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 24, 1997
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 21, 1997, there were 9,037,467 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 January 24, 1997 and April 26, 1996
Consolidated Statements of Income for the quarter and three quarters
ended January 24, 1997 and January 26, 1996
Consolidated Statements of Cash Flows for the three quarters ended
January 24, 1997 and January 26, 1996
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
PART I. FINANCIAL INFORMATION
Item 1 - Financial Statements
<TABLE>
CONSOLIDATED BALANCE SHEETS
Fluke Corporation and Subsidiaries
unaudited (in thousands except shares)
<CAPTION>
1/24/97 4/26/96
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 41,077 $ 36,631
Accounts receivable, less allowances 75,721 69,070
Inventories 52,673 56,602
Deferred income taxes 15,904 15,062
Prepaid expenses and other current assets 14,168 15,570
Total Current Assets 199,543 192,935
Property, Plant and Equipment
Land 5,801 5,801
Buildings 46,758 46,152
Machinery and equipment 113,354 111,274
Construction in progress 5,448 1,804
Less accumulated depreciation (112,643) (106,783)
Net Property, Plant and Equipment 58,718 58,248
Goodwill and Other Intangibles 13,665 16,528
Other Assets 9,731 7,961
Total Assets $ 281,657 $ 275,672
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 13,489 $ 15,186
Accrued liabilities 34,035 37,776
Income taxes payable 2,301 2,178
Current maturities of long-term obligations 326 180
Total Current Liabilities 50,151 55,320
Long-term Obligations 3,274 7,098
Deferred Income Taxes 10,959 10,585
Other Liabilities 11,801 10,592
Total Liabilities 76,185 83,595
Stockholders' Equity
Common stock 2,155 2,137
Additional paid-in capital 67,597 65,196
Retained earnings 138,129 123,507
Cumulative translation adjustment (2,409) 1,237
Total Stockholders' Equity 205,472 192,077
Total Liabilities and Stockholders' Equity $ 281,657 $ 275,672
Total Shares Outstanding 8,727,301 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 THREE QUARTERS ENDED
1/24/97 1/26/96 1/24/97 1/26/96
<S> <C> <C> <C> <C>
Revenues $ 108,450 $ 105,701 $ 315,077 $ 307,287
Cost of Goods Sold 49,823 49,183 145,601 144,614
Gross Margin 58,627 56,518 169,476 162,673
Operating Expenses
Marketing and administrative 37,390 36,418 110,043 106,967
Research and development 10,076 9,849 30,631 30,041
Total Operating Expenses 47,466 46,267 140,674 137,008
Operating Income 11,161 10,251 28,802 25,665
Non-Operating Expenses (Income)
Interest Expense 54 347 238 1,222
Other (491) (292) (1,535) (795)
Total Non-Operating
Expenses (Income) (437) 55 (1,297) 427
Income Before Income Taxes 11,598 10,196 30,099 25,238
Provision for Income Taxes 4,176 3,365 10,714 8,548
Net Income $ 7,422 $ 6,831 $ 19,385 $ 16,690
Earnings Per Share $ 0.82 $ 0.77 $ 2.16 $ 1.89
Net Income as a
Percentage of Revenues 6.8% 6.5% 6.2% 5.4%
Average Shares and Share
Equivalents Outstanding 9,067,060 8,859,412 8,970,384 8,848,911
</TABLE>
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
Fluke Corporation and Subsidiaries
unaudited (in thousands)
<CAPTION>
THREE QUARTERS ENDED
1/24/97 1/26/96
<S> <C> <C>
Operating Activities
Net Income $ 19,385 $ 16,690
Items not affecting cash:
Depreciation and amortization 10,964 12,574
Deferred income tax (739) 2,118
Other items not affecting cash 98 170
Net change in:
Accounts receivable (7,997) 4,407
Inventories 2,329 (5,233)
Prepaid expenses 1,215 (1,932)
Accounts payable (1,368) (2,707)
Accrued liabilities (2,906) (1,899)
Income taxes payable 1,213 (742)
Other assets and liabilities (86) (1,868)
Net Cash Provided by Operating Activities 22,108 21,578
Investing Activities
Additions to property, plant and equipment (10,721) (9,226)
Proceeds from disposal of property, plant
and equipment 191 1,336
Net Cash Used by Investing Activities (10,530) (7,890)
Financing Activities
Proceeds from long-term obligations 660 0
Payments on long-term obligations (4,155) (9,882)
Cash dividends paid (4,578) (4,888)
Proceeds from issuance of common stock 1,256 3,004
Net Cash Used by Financing Activities (6,817) (11,766)
Effect of Foreign Currency Exchange Rates on
Cash and Cash Equivalents (315) (424)
Net Increase In Cash and Cash Equivalents 4,446 1,498
Cash and Cash Equivalents at Beginning of Period 36,631 29,628
Cash and Cash Equivalents at End of Period $ 41,077 $ 31,126
Supplemental Cash Flow Information
Income Taxes Paid $ 7,601 $ 8,478
Interest Paid $ 245 $ 1,188
</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 January 24, 1997 and April 26, 1996 and the Consolidated
Statements of Income for the quarter and three quarters ended January 24,
1997 and January 26, 1996 and the Statements of Cash Flows for the three
quarters ended January 24, 1997 and January 26, 1996.
