes option activity under the 2004 Plan during the three months ended
September 30, 2010:
Weighted | ||||||||||||||||
Average | ||||||||||||||||
Weighted | Remaining | Aggregate | ||||||||||||||
Average | Contractual | Intrinsic | ||||||||||||||
Options | Exercise | Term | Value | |||||||||||||
Outstanding | Price | (Years) | (in millions) | |||||||||||||
Options
outstanding as of June 30, 2010 |
1,474,627 | $ | 57.05 | |||||||||||||
Granted |
215,412 | 76.30 | ||||||||||||||
Exercised |
(32,968 | ) | 44.21 | |||||||||||||
Canceled |
(13,151 | ) | 68.77 | |||||||||||||
Options outstanding as of September 30, 2010 |
1,643,920 | $ | 59.74 | 6.56 | $ | 43.9 | ||||||||||
Options vested and expected to vest as of September 30, 2010 |
1,601,557 | $ | 59.44 | 6.48 | $ | 43.2 | ||||||||||
Exercisable as of September 30, 2010 |
965,177 | $ | 52.71 | 4.92 | $ | 32.6 | ||||||||||
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The total intrinsic value of options exercised during the first quarter of 2011 was $1.5 million.
As of September 30, 2010, there was $12.2 million of total unrecognized compensation cost related
to stock options. These costs are expected to be recognized over a weighted average period of 2.9
years.
The following assumptions were used to determine the fair value of the stock options using the
Black-Scholes-Merton options pricing model for the three months ended September 30:
2010 | 2009 | |||||||
Volatility |
33 | % | 33 | % | ||||
Risk-free interest rate |
1.55 | % | 2.53 | % | ||||
Expected life (in years) |
4.7 | 4.6 | ||||||
Expected dividend |
$ | 0.00 | $ | 0.00 |
Employee Stock Purchase Plan
The following assumptions were used to determine the fair value of ESPP shares for the three months
ended September 30:
2010 | 2009 | |||||||
Volatility |
30 | % | 36 | % | ||||
Risk-free interest rate |
0.20 | % | 0.30 | % | ||||
Expected life (in years) |
0.50 | 0.50 | ||||||
Expected dividend |
$ | 0.00 | $ | 0.00 |
The condensed consolidated statement of operations included the following stock-based compensation
expense related to options, RSUs, PSUs, and ESPP for the three months ended September 30:
(in thousands) | 2010 | 2009 | ||||||
Cost of sales |
$ | 234 | $ | 158 | ||||
Selling, general and administrative expenses |
1,409 | 1,041 | ||||||
Research and development expenses |
330 | 379 | ||||||
Tax benefit |
(668 | ) | (506 | ) | ||||
Total |
$ | 1,305 | $ | 1,072 | ||||
Note 10: Stockholders equity
Common Stock Repurchases
During the three months ended September 30, 2010, Dionex repurchased 187,183 shares of our common
stock on the open market for approximately $14.0 million (at an average repurchase price of $74.54
per share), compared with 188,253 shares repurchased for approximately $11.2 million (at an average
repurchase price of $59.36 per share) during the three months ended September 30, 2009.
Comprehensive Income
Comprehensive income consists of two components, net income and other comprehensive income. Other
comprehensive income refers to revenue, expenses, gains and losses that under GAAP are recorded as
an element of stockholders equity but are excluded
from net income. Dionexs other comprehensive income consists of foreign currency translation
adjustments from those subsidiaries not using the U.S. dollar as their functional currency,
unrealized gains (loss) on net investment hedge and unrealized gains and losses on
available-for-sale securities, and net deferred gains and losses on these items.
The components of comprehensive income attributable to Dionex Corporation were as follows for the
three months ended September 30 (in thousands):
2010 | 2009 | |||||||
Net income, as reported |
$ | 11,322 | $ | 10,586 | ||||
Foreign currency translation adjustments, net of taxes |
9,215 | 4,862 | ||||||
Unrealized loss on net investment hedge |
(821 | ) | (901 | ) | ||||
Unrealized gain on securities available for sale, net of taxes |
| 1 | ||||||
Comprehensive income |
19,716 | 14,548 | ||||||
Comprehensive income (loss) attributable to the noncontrolling interests |
361 | 250 | ||||||
Comprehensive income attributable to Dionex Corporation |
$ | 19,355 | $ | 14,298 | ||||
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Note 11: Income Taxes
As part of the process of preparing the condensed consolidated financial statements, we are
required to estimate our income taxes in each of the jurisdictions in which we operate. This
process involves estimating our actual current tax exposure and assessing changes in 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 the condensed consolidated balance sheets.
Accounting
standards relating to income taxes require that we continually evaluate the necessity of
establishing or changing a valuation allowance for deferred tax assets, depending on whether it is
more likely than not that actual benefit of those assets will be realized in future periods. We
have evaluated our deferred tax assets and concluded that it is more likely than not that the
deferred tax assets will be benefited in the future; therefore, valuation allowance is not
required. In addition, we adopted the provisions of the FASBs accounting guidance related to the
accounting for uncertainty in income taxes. This accounting standard requires financial statement
reporting of the expected future tax consequences of uncertain tax return reporting positions on
the presumption that all relevant tax authorities possess full knowledge of those tax reporting
positions, as well as all of the pertinent facts and circumstances, but it prohibits any
discounting of any of the related tax effects for the time value of money.
Our total amount of unrecognized tax benefits as of September 30, 2010 was $8.1 million, of which
$1.9 million, if recognized, would affect our effective tax rate, compared to $8.0 million on June
30, 2010, of which $1.9 million, if recognized, would have affected our effective tax rate. The
liability for income taxes associated with uncertain tax positions is classified in deferred and
other income taxes payable.
We record interest and penalties related to unrecognized tax benefits in income tax expense. At
September 30, 2010, we had approximately $1.9 million accrued for estimated interest related to
uncertain tax positions compared to approximately $1.7 million on June 30, 2010. During the three
months ended September 30, 2010, we accrued a total of $175,000 in interest on these uncertain tax
positions. At September 30, 2010, we had approximately $69,000 accrued for estimated penalties
related to uncertain tax positions compared to approximately $69,000 on June 30, 2010. During the
fiscal year ended June 30, 2010, we accrued no additional penalties on these uncertain tax
positions.
