EXHIBIT 13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
All years referenced below are for the Company's fiscal years, which end
on the last Friday of April.
1997 highlights
In 1997, several actions were taken to position the Company for future
growth. The Company completed two acquisitions of companies in the
local area network (LAN) and wide area network businesses. In June
1996, the Company acquired Forte Networks, Inc. (Forte), a privately-
held Colorado Springs, Colorado based corporation. The Company
previously had an alliance with Forte from 1992 up to the time of the
acquisition in which Forte provided, exclusively to Fluke, equipment for
testing LANs. Several of these have been recognized by leading trade
magazines for innovation and excellence including the 68X series of
LANMeters.
In February 1997, the Company completed the acquisition of DeskNet
Systems, Inc. (DeskNet), a privately-held Armonk, New York based
corporation. DeskNet is a leading developer of handheld, Asynchronous
Transfer Mode (ATM) network analysis tools for the installation,
maintenance and deployment of ATM networks. Both acquisitions were
recorded under the pooling-of-interests method of accounting. Previous
year financial statements have been restated to reflect the acquisition
of Forte but were not restated for the acquisition of DeskNet because
the impact on the Financial Statements was immaterial.
The Company also signed an alliance agreement with Hewlett-Packard
Company (HP) in April 1997. Under the terms of this agreement the
Company will utilize a limited number of its distributors to sell
certain HP products in the U.S. HP will sell selected Fluke products in
the U.S. through its HP Direct program. The alliance is expected to
provide incremental revenue growth for both companies. The alliance
will be expanded to certain international markets over the next few
years.
The Company reviewed the structure of its European operations. As a
result of that review it was decided to restructure the European
operations to better support the Company's mission-centric products.
Mission-centric products are those products that fit the mission of the
Company as defined several years ago. The Company will align the
European sales organization to better support the indirect sales
channels and centralize the finance and product repair functions. The
centralization will streamline the operations in the country sales
offices allowing them to concentrate on the sales activities. It should
also lower the operating costs of the European operations. The Company
recorded a fourth quarter restructuring charge of $12 million, primarily
for severance and severance-related costs and some facility closure
costs related to the restructuring.
financial results 1997 vs 1996
1997 ended with revenues of $430 million, 4 percent higher than revenues
of $414 million in 1996. This growth rate masks the success of the
mission-centric products that grew 15 percent in 1997 and comprise 77
percent of revenues. Revenues from nonmission-centric products declined
25 percent in 1997. Products introduced in the last three years
represented 41 percent of 1997 revenues compared to 22 percent in 1994
for products introduced in 1994, 1993 and 1992. New mission-centric
products have significantly contributed to this success, as the Company
introduced 10-13 products in each of the last three years. Some of the
products introduced in 1997 were the ScopeMeter 123, OneTouch Network
Assistant, 5720 Multifunction Calibrator and the 74X Process
Calibrators.
The Company was particularly successful in the sales of its network
products that are used to install and maintain LANs. Revenues for these
products increased 45 percent in 1997 compared to 1996. The acquisition
of Forte and DeskNet in 1997, as described above, are intended to
strengthen the Company's position in the computer network testing
market. The Company also had good growth in its process calibration
products and its general purpose multimeter products.
Revenues from customers in the United States increased 17 percent after
relatively little revenue growth over the previous two years. Nearly
all products experienced revenue increases in 1997. Sales through the
Company's network of distributors were up 20 percent over 1996 levels,
led by products sold through the electrical distribution channel. The
Company created this growth by introducing a number of new products
specifically for the electrical industry and by focusing marketing
efforts at this market. The Company's direct sales, handled by
manufacturer's representatives in the United States, increased 11
percent in 1997 over 1996. Much of the growth came from sales of LAN
products, which more than offset the continuing decline in the
nonmission-centric products.
International revenues declined 4 percent in 1997 from 1996. Europe
declined 8 percent while other international markets increased 4 percent
in aggregate. Most countries in Europe experienced lower revenues in
1997 compared to 1996 with the United Kingdom, Italy and Spain being the
exceptions. About half the revenue decline in Europe was a result of
weakened local currencies relative to the U.S. dollar. Struggling
economies in several countries, most significantly Germany and France,
were responsible for the balance of the decline. In spite of this
decline in revenues, network products grew 21 percent. As discussed
above, the Company is restructuring its European operations to focus on
markets for mission-centric products and to better take advantage of
growth opportunities in Europe.
The 4 percent growth in international markets outside of Europe
consisted of some markets that experience strong revenue growth along
with some markets that struggled. Latin American countries had revenue
growth of 38 percent, led by Mexico, where revenues increased 78 percent
over 1996 and Brazil, where revenues were up 32 percent. In the Pacific
Rim, Hong Kong was up 38 percent and Taiwan 37 percent. After
significant growth in previous years, South Korea revenues were down 14
percent due to a slowdown in economic conditions. Revenues in Japan
increased by 8 percent in local currency, but a 15 percent weakening of
the yen relative to the U.S. dollar, resulted in a 7 percent decrease in
U.S. dollar revenues.
Operating expenses, excluding restructuring, increased 3 percent in 1997
over 1996. Marketing and administrative expenses increased 3 percent
while research and development expenses increased 1 percent. Included
in marketing and administrative expenses were costs related to numerous
efforts, including successful litigation, to protect the Company's brand
image. The direct result of these efforts is that several competitors
have stopped copying the distinctive appearance of Fluke products.
Operating income, excluding restructuring, increased 17 percent in 1997
over 1996. This increase was generated through continuing the
improvement in gross margin while maintaining control over the growth in
operating expenses.
The effective annual tax rate increased from 34.1 percent in 1996 to
38.0 percent in 1997. Losses in selected European countries and the
effect of restructuring pushed the Company's 1997 tax rate above the 35
percent U.S. statutory rate. The tax rate in 1996 has been restated
below the U.S. statutory rate because Forte, as a Subchapter S
corporation, had no federal tax expense. Forte stockholders were paid
dividends in prior years to cover their personal share of Forte's
corporate federal income taxes.
The 1997 earnings per share of $2.16 included a pretax restructuring
charge of $12 million, or $0.94 per share. Earnings per share, before
the restructuring charge, was $3.10, up 16 percent from the previous
year.
financial results 1996 vs 1995
The financial results in 1996 showed improvement over 1995. Revenues of
$414 million were up 8 percent over revenues of $382 million in 1995.
International revenues were up 16 percent in 1996, while revenues in the
United States were down 2 percent.
The increase in international revenues in 1996 was led by countries
outside Europe such as The People's Republic of China, South Korea,
Singapore, Brazil, India, Taiwan and Thailand. The significant revenue
growth in these countries led to a 26 percent growth in revenues in
countries outside Europe and the United States. Revenues in Europe
increased 12 percent in 1996 over 1995. Currency positively impacted
revenue growth by 8 percent in Europe.
Gross margin as a percentage of revenues improved from 52 percent in
1995 to 54 percent in 1996. This improvement can be partially explained
because the Company's new products are generating higher margins than
many of the older products and because of the growth of international
revenues which generate higher margins than revenues in the United
States. Gross margin increased 11 percent on the 8 percent increase in
revenues.
