U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1994
Commission file number 0-7438
DYNATECH CORPORATION
(Exact name of registrant as specified in its charter)
MASSACHUSETTS 04-2258582
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
3 New England Executive Park
Burlington, Massachusetts 01803-5087
(Address of principal executive offices)(Zip code)
Registrant's telephone number, including area code:(617) 272-6100
Indicate by check mark whether the registrant: (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No .
At January 16, 1995 there were 8,747,538 shares of common stock
of the registrant outstanding.
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
<TABLE>
DYNATECH CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(In thousands except per share data)
(Unaudited)
<CAPTION>
Three Months Ended Nine Months Ended
December 31 December 31
1994 1993 1994 1993
<S> <C> <C> <C> <C>
Sales $127,242 $113,381 $366,391 $342,490
Cost of sales 60,003 53,752 174,301 160,786
Gross profit 67,239 59,629 192,090 181,704
Selling, general and
administrative expense 42,179 41,020 120,607 118,944
Product development
expense 12,888 12,647 38,331 39,211
Amortization of
intangibles 2,041 2,468 6,405 7,785
Operating income 10,131 3,494 26,747 15,764
Interest expense (922) (854) (3,328) (2,252)
Interest income 301 116 895 546
Other income (expense) 253 (165) 774 (45)
Income from continuing
operations before
income taxes 9,763 2,591 25,088 14,013
Provision for income taxes 4,155 1,166 10,736 5,846
Income from continuing
operations 5,608 1,425 14,352 8,167
Loss from discontinued
operations, net of
income taxes --- 151 --- 73
Net income $5,608 $ 1,274 $14,352 $8,094
Income per common share
Continuing operations $0.64 $0.15 $1.60 $0.88
Discontinued operations --- (0.01) --- (0.01)
$0.64 $0.14 $1.60 $0.87
Weighted average number
of common shares 8,734 9,293 8,972 9,284
See notes to condensed consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
DYNATECH CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
<CAPTION>
December 31 March 31
1994 1994
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $45,063 $23,101
Accounts receivable, net 75,426 73,090
Inventories:
Raw materials 26,039 26,923
Work in process 13,596 14,091
Finished goods 19,342 20,671
58,977 61,685
Other current assets 23,470 26,683
Net current assets of discontinued
operations --- 10,805
Total current assets 202,936 195,364
Property and equipment, net 34,704 39,253
Intangible assets, net 33,534 37,238
Other assets 8,306 8,698
$279,480 $280,553
LIABILITIES
Current liabilities:
Notes payable and current portion
of long-term debt $3,561 $2,911
Accounts payable 18,621 20,234
Streamlining and restructuring
accrual 28,483 35,276
Other accrued expenses 48,777 45,283
Accrued income taxes 3,256 650
Total current liabilities 102,698 104,354
Long-term debt 30,002 33,006
Deferred income taxes 246 550
SHAREHOLDERS' EQUITY
Common stock 2,477 2,477
Additional paid-in capital 9,432 9,414
Retained earnings 200,309 185,957
Cumulative foreign currency adjustments 509 (757)
Treasury stock (66,193) (54,448)
Total shareholders' equity 146,534 142,643
$279,480 $280,553
See notes to condensed consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
DYNATECH CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<CAPTION>
Nine Months Ended
December 31
1994 1993
<S> <C> <C>
Operating activities:
Net income from continuing operations $14,352 $8,167
Adjustments for noncash items included in net
income:
Depreciation 10,800 9,960
Amortization of intangibles 6,405 7,786
Increase in deferred taxes 3,273 (192)
Other 96 1,507
Change in operating assets and liabilities, net
of effects of purchase acquisitions and
divestitures (9,097) (13,028)
Net cash flows provided by continuing operations 25,289 14,200
Net cash flows provided by (used in) discontinued
operations (3,250) 4,056
22,579 18,256
Investing activities:
Purchases of property and equipment (11,351) (13,149)
Disposals of property and equipment 403 410
Proceeds from sale of businesses 24,654 2,681
Businesses acquired in purchase transactions,
net of cash acquired (1,056) (2,300)
Other (387) 2,458
Net cash flows from (used in) investing
activities 12,263 (9,900)
Financing activities:
Debt borrowings 612 ---
Repayment of debt (3,291) (9,985)
Proceeds from exercise of stock options 720 759
Purchases of treasury stock (12,576) ---
Net cash flows used in financing activities (14,535) (9,136)
Effect of exchange rate on cash 1,655 (2,521)
Increase (decrease) in cash and cash equivalents 21,962 (3,301)
Cash and cash equivalents at beginning of year 23,101 24,350
Cash and cash equivalents at end of period $45,063 $21,049
Supplemental data:
Cash paid during the period for interest $4,323 $ 5,099
Cash paid during the period for income taxes $5,118 $10,151
Tax benefit of disqualifying dispositions of
stock options $ 84 $ 358
See notes to condensed consolidated financial statements.
