SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended January 28, 1994
Commission File No. 1-5590
Fluke Corporation
(Exact name of registrant as specified in its charter)
Washington
(State of incorporation of organization)
91 - 0606624
(I.R.S. Employer Identification No.)
6920 Seaway Boulevard Everett, Washington 98203
(Address of principal executive offices) (Zip Code)
(206) 347-6100
(Registrant's telephone number, including area code)
(Former name if changed since last report)
(Former fiscal year if changed since last report)
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
As of February 28, 1994, there were 7,894,792 shares of $0.25 par value
common stock outstanding.
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INDEX
Fluke Corporation
PART I. FINANCIAL INFORMATION
Item 1 Financial Statements
Consolidated Balance Sheets as of January 28, 1994 and April 30, 1993
Consolidated Statements of Income for the quarter and three quarters
ended January 28, 1994 and January 29, 1993
Consolidated Statements of Cash Flows for the three quarters ended
January 28, 1994 and January 29, 1993
Notes to Consolidated Financial Statements
Item 2 Management's Discussion and Analysis of Financial Condition
and Results of Operations
PART II. OTHER INFORMATION
Item 6 Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 11 Computation of Earnings Per Share
(b) Reports on Form 8-K
SIGNATURES
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PART 1. FINANCIAL INFORMATION
Item 1 - Financial Statements
<TABLE>
CONSOLIDATED BALANCE SHEETS
Fluke Corporation and Subsidiaries
unaudited (in thousands except shares)
<CAPTION>
Jan. 28, 1994 April 30, 1993
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 16,090 $ 24,415
Accounts receivable, less allowances 62,287 27,526
Inventories 52,417 47,244
Deferred income taxes 10,911 6,686
Prepaid expenses and other current assets 6,383 5,051
Total Current Assets 148,088 110,922
Property, Plant and Equipment
Land 6,181 6,181
Buildings 46,642 46,434
Machinery and equipment 95,210 87,868
Construction in progress 2,932 2,317
Less accumulated depreciation (92,294) (87,709)
Net Property, Plant and Equipment 58,671 55,091
Goodwill and Other Intangibles 25,580 ---
Other Assets 5,924 6,074
Total Assets $238,263 $172,087
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Short-term debt $ 361 ---
Accounts payable 16,278 $ 6,673
Accrued liabilities 32,081 14,107
Accrued liabilities related to restructuring 2,198 5,414
Income taxes payable 296 307
Current maturities of long-term obligations 47 57
Total Current Liabilities 51,261 26,558
Long-term Obligations 18,794 34
Deferred Income Taxes 8,287 6,604
Other Liabilities 6,262 3,704
Total Liabilities 84,604 36,900
Stockholders' Equity
Preferred stock --- 20
Common stock 2,202 2,202
Additional paid-in capital 81,079 96,072
Retained earnings 94,479 91,856
Less cost of repurchased and non-vested shares (20,229) (54,963)
Cumulative translation adjustment (3,872) ---
Total Stockholders' Equity 153,659 135,187
Total Liabilities and Stockholders' Equity $238,263 $172,087
Total Shares and Common Share Equivalents
Outstanding 7,894,732 6,880,599
</TABLE>
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<TABLE>
CONSOLIDATED STATEMENTS OF INCOME
Fluke Corporation and Subsidiaries
unaudited (in thousands except shares and per share amounts)
<CAPTION>
QUARTER ENDED THREE QUARTERS ENDED
01/28/94 01/29/93 01/28/94 01/29/93
<S> <C> <C> <C> <C>
Revenues $87,615 $55,751 $261,856 $187,108
Cost of Goods Sold 45,106 31,451 135,768 104,536
Gross Margin 42,509 24,300 126,088 82,572
Operating Expenses
Marketing and administrative 30,225 17,732 89,082 57,369
Research and development 8,066 5,479 25,822 17,421
Total Operating Expenses 38,291 23,211 114,904 74,790
Operating Income 4,218 1,089 11,184 7,782
Non-Operating Expenses (Income)
Interest Expense 427 15 1,241 44
