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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 quarter ended
November 30, 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 DECEMBER 28, 1996 THERE WERE 33,003,376 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
November 30, 1996 and May 25, 1996
Condensed Consolidated Statements of Operations - 3
for the Quarter Ended November 30, 1996
and the Quarter Ended November 25, 1995
Condensed Consolidated Statements of Cash Flows - 4
for the Quarter Ended November 30, 1996
and the Quarter Ended November 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 9
Signatures 10
TEKTRONIX, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
Nov. 30, May 25,
(In thousands) 1996 1996
- --------------------------------------------------------------------------------------------
ASSETS
Current assets:
Cash and cash equivalents $ 35,777 $ 36,644
Accounts receivable - net 273,198 375,309
Inventories 261,104 264,624
Other current assets 72,688 77,003
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Total current assets 642,767 753,580
Property, plant, and equipment 706,664 676,543
Accumulated depreciation and amortization (383,121) (368,980)
---------- ----------
Property, plant and equipment - net 323,543 307,563
Property held for sale 13,292 18,903
Deferred tax assets 23,135 28,247
Other long-term assets 225,562 220,203
---------- ----------
Total assets $1,228,299 $1,328,496
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term debt $ 14,684 $ 44,645
Accounts payable 162,290 178,353
Accrued compensation 72,117 120,044
Deferred revenue 18,199 22,295
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Total current liabilities 267,290 365,337
Long-term debt 152,186 201,955
Other long-term liabilities 89,571 85,882
Shareholders' equity:
Common stock 205,437 204,370
Retained earnings 417,939 378,606
Currency adjustment 48,756 52,069
Unrealized holding gains - net 47,120 40,277
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Total shareholders' equity 719,252 675,322
---------- ----------
Total liabilities and shareholders' equity $1,228,299 $1,328,496
========== ==========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
2
TEKTRONIX, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
Quarter ended Two quarters ended
Nov. 30, Nov. 25, Nov. 30, Nov. 25,
(In thousands except for per share amounts) 1996 1995 1996 1995
- --------------------------------------------------------------------------------------------
Net sales $ 477,166 $ 443,598 $ 917,281 $ 844,620
Cost of sales 277,404 256,926 526,247 488,008
---------- ---------- ---------- ----------
Gross profit 199,762 186,672 391,034 356,612
Research and development expenses 45,616 40,572 92,063 79,051
Selling, general, and administrative
expenses 115,944 108,732 228,039 207,541
Equity in business ventures'
earnings 250 1,686 394 1,093
---------- ---------- ---------- ----------
Operating income 38,542 39,054 71,326 71,113
Other income (expense) - net 453 (1,467) 984 (1,141)
---------- ---------- ---------- ----------
Earnings before taxes 38,905 37,587 72,310 69,972
Income taxes 12,449 11,277 23,139 20,992
---------- ---------- ---------- ----------
Net earnings $ 26,456 $ 26,310 $ 49,171 $ 48,980
========== ========== ========== ==========
Earnings per share $ 0.81 $ 0.79 $ 1.50 $ 1.47
Dividends per share 0.15 0.15 0.30 0.30
Average shares outstanding 32,858 33,479 32,810 33,363
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)
Two quarters ended
Nov. 30, Nov. 25,
(In thousands) 1996 1995
- --------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 49,171 $ 48,980
Adjustments to reconcile net earnings to cash provided
by operating activities:
Depreciation expense 27,598 21,478
Deferred taxes -- 8,321
Accounts receivable 106,278 (10,188)
Inventories 4,957 (30,613)
Accounts payable (20,936) (9,907)
Accrued compensation (48,016) (25,387)
Other assets -- (9,469)
Other-net 2,315 7,536
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Net cash provided by operating activities 121,367 751
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property, plant and equipment (48,748) (46,461)
Proceeds from sale of assets 513 9,936
Proceeds from sale of investments 12,599 4,704
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Net cash used by investing activities (35,636) (31,821)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net change in short-term debt (29,934) (21,957)
Issuance of long-term debt 358 50,029
Repayment of long-term debt (50,004) (1,674)
Issuance of common stock 1,067 13,039
Dividends (9,838) (10,059)
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Net cash provided (used) by financing activities (88,351) 29,378
Effect of exchange rate changes 1,753 (552)
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Decrease in cash and cash equivalents (867) (2,244)
Cash and cash equivalents at beginning of year 36,644 31,761
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Cash and cash equivalents at end of quarter $ 35,777 $ 29,517
========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOWS:
Income taxes paid - net $ 3,316 $ 18,493
Interest paid 8,274 7,456
NON-CASH INVESTING ACTIVITIES:
Fair value adjustment to securities
available-for-sale $ 9,759 $ 20,381
Income tax effect related to fair value adjustment (2,916) (8,153)
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. The Company's fiscal year is the 52 or 53 weeks ending the last
Saturday in May. Fiscal year 1997 is 53 weeks. The first half of 1997 is
27 weeks compared to 26 weeks in the first half of 1996.
