SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) July 9, 1998
DANAHER CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 1-8089 59-1995548
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
1250 24th Street, N.W. Washington, D.C. 20037
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 202-828-0850
(Former name or former address, if changed since last report.)<PAGE>
Item 2. Acquisition of Assets
As previously reported in the Form 10-Q filed on July 16,
1998, on July 9, 1998, Danaher Corporation acquired Fluke
Corporation in exchange for 17,785,122 shares of Danaher common
stock. The acquisition will be accounted for as a pooling-of-
interests.
Fluke was founded in 1948 and incorporated under the laws of
the State of Washington on October 7, 1953. Fluke is engaged in
the design, manufacture and marketing of compact, professional
electronic test tools. Fluke's principal products are portable
instruments that measure voltage, current, power quality,
frequency, temperature, pressure and other key functional
parameters of electronic equipment. The principal executive
offices of Fluke are located at 6920 Seaway Boulevard, Everett,
Washington 98203, and its telephone number is (425) 347-6100.
Item 5. Other Events
Year 2000 Matters
The Securities and Exchange Commission has issued
interpretative guidance regarding disclosure of Year 2000 issues
and consequences, effective August 4, 1998 (the "Interpretation").
Danaher Corporation (the "Company") is providing this disclosure
to supplement the information contained in its 1997 Annual Report
on Form 10-K in accordance with this Interpretation.
In addition to historical information, this document
contains forward-looking statements within the meaning of the
"safe harbor" provisions of the Private Securities Litigation
Reform Act of 1995. Reference is made in particular to statements
regarding the Company's expectations regarding the Company's plans
and objectives for testing and remediation for Year 2000 issues,
the expected costs associated with such testing and remediation,
the Company's contingency plans, the Company's expectations with
respect to its customers' and vendors' readiness and the Company's
expectations with respect to its operations at Year 2000, and
other forward-looking statements. In addition, forward-looking
statements generally can be identified by the use of forward-
looking terminology such as "may," "will," "expect," "intend,"
"estimate," "anticipate," "believe" or "continue" or the negative
thereof or variations thereon or similar terminology. Such
statements are based on management's current expectations and are
subject to a number of factors, risks and uncertainties which
could cause actual results to differ materially from those
described in the forward-looking statements. In particular,
careful consideration should be given to the cautionary statements
made in this document.
State of Readiness
As more fully described in Description of Business in its
1997 Annual Report, Danaher conducts its operations through over
100 subsidiary companies. Each of these companies, or in certain
instances groups of several companies, has responsibility for its
own information technology (IT) requirements, including assuring
that its IT and non-IT systems are or will be compliant with Year
2000 processing requirements. Standardized corporate-wide
reporting is done via widely used microcomputer software which is
substantially Year 2000 ready.
To ensure that the IT and non-IT systems are or will be Year
2000 ready at each of the material subsidiary operations, a full
survey of the following was conducted in 1997 and goals were
established to aid in assuring that all major critical dates were
achieved:
* assessment of each operating IT system, including
hardware and software;
* assessment of critical non-IT systems, including
logistics, real estate, manufacturing control systems
and other embedded technologies;
* survey of major customers as to Year 2000 readiness;
and
* survey of principal vendors as to Year 2000 readiness.
The majority of the Company's efforts regarding Year 2000
readiness are associated with internal data processing systems.
In all material respects, products manufactured by the Company do
not utilize calendar dating in their functionality. Some products
within the Process/Environmental Controls segment are components
in larger systems manufactured by customers which do reference
calendar dates. Where known, the Company has contacted customers
to ascertain their awareness of the issues and plans to address
them. Most of the production, logistics, real estate and
administrative support non-IT systems can be modified or reset to
provide for their continued operation in the event that a
permanent Year 2000 solution is not achieved by the established
deadline.
Due to both the recent vintage of many of the Company's
operating IT systems and the general use of standardized
externally developed systems without substantial internal
modifications, a majority of the Company's IT systems are either
currently prepared for Year 2000 in all material respects or are
in the process of installing upgrades to standardized programming
to meet this objective. For both the remaining IT systems and
most of the non-IT systems, plans with critical dates are in place
and are being monitored. A comprehensive company-wide status
update is currently in process, and is scheduled to be completed
in the fourth quarter of 1998. Current plans anticipate readiness
for Year 2000 in all material respects by mid-year of 1999.
The testing component of the Company's Year 2000 readiness
plan is conducted on an ongoing basis. Most IT applications which
are deemed Year 2000 compliant by the software vendors include
documentation of the testing protocol used by the vendor. The
Company reviews these results and conducts its own test utilizing
date parameters beyond Year 2000. At this time, approximately
half of IT systems have been tested as to compliance and most non-
IT system testing has not yet been completed. These testing
proportions are related to both the magnitude and perceived risk
of system noncompliance and future testing will be scheduled in
accordance with these criteria.
Costs to Address Year 2000 Issues
The Interpretation requires disclosure of costs incurred to
address Year 2000 issues and an estimate of costs expected to be
incurred. In accordance with the Interpretation, the calculation
of costs incurred has been limited to costs to bring existing
systems into compliance or to accelerate replacement systems to
meet these requirements. Costs incurred in the normal maintenance
of the Company's IT systems are not included. New systems were
implemented at both Fluke Corporation and Pacific Scientific
Company before they were acquired by the Company in 1998, and the
costs of these systems are not deemed Year 2000 costs in
accordance with the Interpretation. The Company began monitoring
Year 2000 remediation costs in 1997 and any costs (which are not
believed to be material) incurred prior thereto are not included
in the estimates which follow. The Company estimates it has
incurred approximately $3 million to date in Year 2000 remediation
costs, and that total costs through completion will approximate
$10 million. While a substantial portion of these costs is not
entirely incremental to normal maintenance costs, these costs have
been estimated using the guidelines in the Interpretation as
summarized above.
Key Considerations and Contingency Plans
At the current time, the Company's Year 2000 Readiness Plan
anticipates that both IT and critical non-IT systems will be Year
2000 compliant in all material respects. This assessment is based
on the readiness of a majority of the IT systems at the Company's
material subsidiaries at the current time and the assessed degree
of difficulty associated with remaining steps of the Plan. There
can be no assurance, however, of complete compliance based on the
status to date. However, since the Company is not dependent on
any single group of systems for more than 20% of its operations'
revenue base, it is not likely that any single system non-
compliance would have a material adverse effect on the Company as
a whole.
Contingency plans are generally under development for
important non-IT systems and the Company anticipates that
acceptable alternatives will be available in the event that the
contingencies arise. Contingency plans for IT systems generally
anticipate use of standard noncustomized replacement modules in
the event of contingencies. Work with major customers and vendors
to date has indicated a high awareness of the issues and plans to
address them. Alternative vendors are available for most major
supplies and raw materials. Nonetheless, it is not possible for
the Company to fully assess the likelihood or magnitude of
consequences from vendor or customer Year 2000 compliance issues.
While there are no indications of major revenue disruptions from
actions of such third parties, and alternative markets and sources
have been accumulated, there can be no assurance at this time as
to the future impacts of Year 2000 actions or inactions by
customers or vendors.
Item 7. Exhibits
(a) Attachment 1 contains pro-forma financial statements and
explanatory notes as per Article 11.
(b) Attachment 2 contains financial statements of Fluke
Corporation as specified under Rule 3.05(b)
1. Years ended April 24, 1998, April 25, 1997 and
April 26, 1996.
(c) Attachment 3 contains management's discussion and analysis and
supplementary financial statements
for the combined Danaher and Fluke entities under the pooling-
of-interest method for the years ended December 31, 1997,
December 31, 1996 and December 31, 1995.