Other (17) (298) 825 (1,185)
Total Non-Operating
Expenses (Income) 410 (283) 2,066 (1,141)
Income Before Income Taxes and
Cumulative Effect of Changes
in Accounting Principles 3,808 1,372 9,118 8,923
Provision for Income Taxes 1,428 448 3,419 2,548
Income Before Cumulative
Effect of Changes in
Accounting Principles 2,380 924 5,699 6,375
Cumulative Effect of a Change
in Accounting for Inventory,
Net of Tax --- --- --- 2,423
Cumulative Effect of a Change in
Accounting for Income Taxes --- --- --- 1,479
Net Income $ 2,380 $ 924 $ 5,699 $ 10,277
Per Share Amounts:
Income Before Cumulative Effect
of Changes in Accounting
Principles $ 0.30 $ 0.13 $ 0.71 $ 0.90
Cumulative Effect of
Accounting Changes:
Accounting for inventory --- --- --- 0.34
Accounting for income taxes --- --- --- 0.21
Earnings Per Share $ 0.30 $ 0.13 $ 0.71 $ 1.46
Average Shares and Share
Equivalents Outstanding 8,038,220 7,075,581 8,022,069 7,050,599
</TABLE>
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<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
Fluke Corporation and Subsidiaries
unaudited (in thousands)
<CAPTION>
THREE QUARTERS ENDED
Jan. 28, 1994 Jan. 29, 1993
<S> <C> <C>
Operating Activities
Net Income $ 5,699 $10,277
Items not affecting cash:
Depreciation and amortization 12,252 9,045
Deferred income tax 529 (1,500)
Stock awards 294 448
Loss on disposal of property, plant
and equipment 57 4
Net change in:
Accounts receivable (36,218) 9,318
Inventories 8,965 1,495
Prepaid expenses 1,234 (1,253)
Accounts payable 9,997 (2,010)
Accrued liabilities 6,617 (4,766)
Accrued liabilities related to restructuring (551) (3,408)
Accrued pension (871) 31
Income taxes payable (3) 403
Other assets and liabilities (1,809) (818)
Net Cash Provided By Operating Activities 6,192 17,266
Investing Activities
Additions to property, plant and equipment (7,598) (8,644)
Proceeds from disposal of property, plant
and equipment 190 277
Purchase of Philips test and measurement business (23,600) ---
Net Cash Used By Investing Activities (31,008) (8,367)
Financing Activities
Proceeds from short-term debt 1,751 1,521
Payments on short-term debt (1,390) (2,112)
Proceeds from long-term debt 43,875 ---
Payments on long-term obligations (24,495) (237)
Cash dividends paid (2,944) (2,543)
Other financing activities, net 187 170
Net Cash Provided (Used) By Financing
Activities 16,984 (3,201)
Effect of Foreign Currency Exchange Rates on
Cash and Cash Equivalents (493) ---
Net Increase (Decrease) In Cash and Cash
Equivalents (8,325) 5,698
Cash and Cash Equivalents at Beginning of Year 24,415 12,576
Cash and Cash Equivalents at End of Quarter $16,090 $18,274
Supplemental Cash Flow Information
Income Taxes Paid $ 2,858 $ 2,903
Interest Paid $ 1,241 $ 43
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Fluke Corporation and Subsidiaries
1. The accompanying unaudited Consolidated Financial Statements do not
purport to be full presentations and do not include all information and
disclosures required for fair presentation by generally accepted
accounting principles, but rather include only that information required
by the instructions to Form 10-Q. However, in the opinion of
management, the accompanying unaudited Consolidated Financial Statements
contain all adjustments (consisting of normal recurring accruals)
considered necessary to present fairly the Consolidated Balance Sheets
of the Company at January 28, 1994 and April 30, 1993 and the
Consolidated Statements of Income and the Statements of Cash Flows for
the quarter and three quarters ended January 28, 1994 and January 29,
1993. The periods ending January 29, 1993 have been restated to reflect
the Company's new fiscal year end.
2. The results of operations for the quarter and three quarters ended
January 28, 1994 and January 29, 1993 are not necessarily indicative of
the results to be expected for the full year.
