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UNITED STATES 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, 2006
  o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 Commission File Number 0-11250
 DIONEX
CORPORATION
  Delaware
    
    94-2647429(State or other jurisdiction of 
incorporation or organization)
    
    (I.R.S. Employer
Identification No.)1228 Titan Way, Sunnyvale, California
    
    94085(Address of principal executive offices)
    
    (Zip Code)
   þ o
  þ o o
  o þ
  CLASS
    
    NUMBER OF SHARESCommon Stock
    
    19,225,192




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##### 



PagePART I. FINANCIAL INFORMATIONITEM 1.
    
    FINANCIAL STATEMENTSCONDENSED CONSOLIDATED BALANCE SHEETS September 30, 2006 and June 30, 2006
    
    
    3CONDENSED CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended September 30, 2006 and 2005
    
    
    4CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended September 30, 2006 and 2005
    
    
    5NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
    
    
    6-12ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
    
    
    13-18ITEM 3.
    
    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
    
    
    19ITEM 4.
    
    CONTROLS AND PROCEDURES
    
    
    19PART II. OTHER INFORMATIONITEM 1A.
    
    RISK FACTORS
    
    
    20-21ITEM 2.
    
    UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
    
    
    22ITEM 6.
    
    EXHIBITS
    
    
    23SIGNATURES
    
    
    
    
    24EXHIBITSEXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32.1EXHIBIT 32.2
  2




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September 30,
    
    
    June 30,2006
    
    
    2006ASSETSCurrent assets:Cash and cash equivalents
    
    $
    43,065
    
    
    $
    43,524Short-term investments
    
    
    502
    
    
    
    7,490Accounts receivable (net of allowance for doubtful accounts of $674 at September 30, 2006
and June 30, 2006)
    
    
    61,562
    
    
    
    63,008Inventories
    
    
    28,001
    
    
    
    27,702Deferred taxes
    
    
    9,941
    
    
    
    9,915Prepaid expenses and other
    
    
    5,698
    
    
    
    5,791Total current assets
    
    
    148,769
    
    
    
    157,430Property, plant and equipment, net
    
    
    61,392
    
    
    
    58,700Goodwill
    
    
    24,940
    
    
    
    24,982Intangible assets, net
    
    
    4,623
    
    
    
    4,522Other assets
    
    
    4,070
    
    
    
    4,768$
    243,794
    
    
    $
    250,402LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Notes payable
    
    $
    3,066
    
    
    $
    Accounts payable
    
    
    10,064
    
    
    
    9,395Accrued liabilities
    
    
    37,939
    
    
    
    39,673Income taxes payable
    
    
    9,466
    
    
    
    7,100Accrued product warranty
    
    
    3,229
    
    
    
    3,493Total current liabilities
    
    
    63,764
    
    
    
    59,661Deferred taxes
    
    
    3,771
    
    
    
    3,952Other long-term liabilities
    
    
    1,500
    
    
    
    1,407Stockholders 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: 19,221,718 shares at September 30,
2006 and 19,624,839 shares at June 30, 2006)
    
    
    147,612
    
    
    
    148,214Retained earnings
    
    
    19,016
    
    
    
    28,589Accumulated other comprehensive income
    
    
    8,131
    
    
    
    8,579Total stockholders equity
    
    
    174,759
    
    
    
    185,382$
    243,794
    
    
    $
    250,402
  3




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Three Months EndedSeptember 30,2006
    
    
    2005Net sales
    
    $
    72,857
    
    
    $
    68,100Cost of sales
    
    
    24,959
    
    
    
    23,770Gross profit
    
    
    47,898
    
    
    
    44,330Operating expenses:Selling, general and administrative
    
    
    28,429
    
    
    
    26,680Research and product development
    
    
    5,748
    
    
    
    5,534Total operating expenses
    
    
    34,177
    
    
    
    32,214Operating income
    
    
    13,721
    
    
    
    12,116Interest income
    
    
    339
    
    
    
    311Interest expense
    
    
    (30
    )
    
    
    (53
    )Other income (expense), net
    
    
    (331
    )
    
    
    1,473Income before taxes
    
    
    13,699
    
    
    
    13,847Taxes on income
    
    
    5,028
    
    
    
