U.S. 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 quarterly period ended September 30, 1994
Commission file number 0-7438
DYNATECH CORPORATION
(Exact name of registrant as specified in its charter)
MASSACHUSETTS 04-2258582
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
3 New England Executive Park
Burlington, Massachusetts 01803-5087
(Address of principal executive offices)(Zip code)
Registrant's telephone number, including area code: (617)
272-6100
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 October 14, 1994 there were 8,728,278 shares of common stock
of the registrant outstanding.
<PAGE>
PART I. Financial Information
Item I. Financial Statements
DYNATECH CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(In thousands except per share data)
(Unaudited)
Three Months Ended Six Months Ended
September 30 September 30
1994 1993 1994 1993
Sales $121,377 $111,359 $239,149 $229,109
Cost of sales 57,574 52,460 114,298 107,034
Gross profit 63,803 58,899 124,851 122,075
Selling, general and
administrative
expense 39,294 37,381 78,428 77,924
Product development
expense 12,647 13,100 25,443 26,564
Amortization of
intangibles 2,316 2,571 4,364 5,317
Operating income 9,546 5,847 16,616 12,270
Interest expense (1,249) (830) (2,406) (1,398)
Interest income 358 173 594 430
Other income 242 93 521 120
Income from continuing
operations before
income taxes 8,897 5,283 15,325 11,422
Provision for income
taxes 3,813 1,993 6,581 4,680
Income from continuing
operations 5,084 3,290 8,744 6,742
Income (loss) from dis-
continued operations,
net of income taxes --- (23) --- 78
Net income $5,084 $3,267 $8,744 $6,820
Income per common share
Continuing operations $.57 $.35 $.96 $.73
Discontinued operations --- --- --- .01
$.57 $.35 $.96 $.73
Weighted average number
of common shares 8,889 9,289 9,092 9,279
See notes to condensed consolidated financial statements.
<PAGE>
DYNATECH CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
September 30 March 31
1994 1994
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 29,905 $ 23,101
Accounts receivable, net 75,661 73,090
Inventories:
Raw materials 26,464 26,923
Work in process 14,623 14,091
Finished goods 20,175 20,671
61,262 61,685
Other current assets 25,830 26,683
Net current assets of discontinued
operations --- 10,805
Total current assets 192,658 195,364
Property and equipment, net 37,825 39,253
Intangible assets, net 32,674 37,238
Other assets 8,708
8,698 $271,865 $280,553
LIABILITIES
Current liabilities:
Notes payable and current portion of
long-term debt $ 3,036 $ 2,911
Accounts payable 18,705 20,234
Streamlining and restructuring accrual 28,116 35,276
Other accrued expenses 44,646 45,283
Accrued income taxes 3,666 650
Total current liabilities 98,169 104,354
Long-term debt 32,002 33,006
Deferred income taxes 346 550
SHAREHOLDERS' EQUITY
Common stock 2,477 2,477
Additional paid-in capital 9,388 9,414
Retained earnings 194,701 185,957
Cumulative foreign currency adjustments 1,568 (757)
Treasury stock (66,786) (54,448)
Total shareholders' equity 141,348 142,643
$271,865 $280,553
See notes to condensed consolidated financial statements.
<PAGE>
DYNATECH CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Six Months Ended
September 30
1994 1993
Operating activities:
Net income from continuing operations $8,744 $6,742
Adjustments for noncash items included
in net income:
Depreciation 7,124 6,612
Amortization of intangibles 4,364 5,318
Increase in deferred taxes 3,010 133
Other 83 1,455
Change in operating assets and liabilities,
net of effects of purchase acquisitions
and divestitures (10,544) (13,022)
Net cash flows provided by continuing
operations 12,781 7,238
Net cash flows provided by (used in)
discontinued operations (3,250) 4,195
9,531 11,433
Investing activities: Purchases of
property and equipment (7,123) (8,377)
Disposals of property and equipment 246 197
Proceeds from sale of businesses 14,271 2,476
Other 1,315 2,264
Net cash flows from (used in) investing
activities 8,709 (3,440)
Financing activities:
Debt borrowings 116 ---
Repayment of debt (1,161) (12,927)
Proceeds from exercise of stock options 169 741
Purchases of treasury stock (12,533) ---
Net cash flows used in financing
activities (13,409) (12,186)
Effect of exchange rate on cash 1,973 (2,155)
Increase (decrease) in cash and cash
equivalents 6,804 (6,348)
Cash and cash equivalents at beginning
of year 23,101 24,350
Cash and cash equivalents at end of period $29,905 $18,002
Supplemental data:
Cash paid during the period for interest $2,507 $ 2,956
Cash paid during the period for income
taxes $2,020 $ 8,013
Tax benefit of disqualifying dispositions
of stock options $ --- $ 348
See notes to condensed consolidated financial statements.