3. The Company paid a $0.13 per share quarterly cash dividend on
November 19, 1993 to stockholders of record as of October 29, 1993. On
January 10, 1994, the Company's Board of Directors declared a $0.13 per
share quarterly cash dividend for stockholders of record as of January
28, 1994 to be paid on February 18, 1994.
4. The components of inventories are as follows:
<TABLE>
(in thousands)
<CAPTION>
Jan. 28, 1994 April 30, 1993
<S> <C> <C>
Finished Goods $17,318 $17,678
Work-in-Process 10,374 11,735
Purchased Parts and Materials 24,725 17,831
Total Inventories $52,417 $47,244
</TABLE>
5. Purchase of Philips T&M Business
On May 26, 1993 the Company completed the acquisition of the test and
measurement business of Philips Electronics N.V. of the Netherlands
(Philips) with an effective date of May 1, 1993. Since 1987, the
Company and Philips previously had a strategic marketing alliance
pursuant to which Philips sold the Company's products in Europe and
other selected markets and the Company sold Philips' products in the
United States and other selected markets.
As the alliance evolved, it became evident to both companies that the
best way to leverage the talents of each company was to merge the
businesses and operate under one management. This led to the Company's
purchase of the Philips test and measurement business.
The purchase price for the Philips test and measurement business was
$43.0 million in cash and stock. The cash portion was financed with the
Company's cash and utilization of a portion of its $30.0 million line of
credit obtained specifically to finance the acquisition. The stock
component consisted of one million shares of the Company's Common Stock,
which were issued from repurchased shares. The Series A Convertible
Preferred Stock that Philips owned was converted to common shares at the
rate stated in the preferred stock agreement, or 538,144 shares of
Common Stock. After the transaction, Philips owns 1,538,144 shares of
the Company's Common Stock or approximately 19.5 percent of the shares
outstanding. There are restrictions on Philips' ability to sell the
shares, and the Company has the option to buy the shares before they can
be offered for sale to a third party.
The Company acquired manufacturing operations in the Netherlands,
engineering groups in the Netherlands and Germany and sales and service
operations in fourteen European countries. The headquarters of the
Company's Diagnostic Tools Division is in Almelo, the Netherlands. The
division is responsible for Scopemeter (registered trademark) test
tools, oscilloscope, function generator and logic analyzer product
lines. The European sales and service headquarters is located in
Eindhoven, the Netherlands. The acquisition added approximately $125
million in annual worldwide revenues and approximately 900 people in
Europe.
<TABLE>
The components of the purchase price were as follows:
(in thousands)
<S> <C> <C>
One million shares of the Company's Common Stock,
at a fair value of $19.40 per share $19,400
Net cash paid for purchase 23,600
Purchase price 43,000
Acquisition costs 9,000
Purchase price and related acquisition costs $52,000
The allocation of the purchase price is as follows:
Inventory $24,472
Prepaid expenses 2,711
Plant, machinery and equipment 7,253
Intangible assets 7,700
Other accrued expenses (4,863)
Deferred tax liabilities (1,815)
Deferred tax assets
Gross value 28,000
less: valuation reserve (23,000)
Net value 5,000
Goodwill 18,739
Less liabilities assumed (7,197)
Purchase price and related acquisition costs $52,000
</TABLE>
<PAGE>
6. Translation of Foreign Currency
The Company accounts for its foreign operations under Statement of
Financial Accounting Standards No. 52. The functional currency of the
acquired European operations is the local currency of each country.
Therefore, translation gains and losses for these operations and the
long-term portion of the domestic intercompany accounts are recorded in
a stockholders' equity account, "Cumulative Translation Adjustment."
For the nine months ended January 28, 1994, these losses and adjustments
aggregated $3,872,000.
7. Goodwill and Intangibles
Goodwill represents excess of the purchase price over the fair market
value of the net assets acquired in the purchase of the Philips test and
measurement business. The goodwill is being amortized on a straight
line basis over 20 years.
Intangible assets are amortized over their expected useful lives. The
intangible assets acquired in the purchase of the Philips test and
measurement business are being amortized on a straight line basis over 5
years.
