<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 September 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 October 15, 1996 there were 17,047,813 shares of common stock of the
registrant outstanding.
<PAGE> 2
2
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 Six Months Ended
September 30 September 30
1996 1995 1996 1995
------- ------- -------- --------
<S> <C> <C> <C> <C>
Sales $85,725 $68,513 $166,847 $135,271
Cost of sales 31,262 26,262 61,510 51,511
------- ------- -------- --------
Gross profit 54,463 42,251 105,337 83,760
Selling, general and administrative expense 27,888 23,848 53,947 46,709
Product development expense 10,256 9,001 19,902 18,196
Purchased incomplete technology -- 16,852 -- 16,852
Amortization of intangibles 1,559 1,165 3,125 2,254
------- ------- -------- --------
Operating income (Loss) 14,760 (8,615) 28,363 (251)
Interest expense (173) (482) (279) (1,031)
Interest income 581 557 1,224 1,118
Other income 305 320 422 426
------- ------- -------- --------
Income (Loss) from continuing operations
before income taxes 15,473 (8,220) 29,730 262
Provision (Benefit) for income taxes 6,196 (3,337) 12,041 98
------- ------- -------- --------
Income (Loss) from continuing operations 9,277 (4,883) 17,689 164
Loss from discontinued operations, net of taxes -- 110 -- 532
------- ------- -------- --------
Net income (Loss) $ 9,277 $(4,993) $ 17,689 $ (368)
======= ======= ======== ========
Income (Loss) per common share:
Continuing Operations $ 0.52 $ (.27) $ 0.98 $ 0.01
Discontinued Operations -- (.01) -- (.03)
------- ------- -------- --------
$ 0.52 $ (.28) $ 0.98 $ (.02)
======= ======= ======== ========
Weighted average number of common shares 17,914 17,858 18,106 17,727
======= ======= ======== ========
</TABLE>
See notes to condensed consolidated financial statements.
<PAGE> 3
3
DYNATECH CORPORATION
<TABLE>
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
<CAPTION>
Sept. 30 March 31
1996 1996
-------- --------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 49,384 $ 46,094
Accounts receivable, net 51,599 45,367
Inventories:
Raw materials 9,583 10,210
Work in process 9,351 9,381
Finished goods 6,484 7,325
-------- --------
25,418 26,916
Other current assets 8,041 5,981
Net assets of discontinued operations held for sale 19,435 22,824
-------- --------
Total current assets 153,877 147,182
Property and equipment, net 18,240 18,551
Intangible assets, net 25,038 28,406
Other assets 11,205 11,050
-------- --------
$208,360 $205,189
======== ========
LIABILITIES
Current liabilities:
Notes payable & current portion of long-term debt $ 105 $ 655
Accounts payable 10,206 9,849
Other accrued expenses 30,561 30,817
-------- --------
Total current liabilities 40,872 41,321
Long-term debt 8,500 1,800
Deferred income taxes 286 531
Deferred compensation 1,193 818
SHAREHOLDERS' EQUITY
Common stock 3,721 3,721
Additional paid-in capital 9,053 12,102
Retained earnings 183,346 165,657
Cumulative translation adjustments 361 342
Treasury stock (38,972) (21,103)
-------- --------
Total shareholders' equity 157,509 160,719
-------- --------
$208,360 $205,189
======== ========
</TABLE>
See notes to condensed consolidated financial statements
<PAGE> 4
4
DYNATECH CORPORATION
<TABLE>
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<CAPTION>
Six Months Ended
September 30
1996 1995
-------- --------
<S> <C> <C>
Operating activities:
Income from continuing operations $ 17,689 $ 164
Adjustments for noncash items included in net income:
Depreciation 4,441 4,051
Amortization of intangibles 3,125 2,254
Purchased incomplete technology -- 16,852
Increase (Decrease) in deferred taxes 445 (3,102)
Other 253 (158)
Change in operating assets and liabilities, net of effects
of business acquisitions and divestitures (7,054) (7,616)
-------- --------
Net cash flows provided by continuing operations 18,899 12,445
Net cash flows (used in) discontinued operations (5,744) (13,755)
-------- --------
Net cash flows provided by (used in) operating activities 13,155 (1,310)
-------- --------
Investing activities:
Purchases of property and equipment (4,318) (4,581)
Disposals of property and equipment 162 26
Proceeds from sales of businesses 10,267 3,819
Business acquired in purchase transaction -- (9,868)
Other 7 142
-------- --------
Net cash flows provided by (used in) continuing operations 6,118 (10,462)
Net cash flows (used in) discontinuing operations (884) (1,398)
-------- --------
