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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
[ X ] Quarterly Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934 for the 13 weeks ended
February 25, 1995, or,
[ ] Transition report pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934 for the transition period
from ________________ to _____________________.
Commission File Number 1-4837
TEKTRONIX, INC.
(Exact name of registrant as specified in its charter)
OREGON 93-0343990
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
26600 S.W. PARKWAY
WILSONVILLE, OREGON 97070-1000
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (503) 627-7111
NOT APPLICABLE
(Former name, former address and 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______
AT March 30, 1995 THERE WERE 31,046,675 COMMON SHARES OF
TEKTRONIX, INC. OUTSTANDING.
(Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practicable
date.)
TEKTRONIX, INC. AND SUBSIDIARIES
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INDEX
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PAGE NO.
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Financial Statements:
Condensed Consolidated Balance Sheets - 2
February 25, 1995 and May 28, 1994
Condensed Consolidated Statements of Operations - 3
for the Thirteen Weeks Ended February 25, 1995
and the Thirteen Weeks Ended February 26, 1994
for the Thirty-Nine Weeks Ended February 25, 1995
and the Thirty-Nine Weeks Ended February 26, 1994
Condensed Consolidated Statements of Cash Flows - 4
for the Thirty-Nine Weeks Ended February 25, 1995
and the Thirty-Nine Weeks Ended February 26, 1994
Notes to Condensed Consolidated Financial Statements 5
Management's Discussion and Analysis of Financial 6
Condition and Results of Operations
Part II. Other Information 13
Signatures 14
1
TEKTRONIX, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
Feb. 25, May 28,
(In thousands) 1995 1994
- ------------------------------------------------------------------------------------------
ASSETS
Current assets:
Cash and cash equivalents $ 26,672 $ 42,919
Accounts receivable - net 261,600 267,405
Inventories 224,998 171,267
Other current assets 66,614 59,054
---------- ----------
Total current assets 579,884 540,645
Property, plant, and equipment 590,068 653,709
Accumulated depreciation and amortization (371,736) (430,387)
---------- ----------
Property, plant, and equipment - net 218,332 223,322
Property held for sale 34,916 39,776
Deferred tax assets 69,972 79,552
Other long-term assets 184,464 107,854
---------- ----------
Total assets $1,087,568 $ 991,149
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term debt $ 56,365 $ 17,084
Accounts payable 153,070 161,757
Accrued compensation 70,566 78,877
Deferred revenue 22,066 18,124
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Total current liabilities 302,067 275,842
Long-term debt 103,654 104,146
Other long-term liabilities 131,788 141,672
Shareholders' equity:
Common stock 199,098 180,883
Retained earnings 277,965 235,795
Currency adjustment 59,477 52,811
Unrealized holding gains on certain
marketable equity securities 13,519 --
---------- ----------
Total shareholders' equity 550,059 469,489
---------- ----------
Total liabilities and shareholders' equity $1,087,568 $ 991,149
========== ==========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
2
TEKTRONIX, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
13 weeks to 39 weeks to
Feb. 25, Feb. 26, Feb. 25, Feb. 26,
(In thousands except for per share amounts) 1995 1994 1995 1994
- ------------------------------------------------------------------------------------------
Net sales $ 364,865 $ 332,825 $1,026,004 $ 940,060
Operating costs and expenses:
Cost of sales 202,352 180,922 552,467 507,074
Research and development 38,019 38,402 119,662 111,639
Selling, general, and administrative 94,616 89,657 274,697 262,292
---------- ---------- ---------- ----------
Total operating costs and expenses 334,987 308,981 946,826 881,005
Equity in business ventures net
earnings (losses) 63 (1,049) 705 (2,465)
---------- ---------- ---------- ----------
Operating income 29,941 22,795 79,883 56,590
Other expense (income) - net 789 (657) 4,296 4,486
---------- ---------- ---------- ----------
Earnings before taxes 29,152 23,452 75,587 52,104
Income taxes 7,580 7,973 19,653 15,439
---------- ---------- ---------- ----------
Net earnings $ 21,572 $ 15,479 $ 55,934 $ 36,665
========== ========== ========== ==========
Earnings per share $ 0.70 $ 0.51 $ 1.83 $ 1.20
Dividends per share 0.15 0.15 0.45 0.45
Average shares outstanding 30,811 30,269 30,520 30,441
The accompanying notes are an integral part of these condensed consolidated
financial statements.
