U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
X THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended March 31, 1995
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
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.20 per share
(Title of class)
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 .
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. {X}
At May 9, 1995 the aggregate market value of the Common Stock of the registrant
held by non-affiliates was $330,928,130.
At May 9, 1995 there were 17,584,338 shares of Common Stock of the registrant
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the 1995 Annual Report to Shareholders are incorporated by reference
in Parts I and II.
Portions of the proxy statement for the 1995 Annual Meeting of Shareholders are
incorporated by reference in Part III.
<PAGE>
PART I
Item 1. BUSINESS
Products and Services
Incorporated in Massachusetts in 1959, Dynatech Corporation (the
"Company") has its principal offices at 3 New England Executive Park,
Burlington, Massachusetts 01803. Production facilities are located in fifteen
states and two Western European countries.
The Company operates in two business segments: Information Support Products
and Diversified Instrumentation. Information support products include
instruments, equipment, and software which is used by a wide customer base to
support voice, data, and video communications. Diversified instrumentation
comprises primarily medical-related equipment and software, and nonstrategic
businesses held for sale. A summary of the Company's sales, earnings, and
identifiable assets by business segment is found in the 1995 Annual Report which
is incorporated herein by reference.
The following table sets forth the approximate
percentage of revenue attributable to each of the Company's business segments
for the past three fiscal years:
1995 1994 1993
---- ---- ----
Information Support Products 75% 72% 70%
Diversified Instrumentation 25% 28% 30%
These segments are described in detail below.
INFORMATION SUPPORT PRODUCTS
The Information Support Products segment is focused on the support of
voice, data and video communications. Products sold within this segment may be
grouped in the following categories: communications test, data transmission,
industrial connectivity, and display.
Communications Test Products
The Company's communications test products encompass a wide range of
portable instruments and test systems designed, manufactured, and marketed by
Telecommunications Techniques Corporation. These products are sold to: i)
service providers including the Regional Bell Operating Companies, long-distance
<PAGE>
companies, competitive access providers, cable television operators, and PTTs;
ii) service users including large corporate and government network operators;
and iii) manufacturers of communications equipment and systems.
Since the breakup of the AT&T system in 1984, the amount of digital
traffic transmitted through the worldwide telecommunications system has
increased dramatically, in part due to the proliferation of computers and
networks, and the increased desire to communicate electronically. The increasing
volume of digital communications traffic is leading to the adoption of new
high-speed transmission technologies such as Synchronous Optical Network
(SONET), a high-speed, fiber-based technology now being widely deployed by
network service providers. The Company believes that the test products are
critical to the smooth functioning of a wide range of communications networks.
The market for test products is driven in part by the rapid deployment of new
technologies and new communications standards, as well as efforts on the part of
communication service providers and users to improve service quality and to
reduce costs. These factors have led to demand for communications test products
which integrate more test functionality and intelligence.
The Company's test products are sold under the following brand names:
T-BERD(Registered Trademark), FIREBERD(Registered Trademark), CENTEST
(Registered Trademark), INTERCEPTOR(Registered Trademark) and FIBERSCAN
(Registered Trademark).
The Company's digital loop test products test the link between a
service provider's central office and the customer premises. Technicians use
these products to perform fault location and data quality testing of voice or
data circuits, whether carried on copper wire pairs or fiber optic cable.
Digital transport test products test high-speed ATM, SONET, DS3, DS1, DS0
transmission circuits and measure multiple performance parameters. The products
are used by service providers to determine the quality of newly installed
high-speed circuits by performing various measurements over a timed test period.
The Company introduced in fiscal 1995 a version of its T-BERD 310 analyzer which
<PAGE>
integrates SONET test functions with capabilities for testing and monitoring
DS1, DS3, and DS0 circuits.
The Company's data communications analyzers perform up to 60
simultaneous performance and error measurements on a wide range of network
transmission equipment. For its family of FIREBERD 4000 and 6000 products, the
Company offers a wide range of test interfaces, including Euro-ISDN, an emerging
communications protocol used in Europe, which enable users to tailor the
instrument to specific test requirements.
Internetwork protocol analyzers bridge the gap between local area
networks (LAN) and wide area networks (WAN) by providing the capability to
monitor and test network traffic as it passes from a LAN to a WAN and back to a
LAN. The FIREBERD 500, a new test platform introduced in fiscal 1995, is capable
of analyzing ATM, frame relay, FDDI and SMDS communications architectures. The
FIREBERD 500 enables network managers to monitor network behavior and quickly
pinpoint problems anywhere within the internetwork. The Company anticipates
strong market demand for these products as a result of growth of
interconnections between LANs and WANs and demands for network reliability.
The Company's rack-mounted centralized test systems are used in the
service provider central office environment to test high-speed communication
circuits remotely. The CENTEST 650 allows monitoring and testing of DS3 signals
for ongoing maintenance, so that network trouble spots can be quickly identified
and mobile repair crews can be efficiently directed from a centralized location.
The FIBERSCAN product line consists of modular, portable fiber optic
test instruments which allow both central office and field technicians to
isolate fiber optic cable breaks and measure degradation caused by aging
connectors and related components. The instrument includes an optical time
<PAGE>
domain reflectometer used to locate cable breaks and damage, an optical power
meter used to determine the signal levels on optical fibers, and a stable
optical source.
The Company serves the international telecommunications industry by
providing portable digital testing capability for transmission systems that
operate in accordance with the CCITT standards. These products comply with
International Telecommunications Union standards, which are used everywhere that
North American standards are not. The Company introduced in fiscal 1995 the
INTERCEPTOR 1402S which allows technicians to maintain existing PDH networks as
well as higher speed SDH service and equipment. Data Transmission Products
Dynatech's data transmission products provide users of information
networks with management tools to ensure reliable network operation and products
to condition the data for transmission via private or public networks. The
Company's equipment is designed primarily to manage data transmission and
communication networks in a computer environment.
A significant portion of the legacy network that most corporations
retain consists of private "leased line" networks constructed during the 1970s
and 1980s. Network operators found constructing private networks cost effective
since carrier services were geared more to carrying telephone traffic than data
traffic. Following the breakup of the AT&T system, additional service providers
began to offer services geared for high-speed data networking. The deployment of
local area networks and distributed network systems, combined with the evolution
of new high-speed transmission technologies such as ATM and frame relay, offer
large corporate users advantages in speed and throughput. The challenge facing
many network operators is to integrate new technologies into existing legacy
network systems to take advantage of lower cost and higher throughput.
<PAGE>
To address this market, the Company announced the development of its
DynaStar(Registered Trademark) family of branch access products in fiscal 1995.
These products provide a wide range of access, feeder, and concentration
functions for supporting both legacy and newly emerging applications. The
DynaStar product line facilitates the interconnection between geographically
dispersed branch locations and central computing sites via wide area
technologies including ISDN, frame relay, and ATM. A version of the product can
aggregate traffic from legacy WAN sources such as SNA and X.25 and combine this
traffic with local LAN traffic on an ATM or frame relay link for integrated
network access and service.
The Company markets a line of X.25 packet switching products which
include PADs (packet assemblers/dissassemblers), switches, bridges/routers, and
dial-in/out LAN access equipment. These products support both public and private
networks, with scalability up to 40 ports. Packet switching, a communications
protocol which breaks data into "packets" for efficient transmission over
private or public data networks, is a cost-effective means for companies to
transmit data over long distances.
Other data transmission products include electronic matrix switches and
network availability products designed to manage the interconnection of remote
analyzers to various network interfaces. The network availability product is
used for fault testing, including very critical protocol-level monitoring,
without the need for dispatch of personnel to perform valid end-to-end circuit
analysis.
In addition, the Company provides analysis and simulation instruments
which focus on emulation tools that support the MIL-STD-1553 and the ARINC 429
local area networks (LAN) used in today's military and commercial aircraft,
respectively.
The Company also manufactures a series of wireless communications
components and systems. These include lightweight modular telephone headsets and
miniaturized two-way communications devices for government covert surveillance
and intelligence operations. Other wireless products include portable radio
<PAGE>
systems used to improve communications and productivity at hospitals, and
wireless video transmitters/receivers sold primarily to the personal security
market. Industrial Connectivity Products
Dynatech supplies ruggedized personal computers and compatible input and
output boards under the name of Industrial Computer Source for industrial and
scientific applications. The Company designs its products to operate in adverse
environments and to withstand excessive vibration, noise, temperature, dust and
moisture.
Display Products
- ----------------
Dynatech's display products consist primarily of professional video
equipment and interactive graphics hardware and software.
Several technological and market trends are expected to have a profound
effect on the broadcast and cable-TV industry which is the cornerstone of the
professional video equipment market. The entry of new video service providers
such as direct satellite broadcasters and telephone service providers is
expanding the available distribution channels for the delivery of video content.
Increased competition in the broadcast industry may consequently lead to the
development and introduction of complex two-way, video-based information
services. Technological advancements, such as new video compression standards
and upgraded high-speed, high-bandwidth delivery systems over fiber optics, are
expected to increase capacity and reliability, and facilitate two-way
interactive video services to business and residential users. The Company
believes these developments are pushing the conversion within the professional
video industry from analog to digital systems used for the generation, handling,
storage, and transmission of video content. Concurrent developments are making
possible the increased integration of video in computer networks, such as ATM
technology for high-speed handling of multimedia traffic.
<PAGE>
The Company's professional video products are sold worldwide to
television and radio stations, video production facilities, cable television,
and corporate and educational users through three business units, Distribution
and Production Products, NewStar newsroom automation products, and DaVinci color
correction systems.
Distribution products center on transmission and management
technologies used mainly by television broadcasters. The products include
routing switchers, and machine control and master control systems for managing
the flow of information within a television station, and an electronically
digital commercial playback system, sold under the Digistore name, which is used
to acquire, store and play back commercials in a fully automated manner.
Production products are used to create images for broadcasting,
production studios, and corporate users of graphics and special effects systems.
These products are used to create many of the unique special effects that
distinguish television commercials and film productions. Products include:
digital paint and animation systems for creating electronic graphics; digital
editing and layering systems which merge multiple video recordings to produce a
new video; and digital disk recorders for storage and recall of digital images
on a real-time basis.
Other production products include video character and graphics
generators for displaying alphanumeric titles in a variety of fonts for
broadcast and nonbroadcast applications. The Company's high-end character
generators are able to create high-quality text on a video screen in hundreds of
different font styles, colors, and backgrounds, as well as in many foreign
languages, including Chinese, Japanese, and Arabic.
Dynatech also develops, markets, and manufactures products which are
specific to the cable television industry. These products include equipment for
broadcasting emergency alert information over any combination of cable channels
automatically, and commercial and program insertion systems which download and
<PAGE>
insert national, regional, and local commercials and cross-channel promotion
into cable programming.
DaVinci Systems produces the Rennaissance 8:8:8 line of digital color
correction systems which are used to tint, enhance, and color-match television
commercials. It is sold to the postproduction and teleproduction market and to
commercial production facilities. The NewStar business unit produces a
software-driven client/server PC-networked system used to computerize radio and
television newsrooms, including the control of robotic cameras.
