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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 24, 1996, 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 23, 1996 THERE WERE 32,669,702 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
- --------------------------------
INDEX
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PAGE NO.
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Financial Statements:
Condensed Consolidated Balance Sheets - 2
February 24, 1996 and May 27, 1995
Condensed Consolidated Statements of Operations - 3
for the Thirteen Weeks Ended February 24, 1996
and the Thirteen Weeks Ended February 25, 1995
for the Thirty-Nine Weeks Ended February 24, 1996
and the Thirty-Nine Weeks Ended February 25, 1995
Condensed Consolidated Statements of Cash Flows - 4
for the Thirty-Nine Weeks Ended February 24, 1996
and the Thirty-Nine Weeks Ended February 25, 1995
Notes to Condensed Consolidated Financial Statements 5
Management's Discussion and Analysis of Financial 6
Condition and Results of Operations
Part II. Other Information 14
Signatures 14
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
Feb. 24, May 27,
(In thousands) 1996 1995
- --------------------------------------------------------------------------------------------------
Current assets:
Cash and cash equivalents $ 28,904 $ 31,761
Accounts receivable - net 342,724 315,356
Inventories 273,829 245,766
Other current assets 38,083 65,108
---------- ----------
Total current assets 683,540 657,991
Property, plant, and equipment 677,014 624,318
Accumulated depreciation and amortization (383,633) (371,238)
---------- ----------
Property, plant and equipment - net 293,381 253,080
Property held for sale 19,959 35,912
Deferred tax assets 63,714 76,418
Other long-term assets 214,087 194,901
---------- ----------
Total assets $1,274,681 $1,218,302
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term debt $ 92,726 $ 87,623
Accounts payable 158,631 173,537
Accrued compensation 71,615 106,660
Deferred revenue 16,281 19,988
---------- ----------
Total current liabilities 339,253 387,808
Long-term debt 152,753 104,984
Other long-term liabilities 124,385 121,295
Shareholders' equity:
Common stock 215,192 216,251
Retained earnings 355,348 298,964
Currency adjustment 57,333 76,948
Unrealized holding gains - net 30,417 12,052
---------- ----------
Total shareholders' equity 658,290 604,215
---------- ----------
Total liabilities and shareholders' equity $1,274,681 $1,218,302
========== ==========
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 13 weeks to 39 weeks to 39 weeks to
Feb. 24, Feb. 25, Feb. 24, Feb. 25,
(In thousands except for per share amounts) 1996 1995 1996 1995
- --------------------------------------------------------------------------------------------------
Net sales $ 433,500 $ 371,688 $1,278,120 $1,055,195
Cost of sales 254,286 206,053 743,536 568,552
---------- ---------- ---------- ----------
Gross profit 179,214 165,635 534,584 486,643
Research and development 40,045 38,818 119,096 122,201
Selling, general, and administrative 108,779 96,975 315,078 283,403
Equity in business ventures' earnings 1,061 63 2,154 705
---------- ---------- ---------- ----------
Operating income 31,451 29,905 102,564 81,744
Other (income)expense - net (617) 979 524 4,753
---------- ---------- ---------- ----------
Earnings before taxes 32,068 28,926 102,040 76,991
Income taxes 9,620 7,568 30,612 19,651
---------- ---------- ---------- ----------
Net earnings $ 22,448 $ 21,358 $ 71,428 $ 57,340
========== ========== ========== ==========
Earnings per share $ 0.67 $ 0.65 $ 2.14 $ 1.77
Dividends per share 0.15 0.15 0.45 0.45
Average shares outstanding 33,381 32,738 33,353 32,448
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 39 weeks to
Feb. 24, Feb. 25,
(In thousands) 1996 1995
- --------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Earnings $ 71,428 $ 57,340
Adjustments to reconcile net earnings to cash
from operating activities:
Depreciation expense 34,939 30,728