Included in our balance of income tax liabilities, accrued interest, and accrued penalties at
September 30, 2010 of $10.2 million, is $3.9 million related to tax positions for which it is
reasonably possible that the statute of limitations will expire in various jurisdictions within the
next twelve months.
We are subject to audit by the Internal Revenue Service and California Franchise Tax Board for the
fiscal years 2006 through the fiscal year 2009. As we have operations in most other US states,
other state tax authorities may assess deficiencies related to prior year activities; however, the
years open to assessment vary with each state. We also file income tax returns for non-US
jurisdictions; the most significant of which are Germany, Japan, the UK and Hong Kong. The years
open to adjustment for Germany are for the fiscal years 2004 through 2009, fiscal years 2004
through 2009 for the UK and Hong Kong and fiscal years 2003 through 2009 for Japan.
A number of years may elapse before an uncertain tax position is audited and ultimately settled. It
is difficult to predict the ultimate outcome or the timing of resolution for uncertain tax
positions. It is reasonably possible that the amount of unrecognized tax benefits could
significantly increase or decrease within the next twelve months. These changes could result from
the settlement of ongoing litigation, the completion of ongoing examinations, the expiration of the
statute of limitations, or other circumstances. At this time, an estimate of the range of the
reasonably possible change cannot be made.
Note 12: Commitments and Contingencies
In July 2008, Dionex acquired a Swedish company using a combination of cash and post acquisition
earn-out payment arrangements.
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Under the purchase agreement, earn-out payments of 70% for fiscal
2009, 30% for fiscal 2010 and 30% for 2011 as a percentage of the acquired companys net income are
payable to the seller at the end of each fiscal year. Each earn-out payment is contingent upon
results of operations in which no payments were made during the three months ended September 30,
2010.
Certain facilities and equipment are leased under non-cancelable operating leases. Dionex generally
pays taxes, insurance and maintenance costs on leased facilities and equipment. Rental expense for
all operating leases was $1.6 million and $2.0 million in the three months ended September 30, 2010
and 2009, respectively.
Minimum rental commitments under these non-cancelable operating leases were as follows as of
September 30, 2010:
(In thousands) | ||||
Less than 1 Year |
$ | 6,277 | ||
1-2 Years |
2,992 | |||
2-3 Years |
1,601 | |||
3-4 Years |
845 | |||
4-5 Years |
306 | |||
After 5 Years |
1,381 | |||
Total |
$ | 13,402 | ||
Dionex enters into standard indemnification agreements with many of our customers and certain other
business partners in the ordinary course of business. These agreements include provisions for
indemnifying the customer against any claim brought by a third party to the extent any such claim
alleges that our product infringes a patent, copyright or trademark, or violates any other
proprietary rights of that third party. The maximum potential amount of future payments Dionex
could be required to make under these indemnification agreements is not estimable, however, Dionex
has not incurred any costs to defend lawsuits or settle claims related to these indemnification
agreements. No material claims for such indemnifications were outstanding as of September 30, 2010.
Dionex has not recorded any liabilities for these indemnification agreements as of September 30,
2010 or June 30, 2010.
Note 13: Business Segment Information
The accounting standard for segment reporting establishes standards for reporting information about
operating segments in annual financial statements and requires selected information for those
segments to be presented in interim financial reports of public business enterprises. It also
establishes standards for related disclosures about products and services, geographic areas and
major customers. Our business activities, for which discrete financial information is available,
are regularly reviewed and evaluated by the chief operating decision maker (our Chief Executive
Officer). As a result of this evaluation, Dionex determined that it has two operating segments:
Chemical Analysis Business Unit (CABU) and Life Sciences Business Unit (LSBU).
CABU sells ion chromatography and sample preparation products, chromatography data systems
software, services and related consumables. LSBU sells High Performance Liquid Chromatography
(HPLC) products, chromatography data systems software, services and related consumables. These
two operating segments are aggregated into one reportable segment for financial statement purposes.
Both operating segments have similar economic characteristics; product processes; products and
services; types and classes of customers; methods of distribution and regulatory environments.
Because of these similarities, the two segments have been aggregated into one reporting segment for
financial statement purposes.
Net sales for our products and services were as follows for the three months ended September 30:
(in thousands) | 2010 | 2009 | ||||||
Products |
$ | 86,452 | $ | 79,282 | ||||
Installation and Training Services |
2,580 | 2,480 | ||||||
Maintenance |
13,842 | 8,902 | ||||||
$ | 102,874 | $ | 90,664 | |||||
No individual customer accounted for more than 10% of net sales during the three months ended
September 30, 2010 and 2009.
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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Cautionary Statement Regarding Forward-Looking Statements
Except for historical information contained herein, the discussion below and in the footnotes to
our financial statements contained in this Report on Form 10-Q 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 (the Exchange Act), 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, uncertainties and other factors that may cause actual
results, performance or achievements, or industry results, to be materially different from any
future results, performance or achievements, or industry results, expressed or implied by such
forward-looking statements. Such risks and uncertainties include, among other things: general
economic conditions, foreign currency fluctuations, risks associated with international sales,
credit risks, fluctuations in worldwide demand for analytical instrumentation, fluctuations in
quarterly operating results, competition from other products, existing product obsolescence, 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 below under the
heading Risk Factors. Readers are cautioned not to place undue reliance on these forward-looking
statements that reflect managements analysis only as of the date hereof. We undertake no
obligation to update these forward-looking statements.
Overview
Dionex Corporation designs, manufactures, markets and services analytical instrumentation and
related accessories and chemicals. Our products are used to analyze chemical substances in the
environment and in a broad range of industrial and scientific applications. Our systems are used in
environmental analysis and by the pharmaceutical, life sciences, chemical/petrochemical, power
generation, food and electronics industries in a variety of applications.
Our current portfolio of liquid chromatography (LC) systems is focused in two product areas: ion
chromatography (IC) and high performance liquid chromatography (HPLC). In addition, we offer a mass
spectrometer detector that can be coupled with either IC or HPLC systems. For sample preparation,
we provide accelerated solvent extraction (ASE®) systems and AutoTrace® instruments. In addition,
we also develop and manufacture columns, consumables, suppressors, detectors, automation, and
software analysis systems for use in or with liquid chromatography systems. All these products can
be used to analyze chemical substances in the environment and in a broad range of industrial and
scientific applications.
