<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
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 July 15, 1996 there were 17,072,264 shares of common stock of the registrant
outstanding.
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PART I. FINANCIAL INFORMATION
-----------------------------
Item 1. Financial Statements
DYNATECH CORPORATION
<TABLE>
CONSOLIDATED STATEMENTS OF INCOME
(In thousands except per share data)
(Unaudited)
<CAPTION>
Three Months Ended
June 30
------------------
1996 1995
------- -------
<S> <C> <C>
Sales $81,122 $66,758
Cost of sales 30,248 25,249
------- -------
Gross profit 50,874 41,509
Selling, general and administrative expense 26,059 22,861
Product development expense 9,646 9,195
Amortization of intangibles 1,566 1,089
------- -------
Operating income 13,603 8,364
Interest expense (106) (549)
Interest income 643 561
Other income 117 106
------- -------
Income from continuing operations 14,257 8,482
Provision for income taxes 5,845 3,435
------- -------
Net income from continuing operations 8,412 5,047
Loss from discontinued operations, net of tax benefit -- 422
------- -------
Net income $ 8,412 $ 4,625
======= =======
Income per common share:
Continuing operations $ 0.46 $ 0.28
Discontinued operations -- $ (0.02)
------- -------
$ 0.46 $ 0.26
======= =======
Weighted average number of common shares 18,301 17,594
======= =======
</TABLE>
See notes to condensed consolidated financial statements.
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DYNATECH CORPORATION
<TABLE>
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
<CAPTION>
June 30 March 31
1996 1996
-------- --------
ASSETS (Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 51,298 $ 46,094
Accounts receivable, net 47,661 45,367
Inventories:
Raw materials 9,640 10,210
Work in process 8,728 9,381
Finished goods 7,131 7,325
-------- --------
25,499 26,916
Other current assets 6,437 5,981
Net assets of discontinued operations held for sale 16,274 22,824
-------- --------
Total current assets 147,169 147,182
Property and equipment, net 18,409 18,551
Intangible assets, net 26,845 28,406
Other assets 11,108 11,050
-------- --------
$203,531 $205,189
======== ========
LIABILITIES
Current liabilities:
Notes payable and current portion of long-term debt $ 339 $ 655
Accounts payable 9,226 9,849
Other accrued expenses 29,140 29,878
Accrued income taxes 3,199 939
-------- --------
Total current liabilities 41,904 41,321
Long-term debt -- 1,800
Deferred income taxes 411 531
Deferred compensation 907 818
SHAREHOLDERS' EQUITY
Common stock 3,721 3,721
Additional paid-in capital 10,090 12,102
Retained earnings 174,069 165,657
Cumulative translation adjustments 258 342
Treasury stock (27,829) (21,103)
-------- --------
Total shareholders' equity 160,309 160,719
-------- --------
$203,531 $205,189
======== ========
</TABLE>
See notes to condensed consolidated financial statements.
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DYNATECH CORPORATION
<TABLE>
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<CAPTION>
Three Months Ended
June 30
-------- -------
1996 1995
-------- -------
<S> <C> <C>
Operating activities:
Net income $ 8,412 $ 5,047
Adjustments for noncash items included in net income:
Depreciation 2,156 2,060
Amortization of intangibles 1,566 1,089
Increase in deferred taxes 110 584
Other 121 61
Change in operating assets and liabilities, net of effects
of business acquisitions and divestitures (12,264) (9,278)
-------- -------
Net cash flows provided by (used in) continuing operations 101 (437)
Net cash flows provided by (used in) discontinued operations 8,205 (5,766)
Net cash flows provided by (used in) operating activities 8,306 (6,203)
-------- -------
Investing activities:
Purchases of property and equipment (1,862) (2,256)
Disposals of property and equipment 30 11
Proceeds from sale of businesses 10,267 1,668
Other 17 425
-------- -------
Net cash flows provided by (used in) continuing operations 8,452 (152)
Net cash flows (used in) discontinuing operations (526) (263)
-------- -------
Net cash flows provided by (used in) investing activities 7,926 (415)
-------- -------
Financing activities:
Debt borrowings -- 8,588
Repayment of debt (2,125) (426)
Proceeds from exercise of stock options 638 170
Purchases of treasury stock (9,469) --
-------- -------
Net cash flows provided by (used in) financing activities (10,956) 8,332
-------- -------
Effect of exchange rate on cash (72) 860
-------- -------
Increase in cash and cash equivalents 5,204 2,574
Cash and cash equivalents at beginning of year 46,094 27,795
-------- -------
Cash and cash equivalents at end of period $ 51,298 $30,369
======== =======
Supplemental data:
Cash paid during the period for interest $ 154 $ 486
Cash paid during the period for income taxes $ 2,041 $ 195
Tax benefit of disqualifying dispositions of stock options -- $ 107
</TABLE>
See notes to condensed consolidated financial statements.
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
A. Condensed Consolidated Financial Statements
In the opinion of management, the unaudited condensed consolidated balance
sheet at June 30, 1996, and the unaudited consolidated statements of income
and unaudited consolidated condensed statements of cash flows for the
interim periods ended June 30, 1996 and 1995 include all adjustments
(including normal recurring adjustments) necessary to present fairly these
financial statements.
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 Annual Report on Form 10K for the fiscal year ended
March 31, 1996.
