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 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)
(425) 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 21, 1997, there were 18,334,818 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 24, 1997 and
April 25, 1997
Consolidated Statements of Income for the quarter and
two quarters ended October 24, 1997 and October 25, 1996
Consolidated Statements of Cash Flows for the two quarters
ended October 24, 1997 and October 25, 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 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>
10/24/97 4/25/97
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 41,223 $ 40,916
Accounts receivable, less allowances 81,724 80,689
Inventories 56,413 54,522
Deferred income taxes 16,563 16,968
Prepaid expenses and other current assets 22,117 16,185
Total Current Assets 218,040 209,280
Property, Plant and Equipment
Land 4,557 5,236
Buildings 46,143 47,414
Machinery and equipment 120,132 115,022
Construction in progress 11,061 5,634
Less accumulated depreciation (116,646) (113,660)
Net Property, Plant and Equipment 65,247 59,646
Goodwill and Other Intangibles 10,534 11,876
Other Assets 12,194 11,558
Total Assets $ 306,015 $ 292,360
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 17,135 $ 16,504
Accrued liabilities 34,456 35,350
Accrued liabilities related to restructuring 9,021 11,894
Income taxes payable 2,138 1,584
Current maturities of long-term obligations
and short term debt 457 1,145
Total Current Liabilities 63,207 66,477
Long-term Obligations 442 563
Deferred Income Taxes 11,933 10,178
Other Liabilities 13,514 12,203
Total Liabilities 89,096 89,421
Stockholders' Equity
Common stock 4,583 4,524
Additional paid-in capital 74,029 69,490
Retained earnings 144,563 133,736
Cumulative translation adjustment (6,256) (4,811)
Total Stockholders' Equity 216,919 202,939
Total Liabilities and Stockholders' Equity $ 306,015 $ 292,360
Total Shares Outstanding 18,332,618 18,092,960
</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
10/24/97 10/25/96 10/24/97 10/25/96
<S> <C> <C> <C> <C>
Revenues $ 110,184 $ 105,473 $ 215,764 $ 206,627
Cost of Goods Sold 50,552 48,584 99,940 95,778
Gross Margin 59,632 56,889 115,824 110,849
Operating Expenses
Marketing and administrative 37,244 37,163 73,304 72,653
Research and development 10,736 10,250 21,134 20,555
Total Operating Expenses 47,980 47,413 94,438 93,208
Operating Income 11,652 9,476 21,386 17,641
Non-Operating Expenses (Income)
Interest Expense 19 74 50 184
Other (49) (606) (627) (1,044)
Total Non-Operating
Expenses (Income) (30) (532) (577) (860)
Income Before Income Taxes 11,682 10,008 21,963 18,501
Provision for Income Taxes 4,205 3,604 7,906 6,538
Net Income $ 7,477 $ 6,404 $ 14,057 $ 11,963
Earnings Per Share $ 0.39 $ 0.36 $ 0.73 $ 0.67
Net Income as a
Percentage of Revenues 6.8% 6.1% 6.5% 5.8%
Cash Dividends Declared
per Share $ 0.0875 $ 0.0800 $ 0.1750 $ 0.1600
Average Shares and Share
Equivalents Outstanding 19,260,418 17,866,084 19,191,376 17,874,378
</TABLE>
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
Fluke Corporation and Subsidiaries
unaudited (in thousands)
<CAPTION>
TWO QUARTERS ENDED
10/24/97 10/25/96
<S> <C> <C>
Operating Activities
Net Income $ 14,057 $ 11,963
Items not affecting cash:
Depreciation and amortization 7,178 7,326
Deferred income tax 2,049 (666)
Other 89 109
Net change in:
Accounts receivable (1,805) (3,901)
Inventories (2,520) 1,096
Prepaid expenses (6,020) 827
Accounts payable 871 (609)
Accrued liabilities 411 (2,133)
Accrued liabilities related to restructuring (2,873) ---
Income taxes payable 1,347 1,338
Other assets and liabilities 766 (324)
Net Cash Provided by Operating Activities 13,550 15,026
Investing Activities
Additions to property, plant and equipment (14,758) (6,215)
Proceeds from disposal of property, plant
and equipment 2,511 66
Net Cash Used By Investing Activities (12,247) (6,149)
Financing Activities
Payments on short-term obligations (704) ---
Proceeds from long-term obligations 16 278
Payments on long-term obligations (121) (1,821)
Cash dividends paid (3,045) (3,186)
Proceeds from issuance of common stock 3,048 311
Net Cash Used By Financing Activities (806) (4,418)
Effect of Foreign Currency Exchange Rates on
Cash and Cash Equivalents (190) 63
Net Increase In Cash and Cash Equivalents 307 4,522
Cash and Cash Equivalents at Beginning of Period 40,916 36,631
Cash and Cash Equivalents at End of Period $ 41,223 $ 41,153
Supplemental Cash Flow Information
Income Taxes Paid $ 3,911 $ 4,026
Interest Paid $ 51 $ 193
</TABLE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 24, 1997 and April 25, 1997 and the
Consolidated Statements of Income for the quarter and two quarters ended
October 24, 1997 and October 25, 1996 and the Statements of Cash Flows
for two quarters ended October 24, 1997 and October 25, 1996.