Interactive products include computer hardware and software which
combine full-color live video using real-time digital video compression with
computer graphics and text for such applications as product training, display of
financial market information, geographic display, and information systems. These
UNIX-based products, developed and sold by Parallax Graphics, include a live
video windowing system for SUN Microsystems and Hewlett Packard Series 700
workstations.
Included in interactive product offerings is software sold under the
DataViews name, used in the development of custom graphic user interfaces for
various UNIX-based computer systems. Applications for this software include the
creation of custom graphics for displaying real time data such as found in
manufacturing process control and communications network analysis.
AIRSHOW pioneered and leads the world market for passenger cabin video
information systems. Its flagship product displays position defining maps,
airport terminal charts, and in-flight information.
Dynatech offers software solutions for the pharmacy industry, via
ComCoTec's RxCLAIM On-Line Transaction Processing System, an on-line
prescription claims adjudication system. The third-party prescription claims
industry is growing rapidly as prescription drug plans become an increasingly
important part of an employee benefit program. The RxCLAIM System assists in the
administration of health benefits by efficiently processing prescriptions for
third-party payors.
<PAGE>
DIVERSIFIED INSTRUMENTATION
The Diversified Instrumentation segment consists of two divisions: 1)
medical and diagnostic products, which do not relate to information support, and
2) selected nonstrategic businesses held for sale.
Medical and Diagnostic Products
The Company's medical and diagnostic products consist of laboratory,
radiation therapy planning, and test and measurement products, and are sold
under the name of Dynatech Laboratories, Computerized Medical Systems, Dynatech
Nevada, and Dynatech Precision Sampling.
Dynatech manufactures and sells laboratory diagnostic equipment and
supplies for research and clinical testing in the fields of immunology,
microbiology, serology, and cancer research. The Company's instruments are
designed around a microplate format and employ enzyme-linked immunosorbent assay
(ELISA) techniques for testing antigens and antibodies in blood serum and other
body fluids. These techniques use enzymes, chemiluminescent or fluorescing
reagents as labels that give off color or light at the completion of tests.
Results can be read and recorded by the Company's sensitive reading instruments.
Among the Company's products is a modular microplate system which
combines several elements, including a reader, multi-reagent dispenser,
multi-reagent washer, diluter/dispenser, and random access plate incubators. The
system incorporates process quantitative analysis and is sold to the research
lab market (universities and pharmaceutical companies) and the clinical
laboratory market. Additionally, the Company makes and sells disposable plastic
laboratory ware for handling and transporting test specimens, including items
specifically treated to adsorb or covalently bind proteins.
The Company also markets software products used in conjunction with
radiation therapy treatment of cancer patients. Our newest product, FOCUS, a
three dimensional (3-D) radiation therapy treatment planning system (RTP), was
<PAGE>
approved for sale by the Federal Drug Administration in February 1995. This
product allows oncologists and medical physicists to develop a treatment plan
which delivers the maximum radiation dose to the tumor while minimizing
radiation dose to surrounding healthy tissue. The Company continues to offer its
two dimensional (2-D) RTP product during the market transition to the 3-D RTP.
Dynatech supplies the hospital market with sophisticated instruments
for checking the electrical safety and performance of instruments such as
defibrillators. It also markets patient simulators. These instruments produce
simulated patient outputs which are fed into patient monitoring devices such as
an electrocardiography (ECG) machines and non-invasive blood pressure monitors.
The Company also manufactures a comprehensive line of state-of-the-art,
fully automated systems for use in the analysis of volatile organic contaminates
in drinking water, wastewater, and soils.
Diversified Instrumentation Businesses Held for Sale
The Company is presently in process of divesting four standalone
and unrelated business units. Their product offerings consist of microwave
amplifiers, simulator monitors, after-market computer enhancements, and surge
suppression and line conditioning products.
DISCONTINUED OPERATIONS AND DIVESTED BUSINESSES
The Company adopted a formal plan to discontinue certain
nonstrategic business units and to sell these operations during fiscal 1995.
These operations include Micro Processor Systems, Inc., which was sold in April
1994, and Whistler Corporation, which was sold in June 1994.
In addition, the Company announced a plan to sell at least 11 product
lines and businesses as part of its 1994 restructuring plan. As of May 15, 1995,
the Company has sold or otherwise disposed of eight businesses and product lines
for approximately $32.3 million in cash and promissory notes.
<PAGE>
CUSTOMERS AND MARKETING
Dynatech markets its products to a diverse customer base. The Company's
information support products are sold to a broad range of communications service
providers, including telephone companies, broadcasters, cable television
operations, and a wide array of computer and data communication users, corporate
and industrial customers, and scientific and educational organizations.
Customers for the Company's diversified instrumentation products
include pharmaceutical companies, research and testing laboratories, hospitals
and clinical laboratories. The Company also has OEM agreements with several
reagent manufacturers.
Most of the Company's revenues are generated through a direct sales force.
The Company also uses distributorships and representative relationships to sell
its products for certain products in areas of the United States and the rest of
the world with relatively low sales volume.
COMPETITION
The markets in which the Company competes are highly competitive and are
characterized by rapidly changing technology. Principal competitors within the
Information Support Products segment include businesses with significant
financial, development, marketing, and manufacturing resources, as well as
numerous small specialized companies. The Company believes it holds a relatively
favorable position with respect to the important competitive factors in each of
its markets. The Company considers rapid product development, product
functionality and features, and highly trained technical sales and support staff
to be key competitive factors.
MAJOR CUSTOMERS
The Company's sales of goods and services to various agencies of the United
States federal government were approximately $25,741,000, $24,123,000, and
$25,273,000 in fiscal years ended 1995, 1994, and 1993, respectively. No single
<PAGE>
customer accounted for more than 10% of sales in any of the three years.
INTERNATIONAL
The Company maintains marketing subsidiaries or branches in major
countries in Western Europe and Asia and has distribution agreements in many
other countries where sales volume does not warrant a direct sales organization.
The Company's foreign sales from continuing operations (including exports from
the United States directly to foreign customers) were approximately 37%, 35%,
and 37% of consolidated net sales in fiscal years 1995, 1994, and 1993,
respectively. The Company maintains production facilities in England and the
Channel Islands which manufacture information support products and medical
instrumentation.
The Company's international business is subject to risks customarily
found in foreign operations, such as fluctuations in currency exchange rates,
import and export controls, and regulatory policies of foreign governments. A
summary of the Company's sales, earnings and identifiable assets by geographic
area is found in the 1995 Annual Report which is incorporated herein by
reference.
PRODUCT DEVELOPMENT
As the technologies in the Company's markets are continually changing,
the Company's success depends on its ability to develop new products and improve
existing ones. All businesses within the Company maintain product development
capability focused on and experienced in the technologies important to the
specific business. On a segment basis, product development expense in the years
ended March 31, 1995, 1994, and 1993 were as follows: Information Support
Products, $42,356,000, $41,792,000, and $37,977,000, respectively; Diversified
Instrumentation, $10,689,000, $11,996,000, and $13,132,000, respectively.
<PAGE>
BACKLOG
The Company's backlog of orders believed to be firm at March 31, 1995
and 1994 were $74,272,000 and $93,981,000, respectively. Of the decrease,
$10,565,000 related to companies divested in fiscal 1995. All but $1,795,000 of
backlog at March 31, 1995 is expected to be delivered within the fiscal year
ended March 1996. On a segment basis, backlog at March 31, 1995 and 1994 was as
follows: Information Support Products $53,898,000 and $50,791,000, respectively;
Diversified Instrumentation $20,374,000, of which $18,169,000 relates to medical
and diagnostic products, and $43,190,000, of which $22,964,000 relates to
medical and diagnostic products, respectively.
EMPLOYEES
The Company employs approximately 2,600 people of which approximately
175 employees are with businesses that are held for sale. Employees having
requisite skills for the Company's purposes are generally available in the areas
where its facilities are located. The Company considers its labor relations to
be excellent.
PATENTS AND TRADEMARKS
The Company generally seeks patent protection for inventions and
improvements to its products, which it believes to be patentable. It holds
numerous United States and foreign patents and patent applications covering many
products. While the Company considers its patent position important, it believes
its technical marketing and manufacturing capabilities are of greater
competitive significance.
FIREBERD, T-BERD, Centest, Interceptor, Fiberscan, DynaStar, NewStar,
ArtStar, Microtiter, Microelisa, and Airshow are among registered trademarks
which the Company considers valuable assets.
<PAGE>
Dynatech is a registered service mark in the United States and a
registered trade or service mark (issued or applied for) in most other major
industrialized countries of the world.
SUPPLIERS
Materials and components used in the Company's products are normally
available stock items or can be obtained to Company specifications from more
than one potential supplier. The Company's plasticware is molded by
subcontractors using molds owned by the Company.
Some components and assemblies are purchased in Asia under volume
contracts.
ENVIRONMENTAL FACTORS
Federal, state and local laws or regulations which have been enacted or
adopted regulating the discharge of materials into the environment have not had,
and under present conditions the Company does not foresee that it will have, a
material adverse effect on capital expenditures, earnings, or competitive
position of the Company.
<PAGE>
EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the Company are as follows:
Officer
Name Current Position Age Since
John F. Reno President and Chief Executive Officer 56 1979
Robert H. Hertz Treasurer and Chief Financial Officer, 52 1980
Clerk
John R. Peeler Corporate Vice President 40 1992
Communications Test Business
John R. South Corporate Vice President 54 1993
Medical and Diagnostics Products Business
George A. Merrick Corporate Vice President 47 1994
Display Business
Roger C. Cady Corporate Vice President 56 1993
Business Development
John A. Mixon Corporate Vice President 49 1989
Human Resources
James R. Turner Corporate Vice President 66 1960
John C. Maag Corporate Controller 45 1987
Nancy J. Jenkins Assistant Treasurer 49 1990
Edward T. O'Dell Secretary, Assistant Clerk, 59 1975
attorney whose professional corporation
is a partner of Goodwin, Procter & Hoar,
general counsel to the Company
<PAGE>
Officers are elected annually by the Board of Directors at its meeting
following the Annual Meeting of Shareholders and serve until the next annual
election or until their successors have been elected at any other Director's
meeting. There are no arrangements or understandings between any of the
Directors or Officers and any other person regarding election as a Director or
Officer of the Company.
Each of the Company's officers has served in various capacities with
the Company for more than five years, except Messrs. South, Cady and Merrick.
Mr. South joined the Company in July 1990. From 1987 to 1990 he was a Vice
President for SmithKline Beecham Clinical Laboratories, a provider of laboratory
testing services.
Mr. Cady joined the Company in March 1993. From 1986 to 1993 he was
President and founder of Arcadia Consulting, a management consulting firm which
assisted high technology companies.
Mr. Merrick joined the Company in September 1994. From 1990 to 1994 he
served as Executive Vice President of Worldwide Sales and Marketing at Ampex
Systems Corp., a supplier of professional video, broadcasting, and recording
products.
