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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
December 31, 2004
 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 
  Delaware
    
    94-2647429(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.)1228 Titan Way, Sunnyvale, California
    
    94085(Address of principal executive offices)
    
    (Zip Code)
 Registrants telephone number, including area code (408) 737-0700 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 is an accelerated filer (as defined in Rule 12b-2 of
the Exchange Act). YES þ
    
    NO o
 Indicate the number of shares outstanding of each of the issuers classes of common stock, as of
February 4, 2005: CLASS
    
    NUMBER OF SHARESCommon Stock
    
    20,830,306




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DIONEX CORPORATION
INDEX PagePART I. FINANCIAL
INFORMATIONITEM 1.
    
    FINANCIAL STATEMENTSCONDENSED CONSOLIDATED BALANCE SHEETS December 31, 2004 and June 30, 2004
    
    
    3CONDENSED CONSOLIDATED STATEMENTS OF INCOME Three Months Ended December 31, 2004 and 2003
    
    
    4CONDENSED CONSOLIDATED STATEMENTS OF INCOME Six Months Ended December 31, 2004 and 2003
    
    
    5CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS Six Months Ended December 31, 2004 and 2003
    
    
    6NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
    
    
    7-14ITEM 2.
    
    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
    
    
    15-28ITEM 3.
    
    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
    
    
    28-29ITEM 4.
    
    CONTROLS AND PROCEDURES
    
    
    29-30PART II. OTHER INFORMATIONITEM 2.
    
    UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
    
    
    31ITEM 4.
    
    SUBMISSIONS OF MATTERS TO A VOTE OF SECURITY HOLDERS
    
    
    32ITEM 6.
    
    EXHIBITS
    
    
    33-34SIGNATURES
    
    
    35EXHIBITSEXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32.1EXHIBIT 32.2
  2




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DIONEX CORPORATION 
    
 December 31,
    
    
    June 30,2004
    
    
    2004ASSETSCurrent assets:Cash and cash equivalents
    
    $
    71,600
    
    
    $
    57,182Short-term investments
    
    
    1,948
    
    
    
    1,604Accounts receivable (net of allowance for doubtful accounts of
$824 at December 31, 2004 and $760 at June 30,
2004)
    
    
    56,854
    
    
    
    53,128Inventories
    
    
    26,322
    
    
    
    24,838Deferred taxes
    
    
    11,427
    
    
    
    10,293Prepaid expenses and other
    
    
    4,321
    
    
    
    3,875Total current assets
    
    
    172,472
    
    
    
    150,920Property, plant and equipment, net
    
    
    50,119
    
    
    
    46,656Goodwill
    
    
    25,487
    
    
    
    24,675Intangible assets, net
    
    
    3,726
    
    
    
    4,357Other assets
    
    
    8,632
    
    
    
    8,857$
    260,436
    
    
    $
    235,465LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Notes payable to banks
    
    $
    1,265
    
    
    $
    1,468Accounts payable
    
    
    9,471
    
    
    
    8,113Accrued liabilities
    
    
    34,872
    
    
    
    31,822Income taxes payable
    
    
    1,682
    
    
    
    2,214Accrued product warranty
    
    
    3,981
    
    
    
    3,584Total current liabilities
    
    
    51,271
    
    
    
    47,201Deferred taxes
    
    
    3,700
    
    
    
    3,557Other long-term liabilities
    
    
    907
    
    
    
    1,253Stockholders 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:20,773,905
shares at December 31, 2004 and 20,840,881 shares at June 30, 2004)
    
    
    117,564
    
    
    
    103,943Retained earnings
    
    
    70,038
    
    
    
    71,217Accumulated other comprehensive income
    
    
    16,956
    
    
    
    8,294Total stockholders equity
    
    
    204,558
    
    
    
    183,454$
    260,436
    
    
    $
    235,465
 See notes to condensed consolidated financial statements. 3




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DIONEX CORPORATION 
     
 Three Months EndedDecember 31,2004
    
    
    2003Net sales
    
    $
    74,152
    
    
    $
    65,539Cost of sales
    
    
    24,673
    
    
    
    21,837Gross profit
    
    
    49,479
    
    
    
    43,702Operating expenses:Selling, general and administrative
    
    
    25,417
    
    
    
    22,894Research and product development
    
    
    5,397
    
    
    
    5,027Total operating expenses
    
    
    30,814
    
    
    
    27,921Operating income
    
    
    18,665
    
    
    
    15,781Interest income
    
    
    337
    
    
    
    194Interest expense
    

    
    (80
    )
    
    
    (31
    )Other income (expense), net
    
    
    (142
    )
    
    
    4Income before taxes
    
    
    18,780
    
    
    
    15,948Taxes on income
    
    
    6,053
    
    
    
    5,183Net income
    
    $
    12,727
    
    
    $
    10,765Basic earnings per share
    
    $
    0.61
    
    
    $
    0.51Diluted earnings per share
    
    $
    0.59
    
    
    $
    0.49Shares used in computing per share amounts:Basic
    
    
    20,783
    
    
    
    21,135Diluted
    
    
    21,647
    
    
    
    21,985
 See notes to condensed consolidated financial statements. 4




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##### Table of Contents



DIONEX CORPORATION 
     
 Six Months EndedDecember 31,2004
    
    
    2003Net sales
    
    $
    137,360
    
    
    $
    118,815Cost of sales
    
    
    46,249
    
    
    
    39,845Gross profit
    
    
    91,111
    
    
    
    78,970Operating expenses:Selling, general and administrative
    
    
    47,835
    
    
    
    42,062Research and product development
    
    
    10,326
    
    
    
    9,598Total operating expenses
    
    
    58,161
    
    
    
    51,660Operating income
    
    
    32,950
    
    
    
    27,310Interest income
    
    
    539
    
    
    
    316Interest expense
    
    
    (132
    )
    
    
    (104
    )Other income (expense), net
    
    
    313
    
    
    
    (328
    )Income before taxes
    
    
    33,670
    
    
    
    27,194Taxes on income
    
    
    11,279
    
    
    
    8,838Net income
    
    $
    22,391
    
    
    $
    18,356Basic earnings per share
    
    $
    1.08
    
    
    $
    0.87Diluted earnings per share
    
    $
    1.04
    
    
    $
    0.84Shares used in computing per share amounts:Basic
    
    
    20,750
    
    
    
    21,058Diluted
    
    
    21,570
    
    
    
    21,885
 See notes to condensed consolidated financial statements. 5




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##### Table of Contents



DIONEX CORPORATION 
     
 Six Months EndedDecember 31,2004
    
    
    2003Cash flows from operating activities:Net income
    
    $
    22,391
    
    
    $
    18,356Adjustments to reconcile net income to net cash provided by
operating activities:Depreciation and amortization
    
    
    3,051
    
    
    
    2,835Gain on sale of marketable securities
    
    
    (646
    )
    
    
    Tax benefit related to stock option plans
    
    
    3,456
    
    
    
    3,753Deferred taxes
    
    
    (754
    )
    
    
    (795
    )Changes in assets and liabilities:Accounts receivable
    
    
    (243
    )
    
    
    1,806Inventories
    
    
    933
    
    
    
    2,365Prepaid expenses and other assets
    
    
    (2,075
    )
    
    
    (1,232
    )Accounts payable
    
    
    1,014
    
    
    
    822Accrued liabilities
    
    
    1,442
    
    
    
    (822
    )Income taxes payable
    
    
    (950
    )
    
    
    (4,197
    )Accrued product warranty
    
    
    157
    
    
    
    56Net cash provided by operating activities
    
    
    27,776
    
    
    
    22,947Cash flows from investing activities:Proceeds from sale of marketable securities
    
    
    960
    
    
    
    Purchase of property, plant and equipment
    
    
    (3,707
    )
    
