SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended July 26, 1996
Commission File No. 1-5590
Fluke Corporation
(Exact name of registrant as specified in its charter)
Washington
(State of incorporation of organization)
91 - 0606624
(I.R.S. Employer Identification No.)
6920 Seaway Boulevard Everett, Washington 98203
(Address of principal executive offices) (Zip Code)
(206) 347-6100
(Registrant's telephone number, including area code)
(Former name if changed since last report)
(Former fiscal year if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes X No
As of August 23, 1996, there were 8,695,951 shares of $0.25 par value
common stock outstanding.
INDEX
Fluke Corporation
PART I. FINANCIAL INFORMATION
Item 1 Financial Statements
Consolidated Balance Sheets as of July 26, 1996 and
April 26, 1996
Consolidated Statements of Income for the quarters ended
July 26, 1996 and July 28, 1995
Consolidated Statements of Cash Flows for the quarters ended
July 26, 1996 and July 28, 1995
Notes to Consolidated Financial Statements
Item 2 Management's Discussion and Analysis of Financial Condition
and Results of Operations
PART II. OTHER INFORMATION
Item 6 Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 11 - Computation of Earnings Per Share
(b) Reports on Form 8-K
SIGNATURES
PART I. FINANCIAL INFORMATION
Item 1 - Financial Statements
CONSOLIDATED BALANCE SHEETS
Fluke Corporation and Subsidiaries
unaudited (in thousands except shares)
July 26, 1996 April 26, 1996
ASSETS
Current Assets
Cash and cash equivalents $ 36,691 $ 36,631
Accounts receivable, less allowances 65,497 69,070
Inventories 56,456 56,602
Deferred income taxes 16,477 15,062
Prepaid expenses and other current assets 15,716 15,570
Total Current Assets 190,837 192,935
Property, Plant and Equipment
Land 5,801 5,801
Buildings 46,386 46,152
Machinery and equipment 112,947 111,274
Construction in progress 2,827 1,804
Less accumulated depreciation (109,389) (106,783)
Net Property, Plant and Equipment 58,572 58,248
Goodwill and Other Intangibles 17,940 16,528
Other Assets 8,894 7,961
Total Assets $ 276,243 $ 275,672
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 14,930 $ 15,186
Accrued liabilities 30,324 37,776
Income taxes payable 1,926 2,178
Current maturities of long-term obligations 131 180
Total Current Liabilities 47,311 55,320
Long-term Obligations 6,093 7,098
Deferred Income Taxes 10,679 10,585
Other Liabilities 11,846 10,592
Total Liabilities 75,929 83,595
Stockholders' Equity
Common stock 2,148 2,137
Additional paid-in capital 66,519 65,196
Retained earnings 127,091 123,507
Cumulative translation adjustment 4,556 1,237
Total Stockholders' Equity 200,314 192,077
Total Liabilities and Stockholders' Equity $ 276,243 $ 275,672
Total Shares Outstanding 8,695,711 8,652,955
CONSOLIDATED STATEMENTS OF INCOME
Fluke Corporation and Subsidiaries
unaudited (in thousands except shares and per share amounts)
QUARTER ENDED
July 26, 1996 July 28,1995
Revenues $ 101,154 $ 98,714
Cost of Goods Sold 47,194 46,444
Gross Margin 53,960 52,270
Operating Expenses
Marketing and administrative 35,490 35,308
Research and development 10,305 10,468
Total Operating Expenses 45,795 45,776
Operating Income 8,165 6,494
Non-Operating Expenses (Income)
Interest Expense 110 306
Other (438) (589)
Total Non-Operating
Expenses (Income) (328) (283)
Income Before Income Taxes 8,493 6,777
Provision for Income Taxes 2,934 2,321
Net Income $ 5,559 $ 4,456
Earnings Per Share $ 0.62 $ 0.50
Net Income as a Percentage of Revenues 5.50% 4.51%
Average Shares and Share
Equivalents Outstanding 8,943,582 8,862,109
CONSOLIDATED STATEMENTS OF CASH FLOWS
Fluke Corporation and Subsidiaries
unaudited (in thousands)
QUARTER ENDED
July 26, 1996 July 28, 1995
Operating Activities
Net Income $ 5,559 $ 4,456
Items not affecting cash:
Depreciation and amortization 3,524 4,227
Deferred income tax (1,202) 1,378
Accrued pension (271) 112
Other items not affecting cash 13 35
Net change in:
Accounts receivable 4,451 7,425
Inventories 908 (3,845)
Prepaid expenses 456 (4,672)
Accounts payable (480) (1,005)
Accrued liabilities (8,033) (8,119)
Income taxes payable 790 (1,488)
Other assets and liabilities (164) (319)
Net Cash Provided (Used) By Operating Activities 5,551 (1,815)
Investing Activities
Additions to property, plant and equipment (2,767) (2,512)
Proceeds from disposal of property, plant
and equipment 10 53
Net Cash Used By Investing Activities (2,757) (2,459)
Financing Activities
Proceeds from stock options 171 1,676
Payments on long-term obligations (1,246) (4,136)
Cash dividends paid (1,795) (1,106)
Net Cash Used By Financing Activities (2,870) (3,566)