<PAGE>
Item 2. PROPERTIES
-------------------
The Company's policy is generally to lease real property for its
manufacturing and sales operations. It does however, own two buildings used for
manufacturing.
Segment Areas Square Lease
Location Utilizing Facilities Feet Termination
Owned Facilities:
Carson City, Nevada Diversified Instrumentation 22,000
Baton Rouge, Louisiana Diversified Instrumentation 13,000
Leased Facilities:
Burlington, Massachusetts Headquarters 22,200 1998
Germantown, Maryland Information Support Products 68,000 2001
Germantown, Maryland Information Support Products 98,000 2003
Germantown, Maryland Information Support Products 14,700 1997
San Diego, California Information Support Products 62,400 1999
Nashua, New Hampshire Information Support Products 57,600 1999
Salt Lake City, Utah Information Support Products 48,100 1997
Guernsey, Channel Islands Information Support Products 40,000 2002
and Diversified Instrumentation
Woodbridge, Virginia Information Support Products 30,000 1997
Northampton, Massachusetts Information Support Products 22,500 1995
St. Quentin En Yvelines,
France Information Support Products 19,100 1998
Los Gatos, California Information Support Products 18,000 1996
Chantilly, Virginia Diversified Instrumentation 50,000 2001
St. Louis, Missouri Diversified Instrumentation 25,000 1999
Tustin, California Diversified Instrumentation 24,300 1999
San Jose, California Diversified Instrumentation 19,200 1995
Tampa, Florida Diversified Instrumentation 18,900 1995
Lombard, Illinois Diversified Instrumentation 16,100 1998
The Company has other leases for manufacturing space, but in each case
the total footage is under 15,000 square feet.
<PAGE>
The Company also leases several sales and service offices in the United
States, Western Europe, Japan, and Hong Kong. In addition the Company is liable
for certain leased premises that are not being utilized due to consolidation and
centralization efforts of facilities. It considers its facilities adequate and
suitable for its foreseeable needs and believes that similar facilities will
continue to be available at comparable prices after adjusting for inflation. The
Company owns a substantial portion of the machines, tools and equipment required
for its operations and considers this property to be in good condition. The
Company also leases equipment and machines on terms which allow the Company the
flexibility it desires related to such machinery and equipment.
Item 3. LEGAL PROCEEDINGS
- -------------------------
The Company is party to several pending legal proceedings and claims,
none of which, in the opinion of management or counsel primarily responsible for
such matters, is considered to be material.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- -----------------------------------------------------------
None
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON STOCK
- ---------------------------------------------
AND RELATED SECURITY HOLDER MATTERS
-----------------------------------
(a) The Company's common stock is traded in the over-the-counter NASDAQ
National Market System. The quarterly range of high and low prices for the past
two years as reported by the National Association of Securities Dealers
Automated Quotations National Market System and published in The Wall Street
Journal may be found in the Company's 1995 Annual Report on page 32, which is
incorporated herein by reference.
(b) There were approximately 1,050 common stockholders of record as of May
15, 1995.
(c) The Company has never paid a cash dividend on its common stock and does
not intend to make such a payment in the foreseeable future.
<PAGE>
Item 6. SELECTED FINANCIAL DATA
- -------------------------------
Reference is made to information contained in the section entitled
"Five-Year Summary" on page 16 in the Company's 1995 Annual Report, copies of
which have been filed with the U.S. Securities and Exchange Commission pursuant
to Rule 14a-3(c) under the Securities Exchange Act of 1934, as amended, which
information is incorporated herein by reference.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
- -----------------------------------------------
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
Reference is made to the information on pages 17 - 19 in the Company's
1995 Annual Report, copies of which have been filed with the U.S. Securities and
Exchange Commission pursuant to Rule 14a-3(c) under the Securities Exchange Act
of 1934, as amended, which information is incorporated herein by reference.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- ---------------------------------------------------
Reference is made to the Company's consolidated financial statements
and notes thereto on pages 20 - 31 in the Company's 1995 Annual Report together
with the Report of Independent Accountants dated May 15, 1995 on page 32 and
"Summary of Operations by Quarter" on page 32, copies of which have been filed
with the U.S. Securities and Exchange Commission pursuant to Rule 14a-3(c) under
the Securities Exchange Act of 1934, as amended, which information is
incorporated herein by reference.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
- -------------------------------------------------------------------
AND FINANCIAL DISCLOSURE
------------------------
None
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
- -----------------------------------------------------------
Reference is made to the information responsive to Items 401 and 405 of
Regulation S-K contained in the Company's definitive Proxy Statement relating to
its 1995 Annual Meeting of Shareholders which will be filed with the U.S.
Securities and Exchange Commission within 120 days after the close of the
<PAGE>
Company's fiscal year ended March 31, 1995 pursuant to Rule 14a-6(b) under the
Securities and Exchange Act of 1934, as amended; said information is
incorporated herein by reference.
Item 11. EXECUTIVE COMPENSATION
- -------------------------------
Reference is made to the information responsive to Item 402 of
Regulation S-K contained in the Company's definitive Proxy Statement relating to
its 1995 Annual Meeting of Shareholders which will be filed with the U.S.
Securities and Exchange Commission within 120 days after the close of the
Company's fiscal year ended March 31, 1995 pursuant to Rule 14a-6(b) under the
Securities Exchange Act of 1934, as amended; said information is incorporated
herein by reference.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- ----------------------------------------------------------------------------
Reference is made to the information responsive to Item 403 of
Regulation S-K contained in the Company's definitive Proxy Statement relating to
its 1995 Annual Meeting of Shareholders which will be filed with the U.S.
Securities and Exchange Commission within 120 days after the close of the
Company's fiscal year ended March 31, 1995 pursuant to Rule 14a-6(b) under the
Securities Exchange Act of 1934, as amended; said information is incorporated
herein by reference.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- -------------------------------------------------------
Reference is made to the information responsive to Item 404 of
Regulation S-K contained in the Company's definitive Proxy Statement relating to
its 1995 Annual Meeting of Shareholders which will be filed with the U.S.
Securities and Exchange Commission within 120 days after the close of the
Company's fiscal year ended March 31, 1995 pursuant to Rule 14a-6(b) under the
Securities Exchange Act of 1934, as amended; said information is incorporated
herein by reference.
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K
- ----------------------------------------------------------------------------
(a) Documents filed as part of this report
(1) Financial statements
<PAGE>
No financial statements have been filed with this Form 10-K other than
those incorporated by reference in Item 8.
(2) Financial statement schedules Page
----
II. Valuation and Qualifying Accounts 26
Schedules other than those listed above have been omitted because they
are either not required or not applicable or because the required
information has been included elsewhere in the financial statements or
notes thereto.
Individual financial statements of the Company have been omitted
because it is primarily an operating Company and no subsidiaries have
material minority equity interests, nor are any indebted to any person
other than the parent or consolidated subsidiaries, in amounts which are
material in relation to total consolidated assets at the date of the March
31, 1995 balance sheet, except indebtedness incurred in the ordinary course
of business which is not overdue.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended March 31, 1995.
(c) Exhibits
Exhibit No.
- -----------
(3) Articles of Organization and By-Laws -
(1) The Registrant's Restated Articles of Organization, as amended, and
By-Laws, as amended, were filed as Exhibit 3 to Form 10-K for the year
ended March 31, 1992, and are incorporated herein by reference.
(2) Shareholder Rights Agreement, dated as of February 16, 1989, between
Dynatech Corporation and The First National Bank of Boston, as Rights
Agent, was filed as an Exhibit to a Current Report on Form 8-K filed on
February 27, 1990, and is incorporated herein by reference.
(3) Shareholder Rights Agreement, as amended and restated as of March 12,
1990, was filed as an Exhibit to a Current Report on Form 8-K filed on
April 11, 1990, and is incorporated herein by reference.
(4) Instruments defining the rights of security holders -
(1) Multicurrency Revolving Credit and Term Loan Agreement, as amended,
dated December 22, 1992 between Dynatech and The First National Bank of
Boston and others is incorporated by reference to Exhibit 4(a) on Form 10-Q
for the quarter ended December 31, 1992.
<PAGE>
Exhibit No.
- -----------
(2) Note Agreement dated as of December 15, 1990 between Dynatech and
Nationwide Life Insurance Company is incorporated by reference to Exhibit
4(b) on Form 10-Q for the quarter ended December 31, 1990.
(10) Material Contracts -
(1) 1982 Incentive Stock Option Plan, as amended, incorporated by reference
to Exhibit 10(2) to Form 10-K for the year ended March 31, 1990.
(2) Form of Special Termination Agreement between Dynatech Corporation and
each of Messrs. Barger, Reno and Hertz incorporated by reference to Exhibit
10(5) to Form 10-K for the year ended March 31, 1990.
(3) Form of Special Termination Agreement between Dynatech Corporation and
each of its other Executive Officers incorporated by reference to Exhibit
10(6) to Form 10-K for the year ended March 31, 1990.
(4) 1992 Stock Option Plan incorporated by reference to Exhibit 3 to Form
10-Q for the quarter ended June 30, 1992.
(5) Letter Agreement dated March 24, 1993 by and between JP Barger and
Dynatech Corporation incorporated by reference to Exhibit 10(5) to Form
10-K of the year ended March 31, 1993.
(6) 1994 Stock Option and Incentive Plan incorporated by reference to
Exhibit 4.1 to Form S-8 filed on January 30, 1995.
(13) Dynatech Corporation 1995 Annual Report to Stockholders which, except
for those portions expressly incorporated herein by reference, is furnished only
for the information of the Securities Exchange Commission and is not deemed to
be filed.
(21) Subsidiaries of the Registrant.
(23) Consent of Independent Accountants.
(27) Financial Data Schedule
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
-----------------------
June 1, 1995 By: ROBERT H. HERTZ
-----------------------
Treasurer and Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
RICHARD K. LOCHRIDGE Chairman of the Board, Director June 1, 1995
- --------------------
JOHN F. RENO President, and Chief Executive
- ------------ Officer, Director June 1, 1995
ROBERT H. HERTZ Treasurer and Chief Financial Officer June 1, 1995
- ---------------
JOHN C. MAAG Controller, Principal Accounting
- ------------ Officer June 1, 1995
RONALD L. BITTNER Director June 1, 1995
- -----------------
THEODORE COHN Director June 1, 1995
- -------------
WILLIAM R. COOK Director June 1, 1995
- ---------------
O. GENE GABBARD Director June 1, 1995
- ---------------
JAMES B. HANGSTEFER Director June 1, 1995
- -------------------
ROBERT G. PAUL Director June 1, 1995
- --------------
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
and Shareholders of
Dynatech Corporation:
Our report on the consolidated financial statements of Dynatech Corporation has
been incorporated by reference in this Form 10-K from the 1995 Annual Report to
Shareholders of Dynatech Corporation. In connection with our audits of such
financial statements, we have also audited the related financial statement
schedule on page 26 of this Form 10-K.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information required to be
included therein.
Boston, Massachusetts COOPERS & LYBRAND L.L.P.