    4,833Net income
    
    $
    8,671
    
    
    $
    9,014Basic earnings per share
    
    $
    0.45
    
    
    $
    0.45Diluted earnings per share
    
    $
    0.44
    
    
    $
    0.44Shares used in computing per share amounts:Basic
    
    
    19,441
    
    
    
    20,114Diluted
    
    
    19,855
    
    
    
    20,687
  4




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Three Months EndedSeptember 30,2006
    
    
    2005Cash flows from operating activities:Net income
    
    $
    8,671
    
    
    $
    9,014Adjustments to reconcile net income to net cash provided by operating activities:Depreciation and amortization
    
    
    1,635
    
    
    
    1,702Stock based compensation
    
    
    1,230
    
    
    
    1,677Loss on disposal of fixed assets
    
    
    74
    
    
    
    Excess tax benefit related to stock option plans
    
    
    (109
    )
    
    
    (1,927
    )Deferred income taxes
    
    
    (33
    )
    
    
    2,734Changes in assets and liabilities:Accounts receivable
    
    
    1,088
    
    
    
    2,126Inventories
    
    
    (488
    )
    
    
    (59
    )Prepaid expenses and other assets
    
    
    623
    
    
    
    (1,982
    )Accounts payable
    
    
    (206
    )
    
    
    (1,961
    )Accrued liabilities
    
    
    (2,502
    )
    
    
    (2,360
    )Income taxes payable
    
    
    2,430
    
    
    
    1,649Accrued product warranty
    
    
    (238
    )
    
    
    (162
    )Net cash provided by operating activities
    
    
    12,175
    
    
    
    10,451Cash flows from investing activities:Proceeds from sale of marketable securities
    
    
    9,700
    
    
    
    12,141Purchase of marketable securities
    
    
    (2,600
    )
    
    
    (9,614
    )Purchase of property, plant and equipment
    
    
    (2,471
    )
    
    
    (3,051
    )Purchase of intangible assets
    
    
    (423
    )
    
    
    (3,056
    )Other
    
    
    
    
    
    
    29Net cash provided by (used for) investing activities
    
    
    4,206
    
    
    
    (3,551
    )Cash flows from financing activities:Net change in revolving line of credit
    
    
    3,066
    
    
    
    711Proceeds from issuance of common stock
    
    
    1,302
    
    
    
    6,856Excess tax benefit related to stock option plans
    
    
    109
    
    
    
    1,927Repurchase of common stock
    
    
    (21,491
    )
    
    
    (18,769
    )Net cash used for financing activities
    
    
    (17,014
    )
    
    
    (9,275
    )Effect of exchange rate changes on cash
    
    
    174
    
    
    
    (1,017
    )Net decrease in cash and cash equivalents
    
    
    (459
    )
    
    
    (3,392
    )Cash and cash equivalents, beginning of period
    
    
    43,524
    
    
    
    42,679Cash and cash equivalents, end of period
    
    $
    43,065
    
    
    $
    39,287Supplemental disclosures of cash flow information:Income taxes paid
    
    
    56
    
    
    
    3,769Interest expense paid
    
    
    3
    
    
    
    13Other non-cash activities:Property and equipment purchased (but not paid for)
    
    
    1,891
    
    
    
    5
  5




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Three Months EndedSeptember 30,2006
    
    
    2005Cost of sales
    
    $
    86
    
    
    $
    55Selling, general and administrative expenses
    
    
    849
    
    
    
    1,198Research and development expenses
    
    
    295
    
    
    
    424Total stock-based compensation expenses
    
    
    1,230
    
    
    
    1,677Tax effect on stock-based compensation
    
    
    (354
    )
    
    
    (388
    )Net effect on net income
    
    $
    876
    
    
    $
    1,289Excess tax benefit related to stock option plans:Cash flows from operations
    
    
    (109
    )
    
    
    (1,927
    )Cash flows from financing activities
    
    
    109
    
    
    