(c) Attachment 3 contains pro-forma financial statements
and explanatory notes as per Article 11.
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.
DANAHER CORPORATION
By: /s/ C. Scott Brannan
C. Scott Brannan
Vice President and Controller
Unaudited Pro Forma Combined Statements of Earnings
The following unaudited pro forma statements of earnings
present, under the method of purchase accounting, the
consolidated statements of earnings of Danaher and Pacific Scientific
Company (PSX) for the year ended December 31, 1997 and for the six months
ended June 26, 1998.
<TABLE>
<CAPTION>
Year Ended December 31, 1997 Pro Forma
Danaher PSX Adjustment Results
(In thousands , except per share data)
<S> <C> <C> <C> <C>
Net Sales $2,492,002 $ 310,460 $2,802,462
Cost of Sales 1,598,431 210,468 $ (800)F 1,808,099
SG&A 592,515 77,884 7,800 G 678,199
Other 4,892 (4,892)B 0
Total Expenses 2,190,946 293,244 2,108 2,486,298
Operating Profit 301,056 17,216 (2,108) 316,164
Interest expense, net 13,211 1,578 25,000 H 39,789
Earnings before Taxes 287,845 15,638 (27,108) 276,375
Taxes 111,239 6,359 (10,833)I 106,765
Net Earnings $ 176,606 $ 9,279 $ (16,275) 169,610
EPS - Diluted $ 1.28 $ 1.23
EPS - Basic $ 1.32 $ 1.27
Ave. Shs-Diluted 137,731 137,731
Ave. Shs-Basic 134,000 134,000
<CAPTION>
Six Months ended June 26, 1998
Pro Forma
Danaher PSX Adj. Results
(In thousands , except per share data)
<S> <C> <C> <C> <C>
Net Sales $1,382,668 $ 71,582 $1,454,250
Cost of Sales 881,077 45,614 $ (200)F 926,491
SG&A 335,703 20,980 1,550 G 358,233
Total Expenses 1,216,780 67,908 1,350 1,286,038
Operating Profit 165,888 3,674 (1,350) 168,212
Interest expense, net 10,180 817 4,200H 15,197
Earnings before Taxes 155,708 2,857 (5,550) 153,015
Taxes 59,297 1,100 (2,137) 58,260
Net Earnings $ 96,411 $ 1,757 (3,413) $ 94,755
EPS - Diluted $ 0.70 $ 0.68
EPS - Basic $ 0.72 $ 0.71
Average Shares - Diluted 138,399 138,399
Average Shares - Basic 134,087 134,087
</TABLE>
Notes to Pro Forma Combined Financial Information (Unaudited)
(F) Represents the effects to the inventory adjustments
and the change in depreciation associated with
establishing new values and useful lives fo rthe acquired fixed assets.
(G) Represents amortization of the excess of cost over the net assets of
Pacific Scientific.
(H) Represents interest associated with the additional borrowings.
(I) Represents an adjustment to reflect an appropriate effective tax rate.
Consolidated Financial Statements
Fluke Corporation
Fiscal Years Ended April 24, 1998,
April 25, 1997, and April 26, 1996
with Report of Independent Auditors
<PAGE>
Fluke Corporation
Consolidated Financial Statements
Fiscal Years Ended April 24, 1998, April 25, 1997, and April 26, 1996
Contents
Report of Independent Auditors 1
Audited Consolidated Financial Statements
Consolidated Balance Sheets 2
Consolidated Statements of Income 4
Consolidated Statements of Stockholders' Equity 5
Consolidated Statements of Cash Flows 7
Notes to Consolidated Financial Statements 8
<PAGE>
Report of Independent Auditors
The Board of Directors and Stockholders
Fluke Corporation
We have audited the accompanying consolidated balance sheets of Fluke
Corporation and subsidiaries as of April 24, 1998 and April 25, 1997, and
the related consolidated statements of income, stockholders' equity, and
cash flows for each of the three years in the period ended April 24,
1998. 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 that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial
position of Fluke Corporation and subsidiaries at April 24, 1998 and
April 25, 1997, and the consolidated results of their operations and
their cash flows for each of the three years in the period ended April
24, 1998, in conformity with generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
ERNST & YOUNG LLP
May 27, 1998,
except for Note 2, as to
which the date is July 7, 1998
<PAGE>
Fluke Corporation
Consolidated Balance Sheets
(In thousands, except shares and per share amounts)
April 24, April 25,
1998 1997
Assets
Current assets:
Cash and cash equivalents $ 45,053 $ 40,916
Accounts receivable, less
allowance of $838 in 1998
and $891 in 1997 83,250 80,689
Inventories 50,472 54,522
Deferred income taxes 14,412 16,968
Prepaid expenses 9,299 7,299
Total current assets 202,486 200,394
Property, plant, and equipment:
Land 4,257 5,236
Buildings 45,092 47,414
Machinery and equipment 125,602 115,022
Construction in progress 12,860 5,634
Total property, plant, and
equipment 187,811 173,306
Less accumulated depreciation (118,887) (113,660)
Net property, plant, and
equipment 68,924 59,646
Goodwill and intangible assets 5,802 11,876
Other assets 27,492 20,444
Total assets $ 304,704 $ 292,360
<PAGE>
April 24, April 25,
1998 1997
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $ 15,061 $ 16,504
Accrued liabilities 35,973 35,350
Accrued liabilities related
to restructuring 2,665 11,894
Income taxes payable 637 1,584
Current maturities of
long-term obligations and
short-term debt 388 1,145
Total current liabilities 54,724 66,477
Long-term obligations 292 563
Deferred income taxes 11,092 10,178
Other liabilities 14,076 12,203
Total liabilities 80,184 89,421
Stockholders' equity:
Preferred stock,$0.25 par value:
Authorized shares - 2,000,000 - -
Common stock, $0.25 par value:
Authorized shares - 40,000,000
Issued shares - 18,275,747 in
1998 and 18,092,960 in 1997 4,569 4,524
Additional paid-in capital 71,843 69,490
Retained earnings 155,046 133,736
Cumulative translation
adjustment (6,938) (4,811)
Total stockholders' equity 224,520 202,939
Total liabilities and
stockholders' equity $ 304,704 $ 292,360
See accompanying notes.
<PAGE>
Fluke Corporation
Consolidated Statements of Income
(In thousands, except shares and per share amounts)
Years Ended
April 24, April 25, April 26,
1998 1997 1996
Revenues $ 437,767 $ 430,166 $ 413,525
Cost of goods sold 207,572 196,791 191,360
Gross margin 230,195 233,375 222,165
Operating expenses:
Marketing and
administrative 147,075 149,772 145,121
Research and
development 41,767 41,245 40,953
Restructuring - 12,136 -
Total operating expense 188,842 203,153 186,074
Operating income 41,353 30,222 36,091
Nonoperating expenses
(income):
Interest expense 88 279 1,421
Other (1,409) (1,679) (1,302)
Total nonoperating expense
(income) (1,321) (1,400) 119
Income before income
taxes 42,674 31,622 35,972
Provision for income
taxes 14,936 12,016 12,269
Net income $ 27,738 $ 19,606 $ 23,703
Earnings per share:
Basic $1.52 $1.12 $1.38
Diluted $1.47 $1.08 $1.34
Average shares and share
equivalents outstanding:
Basic 18,276,739 17,535,766 17,197,272
Diluted 18,836,105 18,155,516 17,724,682
See accompanying notes.