    
    (2,312
    )Acquisition of other intangible assets
    
    
    
    
    
    
    (975
    )Other
    
    
    20
    
    
    
    59Net cash used for investing activities
    
    
    (2,727
    )
    
    
    (3,228
    )Cash flows from financing activities:Net change in revolving line of credit
    
    
    
    
    
    
    322Principal payments on debt
    
    
    (274
    )
    
    
    (324
    )Proceeds from issuance of common stock
    
    
    12,784
    
    
    
    11,734Repurchase of common stock
    
    
    (26,189
    )
    
    
    (13,574
    )Net cash used for financing activities
    
    
    (13,679
    )
    
    
    (1,842
    )Effect of exchange rate changes on cash
    
    
    3,048
    
    
    
    2,570Net increase in cash and equivalents
    
    
    14,418
    
    
    
    20,447Cash and equivalents, beginning of period
    
    
    57,182
    
    
    
    46,831Cash and equivalents, end of period
    
    $
    71,600
    
    
    $
    67,278Supplemental disclosures of cash flow information:Income taxes paid
    
    $
    9,218
    
    
    $
    9,437Interest paid
    
    $
    93
    
    
    $
    72
 See notes to condensed consolidated financial statements. 6




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DIONEX CORPORATION 
   
 1. Basis of Presentation The condensed consolidated financial statements included herein have been prepared by Dionex
Corporation (the Company), without audit, pursuant to the rules and regulations of the Securities
and Exchange Commission. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with accounting principles generally accepted in the
United States of America have been condensed or omitted pursuant to such rules and regulations. It
is suggested that these condensed consolidated financial statements be read in conjunction with the
consolidated financial statements and the notes thereto included in the Companys Annual Report on
Form 10-K for the fiscal year ended June 30, 2004. 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, 2005. 2. New Accounting Pronouncements In September 2004, the Financial Accounting Standards Board (FASB) issued FASB Staff Position
(FSP) Emerging Issues Task Force (EITF) Issue 03-1-1, Effective Date of Paragraphs 10-20 of EITF
Issue No. 03-1, The Meaning of Other-Than-Temporary Impairment and Its Application to Certain
Investments, which delays the effective date for the recognition and measurement guidance in EITF
Issue No. 03-1. In addition, the FASB has issued a proposed FSP to consider whether further
application guidance is necessary for securities analyzed for impairment under EITF Issue No. 03-1.
The Company continues to assess the potential impact the adoption of the proposed FSP could have on
the Companys consolidated financial statements. In November 2004, the FASB issued Statement of Financial Accounting Standards (SFAS) No. 151,
Inventory Costs (SFAS No. 151) which clarifies the accounting for abnormal amounts of idle
facility expense, freight, handling costs, and wasted material. SFAS No. 151 will be effective for
inventory costs incurred during fiscal years beginning after June 15, 2005. The Company continues
to assess the potential impact the adoption of SFAS No. 151 could have on the Companys
consolidated financial statements. In December 2004, the FASB issued SFAS No. 123R, Share-Based Payment (SFAS 123R), which eliminates
the alternative of applying the intrinsic value measurement to stock compensation awards issued to
employees. Rather, the new standard requires enterprises to measure the cost of employee services
received in exchange for an award of equity instruments based on the grant date fair value of the
award. That cost will be recognized over the period during which an employee is required to
provide services in exchange for the award, known as the requisite service period (usually the
vesting period). 7




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DIONEX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) 
 The Company has not yet quantified the effects of the adoption SFAS 123R, but it is expected
that the new standard may result in significant stock-based compensation expense. The pro forma
effects on net income and earnings per share if the Company had applied the fair value recognition
provisions of original SFAS 123 on stock compensation awards are disclosed in Note 11. Although
such pro forma effects of applying original SFAS 123 may be indicative of the effects of adopting
SFAS 123R, the provisions of these two statements differ in some important respects. The actual
effect of adopting SFAS 123R will be dependent on numerous factors including, but not limited to,
the valuation model chosen by the Company to value stock-based awards; the assumed award forfeiture
rate; the accounting policies adopted concerning the method of recognizing the fair value of awards
over the requisite service period; and the transition method (as described below) chosen for
adopting SFAS 123R. SFAS 123R will be effective for the Companys fiscal quarter beginning July 1, 2005, and
requires the use of the Modified Prospective Application Method. Under this method SFAS 123R
applied to new awards and to awards modified, repurchased, or cancelled after the effective date.
Additionally, compensation cost for the portion of awards for which the requisite service has not
been rendered (such as unvested options) that are outstanding as of the date of adoption shall be
recognized as the remaining requisite services are rendered. The compensation cost relating to
unvested awards at the date of adoption shall be based on the grant-date fair value of those awards
as calculated for pro forma disclosures under the original SFAS 123. In addition, companies may
use the Modified Retrospective Application Method. This method may be applied to all prior years
for which the original SFAS 123 was effective or only to prior interim periods in the year of
initial adoption. If the Modified Retrospective Application Method is applied, financial
statements for prior periods shall be adjusted to give effect to the fair-value-based method of
accounting for awards on a consistent basis with the pro forma disclosures required for those
periods under the original SFAS 123. In December 2004, the FASB issued SFAS No. 153, Exchanges of Nonmonetary Assets, an amendment
of APB Opinion No. 29 (SFAS No. 153) which eliminates the exception for nonmonetary exchanges of
similar productive assets and replaces it with a general exception for exchanges of nonmonetary
assets that do not have commercial substance. SFAS No. 153 will be effective for nonmonetary asset
exchanges occurring in fiscal periods beginning after June 15, 2005. The Company expects that the
adoption of SFAS No. 153 will not have any impact on the Companys consolidated financial
statements. 3. Marketable Securities During the year ended June 30, 2004, the Company acquired debt instruments with maturities of
more than one year. These securities are classified as held-to-maturity securities. At December 31, 2004, the aggregate unamortized
value of these securities was 8




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DIONEX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) 
 approximately $4.6 million, of which approximately $980,000 and $3.6 million are classified on the
balance sheet as short-term investments and other assets, respectively. The aggregate amount
of unrealized losses for these securities was approximately $61,000 at December 31, 2004, all of
which had been in a loss position for less than 12 months. 4. Inventories Inventories consist of (in thousands): December 31, 2004
    
    
    June 30, 2004Finished goods
    
    $
    13,816
    
    
    $
    13,208Work in process
    
    
    2,533
    
    
    
    2,654Raw materials
    
    
    9,973
    
    
    
    8,976$
    26,322
    
    
    $
    24,838
 5. Comprehensive Income Comprehensive income is the change in stockholders equity arising from transactions other
than investments by owners and distributions to owners. For the Company, the significant
components of comprehensive income, other than net income, are foreign currency translation
adjustments and net unrealized gains or losses on securities available for sale. The components of
accumulated other comprehensive income are as follows (in thousands): Three Months Ended
    
    
    Six Months EndedDecember 31,
    
    
    December 31,2004
    
    
    2003
    
    
    2004
    
    
    2003Net income, as reported
    
    $
    12,727
    
    
    $
    10,765
    
    
    $
    22,391
    
    
    $
    18,356Foreign currency
translation
adjustments
    
    
    7,792
    
    
    
    5,815
    
    
    
    8,878
    
    
    
    7,290Unrealized gain/(loss)
on securities
available for sale,
net
    
    
    (100
    )
    
    
    84
    
    
    
    (216
    )
    
    
    164Comprehensive income
    
    $
    20,419
    
    
    $
    16,664
    
    
    $
    31,053
    
    
    $
    25,810
 6. Common Stock Repurchases During the three months ended December 31, 2004, the Company repurchased 219,900 shares of its
common stock on the open market for approximately $12.5 million (at an average repurchase price of
$56.69 per share), compared with 53,900 shares repurchased for approximately $2.5 million (at an
average repurchase price of $45.62 per share) in the same period in the previous fiscal year. 9