3
TEKTRONIX, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
39 weeks to
Feb. 25, Feb. 26,
(In thousands) 1995 1994
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net Earnings $ 55,934 $ 36,665
Adjustments to reconcile net earnings to cash
from operating activities:
Depreciation expense 30,304 40,871
Accounts receivable 12,424 1,530
Inventories (49,845) (7,900)
Other current assets (5,985) 6,006
Accounts payable (12,417) (9,205)
Accrued compensation (9,489) (24,504)
Other assets (73,960) (2,647)
Other liabilities (11,442) (16,318)
Other-net 1,636 2,705
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Net cash provided (used) by operating activities (62,840) 27,203
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property, plant, and equipment (68,861) (39,118)
Proceeds from sale of assets 50,769 9,711
Proceeds from sale of investments 24,754 13,442
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Net cash provided (used) by investing activities 6,662 (15,965)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net change in short-term debt 38,817 (6,692)
Issuance of long-term debt -- 100,000
Repayment of long-term debt (568) (70,039)
Issuance of common stock 23,805 7,067
Repurchase of common stock (8,382) (25,964)
Dividends (13,764) (13,587)
---------- ----------
Net cash provided (used) by financing activities 39,908 (9,215)
Effect of exchange rate changes 23 444
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Increase (Decrease) in cash and cash equivalents (16,247) 2,467
Cash and cash equivalents at beginning of year 42,919 30,004
---------- ----------
Cash and cash equivalents at end of quarter $ 26,672 $ 32,471
========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOWS:
Income taxes paid $ 7,386 $ 4,504
Interest paid 11,589 8,721
NON-CASH INVESTING ACTIVITIES:
Fair value adjustment to securities available-for-sale 22,531 --
Income tax effect related to fair value adjustment 9,012 --
The accompanying notes are an integral part of these condensed consolidated
financial statements.
4
TEKTRONIX, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
BASIS OF PRESENTATION
The condensed consolidated financial statements and notes have
been prepared by the Company without audit. Certain information and
footnote disclosures normally included in annual financial statements,
prepared in accordance with generally accepted accounting principles,
have been condensed or omitted. Management believes that the
condensed statements include all necessary adjustments (which are of a
normal and recurring nature, except for the adjustment to deferred tax
assets described below under 'Income Taxes') and are adequate to
present financial position, results of operations and cash flows for
the interim periods. The condensed information should be read in
conjunction with the financial statements and notes incorporated by
reference in the Company's latest annual report on Form 10-K.
INVENTORIES
Inventories consisted of:
Feb. 25, May 28,
(In thousands) 1995 1994
- ------------------------------------------------------------------------------------------
Materials and work in process $ 126,702 $ 89,341
Finished goods 98,296 81,926
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Inventories $ 224,998 $ 171,267
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INVESTMENTS
At the beginning of the year, the Company adopted SFAS No. 115,
Accounting for Certain Investments in Debt and Equity Securities.
SFAS No. 115 supersedes SFAS No. 12 which generally required
investments in marketable equity securities to be carried at the lower
of aggregate market or amortized cost. Under SFAS No. 115, the
Company now classifies its minority equity investments in certain
marketable securities as available-for-sale and reports them at fair
value in the consolidated balance sheet. The aggregate fair value of
these investments at February 25, 1995 was $31.2 million. The
unrealized gain of $22.5 million, net of the related deferred income
tax effect of $9.0 million, is reported as a separate component of
shareholders' equity.