Operating expenses increased 7 percent in 1996 over 1995. Marketing and
administrative expenses increased 8 percent and research and development
expenses increased 4 percent in 1996 over 1995. At the beginning of
1996, the Company reorganized its marketing function to bring most of
the marketing personnel into one organization instead of disbursed in
the different product divisions. The new marketing group is organized
by the market segments to which the Company sells instead of along
product lines. This should provide a better coordination of marketing
programs. As a result, in 1996 there was a more direct focus on selling
to specific customer groups. This included producing several market
specific catalogs instead of one general catalog, increased advertising
to specific market segments and increased sales support for the indirect
sales channels. This contributed to the increase in marketing and
administrative expenses in 1996 over 1995.
Operating income increased 38 percent in 1996 over 1995. This increase
was generated primarily through the improvement in gross margin due to
the introduction of successful higher margin products.
The effective annual tax rate decreased from 35.2 percent in 1995 to
34.1 percent in 1996. The decrease in the rate is primarily a result of
improved profitability in selected European countries in 1996 over 1995.
Net income increased 41 percent and earnings per share increased 36
percent in 1996 over 1995. This increase resulted from the 11 percent
increase in gross margin while expenses only increased 7 percent.
liquidity and capital resources
The cash position of the Company continues to remain strong as cash
generated from operating activities provided $30 million of cash flow in
1997 compared to $34 million in 1996. The Company ended the year with
$41 million in cash and cash equivalents and almost zero debt. The
Company maintains committed and uncommitted lines of credit totaling
$137 million. The two acquisitions completed during the year, as
discussed above, were tax-free reorganizations which did not require the
use of cash or debt. The Company expects that cash generated from
operations will be sufficient to fund working capital and capital
expenditure requirements in the foreseeable future. In addition, the
Company is well positioned to take advantage of future acquisitions or
aggressive growth goals with its current cash position and available
credit facilities.
The Company had capital expenditures of $17 million in 1997, $13 million
in 1996 and $14 million in 1995. Capital expenditures consist primarily
of manufacturing and research and development equipment. The increase
in 1997 resulted from increased investment in manufacturing equipment.
The Company has approved a project to replace its existing information
systems over the next several years. The new systems will significantly
update the capabilities of the business and manufacturing systems and
also eliminate most issues related to the upcoming year 2000.
The current ratio was 3.1 to 1 at April 25, 1997, and 3.5 to 1 at April
26, 1996. The decrease in the current ratio was caused primarily by the
liability related to restructuring. Excluding restructuring, the ratio
increased to 3.8 to 1, primarily from higher cash and accounts
receivable balances.
The Company has a program to hedge some of its foreign exchange exposure
using forward exchange contracts. The contracts are not speculative and
are limited to actual transaction exposure. The Company does not
currently use any other form of derivatives in managing its financial
risk.
consolidated balance sheets
In thousands except shares and per share amounts
April 25, 1997 April 26, 1996
assets
Current Assets
Cash and cash equivalents $ 40,916 $ 36,631
Accounts receivable
(less allowances: 1997-$891; 1996-$1,104) 80,689 69,070
Inventories 54,522 56,602
Deferred income taxes 16,968 15,062
Prepaid expenses 16,185 15,570
Total Current Assets 209,280 192,935
Property, Plant and Equipment
Land 5,236 5,801
Buildings 47,414 46,152
Machinery and equipment 115,022 111,274
Construction in progress 5,634 1,804
173,306 165,031
Less accumulated depreciation (113,660) (106,783)
Net Property, Plant and Equipment 59,646 58,248
Goodwill and Intangible Assets 11,876 16,201
Other Assets 11,558 8,288
Total Assets $ 292,360 $ 275,672
In thousands except shares and per share amounts
April 25, 1997 April 26, 1996
liabilities and stockholders' equity
Current Liabilities
Accounts payable $ 16,504 $ 15,186
Accrued liabilities 35,350 37,776
Accrued liabilities related to restructuring 11,894 -
Income taxes payable 1,584 2,178
Current maturities of long-term obligations
and short-term debt 1,145 180
Total Current Liabilities 66,477 55,320
Long-Term Obligations 563 7,098
Deferred Income Taxes 10,178 10,585
Other Liabilities 12,203 10,592
Total Liabilities 89,421 83,595
stockholders' equity
Preferred stock, $0.25 par value
(authorized 2,000,000 shares) - -
Common stock, $0.25 par value
(authorized 20,000,000 shares,
issued shares, 9,046,480 in 1997
and 8,652,955 in 1996) 2,262 2,163
Additional paid-in capital 69,490 65,170
Retained earnings 135,998 123,507
Cumulative translation adjustment (4,811) 1,237
Total Stockholders' Equity 202,939 192,077
Total Liabilities and Stockholders' Equity $ 292,360 $ 275,672
The accompanying notes are an integral part of the financial statements.
consolidated statements of income
In thousands except shares and per share amounts
for the years ended
April 25, 1997 April 26, 1996 April 28, 1995
Revenues $ 430,166 $ 413,525 $ 382,066
Cost of Goods Sold 196,791 191,360 181,805
Gross Margin 233,375 222,165 200,261
Operating Expenses
Marketing and administrative 149,772 145,121 134,937
Research and development 41,245 40,953 39,247
Restructuring 12,136 _ _
Total Operating Expenses 203,153 186,074 174,184
Operating Income 30,222 36,091 26,077
Nonoperating Expenses (Income)
Interest expense 279 1,421 1,477
Other (1,679) (1,302) (1,320)
Total Nonoperating
Expenses (Income) (1,400) 119 157
Income Before Income Taxes 31,622 35,972 25,920
Provision for Income Taxes 12,016 12,269 9,133
Net Income $ 19,606 $ 23,703 $ 16,787
Earnings Per Share $ 2.16 $ 2.67 $ 1.96
Average Shares and Share Equivalents
Outstanding 9,077,758 8,862,341 8,568,462
The accompanying notes are an integral part of the financial statements.
