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 27, 1995
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 24, 1995, there were 7,782,016 shares of $0.25 par value
common stock outstanding.
<PAGE>
INDEX
Fluke Corporation
PART I. FINANCIAL INFORMATION
Item 1 Financial Statements
Consolidated Balance Sheets as of January 27, 1995 and April 29, 1994
Consolidated Statements of Income for the quarter and three quarters
ended January 27, 1995 and January 28, 1994
Consolidated Statements of Cash Flows for the three quarters ended
January 27, 1995 and January 28, 1994
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
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1 - Financial Statements
<TABLE>
CONSOLIDATED BALANCE SHEETS
Fluke Corporation and Subsidiaries
unaudited (in thousands except shares)
<CAPTION>
01/27/95 4/29/94
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 19,045 $ 6,520
Accounts receivable, less allowances 69,796 70,510
Inventories 52,016 54,365
Deferred income taxes 13,255 13,109
Prepaid expenses and other current assets 8,734 9,914
Total Current Assets 162,846 154,418
Property, Plant and Equipment
Land 5,979 6,181
Buildings 46,936 46,661
Machinery and equipment 101,058 93,406
Construction in progress 2,681 2,440
Less accumulated depreciation (95,117) (88,412)
Net Property, Plant and Equipment 61,537 60,276
Goodwill and Other Intangibles 24,757 24,995
Other Assets 7,105 5,913
Total Assets $ 256,245 $ 245,602
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 14,326 $ 19,413
Accrued liabilities 35,721 35,454
Accrued liabilities related to restructuring 155 676
Income taxes payable 1,096 665
Current maturities of long-term obligations 222 235
Total Current Liabilities 51,520 56,443
Long-term Obligations 22,582 14,712
Deferred Income Taxes 9,370 9,152
Other Liabilities 8,574 7,466
Total Liabilities 92,046 87,773
Stockholders' Equity
Common stock 2,202 2,202
Additional paid-in capital 80,875 81,081
Retained earnings 103,082 96,553
Less cost of repurchased and non-vested shares (23,638) (19,904)
Cumulative translation adjustment 1,678 (2,103)
Total Stockholders' Equity 164,199 157,829
Total Liabilities and Stockholders' Equity $ 256,245 $ 245,602
Total Shares Outstanding 7,779,356 7,898,690
</TABLE>
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF INCOME
Fluke Corporation and Subsidiaries
unaudited (in thousands except shares and per share amounts)
<CAPTION>
QUARTER ENDED THREE QUARTERS ENDED
01/27/95 01/28/94 01/27/95 01/28/94
<S> <C> <C> <C> <C>
Revenues $ 99,090 $ 87,615 $ 276,659 $ 261,856
Cost of Goods Sold 48,196 45,106 136,738 135,768
Gross Margin 50,894 42,509 139,921 126,088
Operating Expenses
Marketing and administrative 32,701 30,225 94,548 89,082
Research and development 9,197 8,066 27,678 25,822
Total Operating Expenses 41,898 38,291 122,226 114,904
Operating Income 8,996 4,218 17,695 11,184
Non-Operating Expenses (Income)
Interest Expense 416 427 1,137 1,241
Other 1,764 (17) 770 825
Total Non-Operating
Expenses (Income) 2,180 410 1,907 2,066
Income Before Income Taxes 6,816 3,808 15,788 9,118
Provision for Income Taxes 2,591 1,428 6,000 3,419
Net Income 4,225 2,380 9,788 5,699
Earnings Per Share $ 0.53 $ 0.30 $ 1.22 $ 0.71
Net Income as a
Percentage of Revenues 4.26% 2.72% 3.54% 2.18%
Average Shares and Share
Equivalents Outstanding 7,978,789 8,038,220 8,003,680 8,022,069
Cash Dividends Per Share $ 0.14 $ 0.13 $ 0.42 $ 0.39
</TABLE>
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
Fluke Corporation and Subsidiaries
unaudited (in thousands)
<CAPTION>
THREE QUARTERS ENDED
01/27/95 01/28/94
<S> <C> <C>
Operating Activities
Net Income $ 9,788 $ 5,699
Items not affecting cash:
Depreciation and amortization 11,194 12,252
Deferred income tax 398 529
Stock awards 140 294
Loss (gain) on disposal of property, plant
and equipment (312) 57
Net change in:
Accounts receivable 3,393 (36,218)
Inventories 4,383 8,965
Prepaid expenses 1,535 1,234
Accounts payable (6,225) 9,997
Accrued liabilities (1,899) 6,617