<PAGE>
Fluke Corporation
Consolidated Statements of Stockholders' Equity
(In thousands, except shares)
Number of Par Value of Additional
Common Shares Common Paid-In Retained
Outstanding Stock Capital Earnings
Balance at April 28, 1995 16,951,450 $ 4,238 $ 60,124 $ 104,106
Net income - - - 23,703
Net grant of shares under
stock award plans 3,830 - 75 -
Vesting of 4,786 shares
under stock award plans - - - -
Repurchase and cancellation
of common shares (8,688) (2) (169) -
Cash dividends declared - - - (6,564)
Exercise of stock options 359,318 90 3,574 -
Income tax benefit from
stock plans - - 1,787 -
Net translation adjustment - - - -
Balance at April 26, 1996 17,305,910 4,326 65,391 121,245
Net income - - - 19,606
DeskNet acquisition 610,848 154 781 (904)
Net grant of shares under
stock award plans 76,208 18 1,486 -
Vesting of 3,985 shares
under stock award plans - - - -
Repurchase and cancellation
of common shares (3,206) - (67) -
Cash dividends declared - - - (6,211)
Adjustments related to Forte
acquisition - - 1,050 -
Exercise of stock options 103,200 26 1,248 -
Income tax benefit from
stock plans - - 679 -
Compensation charges related
to stock options - - 460 -
Net translation adjustment - - - -
Balance at April 25, 1997 18,092,960 4,524 71,028 133,736
Net income - - - 27,738
Net grant of shares under
stock award plans 1,094 - 8 -
Vesting of 37,862 shares
under stock award plans - - - -
Repurchase and cancellation
of common shares (160,560) (40) (3,843) -
Cash dividends declared - - - (6,398)
Exercise of stock options 342,253 85 4,620 (30)
Income tax benefit from
stock plans - - 1,403 -
Common shares acquired by
the Rabbi Trust for
deferred compensation plan - - 62 -
Net translation adjustment - - - -
Balance at April 24, 1998 18,275,747 $ 4,569 $ 73,278 $ 155,046
See accompanying notes.
(CONTINUED)
Common Stock
Acquired by
Repurchased Rabbi Trust Cumulative Total
and Nonvested for Deferred Translation Stockholders'
Shares Compensation Plan Adjustments Equity
Balance at April 28, 1995 $ (145) $ - $ 6,355 $ 174,678
Net income - - - 23,703
Net grant of shares under
stock award plans (75) - - 0
Vesting of 4,786 shares
under stock award plans 98 - - 98
Repurchase and cancellation
of common shares - - - (171)
Cash dividends declared - - - (6,564)
Exercise of stock options - - - 3,664
Income tax benefit from
stock plans - - - 1,787
Net translation adjustment - - (5,118) (5,118)
Balance at April 26, 1996 (122) 0 1,237 192,077
Net income - - - 19,606
DeskNet acquisition - - - 31
Net grant of shares under
stock award plans (1,504) - - 0
Vesting of 3,985 shares
under stock award plans 88 - - 88
Repurchase and cancellation
of common shares - - - (67)
Cash dividends declared - - - (6,211)
Adjustments related to Forte
acquisition - - - 1,050
Exercise of stock options - - - 1,274
Income tax benefit from
stock plans - - - 679
Compensation charges related
to stock options - - - 460
Net translation adjustment - - (6,048) (6,048)
Balance at April 25, 1997 (1,538) 0 (4,811) 202,939
Net income - - - 27,738
Net grant of shares under
stock award plans (8) - - 0
Vesting of 37,862 shares
under stock award plans 761 - - 761
Repurchase and cancellation
of common shares - - - (3,883)
Cash dividends declared - - - (6,398)
Exercise of stock options - - - 4,675
Income tax benefit from
stock plans - - - 1,403
Common shares acquired by
the Rabbi Trust for
deferred compensation plan - (650) - (588)
Net translation adjustment - - (2,127) (2,127)
Balance at April 24, 1998 $ (785) $ (650) $ (6,938) $ 224,520
See accompanying notes.
<PAGE>
Fluke Corporation
Consolidated Statements of Cash Flows
(In thousands)
Years Ended
April 24, April 25, April 26,
1998 1997 1996
Operating activities
Net income $ 27,738 $ 19,606 $ 23,703
Items not affecting cash:
Depreciation and amortization 15,905 14,863 15,408
Deferred income taxes 3,293 (2,729) 777
Provision for restructuring - 12,136 -
Other items not affecting cash (166) 281 241
Net changes in:
Accounts receivable (3,461) (14,336) 5,992
Inventories 3,180 (352) (6,239)
Prepaid expenses (2,117) (80) (1,405)
Accounts payable (1,210) 2,212 (579)
Accrued liabilities 1,867 (68) (234)
Accrued liabilities related
to restructuring (9,229) (242) -
Income taxes payable 4,132 1,163 1,137
Other (5,464) (2,214) (4,837)
Net cash provided by operating
activities 34,468 30,240 33,964
Investing activities
Additions to property, plant,
and equipment (28,006) (16,539) (12,532)
Proceeds from disposal of
property, plant, and equipment 4,425 1,431 2,446
Net cash used in investing
activities (23,581) (15,108) (10,086)
Financing activities
Proceeds from long-term
obligations - 705 -
Proceeds from short-term
obligations 746 785 -
Payments on long-term
obligations (243) (6,885) (13,351)
Payments on short-term
obligations (1,531) - -
Repurchase of common stock (3,883) (67) (171)
Cash dividends paid (6,255) (5,974) (6,460)
Proceeds from stock options 4,675 1,274 3,664
Net cash used in financing
activities (6,491) (10,162) (16,318)
Effect of foreign currency
exchange rates on cash and
cash equivalents (259) (685) (557)
Net increase in cash and cash
equivalents 4,137 4,285 7,003
Cash and cash equivalents
at beginning of year 40,916 36,631 29,628
Cash and cash equivalents
at end of year $ 45,053 $ 40,916 $ 36,631
Supplemental cash flow information
Income taxes paid $ 11,794 $ 13,080 $ 12,309
Interest paid $ 90 $ 283 $ 1,420
See accompanying notes.
Fluke Corporation
Notes to Consolidated Financial Statements
April 24, 1998
1. Summary of Significant Accounting Policies
Accounting Period
Fluke Corporation (the Company) utilizes a 52/53-week fiscal year ending on
the last Friday in April.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its subsidiaries. All significant intercompany accounts and
transactions have been eliminated.
Nature of Operations
The Company is in a single line of business, the manufacture and sale of
electronic test tools. This single line of business is primarily made up of
two product categories: hand-held service tools and bench test instruments,
with hand-held service tools representing approximately 66% of revenues.
The Company currently markets its products throughout the world using both
indirect and direct sales channels, with indirect sales channels generally
used for hand-held service tools and direct sales channels generally used
for bench test instruments.
Revenue Recognition
Revenue is recognized at the time product is shipped or service is rendered
to an unaffiliated customer. Revenue from service contracts is recognized
ratably over the lives of the contracts.
Translation of Foreign Currencies
The local currency is deemed to be the functional currency in most of the
Company's foreign operations. In these operations, translation gains and
losses resulting from converting the local currency financial statements to
dollar financial statements are recorded in the Cumulative Translation
Adjustment account in the equity section of the balance sheet. In the
remaining foreign operations, the U.S. dollar is deemed to be the functional
currency. In these operations, translation gains or losses are included in
the statements of income.