consolidated statements of cash flows
In thousands for the years ended
April 25, 1997 April 26, 1996 April 28, 1995
operating activities
Net income $ 19,606 $ 23,703 $ 16,787
Items not affecting cash:
Depreciation and amortization 14,863 15,408 16,006
Deferred income tax (2,729) 777 (982)
Provision for restructuring 12,136 _ _
Other items not affecting cash 281 241 (63)
Net change in:
Accounts receivable (14,336) 5,992 (1,016)
Inventories (352) (6,239) 3,936
Prepaid expenses (945) (6,730) 4,658
Accounts payable 2,212 (579) (4,676)
Accrued liabilities (68) (234) (478)
Accrued liabilities related to
restructuring (242) _ (497)
Income taxes payable 1,163 1,137 4,505
Other assets and liabilities (1,349) 488 (1,921)
Net Cash Provided By
Operating Activities 30,240 33,964 36,259
investing activities
Additions to property,
plant and equipment (16,539) (12,532) (14,340)
Proceeds from disposal of property,
plant and equipment 1,431 2,446 1,774
Net Cash Used By
Investing Activities (15,108) (10,086) (12,566)
financing activities
Proceeds from long-term obligations 705 _ 24,113
Proceeds from short-term obligations 785 _ _
Payments on long-term obligations (6,885) (13,351) (20,067)
Repurchase of common stock (67) (171) (4,704)
Cash dividends paid (5,974) (6,460) (4,994)
Proceeds from stock options 1,274 3,664 2,925
Net Cash Used By
Financing Activities (10,162) (16,318) (2,727)
Effect of Foreign Currency
Exchange Rates on Cash
and Cash Equivalents (685) (557) 1,218
Net Increase In
Cash and Cash Equivalents 4,285 7,003 22,184
Cash and Cash Equivalents at
Beginning of Year 36,631 29,628 7,444
Cash and Cash Equivalents at
End of Year $ 40,916 $ 36,631 $ 29,628
Supplemental Cash Flow Information:
Income taxes paid $ 13,080 $ 12,309 $ 5,809
Interest paid $ 283 $ 1,420 $ 1,435
The accompanying notes are an integral part of the financial statements.
consolidated statements of stockholders' equity
In thousands except shares
Number of Par Value of Additional
Common Shares Common Paid-In
Outstanding Stock Capital
Balance, April 29, 1994 8,475,741 $ 2,346 $ 81,056
Net income
Net forfeiture of shares under
stock award plans (934) 3
Vesting of 9,524 shares
under stock award plans
Repurchase of common shares (153,982)
Cash dividends declared
Income tax benefit from stock plans 35
Exercise of stock options 154,900 27 1,712
Net translation adjustment
Cancellation of repurchased shares (254) (22,825)
Balance, April 28, 1995 8,475,725 $ 2,119 $ 59,981
Net income
Net grant of shares under
stock award plans 1,915 75
Vesting of 4,786 shares under
stock award plans
Repurchase of common shares (4,344)
Cash dividends declared
Income tax benefit from stock plans 1,787
Exercise of stock options 179,659 45 3,619
Net translation adjustment
Cancellation of repurchased shares (1) (170)
Balance, April 26, 1996 8,652,955 $ 2,163 $ 65,292
DeskNet acquisition 305,424 77 858
Net income
Net grant of shares under
stock award plans 38,104 9 1,495
Vesting of 3,985 shares under
stock award plans
Repurchase of common shares (1,603)
Cash dividends declared
Adjustments related to
Forte acquisition 1,050
Income tax benefit from stock plans 679
Exercise of stock options 51,600 13 1,261
Compensation charges
related to stock options 460
Net translation adjustment
Cancellation of repurchased shares (67)
Balance, April 25, 1997 9,046,480 $ 2,262 $ 71,028
consolidated statements of stockholders' equity
In thousands except shares
Repurchased Cumulative Total
Retained and Nonvested Translation Stockholder's
Earnings Shares Adjustment Equity
Balance, April 29, 1994 $ 94,653 $ (19,904) $ (2,103) $ 156,048
Net income 16,787 16,787
Net forfeiture of shares
under stock award plans (3) -
Vesting of 9,524 shares
under stock award plans 201 201
Repurchase of common shares (4,704) (4,704)
Cash dividends declared (5,072) (5,072)
Income tax benefit from
stock plans 35
Exercise of stock options 1,186 2,925
Net translation adjustment 8,458 8,458
Cancellation of
repurchased shares 23,079 -
Balance, April 28, 1995 $ 106,368 $ (145) $ 6,355 $ 174,678
Net income 23,703 23,703
Net grant of shares
under stock award plans (75) -
Vesting of 4,786 shares
under stock award plans 98 98
Repurchase of common shares (171) (171)
Cash dividends declared (6,564) (6,564)
Income tax benefit from
stock plans 1,787
Exercise of stock options 3,664
Net translation adjustment (5,118) (5,118)
Cancellation of
repurchased shares 171 -
Balance, April 26, 1996 $ 123,507 $ (122) $ 1,237 $ 192,077
DeskNet acquisition (904) 31
Net income 19,606 19,606
Net grant of shares
under stock award plans (1,504) -
Vesting of 3,985 shares
under stock award plans 88 88
Repurchase of common shares (67) (67)
Cash dividends declared (6,211) (6,211)
Adjustments related to
Forte acquisition 1,050
Income tax benefit from
stock plans 679
Exercise of stock options 1,274
Compensation charges
related to stock options 460
Net translation adjustment (6,048) (6,048)
Cancellation of
repurchased shares 67 -
Balance, April 25, 1997 $ 135,998 $(1,538) $ (4,811) $ 202,939
The accompanying notes are an integral part of the financial statements.
1. Summary of Significant Accounting Policies
accounting period
Fluke Corporation utilizes a 52/53-week fiscal year ending on the last
Friday in April.
principles of consolidation
The consolidated financial statements include the accounts of the
Company and its subsidiaries. All significant intercompany accounts and
transactions have been eliminated.
nature of operations
The Company is in a single line of business, the manufacture and sale of
electronic test tools. This single line of business is primarily made
up of two product categories: handheld service tools and bench test
instruments, with handheld service tools representing approximately 64
percent of revenues. The Company currently markets its products in more
than 100 countries through both indirect and direct sales channels, with
indirect generally used for handheld service tools and direct generally
used for bench test instruments.
revenue recognition
Revenue is recognized at the time product is shipped or service is
rendered to an unaffiliated customer. Revenue from service contracts is
recognized ratably over the lives of the contracts.
translation of foreign currencies
The local currency is deemed to be the functional currency in most of
the Company's foreign operations. In these operations, translation
gains and losses resulting from converting the local currency financial
statements to dollar financial statements are recorded in the
Cumulative Translation Adjustment account in the equity section of the
balance sheet. In the remaining foreign operations, the U.S. dollar is
deemed to be the functional currency. In these operations, translation
gains or losses are included in the statements of income.
cash and cash equivalents
Cash and cash equivalents include cash on hand and highly liquid, short-
term investments which are considered available-for-sale. In general,
these instruments, primarily consisting of state and municipal bonds,
are issued with long-term maturities but have interest rate reset dates
ranging from once per week to once every three months. On the interest
rate reset date the Company can sell the investment at par or continue
to hold the investment at the prevailing market interest rate for
another period. At April 25, 1997 and April 26, 1996, short-term
investments totaled $37 million and $27 million, respectively. The
carrying amounts of these investments approximate their fair value due
to the frequency of the interest rate reset dates and the readily
available market for these types of investments. As such, no unrealized
gains or losses were recorded.
concentration of credit risk
Financial instruments which potentially subject the Company to
concentrations of credit risk consist primarily of investments and trade
accounts receivable. The Company's cash and cash equivalents consist of
high quality financial instruments. The Company sells its products to a
large and diversified customer base in many different industries and
geographic areas. The Company has adopted credit policies consistent
with the industries and countries in which it sells. The Company
performs continuing credit evaluations of its customers' financial
condition and although the Company does not generally require
collateral, letters of credit may be required from some customers. Bad
debt losses to date have been insignificant.