</TABLE>
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
A. Condensed Consolidated Financial Statements
In the opinion of management, the unaudited condensed
consolidated balance sheet at December 31, 1994, and the
unaudited consolidated statements of income and unaudited
consolidated condensed statements of cash flows for the interim
periods ended December 31, 1994 and 1993 include all adjustments
(including normal recurring adjustments) necessary to present
fairly these financial statements. The aforementioned financial
statements have been subject to a review by the Company's
independent accountants, whose report is included as page 9 to
this filing. The accountants did not propose any adjustments or
additional disclosures as a result of their review.
Certain information and footnote disclosures normally included
in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted.
The year-end balance sheet data was derived from audited
financial statements, but does not include disclosures required
by generally accepted accounting principles. It is suggested
that these condensed statements be read in conjunction with the
Company's most recent Form 10-K and Annual Report as of March
31, 1994.
B. Acquisitions and Divestments
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 market. 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. In
addition, the Company purchased technology rights and licenses
aggregating $1.85 million which are being amortized over five
years.
During the first nine months of fiscal 1995, the Corporation
sold Whistler Corporation and Micro Processor Systems, Inc.,
which have been classified as discontinued operations, for
approximately $14 million in cash and long-term promissory notes
approximating $3.1 million. Seven other businesses were sold
for approximately $10.7 million in cash and long-term promissory
notes approximating $1.1 million.
The effects of these transactions are not material to the
consolidated financial statements.
C. Treasury Stock
In June 1994 the Board of Directors authorized a repurchase of
up to $30 million of Dynatech common stock on the open market
and in private transactions. At December 31, 1994 the
Corporation had repurchased 596,522 shares at a cost of $12.6
million. Treasury shares purchased prior to fiscal 1995 are
being retired on February 15, prior to the stock split discussed
in Note D below. The remaining acquired shares are held as
common stock in treasury.
D. Subsequent Events
Stock Split
On January 26, 1995 he Board of Directors approved a two-for-one
stock split of the Company's common stock to shareholders of
record on February 15. Distribution of one additional share for
each share held by stockholders will be made on March 15, 1995.
<PAGE>
Extraordinary Item - Extinguishment of Debt
On February 3, 1995 the Corporation paid off its $30 million
10.15% term notes using a combination of cash and bank
borrowings. This fourth quarter transaction will result in an
extraordinary loss of approximately $1 million net of taxes,
consisting of redemption premiums.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Results of Operations
Consolidated sales for the nine months ended December 31, 1994
increased 7% to $366,391,000 from $342,490,000 for the
comparable period in the prior year. Information Support
Products segment sales rose 13.4% for the nine months ended in
fiscal 1995 reflecting a 15.3% growth for Transmission products
and a 15.5% increase for Presentation products. Sales in the
Diversified Instrumentation segment increased 5.2% from ongoing
businesses for the comparable period in the prior year which
excludes nonstrategic businesses sold or to be divested. This
increase was a result of a 24.3% increase for aircraft video
information systems and a 13% increase of sales of medical and
diagnostic products offset partially by a 58.6% decline for
commercial and military avionics data bus applications. The
sale of seven businesses in this segment during fiscal 1994 and
1995 coupled with sales declines in businesses held for sale
resulted in an overall decrease of 5.8%. Sales for the nine
months from foreign operations rose 9.7% while domestic sales
increased 6.3%.