This Form 10-Q contains forward-looking statements which involve risks and
uncertainties. The Company's actual results may differ significantly from
the results discussed in the forward-looking statements. Factors that might
cause such a difference include, but are not limited to, product demand and
market acceptance risks, the effect of economic conditions, the impact of
competitive products and pricing, product development, commercialization
and technological difficulties, capacity and supply constraints or
difficulties, availability of capital resources, general business and
economic conditions, the effect of the company's accounting policies, and
other risks detailed in the Company's Annual Report and 10K for the fiscal
year ended March 31, 1996.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make certain
estimates and assumptions that affect the reported amount of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and
expenses during the reported period. Significant estimates in these
financial statements include allowances for accounts receivable, net
realizable value of inventories, tax valuation reserves, and the net
realizable value of assets from discounted operations held for sale. Actual
results could differ from those estimates.
B. Divestments
During the quarter ended June 30, 1996, the Company sold two businesses for
approximately $10.3 million in cash. The effects of these transactions were
reflected in the net assets held for sale and did not effect fiscal 1997
earnings.
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Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations
- ---------------------
Consolidated sales from continuing operations for the three months ended June
30, 1996 were $81,122,000 compared to $66,758,000 in the prior fiscal year's
first quarter. Communication test sales rose 27% for the three months ended in
fiscal 1997. The increase was due in part to acquired businesses in the last
half of fiscal year 1996. Sales for the Industrial and Scientific communications
and non-Broadcast Video Technology segments were up 17% and 11%, respectively
over the corresponding quarter ending June 30, 1995. Backlog from ongoing
operations was $55.6 million at June 30, 1996 compared with $57.3 million at
March 31, 1996. The decrease was due to shipments from backlog generated by
large incoming orders in the March quarter in the Communications Test division.
Consolidated gross profit from continuing operations was 62.7% for the current
quarter compared to 62.2% in the prior fiscal year quarter. The increase in rate
is a result of strong sales of certain higher margin communication test products
and industrial and scientific communications products. Product development
expense increased 4.9% for the quarter ended June 30, 1996 versus the three
months ended June 30, 1995. As a percentage of sales, product development
decreased to 11.9% as compared to 13.8% in the comparable quarter a year ago.
Amortization of intangible assets was $1.6 million in the first quarter of
fiscal 1997 and $1.1 million in the first quarter of the prior year. The
increase year over year is due to Communication Test acquisitions made during
the second half of fiscal 1996. Selling, General and Administrative expense as a
percentage of sales declined to 32.1% for the first quarter of fiscal 1997 as
compared to 34.2% in the corresponding quarter a year ago. The decrease was due
to greater efficiencies in selling communications products and leverage in sales
costs for industrial and scientific communications products. Interest income
increased due to earnings on cash received from proceeds of assets held for
sale. The effective tax rate was 41% for the first quarter of fiscal 1997
compared to 40.5% in the prior year quarter resulting from higher nondeductible
amortization charges.
Net income from continuing operations increased 67% to $8,412,000 for the
quarter ended June 30, 1996 from $5,047,000 for the first quarter of this prior
year, reflecting increased sales of 22%, higher gross margins, lower general,
administrative and selling costs, and higher interest income, partially offset
by higher product development and increased amortization cost. Earnings per
share for the quarter ended June 30, 1996 were $.46 representing a 64% increase
as compared to the prior year period.
Capital Resources and Liquidity
- -------------------------------
The Company's funded debt was .2% of total capital at June 30, 1996, a decrease
from 1.5% at March 31, 1996. The working capital rate decreased slightly to 3.5
to 1 at June 30, 1996 from 3.6 to 1 at March 31, 1996. Cash inflows from
proceeds of business assets held for sale approximated $10.3 million in the
first quarter. Cash outflows of approximately $9.5 million were used to purchase
treasury stock. Dynatech believes it has sufficient resources to finance its
<PAGE> 7
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cash requirements over the next year. The current capital structure provides
sufficient financial flexibility to pursue business opportunities.
PART I. OTHER INFORMATION
-------------------------
Item 6. (a) Exhibits
Exhibit 27 Financial Data Schedule
PART II. OTHER INFORMATION
--------------------------
Item 6. Reports on Form 8-K
(b) No current reports on Form 8-K were filed by the Registrant during
the quarter ended June 30, 1996.
<PAGE> 8
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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 August 9, 1996 ALLAN M. KLINE
------------------------- ----------------------------------------
Vice President, Chief Financial Officer
and Treasurer
Date August 9, 1996 ROBERT W. WOODBURY, JR.
------------------------- ----------------------------------------
Corporate Controller,
Principal Accounting Officer
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> APR-01-1996
<PERIOD-END> JUN-30-1996
<EXCHANGE-RATE> 1
<CASH> 51,298
<SECURITIES> 0
<RECEIVABLES> 48,619
<ALLOWANCES> 958
<INVENTORY> 25,499
<CURRENT-ASSETS> 6,437
<PP&E> 50,543
<DEPRECIATION> 32,134
<TOTAL-ASSETS> 203,531
<CURRENT-LIABILITIES> 41,904
<BONDS> 0
<COMMON> 3,721
0
0
<OTHER-SE> 156,588
<TOTAL-LIABILITY-AND-EQUITY> 203,531
<SALES> 81,122
<TOTAL-REVENUES> 81,122
<CGS> 30,248
<TOTAL-COSTS> 37,271
<OTHER-EXPENSES> (117)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (537)
<INCOME-PRETAX> 14,257
<INCOME-TAX> 5,845
<INCOME-CONTINUING> 8,412
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,412
<EPS-PRIMARY> .46
<EPS-DILUTED> .46
</TABLE>