    1,927Effects on earnings per share:Basic
    
    $
    0.05
    
    
    $
    0.06Diluted
    
    $
    0.04
    
    
    $
    0.06
  Three Months EndedSeptember 30,2006
    
    2005Volatility for options
    
    
    29
    %
    
    
    40
    %Volatility for employee stock purchase plan
    
    
    28
    %
    
    
    29
    %Risk-free interest rate for options
    
    
    4.9
    %
    
    
    4.0
    %Risk-free interest rate for employee stock purchase plan
    
    
    4.9
    %
    
    
    3.6
    %Expected life of options
    
    4.75 years
    
    4.75 yearsExpected life of employee stock purchase plan
    
    6 months
    
    6 monthsExpected dividend
    
    $
    0.00
    
    
    $
    0.00
    7




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WeightedAverage
    
    
    AggregateWeighted
    
    
    Remaining
    
    
    IntrinsicOptions
    
    
    Average
    
    
    Contractual
    
    
    ValueOutstanding
    
    
    Exercise Price
    
    
    Term (Years)
    
    
    (in 000s )Balance at June 30, 2006
    
    
    1,736,593
    
    
    $
    37.43Options granted
    
    
    300,250
    
    
    
    53.38Options exercised
    
    
    (16,471
    )
    
    
    28.05Options forfeited/cancelled/expired
    
    
    (6,316
    )
    
    
    45.08Balance at September 30, 2006
    
    
    2,014,056
    
    
    $
    39.86
    
    
    
    6.90
    
    
    $
    23,109Exercisable at September 30, 2006
    
    
    1,174,427
    
    
    $
    33.58
    
    
    
    5.64
    
    
    $
    20,402
    8




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September 30,
    
    
    June 30,2006
    
    
    2006Finished goods
    
    $
    15,788
    
    
    $
    13,962Work in process
    
    
    1,568
    
    
    
    1,840Raw materials
    
    
    10,645
    
    
    
    11,900$
    28,001
    
    
    $
    27,702
   
 GrossCost
    
    
    Unrealized Losses
    
    
    Fair ValueSeptember 30, 2006Corporate debt securities(1)
    
    $
    527
    
    
    $
    (25
    )
    
    $
    502$
    527
    
    
    $
    (25
    )
    
    $
    502June 30, 2006Auction rate securities
    
    $
    7,100
    
    
    $
    
    
    
    $
    7,100Corporate debt securities (1)
    
    
    415
    
    
    
    (25
    )
    
    
    390$
    7,515
    
    
    $
    (25
    )
    
    $
    7,490
 
 (1)
    
    These short-term investments have been in a loss position for greater than 12 months.   Three Months EndedSeptember 30,2006
    
    
    2005Net income, as reported
    
    $
    8,671
    
    
    $
    9,014Foreign currency translation adjustments, net of taxes
    
    
    (448
    )
    
    
    (508
    )Unrealized gain/(loss) on securities available for sale, net of taxes
    
    
    
    
    
    
    13Comprehensive income
    
    $
    8,223
    
    
    $
    8,519
    9




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Three Months EndedSeptember 30,2006
    
    
    2005Numerator:Net income
    
    $
    8,671
    
    
    $
    9,014Denominator:Weighted average shares used to compute net income per common share  basic
    
    
    19,441
    
    
    
    20,114Effect of dilutive stock options
    
    
    414
    
    
    
    573Weighted average shares used to compute net income per common share  diluted
    
    
    19,855
    
    
    
    20,687Basic earnings per share
    
    $
    0.45
    
    
    $
    0.45Diluted earnings per share
    
    $
    0.44
    
    
    $
    0.44
     TotalBalance as of June 30, 2006
    
    $
    24,982Translation adjustments
    
    
    (42
    )Balance as of September 30, 2006
    
    $
    24,940
   As of September 30, 2006
    
    
    As of June 30, 2006Carrying
    
    
    Accumulated
    
    
    
    
    
    
    Carrying
    
    
    AccumulatedAmount
    
    
    Amortization
    
    
    Net
    
    
    Amount
    
    
    Amortization
    
    
    NetPatents and trademarks
    
    $
    2,958
    
    
    $
    (462
    )
    
    $
    2,496
    
    
    $
    3,337
    
    
    $
    (735
    )
    
    $
    2,602Developed technology
    
    
    9,680
    
    
    
    (8,936
    )
    
    
    744
    
    
    
    9,695
    
    
    
    (8,773
    )
    
    
    922Other
    
    
    1,839
    
    
    