May 15, 1995
<PAGE>
DYNATECH CORPORATION
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED MARCH 31, 1995, 1994 AND 1993
RESERVE FOR DOUBTFUL ACCOUNTS (In thousands)
BALANCE, March 31, 1992 $3,540
Additions charged to income 1,985
Write-off of uncollectible accounts, net (1,891)
-------
BALANCE, March 31, 1993 3,634
Additions charged to income 1,232
Write-off of uncollectible accounts, net (961)
-------
BALANCE, March 31, 1994 3,905
Additions charged to income 2,685
Write-off of uncollectible accounts, net (1,293)
Allowances of divisions sold (220)
-------
BALANCE, March 31, 1995 $5,077
=======
<PAGE>
Dynatech Corporation
EXHIBIT 13
DYNATECH CORPORATION
FORM 10-K
EXCERPTS OF 1995 Annual Report To Shareholders
Five Year Summary
Management's Discussion and Analysis of Financial
Consolidation and Results of Operations
Consolidated Financial Statements
Notes to Consolidated Financial Statements
Summary of Operations by Quarter (Unaudited)
<PAGE>
<TABLE>
Five-Year Summary
(Amounts in thousands except per share data)
Years ended March 31 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
Sales .......................................................... $ 488,776 $ 458,449 $ 474,197 $ 429,570 $ 427,523
Cost of sales .................................................. 230,802 218,563 212,672 195,083 192,613
Gross profit ................................................... 257,974 239,886 261,525 234,487 234,910
Selling, general and administrative expense .................... 160,878 160,146 164,533 146,539 142,119
Product development expense .................................... 53,045 53,788 51,109 47,930 46,962
Streamlining and restructuring charges ......................... -- 37,582 -- -- --
Amortization of intangibles .................................... 8,471 18,153 12,176 10,281 8,088
Operating income (loss) ........................................ 35,580 (29,783) 33,707 29,737 37,741
Interest expense ............................................... (3,919) (3,794) (2,229) (3,470) (5,768)
Interest income ................................................ 1,518 1,244 1,592 2,248 2,957
Other income (expense) ......................................... 1,627 (2) 837 (639) (711)
Income (loss) from continuing operations before taxes .......... 34,806 (32,335) 33,907 27,876 34,219
Provision (benefit) for income taxes ........................... 14,619 (6,115) 14,746 11,897 14,644
Income (loss) from continuing operations ....................... 20,187 (26,220) 19,161 15,979 19,575
Discontinued operations, net of income taxes ................... -- (3,763) (2,726) (2,556) (4,005)
Extraordinary charge, net of income taxes ...................... (1,019) -- -- -- --
Net income (loss) .............................................. $ 19,168 $ (29,983) $ 16,435 $ 13,423 $ 15,570
Income (loss) per common share (a)
Continuing operations ..................................... $ 1.13 $ (1.41)(b) $ 1.04 $ 0.85 $ 1.03
Discontinued operations ................................... -- (0.20) (0.14) (0.13) (0.21)
Extraordinary charge ...................................... (0.06) -- -- -- --
$ 1.07 $ (1.61) $ 0.90 $ 0.72 $ 0.82
Net working capital ............................................ $ 91,513 $ 91,010 $ 118,509 $ 126,278 $ 126,453
Total assets ................................................... $ 256,392 $ 280,553 $ 303,023 $ 312,531 $ 291,774
Long-term debt ................................................. $ 7,915 $ 33,006 $ 50,873 $ 80,845 $ 75,051
Shareholders' equity ........................................... $ 154,320 $ 142,643 $ 171,904 $ 158,649 $ 150,102
Shares of stock outstanding (a) ................................ 17,573 18,594 18,506 18,421 18,780
Shareholders' equity per share (a) ............................. $ 8.78 $ 7.67 $ 9.29 $ 8.61 $ 7.99
(a) Restated for the 2-for-1 stock split in March 1995
(b) Includes streamlining and restructuring charges and nonrecurring operating expenses of $1.75 per share
</TABLE>
<PAGE>
Management's Discussion and Analysis of Financial Condition and Results of
Operations
The following table and commentary should be read in conjunction with the
Consolidated Financial Statements and related Notes to Consolidated Financial
Statements.
<TABLE>
Percent of Sales Percent of Change
1995 1994 1993
vs. vs. vs.
Years ended March 31 1995 1994 1993 1994 1993 1992
<S> <C> <C> <C> <C> <C> <C>
Sales ....................................................... 100.0% 100.0% 100.0% 6.6% (3.3)% 10.4%
Gross profit ................................................. 52.8 52.3 55.2 7.5 (8.3) 11.5
Selling, general and administrative expense .................. 32.9 34.9 34.7 0.5 (2.7) 12.3
Product development expense .................................. 10.9 11.7 10.8 (1.4) 5.2 6.6
Streamlining and restructuring charges ....................... -- 8.2 -- (100.0) --- * --
Amortization of intangibles .................................. 1.7 4.0 2.6 (53.3) 49.1 18.4
Operating income (loss) ...................................... 7.3 (6.5) 7.1 219.5 (188.4) 13.4
Interest expense ............................................. (0.8 (0.8) (0.5) 3.3 70.2 (35.8)
Interest income .............................................. 0.3 0.3 0.3 22.0 21.9 (29.2)
Other income (expense) ....................................... 0.3 -- 0.2 --- * (100.2) 231.0
Income (loss) from continuing operations before taxes ........ 7.1 (7.1) 7.2 207.6 (195.4) 21.6
Income taxes ................................................. 3.0 (1.3) 3.1 339.1 (141.5) 23.9
Income (loss) from continuing operations ..................... 4.1 (5.7) 4.0 177.0 (236.8) 19.9
* not meaningful
</TABLE>
Fiscal 1995 Compared to Fiscal 1994
Sales
Consolidated sales increased 6.6% in fiscal 1995 as a result of a 4.4%
increase in domestic sales and 16% growth in international sales.
International sales including export sales were 37.3% of consolidated
sales in fiscal 1995 and 35.2% of consolidated sales in fiscal 1994.
Information Support Products segment sales rose 11.5% in fiscal 1995
due principally to a 23.2% growth for Communications test products.
Industrial connectivity sales rose 22.4% and communications display
sales increased 10.8% while sales of transmission products were down
7.6%. Sales of medical and diagnostic products in the Diversified
Instrumentation segment increased 16.4%. The sale of eight businesses
during fiscal 1994 and 1995 coupled with sales declines in nonstrategic
businesses held for sale, accounting for a $16.4 million decrease in
revenues, resulted in an overall reduction of 5.9% for the Diversified
Instrument segment.
Backlog from ongoing operations was $72.1 million at March 31, 1995,
compared with $73.8 million at March 31, 1994.
Gross Profit
Consolidated gross profit for fiscal 1995 was 52.8% compared to 52.3%
for the prior year. The increase in rate was primarily driven by
operating efficiencies from business restructuring and higher volume.
Information Support Products margins declined to 56.6% compared to
57.4% in fiscal 1994, due primarily to higher production costs for new
product introductions and price sensitivity in video graphics markets.
Medical and diagnostic products margins in the Diversified
Instrumentation segment improved to 51.1% compared to 48.3% for the
prior year resulting from greater sales of medical software products.
Margins of operations sold or held for sale were substantially below
the consolidated average.
Expenses
As a percentage of consolidated sales, selling, general and
administrative expenses decreased to 32.9% in fiscal 1995 compared to
34.9% in fiscal 1994 resulting in part from the streamlining actions.
Amortization of intangibles declined due to business divestments and
discontinuance of product lines. Product development expense was 10.9%
of sales in fiscal 1995 compared to 11.7% in fiscal 1994. The reduction
was attributed primarily to completion of a number of projects during
1995 which had been accelerated in 1994. Interest expense from
continuing and discontinued operations declined compared to the prior
year as a result of repayment of loan debt from favorable operating
cash flow. Interest income, primarily from short-term deposits in
<PAGE>
Europe, increased reflecting higher investment rates, earnings on notes
acquired in divestment activities and favorable operating cash flow.
Other income rose from foreign exchange gains and leased equipment
revenues.
Taxes
The effective tax rate declined in fiscal 1995 to 42% compared to 51.8%
in the prior year, excluding the effects of the streamlining and
restructuring charges, as a result of lower nondeductible amortization
charges and the inability in fiscal 1994 to deduct various foreign and
state operating losses.
Income (Loss) From Continuing Operations
Income from continuing operations was $20,187,000 or $1.13 per share in
fiscal 1995 compared to a loss of $26,220,000 or $(1.41) per share in
the prior year. Fiscal 1994 income from continuing operations was
$6,374,000, or $.34 per share, excluding the impact of the provision
for streamlining and restructuring and fourth quarter nonrecurring
expenses.
Extraordinary Charge
In February 1995 the Corporation recorded an extraordinary charge of
$1.7 million ($1 million, net of taxes), reflecting a prepayment
penalty for early debt redemption of its $30 million 10.15% term notes.
This redemption, partially accomplished by the use of excess cash, was
undertaken as part of Dynatech's efforts to reduce its interest costs.
Net Income (Loss)
Net income in fiscal 1995 was $19,168,000 for a record $1.07 per share,
exceeding the previous high of $1.04 per share in fiscal 1988. The net
loss in fiscal 1994 was $29,983,000, or $(1.61) per share. Net income
in the current year includes an after-tax extraordinary charge of $1
million, or $(.06) per share. The net loss in fiscal 1994 included an
after-tax provision for streamlining and restructuring and nonrecurring
charges of $32,594,000 or $(1.75) per share, and an after-tax provision
for disposition of discontinued operations and related operating losses
of $3,763,000 or $(.20) per share.
Streamlining and Restructuring
In the fourth quarter of fiscal 1994 the Corporation announced a series
of reorganization actions of approximately $50 million designed to
focus on supplying support products to providers of the global
information infrastructure. In connection with these actions, the
Corporation recorded a $37.6 million streamlining and restructuring
provision ($24.8 million after taxes or $1.33 per share). These
actions, resulted in a reduction of 10% of the work force, and included
the sale or closure of nonstrategic businesses, and consolidation and
centralization of various ongoing production and sales facilities. The
sale and closure of eight businesses and product lines from continuing
operations and the consolidation and centralization efforts were
completed during fiscal 1995. Remaining divestitures are anticipated to
be completed by September 1995. Implementation of these actions
resulted in estimated annualized cost savings of $12 million.
In connection with the streamlining and restructuring actions, the
Corporation recognized additional pretax charges in the fourth quarter
of fiscal 1994 of approximately $8 million for nonrecurring operating
expenses. These costs included accelerated amortization of intangible
assets related to discontinued businesses and closedown costs of sales
and engineering facilities.
In addition, the Corporation sold Whistler Corporation and Micro
Processor Systems, Inc., its consumer automotive business units during
fiscal 1995. As a result, a fourth quarter charge in fiscal 1994 of
$4.4 million ($2.5 million after taxes or $.14 per share) was recorded
as a disposition provision in discontinued operations to write down
assets to estimated net realizable values. These businesses employed
approximately 10% of the work force and accounted for approximately $51
million and $11 million, respectively, of fiscal 1994 and fiscal 1995
sales.
