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 October 25, 1996
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 November 22, 1996, there were 8,705,615 shares of $0.25 par value
common stock outstanding.
FLUKE CORPORATION
INDEX
PART I. FINANCIAL INFORMATION
Item 1 Financial Statements
Consolidated Balance Sheets as of October 25, 1996 and April 26, 1996
Consolidated Statements of Income for the quarter and two quarters ended
October 25, 1996 and October 27, 1995
Consolidated Statements of Cash Flows for the two quarters ended October
25, 1996 and October 27, 1995
Notes to Consolidated Financial Statements
Item 2 Management's Discussion and Analysis of Financial Condition
and Results of Operations
PART II. OTHER INFORMATION
Item 4 Submission of Matters to a Vote of Security Holders
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
PART I. FINANCIAL INFORMATION
Item 1 - Financial Statements
<TABLE>
CONSOLIDATED BALANCE SHEETS
Fluke Corporation and Subsidiaries
unaudited (in thousands except shares)
<CAPTION>
10/25/96 4/26/96
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 41,153 $ 36,631
Accounts receivable, less allowances 73,206 69,070
Inventories 55,582 56,602
Deferred income taxes 16,425 15,062
Prepaid expenses and other current assets 14,943 15,570
Total Current Assets 201,309 192,935
Property, Plant and Equipment
Land 5,801 5,801
Buildings 46,468 46,152
Machinery and equipment 113,420 111,274
Construction in progress 3,680 1,804
Less accumulated depreciation (110,946) (106,783)
Net Property, Plant and Equipment 58,423 58,248
Goodwill and Other Intangibles 15,056 16,528
Other Assets 9,873 7,961
Total Assets $ 284,661 $ 275,672
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 14,628 $ 15,186
Accrued liabilities 35,962 37,776
Income taxes payable 2,069 2,178
Current maturities of long-term obligations 181 180
Total Current Liabilities 52,840 55,320
Long-term Obligations 5,592 7,098
Deferred Income Taxes 11,282 10,585
Other Liabilities 11,900 10,592
Total Liabilities 81,614 83,595
Stockholders' Equity
Common stock 2,149 2,137
Additional paid-in capital 67,057 65,196
Retained earnings 132,277 123,507
Cumulative translation adjustment 1,564 1,237
Total Stockholders' Equity 203,047 192,077
Total Liabilities and Stockholders' Equity $ 284,661 $ 275,672
Total Shares Outstanding 8,700,840 8,652,955
</TABLE>
<TABLE>
CONSOLIDATED STATEMENTS OF INCOME
Fluke Corporation and Subsidiaries
unaudited (in thousands except shares and per share amounts)
<CAPTION>
QUARTER ENDED TWO QUARTERS ENDED
10/25/96 10/27/95 10/25/96 10/27/95
<S> <C> <C> <C> <C>
Revenues $ 105,473 $ 102,872 $ 206,627 $ 201,586
Cost of Goods Sold 48,584 48,987 95,778 95,431
Gross Margin 56,889 53,885 110,849 106,155
Operating Expenses
Marketing and administrative 37,163 35,241 72,653 70,549
Research and development 10,250 9,724 20,555 20,192
Total Operating Expenses 47,413 44,965 93,208 90,741
Operating Income 9,476 8,920 17,641 15,414
Non-Operating Expenses (Income)
Interest Expense 74 569 184 875
Other (606) 86 (1,044) (503)
Total Non-Operating
Expenses (Income) (532) 655 (860) 372
Income Before Income Taxes 10,008 8,265 18,501 15,042
Provision for Income Taxes 3,604 2,862 6,538 5,183
Net Income $ 6,404 $ 5,403 $ 11,963 $ 9,859
Earnings Per Share $ 0.72 $ 0.61 $ 1.34 $ 1.11
Net Income as a
Percentage of Revenues 6.1% 5.3% 5.8% 4.9%
Average Shares and Share
Equivalents Outstanding 8,933,042 8,883,891 8,937,189 8,852,745
</TABLE>
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
Fluke Corporation and Subsidiaries
unaudited (in thousands)
<CAPTION>
TWO QUARTERS ENDED
10/25/96 10/27/95
<S> <C> <C>
Operating Activities
Net Income $ 11,963 $ 9,859
Items not affecting cash:
Depreciation and amortization 7,326 8,426