Gains on sale of assets (13,326) (4,928)
Deferred taxes 12,711 (674)
Accounts receivable (29,269) 12,664
Inventories (28,412) (52,415)
Other current assets 26,932 (6,327)
Accounts payable (17,106) (12,775)
Accrued compensation (34,778) (9,394)
Other assets (5,638) (74,136)
Other-net 1,015 (4,193)
---------- ----------
Net cash provided (used) by operating activities 18,496 (64,110)
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property, plant and equipment (75,006) (71,156)
Proceeds from sale of assets 13,072 51,941
Proceeds from sale of investments 5,232 24,754
---------- ----------
Net cash provided (used) by investing activities (56,702) 5,539
CASH FLOWS FROM FINANCING ACTIVITIES:
Net change in short-term debt 5,327 39,487
Issuance of long-term debt 50,236 1,174
Repayment of long-term debt (2,459) (568)
Issuance of common stock 11,894 23,847
Repurchase of common stock (12,469) (8,382)
Dividends (15,044) (13,764)
---------- ----------
Net cash provided by financing activities 37,485 41,794
Effect of exchange rate changes (2,136) 23
---------- ----------
Decrease in cash and cash equivalents (2,857) (16,754)
Cash and cash equivalents at beginning of year 31,761 43,044
---------- ----------
Cash and cash equivalents at end of quarter $ 28,904 $ 26,290
========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOWS:
Income taxes paid $ 22,533 $ 7,386
Interest paid 14,647 11,693
NON-CASH INVESTING ACTIVITIES:
Fair value adjustment to securities
available-for-sale $ 30,608 $ 22,531
Income tax effect related to fair value adjustment 12,243 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 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. 24, May 27,
(In thousands) 1996 1995
- --------------------------------------------------------------------------------------------------
Materials and work in process $ 154,367 $ 144,259
Finished goods 119,462 101,507
---------- ----------
Inventories $ 273,829 $ 245,766
========== ==========
ACQUISITIONS
In the first quarter of fiscal 1996, the Company completed its
acquisition of all of the outstanding shares of Lightworks Editing Systems
Limited and Lightworks Editing System, Inc. (Lightworks), which designs and
develops non-linear editing systems. The Company has issued 1,644,000
common shares to complete the acquisition. The acquisition was accounted
for as a pooling of interests and the financial statements have been
restated to include the results and financial position of Lightworks for
all prior periods.
The restatement did not have a material effect on the Company's
previously reported 1995 results or financial position except for the
impact on earnings per share from the issuance of the shares to complete
the acquisition. The restatement reduced the Company's previously reported
earnings per share for fiscal year 1995 by $0.13 per share primarily
because of the issuance of additional shares to complete the acquisition.
The impact of the restatement on earnings per share in each quarter of
fiscal 1995 was as follows: an increase of $0.02 in the first quarter; a
decrease of $0.02 in the second quarter; a decrease of $0.05 in the third
quarter; and a decrease of $0.08 in the fourth quarter.
SHORT-TERM AND LONG-TERM DEBT
In the first quarter of fiscal 1996, the Company issued $50.0 million
of 7.625% Notes due August 15, 2002.
5
INCOME TAXES
The provision for income taxes consisted of:
13 weeks to 13 weeks to 39 weeks to 39 weeks to
Feb. 24, Feb. 25, Feb. 24, Feb. 25,
(In thousands) 1996 1995 1996 1995
- --------------------------------------------------------------------------------------------------
United States $ 5,912 $ 4,327 $ 14,001 $ 8,191
State 1,471 1,085 3,500 2,051
Foreign 2,237 2,156 13,111 9,409
---------- ---------- ---------- ----------
Income taxes $ 9,620 $ 7,568 $ 30,612 $ 19,651
========== ========== ========== ==========
The provision for income taxes was calculated at estimated annual
effective rates of 30% and 26%, respectively, for the quarters ended
February 24, 1996 and February 25, 1995.