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DIONEX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) 
 During the six months ended December 31, 2004, the Company repurchased 521,200 shares of its
common stock on the open market, for approximately $26.2 million (at an average repurchase price of
$50.25 per share) compared with 336,000 shares repurchased for approximately $13.6 million(at an
average repurchase price of $40.39 per share), in the same period in the prior year. During the year ended June 30, 2004, the Company repurchased a total of 1,116,300 shares of
its common stock on the open market for approximately $53.7 million (at an average repurchase price
of $48.11 per share). 7. Earnings Per Share Basic earnings per share is determined by dividing net income by the weighted average number
of common shares outstanding during the period. Diluted earnings per share is determined by
dividing net income 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. The following table is a reconciliation of the numerators and denominators used in computing
basic and diluted earnings per share (in thousands, except per share data): Three Months Ended
    
    
    Six Months EndedDecember 31,
    
    
    December 31,2004
    
    
    2003
    
    
    2004
    
    
    2003Numerator:Net Income
    
    $
    12,727
    
    
    $
    10,765
    
    
    $
    22,391
    
    
    $
    18,356Denominator:Weighted average shares
used to compute net income per
common share  basic
    
    
    20,783
    
    
    
    21,135
    
    
    
    20,750
    
    
    
    21,058Effect of dilutive stock options
    
    
    864
    
    
    
    850
    
    
    
    820
    
    
    
    827Weighted average shares used to
compute net income per common
share  diluted
    
    
    21,647
    
    
    
    21,985
    
    
    
    21,570
    
    
    
    21,885Basic earnings per share
    
    $
    0.61
    
    
    $
    0.51
    
    
    $
    1.08
    
    
    $
    0.87Diluted earnings per share
    
    $
    0.59
    
    
    $
    0.49
    
    
    $
    1.04
    
    
    $
    0.84
 Antidilutive common equivalent shares related to stock options are excluded from the
calculation of diluted shares. At December 31, 2004 all stock options were included in the diluted
earnings per share calculation; however, at December 31, 2003 approximately 12,000 shares were
excluded from the computation because they were anti-dilutive. 10




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DIONEX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) 
 8. Goodwill and Other Intangible Assets Information regarding the Companys goodwill and other intangible assets reflects current
foreign exchange rates. Changes in the carrying amount of goodwill for the six months ended December 31, 2004 are as
follows (in thousands): TotalBalance as of July 1, 2004
    
    $
    24,675Goodwill acquired during the period
    
    
    Translation adjustments
    
    
    812Balance as of December 31, 2004
    
    $
    25,487
 The Company performed an annual impairment test of goodwill as of April 2004 and determined
that goodwill was not impaired. Information regarding the Companys other intangible assets follows (in thousands): As of December 31, 2004
    
    
    As of June 30, 2004Carrying
    
    
    Accumulated
    
    
    
    
    
    
    Carrying
    
    
    AccumulatedAmount
    
    
    Amortization
    
    
    Net
    
    
    Amount
    
    
    Amortization
    
    
    NetDeveloped
Technology
    
    
    10,310
    
    
    
    (7,739
    )
    
    
    2,571
    
    
    
    9,750
    
    
    
    (6,505
    )
    
    
    3,245Other
    
    
    1,314
    
    
    
    (159
    )
    
    
    1,155
    

    
    
    1,186
    
    
    
    (74
    )
    
    
    1,112Total
    
    $
    11,624
    
    
    $
    (7,898
    )
    
    $
    3,726
    
    
    $
    10,936
    
    
    $
    (6,579
    )
    
    $
    4,357
 The Company amortizes developed technology over a period of three to seven years; the
remaining weighted average amortization period for this category approximates two years. The
Company amortizes other intangibles over a period of five to ten years; the remaining weighted
average amortization period for this category approximates eight years. Amortization expense related to intangible assets was $423,000 and $814,000, respectively, for
the three months and six months ended December 31, 2004 as compared to $368,000 and $713,000,
respectively, for the three months and six months ended December 31, 2003. The estimated
amortization for each of the five fiscal years subsequent to June 30, 2004 is as follows: Year Ending
    
    AmortizationJune 30,
    
    Expense2005
    
    $
    1,6442006
    
    
    1,2342007
    
    
    8672008
    
    
    3612009
    
    
    149Thereafter
    
    
    102Total
    
    $
    4,357
 11




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##### Table of Contents



DIONEX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) 
 9. Warranty Product warranties are recorded at the time revenue is recognized for certain product
shipments. Warranty expense is affected by product failure rates, material usage and service costs
incurred in correcting a product failure. Should actual product failure rates, material usage or
service costs differ from our estimates, revisions to the warranty liability would be required. Details of the change in accrued product warranty for the six months ended December 31, 2004 and
2003 are as follows (in thousands): Balance
    
    
    Provision
    
    
    
    
    
    
    Actual
    
    
    BalanceBeginning
    
    
    for
    
    
    
    
    
    
    Warranty
    
    
    End ofof Period
    
    
    Warranties(2)
    
    
    Other(1)
    
    
    Costs Incurred(3)
    
    
    PeriodAccrued Product WarrantySix Months Ended:December 31, 2004
    
    $
    3,584
    
    
    
    1,228
    
    
    
    239
    
    
    
    (1,070
    )
    
    $
    3,981December 31, 2003
    
    $
    3,188
    
    
    
    1,070
    
    
    
    196
    
    
    
    (1,021
    )
    
    $
    3,433
   (1)
    
    Effects of exchange rate changes(2)
    
    Provision for warranties related to products sold during the period(3)
    
    Costs of warranty claims processed during the period 10. Commitments One of the Companys foreign subsidiaries discounts trade notes receivable with banks. The
uncollected balances of notes receivable due to the discounting banks at December 31, 2004 and June
30, 2004 were $3.0 million and $7.4 million, respectively. The Company is contingently liable for
these unpaid balances to the extent the amounts are not paid to the bank by the end customer. The
Company has determined that the carrying amount of its contingent liability under this guarantee
was insignificant at December 31, 2004 and June 30, 2004 based on its past experience of
discounting trade notes receivable. 11. Stock-Based Compensation The Company applies Accounting Principles Board Opinion No. 25, Accounting for Stock Issued
to Employees (APB No. 25) and related interpretations in accounting for its stock-based
compensation plans. Accordingly, no accounting recognition is given to stock options granted at
fair market value until they are exercised. Upon exercise, net proceeds, including tax benefits
realized, are credited to equity. Statement of Financial Accounting Standard No. 123, Accounting for Stock-Based Compensation
(SFAS No. 123) sets forth a fair-value 12




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DIONEX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) 
 based method of recognizing stock-based compensation expense. As permitted by SFAS No. 123, the
Company has elected to continue to apply APB No. 25 to account for its stock-based compensation
plans. Had compensation costs under the Companys stock-based compensation plans been determined
based on the fair value at the grant dates consistent with the method set forth under SFAS No. 123,
the effect on the Companys net income and earnings per share would have been as follows: Three Months Ended
    
    
    Six Months EndedDecember 31,
    
    
    December 31,2004
    
    
    2003
    
    
    2004
    
    
    2003Net income, as reported
    
    $
    12,727
    
    
    $
    10,765
    
    
    $
    22,391
    
    
    $
    18,356Less: Total stock-based
employee compensation
expense determined
under fair value method
for all awards, net of
related tax effects
    
    
    1,227
    
    
    
    1,415
    
    
    
    3,075
    
    
    
