Summary of DIONEX CORP /DE

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 and in the footnotes to our financial statements contained in this Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the Private Securities Litigation Reform Act of 1995, and are made under the safe harbor provisions thereof. Such statements are subject to certain risks, uncertainties and other factors that may cause actual results, performance or achievements, or industry results, to be materially different from any future results, performance or achievements, or industry results, expressed or implied by such forward-looking statements. Such risks and uncertainties include, among other things: general economic conditions, foreign currency fluctuations, risks associated with international sales, credit risks, fluctuations in worldwide demand for analytical instrumentation, fluctuations in quarterly operating results, competition from other products, existing product obsolescence, new product development, including market receptiveness, the ability to manufacture products on an efficient and timely basis and at a reasonable cost and in sufficient volume, the ability to attract and retain talented employees and other risks as described in more detail below under the heading "Risk Factors." Readers are cautioned not to place undue reliance on these forward-looking statements that reflect management's analysis only as of the date hereof. We undertake no obligation to update these forward-looking statements. Overview
During the last three quarters, we saw some decline in customer demand mainly driven by weaker economic conditions in some countries and/or specific end-user markets. We believe our second quarter will continue to be affected. Despite the weakness caused by the current economic conditions, we are very pleased with our results for the first quarter. We exceeded our internal expectations and guidance for both sales and earnings per share for the first quarter. Our gross margin was in line with our expectations and we closely managed our operating expenses. We were also able to complete the acquisition of certain HPLC products line from ESA Biosciences, Inc., which further strengthened our HPLC portfolio. We believe the acquisition expanded our life sciences market opportunities, particularly in clinical research applications. Looking at our end customers markets, net sales in our life sciences market were up in the first quarter compared to the first quarter of fiscal 2009, showing growth in all of our major geographic regions. Net sales in our environmental and food and beverage markets were flat for the quarter compared to the first quarter of fiscal 2009, with mixed results on a geographic basis. Finally, net sales in our chemical/petrochemical and our high purity water markets (electronics and power) were down in the first quarter compared to the first quarter of fiscal 2009. Looking at sales by major geographic region, net sales in North America were down slightly for the quarter compared to the first quarter of fiscal 2009. We believe this performance in our North American business represents a stabilization of our business in this region compared with the last two quarters. In Europe, first quarter sales declined in both reported dollars and local currency compared to the first quarter of fiscal 2009. We saw weakness in all of our markets except life sciences which continued to grow. Our Asia Pacific region continued its strongest performance as sales in this region grew in both reported dollars and local currency for the first quarter. Results of Operations
Summary
Net sales for the first quarter of fiscal 2010 were $90.7 million, compared with $93.4 million reported for the same period in the prior year, reflecting a decrease of 3%. Operating income for the quarter was $16.5 million, a decrease of 15.4% over operating income for the first quarter of fiscal 2009 of $19.5 million. Cash flow from operating activities during the quarter was $22.9 million compared with $8.7 million for the first quarter of fiscal 2009, reflecting an increase of 162%. Our gross profit margin for the quarter was 65.8%, a decrease compared to 67.1% for the same period last year. Selling, general and administrative expenses were 39.7% of net sales during the quarter, compared to 38.7% reported in the same period last year. Research and product development expenses for the quarter were 7.9% of net sales, up slightly from the 7.5% reported in the same period last year. Diluted earnings per share decreased 10.9% to $0.57 for the first quarter, compared to $0.64 reported in the same period last year.
Net sales
Net sales for the first quarter of fiscal 2010 were $90.7 million, compared with $93.4 million reported for the same period in the prior year, reflecting a decrease of 3%, including a $1.9 million adverse currency effect. Net sales in North America decreased by 0.4% in the first quarter of fiscal 2010 to $25.0 million, compared to $25.1 million during the same period in the prior year primarily due to