financial instruments
The Company is subject to transaction exposures that arise from foreign
exchange movements between the date foreign exchange transactions are
recorded and the date they are consummated. The Company's exposure to
foreign currency movements is somewhat mitigated through naturally
offsetting currency positions. Remaining exposure is partially reduced
through the purchase of foreign exchange contracts. At April 25, 1997,
the Company had foreign exchange contracts for various foreign
currencies totaling $3.4 million.
advertising costs
The Company expenses advertising and promotion costs in the year
incurred. These expenses were $22 million in 1997, $20 million in 1996,
and $17 million in 1995.
inventories
Inventories are valued at the lower of cost or market with cost being
the currently adjusted standard cost, which approximates cost on a
first-in, first-out basis.
property, plant and equipment
Property, plant and equipment, including improvements and major
renewals, are stated at cost. Maintenance and repairs are expensed as
incurred. Depreciation is calculated over the estimated useful lives of
the related assets on the straight-line basis for financial statement
purposes, while an accelerated method is generally used for income tax
purposes.
income taxes
The provision for income taxes is computed on pretax income reported in
the financial statements. The provision differs from income taxes
currently payable because certain items of income and expense are
recognized in different periods for financial statement and tax return
purposes. Deferred income taxes have been recorded using the liability
method in recognition of these temporary differences. The Company has
provided for U.S. and foreign taxes on all of the undistributed earnings
of its foreign subsidiaries that are expected to be repatriated.
earnings per share
Earnings per share is based on the weighted average number of common
shares and share equivalents outstanding during the fiscal year. Stock
options are considered common stock equivalents and their dilutive
effect is included in the earnings per share calculation. In February
1997, Statement of Financial Accounting Standards (SFAS) No. 128,
"Earnings Per Share" was issued by the Financial Accounting Standards
Board. The Company is required to adopt the provisions of SFAS No. 128
in the third quarter of the fiscal year ended April 24, 1998. The
Company does not expect it to have a significant impact on earnings per
share.
goodwill and intangibles
Excess cost over the fair value of net assets acquired (goodwill) is
generally amortized on the straight-line basis over twenty years.
Intangible assets are generally amortized over five years.
impairment of long-lived assets
Long-lived assets consist of intangible assets, goodwill and certain
capital assets. The carrying value of these assets is regularly
reviewed to verify they are valued properly. If the facts and
circumstances suggest that the value has been impaired, the carrying
value of the assets will be reduced appropriately.
stock-based compensation
The Company has elected to apply the disclosure only provisions of SFAS
No. 123, "Accounting for Stock-Based Compensation." Accordingly, the
Company accounts for stock-based compensation using the intrinsic value
method prescribed in Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees." Compensation expense for
stock options is measured as the excess, if any, of the fair value of
the Company's common stock at the measurement date over the stock option
price. See note 10 for disclosure.
use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements
and accompanying notes. Actual results could differ from those
estimates.
reclassification
Certain prior year numbers have been reclassified to conform with
current year presentation.
2. Acquisitions
On June 26, 1996, Forte Networks, Inc. (Forte) was acquired and merged
into the Company. The Company issued 577,190 shares of Fluke
Corporation common stock in exchange for all outstanding Forte shares.
The transaction was a tax-free reorganization and was accounted for as a
pooling-of-interests. Accordingly, the financial statements as presented
have been restated to reflect the combined companies. Revenues have not
changed because Fluke was Forte's only customer. The Company's net
income reported in 1996 and 1995 have been restated, resulting in an
increase of $2.4 million and $1.9 million, respectively, to reflect
Forte's profits net of eliminations for transactions between the
companies. Forte was primarily engaged in the design of instruments
used to test computer networks.
On February 6, 1997, the Company completed the acquisition of DeskNet
Systems, Inc. (DeskNet). Fluke issued 305,424 shares of Fluke
Corporation common stock in exchange for all outstanding DeskNet shares.
The transaction was a tax-free reorganization and was accounted for as a
pooling-of-interests. This combination did not have a material effect on
the financial statements of prior periods, which therefore, have not
been restated. DeskNet was primarily engaged in the design and
manufacture of wide area Asynchronous Transfer Mode (ATM) network
analysis tools.
3. Related Party
On May 26, 1993, effective May 1, 1993, the Company acquired the test
and measurement business of Philips Electronics N.V. of The Netherlands
(Philips). The purchase price was approximately $41.8 million in cash
and stock.
As part of this acquisition, the Company has service agreements and
facility leases with Philips related to the Company's European
operations. The Company paid Philips $4 million in 1997, $9 million in
1996 and $11 million in 1995 for such services and facility leases. In
addition, the Company purchased $9 million in 1997, $19 million in 1996
and $20 million in 1995 of component parts and finished goods from
Philips.
4. Provisions for Business Restructuring
During the fourth quarter of 1997, the Company recorded a pretax charge
of $12 million, $0.94 per share, related to the restructuring of some of
the Company's European operations. The Company will close its product
development operation in Hamburg, Germany, and transfer all business
responsibilities from Hamburg to Almelo, The Netherlands. The Company
will continue to sell and support the current products, which include TV
pattern generators. The Company intends to centralize European finance
functions as well as European product repair operations. In addition,
changes are being made in the sales organizations in Europe. The
restructuring charge consists primarily of severance related costs of
$11 million, affecting approximately 120 employees. The restructuring
activities are expected to be completed in 1998. Additional charges not
included in this accrual may be recorded as incurred during fiscal 1998.
5. Inventories
In thousands
April 25, 1997 April 26, 1996
Finished goods $ 17,789 $ 18,147
Work-in-process 11,160 9,464
Purchased parts and materials 25,573 28,991
Total Inventories $ 54,522 $ 56,602
6.Accrued Liabilities
In thousands
April 25, 1997 April 26, 1996
Compensation payable $ 12,133 $ 11,098
Accrued expenses 9,799 13,452
Unearned service revenue 1,585 2,355
Other taxes payable 5,255 5,436
Profit-sharing bonus payable 2,354 1,853
Dividends payable 1,448 1,211
Other items 2,776 2,371
Total Accrued Liabilities $ 35,350 $ 37,776
7. Goodwill and Intangible Assets
Goodwill represents the excess of the purchase price over the
fair market value of the net assets acquired. Goodwill is being
amortized on the straight-line basis over twenty years. The
Company also owns intangible assets, which are being amortized
over five years. Amortization expense is recorded in marketing
and administrative expense. Cumulative amortization was $10
million at April 25, 1997 and $8 million at April 26, 1996.
A reconciliation of goodwill and intangible assets, net of
accumulated amortization, is provided below:
in thousands
April 25, 1997 April 26, 1996
Balance at beginning of year $ 16,201 $ 22,543
Amortization expense (2,338) (2,652)
Adjustment related to changes to
deferred tax asset valuation allowance<F1> (866) (2,626)
Translation adjustment (1,121) (1,064)
Balance at end of year $ 11,876 $ 16,201
<FN>
<F1> This adjustment is explained in Note 8, Income Taxes.