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
A. Condensed Consolidated Financial Statements
In the opinion of management, the unaudited condensed
consolidated balance sheet at September 30, 1994, and the
unaudited consolidated statements of income and unaudited
consolidated condensed statements of cash flows for the interim
periods ended September 30, 1994 and 1993 include all
adjustments (including normal recurring adjustments) necessary
to present fairly these financial statements. The
aforementioned financial statements have been subject to a
review by the Company's independent accountants, whose report is
included as page 9 to this filing The accountants did not
propose any adjustments or additional disclosures as a result of
their review.
Certain information and footnote disclosures normally included
in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted.
The year-end balance sheet data was derived from audited
financial statements, but does not include disclosures required
by generally accepted accounting principles. It is suggested
that these condensed statements be read in conjunction with the
Company's most recent Form 10-K and Annual Report as of March
31, 1994.
B. Divestments
During the first half of fiscal 1995, the Corporation sold
Whistler Corporation and Micro Processor Systems, Inc., which
have been classified as discontinued operations, for
approximately $14 million in cash and long-term promissory notes
approximating $3.1 million. Five other businesses were sold in
the second quarter for approximately $0.3 million in cash and
long-term promissory notes approximating $0.7 million.
The effects of these transactions are not material to the
consolidated financial statements.
C. Treasury Stock
In June 1994 the Board of Directors authorized a repurchase of
up to $30 million of Dynatech common stock on the open market
and in private transactions. At September 30, 1994 the
Corporation had repurchased 594,522 shares at a cost of $12.5
million. All of the acquired shares are held as common stock in
treasury.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Results of Operations
Consolidated sales for the six months ended September 30, 1994
increased 4.4% to $239,149,000 from $229,109,000 for the
comparable period in the prior year. Information Support
Products segment sales rose 8.6% for the six months ended in
fiscal 1995 reflecting a 10.3% growth for Transmission products.
Sales in the Diversified Instrumentation segment increased 7.6%
from ongoing businesses for the comparable period in the prior
year which excludes nonstrategic businesses sold or to be
divested. This increase was a reslt of a 22.8% increase for
aircraft video information systems and a 17.4% increase of sales
of medical and diagnostic products offset partially by a 50.3%
decline for commercial and military avionics data bus
applications. The sale of six businesses in this segment during
fiscal 1994 and 1995 coupled with sales declines in businesses
held for sale resulted in an overall decrease of 4%.
Consolidated gross profit for the current quarter and six months
was 52.6% and 52.2% of sales, respectively, compared to 52.9%
and 53.3% for each of the respective prior year periods.
Information Support Products gross margin declined to 55.1%
compared to 57.5% in the first half of the prior year due
primarily to higher production costs for new product
introductions and price sensitivity in video graphics generation
markets. Diversified Instrumentation gross margin improved to
45.6% compared to 44.9% in the first half of the prior year
resulting from greater sales of software products. Selling,
general and administrative expenses were lower as a percent of
sales for the second quarter and first half periods from the
comparative prior year periods resulting in part from the
streamlining actions announced in the fourth quarter of fiscal
1994. Product development expense was 10.6% of sales for the
current half year compared to 11.6% in the first half of the
prior year. The reduction was attributed primarily to the
nonstrategic businesses in the Diversified Instrumentation
segment. Amortization of intangibles, of which $2.3 million in
the first half of fiscal 1995 and $2.6 million in the first half
of the prior year related to product technology and was excluded
from cost of sales, declined due to business divestments and
discontinuance of product lines. Interest expense from
continuing and discontinued operations declined for the current
half year to $2,739,000 as compared with $2,974,000 in the prior
year as a result of repayment of loan debt from operating cash
flow. Interest income increased due to higher investment rates
and earnings on notes acquired in divestment activities. The
effective tax rate was 42.9% for the current first half compared
to 41.0% in the prior year. The lower tax rate in the prior
year reflects the cumulative effect of $315,000 on the net
deferred tax assets resulting from the Budget Reconciliation Act
of August 1993.