Effect of Foreign Currency Exchange Rates on
Cash and Cash Equivalents 136 (83)
Net Increase (Decrease) In Cash and Cash
Equivalents 60 (7,923)
Cash and Cash Equivalents at Beginning of Period 36,631 29,628
Cash and Cash Equivalents at End of Period $36,691 $21,705
Supplemental Cash Flow Information
Income Taxes Paid $ 1,253 $ 2,345
Interest Paid $ 111 $ 328
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Fluke Corporation and Subsidiaries
1. The accompanying unaudited Consolidated Financial Statements do not
purport to be full presentations and do not include all information and
disclosures required for fair presentation by generally accepted
accounting principles, but rather include only that information required
by the instructions to Form 10-Q. However, in the opinion of
management, the accompanying unaudited Consolidated Financial Statements
contain all adjustments (consisting of normal recurring accruals)
considered necessary to present fairly the Consolidated Balance Sheets
of the Company at July 26, 1996 and April 26, 1996 and the Consolidated
Statements of Income and the Statements of Cash Flows for the quarters
ended July 26, 1996 and July 28, 1995.
2. The results of operations for the quarter ended July 26, 1996 are
not necessarily indicative of the results to be expected for the full
year.
3. On June 18, 1996, the Company's Board of Directors declared a $ 0.16 per
share quarterly cash dividend for stockholders of record on July 26, 1996
which was paid on August 16, 1996. In the first quarter of fiscal 1996 the
Company declared a cash dividend of $0.15 per share before restatement for
the merger with Forte Networks Inc. After restatement for dividends paid by
Forte, dividends of $0.19 per share were decalred.
4. The components of inventories are as follows:
(in thousands)
July 26, 1996 April 26, 1996
Finished Goods $18,131 $18,147
Work-in-Process 9,776 9,464
Purchased Parts and Materials 28,549 28,991
Total Inventories $56,456 $56,602
5. On June 26, 1996 Forte Networks Inc. (Forte) was acquired and merged into
the Company. The transaction was accounted for as a pooling of interests and,
accordingly, the financial statements as presented have been restated to
reflect the combined companies. The impact to the previously reported
financial statements for the quarter ended July 28, 1995 was not material.
Item 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Fluke Corporation and Subsidiaries
RESULTS OF OPERATIONS
At the end of June 1996, the Company completed a merger with Forte
Networks, Inc. (Forte). The merger, accounted for as a pooling of
interests, culminates a four year relationship with Forte. Forte
designed and manufactured some of the local area network products that have
been the Company's fastest growing group of products over the last few years.
The relationship with Forte has allowed the Company to enter the
networking market much faster than if it had developed the products
internally. The merger was completed on June 26, 1996 with the issuance
of 577,190 shares of the Company's stock for all the outstanding shares
of Forte. The Company has previously been the sole distributor of the
Forte products and therefore, the merger will not add to the revenues of
the Company. The merger will add research and development capabilities
and result in an increase in gross margin. Gross margin previously
generated on sales by Forte will be realized by the combined company.
The merger is expected to positively contribute to the earnings of the
Company in the first year. All previous periods have been restated to
reflect the merger.
Revenues of $101.2 million for the quarter ended July 26, 1996 were 2
percent higher than the revenues of $98.7 million for the quarter ended
July 28, 1995. Revenues in the United States increased 5 percent in the
quarter ended July 26, 1996 over the quarter ended July 28, 1995.
Revenues in Europe declined 2 percent, while revenues in the
intercontinental region, which is countries outside of Europe and the
United States, increased 4 percent over the same quarter a year ago.
The increase of revenues in the United States was encouraging after
several quarters of declining revenues. Products sold through the
Company's distribution channels showed good growth. The Company has been
selling products that require a direct sales force in the United States
through independent manufacturers representatives since May 1995. During
the first year sales through this channel declined slightly, however in
the quarter ended July 26, 1996 there was moderate growth through these
representatives.