During the past quarter, Dionex experienced steady growth in certain of its
end-user markets, including the life sciences, chemical/petrochemical, food and beverage and
electronics markets. Demand from our customers in the environmental
and electronics markets was
relatively flat, while demand in our power market was lower for the quarter. We experienced first
quarter organic sales growth in all three of our major geographic regions. North America
continued its strong sales performance from the fourth quarter of fiscal 2010 growing 22% compared with
the first quarter of last year due to strong performance in our life science,
chemical/petrochemical and food and beverage markets. In Europe, sales were up 9% in local
currencies, but were negatively affected by currency fluctuation which resulted in 1% growth in
reported dollars compared with last year. In Asia Pacific,
sales in the first quarter of fiscal 2011 grew 21% in reported dollars and 17% in local currency
driven by continued strong sales growth in India, Korea and Japan.
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Results of Operations
The following table summarizes our consolidated statements of income for the first quarter of 2011
and 2010 as a percentage of net sales for the periods indicated:
Q1 2011 | Q1 2010 | |||||||||||||||
% of | ||||||||||||||||
Net | % of Net | |||||||||||||||
(in thousands) | Dollars | Sales | Dollars | Sales | ||||||||||||
Net sales |
$ | 102,874 | 100.0 | % | $ | 90,664 | 100.0 | % | ||||||||
Cost of sales |
36,472 | 35.5 | % | 31,041 | 34.2 | % | ||||||||||
Gross profit |
66,402 | 64.5 | % | 59,623 | 65.8 | % | ||||||||||
Operating expenses: |
||||||||||||||||
Selling, general and administrative |
40,266 | 39.2 | % | 35,983 | 39.7 | % | ||||||||||
Research and product development |
8,013 | 7.8 | % | 7,172 | 7.9 | % | ||||||||||
Total operating expenses |
48,279 | 47.0 | % | 43,155 | 47.6 | % | ||||||||||
Operating income |
18,123 | 17.6 | % | 16,468 | 18.2 | % | ||||||||||
Interest income, net |
27 | 0.0 | % | 47 | 0.0 | % | ||||||||||
Other income (expense), net |
(1,038 | ) | (1.0 | )% | 40 | 0.1 | % | |||||||||
Income before taxes |
17,112 | 16.6 | % | 16,555 | 18.3 | % | ||||||||||
Taxes on income |
5,790 | 5.6 | % | 5,969 | 6.6 | % | ||||||||||
Net income |
11,322 | 11.0 | % | 10,586 | 11.7 | % | ||||||||||
Less: Net income attributable to noncontrolling interests |
361 | 0.4 | % | 250 | 0.3 | % | ||||||||||
Net income attributable to Dionex |
$ | 10,961 | 10.6 | % | $ | 10,336 | 11.4 | % | ||||||||
Net sales
Consolidated net sales increased 13% in the first quarter of fiscal 2011 compared to same period in
prior year (excluding the net impact of unfavorable currency movements, net sales increased 15%).
Our portfolio of HPLC systems was the largest contributor to our consolidated net sales growth in
part as a result of our acquisition of the ESA Life Sciences Tools business (ESA products) in the
first half of fiscal 2010, combined with the introduction of our UHPLC+ systems in fiscal 2010.
Dionex is subject to the effects of currency fluctuations, which have an impact on net sales.
Currency fluctuations decreased net sales by 2% in the first quarter of fiscal 2011 compared to
prior-year period.
Net sales increased across all major regions primarily as a result of a recovering global
economy, combined with continued strength in China, India, and other emerging markets. Net sales outside of North America accounted for 70% and 73% of net sales in the
first quarter of 2011 and 2010, respectively. Sales directly to our end-user customers accounted
for 95% in those same periods. International distributors and representatives in Europe, Asia, and
other international markets accounted for the remaining percentage of net sales.
Net sales from a regional perspective
North America - Net sales in this region increased 22% in the first quarter of fiscal 2011 compared
to the same period in the prior year primarily due to the demand for our products in the life science,
food and beverage and power markets. The overall demand in this region was driven by our HPLC instruments, the ESA
products and by our new ICS-5000 Capillary RFIC Systems (ICS-5000),
introduced in the second half of fiscal 2010.
Europe - Net sales in this region increased 1% in reported dollars in the first quarter of fiscal
2011 compared to same period in prior-year (excluding the net impact of unfavorable currency
movements, net sales increased 9%). The overall growth was primarily due to strong demand in the
chemicals and food and beverage markets, offset by softness in the life science and environmental
markets. From a product perspective, growth in this region was driven by our HPLC
portfolio, specifically ESA products added during fiscal 2010 and the introduction of the new
UHPLC+ systems.
Asia / Pacific - Net sales in this region increased 21% in reported dollars in the first quarter of
fiscal 2011 compared to the same period in prior year (excluding the net impact of favorable
currency movements, net sales increased 17%). The overall growth was
primarily due to continued strength in the countries of India, Korea and Japan as well as overall strength in
the life sciences and chemical markets in this particular region.
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Our continued effort to make
investments in our sales and service organization was pivotal to the growth in this region,
combined with the revenue contributed from the ESA products.
Net sales from a product line perspective
IC - Net sales of our IC portfolio of products increased 8% in the first quarter of 2011 compared
to the same period in prior year primarily due to growth in North America and
Asia/Pacific regions driven by the recovery of the global economy and higher demand in the life
science and food and beverage markets for our IC systems, consumables and related services.
HPLC - Net sales of our HPLC portfolio of products increased 31% in the first quarter of 2011
compared to the same period in the prior year primarily due to the net sales generated from our ESA
products acquired in the first half of fiscal 2010. Excluding net sales from our ESA products
during the first quarter of fiscal 2011 and 2010, net sales increased 14% over the same comparable
period as a result of the rebounding global economy from the past few quarters, and in part, due to
the introduction of our UHPLC+ systems in fiscal 2010.
Gross Profit
Gross Profit as a percentage of net sales in the first quarter of fiscal 2011 and 2010, respective,
were 64.5% and 65.8%, respectively. The 1.3 percentage point decline was driven by increased sales of our ESA products
acquired in fiscal 2010 which currently have a lower gross margin than our corporate average, as well as overall regional sales mix.
Selling, General and Administrative
Selling, general and administrative (SG&A) expenses as a percentage of net sales were approximately
39% and 40% in the first quarter of fiscal 2011 and 2010, respectively. SG&A increased $4.3
million, or 12% primarily due to headcount increases, including staff added from the ESA
acquisition and increased selling and other expenses for the continued expansion efforts to
increase our presence in Europe and Asia/Pacific regions.