    2,783Pro forma net income
    
    $
    11,500
    
    
    $
    9,350
    
    
    $
    19,316
    
    
    $
    15,573Earnings per share:Basic  as reported
    
    $
    0.61
    
    
    $
    0.51
    
    
    $
    1.08
    
    
    $
    0.87Basic  pro forma
    
    $
    0.55
    
    
    $
    0.44
    
    
    $
    0.93
    
    
    $
    0.74Diluted  as reported
    
    $
    0.59
    
    
    $
    0.49
    
    
    $
    1.04
    
    
    $
    0.84Diluted  pro forma
    
    $
    0.53
    
    
    $
    0.43
    
    
    $
    0.89
    
    
    $
    0.71
 The resulting pro forma compensation expense may not be representative of the amount to be
expected for the year ending June 30, 2005. Pro forma compensation expense may be greater as
additional options are granted. The fair value of each option on the date of grant is estimated using the Black-Scholes
option-pricing model with a volatility of 47% for 2005 and 49% for 2004, expected life of options of 5.6 years for 2005 and 5.9
years for 2004, risk free interest rate of approximately 3.56% in 2005 and 3.30% in 2004 and a
dividend yield of 0% for fiscal years 2005 and 2004, respectively. The Black-Scholes option-pricing model was developed for estimating the fair value of publicly
traded options that have no vesting restrictions and are fully transferable. In addition,
option-pricing models require the input of highly subjective 13




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DIONEX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) 
 assumptions, including expected stock price volatility. The Companys employee stock options have
characteristics significantly different from publicly traded options, and changes in the subjective
input assumptions can materially affect the fair value estimate. 14




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DIONEX CORPORATION 
  ITEM 2.
    MANAGEMENTS 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 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: general economic
conditions, foreign currency fluctuations, 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 Risks and Uncertainties. Readers are cautioned not to place undue
reliance on these forward-looking statements that reflect managements analysis only as of the date
hereof. Dionex undertakes no obligation to update these forward-looking statements. The Company Dionex Corporation (the Company) is a leading manufacturer and marketer of chromatography
systems for chemical analysis. The Companys systems are used in environmental analysis and by the
pharmaceutical, life sciences, chemical, petrochemical, power generation, food and electronic
industries in a variety of applications. Results of Operations  Three Months Ended December 31, 2004 and 2003 Net sales for the second quarter of fiscal 2005 were $74.2 million, an increase of 13%
compared with $65.5 million reported for the same period in the prior year. The Company is subject
to the effects of foreign currency fluctuations that have an impact on net sales and gross profit.
Overall, currency fluctuations increased reported net sales by approximately 5% for the three
months ended December 31, 2004 compared to 9% for the same period in the prior year. 15




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Net sales increased over the prior year in all geographic markets as indicated in the table
below:  Percentage increase in net sales
for three months ended December 31, 2004 
 Dec. 31, 2003
    
    
    Dec. 31, 2002to
    
    
    toDec. 31, 2004
    
    
    Dec. 31, 2003Total:
    
    
    13
    %
    
    
    20
    %By geographic region:North America
    
    
    14
    %
    
    
    1
    %Europe
    
    
    15
    %
    
    
    26
    %Asia/Pacific
    
    
    10
    %
    
    
    41
    %
  Percentage of growth in net sales excluding currency fluctuations
Three months ended 
 Dec. 31, 2003to
    
    
    Dec. 31, 2002toDec. 31, 2004
    
    
    Dec. 31, 2003Total:
    
    
    8
    %
    
    
    11
    %By geographic region:North America
    
    
    13
    %
    
    
    -1
    %Europe
    
    
    5
    %
    
    
    10
    %Asia/Pacific
    
    
    8
    %
    
    
    33
    %
 Net sales in North America increased primarily due to the economic recovery
over the previous year in the United States and Canada. Net sales in Europe continued to increase
primarily due to good growth in several countries, including Germany which reported good growth
after several quarters of weaker results. Net sales in the Asia/Pacific region continued to
increase primarily due to continued growth in China, Korea and Australia, partially offset by flat
net sales in Japan compared to an unusually strong net sales performance in the second quarter last
year. Gross margin for the second quarter ended December 31, 2004 was 66.7%, consistent with the
gross margin reported for the same period last year. Gross margin can be affected by currency
fluctuations as well as changes in product mix. The Company anticipates gross margin to be
approximately 65-66% for the third and fourth quarters of fiscal 2005. Operating expenses of $30.8 million for the second quarter of fiscal 2005 increased $2.9
million, or 10%, from the $27.9 million reported in the same quarter last year. As a percentage of
sales, 16




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operating expenses decreased to 42% for the three months ended December 31, 2004 compared to 43%
for the same quarter last year. Currency fluctuations increased operating expenses by 4% for the
quarter. Selling, general and administrative (SG&A) expenses increased $2.5 million or 11%, to $25.4
million in the three months ended December 31, 2004 as compared to $22.9 million for the same
quarter last year. However, as a percentage of sales, SG&A expenses decreased to 34.3% for the
second quarter of fiscal 2005 compared to 34.9% for the same quarter last year. The increase in
SG&A expenses was due to currency fluctuations, costs associated with Sarbanes-Oxley Section 404
compliance activities and the Companys expansion efforts in Asia that relate primarily to
additional headcount and associated travel expenses, including the addition of nine full-time
employees to open a direct sales and marketing subsidiary in Australia on May 11, 2004. Research and product development (R&D) costs of $5.4 million for the three months ended
December 31, 2004 increased $370,000, or 7%, from the $5.0 million reported in the same period last
year. Increased spending in the three months ending December 31, 2004 is primarily due to currency
fluctuations and higher costs associated with continued development of new products in both the
Companys IC and HPLC lines. Overall, the level of R&D spending varies depending on both the
breadth of the Companys R&D efforts and the stage of specific product development. Other expense was $142,000 in the three months ended December 31, 2004 compared to income of
$4,000 for the same period in the prior year. Other expense in fiscal 2005 resulted primarily from
foreign exchange losses on currency hedging activities. The effective tax rate for the three months ended December 31, 2004 was 32.2%, down from 32.5%
reflected in the same period last year. The lower tax rate was due to the recognition of certain
U.S. research tax credits which were not allowed to be recognized in the three months ended
September 30, 2004; this impact approximated 1.3 percentage points. Legislation enacted during the
three months ended December 31, 2004 reinstated the research tax credit retroactive to July 1,
2004. Additionally, the Companys tax rate reflects fluctuations in the Companys geographical mix
of business. Net income in the three months ended December 31, 2004 increased 18% to $12.7 million compared
with $10.8 million reported for the same period last year. Diluted earnings per share for the three
months ended December 31, 2004 were $.59, an increase of 20% over the $.49, reported for the same
period last year. 17




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Results of Operations  Six Months Ended December 31, 2004 and 2003 Net sales for the six months ended December 31, 2004 were $137.4 million, an increase of
approximately 16% over the $118.8 million reported for the same period last year. The Company is
subject to the effects of foreign currency fluctuations that have an impact on net sales and gross
profit. Overall, currency fluctuations increased net sales by approximately 5% for the first six
months of fiscal 2005 and by approximately 7% for the same period last year. Net sales increased over the prior year period in all geographic markets as indicated in the
table below:  Percentage increase in net sales
Six months ended December 31, 2004 
 Dec. 31, 2003 to
    
    
    Dec. 31, 2002 toDec. 31, 2004
    
    
    Dec. 31, 2003Total:
    
    
    16
    %
    
    
    17
    %By geographic region:North America
    
    
    11
    %
    
    
    8
    %Europe
    
    
    16
    %
    
    
    21
    %Asia/Pacific
    
    
    23
    %
    
    
    25
    %
  Percentage of growth in net sales excluding currency fluctuations
Six months ended December 31, 2004 
 Dec. 31, 2003 to
    
    
    Dec. 31, 2002 toDec. 31, 2004
    
    
    Dec. 31, 2003Total:
    