Net cash flows provided by (used in) investing activities 5,234 (11,860)
-------- --------
Financing activities:
Debt borrowings 6,700 14,901
Repayment of debt (571) (488)
Proceeds from exercise of stock options 1,195 586
Purchases of treasury stock (22,334) --
-------- --------
Net cash flows provided by (used in) financing activities (15,010) 14,999
-------- --------
Effect of exchange rate on cash (89) 664
-------- --------
Increase in cash and cash equivalents 3,290 2,493
-------- --------
Cash and cash equivalents at beginning of year 46,094 27,795
-------- --------
Cash and cash equivalents at end of period $ 49,384 $ 30,288
======== ========
Supplemental data:
Cash paid during the period for interest $ 279 $ 960
Cash paid during the period for income taxes $ 13,498 $ 3,155
Tax benefit of disqualifying dispositions of stock options $ -- $ 126
Stock issued for acquisition of Tele-Path Industries $ -- $ 13,700
</TABLE>
See notes to condensed consolidated financial statements.
<PAGE> 5
5
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
A. Condensed Consolidated Financial Statements
In the opinion of management, the unaudited condensed consolidated balance
sheet at September 30, 1996, and the unaudited consolidated statements of
income and unaudited consolidated condensed statements of cash flows for
the interim periods ended September 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 first six months of fiscal 1997, 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. In October 1996 the Corporation sold three businesses which
have been classified as discontinued operations for approximately $33
million. The Company expects to dispose of the remaining units held for
sale during fiscal 1997. Management believes that the net proceeds from
these dispositions will exceed the carrying amounts and anticipated ongoing
costs to operate the business in 1997. Anticipated gains will not be
reflected in the statements of operations until they are realized at the
completion of the divestiture program.
<PAGE> 6
6
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Continuing Operations
Results of Continuing Operations
- --------------------------------
Consolidated sales for the six months ended September 30, 1996 increased 23% to
$166,847,000 from $135,271,000 for the comparable period in the prior year.
Communications Test sales rose 29.0% for the six months ended in fiscal 1997.
The increase was due in part to acquired businesses in the second half of fiscal
1996. Sales for the Industrial and Scientific Communications and Non-Broadcast
Video Technology business were up 18.5% and 12.4%, respectively, over the
corresponding six months ended September 30, 1996. Backlog from ongoing
operations was $64.7 million at September 30, 1996 as compared with $57.3
million at March 31, 1996. The increase is due to strong demand for frame relay
and ISDN test equipment in the Communications Test business as well as increased
orders for aircraft passenger video information systems in the Non-Broadcast
Video Technology business.
Consolidated Gross Profit for the current quarter and six months was 63.5% and
63.1% of sales, respectively, compared to 61.7% and 61.9% for each of the
respective prior year periods. The increase in Gross Profit is a result of
increased sales of higher margin products in all areas of the business. Product
Development expense was 12.0% of sales for the current quarter and 11.9% for the
first six months of fiscal 1997 as compared to 13.1% and 13.4% for the
comparable periods in the prior year. Selling, General and Administrative
expenses were 32.5% and 32.3% for the second quarter and six months ended
September 30, 1996 as compared to 34.8% and 34.5% for the corresponding periods
a year ago. The decrease is due to greater efficiencies in selling
communications products and leverage in sales costs in the industrial and
scientific communications businesses. The increase in amortization of intangible
assets, $1.6 million for the second quarter and $3.1 million for the half as
compared to $1.2 million and $2.3 million, respectively, for the prior year, is
due to Communication Test acquisitions made during the second half of fiscal
1996. Interest income increased due to earnings on cash received from proceeds
of assets held for sale. The effective tax rate was 40% and 40.5% for the three
and six month periods ended September 30, 1996. The decrease in the second
quarter was due to profit mix in lower state tax jurisdictions.