Research and Product Development
Research and product development (R&D) expenses as a percentage of net sales were approximately 8%
in the first quarter of fiscal 2011 and 2010. While R&D expenses increased $841,000, or 11.7%
primarily due to the headcount increases from the ESA acquisition, R&D expenses as a percentage of
net sales was in line between both periods.
Interest Income
Interest income in the first quarter of fiscal 2011 and 2010 was $60,000 and $83,000, respectively.
Our interest income was affected by a combination of the maturity of one of our short-term
investments and lower interest rates in the U.S. and Europe in the first quarter of fiscal 2011.
Interest Expense
Interest expense in the first quarter of fiscal 2011 and 2010 was $33,000 and $36,000,
respectively. Our interest expense was affected the combination of a higher average balance in our
borrowing under the line of credit, offset by lower interest rates in the first quarter of fiscal
2011.
Other Income (Expense), Net
Other income (expense), net in the first quarter of fiscal 2011 and 2010 was ($1.0 million), and
$40,000, respectively. The changes were primarily due to losses on foreign currency transactions in
the first quarter of fiscal 2011.
Taxes on Income
Our tax rate may change over time as the amount and mix of income and taxes outside the U.S.
changes. The effective tax rate is calculated using our projected annual pre-tax income and is
affected by tax credits, the expected level of other tax benefits, and the
impact of changes to the valuation allowance, as well as changes in the mix of our pre-tax income
and losses among jurisdictions with varying statutory tax rates and credits.
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The taxes on income in the first quarter of fiscal 2011 and 2010 was $5.8 million and $5.9 million,
respectively, representing an effective tax rate of 33.8% and 36.6%, respectively. The decrease in
our tax rate was primarily due to lower accrued interest on exposures. We anticipate that our tax
rate for fiscal 2011 will be in the range of 33% to 34%.
Net Income Attributable to Noncontrolling Interests
Net income attributable to noncontrolling interests in the first quarter of fiscal 2011 and 2010
was $361,000 and $250,000, respectively. Net income attributable to noncontrolling interests
represents the minority shareholders proportionate share of the net income recorded by three
majority-owned international subsidiaries. The increase was due to better performance in India and
Brazil.
Net Income Attributable to Dionex Corporation
Net income in the first quarter of fiscal 2011 and 2010 was $11.0 million and $10.3 million,
respectively, while diluted earnings per share were $0.62 and $0.57, respectively.
Liquidity and Capital Resources
As of September 30, 2010, we had cash and cash equivalents and short-term investments of $77.0
million. Our working capital was $143.7 million, an increase of $26.5 million from $117.2 million
reported as of September 30, 2009.
Cash generated by operating activities for first quarter in fiscal 2011 was $10.5 million, compared
with $22.9 million for the same period last year. A lower level of prepaid income taxes, a decrease
in accounts receivable due to lower sales contributed to higher operating cash flows. These changes
were partially offset by a decrease to operating cash from an increase in inventory as we prepared
for higher shipments in the second quarter and a decrease in accounts payable and accrued
liabilities due to higher payments made in the quarter.
Cash used for investing activities was $9.4 million during the first quarter of fiscal 2011.
Capital expenditures during the first quarter of 2011 were $5.2 million which included purchases
related to our general operations, purchase of land required for
expansion of our manufacturing capacity in Germering, Germany, and effects of foreign currency translations. In addition, we also negotiated and
completed a paid-up royalty for $4.5 million related to our ESA products.
Cash provided by financing activities was $3.2 million during the first quarter of fiscal 2011.
Financing activities consisted primarily of common stock repurchases, partially offset by proceeds
from issuances of shares pursuant to our equity incentive plans, repayment of short-term
obligations, and the tax benefits related to stock options in the first quarter of fiscal 2011.
Our available lines of credit totaled $11.8 million as of September 30, 2010. We believe our cash
flow from operations, our existing cash and cash equivalents and our bank lines of credit will be
adequate to meet our cash requirements for at least the next 12 months. The line of credit matures
on December 31, 2011. The impact of inflation
on our financial position and results of operations was not significant during any of the periods
presented.
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Contractual Obligations and Commercial Commitments
The following table summarizes our contractual obligations as of September 30, 2010, and the
payments due in future periods (in thousands):
Payments Due by Period | ||||||||||||||||||||
Less | ||||||||||||||||||||
Than 1 | 1-3 | 4-5 | After 5 | |||||||||||||||||
Contractual Obligations | Total | Year | Years | Years | Years | |||||||||||||||
Short-Term Borrowings |
$ | 17,371 | $ | 17,371 | $ | | $ | | $ | | ||||||||||
Long-Term Debt Associated with Business Purchase |
527 | 527 | | | | |||||||||||||||
Operating Lease Obligations |
13,402 | 6,277 | 4,593 | 1,151 | 1,381 | |||||||||||||||
Total |
$ | 31,300 | $ | 24,175 | $ | 4,593 | $ | 1,151 | $ | 1,381 | ||||||||||
As of September 30, 2010, the liability for uncertain tax positions, net of offsetting tax benefits
associated with the correlative effects of potential transfer pricing adjustments, state income
taxes, and interest deductions was $1.9 million. As of September 30, 2010, the Company has accrued
$1.9 million of interest and $69,000 of penalties associated with its uncertain tax positions. The
Company cannot conclude on the range of cash payments that will be made within the next twelve
months associated with its uncertain tax positions.
New Accounting Pronouncements
Refer to Note 1 in the Notes to Condensed Consolidated Financial Statements section.
Critical Accounting Policies and Estimates
The preparation of condensed consolidated financial statements requires us 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 net
sales and expenses during the reporting period. We evaluate our estimates, including those related
to product returns and allowances, inventory valuation, goodwill and other intangible assets,
income taxes, warranty and installation provisions, and contingencies on an ongoing basis.
We base our 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.