    
    10
    %
    
    
    10
    %By geographic region:North America
    
    
    10
    %
    
    
    6
    %Europe
    
    
    5
    %
    
    
    7
    %Asia/Pacific
    
    
    20
    %
    
    
    21
    %
 Net sales in North America increased primarily due to improvements in economic
conditions. Net sales in Europe increased primarily due to strong growth in certain countries and
the return to growth in Germany in the second quarter. Net sales in the Asia/Pacific region
increased primarily due to strong growth throughout the region. Gross margin for the first six months of fiscal 2005 was 66.3%, a slight decrease from the
66.5% reported for the same period last year. Gross margin was lower due to product mix. 18




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Operating expenses of $58.1 million for the first six months of fiscal 2005 increased $6.5
million, or 13%, from the $51.7 million reported for the same period last year. As a percentage of sales, operating expenses in the first
six months of fiscal year 2005 were 42%, compared with 43% in the same period last year. SG&A expenses were $47.8 million for the first six months of fiscal 2005, an increase of 14%
compared with the $42.1 million reported in the same period last year. The increase in SG&A
expenses was due to currency fluctuations, costs associated with Sarbanes-Oxley Section 404
compliance activities, and the Companys expansion efforts internationally in Europe and Asia that
relate primarily to additional headcount and associated travel expenses, as previously discussed. R&D costs for the first six months of fiscal 2005 were $10.3 million, an increase of 8%
compared with the $9.6 million reported in the same period last year. However, as a percentage of
sales, R&D costs were 8% in both fiscal years. R&D costs in the first half of fiscal 2005
increased due to the Companys higher spending to develop the Companys IC and HPLC products and
the effects of currency fluctuations. The level of R&D spending varies depending on both the
breadth of the Companys R&D efforts and the stage of specific product development. Other income was $313,000 for the first six months of fiscal 2005 primarily due to a gain on
the sale of marketable equity securities partially offset by losses on the Companys currency
hedging activities. Other expense was $328,000 for the first six months of fiscal 2004, resulting
from losses incurred in the Companys hedging activities. The effective tax rate for the first six months of fiscal 2005 was 33.5%, up from 32.5% for
the same period last year. The increase was attributable to a higher portion of foreign-sourced
income in the current fiscal year. The Companys tax rate is subject to fluctuation due to changes
in tax regulations in the jurisdictions in which the Company does business. Net income for the first six months of fiscal 2005 was $22.4 million, an increase of 22%
compared with $18.4 million reported for the same period last year. Diluted earnings per share for
the first six months of fiscal 2005 were $1.04, an increase of 24% over the $.84 reported for the
same period last year. Liquidity and Capital Resources At December 31, 2004, the Company had cash and cash equivalents of $73.5 million. The
Companys working capital was $121.2 million, an increase of $17.5 million from the $103.7 million
reported at June 30, 2004. Cash generated by operating activities for the six months ended
December 31, 2004 was $27.8 million compared with $23.0 million for the same period last year. The
increase in operating cash flow was primarily due to increases in net income, accounts payable and
accrued expenses and a smaller increase in income taxes payable, partially offset by a gain on the sale of marketable securities and an increase in
accounts receivable and prepaid expenses and other assets. 19




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##### Table of Contents



Cash used for investing activities was $2.7 million and $3.2 million in the six months ended
December 31, 2004 and 2003, respectively. Capital expenditures for the six months of fiscal 2005 were $3.7 million and include
an offset of proceeds from the sale of marketable securities of $960,000. Capital expenditures for
the first six months of fiscal 2005 include costs to implement several information technology and
business-related strategic initiatives. For the first six months of fiscal 2004 investing
activities included capital expenditures of $2.3 million and the acquisition of intangibles related
to the acquisition of our Korean subsidiary totaling $975,000. Capital expenditures in fiscal 2004
included building improvements at the corporate headquarters and computer hardware and software
spending in connection with the Companys website. Cash used for financing activities was $13.7 million and $1.8 million in the first six months
of fiscal 2005 and 2004, respectively. The increase is primarily attributable to the repurchase of
521,200 shares of the Companys common stock for $26.2 million in fiscal 2005 (at an average
repurchase price of $50.25 per share) compared with 336,000 shares for $13.6 million in fiscal 2004
(at an average repurchase price of $40.39 per share), partially offset by proceeds received from
the issuance of common stock for the exercise of employee stock options and from the employee stock
purchase plan of $12.8 million in fiscal 2005 and $11.7 million in fiscal 2004. At December 31, 2004, the Company had utilized $1.3 million of its $35.3 million in committed
bank lines of credit, mainly due to borrowings related to the Companys Japanese operations. The
Company believes that its cash flow from operations, current cash and cash investments and the
remainder of its bank lines of credit will be adequate to meet its cash requirements for fiscal
2005 and the foreseeable future, and at least the next twelve months. The following table summarizes the Companys contractual obligations at June 30, 2004, and the
effect such obligations are expected to have on its liquidity and cash flows in future periods (in
thousands): Contractual Obligations
    
    Payments Due by PeriodLessThan 1
    
    
    1-3
    
    
    4-5
    
    
    After 5Total
    
    
    Year
    
    
    Years
    
    
    Years
    
    
    YearsLines of Credit
    
    $
    917
    
    
    $
    917
    
    
    $
    
    
    
    $
    
    
    
    $
    Mortgage Note Payable
    
    
    551
    
    
    
    551
    
    
    
    
    
    
    
    
    
    
    
    Operating Lease Obligations
    
    
    15,307
    
    
    
    3,752
    
    
    
    4,655
    
    
    
    2,521
    
    
    
    4,379Other Obligations
    
    
    3,500
    
    
    
    3,500
    
    
    
    
    
    
    
    
    
    
    
    Total Contractual
Commitments
    
    $
    20,275
    
    
    $
    8,720
    
    
    $
    4,655
    
    
    $
    2,521
    
    
    $
    4,379
 At June 30, 2004, the Company had recorded $3.5 million of Other Obligations in its
consolidated financial statements. Other Obligations relate to the earn-out from the acquisition of
LC 20




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Packings in fiscal 2000 and recorded within Accrued Liabilities. This earn-out payment in other
obligations was made in January 2005. There have been no material changes to the Companys contractual obligations outside ordinary
business activities since June 30, 2004. New Accounting Pronouncements In September 2004, the Financial Accounting Standards Board (FASB) issued FASB Staff Position
(FSP) Emerging Issues Task Force (EITF) Issue 03-1-1, Effective Date of Paragraphs 10-20 of EITF
Issue No. 03-1, The Meaning of Other-Than-Temporary Impairment and Its Application to Certain
Investments, which delays the effective date for the recognition and measurement guidance in EITF
Issue No. 03-1. In addition, the FASB has issued a proposed FSP to consider whether further
application guidance is necessary for securities analyzed for impairment under EITF Issue No. 03-1.
The Company continues to assess the potential impact the adoption of the proposed FSP could have on
the Companys consolidated financial statements. In November 2004, the FASB issued Statement of Financial Accounting Standards (SFAS) No. 151,
Inventory Costs  (SFAS No. 151) which clarifies the accounting for abnormal amounts of idle
facility expense, freight, handling costs, and wasted material. SFAS No. 151 will be effective for
inventory costs incurred during fiscal years beginning after June 15, 2005. The Company continues
to assess the potential impact the adoption of SFAS No. 151 could have on the Companys
consolidated financial statements. In
December 2004, the FASB issued SFAS No. 123R,
Share-Based Payment (SFAS 123R), which eliminates
the alternative of applying the intrinsic value measurement to stock compensation awards issued to
employees. Rather, the new standard requires enterprises to measure the cost of employee services
received in exchange for an award of equity instruments based on the grant date fair value of the
award. That cost will be recognized over the period during which an employee is required to
provide services in exchange for the award, known as the requisite service period (usually the
vesting period). The Company has not yet quantified the effects of the adoption SFAS 123R, but it is expected
that the new standard may result in significant stock-based compensation expense. The pro forma
effects on net income and earnings per share if the Company had applied the fair value recognition
provisions of original SFAS 123 on stock compensation awards are disclosed in Note 12. Although
such pro forma effects of applying original SFAS 123 may be indicative of the effects of adopting
SFAS 123R, the provisions of these two statements differ in some important respects. The actual
effect of adopting SFAS 123R will be dependent on numerous factors including, but not limited to,
the valuation model chosen by the Company to value stock-based awards; the assumed award forfeiture
rate; the accounting policies adopted concerning the method of recognizing the fair value of awards
over the requisite service period; and the transition method (as described below) chosen for
adopting SFAS 123R. SFAS 123R will be effective for the Companys fiscal quarter beginning July 1, 2005, and
requires the use of the Modified 21