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lower demand from our environmental and food and beverage customers. However, this performance showed stabilization in demand compared with the previous two quarters. Net sales in Europe decreased by 12% to $35.1 million in the first quarter of fiscal 2010, compared to $39.9 million during the same period in the prior year due to the challenging economic environment and adverse currency fluctuations of $2.2 million. Excluding the impact of currency fluctuations, net sales in Europe decreased by 7% to $37.3 million in the first quarter of fiscal 2010 due to weaknesses in all of our markets except life sciences which continue to grow. The Asia/Pacific region continued its strong performance as it grew 8% in reported dollars and 6% in local currency for the first quarter compared to the first quarter of fiscal 2009. Sales growth was driven by a strong performance in China. We saw weaker sales results in Japan and Korea compared to previous quarters, though order flows improved in the last month of the quarter. We are subject to the effects of foreign currency fluctuations that have an impact on net sales. Overall, currency fluctuations decreased reported net sales for the three months ended September 30, 2009 by $1.9 million, or 2.0% compared to the same quarter last year.
Percentage changes in net sales over the corresponding period in the prior year were as indicated in the table below:

                                                    Three Months
                                                       Ended
                                                 September 30, 2009
               Percentage change in net sales
               Total:                                         -3.0 %
               By geographic region:
               North America                                  -0.4 %
               Europe                                        -12.3 %
               Asia/Pacific                                    7.9 %

Percentage change in net sales excluding currency fluctuations over the corresponding period in the prior year were as indicated in the table below:

                                                                                Three Months
                                                                                   Ended
                                                                             September 30, 2009
Percentage change in net sales excluding currency fluctuations
Total:                                                                                  -1.0 %
By geographic region:
North America                                                                            0.5 %
Europe                                                                                  -6.7 %
Asia/Pacific                                                                             5.8 %


Gross margin
Gross margin for the first quarter of fiscal 2010 was 65.8%, a decrease from the
67.1% gross profit margin reported in the first quarter last year. The
difference was due to a number of factors, including a change in the
geographical mix with a weaker performance in Europe, faster HPLC sales growth
and higher deferred revenue. We expect our gross margin to be in the range of
66% to 67% for the fiscal year 2010.
Operating expenses
Operating expenses for the first quarter of fiscal 2010 were $43.2 million,
unchanged compared to the same quarter last year. As a percentage of net sales,
operating expenses were 47.6% for the first quarter of fiscal 2010, an increase
from the 46.3% of sales reported in the first quarter of fiscal 2009. The
effects of foreign currency fluctuations decreased total operating expenses by
$1.4 million, or 3.2%, for the quarter ended September 30, 2009, compared to an
increase of 5.0% during the same period in the prior year.
Selling, general and administrative (SG&A) expenses were $36.0 million for the
first quarter of fiscal 2010, compared with $36.2 million for the same quarter
of fiscal 2009. As a percentage of net sales, SG&A expenses were 39.7% in the
first quarter of fiscal 2010, compared to 38.7% the same period in fiscal 2009.
Effects of foreign currency fluctuations decreased SG&A expenses by $1.2
million, or 3.3%, in the first quarter of fiscal 2010. SG&A expenses, excluding
currency effects, grew by $0.9 million, or 2.7%, compared to the first quarter
of fiscal 2009, due to our continued expansion in the Asia/Pacific region and
certain one-time expenses related to our acquisition during the quarter.
Research and product development (R&D) expenses were $7.2 million for the first
quarter of fiscal 2010, an increase of $0.2 million,