2. The results of operations for the quarter ended October 24, 1997, and
October 25, 1996, are not necessarily indicative of the results to be
expected for the full year.
3. On September 10, 1997, the Company's Board of Directors approved
doubling the 20 million shares of the authorized common stock to 40
million shares and announced a two-for-one stock split effected in the
form of a 100 percent stock dividend with a record date of September 26,
1997. The related shares were distributed on October 15, 1997.
4. Restatement of Financial Results
The two-for-one stock split was effected in the form of a stock
dividend. Therefore, Common Stock, on the Balance Sheet, was increased
by the number of new shares at the Company's $0.25 per share par value.
Washington State laws require that Retained Earnings be reduced to fund
this increase in the Common Stock. Prior period Common Stock and
Retained Earnings accounts as well as share and per share amounts in the
accompanying financial statements have been restated to reflect the
effect of the stock split.
Earnings per Share
Quarter Ended As Reported Restated
October 24, 1997 $0.39 $0.39
October 25, 1996 $0.72 $0.36
Two quarters Ended
October 24, 1997 $0.73 $0.73
October 25, 1996 $1.34 $0.67
(in thousands) Common Stock Retained Earnings
Quarter Ended As Reported Restated As Reported Restated
October 24, 1997 $ 4,583 $ 4,583 $ 144,563 $ 144,563
April 25, 1997 $ 2,262 $ 4,524 $ 135,998 $ 133,736
5. The components of inventories are as follows:
<TABLE>
(in thousands)
<CAPTION>
10/24/97 4/25/97
<S> <C> <C>
Finished Goods $17,948 $17,789
Work-in-Process 12,580 11,160
Purchased Parts and Materials 25,885 25,573
Total Inventories $56,413 $54,522
</TABLE>
Item 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Fluke Corporation and Subsidiaries
RESULTS OF OPERATIONS
COMPARISON OF THE QUARTER ENDED OCTOBER 24, 1997
TO THE QUARTER ENDED OCTOBER 25, 1996
Revenues for the current quarter increased by 4 percent to $110 million
when compared to the prior year quarter which ended October 25, 1996.
The results have been negatively impacted by approximately 5 percent due
to the effect of the strong US dollar on revenues, primarily in Europe.
In April 1997, the Company signed a reciprocal distribution and
marketing agreement with Hewlett-Packard Company (HP). Under this
agreement HP will sell several of Fluke's compact, professional,
electronic test tools. The agreement allows the Company to sell a
selection of HP instruments through selected distributors. This
program, originally introduced in the US, has met the Company's
expectations and was expanded into Europe and to Canada during the
current quarter.
US revenues were $54 million for the current quarter, 49 percent of
total revenues, and increased 8 percent over the comparable quarter last
year. This growth was led by handheld tools, particularly those used to
install and maintain computer networks. The Company successfully
initiated a program to certify its sales representatives in the network
test tool market to insure they have the necessary technical skills and
product knowledge to achieve the Company's growth expectations in this
market. In Europe, local currency revenues increased by 6 percent with
double digit growth in several countries, most notably in Germany and
France where results have been disappointing in recent years. However a
14 percent negative currency impact resulted in European revenues of $33
million, an 8 percent decrease compared to the same quarter last year.