Capital Resources and Liquidity
- -------------------------------
The Company's funded debt was 5.2% of total capital at September 30, 1996, an
increase from 1.5% at March 31, 1996. The current ratio rate increased to 3.8 to
1 at September 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 half of fiscal 1997 with related cash outflows of approximately $5.7
million. Additionally, $33 million was received in October from the sale of
three businesses. Net cash flows from operating activities were $13.2 million
for the six-month period ended September 30, 1996. Cash outflows of
approximately $22.3 million were used to purchase 697,500 shares of treasury
stock. The total number of shares authorized for repurchase under the current
plan has been increased to 3,000,000. Approximately 1,500,000 have been
repurchased to date. Dynatech believes it has sufficient resources to finance
its cash requirements over the next year.
<PAGE> 7
7
PART I. OTHER INFORMATION
-------------------------
Item 6. (a) Exhibits
Exhibit 27 - Financial Data Schedule
PART II. OTHER INFORMATION
--------------------------
Item 4. Results of Votes of Security Holders
<TABLE>
The annual meeting of Stockholders was held on July 30, 1996 in Boston,
Massachusetts. A class of two directors as nominated by the Board of Directors
to serve for a three-year term were elected at the meeting. At such meeting,
17,663,839 shares were entitled to vote and a plurality of the votes cast were
needed for election. The table below discloses the vote with respect to each
nominee for office.
<CAPTION>
IN FAVOR WITHHELD
-------- --------
<S> <C> <C>
William R. Cook 16,092,104 1,571,735
Robert G. Paul 16,092,304 1,571,535
</TABLE>
The terms of L. Dennis Kozlowski, Peter van Cuylenburg, and John F. Reno will
expire in 1997 and the terms of Ronald L. Bittner, O. Gene Gabbard, and Richard
K. Lochridge expire at the annual meeting in 1998.
<TABLE>
The results of the voting of the additional items were as follows:
(a) To approve the 1996 Employee Stock Purchase Plan (as set forth in the
Board's Proxy Statement)
<CAPTION>
FOR AGAINST ABSTAIN BROKER NON-VOTE
--- ------- ------- ---------------
<S> <C> <C> <C> <C>
Employee Stock Purchase Plan 14,728,067 1,340,989 60,692 1,534,091
</TABLE>
Item 6. Reports on Form 8-K
(b) No current reports on Form 8-K were filed by the Registrant during
the quarter ended September 30, 1996.
<PAGE> 8
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DYNATECH CORPORATION
---------------------------------------
Date November 5, 1996 ALLAN M. KLINE
-------------------------- ---------------------------------------
Vice President, Chief Financial Officer
and Treasurer
Date November 5, 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> 6-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> APR-01-1996
<PERIOD-END> SEP-30-1996
<EXCHANGE-RATE> 1
<CASH> 49,384
<SECURITIES> 0
<RECEIVABLES> 52,762
<ALLOWANCES> 1,163
<INVENTORY> 25,418
<CURRENT-ASSETS> 8,041
<PP&E> 52,414
<DEPRECIATION> 34,174
<TOTAL-ASSETS> 208,360
<CURRENT-LIABILITIES> 40,872
<BONDS> 0
<COMMON> 3,721
0
0
<OTHER-SE> 153,788
<TOTAL-LIABILITY-AND-EQUITY> 208,360
<SALES> 166,847
<TOTAL-REVENUES> 166,847
<CGS> 61,510
<TOTAL-COSTS> 76,974
<OTHER-EXPENSES> (422)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (945)
<INCOME-PRETAX> 29,730
<INCOME-TAX> 12,041
<INCOME-CONTINUING> 17,689
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 17,689
<EPS-PRIMARY> .98
<EPS-DILUTED> .98
</TABLE>