1. Summary of Significant Accounting Policies (continued)
Cash and Cash Equivalents
Cash and cash equivalents include cash on hand and highly liquid, short-term
investments, which are considered available-for-sale. In general, these
instruments, primarily consisting of state and municipal bonds, are issued
with long-term maturities but have interest rate reset dates ranging from
once per week to once every three months. On the interest rate reset date
the Company can sell the investment at par or continue to hold the
investment at the prevailing market interest rate for another period. At
April 24, 1998 and April 25, 1997, short-term investments totaled $35
million and $37 million, respectively. The carrying amounts of these
investments approximate their fair values due to the frequency of the
interest rate reset dates and the readily available market for these types
of investments. As such, no unrealized gains or losses were recorded.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentrations
of credit risk consist primarily of investments and trade accounts
receivable. The Company's investments, as explained above, consist of
high-quality financial instruments. The Company sells its products to a
large and diversified customer base in many different industries and
geographic areas. The Company has adopted credit policies consistent with
the industries and countries in which it sells. The Company performs
continuing credit evaluations of the financial condition of its customers,
and although the Company does not generally require collateral, letters of
credit may be required from some customers. Bad debt losses to date have
been insignificant.
Financial Instruments
The Company is subject to transaction exposures that arise from foreign
exchange movements between the date foreign exchange transactions are
recorded and the date they are consummated. The Company's exposure to
foreign currency movements is somewhat mitigated through naturally
offsetting currency positions. Remaining exposure is partially reduced
through the purchase of foreign exchange contracts. At April 24, 1998, the
Company had foreign exchange contracts for various foreign currencies
totaling $2.2 million.
1. Summary of Significant Accounting Policies (continued)
Advertising Costs
The Company expenses advertising and promotion costs in the period incurred.
These expenses were $23 million in 1998, $22 million in 1997, and $20
million in 1996.
Inventories
Inventories are valued at the lower of cost or market, with cost being the
currently adjusted standard cost, which approximates cost on a first-in,
first-out basis.
Property, Plant, and Equipment
Property, plant, and equipment, including improvements and major renewals,
are stated at cost. Maintenance and repairs are expensed as incurred.
Depreciation is calculated over the estimated useful lives of the related
assets on a straight-line basis for financial statement purposes, while an
accelerated method is generally used for income tax purposes.
Income Taxes
The provision for income taxes is computed on pretax income reported in the
financial statements. The provision differs from income taxes currently
payable because certain items of income and expense are recognized in
different periods for financial statement and tax return purposes. Deferred
income taxes have been recorded using the liability method in recognition of
these temporary differences. The Company has provided for U.S. and foreign
taxes on all of the undistributed earnings of its foreign subsidiaries that
are expected to be repatriated.
Earnings Per Share
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, "Earnings Per Share" (SFAS No. 128). The Company adopted SFAS No.
128 for the quarter ended January 23, 1998. SFAS No. 128 requires reporting
both basic and diluted earnings per share. Basic earnings per share is
computed by dividing the net income available to common stockholders by the
weighted average common shares outstanding. Diluted earnings per share is
computed by dividing the net income available to common stockholders by the
total of the weighted average common shares outstanding plus the
1. Summary of Significant Accounting Policies (continued)
dilutive effect of outstanding stock options, the Company's only common
share equivalents. Earnings per share for prior years has been restated for
the Company's two-for-one stock split, which occurred during the second
quarter of fiscal 1998.
The following table sets forth the computation of basic and diluted earnings
per share:
Years Ended
April 24, April 25, April 26,
1998 1997 1996
(In thousands, except shares
and per share amounts)
Total shares outstanding
at beginning of the period 18,092,960 17,305,910 16,951,450
Weighted average shares for
DeskNet acquisition - 132,574 -
Weighted average shares issued
under employee stock plans
and repurchased shares 183,779 97,282 245,822
Weighted average shares
outstanding 18,276,739 17,535,766 17,197,272
Weighted average effect of
dilutive stock options 559,366 619,750 527,410
Weighted average shares and
share equivalents
outstanding 18,836,105 18,155,516 17,724,682
Net income $ 27,738 $ 19,606 $ 23,703
Earnings per share:
Basic $ 1.52 $ 1.12 $ 1.38
Diluted $ 1.47 $ 1.08 $ 1.34
Goodwill and Intangibles
Excess cost over the fair value of net assets acquired (goodwill) is
generally amortized on a straight-line basis over twenty years. Intangible
assets are generally amortized over five years.
1. Summary of Significant Accounting Policies (continued)
Impairment of Long-lived Assets
Long-lived assets consist of intangible assets, goodwill, and certain
capital assets. The carrying value of these assets is regularly reviewed to
verify they are valued properly. If the facts and circumstances suggest
that the value has been impaired, the carrying value of the assets will be
reduced appropriately.
Stock-Based Compensation
The Company has elected to apply the disclosure only provisions of SFAS No.
123, "Accounting for Stock-Based Compensation." Accordingly, the Company
accounts for stock-based compensation using the intrinsic value method
prescribed in Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees." Compensation expense, as disclosed in the
notes, for stock options is measured as the excess, if any, of the fair
value of the Company's common stock at the measurement date over the stock
option price. See Note 10 for disclosure.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Reclassification
Certain prior year amounts have been reclassified to conform to current year
presentation.
2. Business Combination with Danaher
On April 24, 1998, the Company and Danaher Corporation (Danaher) entered
into a definitive merger agreement pursuant to which the Company will become
a wholly-owned subsidiary of Danaher. According to the agreement, the
Company's stockholders will receive 0.45239 shares of Danaher common stock
for each share of the Company's common stock. On May 29, 1998, the ratio
was adjusted to 0.90478 common shares of Danaher for each share of the
Company's common stock to reflect a two-for-one stock split of the Danaher
stock. The transaction is valued at approximately $33.39 per share to the
Company's stockholders or approximately $625 million, based on Danaher's
2. Business Combination with Danaher (continued)
April 24, 1998 closing stock price. The merger was approved by the
Company's stockholders at a special meeting on July 7, 1998.
The Company anticipates approximately $15 million of transaction and
employee separation costs related to the merger.
3. Acquisitions
On June 26, 1996, Forte Networks, Inc. (Forte) was acquired and merged into
the Company. The Company issued 1,154,380 shares of Fluke Corporation
common stock in exchange for all outstanding Forte shares. The transaction
was a tax-free reorganization and was accounted for as a
pooling-of-interests. Accordingly, the financial statements as presented
have been restated to reflect the combined companies.
On February 6, 1997, the Company completed the acquisition of DeskNet
Systems, Inc. (DeskNet). Fluke issued 610,848 shares of Fluke Corporation
common stock in exchange for all outstanding DeskNet shares. The
transaction was a tax-free reorganization and was accounted for as a
pooling-of-interests. This combination did not have a material effect on
the financial statements of prior periods, which, therefore, have not been
restated.
4. Provisions for Business Restructuring
During the fourth quarter of 1997, the Company recorded a pretax charge of
$12 million, or $0.47 per share, related to the restructuring of some of the
Company's European operations. The restructuring charge consisted primarily
of severance-related costs effecting approximately 120 employees.
During fiscal 1998, the Company completed substantially all the activities
anticipated in the business restructuring and $9 million was paid and
charged to the restructuring liability. This included severance costs
related to closing its product development operation in Germany,
reorganizing the European sales force to better support indirect sales
channels, and centralizing the European finance functions and product repair
operations. The remaining accrued liabilities related to restructuring of
$3 million, are primarily for severance costs, which are anticipated to be
paid during fiscal 1999.