There have been no significant changes during the three months ended September 30, 2010 to the
items that we disclosed as our critical accounting policies and estimates in the Managements
Discussion and Analysis of Financial Condition and Results of Operations section of our Annual
Report on Form 10-K for the fiscal year ended June 30, 2010.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
We are exposed to financial market risks from fluctuations in foreign currency exchange rates,
interest rates and stock prices of marketable securities. With the exception of the stock price
volatility of our marketable equity securities, we manage our exposure to these and other risks
through our regular operating and financing activities and, when appropriate, through our hedging
activities. Our policy is not to use hedges or other derivative financial instruments for
speculative purposes. We deal with a diversified group of major financial institutions to limit the
risk of nonperformance by any one institution on any financial instrument. Separate from our
financial hedging activities, material changes in foreign exchange rates, interest rates and, to a
lesser extent, commodity prices could cause significant changes in the costs to manufacture and
deliver our products and in customers buying practices. We have not substantially changed our risk
management practices during fiscal 2010 or the first three months of fiscal 2011 and we do not
currently anticipate significant changes in financial market risk exposures in the near future that
would require us to change our current risk management practices.
Foreign Currency Exchange
Revenues generated from international operations are generally denominated in foreign currencies.
We entered into forward foreign exchange contracts to hedge against fluctuations of intercompany account balances. Market value
gains and losses on these hedge
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contracts are substantially offset by fluctuations in the
underlying balances being hedged, and the net financial impact is not expected to be material in
future periods. As of September 30, 2010, we had forward exchange contracts to sell foreign
currencies totaling approximately $32.7 million, including approximately $23.8 million in Euros,
$6.7 million in Japanese yen, $1.0 million in Australian dollars and $1.2 million in Canadian
dollars. As of June 30, 2010, we had forward exchange contracts to sell foreign currencies totaling
approximately $23.7 million, including approximately $17.7 million in Euros, $4.3 million in
Japanese yen, $0.8 million in Australian dollars and $0.9 million in Canadian dollars. The foreign
exchange contracts outstanding at the end of the period mature within one month. As of September
30, 2010 and June 30, 2010, we have approximately $1.5 million and $0.3 million, respectively, in
other current liabilities in the condensed consolidated balance sheets related to the foreign
currency exchange contracts. For the three months ended September 30, 2010 and 2009, we recorded
realized pre-tax losses of approximately $2.2 million and $0.7 million, respectively, related to
the closed foreign exchange forward contracts.
Dionex uses a $10 million cross-currency swap arrangement for Japanese yen that expires in March
2012 to hedge the exchange rate exposure of our net investment in our Japanese subsidiary. Dionex
considers the impact of its counterpartys credit risk on the fair value of the contract as well as
the ability to each party to execute under the contract. Dionex assessed and documented hedge
effectiveness of the contract and designated it as a net investment hedge at the inception date,
January 1, 2008. We reassess hedge effectiveness on a quarterly basis. The effective portion of
the gain or loss on the hedge is reported in accumulated other comprehensive income as part of the
foreign currency translation adjustment.
Interest and Investment Income
Our interest and investment income is subject to changes in the general level of U.S. interest
rates. Changes in U.S. interest rates affect the interest earned on our cash equivalents and
short-term investments. A sensitivity analysis assuming a hypothetical 10% movement in interest
rates applied to our investment balances as of September 30, 2010 and June 30, 2010 indicated that
such market movement would not have a material effect on our business, operating results or
financial condition. Actual gains or losses in the future may differ materially from this analysis,
depending on our actual balances and changes in the timing and amount of interest rate movements.
Debt and Interest Expense
As of September 30, 2010, Dionex had an outstanding balance under a borrowing line of credit of
$17.4 million. A sensitivity analysis assuming a hypothetical 10% movement in interest rates
applied to our outstanding debt balance as of September 30, 2010, indicated that such market
movement would not have a material effect on our business, operating results or financial
condition. Actual gains or losses in the future may differ materially from this analysis, depending
on changes in the timing and amount of interest rate movements and the level of borrowings
maintained by us.
ITEM 4. CONTROLS AND PROCEDURES
We carried out an evaluation, under the supervision and with the participation of our Chief
Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and
procedures (as defined in rules promulgated under the Exchange Act Rules 13a-15(e) and 15d-15(e)).
Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded
that our disclosure controls and procedures as of September 30, 2010 were effective to ensure that
information required to be disclosed by us in reports that we file or submit under the Exchange Act
is (i) recorded processed, summarized and reported within the time periods specified in the SECs
rules and forms and (ii) accumulated and communicated to our management, including our principal
executive and principal financial officers, to allow timely decisions regarding required
disclosures. Our disclosure controls and procedures are designed to provide reasonable assurance of
achieving their objectives and our Chief Executive Officer and Chief Financial Officer have
concluded that these controls and procedures are effective at the reasonable assurance level. We
believe that a control system, no matter how well designed and operated, cannot provide absolute
assurance that the objectives of the control system are met, and no evaluation of controls can
provide absolute assurance that the objectives of the control system are met, and no evaluation of
controls can provide absolute assurance that all control issues and instances of fraud, if any,
within a Company have been detected.
There were no changes in our internal control over financial reporting (as defined in Rule
13a-15(f) and 15d-15(f) of the Securities Exchange Act) during the period covered by this quarterly
report on Form 10-Q that have materially affected, or are reasonably likely to materially affect
our internal control over financial reporting.
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PART II. OTHER INFORMATION
ITEM 1A. RISK FACTORS
You should consider carefully the following risk factors as well as other information in this
report before investing in any of our securities. If any of the following risks actually occur, our
business operating results and financial condition could be adversely affected. This could cause
the market price for our common stock to decline, and you may lose all or part of your investment.
These risk factors include any material changes to, and supersede, the risk factors previously
disclosed in our most recent annual report on Form 10-K.
A downturn in economic conditions could affect our operating results.
Our business, financial condition and results of operations have been affected by the weaker global
economic conditions of the last several years. These conditions resulted in reduced sales of our
products in the last two quarters of fiscal 2009 and the first two quarters of fiscal 2010. In a
continued economic recession or under other adverse economic conditions, our customers may be less
likely to purchase our products and vendors may be more likely to fail to meet contractual terms. A
further downturn in economic conditions or a slow recovery from the current recession may make it
more difficult for us to maintain and continue our revenue growth and profitability performance
resulting in a material adverse effect on our business.
Foreign currency fluctuations related to international operations may adversely affect our
operating results.