The streamlining and restructuring liability is utilized when the
planned reorganization action has occurred. Cash outlays in fiscal 1995
approximated $11 million and are anticipated to be $5 million during
fiscal 1996. The remaining liability will be applied to the sale of the
nonstrategic businesses and long term lease terminations.
<PAGE>
Fiscal 1994 Compared to Fiscal 1993
Sales
Consolidated sales declined 3.3% in fiscal 1994 as a result of both
lower domestic and international sales. International sales were 35.2%
of consolidated sales in fiscal 1994 and 36.6% of consolidated sales in
fiscal 1993.
Information Support Products segment sales declined 1% in fiscal
1994. Communications test products increased 1.6% to $116 million and
industrial connectivity products rose 31.2%. Communications display
products declined 7.8% and Transmission products decreased 6.7%.
Sales in the Diversified Instrumentation segment declined 8.9%
compared to the prior year reflecting a 7.1% decline of medical and
diagnostic products.
Backlog stood at $94 million at March 31, 1994, compared with $91.6
million at March 31, 1993, a 2.6% increase.
Gross Profit
Consolidated gross profit was 52.3% for fiscal 1994 compared to 55.2%
for the prior year. The decrease in rate was a result of higher
production costs for new products, price sensitivity in communications
display products markets and lower production levels at various
facilities. Information Support Products gross margin declined to 57.4%
compared to 59.9% in the prior year while Diversified Instrumentation
margins declined 4.7 percentage points to 39.3%.
Expenses
Selling, general and administrative expenses were 34.9% of sales in
fiscal 1994 compared to 34.7% in fiscal 1993. The slightly higher rate
was primarily driven by higher marketing investments for the
communication display business. Product development expense increased
compared to the prior year resulting from costs related to SONET and
fiber-optic communications test instruments in the Information Support
Products segment. Amortization of intangibles increased due to
accelerated amortization in the fourth quarter related to discontinued
product lines. Interest expense from continuing and discontinued
operations decreased compared to the prior year caused by repayment of
loan debt from favorable operating cash flow. Interest income,
primarily from short-term deposits in Europe, declined due to lower
investment rates.
Taxes
Excluding the effects of streamlining and restructuring charges and
fourth quarter nonrecurring expenses, the effective tax rate increased
in fiscal 1994 to 51.8% compared to 43.5% in the prior year. The high
level of nondeductible amortization charges and the inability to deduct
various foreign and state operating losses were contributing factors to
the higher effective tax rate. During fiscal 1994 the Corporation
adopted Statement of Financial Accounting Standards No. 109 which had
no impact on the consolidated financial statements.
Income (Loss) From Continuing Operations
The loss from continuing operations was $26,220,000, or $(1.41) per
share, in fiscal 1994 as compared to income of $19,161,000, or $1.04
per share, in the prior year. Excluding the impact of the provision for
streamlining and restructuring, and fourth quarter nonrecurring
expenses, fiscal 1994's net income was $6,374,000, or $.34 per share.
Net Income (Loss)
The net loss in fiscal 1994 was $29,983,000, or $(1.61) per share
compared with net income of $16,435,000, or $.90 per share, in fiscal
1993. Discontinued operations reflected losses of $3,763,000 and
$2,726,000 in fiscal 1994 and 1993, respectively.
Capital Resources and Liquidity
Dynatech's funded debt stood at 7% of total capital at March 31, 1995,
the lowest year end level in Company history. Cash proceeds from
divestitures and favorable operating cash flow enabled Dynatech to
repay its $30 million term notes in February 1995. The working capital
ratio at March 31, 1995 improved to 2 to 1, an increase from 1.9 to 1
at March 31, 1994, resulting from utilization of the streamlining and
restructuring liability.
Net cash flows from operating activities were $42 million in fiscal
1995 before cash outlays approximating $11 million for streamlining and
restructuring, $35.1 million in fiscal 1994 and $40.9 million in fiscal
1993. The decrease in fiscal 1995 over fiscal 1994 was due to cash
outlays for discontinued operations. Combined accounts receivable and
inventories at year-end were 27% of fiscal 1995 sales compared to 29%
in fiscal 1994 and 30% in fiscal 1993. Cash balances primarily reflect
short-term deposits in Europe.
<PAGE>
Investment in property and equipment was $16,426,000 in fiscal 1995
compared to $17,834,000 and $14,347,000 in fiscal 1994 and 1993,
respectively. Average net fixed assets employed in continuing
operations were $37,022,000, or 8% of fiscal 1995 sales, compared to
$38,771,000 or 8% of sales in fiscal 1994. Dynatech anticipates that
its capital spending in property and equipment in fiscal 1996 will be
at the same approximate level as that in fiscal 1995. Funding for
capital expenditures generally will be provided from internal sources.
The Corporation's financial performance, together with its reserve
debt capacity and working capital, leave it well positioned to finance
its current and future cash requirements including the remaining
streamlining and restructuring actions.
Inflation rates were moderate during fiscal 1995 and did not have a
major impact on operations.
<PAGE>
<TABLE>
Consolidated Statements of Operations Dynatech Corporation
(Amounts in thousands except per share data)
Years ended March 31 1995 1994 1993
<S> <C> <C> <C>
Sales .............................................................................. $ 488,776 $ 458,449 $ 474,197
Cost of sales ...................................................................... 230,802 218,563 212,672
Gross profit ....................................................................... 257,974 239,886 261,525
Selling, general and administrative expense ........................................ 160,878 160,146 164,533
Product development expense ........................................................ 53,045 53,788 51,109
Streamlining and restructuring charges ............................................. -- 37,582 --
Amortization of intangibles ........................................................ 8,471 18,153 12,176
Operating income (loss) ............................................................ 35,580 (29,783) 33,707
Interest expense ................................................................... (3,919) (3,794) (2,229)
Interest income .................................................................... 1,518 1,244 1,592
Other income (expense) ............................................................. 1,627 (2) 837
Income (loss) from continuing operations before income taxes ....................... 34,806 (32,335) 33,907
Provision (benefit) for income taxes ............................................... 14,619 (6,115) 14,746
Income (loss) from continuing operations ........................................... 20,187 (26,220) 19,161
Discontinued operations
Operating losses, net of income tax benefit of $766 in 1994, and $1,832
in 1993, respectively .................................................. -- (1,254) (2,726)
Provision for dispositions, net of income tax benefit of $1,890 in 1994 ......... -- (2,509) --
Income (loss) before extraordinary charge .......................................... 20,187 (29,983) 16,435
Extraordinary charge for early retirement of debt, net of income tax benefit
of $738 ....................................................................... (1,019) -- --
Net income (loss) .................................................................. $ 19,168 $ (29,983) $ 16,435
Income (loss) per common share
Continuing operations ......................................................... $ 1.13 $ (1.41) $ 1.04
Discontinued operations ....................................................... -- (0.20) (0.14)
Extraordinary charge .......................................................... (0.06) -- --
$ 1.07 $ (1.61) $ 0.90
Weighted average number of common shares ........................................... 17,846 18,579 18,348
The accompanying notes are an integral part of the consolidated financial
statements.
</TABLE>
<PAGE>
<TABLE>
Consolidated Balance Sheets Dynatech Corporation
(Amounts in thousands except share data)
March 31 1995 1994
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ................................................................ $ 27,795 $ 23,101
Accounts receivable, less allowance of $5,077 and $3,905, respectively ................... 72,152 73,090
Inventories:
Raw materials ......................................................................... 26,752 26,923
Work in process ....................................................................... 14,168 14,091
Finished goods ........................................................................ 19,560 20,671
60,480 61,685
Other current assets ..................................................................... 24,251 26,683
Net current assets of discontinued operations ............................................ -- 10,805
Total current assets ..................................................................... 184,678 195,364
Property and equipment, at cost:
Land, buildings and improvements ......................................................... 1,927 4,847
Machinery and equipment .................................................................. 68,618 73,742
Furniture and fixtures ................................................................... 16,523 18,097
Leasehold improvements ................................................................... 5,173 7,051
92,241 103,737
Less accumulated depreciation and amortization ........................................... (57,450) (64,484)
34,791 39,253
Other assets:
Intangible assets, net .................................................................. 29,104 37,238
Other ................................................................................... 7,819 8,698
$ 256,392 $ 280,553
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
Consolidated Balance Sheets Dynatech Corporation
(Amounts in thousands except share data)
March 31 1995 1994
LIABILITIES and SHAREHOLDERS' EQUITY
<S> <C> <C>
Current liabilities:
Notes payable and current portion of long-term debt ..................................... $ 4,374 $ 2,911
Accounts payable ........................................................................ 19,651 20,234
Accrued expenses:
Compensation and benefits ............................................................. 23,922 18,767
Taxes, other than income taxes ........................................................ 3,139 2,533
Deferred revenue ...................................................................... 3,644 5,875
Streamlining and restructuring ........................................................ 22,556 35,276
Other ................................................................................. 14,656 18,108
Accrued income taxes .................................................................... 1,223 650
Total current liabilities ............................................................... 93,165 104,354
Long-term debt ............................................................................. 7,915 33,006
Deferred income taxes ...................................................................... 992 550
Shareholders' equity:
Serial preference stock, par value $1 per share;
authorized 100,000 shares; none issued
Common stock, par value $.20 per share; authorized 24,000,000 shares;
issued 18,605,298 and 12,387,216 shares, respectively ................................. 3,721 2,477
Additional paid-in capital .............................................................. 7,432 9,414
Retained earnings ....................................................................... 151,414 185,957
Cumulative translation adjustments ...................................................... 2,659 (757)
Treasury stock, at cost; 1,032,760 and 3,090,247 shares, respectively ................... (10,906) (54,448)
Total shareholders' equity .............................................................. 154,320 142,643
$ 256,392 $ 280,553
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
Consolidated Statements of Shareholders' Equity Dynatech Corporation
(Amounts in thousands)
Total
Number of Shares Additional Cumulative Share-
Common Treasury Common Paid-In Retained Translation Treasury holders'
Stock Stock Stock Capital Earnings Adjustments Stock Equity
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, March 31, 1992 .............. 12,384 (3,174) $ 2,477 $ 9,288 $199,505 $ 3,619 $(56,240) $158,649
Net income - 1993 .................... 16,435 16,435
Purchases of treasury stock .......... (58) (1,079) (1,079)
Translation adjustments .............. (3,966) (3,966)
Exercise of stock options ............ 101 (128) 1,993 1,865
Balance, March 31, 1993 .............. 12,384 (3,131) 2,477 9,160 215,940 (347) (55,326) 171,904
Net loss - 1994 ...................... (29,983) (29,983)
Translation adjustments .............. (410) (410)
Exercise of stock options
and other issuances ................ 3 41 (111) 878 767
Tax benefit from exercise
of stock options ................... 365 365
Balance, March 31, 1994 .............. 12,387 (3,090) 2,477 9,414 185,957 (757) (54,448) 142,643
Net income - 1995 .................... 19,168 19,168
Purchases of treasury stock .......... (597) (12,576) (12,576)
Translation adjustments .............. 3,416 3,416