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Prospective Application Method. Under this method SFAS 123R applied to new awards and to awards
modified, repurchased, or cancelled after the effective date. Additionally, compensation cost for
the portion of awards for which the requisite service has not been rendered (such as unvested options) that are
outstanding as of the date of adoption shall be recognized as the remaining requisite services are
rendered. The compensation cost relating to unvested awards at the date of adoption shall be based
on the grant-date fair value of those awards as calculated for pro forma disclosures under the
original SFAS 123. In addition, companies may use the Modified Retrospective Application Method.
This method may be applied to all prior years for which the original SFAS 123 was effective or only
to prior interim periods in the year of initial adoption. If the Modified Retrospective
Application Method is applied, financial statements for prior periods shall be adjusted to give
effect to the fair-value-based method of accounting for awards on a consistent basis with the pro
forma disclosures required for those periods under the original SFAS 123. In December 2004, the FASB issued SFAS No. 153, Exchanges of Nonmonetary Assets, an amendment
of APB Opinion No. 29 (SFAS No. 153) which eliminates the exception for nonmonetary exchanges of
similar productive assets and replaces it with a general exception for exchanges of nonmonetary
assets that do not have commercial substance. SFAS No. 153 will be effective for nonmonetary asset
exchanges occurring in fiscal periods beginning after June 15, 2005. The Company expects that the
adoption of SFAS No. 153 will not have any impact on the Companys consolidated financial
statements. 22




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Critical Accounting Policies and Estimates Summary: The preparation of consolidated financial statements requires the Company to make estimates
and assumptions that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period. The Company evaluates its estimates on an
on-going basis, including those related to product returns and allowances, bad debts, inventory
valuation, goodwill and intangible assets, income taxes, warranty provisions, and contingencies. The Company bases its estimates on historical experience and on various other assumptions that
are believed to be reasonable under the circumstances, the results of which form the basis for
making judgments about the carrying values of assets and liabilities that are not readily apparent
from other sources. Actual results may differ from these estimates. The Company believes the
following critical accounting policies affect its more significant judgments and estimates used in
the preparation of its consolidated financial statements. Revenue Recognition Policy The Company derives revenues from the sale of products and from services rendered to its
customers including installation, training and maintenance. Generally, the Companys products
contain embedded software that is essential to their functionality. The Company recognizes revenues in accordance with Staff Accounting Bulletin No. 104 Revenue
Recognition and Statement of Position 97-2, Software Revenue Recognition, when persuasive
evidence of an arrangement exists, the product or service has been delivered, the price is fixed or
determinable, collection is probable and vendor specific objective evidence exists to allocate
revenue to the various elements of the arrangement. Vendor specific objective evidence is based on
the price charged when an element is sold separately or, if not yet sold separately, when the price
is established by authorized management. Delivery is generally considered to have occurred when
shipped. The Company sells its equipment 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. When the distributor is the primary obligor in the arrangement, has latitude in
establishing prices and has credit risk, the Company records revenue based on amounts invoiced to
the distributor (rather than the amount invoiced by the distributor to the end users). When the
Company is the primary obligor in the arrangement, has latitude in establishing price and has
credit risk, the Company records revenue based on amounts invoiced to the end customer (with the
related commissions paid to the distributors reported as sales and marketing expense).
Customer acceptance is generally limited to performance under the Companys 23




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published product specifications. When additional customer acceptance conditions apply, all revenue
related to the sale is deferred until acceptance is obtained. The Companys equipment typically
includes a one-year warranty. The estimated cost of product warranty claims is accrued at the time
the sale is recognized, based on historical experience. Installation and training services are not considered to be essential to the functionality of
the Companys products, and revenue related to these items is recognized when the services are completed. The Company recognizes
maintenance fees ratably over the period of the related maintenance contract. Maintenance consists
of product repair services, unspecified software upgrades and telephone support. Loss Provisions on Accounts Receivable and Inventory The Company maintains allowances for doubtful accounts for estimated losses resulting from the
inability of its customers to make required payments. If the financial condition of the Companys
customers were to deteriorate, resulting in an impairment of their ability to make payments,
additional allowances may be required. The Company assesses collectibility based on a number of
factors including, but not limited to, past transaction history with the customer, the
credit-worthiness of the customer, independent credit reports, industry trends and the
macro-economic environment. Sales returns and allowances are estimates of future product returns
related to current period revenue. Material differences may result in the amount and timing of the
Companys revenue for any period. Historically, the Company has not experienced significant bad
debt losses. The Company values all of its inventories at the lower of standard cost (which approximates
cost on a first-in, first-out basis) or market. The Company estimates revisions to its inventory
valuations based on technical obsolescence, historical demand, projections of future demand, and
industry and market conditions. If actual future demand or market conditions are less favorable
than those projected by management, additional valuation provisions may be required. If demand or
market conditions are more favorable, then higher margins could be realized to the extent inventory
is sold which had previously been written down. Long-Lived Assets, Intangible Assets with Finite Lives and Goodwill The Company assesses the impairment of long-lived assets, intangible assets with finite lives
and goodwill whenever events or changes in circumstances indicate that the carrying value may not
be recoverable. In addition, the Company assesses goodwill for impairment at least annually.
Factors the Company considers important that could trigger an impairment review include but are not
limited to the following:  
    significant underperformance relative to historical or projected future operating results;
    significant negative industry or economic trends; and
    significant changes or developments in strategic technology. 24




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##### Table of Contents



When the Company determines that the carrying value of long-lived assets, intangible assets
with finite lives may not be recoverable based upon the existence of one or more of the above or
other indicators, it measures any impairment based on a projected discounted cash flow method using
a discount rate determined by the Companys management to be commensurate with the risk inherent in
the Companys current business model. Goodwill is tested for impairment by comparing the fair
values of related reporting units to their carrying values. The Company completed its annual
review in April, 2004 and no impairment was necessary. Warranty Product warranties are recorded at the time revenue is recognized for certain product
shipments based on historical experience. While the Company engages in extensive product quality
programs and processes, its warranty obligation is affected by product failure rates, material
usage and service costs incurred in correcting a product failure. Should actual product failure
rates, material usage or service costs differ from the Companys previous estimates, revisions to
the estimated warranty liability would be required. Income Taxes As part of the process of preparing the consolidated financial statements, the Company is
required to estimate its income taxes in each of the jurisdictions in which it operates. This
process involves the Companys estimate of its actual current tax exposure together with assessing
temporary differences resulting from differing treatment of items, such as depreciation,
amortization, and inventory reserves, for tax and accounting purposes. These differences result in
deferred tax assets and liabilities, which are included within the Companys consolidated balance
sheets. The Company must then assess the likelihood that its deferred tax assets will be recovered
from future taxable income and to the extent the Company believes that recovery is not likely, it
must establish a valuation allowance. In the event that actual results differ from these estimates,
the Company may need to establish a valuation allowance that could materially impact its financial
position and results of operations. Risks and Uncertainties The continuation or spread of the current economic uncertainty in key markets would likely harm the
Companys operating results. The Company sells products in many geographical regions throughout the world. If economic
conditions in any of these regions decline or continue to decline, the demand for the Companys
products is likely to be reduced. Despite economic uncertainty in Europe, the Company showed
continued growth in the European market; however, a continuation of an economic downturn in any of its major markets would likely harm its results of
operations. 25