We derived over 70% of our net sales from outside the U.S. in fiscal 2010 and expect to continue to
derive the majority of net sales from outside the U.S. for the foreseeable future. Most of our
sales outside the U.S. are denominated in the local currency of our customers. As a result, the
U.S. dollar value of our net sales varies with currency rate fluctuations. Significant changes in
the value of the U.S. dollar relative to certain foreign currencies could have a material adverse
effect on our results of operations. In recent periods, our results of operations have been
positively affected from the depreciation of the U.S. dollar against the Euro, the Japanese yen and
several other foreign currencies, but there can be no assurance that this positive impact will
continue. In the past, our results of operations have also been negatively impacted by the
appreciation of the U.S. dollar against other currencies.
Economic, political and other risks associated with international sales and operations could
adversely affect our results of operations.
Because we sell our products worldwide and have significant operations outside of the U.S., our
business is subject to risks associated with doing business internationally. We anticipate that
revenue from international operations will continue to represent a majority of our total net sales.
In addition, we expect that the proportion of our employees, contract manufacturers, suppliers, job
functions and manufacturing facilities located outside the U.S. will increase. Accordingly, our
future results could be harmed by a variety of factors, including:
| interruption to transportation flows for delivery of parts to us and finished goods to our customers; | ||
| changes in a specific countrys or regions economic, political or other conditions; | ||
| trade protection measures and import or export licensing requirements; | ||
| difficulty in staffing and managing widespread operations; | ||
| differing labor regulations; | ||
| differing protection of intellectual property; | ||
| unexpected changes in regulatory requirements; and | ||
| geopolitical turmoil, including terrorism and war. |
If we fail to effectively transition to our new and/or upgraded accounting information and
technology infrastructure systems, it may have an adverse impact on our business and results of
operations.
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We may experience difficulties in transitioning to new or upgraded accounting information and
technology infrastructure systems, including loss of data and decreases in productivity as
personnel become familiar with new, upgraded or modified systems. Our accounting information and
technology infrastructure systems will require modification and refinement as we grow and as our
business and customers needs change, which could prolong the difficulties we experience with
systems transitions, and we may not always employ the most effective information systems. If we
experience difficulties in implementing new or upgraded accounting information and technology
infrastructure systems or experience significant system failures, or if we are unable to
successfully modify our accounting information and technology infrastructure systems and respond to
changes in our customers needs in a timely manner, it may have an adverse impact on our business
and results of operations.
We continually evaluate our system of internal controls over financial reporting and may make
enhancements where appropriate, which may require significant resources.
Effective internal controls are necessary for us to provide reliable financial reports and
effectively prevent fraud. We continually evaluate and, where appropriate, enhance our policies,
procedures and internal controls. If we fail to maintain the adequacy of our internal controls, as
such standards are modified, supplemented or amended from time to time, we could be subject to
regulatory scrutiny and investors could lose confidence in the accuracy and completeness of our
financial reports. In addition, failure to maintain adequate internal controls could result in
financial statements that do not accurately reflect our financial condition. Implementing changes
when necessary may take a significant amount of time, money, and management resources and may
require specific compliance training of our directors, officers and other personnel.
Changes in our provision for income taxes or adverse outcomes resulting from examination of our
income tax returns could adversely affect our results.
Our provision for income taxes is subject to volatility and could be adversely affected by
earnings being lower than anticipated in countries that have lower tax rates and higher than
anticipated in countries that have higher tax rates; by changes in the valuation of our deferred
tax assets and liabilities; by expiration of or lapses in the R&D tax credit laws; by transfer
pricing adjustments; by tax effects of nondeductible compensation; by changes in accounting
principles; or by changes in tax laws and regulations including possible U.S. or foreign changes to
the taxation of earnings of our foreign subsidiaries, and the deductibility of expenses
attributable to foreign income, or the foreign tax credit rules. Significant judgment is required
to determine the recognition and measurement attribute prescribed in Financial Accounting Standards
Board (FASB) Accounting Standards Codification 740, Income Taxes (ASC 740) (formerly referenced
as FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes an interpretation of
FASB Statement No. 109). ASC 740 applies to all income tax positions, including the potential
recovery of previously paid taxes, which if settled unfavorably could adversely impact our
provision for income taxes or additional paid-in capital. In addition, we are subject to the
continuous examination of our income tax returns by the Internal Revenue Service and other tax
authorities. We regularly assess the likelihood of adverse outcomes resulting from these
examinations to determine the adequacy of our provision for income taxes. There can be no assurance
that the outcomes from these continuous examinations will not have an adverse effect on our
operating results and financial condition.
Natural disasters, terrorist attacks or acts of war may cause damage or disruption to us and our
employees, facilities, information systems, security systems, vendors and customers, which could
significantly impact our net sales, costs and expenses, and financial condition.
We have significant manufacturing and distribution facilities, particularly in the western U.S.
(i.e. California) and in Germany. In particular, California has experienced a number of
earthquakes, wildfires, flooding, landslides and other natural disasters in recent years.
Occurrences of these types of events could damage or destroy our facilities which may result in
interruptions to our business and losses that exceed our insurance coverage. Terrorist attacks
have contributed to economic instability in the U.S. (such as those that occurred on September 11,
2001), and further acts of terrorism, bioterrorism, violence or war could affect the markets in
which we operate, our business operations, our expectations and other forward-looking statements
contained or incorporated in this document. Any of these events could have an adverse effect on
our operating results and financial condition.
We may experience difficulties with obtaining components from sole- or limited-source suppliers, or
manufacturing delays, either of which could adversely affect our results of operations.
Most raw materials, components and supplies that we purchase are available from many suppliers.
However, certain items are purchased from sole or limited-source suppliers and a disruption of
these sources could adversely affect our ability to ship products as needed. A prolonged inability
to obtain certain materials or components would likely reduce product inventory, hinder sales and
harm our reputation with customers. Worldwide demand for certain components may cause the cost of
such components to rise or limit the availability of these components, which could have an adverse
effect on our results of operations.
We manufacture products in our facilities in Germany, the Netherlands and the U.S. Any prolonged
disruption to the operations at these facilities, whether due to labor unrest, supplier issues, damage to the physical plants or
equipment or other reasons, could also
adversely affect our results of operations.
If
we fail to properly transition manufacturing currently performed at
the ESA Biosciences facility to our manufacturing facilities in
Germany and Sunnyvale, we may experience shipment delays, cost
overruns, excess inventory and other problems, which may adversely
impact our business and operating results.