Accrued liabilities related to restructuring (521) (551)
Accrued Pension 721 (871)
Income taxes payable 384 (3)
Other assets and liabilities (1,205) (1,809)
Net Cash Provided by Operating Activities 21,774 6,192
Investing Activities
Additions to property, plant and equipment (10,648) (7,598)
Proceeds from disposal of property, plant
and equipment 1,462 190
Purchase of Philips test and measurement business --- (23,600)
Net Cash Used by Investing Activities (9,186) (31,008)
Financing Activities
Proceeds from short-term debt --- 1,751
Payments on short-term debt --- (1,390)
Proceeds from long-term debt 25,037 43,875
Payments on long-term obligations (18,542) (24,495)
Cash dividends paid (3,198) (2,944)
Repurchase of common stock (4,579) ---
Other financing activities, net 558 187
Net Cash Provided (Used) By Financing
Activities (724) 16,984
Effect of Foreign Currency Exchange Rates on
Cash and Cash Equivalents 661 (493)
Net Increase (Decrease) In Cash and Cash
Equivalents 12,525 (8,325)
Cash and Cash Equivalents at Beginning of Year 6,520 24,415
Cash and Cash Equivalents at End of Quarter $19,045 $ 16,090
Supplemental Cash Flow Information
Income Taxes Paid $ 3,881 $ 2,858
Interest Paid $ 1,138 $ 1,241
</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 27, 1995 and April 29, 1994 and the
Consolidated Statements of Income for the quarter and three quarters
ended January 27, 1995 and January 28, 1994 and the Statements of Cash
Flows for the three quarters ended January 27, 1995 and January 28,
1994.
2. The results of operations for the quarters ended January 27, 1995
and January 28, 1994 are not necessarily indicative of the results to be
expected for the full year.
3. The Company paid a $0.14 per share quarterly cash dividend on
November 18, 1994 to stockholders of record on October 28, 1994. On
December 16, 1994 the Company's Board of Directors declared a $ 0.14 per
share quarterly cash dividend for stockholders of record on January 27,
1995 which was paid on February 17, 1995.
4. The components of inventories are as follows:
<TABLE>
(in thousands)
<CAPTION>
January 27, 1995 April 29, 1994
<S> <C> <C>
Finished Goods $16,158 $17,904
Work-in-Process 9,520 10,390
Purchased Parts and Materials 26,338 26,071
Total Inventories $52,016 $54,365
</TABLE>
<PAGE>
Item 2 MANAGEMENT'S DISCUSSION OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Fluke Corporation and Subsidiaries
RESULTS OF OPERATIONS
Quarter ended January 27, 1995 versus the quarter ended January 28, 1994
Revenues of $99.1 million for the quarter ended January 27, 1995 were 13
percent higher than the revenues of $87.6 million for the quarter ended
January 28, 1994. All geographic regions experienced solid growth which
resulted in record revenues for the quarter. Revenues in the United
States increased 8 percent while revenues from international markets
increased 17 percent. After several years of flat or declining European
revenues the Company's revenues in Europe, in U.S dollar terms,
increased 14 percent in the quarter ended January 27, 1995 over the
quarter ended January 28, 1994. Approximately 5 percent of the increase
is the result of changes in European currencies which strengthened
compared to a year ago. European revenues are approximately equal to
the revenues in the United States for the first time, with both regions
accounting for approximately 42 percent of the Company's revenue in the
quarter ended January 27, 1995. International revenues, in U.S.
dollars, from outside of Europe increased 28 percent, led by such
countries as Korea, Taiwan, Brazil and Singapore.
The Company sells products and incurs expenses in many currencies,
primarily in Europe. In general, the U.S. dollar was weaker against all
the major currencies compared to the same quarter a year ago. On a
weighted average, the foreign currencies, in which the Company has
transactions, were approximately 9 percent stronger than the same
quarter a year ago and 5 percent stronger for the three quarter period.