<PAGE>
Item 2 MANAGEMENT'S DISCUSSION OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Fluke Corporation and Subsidiaries
In 1993, the Company changed the ending of its fiscal year from the last
Friday in September to the last Friday in April. The quarter ended
January 29, 1993 is restated from the reported financial statements of
fiscal year 1993 to reflect a comparable quarter. In May 1993, the
Company completed the acquisition of the test and measurement business
of Philips Electronics N.V. of the Netherlands (Philips). The
acquisition, which was expected to add approximately $125 million to the
Company's annual revenues, had a significant impact on the quarter ended
January 28, 1994. Prior to the acquisition, the Company had a strategic
alliance with Philips whereby Philips sold the Company's products in
Europe and other selected markets and the Company sold Philips' products
in the United States and other selected markets.
RESULTS OF OPERATIONS
Revenues of $87.6 million for the quarter ended January 28, 1994 were 57
percent greater than the revenues of $55.8 million in the quarter ended
January 29, 1993. International revenues increased 160 percent in the
quarter ended January 28, 1994 over the quarter ended January 29, 1993.
The primary increase in international revenues occurred in Europe where
revenues increased over 300 percent resulting from the acquisition.
Revenues in the United States for the quarter ended January 28, 1994
increased 4 percent over the quarter ended January 29, 1993 due
primarily to the impact of new products. For the three quarters ended
January 28, 1994, revenues were $261.9 million compared to $187.1
million for the previous year and represent a 40 percent increase.
European revenues were up almost 300 percent while revenues in the
United States were down 1.3 percent compared to the three quarters ended
January 29, 1993.
Orders for the first three quarters of fiscal 1994 increased 50 percent
to $262.8 million from the $174.9 million booked during the same period
of 1993. The 1994 European orders and revenues reflect the impact of
the Philips acquisition completed at the beginning of the current fiscal
year. On a combined-company basis, the $35.6 million in European orders
reported for the 1994 third quarter represented an 11 percent decline
over the approximately $40 million booked for the like period a year
ago. For the three quarters ended January 28, 1994, European orders
were $98.7 million, down 19 percent from the approximately $121.5
million booked for the similar period a year ago. The 1993 figures are
based on estimates supplied to Fluke by Philips.
Cost of goods sold as a percentage of revenues declined from 56 percent
in the quarter and three quarters ended January 29, 1993 to 52 percent
in the quarter and three quarters ended January 28, 1994. The decline
is primarily a result of the Company's manufacturing for itself the
former Philips products instead of purchasing and reselling them, as it
did under the alliance. The additional margin resulting from selling
direct to the European market instead of selling to Philips also
contributed to this improvement.
Operating expenses increased 65 percent in the quarter and 54 percent
for the three quarter period ended January 28, 1994 over the same
periods ended January 29, 1993. Marketing and administrative expense
increased 71 percent for the quarter and 55 percent for the three
quarters ended January 28, 1994. Research and development expense
increased 47 percent for the quarter and 48 percent for the three
quarters ended January 28, 1994. The additional expense of the
marketing and research and development departments associated with the
acquired product lines contributed to the increase as did the expenses
of the acquired sales organization in Europe.
Non operating income (expense) consists of interest expense and income,
amortization of goodwill, translation gains and losses and other items.
Interest expense increased in the quarter and three quarters ended
January 28, 1994 as a result of borrowing to finance the acquisition and
the working capital requirements of the new operations. Amortization
expense of $570,000 for the quarter was offset by translation gains,
interest income and other miscellaneous gains. Amortization expense of
$1.7 million for the three quarter period was offset to a lesser degree
by the same items.
The annual effective tax rate for the quarter and three quarters ended
January 28, 1994 was 37.5 percent. In the quarter and three quarters
ended January 29, 1993, the effective annual tax rate was 28.2 percent.
The increase in the tax rate was due to the addition of the operations
in Europe where higher tax rates exist and where the losses in certain
countries do not generate any tax benefits. The non-deductibility of
goodwill also contributes to the increase in the effective tax rate.