</FN>
8. Income Taxes
For financial reporting purposes, income before income taxes is
as follows:
In thousands for the years ended
April 25, 1997 April 26, 1996 April 28, 1995
U.S. $ 27,452 $ 22,428 $ 14,903
Foreign 4,170 13,544 11,017
Income before income taxes $ 31,622 $ 35,972 $ 25,920
The provision for income taxes is as follows:
In thousands for the years ended
April 25, 1997 April 26, 1996 April 28, 1995
Current taxes on income:
U.S. $ 11,648 $ 5,883 $ 5,239
Foreign 2,681 5,113 5,687
14,329 10,996 10,926
Deferred income taxes (2,313) 1,273 (1,793)
Provision for income taxes $ 12,016 $ 12,269 $ 9,133
Significant components of the Company's deferred tax assets and
liabilities are as follows:
In thousands
April 25, 1997 April 26, 1996
Deferred Tax Assets:
Accrued employee benefit expenses $ 3,760 $ 3,200
Accrued restructuring costs 1,609 -
Inventory adjustments 5,659 5,265
Net operating loss carryforwards 19,831 22,591
Product warranty accruals 687 681
Other items, net 618 658
Total Deferred Tax Assets 32,164 32,395
Valuation reserve (15,196) (17,333)
Net Deferred Tax Assets $ 16,968 $ 15,062
Deferred Tax Liabilities:
Fixed asset basis differences $ 5,303 $ 5,349
Pension 3,746 3,562
Intangible assets 495 1,108
Other items, net 634 566
Total Deferred Tax Liabilities $ 10,178 $ 10,585
The deferred tax asset valuation reserve is primarily related
to deferred tax assets of foreign operations, including net
operating loss (NOL) carryforwards acquired in connection with
the 1993 acquisition of the Philips test and measurement
business. The acquired NOLs have an unlimited carryover
period. A substantial portion of these NOLs were provided for
with a valuation allowance at the time of the acquisition. The
tax benefit from adjusting the valuation reserve of the
acquired NOLs is recorded as a reduction of goodwill.
Reductions in goodwill for NOL benefit were $866,000 in 1997
and $2,626,000 in 1996.
A reconciliation from the U.S. statutory rate to the effective
tax rate is as follows:
In thousands for the years ended
April 25, 1997 April 26, 1996 April 28, 1995
Amount Percent Amount Percent Amount Percent
Tax at U.S.
statutory rate $11,068 35.0% $12,590 35.0% $ 9,072 35.0%
Foreign tax greater
than U.S.
statutory rate 1,283 4.1 503 1.4 847 3.3
Utilization
of foreign
tax credits (800) (2.5) (542) (1.5) (35) (0.1)
Foreign Sales
Corporation
tax benefit (560) (1.8) (554) (1.5) (436) (1.7)
State taxes,
net of federal
benefit 446 1.4 326 0.9 211 0.8
Nondeductible
goodwill 202 0.6 264 0.7 302 1.1
Subchapter S
income tax effect (210) (0.7) (826) (2.3) (660) (2.5)
Other items, net 587 1.9 508 1.4 (168) (0.7)
$12,016 38.0% $12,269 34.1% $ 9,133 35.2%
9. Employee Benefit Plans
The expense related to employee benefit plans is as follows:
In thousands for the years ended
April 25, 1997 April 26, 1996 April 28, 1995
Pension Plan, U.S. $ 2,035 $ 1,444 $ 1,170
Pension Plans, Foreign 1,170 1,111 1,281
Profit-sharing Retirement Plan 1,248 745 639
Profit-sharing Bonus Plan 4,687 3,695 2,064
Other Benefit Plans 956 618 760
Total Employee Benefit Plans $ 10,096 $ 7,613 $ 5,914
pension plan, U.S.
The Company's U.S. pension plan includes all U.S. employees
with a minimum of one year of service. Pension benefits are
based upon years of service with the Company and the highest
consecutive sixty months' average compensation earned. The
Company's funding policy is to contribute annually the amount
required by ERISA.
Net periodic U.S. pension cost is as follows:
In thousands for the years ended
April 25, 1997 April 26, 1996 April 28, 1995
Service cost $ 2,218 $ 1,899 $ 1,990
Interest cost 3,740 3,260 2,955
Return on plan assets (5,979) (6,682) (3,873)
Net amortization and deferral 2,056 2,967 98
Net periodic pension cost $ 2,035 $ 1,444 $ 1,170
The funding status of the U.S. pension plan is as follows:
In thousands for the years ended
April 25, 1997 April 26, 1996
Vested benefit obligation $ 40,715 $ 34,786
Accumulated benefit obligation 41,537 35,711
Projected benefit obligation 50,487 44,911
Fair market value of plan assets 49,933 43,814
Projected benefit obligation in excess
of plan assets 554 1,097
Prior service cost 465 476
Unrecognized net loss (9,905) (10,007)
Unrecognized net transition asset - 413
Prepaid pension asset $ (8,886) $ (8,021)
For purposes of calculating the funding status of the plan, the weighted
average discount rate was 8.3 percent in 1997, 8.0 percent in 1996 and
8.8 percent in 1995. The rate of increase in future compensation levels
used in determining the actuarial present value of the projected benefit
obligation varied by age group and ranged from 3.8 to 5.1 percent in
1997 and from 4.3 to 5.6 percent in 1996 and 1995.
The expected long-term rate of return on plan assets was 9.3 percent in
1997 and 9.5 percent in 1996 and 1995. For purposes of calculating the
net periodic pension cost, the actuarial assumptions utilized are the
actuarial assumptions in place at the end of the previous fiscal year
(e.g., the fiscal 1997 net periodic pension cost was based upon the 1996
actuarial assumptions).
Upon adoption of Statement of Financial Accounting Standards No. 87
(SFAS 87), "Accounting for Pensions" in 1988, the plan had an excess of
plan assets, including accrued contributions, over projected benefit
obligations (net transition asset) of $5.0 million. The remaining net
transition asset was amortized in 1997.
All of the plan's assets are stated at fair market value and consist
primarily of common stock, fixed-income securities and cash equivalents.
pension plans, foreign
The Company has various pension plans covering its foreign employees.
Most of these plans are defined contribution plans and are fully funded.
The expense for these plans was $400,000 in 1997, $355,000 in 1996, and
$427,000 in 1995. The remaining foreign pension plans qualify for
accounting under the rules of SFAS 87. The tables below include only
those foreign pension plans that qualify for SFAS 87 treatment.