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 24, 1996), the Company maintained bank credit
facilities totaling $294.8 million, of which $203.3 million was unused.
The unused facilities include $121.5 million in lines of credit and $81.8
million under a revolving credit agreement from United States and foreign
banks.
Current assets increased by $25.5 million from the year end balance at
May 27, 1995, due to higher accounts receivable and inventories, partly
offset by a decline in other current assets. Accounts receivable were
higher due to short-term inefficiencies caused by the installation of a new
accounts receivable system. Increased inventories were due primarily to
higher order rates, a shortage of certain components constraining comple-
tion of product manufacturing, a buildup of some components caused by
longer lead
6
times and changes in the mix of product orders. Other current assets
declined primarily because of the collection of a note receivable from
the sale of a building, and the reduction of short-term deferred tax
assets.
Net property, plant and equipment increased by $40.3 million as the
Company continued to invest in facilities consolidation and information
systems. Other long-term assets increased by $19.2 million primarily due
to the increase to market value of the Company's investment in Radisys
Corporation which completed an initial public offering in October, 1995.
Current liabilities declined by $48.6 million. Accrued compensation
declined $35.0 million due to the payment of year-end accruals for
incentives and commissions, and the payment of employee severance charged
against restructuring reserves.
Long-term debt increased as a result of the Company's issuance, in
the first quarter, of $50 million in notes due August 15, 2002.
Shareholders' equity increased by $54.1 million due primarily to
earnings net of dividends and an increase in holding gains on investments
in marketable securities available for sale, partly offset by a negative
currency adjustment due to a strengthening U.S. dollar against the Japanese
Yen and certain major European currencies. The Company repurchased
approximately 300,000 of its common shares in the quarter, but the
resultant reduction in shareholders' equity was substantially offset by the
proceeds from the exercise of stock options in the first half of the
current year.
7
Results of Operations
39 WEEKS ENDED FEBRUARY 24,1996
vs.
39 WEEKS ENDED FEBRUARY 25, 1995
In the first nine months of fiscal 1996, net earnings were $71.4
million, or $2.14 per share compared with $57.3 million, or $1.77 per share
in the first nine months of fiscal 1995.
Net sales were $1,278.1 million, an increase of 21% from the prior
year's total of $1,055.2 million. Product orders increased 18% from
$1,022.8 million to $1,202.6 million. The Company experienced strong sales
and order growth in all three businesses and in all geographic regions.
Measurement Business Division sales of $591.5 million increased 13%
from the prior year, with strong growth in instruments, handheld electronic
tools and communications test products. Product orders increased from
$494.8 million to $556.0 million, or 12%.
Color Printing and Imaging Division sales increased 27% to $392.4
million reflecting continued heavy demand for the current printer lines,
especially the Phaser 340* solid ink printer. Product orders increased 22%
from $302.0 million to $367.0 million.*(Phaser is a registered trademark of
Tektronix, Inc.).
Video and Networking Division experienced a 24% increase in product
orders over the prior year, from $226.0 million to $279.6 million. Sales
increased 37% to $294.1 million, led by strong sales of the Profile* video
disk recorder, Grass Valley TV production equipment and Netstations.
*(Profile is a trademark of Tektronix, Inc.).
Sales to customers in the United States increased 20% from $530.5
million to $635.0 million, and represented 50% of total sales.
International sales of $643.1 million
8
were up 25%, with growth in all regions and particular strength in Europe.
Product orders from customers in the United States of $579.2 million were
up 18% from last year while international product orders of $623.4 million
were up 17%.
Cost of sales increased as a percentage of net sales from 53.9% to
58.2% as the Company continued to increase the use of alternative
distribution channels, experienced the impact of increased systems
integration sales from Video and Networking and experienced declines in
Color Printing and Imaging margins in the first half of the current year as
a result of changes in product mix and the short-term impact of early
shipments of the Phaser 340 color printer.