Net income for the third quarter 1994 was $2.4 million with earnings per
share of 30 cents. These figures were up 157 percent and 131 percent,
over the very weak fiscal 1993 third quarter results of $924,000 in net
income and earnings per share of 13 cents. For the three quarters ended
January 28, 1994, net income was $5.7 million, down 44 percent from the
$10.3 million for the same period a year ago. The fiscal 1993 figures
included a one-time gain of $3.9 million resulting from the cumulative
effect of accounting changes taken in the second quarter of fiscal 1993.
Effective September 26, 1992, the Company adopted Statement of Financial
Accounting Standards Number 109 (SFAS 109), "Accounting for Income
Taxes." The cumulative effect of adopting the statement was a positive
adjustment to income of $1.5 million. The Company also changed the
method used in applying overhead costs to inventory. Effective
September 26, 1992, the Company began applying overhead costs related to
the procurement process to inventory at the time of receipt of
inventory. Previously these costs were applied during the manufacturing
process. The cumulative effect of this change was a positive adjustment
to income of $2.4 million, net of tax.
LIQUIDITY AND CAPITAL RESOURCES
In May 1993, the Company completed the acquisition of Philips and made a
cash payment of $34 million pursuant to the purchase agreement. The
final purchase price was calculated on the basis of the final asset
value of the business acquired. The audited value of the assets upon
closing was significantly lower than was estimated in the agreement and
Philips paid the Company the difference of $10.8 million plus interest.
The final purchase price was $43.0 million, consisting of one million
shares of stock, valued at $19.4 million, and $34.6 million in cash.
The Company also incurred debt to finance the working capital of the new
European operations. The original debt of approximately $30.0 million
has been reduced to $18.8 million as of January 28, 1994 and is expected
to decline gradually through the next fiscal year. The Company expects
to meet its working capital and capital expenditure requirements in the
foreseeable future with cash generated through operations. The Company
is in compliance with all the covenants of its loan agreements.
The addition of the European operations has increased the level of risk
that the Company faces in fluctuations of foreign currency rates. The
Company has in place a currency hedging policy to mitigate these risks.
However, the weakening currencies in Europe vis-a-vis the U.S. dollar
had a negative impact on the operating results of the Company during
this fiscal year (see Note 6 of the Consolidated Financial Statements).
The Company made capital purchases of $2.9 million in the quarter and
$7.6 million in the three quarters ended January 28, 1994.
<PAGE>
PART II. OTHER INFORMATION
Item 6 Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 11 - Computation of Earnings Per Share
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter for
which this report is filed.
<PAGE>
SIGNATURES
Fluke Corporation and Subsidiaries
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.
FLUKE CORPORATION
Registrant
March 11, 1994 /s/John R. Smith
Date John R. Smith
Vice President, Treasurer
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<TABLE>
Exhibit 11 COMPUTATION OF EARNINGS PER SHARE
Fluke Corporation and Subsidiaries
<CAPTION>
QUARTER ENDED THREE QUARTERS ENDED
01/28/94 01/29/93 01/28/94 01/29/93
<S> <C> <C> <C> <C>
Shares issued at beginning
of period 8,807,391 8,807,391 8,807,391 8,807,391
Less repurchased shares at
beginning of period (927,532) (2,472,996) (2,464,936) (2,476,746)
Shares outstanding at
beginning of period 7,879,859 6,334,395 6,342,455 6,330,645
Net issuance of shares
under employee stock plans,
weighted average 6,845 1,689 1,743 3,809
Shares issued for
acquisition, weighted average --- --- 1,000,000 ---
Shares issued upon conversion
of preferred shares,
weighted average --- --- 538,144 ---
Weighted average common
shares outstanding 7,886,704 6,336,084 7,882,342 6,334,454
Common share equivalents
of convertible preferred
shares, weighted average --- 538,144 --- 538,144
Assumed exercise of stock
options, weighted average
of incremental shares 151,516 201,353 139,727 178,001
Average shares and common
share equivalents
outstanding 8,038,220 7,075,581 8,022,069 7,050,599
Earnings per share $ 0.30 $ 0.13 $ 0.71 $ 1.46
Net income $2,380,000 $924,000 $5,699,000 $10,277,000
</TABLE>