<PAGE>
Income from continuing operations for the second quarter
increased 55% to $5,084,000, or $.57 per share, from $3,290,000,
or $.35 per share, for the second quarter of the prior year,
reflecting a 14.1% increase in sales of Information Support
Products, a 10.5% rise in Diversified Instrumentation sales
excluding nonstrategic businesses sold or to be divested, along
with lower product development expenses and amortization costs.
Backlog from ongoing operations was $82.9 million at September
30, 1994 compared with $80.2 million at March 31, 1994.
Estimated savings from implementing the streamlining and
restructuring actions were $5.1 million in the first half of
fiscal 1995 which included $1.4 million in reduced amortization
charges resulting from intangible asset revaluations. Employee
headcount from continuing operations has declined 7% since the
implementation of the streamlining plan and is on schedule
toward a 10% reduction in work force upon completion of
announced restructurings and divestitures. In addition, the
consumer automotive business units which employed approximately
10% of the work force have been sold. Sales and operating
income of nonstrategic businesses divested or held for sale
included in continuing operations were $30,077,000 and $11,000,
respectively, for the first half of fiscal 1995.
While the Company believes that the outlook for the third
quarter of fiscal 1995 is good, no assurance can be given that
operating results for the quarter will meet those of the
recently successful second quarter, however, third quarter
earnings levels should easily exceed the disappointing third
quarter results of $.14 of the prior year. Operating results
for the third quarter of fiscal 1995 will depend upon, among
other things, the incoming order rate during the quarter for the
Company's various businesses, product mix, and the continued
successful implementation of the Company's reorganization plan.
Capital Resources and Liquidity
The Company's funded debt was reduced to 19.9% of total capital
at September 30, 1994, an improvement from the year-end level of
20.1% at March 31, 1994, the lowest level in eight years. In
addition, working capital improved $3.5 million from March 31,
1994 levels. Cash outlays for the streamlining and
restructuring actions approximated $3.8 million in the first
half of fiscal 1995. Dynatech believes it has sufficient
resources to finance its cash requirements over the next year
including the necessary streamlining and restructuring actions
and treasury stock repurchases.
<PAGE>
PART I. OTHER INFORMATION
Item 6. (a) Exhibits
Exhibit 15(1) Report of Independent Accountants
Exhibit 15(2) SEC Awareness Letter
PART II. OTHER INFORMATION
Item 4. Results of votes of security holders
The Annual Meeting of Stockholders was held on July 26, 1994 in
Burlington, Massachusetts. A class of three Directors as
nominated by management to serve for a three-year term were
elected at the meeting. At such meeting 7,364,560 shares were
entitled to vote and a plurality of the votes cast were needed
for election. The table below discloses the vote with respect
to each nominee for office.
Management Nominees In Favor
John F. Reno 4,705,981
Theodore Cohn 4,448,829
Warren A. Law 4,448,829
Dissident Shareholder
Nominees
Gary Seigler 2,781,508
Peter Collery 2,781,508
Curtis MacNguyen 2,522,718
The terms of O. Gene Gabbard, Richard K. Lochridge and Paula
Stern expire at the annual meeting in 1995 and the terms of
Warren M. Rohsenow and James B. Hangstefer expire in 1996. In
August 1994 J.P. Barger resigned from the Board of Directors.
The results of the voting of the following additional items were
as follows:
A. To approve the 1994 Stock Option and Incentive Plan (as
forth in the Board's Proxy Statement).