5. Inventories
April 24, 1998 April 25, 1997
(In thousands)
Finished goods $ 14,502 $ 17,789
Work-in-process 11,288 11,160
Purchased parts and materials 24,682 25,573
Total inventories $ 50,472 $ 54,522
6. Accrued Liabilities
April 24, 1998 April 25, 1997
(In thousands)
Compensation payable $ 11,156 $ 12,133
Accrued expenses 10,852 9,799
Unearned service revenue 1,507 1,585
Other taxes payable 5,735 5,255
Profit-sharing bonus payable 1,896 2,354
Dividends payable 1,599 1,448
Other liabilities 3,228 2,776
Total accrued liabilities $ 35,973 $ 35,350
7. Goodwill and Intangible Assets
Goodwill represents the excess of the purchase price over the fair market
value of the net assets acquired. Goodwill is being amortized on a
straight-line basis over twenty years. The Company also owns intangible
assets, which are being amortized over five years. Amortization expense is
recorded in marketing and administrative expense. Cumulative amortization
was $13 million at April 24, 1998 and $10 million at April 25, 1997.
7. Goodwill and Intangible Assets (continued)
A reconciliation of goodwill and intangible assets, net of accumulated
amortization, is provided below:
April 24, 1998 April 25, 1997
(In thousands)
Balance at beginning of year $ 11,876 $ 16,201
Amortization expense (2,012) (2,338)
Adjustment related to changes
to deferred tax asset
valuation allowance (Note 8) (3,672) (866)
Translation adjustment (390) (1,121)
Balance at end of year $ 5,802 $ 11,876
8. Income Taxes
For financial reporting purposes, income before income taxes is as follows:
Years Ended
April 24, April 25, April 26,
1998 1997 1996
(In thousands)
United States $ 29,279 $ 27,452 $ 22,428
Foreign 13,395 4,170 13,544
Income before income taxes $ 42,674 $ 31,622 $ 35,972
8. Income Taxes (continued)
The provision for income taxes is as follows:
Years Ended
April 24, April 25, April 26,
1998 1997 1996
(In thousands)
Current taxes on income:
United States $ 6,529 $ 11,648 $ 5,883
Foreign 4,937 2,681 5,113
Total current taxes on income 11,466 14,329 10,996
Deferred income taxes 3,470 (2,313) 1,273
Provision for income taxes $ 14,936 $ 12,016 $ 12,269
Significant components of the Company's deferred tax assets and liabilities
are as follows:
April 24, April 25,
1998 1997
(In thousands)
Deferred tax assets:
Accrued employee benefit expenses $ 3,656 $ 3,760
Accrued restructuring costs 495 1,609
Inventory adjustments 4,429 5,659
Net operating loss carryforwards 15,203 19,831
Product warranty accruals 898 687
Other items, net 583 618
Total deferred tax assets 25,264 32,164
Valuation reserve (10,852) (15,196)
Net deferred tax assets $ 14,412 $ 16,968
Deferred tax liabilities:
Fixed asset basis differences $ 5,008 $ 5,303
Pension 5,572 3,746
Intangible assets - 495
Other items, net 512 634
Total deferred tax liabilities $ 11,092 $ 10,178
8. Income Taxes (continued)
The deferred tax asset valuation reserve is primarily related to deferred
tax assets of foreign operations, including net operating loss (NOL)
carryforwards acquired in connection with the 1993 acquisition of the
Philips Electronic N.V. of The Netherlands test and measurement business.
The acquired NOLs have an unlimited carryover period. A substantial portion
of these NOLs were provided for with a valuation allowance at the time of
the acquisition. The tax benefit from adjusting the valuation reserve of
the acquired NOLs is recorded as a reduction of goodwill. Reductions in
goodwill for NOL benefit were $3.7 million in 1998 and $866,000 in 1997.
A reconciliation from the U.S. statutory rate to the effective tax rate is
as follows:
Years Ended
April 24, 1998 April 25, 1997 April 26, 1996
Amount Percent Amount Percent Amount Percent
(In thousands)
Tax at U.S.
statutory rate $ 14,936 35.0% $ 11,068 35.0% $ 12,590 35.0%
Foreign tax greater
than U.S.
statutory rate 716 1.7 1,283 4.1 503 1.4
Utilization of
foreign tax credits (160) (0.4) (800) (2.5) (542) (1.5)
Foreign sales
corporation tax
benefit (515) (1.2) (560) (1.8) (554) (1.5)
State taxes, net of
federal benefit 285 0.7 446 1.4 326 0.9
Nondeductible goodwill 146 0.3 202 0.6 264 0.7
Subchapter S income
tax effect - - (210) (0.7) (826) (2.3)
Other items, net (472) (1.1) 587 1.9 508 1.4
Provision for income
taxes $ 14,936 35.0% $ 12,016 38.0% $ 12,269 34.1%
9. Employee Benefit Plans
The expense related to employee benefit plans is as follows:
Years Ended
April 24, April 25, April 26,
1998 1997 1996
(In thousands)
Pension Plan, U.S. $ 1,586 $ 2,035 $ 1,444
Pension Plans, foreign 1,156 1,170 1,111
Profit-Sharing Retirement Plan 1,322 1,248 745
Profit-Sharing Bonus Plan 4,458 4,687 3,695
Other benefit plans 539 956 618
Total employee benefit plans $ 9,061 $ 10,096 $ 7,613
Pension Plan - United States
The Company's U.S. pension plan includes all U.S. employees with a minimum
of one year of service. Pension benefits are based upon years of service
with the Company and the highest consecutive sixty months' average
compensation earned. The Company's funding policy is to contribute annually
the amount required by ERISA.
Net periodic U.S. pension cost is as follows:
Years Ended
April 24, April 25, April 26,
1998 1997 1996
(In thousands)
Service cost $ 2,215 $ 2,218 $ 1,899
Interest cost 3,929 3,740 3,260
Return on plan assets (13,420) (5,979) (6,682)
Net amortization and deferral 8,862 2,056 2,967
Net periodic pension cost $ 1,586 $ 2,035 $ 1,444
9. Employee Benefit Plans (continued)
The funding status of the U.S. pension plan is as follows:
Years Ended
April 24, April 25,
1998 1997
(In thousands)
Vested benefit obligation $ 48,261 $ 40,715
Accumulated benefit obligation $ 49,180 $ 41,537
Projected benefit obligation $ 56,934 $ 50,487
Fair market value of plan assets 65,868 49,933
Projected benefit obligation in
excess of (less than) plan assets (8,934) 554
Prior service cost 455 465
Unrecognized net loss (5,221) (9,905)
Prepaid pension asset $ (13,700) $ (8,886)
For purposes of calculating the funding status of the plan, the weighted
average discount rate was 7.1% in 1998, 8.3% in 1997, and 8.0% in 1996. The
rate of increase in future compensation levels used in determining the
actuarial present value of the projected benefit obligation varied by age
group and ranged from 2.7% to 4.0% in 1998, 3.8% to 5.1% in 1997, and from
4.3% to 5.6% in 1996.
The expected long-term rate of return on plan assets was 9.0% in 1998, 9.3%
in 1997, and 9.5% in 1996. For purposes of calculating the net periodic
pension cost, the actuarial assumptions utilized are the actuarial
assumptions in place at the end of the previous fiscal year (e.g., the
fiscal 1998 net periodic pension cost was based upon the 1997 actuarial
assumptions).
Upon adoption of Statement of Financial Accounting Standards No. 87 (SFAS
No. 87), "Accounting for Pensions" in 1988, the plan had an excess of plan
assets, including accrued contributions, over projected benefit obligations
(net transition asset) of $5.0 million. The remaining net transition asset
was amortized in 1997.
9. Employee Benefit Plans (continued)
All of the plan's assets are stated at fair market value and consist
primarily of common stock, fixed-income securities, and cash equivalents.
The prepaid pension asset is included in Other Assets on the balance sheet.