2. The results of operations for the quarter and three quarters ended
January 24, 1997 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.
4. On December 12, 1996, the Company's Board of Directors declared a
$0.16 per share quarterly cash dividend for stockholders of record on
January 24, 1997 which was paid on February 14, 1997.
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 THREE QUARTERS ENDED
1/24/97 1/26/96 1/24/97 1/26/96
<S> <C> <C> <C> <C>
Fluke Dividends $ 0.16 $ 0.15 $ 0.48 $ 0.45
Restated for Forte $ 0.16 $ 0.23 $ 0.48 $ 0.58
</TABLE>
As a Sub-chapter S corporation Forte stockholders were personally
responsible for 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>
January 24, 1997 April 26, 1996
<S> <C> <C>
Finished Goods $15,665 $18,147
Work-in-Process 9,348 9,464
Purchased Parts and Materials 27,660 28,991
Total Inventories $52,673 $56,602
</TABLE>
6. Subsequent Events
a) On February 6, 1997 the Company completed the acquisition of DeskNet
Systems, Inc., a provider of handheld, wide-area Asynchronous Transfer
Mode (ATM) test tools. DeskNet is an Armonk, New York based company
with net assets of approximately $1 million and revenues of approximately
$3 million in 1996. This move expands Fluke's line of handheld test tools
for network professionals and extends the firm's technology leadership in
the networking marketplace. Fluke issued approximately 305,000 shares of
Fluke Corporation common stock in exchange for the DeskNet shares. The
transaction is a tax-free reorganization and was accounted for as a pooling
of interests.
b) On January 28, 1997, the Company announced its intent to restructure
some of its European operations. Fluke intends to close its product
development operation in Hamburg, Germany, and transfer all business
responsibilities from Hamburg to Almelo, The Netherlands. The Company
will continue to sell and support the current product lines, which
includes TV pattern generators. In addition, changes are expected to be
made in the sales and support organizations in Europe. These changes
are intended to align the organizations with the Company's primary market
segments and to improve the efficiency of the support operations. The
Company anticipates recording a restructuring charge of between $9
million and $11 million in the fourth quarter of fiscal 1997. Since the
restructuring plan is in the development stages, there is potential for
additional charges not included in the original estimate. These expenses
may be recorded as incurred during fiscal 1998.
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, in a transaction accounted
for as a pooling of interests. Financial information for prior periods are
restated to reflect the merger.
Revenues of $108 million for the quarter ended January 24, 1997, increased 3
percent compared to the $106 million for the quarter ended January 26, 1996.
Revenues of $315 million for the three quarters ended January 24, 1997, 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 25 percent for the quarter and 16 percent for three quarters ended
January 24, 1997. Continued rapid growth in sales of products used in the
installation and management of local area networks (LANs) is a major reason
for these increases. Revenues for these products are up 91 percent for the
quarter and 53 percent year to date compared to similar periods last year.
Sales of products sold through our distribution channels have also increased.
Revenues in Europe declined 13 percent and 10 percent, respectively, for the
quarter and the three quarters ended January 24, 1997, when compared to the
same periods in the prior fiscal year. Excluding the effect of weakening
currencies in Europe versus the US dollar, revenues declined 9 percent and 6
percent, respectively. Unfavorable business conditions in several countries,
primarily Germany and France, two of our largest European markets, negatively
impacted revenues. Some European markets including the United Kingdom, Italy
and Spain had excellent growth in the third quarter and for the three
quarters.
Revenues in the Intercon region, countries outside Europe and the United
States, are down 2 percent compared to the third quarter a year ago. Revenues
are up 1 percent for the three quarters ended January 24, 1997, compared to
the same period last year. Revenue growth in some of our larger intercon
markets have not met expectations. One area was Korea, where continuing
problems in the Korean semiconductor and automotive industries contributed to
a reduction in revenues from Korea of 38 percent and 22 percent,
respectively, for the quarter and three quarters ended January 24, 1997,
compared to the same periods last year. In other areas of the Intercon
region, the Company experienced excellent revenue growth. Latin America, led
by Mexico and Brazil, had revenue growth of 25 percent for the quarter and 38
percent for the three quarters ended January 24, 1997, compared to similar
periods last year. Australia, Hong Kong, and Taiwan also experienced
excellent revenue growth for both the quarter and three quarters.