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Foreign currency fluctuations and other risks related to international operations may adversely
affect the Companys operating results. The Company derived approximately 68% of its net sales from outside North America in the six
months ended December 31, 2004 and expects to continue to derive the majority of net sales from
outside North America for the foreseeable future. Most of the Companys sales outside North
America are denominated in the local currency of its customers. As a result, the U.S. dollar value
of the Companys 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 the Companys results of operations. Tariffs and other trade barriers, difficulties in
staffing and managing foreign operations, changes in political environments, interruptions in
overseas shipments and changes in tax laws may also impact international sales negatively. Fluctuation in worldwide demand for analytical instrumentation could affect the Companys operating
results. The demand for analytical instrumentation products can fluctuate depending upon capital
expenditure and/or R&D expenditure cycles. Most companies consider the Companys instrumentation
products to be capital equipment and 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 the Companys results of operations. Fluctuations in the Companys quarterly operating results may cause the Companys stock price to
decline. A high proportion of the Companys costs are fixed due in part to its significant sales,
research and product development and manufacturing costs. Small declines in revenue caused by
fluctuations in currency rates, worldwide demand for analytical instrumentation or other factors
could disproportionately affect the Companys quarterly operating results, which may in turn cause
its stock price to decline. If the Company does not introduce new products that are attractive to its customers on a timely
basis, the Companys products may become obsolete. The Companys products are highly technical in nature. As a result, many of the Companys
products must be developed months or even years in advance of the potential need by a customer. If
the Company fails to introduce new products and enhancements as demand arises or in advance of the
competition, the Companys products are likely to become obsolete over time, which would harm
operating results. Also, if the market is not receptive to newly developed products, the Company
may be unable to recover costs of research and product development and marketing, and may fail to
achieve material components of its business plan. 26




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The Companys revenues depend on successfully competing for market share in a highly competitive
market. The analytical instrumentation market is highly competitive and the Company competes with many
competitors on a local and international level that are significantly larger than Dionex 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 to acquire and retain customers. If this occurs, the Companys market share may
decline and operating results could suffer. The Companys ability to maintain inventories and meet customer demand for its products is critical
to its operating results. Most raw materials, components and supplies purchased by the Company are available from a
number of suppliers. However, certain items are purchased from limited or sole source suppliers
and a disruption of these sources could adversely affect the Companys ability to ship products as
needed. A prolonged inability to obtain certain materials or components would likely reduce
product inventory, hinder sales and harm the Companys reputation with customers. The Company manufactures products in three sites in Germany, the Netherlands and the United
States. Any prolonged disruption to the operations at these facilities, whether due to labor unrest, supplier issues, damage to the
physical plants or equipments or other reasons, could also adversely affect the Companys results
of operations. The Companys executive officers and other key employees are critical to its business, they may not
remain with the Company in the future and finding talented replacements would be difficult. The operations of the Company require managerial and technical expertise. Each of the
executive officers and key employees located in the United States is employed at will and may
leave the employment of the Company at any time. In addition, the Companys headquarters are
located in Sunnyvale, California, where the demand for qualified personnel is high and is likely to
remain so for the foreseeable future. As a result, competition for personnel is intense and the
turnover rate for qualified personnel is comparatively high. The loss of any of the Companys
executive officers or key employees could cause the Company 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 the Companys ability
to conduct its business. The success of the Company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. 27




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Patent and trade secret protection is important to the Company because developing new
technologies and products is time-consuming and expensive. The Company owns many U.S. and foreign patents and intends to apply for additional
patents to cover its technology and products. The Company may be unable to obtain issued patents
from any pending or future patent applications that it owns. The claims allowed under any issued
patents may not be sufficiently broad to protect its technology. Third parties may seek to
challenge, circumvent or invalidate issued patents that the Company owns. In addition to its patents, the Company has a vast number of unpatented proprietary products
and know-how. The measures employed by the Company to protect this technology, such as maintaining
the confidentiality of proprietary information and relying on trade secret laws, may be inadequate. The Company may incur significant expense in any legal proceedings to protect its proprietary
rights. The Companys failure to achieve and maintain effective internal controls in accordance with
Section 404 of the Sarbanes-Oxley Act of 2002 could have a material adverse effect on its stock
price. The Company is in the process of documenting and testing its internal control procedures in
order to satisfy the requirements of Section 404 of the Sarbanes-Oxley Act of 2002, which requires
annual management assessments of the effectiveness of the Companys internal control over financial
reporting and a report by the Companys independent registered public accountants attesting to and
reporting these assessments. During the course of the Companys testing, the Company may identify
deficiencies that cannot be remediated in time to meet the deadline imposed by the Sarbanes-Oxley
Act for compliance with the requirements of Section 404. In addition, if the Company fails to
maintain the adequacy of its internal control over financial reporting, as such standards are
modified, supplemented or amended from time to time, it may not be able to ensure that it can
conclude in future periods that its has effective internal control over financial reporting in
accordance with Section 404. If the Company cannot favorably assess, or its independent registered
accountants are unable to provide an unqualified attestation report on the Companys assessment of,
the effectiveness of its internal control over financial reporting, investor confidence in the
reliability of the Companys financial reports may be adversely affected, which could have a
material adverse effect on the Companys stock price. 
  ITEM 3.
    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS The Company is exposed to financial market risks, including changes in foreign currency rates,
interest rates and marketable equity securities, as well as debt and interest expense. Foreign Currency ExchangeRevenues generated from international
operations are generally denominated in foreign currencies. The Company enters into forward foreign
exchange contracts to hedge against fluctuations of intercompany account balances. Market value
gains and losses on these hedge contracts are substantially offset by 28




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fluctuations in the underlying balances being hedged, and the net financial impact is not expected
to be material in future periods. At December 31, 2004, the Company had forward exchange contracts to sell foreign currencies totaling
$15.9 million dollars, including approximately $8.0 million in Euros, $7.1 million in Japanese yen
and $800,000 in Canadian dollars. The foreign exchange contracts at the end of each fiscal quarter
mature within the following quarter. Additionally, contract values and fair market values are the
same. A sensitivity analysis assuming a hypothetical 10% movement in foreign currency exchange
rates applied to hedging contracts and underlying balances being hedged at December 31, 2004
indicated that these market movements would not have a material effect on the Companys business,
operating results or financial condition. Foreign currency rate fluctuations can impact the U.S. dollar translation of the Companys
foreign operations in our consolidated financial statements. Currency fluctuations increased
reported sales by 5% for both the quarter and for the six months ended December 31, 2004 compared
to 9% for the quarter and 7% for the six months ended December 31, 2003. Interest and Investment IncomeThe Companys interest and investment income is subject to changes
in the general level of interest rates. Changes in 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 the Companys investment balances at December 31 2004,
indicated that such market movement would not have a material effect on the business, operating
results or financial condition. Actual gains or losses in the future may differ materially from
this analysis, depending upon actual balances and changes in the timing and amount of interest rate
movements. Marketable Equity SecuritiesThe Company is exposed to market price risks on its marketable equity
securities. These investments are in publicly traded companies in the laboratory analytical
instruments sector. The Company does not attempt to reduce or eliminate our market exposure on
these securities. A 50% adverse change in the equity price would result in an approximate $571,000
decrease in the fair value of its marketable equity securities as of December 31, 2004. Debt and Interest ExpenseA sensitivity analysis assuming a hypothetical 10% movement in interest
rates applied to the Companys outstanding debt balance at December 31, 2004, indicated that such
market movement would not have a material effect on its business, operating results or financial
condition. Actual gains or losses in the future may differ materially from this analysis, depending
on the level of the Companys outstanding debt and changes in the timing and amount of interest
rate movements. 
  ITEM 4.
    CONTROLS AND PROCEDURES The Company carried out an evaluation, under the supervision and with the participation of the
Companys Chief Executive Officer and Chief Financial Officer, of the effectiveness of the
Companys disclosure controls and procedures (as defined in rules 29