SHORT-TERM AND LONG-TERM DEBT
During the quarter ended February 25, 1995, the Company extended
the $150.0 million revolving credit agreement with Morgan Guaranty
Trust Company of New York as agent from a maturity date of March 10,
1996 to December 1, 1998.
5
INCOME TAXES
The provision for income taxes consisted of:
13 weeks to 39 weeks to
Feb. 25, Feb. 26, Feb. 25, Feb. 26,
(In thousands) 1995 1994 1995 1994
- ------------------------------------------------------------------------------------------
United States $ 4,339 $ 5,110 $ 8,203 $ 10,512
State 1,085 1,278 2,051 2,628
Foreign 2,156 1,585 9,399 2,299
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Income taxes $ 7,580 $ 7,973 $ 19,653 $ 15,439
========== ========== ========== ==========
The provision for income taxes was calculated at estimated annual
effective rates of 26% and 34%, respectively, for the quarters ended
February 25, 1995 and February 26, 1994. The provision for the 39
weeks ended February 26, 1994 was reduced by a first quarter gain of
$2.3 million on recalculation of deferred income tax benefits,
primarily as a result of the enactment of federal tax legislation
increasing the corporate income tax rate from 34% to 35%.
CONTINGENCIES
The Company has reported on certain claims asserted by Jerome J.
Lemelson in Item 3., Legal Proceedings, of its Annual Report on Form
10-K for the fiscal year ended May 28, 1994. The Company believes
that ultimate resolution of these claims will not have a material
adverse effect on its financial position or results of operations.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Financial Condition
The Company's financial condition is strong. Cash flow from
operating activities and borrowing capacity from existing lines of
credit are sufficient to meet current and anticipated future needs.
At the end of the third quarter (February 25,1995), the Company
maintained bank credit facilities totaling $312.6 million, of which
$257.1 million was unused. The unused facilities include $107.1
million in lines of credit and $150.0 million under a revolving credit
agreement from United States and foreign banks.
6
Current assets increased by $39.2 million from the prior year
end, due to an increase in inventories and other current assets,
partly offset by reductions in cash and accounts receivable.
Inventories increased by $53.7 million as the Company introduced a
number of new products, including color printers, video products and
measurement products, and experienced higher order rates. Other
current assets increased by $7.6 million due to the recording of a
note receivable of $15.3 million on sale of a building, partly offset
by reductions in deferred taxes and other prepaid items. Accounts
receivable declined by $5.8 million because of the lower average
weekly sales in the third quarter compared to the prior year's fourth
quarter.
Net property, plant and equipment declined by $5.0 million as
depreciation and dispositions, including the divestiture of the
Circuit Board Division, exceeded new capital additions. Long-term
deferred tax assets decreased by $9.6 million primarily due to the tax
impact from recognition of unrealized holding gains on investments
under SFAS 115, Accounting for Certain Investments in Debt and Equity
Securities, discussed further below under other long-term assets.
Other long-term assets increased by $76.6 million as a result of
the Company's investment in equity and notes of Merix Corporation
(formerly the Circuit Board Division) and the accounting for certain
investments in accordance with SFAS 115. Under SFAS 115, certain
investments in marketable securities are classified as available for
sale and reported at fair value. The adjustment to fair value added
$22.5 million to other long term assets and the unrealized gains, less
deferred taxes, are reported in unrealized holding gains as a separate
component of shareholders' equity. The Company accounts for its
investment in Merix Corporation on the equity method with the
earnings impact included in equity in business ventures net earnings
(losses) in the consolidated statements of
7
operations. The Company also recorded several long term notes
receivable on sales of real estate and licensing of technologies in
the current year.