Sales for the current quarter increased 12% from the comparable
prior year quarter, reflecting increases among all product areas
within the Information Support Products segment.
Consolidated gross profit for the current quarter and nine
months was 52.8% and 52.4% of sales, respectively, compared to
52.6% and 53.1% for each of the respective prior year periods.
Information Support Products gross margin declined to 55.1%
compared to 56.8% in the nine months of the prior year due
primarily to higher production costs for new product
introductions and price sensitivity in video graphics generation
markets. Diversified Instrumentation gross margin improved to
45.9% compared to 45.5% in the first nine months of the prior
year resulting from greater sales of software products.
Selling, general and administrative expenses were lower as a
percent of sales for the third quarter and first nine months
periods from the comparative prior year periods resulting in
part from the streamlining actions announced in the fourth
quarter of fiscal 1994. Product development expense was 10.5%
of sales for the current nine months compared to 11.4% in the
first nine months of the prior year. The reduction was
attributed primarily to the nonstrategic businesses in the
Diversified Instrumentation segment. Amortization of
intangibles, of which $3.3 million in the first nine months of
fiscal 1995 and $4 million in the first nine months of the prior
year related to product technology and was excluded from cost of
sales, declined due to business divestments and discontinuance
of product lines. Interest expense from continuing and
discontinued operations declined for the current nine months to
$3,661,000 as compared with $4,347,000 in the prior year as a
result of repayment of loan debt from operating cash flow.
Interest income increased due to higher investment rates,
earnings on notes acquired in divestment activities, and
favorable operating cash flow. The effective tax rate was 42.8%
for the current nine months compared to 41.7% in the prior year.
The lower tax rate in the prior year reflects the cumulative
effect of $315,000 on the net deferred tax assets resulting from
the Budget Reconciliation Act of August 1993.
<PAGE>
Income from continuing operations for the third quarter
increased 294% to $5,608,000, or $.64 per share, from
$1,425,000, or $.15 per share, for the third quarter of the
prior year, reflecting a 23.1% increase in sales of Information
Support Products, along with lower product development expenses
and amortization costs. Backlog from ongoing operations was
$75.3 million at December 31, 1994 compared with $80.2 million
at March 31, 1994.
Estimated savings from implementing the streamlining and
restructuring actions were $7.6 million in the first nine months
of fiscal 1995 which approximate targeted goals. Employee
headcount from continuing operations has achieved its planned
10% reduction in work force upon implementation of the
streamlining actions and sale of seven businesses. In addition,
the consumer automotive business units which employed
approximately 10% of the work force have been sold. Sales and
operating income of nonstrategic businesses divested or held for
sale included in continuing operations were $42,428,000 and
$421,000, respectively, for the first nine months of fiscal 1995.
While the Company believes that the outlook for the fourth
quarter of fiscal 1995 is good, no assurance can be given that
operating results for the quarter will meet those of the
successful second quarter and record third quarter. Operating
results for the fourth quarter of fiscal 1995 will depend upon,
among other things, the incoming order rate during the quarter
for the Company's various businesses, product mix, and the
continued successful implementation of the Company's
reorganization plan.
Capital Resources and Liquidity
The Company's funded debt was reduced to 18.6% of total capital
at December 31, 1994, an improvement from the year-end level of
20.1% at March 31, 1994, the lowest level in eight years.
Working capital improved $9.2 million from March 31, 1994 levels
due to cash proceeds from divestitures and favorable operating
cash flow. This favorable cash flow enabled Dynatech to
subsequently repay its $30 million term notes in February 1995.