Exercise of stock options
and other issuances ................ 90 (215) 1,790 1,575
Retirement of treasury stock ......... (3,085) 3,085 (617) (53,711) 54,328 ---
Two-for-one stock split .............. 9,303 (521) 1,861 (1,861) ---
Tax benefit from exercise
of stock options ................... 94 94
Balance, March 31, 1995 .............. 18,605 (1,033) $ 3,721 $ 7,432 $151,414 $ 2,659 $(10,906) $154,320
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
Consolidated Statements of Cash Flows Dynatech Corporation
(Amounts in thousands)
Years ended March 31 1995 1994 1993
<S> <C> <C> <C>
Operating activities:
Net income (loss) from continuing operations ..................................... $ 20,187 $(26,220) $ 19,161
Adjustment for noncash items included in net income (loss):
Depreciation ................................................................. 14,112 13,754 12,950
Amortization of intangibles .................................................. 8,471 18,153 12,176
Streamlining and restructuring charges ....................................... -- 35,276 --
Increase (decrease) in deferred income taxes ................................. 7,187 (79) (1,686)
Other ........................................................................ 283 1,947 692
Changes in operating assets and liabilities net of effects of
purchase acquisitions and divestitures ............................ (16,013) (13,545) (5,776)
Net cash provided by continuing operations ....................................... 34,227 29,286 37,517
Net cash provided by (used in) discontinued operations ........................... (3,250) 5,771 3,420
Net cash flows from operating activities ......................................... 30,977 35,057 40,937
Investing activities:
Purchases of property and equipment .............................................. (16,426) (17,834) (14,347)
Disposals of property and equipment .............................................. 437 636 622
Proceeds from sales of businesses ................................................ 27,140 3,262 384
Businesses acquired in purchase transactions,
net of cash acquired ......................................................... (1,056) (2,757) (5,584)
Other ............................................................................ (1,095) 2,629 536
Net cash flows used in investing activities ...................................... 9,000 (14,064) (18,389)
Financing activities:
Debt borrowings .................................................................. 6,121 -- 1,771
Repayment of debt ................................................................ (30,246) (20,312) (33,777)
Premium paid on early retirement of debt ......................................... (1,757) -- --
Proceeds from exercise of stock options .......................................... 1,461 767 1,865
Purchases of treasury stock ...................................................... (12,576) -- (1,079)
Net cash flows used in financing activities ...................................... (36,997) (19,545) (31,220)
Effect of exchange rate on cash ....................................................... 1,714 (2,697) (2,238)
Increase (decrease) in cash and cash equivalents ...................................... 4,694 (1,249) (10,910)
Cash and cash equivalents at beginning of year ........................................ 23,101 24,350 35,260
Cash and cash equivalents at end of year .............................................. $ 27,795 $ 23,101 $ 24,350
Change in operating asset and liability components:
Decrease (increase) in trade accounts receivable ................................. $ (1,215) $ 12,717 $(10,062)
Decrease (increase) in inventories ............................................... (2,820) (4,876) 401
Decrease (increase) in other current assets ...................................... 180 (15,629) (3,095)
Increase (decrease) in accounts payable .......................................... 129 (3,232) 2,344
Increase (decrease) in accrued expenses and taxes ................................ (12,287) (2,525) 4,636
Change in operating assets and liabilities ....................................... $(16,013) $(13,545) $ (5,776)
Supplemental disclosures of cash flow information:
Cash paid during the year for
Interest ..................................................................... $ 4,833 $ 5,090 $ 7,442
Income taxes ................................................................. $ 7,672 $ 11,798 $ 18,121
Tax benefit of disqualifying dispositions of stock options ....................... $ 94 $ 365 --
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
<PAGE>
Notes to Consolidated Financial Statements Dynatech Corporation
Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of the
parent company and its wholly owned domestic and international
subsidiaries. Intercompany accounts and transactions have been
eliminated. Certain prior-year amounts have been reclassified to
conform with the current year.
Revenue Recognition
Revenue from product sales is recognized at the time of shipment.
Research, Development and Warranty Costs
Costs relating to research, development and product warranty are
expensed as incurred. Warranty costs are not material to the
consolidated financial statements.
Foreign Operations
Foreign currency denominated assets and liabilities are translated into
U.S. dollars at current exchange rates and related translation
adjustments are reported as a component of shareholders' equity.
Results of operations are translated at the average exchange rates
during the respective periods.
Cash Equivalents
Cash equivalents represent highly liquid debt instruments with a
maturity of three months or less at the time of purchase. Financial
instruments, which potentially subject the Corporation to
concentrations of credit risk, consist primarily of short-term deposits
in Europe with major banks located in various cities with investment
levels and debt ratings set to limit exposure with any one institution.
Derivatives
The Company enters into a limited number of forward exchange contracts
to manage the exposure to foreign currency fluctuations associated with
certain monetary assets and liabilities denominated in a foreign
currency as well as certain highly anticipated cash flows or firm
commitments. Gains and losses on these contracts are recognized in
income coincidently with those of the underlying exposure.
Inventories
Inventories are stated at the lower of cost (first-in, first-out
or average) or market.
Intangible Assets
Intangible assets acquired primarily from business acquisitions are
summarized as follows:
<TABLE>
(Amounts in thousands) 1995 1994
<S> <C> <C>
Product technology ................................. $30,859 $30,843
Excess of cost over net assets acquired ............ 18,687 20,474
Other intangible assets ............................ 14,123 15,413
63,669 66,730
Less accumulated amortization ...................... 34,565 29,492
Total .............................................. $29,104 $37,238
</TABLE>
Product technology and other intangible assets are amortized on a
straight-line basis primarily over 3 to 10 years, but in no event
longer than their expected useful lives. Amortization expense related
to product technology was $4,329,000 in fiscal 1995, $10,685,000 in
fiscal 1994, and $6,078,000 in fiscal 1993, and was excluded from cost
of sales. Excess of cost over fair market value of net assets is being
amortized on a straight-line basis primarily over 15 years.
<PAGE>
Depreciation and Amortization
Depreciation of machinery, equipment and fixtures is computed on the
straight-line method over estimated useful lives of 2 to 10 years.
Leasehold improvements are amortized over the lesser of the lives of
the leases or estimated useful lives of the improvements. Buildings are
depreciated on the straight-line method over the estimated useful
lives.
The cost of improvements is charged to the property accounts, while
maintenance and repairs are charged to income as incurred. Upon
retirement or other disposition of property and equipment, the cost and
related depreciation are removed from the accounts, and any resulting
gain or loss is reflected in the Statement of Operations.
Income Taxes
Deferred tax assets and liabilities are recognized on the income
reported in the financial statements regardless of when such taxes are
payable. These deferred taxes are measured by applying currently
enacted tax rates. The Corporation's policy is not to provide for U.S.
taxes on undistributed earnings of foreign subsidiaries to the extent
that such earnings are determined to be permanently invested outside
the United States.
Income Per Share
Income per share is based on the weighted average number of common
shares outstanding and the effect of the deferred stock compensation
for directors. No effect has been given to the assumed exercise of
outstanding stock options as no material dilutive effect would result
on income per share in fiscal 1995, 1994, or 1993.
Stock Split
On January 26, 1995 the Company's Board of Directors voted a
two-for-one stock split to be effective March 15, 1995 to shareholders
of record at February 15, 1995. All references in the financial
statements to weighted average number of shares outstanding and related
prices, per share amounts, and stock plan data have been restated to
reflect this split. The par value for the additional shares issued was
transferred from additional paid in capital to common stock.
Streamlining and Restructuring
In the fourth quarter of fiscal 1994 the Corporation announced a series
of reorganization actions amounting to $50 million designed to focus on
supplying products to the information support marketplace. In
connection with these actions the Corporation recorded a streamlining
and restructuring provision of $37.6 million ($24.8 million after taxes
or $1.33 per share). These actions resulted in a reduction of 10% of
the work force and included the sale or closure of nonstrategic
businesses and consolidation and centralization of various ongoing
production and sales facilities. These provisions included employee
severance, lease termination or restructuring, and revaluation of
various assets held for sale to estimated net realizable value. The
sale and closure of eight businesses and product lines and the
consolidation and centralization efforts were completed during fiscal
1995. The remaining divestitures are anticipated to be completed by
September 1995.
Net assets of continuing operations held for sale are stated at
their estimated net realizable value at March 31, 1995 and consist of
working capital of $2 million, property and equipment of $1.9 million,
and other assets of $0.3 million.
In connection with the streamlining and restructuring actions, the
Corporation recognized additional pretax charges in the fourth quarter
of fiscal 1994 approximating $8 million for nonrecurring operating
expenses. These costs included accelerated amortization of intangible
assets related to discontinued businesses and closedown costs of sales
and engineering facilities.
Discontinued Operations
Effective March 31, 1994 the Corporation adopted, and the Board of
Directors approved, a formal plan to discontinue its consumer
automotive businesses units and to sell or close these operations
during fiscal 1995. As a result, a $4.4 million charge ($2.5 million
after taxes or $.14 per share) was recorded to write down assets to
estimated net realizable values. These businesses were subsequently
sold during fiscal 1995.
<PAGE>
<TABLE>
Summary operating results of the discontinued operations follow:
(Amounts in thousands) 1995 1994 1993
<S> <C> <C> <C>
Sales .......................... $10,753 $51,235 $53,773
Gross margin ................... 3,254 14,362 14,769
Operating income ............... 318 494 372
Loss before taxes .............. -- 2,020 4,558
Net loss ....................... -- 1,254 2,726
</TABLE>
Notes Payable
Short-term notes payable, primarily in Europe, were $4,351,000 and
$2,739,000 at March 31, 1995 and 1994, respectively. The maximum amount
of short-term borrowings, domestic and foreign, at any month-end during
the year was $4,351,000 in fiscal 1995, $2,830,000 in 1994, and
$3,853,000 in 1993. The average amount of short-term borrowings during
the year was $3,430,000 in fiscal 1995, $2,733,000 in 1994, and
$3,292,000 in 1993. The approximate weighted average interest rate was
6.2% in fiscal 1995, 6.6% in 1994, and 9% in 1993 (calculated by
dividing interest expense for such borrowings by the weighted average
borrowings outstanding during the year). The weighted average interest
rate at year-end was 6.3% in fiscal 1995, 6.3% in 1994, and 8.6% in
1993.
At year-end, the Corporation had short-term unused lines of credit
aggregating $6,748,000 for foreign operations.
Long-Term Debt
<TABLE>
Long-term debt is summarized below:
(Amounts in thousands) 1995 1994
<S> <C> <C>
Revolving credit and term bank loan ......... $ 7,900 $ 3,000
Term notes .................................. -- 30,000
Other long-term debt ........................ 38 178
Total debt .................................. 7,938 33,178
Less current portion ...................... 23 172
Long-term debt .............................. $ 7,915 $33,006
</TABLE>
The Corporation has an unsecured $100 million revolving credit and term
bank loan agreement with several commercial banks, which allows for
borrowings in various currencies and provides for interest to be
payable at one half of one percent per annum over the London Inter-Bank
Offering Rate, three eighths of one percent over the Certificate of
Deposit rate, or at the base or money market rate quoted by the lender,
depending upon the currencies borrowed and the form of borrowing.