The impact of the change in currency rates is discussed below.
Cost of goods sold increased 7 percent in the quarter ended January 27,
1995 over the quarter ended January 28, 1994. Approximately 2 percent
of the increase is related to the strengthening foreign currencies.
Cost of goods sold, as a percentage of revenues, decreased from 51.5
percent in the quarter ended January 28, 1994 to 48.6 percent in the
quarter ended January 27, 1995. The decline is partially related to
discontinuing some older product lines which had a higher cost and
replacing them with lower cost products that are aligned with the
Company's mission.
Operating expenses increased 9 percent in the quarter ended January 27,
1995 over the quarter ended January 28, 1994. Research and development
increased 14 percent and marketing and administrative increased 8
percent. Approximately 4 percent of the increase in each category is
due to the effect of the stronger foreign currencies on the foreign
operating results. The increase in research and development, excluding
the effect of currency, was primarily due to the culmination of 2 major
research and development projects during the quarter. The increase in
marketing and administrative expense, excluding the effect of currency,
included a 50 percent increase in commission expense. This was due
primarily to an increase in sales of the Company's Local Area Network
(LAN) products that are sold in the U.S. through sales representatives,
who sell on a commission basis. In addition, the Company incurred
higher intellectual property costs, including costs related to
protecting the Company's patents, in the quarter ended January 27, 1995
over the same quarter a year ago.
Nonoperating expense increased substantially as a result of foreign
exchange losses of $733k in the quarter ended January 27, 1995 versus
foreign exchange gains of $109k for the quarter ended January 28, 1994.
In addition, there were some miscellaneous income items a year ago.
The estimated effective annual tax rate of 38.0 percent is slightly
higher than the 37.5 percent rate last year because the Company does not
have the foreign tax credit carryforwards it had available to utilize
during the last few years.
The Company's earnings per share increased from $0.30 per share in the
quarter ended January, 28 1994 to $0.53 per share in the quarter ended
January 27, 1995. This represents a 77 percent increase on a quarter to
quarter basis.
Three quarters ended January 27, 1995 versus three quarters ended
January 28, 1994
Revenues of $276.7 million for the three quarters ended January 27, 1995
were 6 percent higher than the revenues of $261.9 million for the three
quarters ended January 28, 1994. International revenues in U.S.
dollars, excluding Europe, with growth of 25 percent were the biggest
contributors to the growth in revenues. The growth in international
revenues was led by countries in Southeast Asia and Latin America.
Revenues in the United States, which had decreased 2.2 percent for the
first two quarters of the year, rebounded to show a one percent
increase for the three quarters ended January 27, 1995. Revenues in
Europe increased 4 percent with the increase occurring in the most
recent quarter since, like the U.S., revenues in Europe declined
slightly during the first two quarters of the year. Essentially the
entire increase in European revenues for the three quarters is the
result of the stronger European currencies compared to a year ago.
Operating expense increased 6.4% in the three quarters ended January 27,
1995 over the three quarters ended January 28, 1994. In the first
quarter of fiscal 1995, ended July 29, 1994, the Company received a
$617,000 arbitration award and related interest of $170,000. Operating
expenses were reduced by the $617,000 arbitration award, while the
interest income reduced nonoperating expenses. The increase in operating
expenses, after excluding the arbitration award, was caused primarily by
strengthening foreign currencies.
LIQUIDITY AND CAPITAL RESOURCES
The cash position of the Company has continued to improve as cash
generated from operating activities remains strong. The borrowing under
the Company's long term line of credit remains over $20 million. The
borrowings are being utilized for working capital requirements in the
European operations. It is expected that these borrowings will be
repaid with cash generated from operations.
On June 24, 1994, the Company purchased 150,000 shares of the Company's
common stock from Philips for $4.5 million or $30.53 per share. The
purchase of the shares was made according to an agreement between the
two companies which allows Philips to sell a set number of shares over a
defined period. Under the agreement the Company has the right to
purchase any shares Philips offers for sale or can allow them to be sold
on the open market, under certain conditions. After the transaction
Philips owns approximately 1.4 million shares. No additional shares
have been offered by Philips or purchased during the year.