Deferred income tax (666) 2,405
Stock awards 33 53
Gain on disposal of property, plant
and equipment 76 (68)
Net change in:
Accounts receivable (3,901) 823
Inventories 1,096 (4,413)
Prepaid expenses 827 (6,133)
Accounts payable (609) (1,692)
Accrued liabilities (2,133) (1,642)
Income taxes payable 1,338 (1,441)
Other assets and liabilities (324) (264)
Net Cash Provided by Operating Activities 15,026 5,913
Investing Activities
Additions to property, plant and equipment (6,215) (6,205)
Proceeds from disposal of property, plant
and equipment 66 201
Net Cash Used By Investing Activities (6,149) (6,004)
Financing Activities
Proceeds from long-term obligations 278 5
Payments on long-term obligations (1,821) (4,157)
Cash dividends paid (3,186) (2,925)
Proceeds from issuance of common stock 311 2,818
Net Cash Used By Financing Activities (4,418) (4,259)
Effect of Foreign Currency Exchange Rates on
Cash and Cash Equivalents 63 (120)
Net Increase (Decrease) In Cash and Cash
Equivalents 4,522 (4,470)
Cash and Cash Equivalents at Beginning of Period 36,631 29,628
Cash and Cash Equivalents at End of Period $ 41,153 $ 25,158
Supplemental Cash Flow Information
Income Taxes Paid $ 4,026 $ 6,151
Interest Paid $ 193 $ 872
</TABLE>
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 October 25, 1996 and April 26, 1996 and the
Consolidated Statements of Income for the quarter and two quarters ended
October 25, 1996 and October 27, 1995 and the Statements of Cash Flows
for the two quarters ended October 25, 1996 and October 27, 1995.
2. The results of operations for the quarter ended October 25, 1996 are
not necessarily indicative of the results to be expected for the full
year.
3. On June 26, 1996 Forte Networks, Inc. (Forte) was acquired and
merged into the Company. The transaction was accounted for as a pooling
of interests and, accordingly, the financial statements as presented
have been restated to reflect the combined companies. Prior to the
merger Forte operated under Sub-chapter S of the Internal Revenue Code.
Accordingly, Forte's taxable income was allocated to it's shareholders.
The impact to the previously reported financial statements for the
quarter ended and two quarters ended October 27, 1995 was not material.
4. On September 11, 1996, the Company's Board of Directors declared a
$0.16 per share quarterly cash dividend for stockholders of record on
October 25, 1996 which was paid on November 15, 1996.
The following provides a breakdown of the restated dividends per
share. Dividends in prior periods are restated for the Forte merger.
<TABLE>
<CAPTION>
QUARTER ENDED TWO QUARTERS ENDED
10/25/96 10/27/95 10/25/96 10/27/95
<S> <C> <C> <C> <C>
Fluke Dividends $ 0.16 $ 0.15 $ 0.32 $ 0.30
Restated for Forte $ 0.16 $ 0.16 $ 0.32 $ 0.35
</TABLE>
As a Sub-chapter S corporation Forte stockholders personally bear the
tax liability of the corporate results. Prior to the merger Forte
dividends were paid as a means to distribute profits and to provide cash
to the stockholders to pay their share of related income taxes
5. The components of inventories are as follows:
<TABLE>
(in thousands)
<CAPTION>
October 25, 1996 April 26, 1996
<S> <C> <C>
Finished Goods $17,012 $18,147
Work-in-Process 10,051 9,464
Purchased Parts and Materials 28,519 28,991
Total Inventories $55,582 $56,602
</TABLE>
Item 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Fluke Corporation and Subsidiaries
RESULTS OF OPERATIONS
As discussed in the report for the quarter ended July 26, 1996, the
Company merged with Forte Networks, Inc. on June 26, 1996, through a
pooling of interests method of accounting. Financial information for
prior periods including dividends and earnings per share are restated to
reflect the merger.