Net periodic pension expense of foreign plans under SFAS 87 is as
follows:
In thousands for the years ended
April 25, 1997 April 26, 1996 April 28, 1995
Service cost $ 933 $ 746 $ 780
Interest cost 1,434 1,307 1,101
Return on plan assets (1,582) (1,251) (1,015)
Net amortization and deferral (15) (46) (12)
Net periodic pension cost $ 770 $ 756 $ 854
The funding status of the plans is as follows:
In thousands
April 25, 1997 April 26, 1996
Vested benefit obligation $ 14,337 $ 15,160
Accumulated benefit obligation 15,474 13,818
Projected benefit obligation 21,322 21,202
Fair market value of plan assets 19,888 19,509
Projected benefit obligation in
excess of plan assets 1,434 1,693
Unrecognized net gain 128 141
Accrued pension liability $ 1,562 $ 1,834
The weighted average discount rate was 6.0 percent in 1997, 6.5 percent
in 1996, and varied from 7.0 to 7.5 percent in 1995. The rate of
increase in future compensation levels used in determining the actuarial
present values of the projected benefit obligation varied from 3.0 to
4.5 percent in 1997, 3.0 to 3.5 percent in 1996 and from 3.0 to 5.0
percent in 1995. The expected long-term rate of return on plan assets
was 7.0 percent in 1997 and 1996, and 6.5 percent in 1995.
profit-sharing retirement plan
The Company has a profit-sharing retirement plan for all U.S. employees,
which provides immediate eligibility and vesting. The Company matches
the employee's salary deferrals under section 401(k) of the Internal
Revenue Code, subject to certain profitability and dollar limits.
profit-sharing bonus plan
The Company has a profit-sharing bonus plan, which generally provides
semi-annual cash payments to certain employees. The amount of each
eligible employee's bonus is dependent upon their base salary in
relation to the total base salary of all eligible employees and the
operating performance of the Company.
other benefit plans
The Company has various other employee cash and stock award plans
designed to recognize and compensate key employees for performance.
The long-term liabilities related to these benefit plans are $11.9
million and $10.2 million on April 25, 1997, and April 26, 1996,
respectively, and are included in Other Liabilities on the accompanying
Consolidated Balance Sheet.
10. Stockholders' Equity
preferred stock
There are 2,000,000 shares of preferred stock authorized, of which
250,000 shares have been designated Series A Convertible Preferred
Stock. There were no shares of preferred stock outstanding at April
25,1997 or April 26, 1996.
stock purchase plan
The Company has a voluntary employee stock purchase plan for all
employees. The Company's contribution is 25 percent of the amount
invested by the employee plus all commissions and brokerage fees. The
Company's expenses related to the plan were $654,000 in 1997, $497,000
in 1996 and $473,000 in 1995.
dividends
The Company declared cash dividends of $0.64 per share in 1997, $0.60
per share in 1996 and $0.56 per share in 1995.
Following is a breakdown of dividends restated for the Forte
acquisition:
for the years ended
April 25, 1997 April 26, 1996 April 28, 1995
Fluke Dividends $ 0.64 $ 0.60 $ 0.56
Forte Dividends 0.07 0.14 0.03
Restated $ 0.71 $ 0.74 $ 0.59
As a Subchapter S corporation Forte stockholders were personally liable
for paying taxes on their allocated portion of corporate income. Forte
dividends were paid for profit sharing and to provide cash to the
stockholders to pay taxes on corporate income.
stockholder rights plan
The Company has a Stockholder Rights Plan and issues one Right for each
outstanding share of common stock. The rights become exercisable only
if a person or group (an "Acquiring Person") has acquired, or obtained
the right to acquire, 25 percent or more of the outstanding shares of
common stock of the Company or following the commencement of a tender or
exchange offer for acquiring such same percentage. In the event that a
person or group becomes an Acquiring Person, each Right, upon exercise,
will entitle its holder (except for an Acquiring Person) to receive
common stock of the Company (or, in certain circumstances, cash,
property or other securities of the Company) or of any company with
which the Company shall have entered into certain transactions having a
value equal to two times the exercise price of the Right. In addition,
under certain circumstances, the Continuing Directors can require that
each Right (other than Rights held by an Acquiring Person) be exchanged
for one share of common stock. The Company may redeem the Rights for
$0.01 per Right at any time before they become exercisable. The Rights
do not entitle their holders to any voting or dividend rights and, at
least until they become exercisable, have no dilutive effect on the
earnings of the Company. The plan was adopted to encourage a
prospective acquirer of the Company to negotiate acquisition terms with
the Board of Directors, including the Continuing Directors, to assure
that the terms are in the best interests of the stockholders of the
Company.
stock options
The Company has a 1988 and a 1990 Stock Incentive Plan. Stock options
granted under the 1990 plan and those granted after 1989 under the 1988
plan are nonqualified stock options generally exercisable 40 percent
after one year, 30 percent after three years and 30 percent after five
years and expire ten years from the date of grant. In 1997, 210,000
options were granted from the 1988 plan which vest in 1999 and expire in
2001. These particular grants have stock price milestones that must be
reached before these options become exercisable. In addition, the
Company has a Stock Option Plan for outside Directors, which was
authorized in 1990 and annually grants nonqualified stock options to the
Company's outside directors. Grants under this plan and those made in
1988 and 1989 under the 1988 Stock Incentive Plan are exercisable after
one year and expire ten years from the date of grant.
There was a modification to selected options issued from the 1988 Plan.
These particular options were modified to change the term of the options
upon retirement from one year to the original life of the option. The
modification resulted in a new measurement date for compensation expense
purposes resulting in a compensation expense of $394,000 in the
accompanying financial statements.
The 1988 Stock Incentive Plan provides for the issuance of restricted
common stock subject to vesting periods to key employees. These shares
typically have a two year vesting period. The cost of the awards,
determined as the fair market value of the shares on the date of grant,
is charged to expense ratably over the vesting period. The Restricted
Stock awards granted in fiscal 1997 totaled 37,186 shares. In addition,
the Company issued 1,484 shares of restricted common stock subject to
vesting periods from the Inventor Recognition Plan.
Shares reserved for issuance under these stock option plans totaled
1,678,194 shares at April 25, 1997, 1,766,980 shares at April 26, 1996
and 1,946,500 shares at April 28, 1995. At April 25, 1997, April 26,
1996 and April 28, 1995, there were 102,227 shares, 616,888 shares and
897,062 shares, respectively, for options to be granted in the future.
