SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-Q/A
Amended 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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PART 1. FINANCIAL INFORMATION
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Item 1 - Financial Statements
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 (3,009) (818)
Net Cash Provided By Operating Activities 4992 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 (22,400) ---
Net Cash Used By Investing Activities (29,808) (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 is
approximately $41.8 million in cash and stock. The final purchase price
adjustments will be made at the end of the 1994 fiscal year. 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 estimated purchase price based upon a revised estimate
of the effects of purchase price adjustments are 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 22,400
Purchase price 41,800
Acquisition costs 9,000
Purchase price and related acquisition costs $50,800
The allocation of the purchase price is as follows:
Inventory $24,500
Prepaid expenses 2,700
Plant, machinery and equipment 7,300
Intangible assets 7,700
Other accrued expenses (7,000)
Deferred tax liabilities (1,800)
Deferred tax assets
Gross value 23,000
less: valuation reserve (18,000)
Net value 5,000
Goodwill 19,600
Less liabilities assumed (7,200)
Purchase price and related acquisition costs $50,800
</TABLE>
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 five 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 an
initial cash payment of $33.8 million and issued one million shares of common
stock pursuant to the purchase agreement. The final purchase price and
related acquisition costs will be established on the basis of the asset value
of the business acquired plus or minus any other related adjustments which
will be finalized at the end of fiscal 1994. Net adjustments to the purchase
price which have been refunded by Philips per the purchase agreement have
decreased the cash paid by $11.4 million. The estimated purchase price
currently is $41.8 million, consisting of one million shares of stock, valued
at $19.4 million, and $22.4 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>
SIGNATURES
Fluke Corporation and Subsidiaries
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this amended report to be signed on its behalf by
the undersigned thereunto duly authorized.
FLUKE CORPORATION
Registrant
April 7, 1994 /s/John R. Smith
Date John R. Smith
Vice President, Treasurer