Pension Plans - Foreign
The Company has various pension plans covering its foreign employees. Most
of these plans are defined contribution plans and are fully funded. The
expense for these plans was $466,000 in 1998, $400,000 in 1997, and $355,000
in 1996. The remaining foreign pension plans qualify for accounting under
the rules of SFAS No. 87. The tables below include only those foreign
pension plans that qualify for SFAS No. 87 treatment.
Net periodic pension expense of foreign plans under SFAS No. 87 is as
follows:
Years Ended
April 24, April 25, April 26,
1998 1997 1996
(In thousands)
Service cost $ 845 $ 933 $ 746
Interest cost 1,240 1,434 1,307
Return on plan assets (1,376) (1,582) (1,251)
Net amortization and deferral (19) (15) (46)
Net periodic pension cost $ 690 $ 770 $ 756
9. Employee Benefit Plans (continued)
The funding status of the plans is as follows:
April 24, April 25,
1998 1997
(In thousands)
Vested benefit obligation $ 19,869 $ 14,337
Accumulated benefit obligation $ 21,272 $ 15,474
Projected benefit obligation $ 24,700 $ 21,322
Fair market value of plan assets 23,346 19,888
Projected benefit obligation in
excess of plan assets 1,354 1,434
Unrecognized net gain (loss) (311) 128
Accrued pension liability $ 1,043 $ 1,562
The weighted average discount rate was 5.5% in 1998, 6.0% in 1997, and 6.5%
in 1996. The rate of increase in future compensation levels used in
determining the actuarial present values of the projected benefit obligation
varied from 1.0% to 4.0% in 1998, 3.0% to 4.5% in 1997, and from 3.0% to
3.5% in 1996. The expected long-term rate of return on plan assets was 7.0%
in 1998, 1997, and 1996.
Profit-Sharing Retirement Plan
The Company has a profit-sharing retirement plan for all U.S. employees,
which provides immediate eligibility and vesting. The Company matches the
employee's salary deferrals under Section 401(k) of the Internal Revenue
Code, subject to certain profitability and dollar limits.
Profit-Sharing Bonus Plan
The Company has a profit-sharing bonus plan, which generally provides
semiannual cash payments to certain employees. The amount of each eligible
employee's bonus is dependent upon the employee's base salary in relation to
the total base salary of all eligible employees and the operating
performance of the Company.
9. Employee Benefit Plans (continued)
Executive Deferred Compensation Plan
The Company has a deferred compensation plan for executives that allows
salary deferrals to be made on a pretax basis. Participants may choose
between several investment options, including the Company's common stock.
Assets of the plan are held by a Rabbi Trust. At April 24, 1998, there were
$3.7 million of assets held by the Trust, which included 26,017 shares of
the Company's common stock, valued at $650,000 and reported in stockholders'
equity. At April 24, 1998, and April 25, 1997, the total deferred
compensation liability was $3.1 million and $1.3 million, respectively.
Early Retirement Incentive Program
On April 23, 1998, the Company announced a voluntary early retirement
program for certain U.S.-based employees. The eligible class is made up of
individuals aged 50 and older with a minimum of 14 years of service with the
Company. Acceptance of the early retirement offer must be made by June 30,
1998, and it is estimated that 140 employees will elect to participate. The
estimated cost of $6 million related to the program will be recorded in
fiscal 1999 and paid out of general corporate funds.
Other Benefit Plans
The Company has other employee cash and stock award plans designed to
recognize and compensate key employees for performance.
The long-term liabilities related to the Company's various employee benefit
plans are $12.8 million and $11.9 million on April 24, 1998, and April 25,
1997, respectively, and are included in other liabilities on the
accompanying consolidated balance sheets.
10. Stockholders' Equity
Preferred Stock
There are 2,000,000 shares of preferred stock authorized, of which 250,000
shares have been designated as Series A Convertible Preferred Stock. There
were no shares of preferred stock outstanding at April 24, 1998 or April 25,
1997.
Common Stock
On September 10, 1997, the Company's Board of Directors approved increasing
the 20 million shares of the authorized common stock to 40 million shares
and announced a two-for-one stock split with a record date of September 26,
1997. The two-for-one stock split was effected in the form of a stock
dividend, which was distributed on October 15, 1997. Prior period common
stock and retained earnings accounts, as well as share and per share
amounts, in the accompanying financial statements have been restated for the
effect of the stock split.
Stock Repurchase Program
On December 11, 1997, the Board of Directors authorized a program to
purchase up to $30 million of the Company's common stock to offset the
dilution associated with stock options issued under the Company's stock
incentive plans. During the quarter ended April 24, 1998, the Company
repurchased and canceled 160,000 shares of common stock under this program.
In April 1, 1998, the Board of Directors terminated the program.
Stock Purchase Plan
The Company has a voluntary employee stock purchase plan for all employees.
The Company's contribution is 25% of the amount invested by the employee
plus all commissions and brokerage fees. The Company's expenses related to
the plan were $691,000 in 1998, $654,000 in 1997, and $497,000 in 1996.
Dividends Per Share
Dividends per share have been restated for the two-for-one stock split
discussed above.
The Company declared cash dividends of $0.35 per share in 1998, $0.32 per
share in 1997, and $0.30 per share in 1996.
10. Stockholders' Equity (continued)
Following is a breakdown of dividends per share restated for the 1997 Forte
acquisition:
Years Ended
April 24, April 25, April 26,
1998 1997 1996
Fluke dividends $ 0.35 $ 0.32 $ 0.30
Forte dividends 0.00 0.04 0.07
Restated $ 0.35 $ 0.36 $ 0.37
As a Subchapter S Corporation, Forte stockholders were personally liable for
paying taxes on their allocated portion of corporate income. Forte
dividends were paid for profit sharing and to provide cash to the
stockholders to pay taxes on corporate income.
Stockholder Rights Plan
The Company has a Stockholder Rights Plan and issues one Right for each
outstanding share of common stock. The rights become exercisable only if a
person or group (an "Acquiring Person") has acquired, or obtained the right
to acquire, 25% or more of the outstanding shares of common stock of the
Company or following the commencement of a tender or exchange offer for
acquiring such same percentage. In the event that a person or group becomes
an Acquiring Person, each Right, upon exercise, will entitle its holder
(except for an Acquiring Person) to receive common stock of the Company (or,
in certain circumstances, cash, property, or other securities of the
Company) or of any company with which the Company shall have entered into
certain transactions having a value equal to two times the exercise price of
the Right. In addition, under certain circumstances, the Continuing
Directors can require that each Right (other than Rights held by an
Acquiring Person) be exchanged for one share of common stock. The Company
may redeem the Rights for $0.01 per Right at any time before they become
exercisable. The Rights do not entitle their holders to any voting or
dividend rights and, at least until they become exercisable, have no
dilutive effect on the earnings of the Company. The plan was adopted to
encourage a prospective acquirer of the Company to negotiate acquisition
terms with the Board of Directors, including the Continuing Directors, to
assure that the terms are in the best interests of the stockholders of the
Company.
10. Stockholders' Equity (continued)
Stock Options
The Company has a 1988 and a 1990 Stock Incentive Plan. Stock options
granted under the 1990 plan and those granted after 1989 under the 1988 plan
are nonqualified stock options generally exercisable 40% after one year, 30%
after three years, and 30% after five years and expire ten years from the
date of grant. In 1997, 420,000 options were granted from the 1988 plan
which vest in 1999 and expire in 2001. These particular grants have stock
price milestones that must be reached before these options become
exercisable. In addition, the Company has a Stock Option Plan for outside
Directors, which was authorized in 1990 and annually grants nonqualified
stock options to the Company's outside directors. Grants under this plan
and those made in 1988 and 1989 under the 1988 Stock Incentive Plan are
exercisable after one year and expire ten years from the date of grant.