Revenues of $23 million from the Intercon region, countries outside
Europe and the United States, grew 18 percent compared to the same
quarter in fiscal 1997. Revenues grew in South America by 39 percent,
Canada by 39 percent, and in The People's Republic of China by 58
percent. Revenues in Korea decreased for the second straight quarter
and orders from other ASEAN countries slowed significantly at the end of
this quarter due to economic uncertainties in the region.
Operating income was $12 million, an increase of 23 percent from the
prior year quarter which ended October 25, 1996. Gross margins improved
slightly due to the product mix and the favorable currency effect of the
strong US dollar on local currency costs of the Company's manufacturing
facility in The Netherlands. Research and development spending, almost
$11 million, continues at close to 10 percent of revenues as the Company
invests in the development of new products for future growth. Marketing
& administrative expenses were held virtually flat compared to the same
quarter last fiscal year and declined as a percentage revenues.
Marketing and administrative expenses in US dollars benefited
approximately 6 percent due to the impact of the stronger US dollar on
the Company's sales subsidiaries outside the US.
COMPARISON OF THE TWO QUARTERS ENDED OCTOBER 24, 1997
TO THE TWO QUARTERS ENDED OCTOBER 25, 1996
The $216 million in revenues during the two quarters ended October 24,
1997, were 4 percent higher than the same period last year. Revenues
from customers in the US grew 9 percent to $103 million, 48 percent of
world wide revenues. Most of the growth in US revenues comes from
handheld tools, primarily those used to install and maintain computer
networks, which increased 45 percent compared to the two quarters ended
October 25, 1996. The strong US dollar had a significant negative
impact on the Company's European revenues. European revenues of $67
million for the two quarters ended October 24, 1997 represents a
decrease of 6 percent from the comparable six month period last year.
However, local currency revenues in Europe actually increased 6 percent
with Belgium, Germany, France, Sweden and the United Kingdom showing the
most improvement. Revenues from the Intercon region, countries outside
Europe and the United States, grew 12 percent compared to the two
quarters ended October 25, 1996. This increase was led by South America
with a 40 percent increase and Canada with a 36 percent increase.
Revenues continue to be down significantly in Korea due to the weakened
local economy.
The Company improved operating income to $21 million during the two
quarters ended October 24, 1997, a 21 percent increase over the same two
quarters in the prior year. Gross margins grew 4 percent, consistent
with revenue growth and the Company continues to invest approximately 10
percent of revenues, over $21 million, in research and development.
Marketing and administrative expenses were held flat, declining from
over 35 percent to 34 percent of revenues.
The effective annual tax rate was 36.0 percent in the two quarters ended
July 25, 1997 compared to 35.3 percent in the two quarters ended October
24, 1996. The effective rate for the two quarters ended October 24,
1996, was lower as a result of the merger with Forte Networks, Inc.
(Forte) on June 26, 1996. Forte was a sub-chapter S corporation and
therefore did not pay US income tax. The US income tax was paid
directly by Forte's shareholders. Therefore, when reporting the
financial results of the merged companies no tax expense was recognized
on the income generated by Forte for the first two months of the quarter
ended July 26, 1996.
LIQUIDITY AND CAPITAL RESOURCES
During the current quarter the Company continued to strengthened its
financial position through increased cash from operations. This
increase was achieved while the Company was making significant
investments in its new worldwide management information system as well
as making major investments in its manufacturing capabilities.
Capital expenditures, $15 million during the current two quarters, will
continue to exceed historical averages through the end of the current
fiscal year due to continued investment in the business information
systems and additional investment in manufacturing processes. The
Company expects to fund these expenditures and other working capital
requirements through cash generated from normal operations.
The current ratio was 3.4 at October 24, 1997 compared to 3.1 at April
25, 1997. The improvement was primarily a result of paying down current
liabilities. The accrued liability related to restructuring declined as
the Company incurred planned costs to reorganize its European
operations. The research and development activities in Germany have
been terminated and the Company has begun to centralize European finance
operations.