Revenues of $105 million for the quarter ended October 25, 1996,
increased 3 percent compared to the $103 million for the quarter ended
October 27, 1995. Revenues of $207 million for the six month period
ended October 25, 1996, are 3 percent higher than the same period last
year.
Compared to the same periods in the prior year, revenues in the United
States increased 19 percent for the quarter and 12 percent for six
months ended October 25, 1996. The principal reasons are the growth of
products sold to help install and manage local area networks (LANs) and
an increase in sales through our distribution channels.
Revenues in Europe declined 14 percent and 8 percent respectively for
the quarter and the six months ended October 25, 1996, when compared to
the same periods in the prior fiscal year. Unfavorable business
conditions in several countries, primarily Germany and France, our
largest European markets, negatively impacted revenues while some of our
smaller European markets grew revenues in the second quarter and for the
six months.
Revenues in the Intercon region, countries outside Europe and the United
States, continued to grow compared to the same periods a year ago.
Although the 3 percent growth rate for both the quarter and year-to-date
are slower than recent trends in this region, the Company had excellent
revenue growth in certain markets. Latin America, led by Mexico and
Brazil, had revenue growth in excess of 40 percent compared to the same
periods last year. Revenue growth in The People's Republic of China and
Taiwan were almost as strong. The slower overall Intercon region growth
rate was caused by declines in revenue in some of the largest Intercon
markets. Revenues are down 11 percent in Japan, our largest Intercon
country, primarily due to the weakening yen. Unfavorable business
conditions in the Korean semiconductor and automotive industries caused
a 23 percent reduction of second quarter revenues from Korea compared to
the same quarter last year.
Gross margin as a percent of revenues improved by 1.5 percent for the
second quarter compared to the same quarter last year. The primary
reason was a lower cost of sales due to a favorable product mix and
improved factory utilization. Operating expenses, for the quarter ended
October 25, 1996, increased by $2.4 million compared to the quarter
ended October 27, 1995. The predominate reasons are increased
commissions to our U. S. rep organization, higher legal costs incurred
in the Company's suits to protect the Fluke brand image, higher research
and development costs, and increased advertising and promotion.
The Company had $532,000 of non-operating income during the quarter
ended October 25, 1996, compared to $655,000 of non-operating expense
for the quarter ended October 27, 1995. Interest expense decreased
$495,000 as the Company paid down debt from $17 million to $5 million.
Additionally, the Company had translation gains during the current
quarter compared to translation losses during the quarter ended October
27,1995.
The effective tax rate for the quarter and six months ended October 25,
1996 was 36.0 percent and 35.3 percent respectively. The effective tax
rate for the quarter and six months ended October 27, 1995 was restated
from 36.0 percent to 34.6 for the quarter and 34.5 percent year-to-date
to reflect the effect of the merger with Forte. As a sub-chapter S
corporation, Forte paid no tax because shareholders bear the tax
liability .
LIQUIDITY AND CAPITAL RESOURCES
The Company has continued to generate strong cash flow through the first
two quarters of fiscal 1997 with the balance of cash and cash
equivalents reaching $41 million. The borrowing under the Company's
long term line of credit was approximately $5.6 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. The current ratio improved from 3.5 at
April 25, 1996 to 3.8 at October 25, 1996.
The Company made capital expenditures of $3.4 million and $6.2 million
for the quarter and year to date ended October 25, 1996 compared to $3.7
million and $6.2 million in the comparable periods last year. The
Company expects capital expenditures of $10-$12 million in fiscal year
1997.