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or 2.0%, from $7.0 million reported in the first quarter of fiscal 2009. As a percentage of net sales, R&D expenses increased marginally to 7.9% in the first quarter of fiscal 2010 when compared to the 7.5% in the first quarter of fiscal 2009.
Income taxes
The effective tax rate in the first quarter of fiscal 2010 was 36.6%, reflecting a decrease from 38.0% reported for the first quarter of fiscal 2009. The relative decrease in our tax rate was primarily due to lower research tax credits in last fiscal year, as the federal statute had expired. We anticipate that our tax rate for the rest of the fiscal year will be in the range of 34.0% to 35.0%.
Net income
Net income attributable to Dionex Corporation in the first quarter of fiscal 2010 decreased 12.7% to $10.3 million, compared with $11.8 million reported for the same period last year.
Liquidity and Capital Resources
At September 30, 2009, we had cash and equivalents and short-term investments of $78.7 million. Our working capital was $117.2 million, an increase of $21.2 million from $96.0 million reported at September 30, 2008.
Cash generated by operating activities for the three months ended September 30, 2009 was $22.9 million, compared with $8.7 million for the same period last year. A lower level of prepaid income taxes due to a refund of the taxes, an increase in deferred revenues due to a higher level of uninstalled systems and software, a decrease in accounts receivable due to lower sales and higher income taxes payable due to lower tax payments contributed to higher operating cash flows. These changes were partially offset by a decrease to operating cash from an increase in inventory as we prepared for higher shipments in the second quarter and a decrease in accrued liabilities for employee compensation. Cash used for investing activities was $23.6 million in the first three months of fiscal 2010. Capital expenditures for the three months of fiscal 2010 were $2.8 million which included purchases related to our general operations, expansion of our IT platform and refurbishment of a building in Sunnyvale. Additionally, $21.1 million was paid in connection with the acquisition of the assets and liabilities of the LST and Laboratory Services business of ESA Biosciences Inc, of which approximately $3M was for the building in which they currently operate.
Cash provided by financing activities was $7.3 million in the three months of fiscal 2010. The cash generated was primarily attributable to the repurchase of 188,253 shares of our common stock for $11.2 million, offset by $3.3 million in proceeds from issuance of common stock, and $15.1 million in proceeds from increased borrowing related to the acquisition of the assets and liabilities of the LST and Laboratory Services business of ESA Biosciences Inc. At September 30, 2009, we had utilized $15.1 million of our $29.1 million in committed bank lines of credit. The borrowings were used to finance our asset acquisition from ESA Biosciences, Inc.
We believe that our cash flow from operating activities, current cash, cash equivalents and short-term investments and the remainder of our bank lines of credit will be adequate to meet our cash requirements for at least the next twelve months.
Contractual Obligations and Commercial Commitments The following table summarizes our contractual obligations at September 30, 2009, and the payments due in future periods (in thousands):

                                                             Payments Due by Period
                                                       Less
                                                      Than 1           1-3            4-5          After 5
Contractual Obligations               Total            Year           Years          Years          Years
Short-Term Borrowings                $ 15,137        $ 15,137        $     -        $     -        $      -
Long-Term Debt Associated with
Business Purchase                         580               -            580              -               -
Operating Lease Obligations            14,637           5,796          4,754          1,549           2,538

Total                                $ 30,354        $ 20,933        $ 5,334        $ 1,549        $  2,538

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There have been no material changes to our operating lease obligations outside ordinary business activities since June 30, 2009. Our outstanding borrowings under our lines of credit increased to $15.1 million at September 30, 2009 from $0.6 million at June 30, 2009. These amounts are due in a period of less than one year.
The amounts above exclude liabilities recorded under the accounting provision related to income tax uncertainties, as we are unable to reasonably estimate the ultimate amount or timing of settlement. New Accounting Pronouncements
Refer to Note 2 in the Notes to Condensed Consolidated Financial Statements section.
Critical Accounting Policies and Estimates The preparation of consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of net sales and expenses during the reporting period. We evaluate our estimates, including those related to product returns and allowances, bad debts, inventory valuation, goodwill and other intangible assets, income taxes, warranty and installation provisions, and contingencies on an ongoing basis.
We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.
There have been no significant changes during the three months ended September 30, 2009 to the items that we disclosed as our critical accounting policies and estimates in the Management's Discussion and Analysis of Financial Condition and Results of Operations section of our Annual Report on Form 10-K for the fiscal year ended June 30, 2009.