The Company made capital expenditures of $1.0 million in the quarter and
$10.6 million in the three quarters ended January 27, 1995 compared to
$2.9 million in the quarter and $7.6 million in the three quarters ended
January 28, 1994. Increased investment in new manufacturing equipment
and computer systems for the new European operations are the causes of
the increase in capital expenditures over the three quarter period.
The current ratio was 3.16 to 1 at January 27, 1995, 2.74 to 1 at April
29, 1994 and 2.88 to 1 January 28, 1994. The increase from April 29,
1994 was caused by an increase in cash and a reduction in accounts
payable.
The Company's exposure to foreign exchange currency fluctuations has
increased since the addition of operations in Europe resulting from the
purchase of the Philips Electronics N.V. test and measurement business
effective May 1, 1993. The currencies of most of the countries in which
the Company operates have strengthened during fiscal 1995. This causes
the local currency assets to increase when stated in U.S. dollars.
Goodwill and intangible assets, which are primarily Dutch guilder
denominated, increased approximately $2.0 million as a result of the
change in the currency translation rate.
The Company has a program to hedge some of its foreign exchange exposure
using forward exchange contracts. The contracts can not be speculative
and are limited to the currency risk of known cash flows. The Company
does not currently use any other form of derivatives in managing its
financial risk.
The Company does business with customers in Mexico but it represents
less than one percent of the Company's total revenues. The currency
crisis experienced in Mexico effected the Company's Mexican
representative and customers. The Company has not experienced any loss
as a result of the crisis, although sales to Mexico have slowed
significantly.
<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 9, 1995 /s/John R. Smith
Date John R. Smith
Vice President, Treasurer
Principal Accounting Officer
<PAGE>
<TABLE>
Exhibit 11 COMPUTATION OF EARNINGS PER SHARE
Fluke Corporation and Subsidiaries
<CAPTION> QUARTER ENDED THREE QUARTERS ENDED
1/27/95 1/28/94 1/27/95 1/28/94
<C> <C> <C> <C>
<S>
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 (1,051,765) (927,532) (908,701) (2,464,936)
Shares outstanding at
beginning of period 7,755,626 7,879,859 7,898,690 6,342,455
Issuance of shares for
acquisition, weighted average --- --- --- 1,000,000
Conversion of preferred shares --- --- --- 538,144
Repurchase of common shares
weighted average --- (1,556) (119,231) (519)
Net issuance of shares
under employees stock plans,
weighted average 5,942 8,401 5,591 2,262
Weighted average common
shares outstanding 7,761,568 7,886,704 7,785,050 7,882,342
Assumed exercise of stock
options, weighted average
of incremental shares 217,221 151,516 218,630 139,727
Average shares and
share equivalents
outstanding 7,978,789 8,038,220 8,003,680 8,022,069
Earnings per Share $ 0.53 $ 0.30 $ 1.22 $ 0.71
Net Income $4,225,000 $2,380,000 $9,788,000 $5,699,000
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Balance Sheet and Income Statement and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> APR-28-1995
<PERIOD-START> APR-29-1994
<PERIOD-END> JAN-27-1995
<CASH> 19,045
<SECURITIES> 0
<RECEIVABLES> 70,748
<ALLOWANCES> 952
<INVENTORY> 52,016
<CURRENT-ASSETS> 162,846
<PP&E> 156,654
<DEPRECIATION> 95,117
<TOTAL-ASSETS> 256,245
<CURRENT-LIABILITIES> 51,520
<BONDS> 22,582
<COMMON> 2,202
0
0
<OTHER-SE> 161,997
<TOTAL-LIABILITY-AND-EQUITY> 256,245
<SALES> 276,659
<TOTAL-REVENUES> 276,659
<CGS> 136,738
<TOTAL-COSTS> 122,226
<OTHER-EXPENSES> 770
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,137
<INCOME-PRETAX> 15,788
<INCOME-TAX> 6,000
<INCOME-CONTINUING> 9,788
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,788
<EPS-PRIMARY> 1.22
<EPS-DILUTED> 1.22
</TABLE>