Changes during 1995, 1996 and 1997 in options outstanding for the
combined plans were as follows:
Weighted Average
Options Option Price
Outstanding Per Share
Balance April 29, 1994 1,082,250 $ 23.35
Granted 148,618 38.34
Exercised (154,900) 18.87
Expired or terminated (26,530) 28.99
Balance April 28, 1995 (exercisable 443,350) 1,049,438 25.96
Granted 298,313 36.33
Exercised (179,659) 20.41
Expired or terminated (18,000) 28.06
Balance April 26, 1996 (exercisable 502,558) 1,150,092 29.51
Granted 487,626 42.46
Exercised (51,600) 24.67
Expired or terminated (10,151) 29.81
Balance April 25, 1997 (exercisable 652,971) 1,575,967 $ 33.67
The following table summarizes information about stock options
outstanding at April 25, 1997:
Weighted
Average Weighted Weighted
Options Remaining Average Options Average
Range of Outstanding at Contractual Exercise Exercisable at Exercise
Exercise Prices April 25, 1997 Life in Years Price April 25, 1997 Price
$ 7.01 to $ 9.63 3,811 7.9 $ 7.83 1,490 $ 7.72
11.76 to 16.88 96,716 3.4 14.44 95,501 14.47
20.38 to 29.94 509,810 5.7 26.07 344,945 25.41
30.75 to 46.13 965,630 7.4 39.71 211,035 36.26
$ 7.01 to $ 46.13 1,575,967 6.6 $ 33.67 652,971 $ 27.28
The pro forma compensation expense as defined by SFAS 123 for the
Company's stock option plans included in the pro forma net income below
is determined based on the fair value at the grant date for awards after
April 28, 1995, with the exception of awards made prior to that date
that have been modified. The resulting pro forma net income and
earnings per share amounts are indicated below as if compensation
expense had been recorded based on the fair value of options granted and
modified:
In thousands except per share amounts for the years ended
April 25, 1997 April 26, 1996
Net Income - as reported $ 19,606 $ 23,703
Net Income - pro forma 18,471 23,559
Earnings per share - as reported 2.16 2.67
Earnings per share - pro forma 2.06 2.67
Compensation expense recognized in these pro forma disclosures may not
be representative of the effects on pro forma net income or loss for
future years because the above amounts include only the amortization for
the fair value of the grants made in 1997 and 1996.
The fair value of each option granted is estimated using the Black-
Scholes option-pricing model based on the measurement date and the
following weighted average assumptions:
for the years ended
April 25, 1997 April 26, 1996
Risk-free interest rate 6.50% 6.08%
Expected life in years 4.98 6.02
Expected volatility 18.88% 19.80%
Expected dividend yield 1.75% 2.03%
The weighted average fair value of awards granted in 1997 and 1996 is
$7.71 and $9.55 respectively. The weighted average fair value in 1997
includes the effect of the 210,000 shares granted with stock price
milestones, which resulted in lower fair values compared to awards
granted with the Company's standard vesting criteria.
The award modification mentioned above resulted in the modified options
having exercise prices that differed from the market price on the
measurement date. Modified options with an exercise price above market
price had a weighted average fair value of $4.94 and a weighted average
exercise price of $40.38. Modified options with an exercise price below
the market price had a weighted average fair value of $11.96 and a
weighted average exercise price of $24.55.
11.Operations by Geographic Areas
The Company is engaged in one line of business, the manufacture and sale
of electronic test tools. In the schedule below, revenues, income
before income taxes and assets are reported based on the location of the
Company's facilities. Intercompany transfers of products and services
are made at arm's length between the various geographic areas.
In thousands for the years ended
April 25, 1997 April 26, 1996 April 28, 1995
Revenues:
United States:
Sales to unaffiliated customers $ 191,212 $ 164,023 $ 167,566
Export sales 49,103 44,956 34,419
Interarea transfers 67,806 67,073 55,090
308,121 276,052 257,075
Europe:
Sales to unaffiliated customers 152,603 166,551 148,902
Interarea transfers 34,636 30,432 32,620
187,239 196,983 181,522
Other areas:
Sales to unaffiliated customers 37,248 37,995 31,179
Eliminations (102,442) (97,505) (87,710)
Consolidated revenues $ 430,166 $ 413,525 $ 382,066
Income before income taxes:
United States $ 40,713 $ 30,328 $ 22,457
Europe 9,102 10,698 7,538
Other 2,801 4,016 4,316
Corporate expense and
eliminations<F1> (20,994) (9,070) (8,391)
Consolidated income before
income taxes $ 31,622 $ 35,972 $ 25,920
Assets:
United States $ 192,906 $ 166,553 $ 149,360
Europe 90,911 100,456 112,783
Other 12,831 12,513 15,201
Eliminations (4,288) (3,850) (2,437)
Consolidated assets $ 292,360 $ 275,672 $ 274,907
<FN>
<F1>Includes $12 million restructuring charge in 1997.
</FN>
12. Financing and Commitments
The Company has $44 million of committed, noncollateralized, revolving,
multi-currency lines of credit. The committed lines of credit contain
certain working capital and other minimum financial covenants. The
Company is in compliance with all covenants on its lines of credit.
Interest rates under the agreements range from LIBOR plus .375 of 1
percent to LIBOR plus .625 of 1 percent, based on leverage ratios. The
Company pays commitment fees of .125 to .225 of 1 percent on the unused
amount of the committed facility based on leverage ratios. The
outstanding balances related to these lines of credit were zero at April
25, 1997 and $7.1 million at April 26, 1996.
The Company has $93 million in short-term uncommitted lines of credit.
Under these lines, there was $785,000 outstanding at April 25, 1997 and
zero at April 26, 1996. Long-term obligations include capital lease
obligations.
The Company's operating lease expense, including leases with a term of
less than one year, was $7.4 million in 1997, $7.5 million in 1996 and
$7.7 million in 1995. The principal leases are for foreign
manufacturing facilities, various sales offices, storage facilities,
data processing equipment and automobiles. Most facility leases have
escalation clauses to cover increases in direct lease expenses. Below
is a schedule of future minimum lease payments under operating leases
that have initial noncancelable lease terms in excess of one year as of
April 25, 1997:
In thousands
Facilities Equipment Total
Fiscal year
1998 $ 4,055 $ 1,559 $ 5,614
1999 932 704 1,636
2000 632 296 928
2001 464 90 554
2002 355 53 408
$ 6,438 $ 2,702 $ 9,140
13. Contingencies
The Company is a defendant in a lawsuit in Los Angeles County Superior
Court titled Talon Instruments, Inc. and Robert E. Corby vs John Fluke
Manufacturing Company, Inc., et al. The plaintiffs alleged that the
Company and its lawyers maliciously prosecuted a federal patent
infringement action against them in 1988. The jury in that infringement
case found that no infringement had occurred. In March 1997, a Los
Angeles Superior Court jury found in the plaintiffs' favor and awarded
compensatory damages of $2 million and punitive damages of $4 million.
The Company is appealing the decision. Although the ultimate outcome of
these proceedings cannot be determined, the Company believes that the
jury's finding in the case is contrary to established law. Given these
factors, no provision for losses has been recorded at April 25, 1997.
Even if the appeal is not successful, the Company believes that its
insurance should ultimately provide coverage for liability arising from
this lawsuit even though the insurance company has indicated it would
contest coverage of these damages.
The Company is subject to various other pending and threatened legal
actions that arise in the normal course of business. In the opinion of
management, liabilities arising from these claims will not have a
material effect on the financial position of the Company.
report of Ernst & Young LLP, independent auditors
Board of Directors and Stockholders
Fluke Corporation
Everett, Washington
We have audited the accompanying consolidated balance sheets of Fluke
Corporation and subsidiaries as of April 25, 1997 and April 26, 1996 and
the related consolidated statements of income, stockholders' equity and
cash flows for each of the three years in the period ended April 25,
1997. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial
position of Fluke Corporation and subsidiaries at April 25, 1997 and
April 26, 1996 and the consolidated results of their operations and
their cash flows for each of the three years in the period ended April
25, 1997, in conformity with generally accepted accounting principles.