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promulgated under the Exchange Act). Based on that evaluation, the Chief Executive Officer and
Chief Financial Officer have concluded that the Companys disclosure controls and procedures as of December 31, 2004 were effective to
ensure that information required to be disclosed by the Company in reports that it files or submits
under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within
the time periods specified in the SECs rules and forms. There were no changes in the Companys internal control over financial reporting during the
period covered by this report that have materially affected, or are reasonably likely to materially
affect, the Companys internal control over financial reporting. A control system, no matter how well conceived and operated, can provide only reasonable, not
absolute, assurance that the objectives of the control system are met. Because of the inherent
limitations in all control systems, no evaluation of controls can provide absolute assurance that
all control issues, if any, within a company have been detected. The Companys disclosure controls
and procedures are designed to provide reasonable assurance of achieving their objectives, and the
Chief Executive Officer and the Chief Financial Officer have concluded that these controls and
procedures are effective at the reasonable assurance level. 30




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PART II. OTHER INFORMATION 
  ITEM 2.
    UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS Dionex repurchases shares of its 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. Dionex started a series of
repurchase programs in 1989 with the Board of Directors authorizing future repurchases of an
aggregate of 1.5 million shares of common stock in April 2002 as well as authorizing the repurchase
of additional shares of common stock equal to the number of common shares issued pursuant to the
Companys employee stock plans. The following table indicates common shares repurchased and additional shares added to the
repurchase program during the three months ended December 31, 2004: ISSUER PURCHASES OF EQUITY SECURITIES  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)Oct. 1 - 31, 2004
    
    
    37,000
    
    
    $
    55.28
    
    
    
    2,482,400
    
    
    
    168,706
    
    
    
    1,696,890Nov. 1 - 30, 2004
    
    
    182,900
    
    
    $
    56.98
    
    
    
    2,665,300
    
    
    
    140,508
    
    
    
    1,654,498Dec. 1 - 31, 2004
    
    

    
    
    
    
    
    
    
    
    2,665,300
    
    
    
    
    
    
    
    1,654,498
   (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. 31




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##### Table of Contents



ITEM 4.
    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The 2004 Annual Meeting of Stockholders was held on October 22, 2004. The six persons name
below were elected as proposed in the proxy statement pursuant to Regulation 14A of the Securities
Exchange Act of 1934, as amended, to serve as directors until the Companys Annual Meeting of
Stockholders in 2005 and until their successors are duly elected and qualified. There were
18,670,745 shares of the Companys common stock entitled to vote at the Annual Meeting of
Stockholders. The voting regarding each nominee was as follows: For
    
    WithheldDavid L. Anderson
    
    
    18,336,115
    
    
    
    335,096A. Blaine Bowman
    
    
    13,504,007
    
    
    
    5,167,204Lukas Braunschweiler
    
    
    13,524,372
    
    
    
    5,146,839B.J. Moore
    
    
    18,280,390
    
    
    
    390,821Ricardo Pigliucci
    
    
    18,423,613
    
    
    
    247,598Michael W. Pope
    
    
    12,330,151
    
    
    
    6,341,060
 Other matters voted upon at the Annual Meeting and the results of the voting with respect to
each such matter were as follows: 1. To approve the Dionex Corporate 2004 Equity Incentive Plan. For
    
    Against
    
    Abstained15,292,425
    
    
    
    2,284,404
    
    
    
    29,750
 2. To ratify the selection of Deloitte & Touche LLP as the independent auditors of the Company
for the fiscal year ending June 30, 2005. For
    
    Against
    
    Abstained18,256,156
    
    
    
    408,453
    
    
    
    6,136
 32




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##### Table of Contents



Item 6. EXHIBITS 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
    
    Shareholder Rights Agreement dated January 21, 1999,
between the Registrant and BankBoston N.A.
    
    
    (3
    )10.1
    
    Agreement, effective as of January 1, 1975,
between The Dow Chemical Company and
International Plasma Corporation
    
    
    (1
    )10.2
    
    Agreement, dated March 6, 1975, between
International Plasma Corporation and the
former Dionex Corporation
    
    
    (1
    )10.3
    
    Memorandum agreement, dated March 14, 1975,
between The Dow Chemical Company and
International Plasma Corporation
    
    
    (1
    )10.4
    
    Consent to Assignment executed as of March 26,
1980, between the Dow Chemical Company and the
former Dionex Corporation
    
    
    (1
    )10.5
    
    Amendatory Agreement, effective as of November 1,
1981,between The Dow Chemical Company and the
Registrant (with certain confidential information
deleted)
    
    
    (1
    )10.6
    
    Amendatory Agreement, effective as of July 1, 1982,
between The Dow Chemical Company and the Registrant
(with certain confidential information deleted)
    
    
    (1
    )10.7
    
    Registrants Medical Care Reimbursement Plan
(Exhibit 10.17)
    
    
    (1
    )10.8
    
    Credit Agreement dated November 13, 2000
between Wells Fargo Bank and the Registrant
(Exhibit 10.15)
    
    
    (4
    )10.9
    
    First amendment to Credit Agreement dated
November 13, 2000 between Wells Fargo Bank and the
Registrant
    
    
    (6
    )10.10
    
    Registrants Employee Stock Participation Plan
(Exhibit 10.13)
    
    
    (7
    )10.10
    
    Registrants Stock Option Plan (Exhibit 99.1)
    
    
    (8
    )10.11
    
    Registrants Form of Stock Option Agreement for
non-employee directors (Exhibit 99.2)
    
    
    (8
    )
 33




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##### Table of Contents



ExhibitNumber
    
    Description
    
    Reference10.12
    
    Registrants Form of Stock Option Agreement for
other than non-employee directors (Exhibit 99.3)
    
    
    (8
    )10.14
    
    Second amendment to Credit Agreement dated
November 13, 2000 between Wells Fargo Bank and the
Registrant (Exhibit 10.1)
    
    
    (9
    )21.1
    
    Subsidiaries of Registrant
    
    
    (7
    )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 Registrants
Registration Statement on Form S-1 filed December 7, 1982.(2)
    Incorporated by reference to the corresponding exhibit in the Registrants Annual Report on
Form 10-Q filed February 13, 1997.(3)
    Incorporated by reference to the corresponding exhibit in the Registrants Quarterly Report
on Form 10-Q filed February 16, 1999.(4)
    Incorporated by reference to the indicated exhibit in the Registrants Quarterly Report on
Form 10-Q filed February 14, 2001.(5)
    Incorporated by reference to the indicated exhibit in the Registrants Annual Report on Form
10-K filed August 28, 2002.(6)
    Incorporated by reference to the indicated exhibit in the Registrants Annual Report on Form
10-K filed September 24, 2003.(7)
    Incorporated by reference to the indicated exhibit in the Registrants Annual Report on Form
10-K filed September 10, 2004.(8)
    Incorporated by reference to the Registrants Registration Statement on Form S-8 filed
December 8, 2004.(9)
    Incorporated by reference to the indicated exhibit in the Registrants current Report on
Form 8-K filed December 22, 2004. 34




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##### 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: February 9, 2005
    By:
    /s/ Lukas BraunschweilerLukas BraunschweilerPresident, Chief Executive Officer
And Director By:
    /s/ Craig A. McCollamCraig A. McCollamVice President, and Chief
Financial Officer  35




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##### 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.