There was a modification to selected options issued from the 1988 plan.
These particular options were modified to change the term of the options
upon retirement from one year to the original life of the option. The
modification resulted in a new measurement date for compensation expense
recognition resulting in compensation expense of $66,000 in 1998 and
$394,000 in 1997 in the accompanying financial statements.
At the Annual Meeting of Stockholders on September 10, 1997, the
stockholders approved the adoption of the 1998 Stock Incentive Plan (the
Plan). The Plan authorizes 3,000,000 shares for new awards and replaces the
1988 Stock Incentive Plan, discussed above, which used most of its
authorized shares by the end of the 1998 fiscal year. The Plan is similar
to the 1988 plan but: (i) was expanded to include the possibility of
issuing freestanding stock appreciation rights and performance awards, (ii)
allows Directors to become participants in the Plan so that their annual
retainer fee can be paid in restricted stock, and (iii) includes certain
limitations imposed by the Internal Revenue Service. General terms and
conditions such as vesting, exercisability, term, merger and change of
control provisions, etc., remained the same as under the 1988 plan.
The 1988 Stock Incentive Plan provided for the issuance of restricted common
stock, subject to vesting periods, to key employees. These shares typically
have a two-year vesting period. The cost of the awards, determined as the
fair market value of the shares on the date of grant, is charged to expense
ratably over the vesting period. The Company awarded 1,836 shares, 77,340
shares, and 2,082 shares of restricted common stock to key employees during
fiscal 1998, 1997, and 1996, respectively, subject to vesting periods, under
this recognition program.
10. Stockholders' Equity (continued)
Shares reserved for issuance under stock option plans totaled 6,014,135
shares at April 24, 1998, including 3,105,516 shares available for options
to be granted in the future.
Changes in options outstanding for the combined plans were as follows:
Weighted
Options Average Option
Outstanding Price Per Share
Balance April 28, 1995
(exercisable 886,700) 2,098,876 $ 12.98
Granted 596,626 18.17
Exercised (359,318) 10.21
Expired or terminated (36,000) 14.03
Balance April 26, 1996
(exercisable 1,005,116) 2,300,184 14.76
Granted 975,252 21.23
Exercised (103,200) 12.34
Expired or terminated (20,302) 14.91
Balance April 25, 1997
(exercisable 1,305,942) 3,151,934 16.84
Granted 134,500 24.79
Exercised (342,253) 13.66
Expired or terminated (35,562) 19.50
Balance April 24, 1998
(exercisable 1,498,328) 2,908,619 17.55
The following table summarizes information about stock options outstanding
at April 24, 1998:
Weighted
Average
Range of Options Remaining
Exercise Outstanding Contractual
Prices at April 24, 1998 Life in Years
$ 3.50 - $ 4.83 6,433 6.7
4.84 - 8.45 134,356 2.5
8.46 - 15.00 860,010 4.6
15.01 - 24.82 1,907,820 6.6
3.50 - 24.82 2,908,619 5.8
(Continued)
Weighted Weighted
Average Options Average
Exercise Exercisable Exercise
Price at April 24, 1998 Price
$ 3.89 3,876 $ 3.85
7.53 132,832 7.55
13.06 749,070 13.05
20.32 612,550 19.53
17.55 1,498,328 15.18
10. Stockholders' Equity (continued)
The pro forma compensation expense as defined by SFAS No. 123 for the
Company's stock option plans included in the pro forma net income below is
determined based on the fair value at the grant date for awards after April
28, 1995, with the exception of awards made prior to that date that have
been modified. The resulting pro forma net income and earnings per share
amounts are calculated as if compensation expense had been recorded based on
the fair value of options granted and modified:
Years Ended
April 24, April 25, April 26,
1998 1997 1996
(In thousands, except per share amounts)
Net income - as reported $ 27,738 $ 19,606 $ 23,703
Net income - pro forma 26,234 18,471 23,559
Basic - earnings per share
Reported 1.52 1.12 1.38
Pro forma 1.44 1.05 1.37
Diluted - earnings per share:
Reported 1.47 1.08 1.34
Pro forma 1.39 1.03 1.34
Compensation expense recognized in these pro forma disclosures may not be
representative of the effects on pro forma net income or loss for future
years because the above amounts include only the amortization for the fair
value of the grants made since April 28, 1995.
The fair value of each option granted is estimated using the Black-Scholes
option-pricing model based on the measurement date and the following
weighted average assumptions:
Years Ended
April 24, April 25, April 26,
1998 1997 1996
Risk-free interest rate 5.48% 6.50% 6.08%
Expected life in years 5.95 4.98 6.02
Expected volatility 20.80% 18.88% 19.80%
Expected dividend yield 1.57% 1.75% 2.03%
10. Stockholders' Equity (continued)
The weighted average fair value of awards granted in 1998, 1997, and 1996 is
$6.75, $3.86, and $4.78, respectively. The weighted average fair value in
1997 includes the effect of the 420,000 shares granted with stock price
milestones, which resulted in lower fair values compared to awards granted
with the Company's standard vesting criteria.
The stock options that were modified resulted in exercise prices that
differed from the market price on the measurement date. Modified options
with an exercise price above market price had a weighted average fair value
of $2.47 and a weighted average exercise price of $20.19. Modified options
with an exercise price below the market price had a weighted average fair
value of $5.98 and a weighted average exercise price of $12.28.
11. Operations by Geographic Areas
The Company is engaged in one line of business, the manufacture and sale of
electronic test tools. In the schedule below, revenues, income before
income taxes, and assets are reported based on the location of the Company's
facilities. Intercompany transfers of products and services are made at
arm's length between the various geographic areas.
Years Ended
April 24, April 25, April 26,
1998 1997 1996
(In thousands)
Revenues:
United States:
Sales to unaffiliated
customers $ 201,991 $ 191,212 $ 164,023
Export sales 49,810 49,103 44,956
Interarea transfers 78,239 67,806 67,073
Total United States 330,040 308,121 276,052
Europe:
Sales to unaffiliated
customers 148,197 152,603 166,551
Interarea transfers 29,436 34,636 30,432
Total Europe 177,633 187,239 196,983
Other areas:
Sales to unaffiliated
customers 37,769 37,248 37,995
Eliminations (107,675) (102,442) (97,505)
Consolidated revenues $ 437,767 $ 430,166 $ 413,525
11. Operations by Geographic Areas (continued)
Years Ended
April 24, April 25, April 26,
1998 1997 1996
(In thousands)
Income before income taxes:
United States $ 36,187 $ 40,713 $ 30,328
Europe 10,863 9,102 10,698
Other 2,532 2,801 4,016
Corporate expense and
eliminations* (6,908) (20,994) (9,070)
Consolidated income before
income taxes $ 42,674 $ 31,622 $ 35,972
Assets:
United States $ 207,955 $ 192,906 $ 166,553
Europe 87,309 90,911 100,456
Other 12,760 12,831 12,513
Eliminations (3,320) (4,288) (3,850)
Consolidated assets $ 304,704 $ 292,360 $ 275,672
* Includes $12 million restructuring charge in 1997.
12. Financing and Commitments
The Company has $44 million of committed, noncollateralized, revolving,
multicurrency lines of credit. The committed lines of credit contain
certain working capital and other minimum financial covenants. The Company
is in compliance with all covenants on its lines of credit. Interest rates
under the agreements range from LIBOR plus 0.375 of 1% to LIBOR plus 0.625
of 1%, based on leverage ratios. The Company pays commitment fees of 0.125
to 0.225 of 1% on the unused amount of the committed facility based on
leverage ratios. The outstanding balances related to these lines of credit
were zero at April 24, 1998 and April 25, 1997.