Principal borrowings outstanding at December 31, 1996 under the
revolving credit and term bank loan will convert to a term loan payable
in eight equal quarterly installments beginning March 31, 1997. A
commitment fee at a rate of .25% is charged on the unused portion.
The $30 million of 10.15% term notes were repaid in February 1995 to
reduce debt and manage interest-rate exposure. An extraordinary charge
of $1.7 million was recorded as a result of the early debt redemption
that required the payment of premiums.
The approximate weighted average interest rate was 10.7% in fiscal
1995 and 10.5% in fiscal 1994. The composite rate at March 31, 1995
was 8.4% and at March 31, 1994 was 13.3%.
The terms of the revolving credit agreement require, among other
things, specific levels of current ratio, fixed charge coverage ratio
and minimum tangible net worth.
Aggregate maturities of the above term debt for each of the years in
the four-year period ending March 31, 1999 are $23,000, $1,003,000,
$3,950,000, and $2,962,000, respectively.
<PAGE>
Income Taxes
<TABLE>
The components of the provision (benefit) for income taxes from continuing
operations are as follows:
(Amounts in thousands) 1995 1994 1993
<S> <C> <C> <C>
Provision for income taxes:
United
States ........................... $ 10,002 $ (5,997) $ 10,385
Foreign .......................... 1,882 (1,514) 1,743
State ............................ 2,735 1,396 2,618
Total .............................. $ 14,619 $ (6,115) $ 14,746
Components of income tax provision:
Current:
Federal .......................... $ 5,359 $ 5,961 $ 11,976
Foreign .......................... 1,218 (343) 1,809
State ............................ 1,687 1,903 2,941
Total current .................... 8,264 7,521 16,726
Deferred:
Federal .......................... 4,643 (11,958) (1,591)
Foreign .......................... 664 (1,171) (66)
State ............................ 1,048 (507) (323)
Total deferred ................... 6,355 (13,636) (1,980)
Total .............................. $ 14,619 $ (6,115) $ 14,746
</TABLE>
Reconciliations between U.S. federal statutory rate and the effective tax rate
(benefit) follow:
<TABLE>
1995 1994 1993
<S> <C> <C> <C>
Tax at U.S. Federal statutory rate ........................................... 35.0% (35.0)% 34.0%
Increases (reductions) to statutory tax rate resulting from:
Foreign income subject to tax at a rate different than U.S. rate ............. (0.4) 0.9 (1.1)
State income taxes, net of federal income tax benefit ........................ 5.1 6.7 5.1
Research and development tax credit .......................................... (1.0) (1.2) (0.3)
Nondeductible amortization ................................................... 2.3 10.5 5.2
Other ........................................................................ 1.0 (0.8) 0.6
Total ...................................................................... 42.0% (18.9)% 43.5%
</TABLE>
The high level of nondeductible amortization charges, the inability to
deduct various state and foreign operating losses, and certain
streamlining and restructuring charges were contributing factors to the
low tax benefit for fiscal 1994. Excluding the effects of the
streamlining and restructuring charges and fourth quarter nonrecurring
operating expenses, the effective tax rate was 51.8%.
<PAGE>
The principal components of the deferred tax assets and liabilities follow:
<TABLE>
(Amounts in thousands) 1995 1994
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards ................. $ 11,802 $ 11,327
Streamlining and restructuring charges ........... 9,914 17,792
Vacation benefits ................................ 794 687
Bad debt allowance ............................... 1,148 504
Inventory capitalization ......................... 931 1,002
Depreciation and amortization .................... 2,076 1,369
Other deferred assets ............................ 5,175 5,066
31,840 37,747
Valuation allowance .............................. (13,173) (13,656)
18,667 24,091
Deferred tax liabilities:
Depreciation and amortization .................... 992 550
Other deferred liabilities ....................... 1,461 1,257
2,453 1,807
Net deferred tax assets .......................... $ 16,214 $ 22,284
Deferred income taxes are included in the
following balance sheet accounts:
Other current assets ............................. $ 14,393 $ 19,802
Other assets ..................................... 2,813 3,032
Deferred income taxes ............................ (992) (550)
$ 16,214 $ 22,284
</TABLE>
The valuation allowance principally applies to net operating loss
carryforwards that may not be fully utilized by the Company.
Employee Retirement Plans
The Corporation has a trusteed employee retirement profit sharing and
401(k) savings plan for eligible U.S. employees. The Plan does not
provide for stated benefits upon retirement. Corporate contributions
($3,000,000 in 1995, $2,000,000 in 1994, and $2,300,000 in 1993) were
charged to expense.
Employees outside the U.S. are covered principally by
government-sponsored plans that are deferred contribution plans and the
cost of company provided plans is not material.
Effective April 1, 1995 the Company adopted a nonqualified deferred
compensation plan which permits certain key employees to annually elect
to defer a portion of their compensation for their retirement. The
amount of compensation deferred and related investment earnings will be
placed in an irrevocable rabbi trust and presented as assets in the
Corporation's balance sheet because they will be available to the
general creditors of the Corporation in the event of the Company's
insolvency. An offsetting liability will reflect amounts due employees.
Stock Options
Under Dynatech's Stock Option Plans, common stock is available for
grant to key employees at prices not less than fair market value (110%
of fair market value for employees holding more than 10% of the
outstanding common stock) at the date of grant determined by the Board
of Directors. Incentive or nonqualified options may be issued under the
Plans and are exercisable from 1 to 10 years after grant. Options
available for future grants under the Plans were 0, 499,146, and
511,146 at March 31, 1995, 1994, and 1993, respectively. A summary of
changes in the outstanding options is as follows:
<PAGE>
<TABLE>
1995 1994 1993
<S> <C> <C> <C>
Shares under option, beginning of year ......... 705,806 820,984 858,564
Options granted (at an exercise price of $10.375
to $17.50 in 1995, $13.75 in 1994, and
$11.125 in 1993) ............................. 927,000 20,000 271,000
Options exercised .............................. (193,920) (81,630) (201,240)
Options canceled ............................... (142,166) (53,548) (107,340)
Shares under option, end of year ............... 1,296,720 705,806 820,984
Shares exercisable ............................. 163,936 291,206 316,004
Price of options exercised ..................... $8.625 to $8.625 to $8.625 to
$14.125 $14.125 $14.125
</TABLE>
The Corporation delivers treasury shares upon the exercise of stock
options and the difference between the cost of the treasury shares, on
a last-in, first-out basis, and the exercise price of the options, is
reflected in additional paid-in capital.
Shareholder Rights Plan
In February 1989, the Board of Directors adopted a Shareholder Rights
Plan and declared a dividend distribution of one Right for each
outstanding share of Dynatech's common stock. The Plan was amended in
March 1990. Each Right, when exercisable, entitles a qualifying
shareholder to buy shares of Dynatech junior participating cumulative
preferred stock. The Rights would only become exercisable (i) 10 days
after a person has become the beneficial owner of 15% or more of
Dynatech's common stock, or (ii) 10 business days after the
commencement of a tender offer that would result in the ownership of
15% or more of the common stock, or (iii) upon determination by the
Board of Directors that a person who holds 10% or more of Dynatech's
common stock intends to, or is likely to, act in certain specified
manners adverse to the interests of Dynatech and its shareholders.
In the event Dynatech is acquired and is not the surviving
corporation in a merger, or in the event of the acquisition of 50% or
more of the assets or earning power of Dynatech, each Right would then
entitle the qualified holder to purchase, at the then-current exercise
price, shares of common stock of the acquiring company having a value
of twice the exercise price of the Right. Furthermore, if any party
were to acquire 15% or more of Dynatech's common stock or were
determined to be an adverse person as described above, qualified
holders of the Rights would be entitled to acquire shares of Dynatech
junior participating cumulative preferred stock having a value of twice
the then-current exercise price. At the option of the Board of
Directors, all of the Rights could be exchanged into shares of common
or preferred stock.
The Rights will expire February 16, 1999, but may be redeemed at the
option of the Board for $.02 per Right until one of the triggering
events described above has occurred. The Rights do not entitle holders
to any voting power or other shareholder benefits. Issuance of the
Rights does not dilute the shareholders' ownership of Dynatech, nor
does it affect reported earnings per share.
Commitments and Contingencies
The Corporation has operating leases covering plant, office facilities
and equipment which expire at various dates through 2014. Future
minimum annual fixed rentals required during the years ending in fiscal
1996 through 2000 under noncancelable operating leases having an
original term of more than one year are $10,156,000, $8,233,000,
$6,716,000, $4,827,000, and $3,933,000, respectively. The aggregate
obligation subsequent to fiscal 2000 is $10,333,000. Rent expense from
continuing operations was approximately $10,447,000, $12,267,000, and
$12,507,000 in fiscal 1995, 1994, and 1993, respectively.
The Corporation is a party to several pending legal proceedings and
claims. Although the outcome of such proceedings and claims cannot be
determined with certainty, the corporation's counsel and management are
of the opinion that the final outcome should not have a material
adverse effect on the Corporation's operations or financial position.
Segment Information and Geographic Areas
Dynatech's operations and strategy are reported in two business
segments: Information Support Products and Diversified Instrumentation.
Information Support Products consists of businesses which support
voice, video, and data communications. Diversified Instrumentation
represents medical and diagnostic products and selected nonstrategic
businesses held for sale. Segment information for the years ended March
31, 1995, 1994, and 1993 is summarized below:
Assets identifiable to industry segments are those assets used in
Company operations and do not include general corporate assets.
Corporate assets consist primarily of cash and deferred income taxes.
<PAGE>
<TABLE>
(Amounts in thousands) 1995 1994 1993
<S> <C> <C> <C>
Net sales
Information Support Products ................ $ 367,390 $ 329,487 $ 332,702
Diversified Instrumentation ................. 121,386 128,962 141,495
$ 488,776 $ 458,449 $ 474,197
Operating income (loss) from continuing operations
Information Support Products ................ $ 39,858 $ 22,700 $ 46,506
Diversified Instrumentation ................. 6,437 (5,335) (1,589)
46,295 17,365 44,917
Corporate expenses ............................... (10,715) (9,566) (11,210)
Interest expense, net ............................ (2,401) (2,550) (637)
Streamlining and restructuring ................... -- (37,582) * --
Other income (expense) ........................... 1,627 (2) 837
Pretax income (loss) from continuing operations .. $ 34,806 $ (32,335) $ 33,907
Identifiable assets
Information Support Products ................ $ 178,411 $ 168,934 $ 185,307
Diversified Instrumentation ................. 44,323 61,022 72,039
General corporate ........................... 33,658 37,149 22,208
Discontinued operations ..................... -- 13,448 23,469
$ 256,392 $ 280,553 $ 303,023
Capital expenditures
Information Support Products ................ $ 12,888 $ 13,174 $ 9,752
Diversified Instrumentation ................. 3,145 3,595 3,513
Corporate ................................... 184 103 165
Discontinued operations ..................... 209 962 917
$ 16,426 $ 17,834 $ 14,347
Depreciation and amortization
Information Support Products ................ $ 17,920 $ 22,364 $ 16,710
Diversified Instrumentation ................. 4,466 9,329 8,196
Corporate ................................... 197 214 220
$ 22,583 $ 31,907 $ 25,126
* On a segment basis, the provision was allocated to Information Support
Products $(24,136), Diversified Instrumentation $(12,446), and Corporate
$(1,000).