B. To approve the SC Fundamental Proposal to retain an
investment banking firm to conduct a sale or to implement a
major restructuring (as set forth in the SC Fundamental Proxy
Statement).
<PAGE>
Broker
For Against Abstain Non Vote
Stock Option and
Incentive Plan 3,882,557 3,409,019 72,984
SC Fundamental
Proposal 2,528,149 4,630,344 66,091 139,976
Item 6. Reports on Form 8-K
(b) No current reports on Form 8-K were filed by the
Registrant during the quarter ended September 30, 1994.
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.
DYNATECH CORPORATION
Date November 3, 1994 /S/Robert H. Hertz
Robert H. Hertz
Chief Financial Officer and Treasurer
Date November 3, 1994 /S/John C. Maag
John C. Maag
Corporate Controller
EXHIBIT 15(1)
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors and
Shareholders of Dynatech Corporation:
We have reviewed the unaudited condensed consolidated balance
sheet of Dynatech Corporation as of September 30, 1994, and the
related condensed consolidated statements of income and cash
flows for the six-month periods ended September 30, 1994 and
1993.
These financial statements are the responsibility of the
company's management.
We conducted our review in accordance with standards established
by the American Institute of Certified Public Accountants. A
review of interim financial information consists principally of
applying analytical procedures to financial data and making inqu
iries of persons responsible for financial accounting matters.
It is substantially less ins cope than an audit in accordance
with generally accepted auditing standards, the objective of
which is the expression of an opinion regarding the financial
statem
ents taken as a whole. Accordingly, we do not express such an
opinion.
Based on our review, we are not aware of any material
modifications that should be made to the condensed consolidated
financial statements referred to above for them to be in
conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally
accepted auditing standards, the consolidated balance sheet as
of March 31, 1994, ad the related consolidated statements of
operations, shareholders' equity, and cash flows for the year
then ended (
not presented herein), and in our report, dated May 23, 1994, we
expressed an unqualified opinion on those consolidated financial
statements. In our opinion, the information set forth in the
accompanying condensed consolidated balance sheet as of March 3
1, 1994, is fairly presented, in all material respects, in
relation to the consolidated balance sheet from which it has
been derived.
COOPERS & LYBRAND
Boston, Massachusetts
October 20, 1994
EXHIBIT 15(2)
October 20, 1994
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
RE: Dynatech Corporation
We are aware that our report dated October 20, 1994 on our
review of interim financial information of Dynatech Corporation
for the interim periods ended September 30, 1994 and 1993, and
included in the Corporation's quarterly report on Form 10-Q for
the quarter ended September 30, 1994 is incorporated by
reference in various registration statements on Form S-3 (File
Nos. 2-78465, 2-81026, 2-82260, 2-85387, 2-86467, 2-92391,
2-94757, 33-365, 33-2387, 33-5544, 33-17169, 33-24058, and
33-30610) and on Form S-8 (File Nos. 2-87779, 33-10465,
33-17243, and 33-42427). Pursuant to Rule 436(c) under the
Securities Act of 1933, this report should not be considered a
part of the registration statements prepared or certified by us
within the meaning of Sections 7 and 11 of that Act.
Coopers & Lybrand
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> QTR-2
<FISCAL-YEAR-END> MAR-31-1995
<PERIOD-END> SEP-30-1994
<CASH> 29905
<SECURITIES> 0
<RECEIVABLES> 75661
<ALLOWANCES> 0
<INVENTORY> 61262
<CURRENT-ASSETS> 192658
<PP&E> 37825
<DEPRECIATION> 0
<TOTAL-ASSETS> 271865
<CURRENT-LIABILITIES> 98169
<BONDS> 32002
<COMMON> 2477
0
0
<OTHER-SE> 141348
<TOTAL-LIABILITY-AND-EQUITY> 271865
<SALES> 239149
<TOTAL-REVENUES> 239149
<CGS> 114298
<TOTAL-COSTS> 114298
<OTHER-EXPENSES> 108235
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2406
<INCOME-PRETAX> 15325
<INCOME-TAX> 6581
<INCOME-CONTINUING> 8744
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8744
<EPS-PRIMARY> .96
<EPS-DILUTED> .96
</TABLE>