On September 10, 1997 the Board of Directors increased the authorized
shares of common stock from 20 million to 40 million shares and
announced a two-for-one stock split. The stock split was effected in
the form of a 100 percent stock dividend, distributed on October 15,
1997, with a record date of September 26, 1997. The Board of Directors
also declared a cash dividend of $0.0875 per share to be paid on the
split shares to stockholders of record on October 24, 1997, payable on
November 14, 1997.
The Company has a program to hedge some of its foreign exchange exposure
using forward exchange contracts. Under this program the contracts
cannot 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
10, 1997, the stockholders voted to elect the following Directors to
serve three year terms expiring at the 2000 Annual Meeting:
DIRECTOR TOTAL VOTE TOTAL VOTE WITHHELD
FOR EACH DIRECTOR FROM EACH DIRECTOR
John D. Durbin 7,378,220 268,700
John M. Fluke, Jr. 7,372,618 274,302
David E. Katri 7,377,942 268,978
N. Stewart Rogers 7,377,133 269,787
Continuing Directors
Philip M. Condit David L. Fluke
Robert S. Miller, Jr. Sally G. Narodick
William H. Neukom William G. Parzybok, Jr.
James E. Warjone George M. Winn
The stockholders also voted to approve the 1998 Stock Incentive Plan
which gave the Board of Directors the authority to issue up to 1,500,000
of unissued or reacquired shares of the Company's common stock as part
of the overall management compensation package. Details of the plan are
available in the Company's Proxy Statement dated July 17, 1997.
Vote of shareholders on 1998 Stock Incentive Plan
For 4,873,192 Against 1,680,458
Abstain 65,122 Not Voted 1,028,148
Item 6 Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 11 - Computation of Earnings Per Share
(b) Reports on Form 8-K
The Company filed a Report on Form 8-K on September 12, 1997
regarding the doubling of its authorized shares and the approval
of a two-for-one stock split to be effected in the form of a 100%
stock dividend.
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 4 1997 /s/Elizabeth J. Huebner
Date Elizabeth J. Huebner
Vice President,
Chief Financial Officer
<TABLE>
Exhibit 11 COMPUTATION OF EARNINGS PER SHARE
Fluke Corporation and Subsidiaries
<CAPTION> QUARTER ENDED TWO QUARTERS ENDED
10/24/97 10/25/96 10/24/97 10/25/96
<C> <C> <C> <C>
<S>
Shares issued and outstanding
at beginning of period 18,250,378 17,391,422 18,092,960 17,305,910
Net issuance of shares under
employee stock plans,
weighted average 28,760 654 127,306 56,168
Weighted average common
shares outstanding 18,279,138 17,392,076 18,220,266 17,362,078
Assumed exercise of stock
options, weighted average
of incremental shares 981,280 474,008 971,110 512,300
Average shares and share
equivalents outstanding 19,260,418 17,866,084 19,191,376 17,874,378
Earnings per share $ 0.39 $ 0.36 $ .73 $ .67
Net Income $ 7,477,000 $6,404,000 $14,057,000 $11,963,000
</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-24-1998
<PERIOD-START> APR-26-1997
<PERIOD-END> OCT-24-1997
<CASH> 41,223
<SECURITIES> 0
<RECEIVABLES> 82,471
<ALLOWANCES> 747
<INVENTORY> 56,413
<CURRENT-ASSETS> 218,040
<PP&E> 181,893
<DEPRECIATION> 116,646
<TOTAL-ASSETS> 306,015
<CURRENT-LIABILITIES> 63,207
<BONDS> 0
0
0
<COMMON> 4,583
<OTHER-SE> 212,336
<TOTAL-LIABILITY-AND-EQUITY> 306,015
<SALES> 215,764
<TOTAL-REVENUES> 215,764
<CGS> 99,940
<TOTAL-COSTS> 94,438
<OTHER-EXPENSES> (627)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 50
<INCOME-PRETAX> 21,963
<INCOME-TAX> 7,906
<INCOME-CONTINUING> 14,057
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 14,057
<EPS-PRIMARY> .73
<EPS-DILUTED> .73
</TABLE>