Cash outlays for the streamlining and restructuring actions
approximated $8 million in the first nine months of fiscal 1995
and is expected to be $11 million for the year. This amount is
lower than original projections due principally to delays in
terminating various lease obligations. Dynatech believes it has
sufficient resources to finance its cash requirements over the
next year including the necessary streamlining and restructuring
actions and any treasury stock repurchases.
PART I. OTHER INFORMATION
Item 6. (a) Exhibits
Exhibit 15(1) Report of Independent Accountants
Exhibit 15(2) SEC Awareness Letter
Exhibit 27 Financial Data Schedule
PART II. OTHER INFORMATION
Item 6. Reports on Form 8-K
(b) A Form 8-K was filed by the Registrant on November 30, 1994
reporting the adoption of certain amendments by the Board of
Directors to the Company's By-Laws. These amendments provide
advance notice by stockholders of director nominations or
proposals at the Annual Meeting.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
DYNATECH CORPORATION
Date February 3, 1995 /s/ Robert H. Hertz
Robert H. Hertz
Chief Financial Officer
and Treasurer
Date February 3, 1995 /s/ John C. Maag
John C. Maag
Corporate Controller
EXHIBIT 15(1)
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Shareholders of Dynatech Corporation:
We have reviewed the unaudited condensed consolidated balance
sheet of Dynatech Corporation as of December 31, 1994, the
related consolidated statements of income for the three-month
and six-month periods ended December 31, 1994 and 1993 and the
related condensed consolidated statements of cash flows for the
nine-month periods ended December 31, 1994 and 1993. These
financial statements are the responsibility of the Company's
management.
We conducted our review in accordance with standards established
by the American Institute of Certified Public Accountants. A
review of interim financial information consists principally of
applying analytical procedures to financial data and making
inquiries of persons responsible for financial accounting
matters. It is substantially less in scope than an audit in
accordance with generally accepted auditing standards, the
objective of which is the expression of an opinion regarding the
financial statements taken as a whole. Accordingly, we do not
express such an opinion.
Based on our review, we are not aware of any material
modifications that should be made to the condensed consolidated
financial statements referred to above for them to be in
conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally
accepted auditing standards, the consolidated balance sheet as
of March 31, 1994, and the related consolidated statements of
operations, shareholders' equity, and cash flows for the year
then ended (not presented herein), and in our report, dated May
23, 1994, we expressed an unqualified opinion on those
consolidated financial statements. In our opinion, the
information set forth in the accompanying condensed consolidated
balance sheet as of March 31, 1994, is fairly presented, in all
material respects, in relation to the consolidated balance sheet
from which it has been derived.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
January 23, 1995
EXHIBIT 15(2)
January 23, 1995
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
RE: Dynatech Corporation
We are aware that our report dated January 23, 1995 on our
review of interim financial information of Dynatech Corporation
for the interim periods ended December 31, 1994 and 1993, and
included in the Corporation's quarterly report on Form 10-Q for
the quarter ended December 31, 1994 is incorporated by reference
in various registration statements on Form S-3 (File No.
2-78465, 2-81026, 2-82260, 2-85387, 2-86467, 2-92391, 2-94757,
33-365, 33-2387, 33-5544, 33-17169, 33-24058 and 33-30610) and
Form S-8 (File No. 2-87779, 33-10465, 33-17243 and 33-42427).
Pursuant to Rule 436(c) under the Securities Act of 1933, this
report should not be considered a part of the registration
statements prepared or certified by us within the meaning of
Sections 7 and 11 of that Act.
Sincerely yours,
Coopers & Lybrand L.L.P.
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<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1995
<PERIOD-END> DEC-31-1994
<CASH> 45063
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<RECEIVABLES> 75426
<ALLOWANCES> 0
<INVENTORY> 58977
<CURRENT-ASSETS> 202936
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0
0
<OTHER-SE> 144057
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<OTHER-EXPENSES> 165343
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