The Company has $79 million in short-term uncommitted lines of credit.
Under these lines, there was zero outstanding at April 24, 1998 and $785,000
outstanding at April 25, 1997. Long-term obligations include capital lease
obligations.
The Company's operating lease expense, including leases with a term of less
than one year, was $7.2 million in 1998, $7.4 million in 1997, and $7.5
million in 1996. The principal leases are for foreign manufacturing
facilities, various sales offices, storage
12. Financing and Commitments (continued)
facilities, data processing equipment and automobiles. Most facility leases
have escalation clauses to cover increases in direct lease expenses. Below
is a schedule of future minimum lease payments under operating leases that
have initial noncancelable lease terms in excess of one year as of April 24,
1998:
Facilities Equipment Total
(In thousands)
Fiscal year:
1999 $ 3,229 $ 1,483 $ 4,712
2000 2,717 937 3,654
2001 2,012 393 2,405
2002 1,763 83 1,846
2003 1,214 31 1,245
Total $ 10,935 $ 2,927 $ 13,862
13. Contingencies
The Company is a defendant in a lawsuit in Los Angeles County Superior Court
titled Talon Instruments, Inc. and Robert E. Corby vs. John Fluke
Manufacturing Company, Inc., et al. The plaintiffs alleged that the Company
and its lawyers maliciously prosecuted a federal patent infringement action
against them in 1988. The jury in that infringement case found that no
infringement had occurred. In March 1997, a Los Angeles Superior Court jury
found in the plaintiffs' favor and awarded compensatory damages of $2
million and punitive damages of $4 million. The court ordered a new trial
as to the punitive damages only. The Court reduced the compensatory damages
by $250,000 (the amount paid by other defendants to settle the claims
against them). The Company is appealing the original decision. Although
the ultimate outcome of this appeal cannot be determined, the Company
believes that the jury's finding in the case is contrary to established law.
Given these factors, no provision for losses was recorded at April 24, 1998
or April 25, 1997. Even if the appeal is not successful, the Company
believes that its insurance should ultimately provide coverage for liability
arising from this lawsuit even though the insurance company has indicated it
would contest coverage of these damages.
The Company is subject to various other pending and threatened legal actions
that arise in the normal course of business. In the opinion of management,
liabilities arising from these claims will not have a material effect on the
financial position of the Company.
14. Year 2000 (Unaudited)
The Company has developed plans to make its systems and products year 2000
compliant. The Company has and will continue to make certain investments to
modify or convert its internal operational software and hardware systems and
applications to ensure that the Company's systems are year 2000 compliant.
Although the Company expects some costs associated with the modifications
and conversions, the financial impact to the Company has not been and is not
anticipated to be material to its financial position or results of
operations in any given year. The Company also is implementing programs for
assisting customers to obtain year 2000 compliance on older Fluke products
either by making software upgrades available or offering programs for
migrations to current product versions. The costs incurred in connection
with these product programs are not expected to be material.
However, if any necessary modifications, conversions, migrations, or
upgrades are not made, or not made in a timely or cost-effective manner, the
Company or its customers may be unable to implement appropriate year 2000
solutions, which could have a material adverse effect on the Company's
business, financial condition, or results of operations. Additionally, if
other companies with which the Company does business do not address year
2000 issues on a timely basis, it could have an adverse effect on the
Company's systems or business transactions.
15. Selected Quarterly Financial Data (Unaudited)
Basic Diluted Dividends
Gross Net Earnings Earnings Per
Revenues Margin Income Per Share(1) Per Share(1) Share
(In thousands, except per share amounts)
Fiscal 1998:
1st Quarter $105,580 $ 56,192 $ 6,580 $0.36 $0.34 $0.0875
2nd Quarter 110,184 59,632 7,477 0.41 0.39 0.0875
3rd Quarter 110,181 57,364 7,522 0.41 0.40 0.0875
4th Quarter 111,822 57,007 6,159 0.34 0.33 0.0875
Total $437,767 $230,195 $27,738 $1.52 $1.47 $0.3500
Fiscal 1997:
1st Quarter $101,154 $ 53,960 $ 5,559 $0.32 $0.31 $0.0800
2nd Quarter 105,473 56,889 6,404 0.37 0.36 0.0800
3rd Quarter 108,450 58,627 7,422 0.43 0.41 0.0800
4th Quarter(2)115,089 63,899 221 0.01 0.01 0.0800
Total $430,166 $233,375 $19,606 $1.12 $1.08 $0.3200
The 1997 diluted earnings per share and dividends per share are restated to
reflect the two-for-one stock split that occurred in October 1997.
(1) The sum of the earnings per share on a quarterly basis will not
necessarily equal the earnings per share reported for the year since the
average shares and share equivalents outstanding used in the earnings per
share computation changes throughout the year.
(2) The 1997 fourth quarter net income included the restructuring charge
of $12 million with an after-tax impact of reducing earnings per share by
$0.45 for the fourth quarter and $0.47 for the fiscal year.
16. Stock Price Information (Unaudited)
1998 1997
High Low High Low
1st Quarter 29 15/16 21 3/4 20 3/16 18 3/8
2nd Quarter 28 1/8 24 7/16 19 5/8 17 1/8
3rd Quarter 26 7/8 22 5/16 23 1/4 18 13/16
4th Quarter 24 13/16 22 7/16 24 7/16 21 1/8
Fluke Corporation common stock is traded on the New York Stock Exchange.
Quarterly cash dividends of $0.0875 per share were declared in 1998, $0.08
per share in 1997, and $0.075 per share in 1996. There were 1,589
stockholders of record at April 24, 1998.
17. Financial Summary
Years Ended
April 24, April 25, April 26, April 28, April 29,
1998 1997 1996 1995 1994
(In thousands, except per share amounts)
Revenues $437,767 $430,166 $413,525 $382,066 $357,904
Cost of goods
sold $207,572 $196,791 $191,360 $181,805 $181,409
Gross margin $230,195 $233,375 $222,165 $200,261 $176,495
Restructuring $ - $ 12,136 $ - $ - $ -
Total operating
expenses excluding
restructuring $188,842 $191,017 $186,074 $174,184 $162,278
Operating income $ 41,353 $ 30,222 $ 36,091 $ 26,077 $ 14,217
Income before
income taxes $ 42,674 $ 31,622 $ 35,972 $ 25,920 $ 13,908
Net income $ 27,738 $ 19,606 $ 23,703 $ 16,787 $ 8,628
Weighted average
shares
outstanding 18,276,739 17,535,766 17,197,272 16,739,808 16,922,930
Weighted average
shares and share
equivalents
outstanding 18,836,105 18,155,516 17,724,682 17,136,924 17,214,708
Earnings per share:
Basic $ 1.52 $ 1.12 $ 1.38 $ 1.00 $ 0.51
Diluted $ 1.47 $ 1.08 $ 1.34 $ 0.98 $ 0.50
Cash dividends
declared per share $ 0.35 $ 0.32 $ 0.30 $ 0.28 $ 0.26
Net income as a
percentage of
revenues 6.34% 4.56% 5.73% 4.39% 2.41%
Total assets $304,704 $292,360 $275,672 $274,907 $244,648
Total stockholders'
equity $224,520 $202,939 $192,077 $174,678 $156,048
Long-term
obligations $ 292 $ 563 $ 7,098 $ 21,613 $ 14,712
Long-term interest
expense $ 42 $ 247 $ 1,248 $ 1,423 $ 1,327