Research and development and selling, general and administrative
expenses declined as a percentage of sales, from 11.6% to 9.3% and from
26.9% to 24.7%, respectively, due primarily to the higher sales volume and
continued effective cost controls, particularly in administrative
functions.
Operating income as a percentage of sales increased year over year,
rising from 7.7% in the first nine months of 1995 to 8.0% as lower
operating expenses as a percentage of sales more than offset declining
gross margins.
Other expense declined due primarily to higher gains on sales of
stock in other companies, partly offset by higher interest expense.
The provision for income taxes increased from $19.7 million to $30.6
million due to increased earnings before taxes and a higher estimated
effective annual tax rate of 30% for the current year, compared to 25.5%
for the first nine months of last year. The Company expects the effective
tax rate to be slightly higher in 1997.
Net earnings were 25% higher than the prior year, due to higher sales
and higher operating income, partly offset by higher taxes.
9
13 WEEKS ENDED FEBRUARY 24,1996
vs.
13 WEEKS ENDED FEBRUARY 25, 1995
In the third quarter of fiscal 1996, net earnings were $22.4 million,
or $0.67 per share compared with $21.4 million, or $0.65 per share in the
third quarter of fiscal 1995.
Net sales were $433.5 million, up 17% from $371.7 million in the
prior year. Product orders increased from $372.9 million to $389.5
million, a 4% improvement. The Company experienced sales growth in all
three businesses and in all geographic regions, but international product
orders were flat compared to last year, when a large system integration
order from TV4 in Sweden was booked.
Measurement Business sales of $206.0 million were up 11% from $185.7
million in the prior year due to acceptance of new products, particularly
in instruments, handheld electronic tools and communications test products.
The sales increased despite constraints resulting from continuing parts
shortages during the current quarter. Product orders for Measurement
increased from $170.8 million to $172.8 million. The reduced order growth
rate was due to a number of factors. A large seasonal order from the
Company's joint venture Sony/Tektronix, which was placed in the third
quarter last year, was received in the second quarter in 1996. Long lead
times associated with parts shortages on key products also contributed to
lower order rates, as well as the impacts of customers taking a more
cautionary approach to capital expenditures. The Company expects order and
revenue growth to be in the 5% to 10% range for the coming quarters in
light of slower economic growth in major markets and the more cautionary
approach to spending being shown by customers.
Color Printing and Imaging sales increased 18% from $110.9 million to
$131.0 million, with strong sales of the Phaser 340 solid ink color printer
and the Phaser 550
10
color laser printer. Product orders increased by 11% over the prior year,
improving from $111.9 million to $124.7 million. The Company's focus on
the office market segment has resulted in significant sales and order
growth in that segment. However, this focus and increasing competition in
the specialty/graphic arts area has caused decreases in orders and sales in
the specialty segment. The growth rate in product orders for printers was
negatively impacted by the fact that third quarter 1995 included heavy
first time orders for the Company's initial color laser product. The
Company expects the fourth quarter to be impacted in a similar manner, as
it compares against last year's fourth quarter, which included the very
successful launch of the Company's first solid ink color printer for the
office. Sales and order growth is expected to be in the 10% to 15% range
in the fourth quarter and to improve to approximately 20% in fiscal year
1997.
Video and Networking product orders were $92.0 million, a 2% increase
over the $90.2 million reported for the prior year when a large system
integration order from TV4 in Sweden was booked. Discounting this order,
product orders for the third quarter of 1996 would have shown a 28 percent
increase over 1995. Sales for the division grew 30% from $74.3 million to
$96.5 million, led by strong sales of the Profile video disk recorder and
Netstation products. The Company expects excellent growth for its Profile
and Lightworks products in 1997, but does not believe it can repeat the
same level of growth that it has enjoyed to date in the remainder of its
Video and Networking business. Sales and order growth is expected to be in
the 15% to 20% range for fiscal 1997.