ACCOUNTS RECEIVABLE
On September 10, 1996, the Company entered into a five year revolving
Receivable Purchase Agreement with Citibank NA to sell, without recourse,
an undivided interest of up to $50.0 million in a defined pool of trade
accounts receivable. The amount of receivables sold under this agreement
is reflected as a reduction of accounts receivable in the balance sheet at
November 30, 1996 and as operating cash flows in the statements of cash
flows for the two quarters ended November 30, 1996.
INVENTORIES
Inventories consisted of:
Nov. 30, May 25,
(In thousands) 1996 1996
- --------------------------------------------------------------------------------------------
Materials and work in process $ 145,993 $ 141,798
Finished goods 115,111 122,826
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Inventories $ 261,104 $ 264,624
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INCOME TAXES
The provision for income taxes consisted of:
Quarter ended Two quarters ended
Nov. 30, Nov. 25, Nov. 30, Nov. 25,
(In thousands) 1996 1995 1996 1995
- --------------------------------------------------------------------------------------------
United States $ 7,503 $ 6,553 $ 13,442 $ 8,089
State 1,876 1,639 3,361 2,029
Foreign 3,070 3,085 6,336 10,874
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Income taxes $ 12,449 $ 11,277 $ 23,139 $ 20,992
========== ========== ========== ==========
The provision for income taxes was calculated at estimated annual
effective rates of 32% and 30%, respectively, for the two quarters ended
November 30, 1996 and November 25, 1995.
5
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
second quarter (November 30, 1996), the Company maintained bank credit
facilities totaling $308.1 million, of which $295.4 million was unused.
The unused facilities include $153.1 million in lines of credit and $142.3
million under revolving credit agreements from United States and foreign
banks. During the quarter, the Company established a $50 million accounts
receivable securitization facility to further diversify its access to the
capital markets.
Current assets decreased by $110.8 million, or 15%, from the year end
balance at May 31, 1996, due primarily to reduced accounts receivable,
resulting from improved collections and the $50 million securitization.
Current liabilities declined by $98.0 million, or 27%. Short-term debt
was reduced by $30.0 million due to strong operating cash flows. Accounts
payable and accrued compensation declined due primarily to timing,
including the payment of pension liabilities of $39 million and the payout
of prior year-end accruals for incentives and commissions.
Shareholders' equity increased by $43.9 million due primarily to
earnings, net of dividends.
Results of Operations
TWO QUARTERS ENDED NOVEMBER 30, 1996
vs.
TWO QUARTERS ENDED NOVEMBER 25,1995
In the first half of fiscal 1997, net earnings were $49.2 million, or
$1.50 per share compared with $49.0 million, or $1.47 per share in the first
half of fiscal 1996. Net sales were $917.3 million, an increase of 9% from
the prior year's total of $844.6 million.
Measurement Business Division sales of $410.1 million increased 6%
from the prior year, with growth in telecommunications test products,
partially offset by lower sales in Japan as discussed below. Product
orders declined 2% from $383.2 million to $376.7 million.
Color Printing and Imaging Division sales increased 8% to $281.8
million and product orders increased 9% from $242.3 million to $265.2
million, with the successful launch of the Phaser 350* during the second
quarter, offset by the decline in sales into the specialty printer markets.
*(Phaser is a registered trademark of Tektronix, Inc.).
Video and Networking Division sales increased 14% to $225.4 million,
led by strong sales of the Profile* video disk recorder. Product orders
rose 16% from $187.6 million to $216.7 million. *(Profile is a registered
trademard of Tektronix, Inc.).
6
Sales to customers in the United States increased 16% from $431.2
million to $500.1 million, and represented 55% of total sales.
International sales of $417.1 million were up 1%, with strong growth in the
Pacific region offset by weakness in Europe and Japan. Product orders from
customers in the United States of $441.7 million were up 12% from last year
while international product orders of $416.9 million were down 1% due
primarily to a decline in orders from Sony/Tektronix, the Company's joint
venture in Japan, which changed its inventory stocking policies in the
current year.
Cost of sales decreased as a percentage of net sales from 57.8% to
57.4% due primarily to lower costs for some components. Research and
development and selling, general and administrative expenses increased
slightly as a percentage of sales, from 9.4% to 10.0% and from 24.6% to
24.9%, respectively.