    (456
    )
    
    
    1,383
    
    
    
    1,411
    
    
    
    (413
    )
    
    
    998Total
    
    $
    14,477
    
    
    $
    (9,854
    )
    
    $
    4,623
    
    
    $
    14,443
    
    
    $
    (9,921
    )
    
    $
    4,522
  10




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RemainingYear Ending
    
    AmortizationJune 30,
    
    Expense2007 (remaining nine months)
    
    $
    1,0052008
    
    
    8352009
    
    
    6252010
    
    
    5852011
    
    
    585Thereafter
    
    
    988Total
    
    $
    4,623
    Balance
    
    
    
    
    
    
    Credited
    
    
    Actual
    
    
    BalanceBeginning
    
    
    Provision
    
    
    to Other
    
    
    Warranty
    
    
    End ofof Period
    
    
    For Warranties
    
    
    Accounts(1)
    
    
    Costs Incurred
    
    
    PeriodAccrued Product WarrantyThree Months Ended:September 30, 2006
    
    $
    3,493
    
    
    $
    684
    
    
    $
    (13
    )
    
    $
    (935
    )
    
    $
    3,229September 30, 2005
    
    $
    3,514
    
    
    $
    1,137
    
    
    $
    (18
    )
    
    $
    (1,297
    )
    
    $
    3,336
 
 (1)
    
    Effects of exchange rate changes     11




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Three Months EndedSeptember 30,2006
    
    
    2005Products
    
    $
    64,210
    
    
    $
    59,941Installation and Training Services
    
    
    1,917
    
    
    
    1,972Maintenance
    
    
    6,730
    
    
    
    6,187$
    72,857
    
    
    $
    68,100
 12




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13




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Three MonthsEndedSeptember 30, 2006Percentage change in net salesTotal:
    
    7%By geographic region:North America
    
    2%Europe
    
    13%Asia/Pacific
    
    4%
  Three MonthsEndedSeptember 30, 2006Percentage change in net sales excluding currency fluctuationsTotal:
    
    5%By geographic region:North America
    
    1%Europe
    
    9%Asia/Pacific
    
    5%
      14




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Payments Due by PeriodLessThan 1
    
    
    1-3
    
    
    4-5
    
    
    After 5Contractual Obligations
    
    Total
    
    
    Year
    
    
    Years
    
    
    Years
    
    
    YearsOperating Lease Obligations
    
    $
    17,717
    
    
    $
    4,505
    
    
    $
    6,304
    
    
    $
    4,054
    
    
    $
    2,854
  15




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17




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
    
    significant underperformance relative to historical or projected future operating results;
    
    significant negative industry or economic trends; and
    
    significant changes or developments in strategic technology.
       18




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Foreign Currency Exchange
  Debt and Interest Expense
 
    19




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The continuation or spread of the current economic uncertainty in key markets would likely harm the
Companys operating results.
  Foreign currency fluctuations and other risks related to international operations may adversely
affect the Companys operating results.
  Fluctuations in worldwide demand for analytical instrumentation could affect the Companys
operating results.
  Fluctuations in the Companys quarterly operating results may cause the Companys stock price to
decline.
  The Companys results of operations and financial condition will suffer if the Company does not
introduce new products that are attractive to its customers on a timely basis.
  20




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The analytical instrument market is highly competitive, and the Companys inability to compete
effectively in this market would adversely affect its results of operations and financial
condition.
  The Company may experience difficulties with obtaining components from sole- or limited-source
suppliers, or manufacturing delays, either of which could adversely affect its results of
operations.
   The Companys executive officers and other key employees are critical to the Companys business,
they may not remain with the Company, in the future and finding talented replacements would be
difficult.
  The success of Dionexs business is dependent in part on protection of proprietary information and
inventions. Obtaining and protecting the Companys proprietary products, processes and technologies
can be difficult and expensive.
    21




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Total
    
    
    
    
    
    MaximumShares
    
    
    
    
    
    Number ofPurchased
    
    Additional
    
    Shares thatTotal
    
    
    
    
    
    as Part of
    
    Shares
    
    May Yet BeNumber
    
    Avg.
    