Sales to customers in the United States increased by 17% from $173.6
million to $203.9 million, representing 47% of total sales. International
sales of $229.6 million were up 16% from $197.3 million in the prior year.
U.S. orders increased 10% from $169.4 million to $185.7 million.
International orders, at $203.8 million, were level with the prior year's
exceptionally high rate. Without the large system integration order from
TV4 in 1995, discussed above, international orders would have increased
10% in the current quarter.
11
Cost of sales increased as a percentage of net sales from 55.4% to
58.7% primarily due to reduced gross margins in its Video and Networking
business resulting from the impacts of increased system integration sales,
lower margins on large volume Netstation sales and costs associated with
reducing its product offerings. The continued increase in the Company's
percentage of sales through alternative distribution channels also impacted
its gross margins.
Research and development and selling, general and administrative
expenses declined as a percentage of sales, from 10.4% to 9.2% and from
26.1% to 25.1%, respectively, due primarily to the higher sales volume.
Operating income as a percentage of sales declined from 8.0% in the
third quarter of 1995 to 7.3% this year due to decreasing gross margins
partly offset by lower operating expenses as a percentage of sales. Video
and Networking operated at a loss in the quarter due to lower gross
margins, increased investments to strengthen its distribution channels
throughout the world and investments in new product development.
Other income of $0.6 million in the current quarter compared to other
expense of $1.0 million in the 1995 quarter was due to non-recurring income
this year versus non-recurring expenses last year.
Income taxes increased from $7.6 million to $9.6 million due to
higher earnings before taxes in the current quarter and a higher estimated
effective annual tax rate of 30% for the current year compared to 26% last
year.
Net earnings of $22.4 million were 5% higher than the prior year due
to higher sales, higher operating income and higher other income, partly
offset by higher taxes.
The Company expects overall sales growth of approximately 17% for
fiscal year 1996 and 15% for 1997. Earnings per share are expected to be
approximately $3.00 for 1996
12
compared to $2.50 in 1995. Earnings per share in fiscal year 1997 are ex-
pected to be in the range of $3.30 to $3.60 with a higher tax rate.
Information included in this Report on Form 10-Q relating to orders,
sales and earnings expectations constitutes forward-looking statements that
involve a number of risks and uncertainties. From time to time,
information provided by the Company or statements made by its employees may
contain other forward-looking statements. Factors that could cause actual
results to differ materially from the forward-looking statements include
but are not limited to: general economic conditions, including their
impact on capital expenditures; business conditions in the electronics
industry; competitive factors, including pricing pressures, technological
developments and products offered by competitors; changes in product and
sales mix, including an increase in indirect and systems sales; the timely
flow of competitive new products by the Company and market acceptance of
those products; the availability of parts and supplies from third party
suppliers on a timely basis and at reasonable prices, including the
timely availability of integrated circuits for the Company's Measurement
business; the Company's efforts to integrate and restructure its Video
and Networking business; inventory risks due to changes in market demand
or the Company's business strategies; changes in effective tax rates;
currency fluctuations; and the fact that a substantial portion of the
Company's sales are generated from orders received during the quarter,
making prediction of quarterly revenues and earnings difficult.
13
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
( 3) Bylaws, as amended.
(27) Financial Data Schedule for the thirty-nine
weeks ending February 24, 1996.
(.1) Restated Financial Data Schedule for the
thirty-nine weeks ending February 25, 1995.
(b) No reports on Form 8-K have been filed during the
quarter for which this report is filed.
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 4, 1996 TEKTRONIX, INC.
By /S/ CARL W. NEUN
Carl W. Neun
Senior Vice President and
Chief Financial Officer
14
EXHIBIT LIST
(a) Exhibits
( 3) Bylaws, as amended.
(27) Financial Data Schedule for the thirty-nine
weeks ending February 24, 1996.
(.1) Restated Financial Data Schedule for the
thirty-nine weeks ending February 25, 1995.
(b) No reports on Form 8-K have been filed during the
quarter for which this report is filed.