The Company declared a cash dividend of $0.16 per share on September 11,
1996 payable to stockholders of record on October 25, 1996.
The Company has a program to hedge some of its foreign exchange exposure
using forward exchange contracts. Under company policy contracts can
not be speculative and are limited to actual currency risk. The Company
does not currently use any other form of derivatives in managing its
financial risk.
PART II. OTHER INFORMATION
Item 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Fluke Corporation and Subsidiaries
At the Annual Meeting of Stockholders of the Company held on September
11, 1996, the stockholders voted to elect the following Directors to
serve terms as noted below:
DIRECTOR TOTAL VOTE TOTAL VOTE WITHHELD
FOR EACH DIRECTOR FROM EACH DIRECTOR
For a two year term expiring at the 1998 Annual Meeting:
Sally G. Narodick 7,811,751 11,418
For three year terms expiring at the 1999 Annual Meeting:
Philip M. Condit 7,812,349 11,418
David L. Fluke 7,812,582 11,418
Robert S. Miller, Jr. 7,811,823 11,418
William H. Neukom 7,812,168 11,418
Continuing Directors
John D. Durbin William G. Parzybok, Jr.
John M. Fluke, Jr. James E. Warjone
N. Stewart Rogers George M. Winn
Item 6 Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 11 - Computation of Earnings Per Share
(b) Reports on Form 8-K
Report on Form 8-K, dated August 13, 1996, that was filed on
August 13, 1996 reported the press release regarding the first
quarter of fiscal 1997 operating results.
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
December 6, 1996 /s/John R. Smith
Date John R. Smith
Vice President, Treasurer
Chief Accounting Officer
<TABLE>
Exhibit 11 COMPUTATION OF EARNINGS PER SHARE
Fluke Corporation and Subsidiaries
<CAPTION> QUARTER ENDED TWO QUARTERS ENDED
10/25/96 10/27/95 10/25/96 10/27/95
<C> <C> <C> <C>
<S>
Shares issued and outstanding
at beginning of period 8,695,711 8,560,517 8,652,955 8,475,725
Net issuance of shares under
employee stock plans,
weighted average 327 42,469 28,084 85,471
Weighted average common
shares outstanding 8,696,038 8,602,986 8,681,039 8,561,196
Assumed exercise of stock
options, weighted average
of incremental shares 237,004 280,905 256,150 291,549
Average shares and
share equivalents
outstanding 8,933,042 8,883,891 8,937,189 8,852,745
Earnings per share $ 0.72 $ 0.61 $ 1.34 $ 1.11
Net Income $6,404,000 $5,403,000 $11,963,000 $9,859,000
</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> 6-MOS
<FISCAL-YEAR-END> APR-25-1997
<PERIOD-START> APR-27-1996
<PERIOD-END> OCT-25-1996
<CASH> 41,053<F1>
<SECURITIES> 100
<RECEIVABLES> 74,257
<ALLOWANCES> 1,051
<INVENTORY> 55,582
<CURRENT-ASSETS> 201,309
<PP&E> 169,369
<DEPRECIATION> 110,946
<TOTAL-ASSETS> 284,661
<CURRENT-LIABILITIES> 52,840
<BONDS> 0
0
0
<COMMON> 2,149
<OTHER-SE> 200,898
<TOTAL-LIABILITY-AND-EQUITY> 284,661
<SALES> 206,627
<TOTAL-REVENUES> 206,627
<CGS> 95,778
<TOTAL-COSTS> 93,208
<OTHER-EXPENSES> (1,044)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 184
<INCOME-PRETAX> 18,501
<INCOME-TAX> 6,538
<INCOME-CONTINUING> 11,963
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,963
<EPS-PRIMARY> 1.34
<EPS-DILUTED> 1.34
<FN>
<F1>Numbers in this column in thousands except share information.
</FN>
</TABLE>