Current liabilities increased by $26.2 million. Short-term debt
rose by $39.3 million primarily to fund working capital. Accounts
payable decreased $8.7 million, and accrued compensation decreased
$8.3 million, due to the timing of some trade payables and
restructuring activities, the payment of year-end accruals for
incentives and commissions, the payment of employee severance charged
against restructuring reserves and lower accrual requirements because
of the disposition of non-strategic businesses. The decrease in
accrued compensation was net of $13.6 million reclassified from long-
term liabilities.
Other long-term liabilities decreased $9.9 million due to the
reclassification to accrued compensation, partly offset by pension
accruals. Shareholders' equity increased by $80.6 million due
primarily to earnings net of dividends, favorable currency
adjustments due to the depreciating United States dollar, the
addition of unrealized holding gains in accordance with SFAS 115 and
the exercise of stock options.
Restructuring Charges
The Company continues its consolidation of facilities and
reduction of workforce, as described in the 1994 Annual Report to
shareholders, reducing restructuring reserves to approximately $19
million at the end of the current quarter. The Company is also
proceeding with the discontinuance of older, low-volume products.
8
RESULTS OF OPERATIONS
39 WEEKS ENDED FEBRUARY 25, 1995
vs.
39 WEEKS ENDED FEBRUARY 26, 1994
In the first nine months of fiscal 1995, net earnings were $55.9
million, or $1.83 per share compared with $36.7 million, or $1.20 per
share in the first nine months of fiscal 1994.
Net Sales were $1,026.0 million, an increase of 9% from the prior
year's total of $940.1 million. Sales from continuing business
increased by 17% from $867.5 million in 1994 to $1,017.2 million in
1995. Other sales, which include the non-strategic businesses
disposed of at the end of last year and during the first quarter,
declined from $72.6 million to $8.8 million. CAChe Scientific, Inc
was sold in the current quarter completing the disposition of non-
strategic businesses contemplated by the Company's restructuring
plan. Therefore, there will be no sales reported as other sales in
the fourth and subsequent quarters.
Measurement Business Division sales of $516.3 million increased
9% from the prior year, with strong growth in communications and TV
test and electronic tools and improvement in instruments. Color
Printing and Imaging Division sales increased 41% to $308.6 million
reflecting strong growth from new products which are helping to fuel
growth in the color printer market. Video Systems Division sales
increased 20% to $129.6 million, benefiting from stronger markets
worldwide and the introduction of new products. Network Displays
Division sales declined by 8% to $62.7 million due to the reduction in
large one-time X terminal sales in the United States and the continued
decline in service revenue from the Company's old terminals business.
9
Sales to customers in the United States declined from $526.1
million to $517.1 million, representing 50% of total sales. The
majority of the non-strategic businesses sales were in the United
States, and if these sales are excluded from both years, United States
sales increased by 10% from $464.4 million to $510.9 million.
International sales of $508.9 million were up 23%, due to
improvements in all major markets. International sales from
continuing businesses were up 26% from $403.0 million to $506.3
million.
Cost of sales was essentially flat as a percentage of net sales
at 53.8%. A better geographic mix of sales, the reduction of low
margin component sales and improved product mix in each of the
businesses were offset by the higher cost of components and increasing
use of alternative distribution channels. While the Company has
experienced in the past and expects to experience in the future
quarterly fluctuations in its cost of sales as a percentage of sales,
the Company continues to expect cost of sales as a percentage of sales
to slowly trend higher as more products are sold through alternative
distribution channels.
Research and development expenses (R&D) remained essentially flat
as a percent of sales. R&D increased by 7% to $119.7 million due
principally to higher new product development funding. Selling,
general, and administrative expenses (SG&A) declined as a percent of
sales from 27.9% to 26.8%. SG&A increased by 5% in dollar terms due
to higher selling and distribution expenses associated with higher
sales volumes. Both R&D and SG&A were also impacted by increased
variable compensation due to the Company's improved performance.
Equity in business ventures net earnings of $0.7 million
compared to losses of $2.5 million in the prior year primarily because
of the Company's equity in earnings of Merix Corporation (formerly the
Company's Circuit Board Division) in
the current year. The Circuit Board Division was still a part of the
10
Company in 1994.