The intercontinental region continued to grow compared to the same
period a year ago, however the growth rate of 4 percent was lower than
in recent quarters. While countries such as the People's Republic of
China and Taiwan experienced significant growth in revenues, some of the
larger countries in the intercontinental region, particularly Canada and
Japan, had lower revenues than a year ago. The weaker Japanese yen
affected Japanese revenues while business in Canada was weak across most
product lines. The Company continues to expect the intercontinental
region to provide the largest revenue growth in the future. As
announced in the fiscal 1996 Annual Report, the Company has formed a
joint venture in South Korea to provide greater focus to one of the
regions fastest growing countries. The joint venture was in operation
on May 1, 1996 and through the transition from the two existing
representative companies to the joint venture operation, South Korea had
growth in revenues of over 8 percent. The Company also opened two
representative offices to provide additional sales support in two other
important markets. A new office was opened in Chengdu, the largest city
in the Sichuan province of the People's Republic of China. It is the
third representative office to be opened in the People's Republic of
China. The other offices are in Beijing, which opened in 1981 and
Shanghai, which opened in 1990. These cities are three of the four
largest industrial areas in the People's Republic of China. The other
significant industrial area is Guangdong province in southeastern China
where the sales are handled by Schmidt & Co. (H.K.) Ltd., the Company's
representative in Hong Kong. The other representative office opened in
the first quarter of fiscal 1997 was in Kuala Lumpur, Malaysia. This
office will provide sales support to the network of distributors within
Malaysia.
Cost of goods sold as a percentage of revenues improved slightly to 46.7
percent from 47.0 percent a year ago as the impact of the merger with
Forte is reflected in both periods. Operating expenses were $45.8
million in the first quarter of both 1997 and 1996. Research and
development and marketing and administrative expenses were all in line
with the level of a year ago.
Operating income increased 26 percent in the quarter ended July 26, 1996
over the quarter ended July 28, 1995. The ability to hold operating
expenses in line while modestly improving gross margin provides the
increase in operating margin.
The effective tax rate was 34.5 percent in the quarter ended July 26,
1996 compared to 34.2 percent in the quarter ended July 28, 1995. The
rate is below the US statutory rate due to the merger with Forte. Forte
was a sub-chapter S corporation and therefore paid no tax since the tax
liability was borne by the shareholders. When reporting the financial
results of the merged company no tax expense is recognized on the income
generated by Forte which results in a lower effective tax rate for the
combined company. In future periods the income previously attributed to
Forte will be taxed at the effective rate for the combined company which
is expected to be approximately 36.0 percent.
LIQUIDITY AND CAPITAL RESOURCES
The cash position of the Company has continued to remain strong even
though the first quarter is traditionally the quarter with the highest
use of cash. The borrowing under the Company's long term line of credit
was approximately $6 million. The borrowings are being utilized for
working capital requirements in the European operations. It is expected
that these borrowings will be repaid with cash generated from
operations.
The Company made capital expenditures of $2.8 million in the quarter
ended July 26, 1996 compared to $2.5 million in the quarter July 28,
1995. The Company expects capital expenditures of approximately $10 to
$12 million in 1997 which will not require any additional borrowings.
The Company declared a $0.16 per share cash dividend on May 17, 1996
payable to stockholders of record on July 26, 1996.
The current ratio was 4.03 at July 26, 1996 compared to 3.49 at April
26, 1996. The improvement in the quarter ended July 26, 1996 was a
result of paying down current liabilities, primarily year end bonuses,
while continuing to generate substantial cash.
The Company has a program to hedge some of its foreign exchange exposure
using forward exchange contracts. The contracts can not be speculative
and are limited to actual currency risk. The Company does not currently
use any other form of derivatives in managing its financial risk.
PART II. OTHER INFORMATION
Item 6 Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 11 - Computation of Earnings Per Share
(b) Reports on Form 8-K
Report on Form 8 K, dated May 29, 1996 that was filed on May 29,
1996 reported the press release regarding the intention
to merge Forte Networks Inc. with Fluke Corporation.
Report on Form 8-K, dated June 4, 1996 that was filed on
June 4, 1996 reported the press release regarding the fourth
quarter and fiscal 1996 operating results.
SIGNATURES
Fluke Corporation and Subsidiaries
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.
FLUKE CORPORATION
Registrant
September 6, 1996 /s/John R. Smith
Date John R. Smith
Vice President, Treasurer
Chief Accounting Officer