    Publicly
    
    Authorized
    
    Purchasedof Shares
    
    Price Paid
    
    Announced
    
    for
    
    Under thePeriod
    
    Purchased
    
    per Share
    
    Program(1)
    
    Purchase (1)
    
    Program (1)July 1  July 31, 2006
    
    
    
    
    
    
    
    
    
    
    4,909,277
    
    
    
    
    
    
    
    506,207August 1
 August 31, 2006
    
    
    397,000
    
    
    $
    49.11
    
    
    
    5,306,277
    
    
    
    1,530,817
    
    
    
    1,640,024September 1
 September 30, 2006
    
    
    40,000
    
    
    $
    50.16
    
    
    
    5,346,277
    
    
    
    3,062
    
    
    
    1,603,086
 
 (1)
    
    The current repurchase of 1.5 million shares of common stock plus that number of shares of
common stock equal to the number of shares issued pursuant to employee stock plans subsequent
to that date. 22




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ExhibitNumber
    
    Description
    
    Reference3.1
    
    Restated Certificate of Incorporation, filed November 6, 1996
    
    
    (2
    )3.2
    
    Bylaws, as amended on July 29, 2002
    
    
    (5
    )4.1
    
    Stockholder Rights Agreement dated January 21, 1999, between the Company and Bank Boston N.A.
    
    
    (3
    )10.1
    
    Medical Care Reimbursement Plan (Exhibit 10.17)
    
    
    (1
    )10.2
    
    Credit Agreement dated November 13, 2000 between Wells Fargo Bank and the Company (Exhibit 10.15)
    
    
    (4
    )10.3
    
    First amendment to Credit Agreement dated November 13, 2000 between Wells Fargo Bank and the Company
    
    
    (6
    )10.4
    
    Dionex Corporation 2004 Equity Incentive Plan (Exhibit 99.1)
    
    
    (8
    )10.5
    
    Form of Stock Option Agreement for non-employee directors (Exhibit 99.2)
    
    
    (8
    )10.6
    
    Form of Stock Option Agreement for other than non-employee directors (Exhibit 99.3)
    
    
    (8
    )10.7
    
    Employee Stock Participation Plan (Exhibit 10.13)
    
    
    (7
    )10.8
    
    Second amendment to Credit Agreement dated November 13, 2000 between Wells Fargo Bank and the Company
(Exhibit 10.1)
    
    
    (9
    )10.9
    
    Change in Control Severance Benefit Plan (Exhibit 10.15)
    
    
    (10
    )31.1
    
    Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 200231.2
    
    Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 200232.1
    
    Certification of the Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 200232.2
    
    Certification of the Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 
 (1)
    
    Incorporated by reference to the indicated exhibit in Amendment No. 1 of the Companys
Registration Statement on Form S-1 filed December 7, 1982.(2)
    
    Incorporated by reference to the corresponding exhibit in the Companys Annual Report on Form
10-Q filed February 13, 1997.(3)
    
    Incorporated by reference to the corresponding exhibit in the Companys Quarterly Report on
Form 10-Q filed February 16, 1999.(4)
    
    Incorporated by reference to the indicated exhibit in the Companys Quarterly Report on Form
10-Q filed February 14, 2001.(5)
    
    Incorporated by reference to the indicated Exhibit 10.17 in the Companys Annual Report on
Form 10-K filed August 28, 2002.(6)
    
    Incorporated by reference to the indicated Exhibit in the Companys Annual Report on Form
10-K filed September 24, 2003.(7)
    
    Incorporated by reference to the indicated exhibit in the Companys Annual Report on Form
10-K filed September 10, 2004.(8)
    
    Incorporated by reference to the Companys Registration Statement on Form S-8 filed December
8, 2004.(9)
    
    Incorporated by reference to the indicated exhibit in the Companys current Report on Form
8-K filed December 22, 2004.(10)
    
    Incorporated by reference to the indicated exhibit in the Companys Quarterly Report on Form
10-Q filed May 10, 2005. 23




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DIONEX CORPORATION
(Registrant)Date:      November 9, 2006
    By:
    /s/ Lukas BraunschweilerLukas BraunschweilerPresident, Chief Executive Officer And Director By:
    
    /s/ Craig A. McCollam

Craig A. McCollamVice President, and Chief Financial Officer
 24




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##### Table of Contents



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.