Operating income as a percentage of sales declined from 8.4% in the
first half of 1996 to 7.8% due to the higher operating expenses as a
percentage of sales, partially offset by the slightly improved gross
margins.
The Company reported other income of $1.0 million compared to other
expense of $1.1 million last year because of higher gains on sales of stock
in other companies.
The provision for income taxes increased from $21.0 million to $23.1
million due to increased earnings before taxes and a higher estimated
effective annual tax rate of 32% for the current year, compared to 30% for
the first half of last year.
QUARTER ENDED NOVEMBER 30, 1996
vs.
QUARTER ENDED NOVEMBER 25, 1995
In the second quarter of fiscal 1997, net earnings were $26.5 million,
or $0.81 per share compared with $26.3 million, or $0.79 per share in the
first quarter of fiscal 1996. Net sales were $477.2 million, up 8% from
$443.6 million in the prior year.
Measurement Business sales of $203.3 million were up 2% from the prior
year. Product orders were $192.4, a decrease of 8% from product orders of
$208.2 million in the first quarter of 1996, as a result of several product
line transitions and of changing inventory stocking policies at
Sony/Tektronix.
Color Printing and Imaging sales increased 13% to $157.8 million and
product orders rose 20% to $153.0 million, due to the excellent performance
of the Company's products for the office market, particularly the Phaser
350.
Video and Networking sales grew 12% to $116.1 million, with a strong
performance from the Profile disk recorder and another major systems
contract in the United Kingdom. Product orders were $99.5 million, an
increase of 13% over 1996 product orders of $87.9 million.
Sales to customers in the United States increased by 16% from $220.2
million to $256.4 million, representing 54% of total sales. International
sales of $220.8 million were down slightly from $223.4 million in the prior
year, with weakness in Europe and Japan, but good growth in the Pacific.
Product orders from customers in the United States of $215.5 million were
up 5% from last year's second quarter while international product orders of
$229.4 million were also 5% ahead of last year.
Cost of sales, as a percentage of net sales, increased slightly from
57.9% to 58.1% due primarily to the sales mix. Research and development
expenses increased as a percentage of sales, from 9.1% to 9.6% due to the
high level of new product development.
7
Selling, general and administrative expenses declined as a percentage of sales,
from 24.5% to 24.3%, due to the higher sales level in the current quarter.
Operating income as a percentage of sales declined from 8.8% in the
second quarter of 1996 to 8.1% in the current quarter.
Income taxes increased from $11.3 million to $12.4 million due to the
higher estimated effective annual tax rate of 32% for the current year,
compared to 30% for all of last year.
Net earnings of $26.5 million were flat compared to the prior year's
quarter as higher sales and gross margins were offset by higher operating
expenses and taxes.
Forward-looking Statements
From time to time, information provided by the Company, or statements
made by its employees, may contain forward-looking statements. As with
many high technology companies, factors that could cause the Company's
actual results or activities to differ materially from these forward-
looking statements include but are not limited to: general economic
conditions and business conditions in the electronics industry, including
the effect on purchases by the Company's customers; 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 by the Company and the related
effects on gross margins; the Company's ability to deliver a timely flow of
competitive new products and market acceptance of these products; the
availability of parts and supplies from third party suppliers on a timely
basis and at reasonable prices; inventory risks due to changes in market
demand or the Company's business strategies; changes in effective tax
rates; customer demand; currency fluctuations; 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; and other risk factors listed from time to time in the Company's
reports filed with the Securities and Exchange Commission and press
releases.
Additional risk factors specific to the Company's current plans and
expectations that could cause the Company's actual results or activities to
differ materially from those stated include: the significant organizational
and operational challenges that could adversely affect continuing
integration and transformation of its Video and Networking business
successfully in the planned time frame; the Company's ability to
effectively manage its growing systems integration business, particularly
the large scale contracts in the Video and Networking Division; the timely
introduction of new products scheduled during the Company's fiscal year,
which could be affected by engineering or development program slippages and
parts availability; the ability to ramp up production or to develop
effective sales channels; and demand for and acceptance of those and other
Company products by the Company's customers which could be affected by the
current uncertainties in economic conditions around the world, and by
activities of the Company's competitors.
8
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
(27) (i) Financial Data Schedule.
(b) No reports on Form 8-K have been filed during the quarter for
which this report is filed.
9
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.
January 10, 1997 TEKTRONIX, INC.
By /S/ CARL W. NEUN
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Carl W. Neun
Senior Vice President and
Chief Financial Officer
10