Operating expenses, for the quarter and three quarters ended January 24,
1997, increased by $1 million and $4 million, respectively, compared to the
same periods ended January 26, 1996. The predominate reasons are increased
commissions to our U.S. representitive sales organization, higher legal costs
incurred in the Company's suits to protect the Fluke brand image, and
increased advertising and promotion costs. Operating expenses as a percent of
revenues are unchanged at 44 percent and 45 percent for the quarter and three
quarters, respectively.
The effective tax rate for the quarter and three quarters ended January 24,
1997 was 36.0 percent and 35.6 percent, respectively. The effective tax rate
for the quarter and three quarters ended January 26, 1996, was 33.0 for the
quarter and 33.9 percent for three quarters. The lower rate in fiscal 1996
was a result of the restatement for the merger with Forte. As a sub-chapter S
corporation, Forte paid no tax because shareholders were personally
responsible for the tax liability.
SUBSEQUENT EVENTS
On February 6, 1997 the Company completed the acquisition of DeskNet Systems,
Inc., a provider of handheld, wide-area Asynchronous Transfer Mode (ATM) test
tools. DeskNet is an Armonk, New York based company with net assets of
approximately $1 million and revenues of approximately $3 million in 1996.
This move expands Fluke's line of handheld test tools for network
professionals and extends the firm's technology leadership in the networking
marketplace. Fluke issued approximately 305,000 shares of Fluke Corporation
common stock in exchange for the DeskNet shares. The transaction is a tax-free
reorganization and was accounted for as a pooling of interests.
On January 28, 1997, the Company announced its intent to restructure some of
its European operations. For a detailed discussion refer to Note 6 in the
Notes to Consolidated Financial Statements.
LIQUIDITY AND CAPITAL RESOURCES
The Company has continued to generate strong cash flow through the first
three 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 $3 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 4.0 at January 24,
1997. Current assets are up $7 million and current liabilities are down $5
million. Cash and accounts receivable have both increased while accounts
payable and accrued liabilities have decreased.
The Company made capital expenditures of $5 million and $11 million for the
quarter and three quarters ended January 24, 1997, compared to $3 million and
$9 million in the comparable periods last year. The Company expects capital
expenditures of $14-$16 million in fiscal year 1997.
The Company declared a $0.16 per share cash dividend on December 12, 1996,
payable to stockholders of record on January 24, 1997.
The Company has a program to hedge some of its foreign exchange exposure
using forward exchange contracts. Under the program 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 6 Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 11 - Computation of Earnings Per Share
(b) Reports on Form 8-K
None filed.
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 7, 1997 /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 THREE QUARTERS ENDED
1/24/97 1/26/96 1/24/97 1/26/96
<C> <C> <C> <C>
<S>
Shares issued and outstanding
at beginning of period 8,700,840 8,625,728 8,652,955 8,475,725
Net issuance of shares under
employee stock plans,
weighted average 8,252 747 37,435 107,280
Weighted average common
shares outstanding 8,709,092 8,626,475 8,690,390 8,583,005
Assumed exercise of stock
options, weighted average
of incremental shares 357,968 232,937 279,994 265,906
Average shares and
share equivalents
outstanding 9,067,060 8,859,412 8,970,384 8,848,911
Earnings per share $ 0.82 $ 0.77 $ 2.16 $ 1.89
Net Income $7,422,000 $6,831,000 $19,385,000 $16,690,000
</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-25-1997<F1>
<PERIOD-START> APR-27-1996
<PERIOD-END> JAN-24-1997
<CASH> 41,077
<SECURITIES> 0
<RECEIVABLES> 76,758
<ALLOWANCES> 1,037
<INVENTORY> 52,673
<CURRENT-ASSETS> 199,543
<PP&E> 171,361
<DEPRECIATION> 112,643
<TOTAL-ASSETS> 281,657
<CURRENT-LIABILITIES> 50,151
<BONDS> 3,274
0
0
<COMMON> 2,155
<OTHER-SE> 203,317
<TOTAL-LIABILITY-AND-EQUITY> 281,657
<SALES> 315,077
<TOTAL-REVENUES> 315,077
<CGS> 145,601
<TOTAL-COSTS> 140,674
<OTHER-EXPENSES> (1,535)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 238
<INCOME-PRETAX> 30,099
<INCOME-TAX> 10,714
<INCOME-CONTINUING> 19,385
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 19,385
<EPS-PRIMARY> 2.16
<EPS-DILUTED> 2.16
<FN>
<F1>Amounts in this column are in thousands except share amounts.
</FN>
</TABLE>