Seattle, Washington /s/ Ernst & Young LLP
May 28, 1997
report of management
The management of Fluke Corporation (the Company) is responsible for the
preparation and integrity of the Company's consolidated financial
statements and related financial information. The statements have been
prepared in conformity with generally accepted accounting principles and
include the best estimates and judgments of management.
The Company maintains a system of internal control, which is designed to
safeguard the Company's assets and ensure that transactions are recorded
in accordance with Company policies. The Company's internal audit
program is an important part of this control.
The Audit Committee of the Board of Directors is responsible for
reviewing and approving the Company's consolidated financial statements,
the system of internal accounting controls and the selection of
independent auditors. The Audit Committee, which is comprised entirely
of outside Directors, has unrestricted access to both internal and
external auditors.
/s/ David E. Katri /s/ Elizabeth J. Huebner
David E. Katri Elizabeth J. Huebner
President, Vice President,
Chief Operating Officer Chief Financial Officer
financial summary
In thousands except shares and per share amounts for the years ended
April 25, 1997 April 26, 1996 April 28, 1995
Revenues $ 430,166 $ 413,525 $ 382,066
Cost of goods sold $ 196,791 $ 191,360 $ 181,805
Gross margin $ 233,375 $ 222,165 $ 200,261
Restructuring $ 12,136 _ _
Total operating expenses
excluding restructuring $ 191,017 $ 186,074 $ 174,184
Operating income $ 30,222 $ 36,091 $ 26,077
Income before income taxes and
cumulative effect of changes
in accounting principles $ 31,622 $ 35,972 $ 25,920
Cumulative effect of changes in
accounting principles<F1> _ _ _
Net income $ 19,606 $ 23,703 $ 16,787
Average shares and share
equivalents outstanding 9,077,758 8,862,341 8,568,462
Income before cumulative effect
of changes in accounting
principles per share $ 2.16 $ 2.67 $ 1.96
Cumulative effect of changes in
accounting principles per share<F1> _ _ _
Earnings per share $ 2.16 $ 2.67 $ 1.96
Net income as a percent of revenues 4.56% 5.73% 4.39%
Cash dividends declared per share $ 0.64 $ 0.60 $ 0.56
Total assets $ 292,360 $ 275,672 $ 274,907
Total stockholders' equity $ 202,939 $ 192,077 $ 174,678
Long-term obligations $ 563 $ 7,098 $ 21,613
Long-term interest expense $ 247 $ 1,248 $ 1,423
Pro forma net income <F2> $ 19,606 $ 23,703 $ 16,787
Pro forma earnings per share<F2> $ 2.16 $ 2.67 $ 1.96
financial summary
In thousands except shares and per share amounts for the years ended
April 29, 1994 April 30, 1993<F3> September 25, 1992
Revenues $ 357,904 $ 132,139 $ 271,819
Cost of goods sold $ 181,409 $ 72,167 $ 149,776
Gross margin $ 176,495 $ 59,972 $ 122,043
Restructuring _ _ _
Total operating expenses
excluding restructuring $ 162,278 $ 56,541 $ 102,259
Operating income $ 14,217 $ 3,431 $ 19,784
Income before income taxes and
cumulative effect of changes
in accounting principles $ 13,908 $ 4,069 $ 20,637
Cumulative effect of changes in
accounting principles<F1> _ $ 3,902 _
Net income $ 8,628 $ 6,855 $ 14,655
Average shares and share
equivalents outstanding 8,607,354 7,645,121 7,609,353
Income before cumulative effect
of changes in accounting
principles per share $ 1.00 $ 0.39 $ 1.93
Cumulative effect of changes in
accounting principles per share<F1> _ $ 0.51 _
Earnings per share $ 1.00 $ 0.90 $ 1.93
Net income as a percent of revenues 2.41% 5.19% 5.39%
Cash dividends declared per share $ 0.52 $ 0.26 $ 0.48
Total assets $ 244,648 $ 172,129 $ 175,889
Total stockholders' equity $ 156,048 $ 134,207 $ 128,826
Long-term obligations $ 14,712 $ 34 $ 391
Long-term interest expense $ 1,327 $ 12 $ 31
Pro forma net income<F2> $ 8,628 $ 4,432 $ 14,389
Pro forma earnings per share<F2> $ 1.00 $ 0.58 $ 1.89
<FN>
<F1>The effect of the change in accounting for inventories ($2.4 million net of
income tax), explained below in Footnote 2 and the adoption of Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" ($1.5
million), were recorded as cumulative changes in accounting principles.
<F2>The Company changed the method of applying overhead costs related to
inventory in 1993. Pro forma data is presented assuming the change in accounting
for inventory is applied retroactively.
<F3>In 1993 the Company changed its fiscal year-end from the last Friday in
September to the last Friday in April. Fiscal 1993 was a seven-month transition
period ended April 30, 1993.
</FN>
selected quarterly financial data (unaudited)
In thousands except per share amounts
Gross Net Earnings Dividends
Revenues Margin Income Per Share Per Share
<F1>
Fiscal 1997:
1st Quarter $ 101,154 $ 53,960 $ 5,559 $ 0.62 $ 0.16
2nd Quarter 105,473 56,889 6,404 0.72 0.16
3rd Quarter 108,450 58,627 7,422 0.82 0.16
4th Quarter<F2> 115,089 63,899 221 0.02 0.16
Total $ 430,166 $ 233,375 $ 19,606 $ 2.16 $ 0.64
Fiscal 1996:
1st Quarter $ 98,714 $ 52,270 $ 4,456 $ 0.50 $ 0.15
2nd Quarter 102,872 53,885 5,403 0.61 0.15
3rd Quarter 105,701 56,518 6,831 0.77 0.15
4th Quarter 106,238 59,492 7,013 0.79 0.15
Total $ 413,525 $ 222,165 $ 23,703 $ 2.67 $ 0.60
<FN>
<F1>The sum of the earnings per share on a quarterly basis will not necessarily
equal the earnings per share reported for the year since the average shares and
share equivalents outstanding used in the earnings per share computation changes
throughout the year.
<F2>The 1997 fourth quarter net income included the restructuring charge of $12
million with an after tax impact of reducing earnings per share by $0.91 for the
fourth quarter and $0.94 for the fiscal year.
</FN>
stock price information
1997 1996
High Low High Low
1st Quarter 40 3/8 36 3/4 42 1/2 37 5/8
2nd Quarter 39 1/4 34 1/4 41 35 1/2
3rd Quarter 46 1/2 37 5/8 37 3/4 32
4th Quarter 48 7/8 42 1/4 39 5/8 34 1/4
Fluke Corporation stock is traded on the New York Stock Exchange. Quarterly cash
dividends of $0.16 per share were declared in 1997, $0.15 per share in 1996 and
$0.14 per share in 1995. There were 1,639 shareholders of record at April 25,
1997.