In fiscal year 2011, we currently plan to transition manufacturing from the ESA Biosciences manufacturing facility in Massachusetts to our manufacturing facilities in Germany and Sunnyvale. If the transition does not go as expected, it could result in the following in addition to other potential issues, each of which could have an adverse effect on our business and operating results and our business reputation:
delay of shipments;
unexpected cost overruns; and
overstock of inventory as a result of building excessive buffer stock.
Credit risks associated with our customers may adversely affect our financial position or result of
operations.
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Because trade credit is extended to many of our customers, the current global economic condition
may adversely affect our ability to collect on accounts receivable that are owed to us. In general,
our customers are evaluated for their credit worthiness as part of our operating policy, and
letters of credit are utilized to mitigate credit risks when possible. We believe we have adopted
the appropriate operating policies to address the customer credit risk under a stable economic
environment. Nevertheless, given the current global economic situation we could experience delays
in collection on accounts receivable that are owed to us. As a result, this could adversely affect
our financial position or result of operations.
Fluctuations in worldwide demand for analytical instrumentation could affect our operating results.
The demand for analytical instrumentation products can fluctuate depending upon capital expenditure
cycles. Most companies consider our instrumentation products capital equipment and some customers
may be unable to secure the necessary capital expenditure approvals due to general economic or
customer specific conditions. Significant fluctuations in demand could harm our results of
operations.
Fluctuations in our quarterly operating results may cause our stock price to decline.
A high proportion of our costs are fixed due in part to our significant sales and marketing,
research and product development and manufacturing costs. Declines in revenue caused by
fluctuations in currency rates, worldwide demand for analytical instrumentation or other factors
could disproportionately affect our quarterly operating results, which may in turn cause our stock
price to decline.
A significant portion of our cash is maintained overseas.
Most of our short-term debt is in the U.S. While there is a substantial cash requirement in the
U.S. to fund operations and capital expenditures, service debt obligations, finance potential
acquisitions and continue authorized stock repurchases, a significant portion of our cash is
maintained and generated from foreign operations. Our financial condition and results of operations
could be adversely impacted if we are unable to maintain a sufficient level of cash flow in the
U.S. to address these requirements through cash from U.S. operations, efficient and timely
repatriation of cash from overseas and other sources obtained at an acceptable cost.
Our results of operations and financial condition will suffer if we do not introduce new products
that are attractive to our customers on a timely basis.
Our products are highly technical in nature. As a result, many of our products must be developed
months or even years in advance of the potential need by a customer. If we fail to introduce new
products and enhancements as demand arises or in advance of the competition, our products are
likely to become obsolete over time, which would harm operating results. Also, if the market is not
receptive to our newly-developed products, our results of operations would be adversely impacted
and we may be unable to recover the costs of research and product development and marketing
associated with such products.
The analytical instrumentation market is highly competitive, and our inability to compete
effectively in this market would adversely affect our results of operations and financial
condition.
The analytical instrumentation market is highly competitive and we compete with many companies on a
local and international level that are significantly larger than we are and have greater resources,
including larger sales forces and technical staff. Competitors may introduce more effective and
less costly products and, in doing so, may make it difficult for us to acquire and retain
customers. If this occurs, our market share may decline and operating results could suffer.
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Our executive officers and other key employees are critical to our business, they may not remain
with us in the future and finding talented replacements may be difficult.
Our operations require managerial and technical expertise. Each of our executive officers and key
employees is employed at will and may leave our employment at any time. In addition, we operate
in a variety of locations around the world where the demand for qualified personnel may be
extremely high and is likely to remain so for the foreseeable future. As a result, competition for
personnel can be intense and the turnover rate for qualified personnel may be high. The loss of any
of our executive officers or key employees could cause us to incur increased operating expenses and
divert senior management resources in searching for replacements. An inability to hire, train and
retain sufficient numbers of qualified employees would seriously affect our ability to conduct our
business.
We may be unable to protect our intellectual property rights and may face intellectual property
infringement claims.
Our success will depend, in part, on our ability to obtain patents, maintain trade secret
protection and operate without infringing the proprietary rights of third parties. We cannot be
certain that:
| any of our pending patent applications or any future patent applications will result in issued patents; | ||
| the scope of our patent protection will exclude competitors or provide competitive advantages to us; | ||
| any of our patents will be held valid if subsequently challenged; or | ||
| others will not claim rights in or ownership of the patents and other proprietary rights held by us. |
Furthermore, we cannot be certain that others have not or will not develop similar products,
duplicate any of our products or design around any patents issued, or that may be issued, in the
future to us or to our licensors. Whether or not patents are issued to us or to our licensors,
others may hold or receive patents which contain claims having a scope that covers products
developed by us. We could incur substantial costs in defending any patent infringement suits,
whether or not such suits have merit, or in asserting any patent rights, including those granted by
third parties. In addition, we may be required to obtain licenses to patents or proprietary rights
from third parties. There can be no assurance that such licenses will be available on acceptance
terms, if at all.
Our issued U.S. patents, and corresponding foreign patents, expire at various dates ranging from
2010 to 2029. When each of our patents expires, competitors may develop and sell products based on
the same or similar technologies as those covered by the expired patent. We have invested in
significant new patent applications, and we cannot be certain that any of these applications will
result in an issued patent to enhance our intellectual property rights.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Issuer Repurchases
During the three months ended September 30, 2010, we repurchased shares of our common stock under a
systematic program to manage the dilution created by shares issued under employee stock plans and
for other purposes. This program authorizes repurchases in the open market or in private
transactions. We started a series of repurchase programs in fiscal 1989, with the Board of
Directors most recently authorizing in October 2008 future repurchases of 1,000,000 shares of
common stock as well as authorizing the repurchase of additional shares of common stock equal to
the number of common shares issued pursuant to our employee stock plans.