The income tax provision increased because of the increase in
earnings before taxes, partly offset by a reduction in the Company's
effective annual tax rate from 34% in 1994 to 26% in the current year.
The reduction in the current year tax rate is due primarily to the
capitalization, for tax purposes, of the costs of a major research and
development project. The resulting taxable income enabled the
realization of additional foreign tax credit carryovers. The Company
expects the effective annual tax rate to increase next year and in
future years after remaining foreign tax credit carryovers are
realized.
Net earnings were 53% higher than the prior year, due to an
increase in sales accompanied by a lesser increase in R&D and SG&A
expenses, and improved business venture results.
13 WEEKS ENDED FEBRUARY 25, 1995
vs.
13 WEEKS ENDED FEBRUARY 26, 1994
In the third quarter of fiscal 1995, net earnings were $21.6
million, or $0.70 per share compared with $15.5 million, or $0.51 per
share in the third quarter of fiscal 1994.
Net Sales were $364.9 million, up 10% from the prior year. Sales
from continuing business increased by 17% from $310.0 million in 1994
to $364.1 million in 1995. Other sales, which include the non-
strategic businesses disposed of at the end of last year and during
the first quarter, dropped sharply from $22.8 million to $0.8 million.
11
Measurement Business sales of $183.4 million were up 9% from the
prior year due to acceptance of new products, strength in
communications and TV test and electronic tools, and improvements in
European and Asian markets. Color Printing and Imaging sales
increased 36% to $110.8 million, continuing the strong growth from new
products which are helping to fuel growth in the color printer market.
Video Systems sales grew 33% to $46.7 million as the Company began
shipping a number of new products during the quarter, and from
generally improving market conditions. Network Displays sales were
lower due to the reduction in large one-time X terminal sales in the
United States and the continued decline in service revenue from the
Company's old terminals business.
Sales to customers in the United States decreased 3% from $177.6
million to $172.7 million, representing 47% of total sales. The
majority of the non-strategic businesses sales were in the United
States, and if these sales are excluded from both years, United States
sales increased by 8%. International sales of $192.2 million were
up 24% from $155.2 million in the prior year, with strong growth in
all geographic regions. International sales from continuing
businesses were up 27% from $151.5 million to $192.2 million.
Product orders for the quarter were $366.6 million, 31% higher
than the prior year's third quarter, with strong growth in all
businesses and in all geographic regions.
Cost of sales amounted to 55.5% of net sales, compared to 54.4%
in the prior year. The increase was due primarily to increasing use of
alternative distribution channels and to the higher cost of
components, partly as a result of the strong Japanese yen. These
impacts were partially offset by a better geographic mix of sales and
the reduction of low margin component sales.
12
Research and development expense (R&D) declined as a percent of
sales from 11.5% to 10.4%. Selling, general and administrative
expense (SG&A) declined as a percent of sales from 26.9% to 25.9%.
These improvements were the result of higher sales and the Company's
continued cost controls. SG&A, in dollar terms, was 6% higher than
the prior year because of higher marketing and distribution expenses
associated with higher sales volumes. Both R&D and SG&A were also
impacted by increased variable compensation due to the Company's
improved performance.
Income taxes decreased from $8.0 million to $7.6 million due to
the Company's lower effective annual tax rate of 26% compared to 34%
in the prior year.
Net earnings of $21.6 million were 39% higher than the prior year
due primarily to higher sales and the containment of R&D and SG&A
expenses, partly offset by higher cost of sales.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
(3) Bylaws,as amended.
(27) Financial Data Schedule
(b) No reports on Form 8-K have been filed during the quarter
for which this report is filed.
13
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
April 6, 1995 TEKTRONIX, INC.
By /s/ CARL W. NEUN
___________________________
Carl W. Neun
Vice President and
Chief Financial Officer
14