</TABLE>
Sales in the Diversified Instrumentation segment related to
nonstrategic businesses sold or held for divestment were $58,689,000 in
1995, $75,082,000 in 1994, and $83,483,000 in 1993.
Operations outside the United States consist of manufacturing
communications and medical diagnostic products in the Channel Islands
and England and sales of a majority of Dynatech's products through
wholly owned subsidiaries in Europe and Asia.
Net income (loss) in fiscal 1995, 1994, and 1993 included currency
gains (losses) of approximately $431,000, $(364,100), and $31,200,
respectively.
The cumulative amount of undistributed earnings of consolidated
foreign subsidiaries for which federal income taxes have not been
provided was $37,918,000 at March 31, 1995. These earnings which
reflect full provision for non-U.S. income taxes, are indefinitely
reinvested in non-U.S. operations or will be remitted substantially
free of additional tax. Accordingly, no provision has been made for
taxes that might be payable upon remittance of such earnings nor is it
practicable to determine the amount of this liability.
<PAGE>
Information by geographic areas for the years ended March 31, 1995, 1994,
and 1993 is summarized below:
<TABLE>
Outside U.S.
(Amounts in thousands) United States (principally Europe) Combined
<S> <C> <C> <C>
Sales to unaffiliated customers
1995 $388,120* $100,656 $488,776
1994 370,771* 87,678 458,449
1993 378,021* 96,176 474,197
Income (loss) before taxes from continuing operations
1995 $27,930 $6,876 $34,806
1994 (24,484) (7,851) (32,335)
1993 27,103 6,804 33,907
Identifiable assets at
March 31, 1995 $177,317 $79,075 $256,392
March 31, 1994 200,620 79,933 280,553
March 31, 1993 215,134 87,889 303,023
* Includes export sales of $81,808, $73,745, and $77,513, in 1995, 1994, and 1993, respectively.
</TABLE>
Acquisitions and Divestments
1995 Acquisitions
In October 1994, the Corporation acquired selected assets of Time Logic
Inc. (TLI) of Moorpark, California for approximately $1 million in
cash. TLI manufactures telecine editing systems for the post-production
and corporate video markets. Acquired intangible assets of $450,000 are
being amortized over five years. The investment in excess of fair
market value of assets purchased of $606,000 is being amortized over 15
years.
The acquisition was accounted for under the purchase method of
accounting, and results of its operations have been included from the
date of acquisition. Since the effects of the purchase acquisition for
the period April 1, 1994 through the date of acquisition and for the
twelve months ended March 31, 1995 is not material to the consolidated
financial statements, pro forma information is not reflected herein.
In addition, the Company purchased technology rights and licenses
from various parties aggregating $2.1 million which are being amortized
over five years.
1994 Acquisitions
In fiscal 1994, two acquisitions, recorded as purchases, were made for
$2.8 million in cash and assumed liabilities of $1.6 million. The
effects of the purchase acquisitions for the period April 1, 1993
through the dates of acquisition and for the twelve months ended March
31, 1994 are not material to the consolidated financial statements.
1993 Acquisitions
In fiscal 1993, two acquisitions, recorded as purchases, were made for
$6.6 million in cash and assumed liabilities of $1.2 million. The
effects of the purchase acquisitions for the period April 1, 1992
through the dates of acquisition and for the twelve months ended March
31, 1993 are not material to the consolidated financial statements.
Divestments
During fiscal 1995 the Corporation sold two businesses which had been
classified as discontinued operations for approximately $13.9 million
in cash and long-term promissory notes approximating $3.1 million.
Eight other businesses were sold for approximately $13.2 million in
cash and long-term promissory notes approximating $2.1 million. The
effects of these transactions were reflected in fiscal 1994 and did not
effect fiscal 1995 earnings.
In fiscal 1994 the Corporation sold four businesses for $3.3
million. The effects of these transactions were not material to the
consolidated financial statements. In fiscal 1993 the Corporation sold
certain assets of two businesses on which a pretax gain of
approximately $112,000 was recognized.
<PAGE>
Report of Independent Accountants
To the Board of Directors and Shareholders of Dynatech Corporation:
We have audited the accompanying consolidated balance sheets of Dynatech
Corporation at March 31, 1995 and 1994, and the related consolidated
statements of operations, shareholders' equity and cash flows for each of
the three fiscal years in the period ended March 31, 1995. 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 our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Dynatech Corporation as of March 31, 1995 and 1994, and the consolidated
results of its operations and its cash flows for each of the three fiscal
years in the period ended March 31, 1995, in conformity with generally
accepted accounting principles.
Coopers & Lybrand L.L.P.
Boston, Massachusetts
May 15, 1995
<PAGE>
Summary of Operations by Quarter (Unaudited)
<TABLE>
(Amounts in thousands except per share data)
1995 Quarter First Second Third Fourth Year
<S> <C> <C> <C> <C> <C>
Sales ................................................ $117,772 $121,377 $127,242 $122,385 $488,7762
Gross profit ......................................... 61,048 63,803 67,239 65,884 257,974
Income from continuing operations .................... 3,660 5,084 5,608 5,835 20,187
Net income ........................................... 3,660 5,084 5,608 4,816(d) 19,168(d)
Income per common share (b)
Continuing operations .......................... $ .20 $ .29 $ .32 $ .33 $ 1.13
Net income ..................................... $ .20 $ .29 $ .32 $ .27 $ 1.07
Market Share Price (a)(b) - High ..................... $ 11.00 $ 11.25 $ 16.75 $ 19.38
Low ...................... $ 7.88 $ 10.38 $ 10.75 $ 13.50
1994 Quarter First Second Third Fourth Year
Sales ................................................... $117,749 $111,360 $113,381 $ 115,959 $ 458,449
Gross profit ............................................ 63,176 58,899 59,629 58,182 239,886
Income (loss) from continuing operations ................ 3,452 3,290 1,425 (34,387) (26,220)
Net income (loss) ....................................... 3,553 3,267 1,274 (38,077)(c) (29,983)(c)
Income (loss) per common share (b)
Continuing operations ............................. $ .19 $ .18 $ .08 $ (1.85) $ (1.41)
Net income (loss) ................................. $ .19 $ .18 $ .07 $ (2.05) $ (1.61)
Market Share Price (a)(b)- High ......................... $ 16.63 $ 14.63 $ 12.38 $ 11.63
Low .......................... $ 12.88 $ 11.50 $ 10.25 $ 9.25
(a) Dynatech common shares are traded on the NASDAQ - National
Market System No cash dividends have been paid on Dynatech
common shares.
(b) Restated for the 2-for-1 stock split in March 1995.
(c) Amounts reflect reorganization charges, net of tax, of $35,103.
(d) Includes extraordinary charge, net of tax, of $1,019 for early retirement
of debt.
</TABLE>
EXHIBIT 21
DYNATECH CORPORATION
Subsidiaries of the Registrant
State or other jurisdiction
Name of Parent of Subsidiary of organization
Dynatech Corporation - Parent Massachusetts
Dynatech U.S.A., Inc. Massachusetts
Alpha Image, Inc. Delaware
Alta Group, Inc (inactive) California
Airshow, Incorporated California
ColorGraphics Systems, Inc. Wisconsin
ComCoTec, Inc. Illinois
Computerized Medical Systems, Inc. Missouri
DaVinci Systems, Inc. Florida
Digital Technology, Inc. Ohio
Dyna FSC Corporation (inactive) U.S. Virgin Islands
Dynatech Cable Products Group, Inc. Utah
Dynatech Communications, Inc. Delaware
Dynatech Laboratories, Inc. Delaware
Dynatech Leasing Corporation Nevada
Dynatech Nevada, Inc. Nevada
Dynatech NewStar, Inc. Wisconsin
Dynatech Precision Sampling Corporation Louisiana
Dynatech Tactical Communications, Inc. Massachusetts
Dynatech Video Group, Inc. Utah
Dynatech Video & Specialty Computers, Inc. (inactive) Wisconsin
Industrial Computer Source, Inc. California
L.E.A. Dynatech, Incorporated Florida
Parallax Graphics, Inc. California
Piiceon, Inc. California
Quanta Corporation Utah
Quanta International Corporation Utah
Science Associates, Inc. (in liquidation) New Jersey
<PAGE>
Telecommunications Techniques Corporation Maryland
Trontech, Inc. New Jersey
Unex Corporation Massachusetts
U.S. Computer Systems, Inc. Ohio
Utah Scientific Inc. Nevada
DataViews Corporation Massachusetts
XKD Corporation California
Cromemco, G.m.b.H. (inactive) Germany
Dynatech A.G. (in liquidation) Switzerland
TTC Canada Ltd. Canada
Dynatech Corporation Ltd. England
Dynatech Scandinavia A/S (inactive) Norway
Dynatech Communications SRL Italy
Dynatech Communications Svenska A.B. Sweden
Dynatech Data Communications, Ltd. Guernsey, Channel
Islands
Dynatech Communications Espani (in liquidation) Spain
Dynatech Communications G.m.b.H. Germany
Dynatech Deutschland, G.m.b.H. Germany
Dynatech Gesellschaft Furdated Verarbeitung Germany
Dynatech Systems France, SA France
Dynatech Holdings Ltd. Guernsey, Channel
Islands
Dynatech Holdings Ltd. England
Dynatech Holdings S.A.R.L. France
Dynatech Hong Kong, Ltd. Hong Kong
Dynatech Investments, Ltd. Guernsey, Channel
Islands
Nihon Dynatech K.K. Japan
Dynatech Medical Products, Ltd. Guernsey, Channel
Islands
Industrial Computer Source France France
Laboratorie Dynatech SARL France
Dynatech Laboratories s.r.o. Czech Republic
Telecommunications Techniques Company (Ireland) Ltd. Ireland
EXHIBIT 23
CONSENT OF
INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statements
of Dynatech Corporation on Form S-3 (File Nos. 2-78465, 2-81026, 2-82260,
2-85387, 2-86457, 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, 33-42427,
33-50768, 33-57491 and 33-57495) of our reports dated May 15, 1995, on our
audits of the consolidated financial statements and financial statement
schedules of Dynatech Corporation as of March 31, 1995 and 1994 and for each of
the years ended March 31, 1995, and 1994 and 1993, which reports have been
incorporated by reference or included in this Annual Report on Form 10-K.
Boston, Massachusetts COOPERS & LYBRAND L.L.P.
June 2, 1995
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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