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The following table indicates common shares repurchased and additional shares added to the
repurchase program during the three months ended September 30, 2010:
ISSUER PURCHASES OF EQUITY SECURITIES
Total | ||||||||||||||||||||
Number of | Maximum | |||||||||||||||||||
Shares | Number of | |||||||||||||||||||
Purchased | Additional | Shares that | ||||||||||||||||||
Total | Avg. | as Part of | Shares | May Yet Be | ||||||||||||||||
Number | Price | Publicly | Authorized | Purchased | ||||||||||||||||
of Shares | Paid | Announced | for | Under the | ||||||||||||||||
Period | Purchased | per Share | Program | Purchase (1) | Program (2) | |||||||||||||||
July 1 to July 31, 2010 |
| | 8,589,669 | | 817,844 | |||||||||||||||
August 1 to August 31, 2010 |
106,207 | $ | 73.49 | 8,695,876 | 18,894 | 730,531 | ||||||||||||||
September 1 to September 30, 2010 |
80,976 | $ | 75.92 | 8,776,852 | 32,905 | 682,460 | ||||||||||||||
Total |
187,183 | $ | 74.54 | 8,776,852 | 51,799 | 682,460 |
(1) | The number of shares represents the number of shares issued pursuant to employee stock plans that are authorized for purchase. | |
(2) | The number of shares includes (i) 1.0 million shares of common stock approved for repurchases in October 2008, plus (ii) that number of shares of common stock equal to the number of shares issued pursuant to employee stock plans subsequent to October 2008 minus the number of shares repurchased, plus (iii) the number of shares remaining from the repurchase authorization in August 2006. |
Dividends
As of September 30, 2010, we had paid no cash dividends on our common stock and we do not
anticipate doing so in the foreseeable future.
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EXHIBIT INDEX
Item 6. EXHIBITS
EXHIBIT INDEX
Exhibit | ||||||
Number | Description | Reference | ||||
3.1
|
Restated Certificate of Incorporation, filed December 12, 1988 | (1 | ) | |||
3.2
|
Certificate of Amendment of Restated Certificate of Incorporation, filed December 1, 1999 (Exhibit 3.2) | (8 | ) | |||
3.3
|
Amended and Restated Bylaws, August 6, 2008 (Exhibit 99.1) | (12 | ) | |||
10.1*
|
Medical Care Reimbursement Plan as amended October 30, 2007 (Exhibit 10.1) | (9 | ) | |||
10.2
|
Credit Agreement dated December 23, 2009 between Wells Fargo Bank and Dionex Corporation (Exhibit 10.2) | (4 | ) | |||
10.3*
|
Management Incentive Bonus Plan dated August 6, 2009 (Exhibit 99.1) | (6 | ) | |||
10.4*
|
Dionex Corporation 2004 Equity Incentive Plan, as amended October 2007 (Exhibit 10.1) | (10 | ) | |||
10.5*
|
Form of Stock Option Agreement for non-employee directors (Exhibit 10.5) | (11 | ) | |||
10.6*
|
Form of Stock Option Agreement for other than non-employee directors (Exhibit 10.6) | (11 | ) | |||
10.7*
|
Form of Stock Unit Award Agreement (Exhibit 10.2) | (10 | ) | |||
10.8*
|
Form of International Stock Option Agreement (Exhibit 10.8) | (9 | ) | |||
10.9*
|
Form of Stock Unit Award Agreement for U.S. employees | (2 | ) | |||
10.10*
|
Form of Stock Unit Award Agreement for International employees | (2 | ) | |||
10.11*
|
Employee Stock Participation Plan (Exhibit 10.13) | (5 | ) | |||
10.12*
|
Form of Performance Stock Unit Grant Notice | (3 | ) | |||
10.13*
|
Change in Control Severance Benefit Plan as amended April 26, 2010 | (2 | ) | |||
10.14*
|
Summary of Compensation Arrangements with named executive officers | (7 | ) | |||
10.15*
|
Form of Indemnification Agreement (Exhibit 10.1) | (13 | ) | |||
31.1
|
Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |||||
31.2
|
Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |||||
32.1
|
Certification of the Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |||||
32.2
|
Certification of the Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |||||
101.INS
|
XBRL Instance Document | |||||
101.SCH
|
XBRL Taxonomy Extension Schema Document | |||||
101.CAL
|
XBRL Taxonomy Extension Calculation Linkbase Document | |||||
101.LAB
|
XBRL Taxonomy Extension Label Linkbase Document | |||||
101.PRE
|
XBRL Taxonomy Extension Presentation Linkbase Document |
(1) | Incorporated by reference to the indicated exhibit in our Form 10-Q filed September 20, 1989. | |
(2) | Incorporated by reference to the indicated exhibit in our Form 8-K filed April 28, 2010. | |
(3) | Incorporated by reference to the indicated exhibit in our Form 10-K filed August 27, 2010. | |
(4) | Incorporated by reference to the indicated exhibit in our Form 10-Q filed February 9, 2010. | |
(5) | Incorporated by reference to the indicated exhibit in our Form 10-K filed September 10, 2004. | |
(6) | Incorporated by reference to the indicated exhibit in our Form 8-K filed August 10, 2009. | |
(7) | Incorporated by reference to the indicated exhibit in our Form 8-K filed August 9, 2010 and August 16, 2010. | |
(8) | Incorporated by reference to the indicated exhibit in our Form 10-K filed August 29, 2007. | |
(9) | Incorporated by reference to the indicated exhibit in our Form 10-Q filed November 9, 2007. | |
(10) | Incorporated by reference to the indicated exhibit in our Form 8-K filed October 15, 2007. | |
(11) | Incorporated by reference to the indicated exhibit in our Form 10-Q filed February 8, 2008. | |
(12) | Incorporated by reference to the indicated exhibit in our Form 8-K filed August 11, 2008. | |
(13) | Incorporated by reference to the indicated exhibit in our Form 8-K filed November 3, 2008. | |
* | Management contract or compensatory plan or arrangement. | |
| This certification accompanies the Form 10-K to which it relates, is not deemed filed with the Securities and Exchange Commission and is not to be incorporated by reference into any filing of the Registrant under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended (whether made before or after the date of the Form 10-K), irrespective of any general incorporation language contained in such filing. |
27
Table of Contents
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: November 8, 2010 |
||||||
By: | /s/ Craig A. McCollam
|
|||||
Executive Vice President and Chief Financial Officer | ||||||
(Signing as Principal Financial and Accounting | ||||||
Officer, and as Authorized Signatory of | ||||||
Registrant) |
28
Table of Contents
EXHIBIT INDEX
31.1
|
Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |||||
31.2
|
Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |||||
32.1
|
Certification of the Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |||||
32.2
|
Certification of the Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |||||
101.INS
|
XBRL Instance Document | |||||
101.SCH
|
XBRL Taxonomy Extension Schema Document | |||||
101.CAL
|
XBRL Taxonomy Extension Calculation Linkbase Document | |||||
101.LAB
|
XBRL Taxonomy Extension Label Linkbase Document | |||||
101.PRE
|
XBRL Taxonomy Extension Presentation Linkbase Document |
29