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 23, 1998
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 February 20, 1998, there were 18,389,083 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 23, 1998 and
April 25, 1997
Consolidated Statements of Income for the quarter and
three quarters ended January 23, 1998 and January 24, 1997
Consolidated Statements of Cash Flows for the three quarters
ended January 23, 1998 and January 24, 1997
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
SIGNATURES
PART I. FINANCIAL INFORMATION
Item 1 - Financial Statements
<TABLE>
CONSOLIDATED BALANCE SHEETS
Fluke Corporation and Subsidiaries
unaudited (in thousands except shares)
<CAPTION>
1/23/98 4/25/97
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 37,504 $ 40,916
Accounts receivable, less allowances 81,258 80,689
Inventories 55,706 54,522
Deferred income taxes 16,216 16,968
Prepaid expenses and other current assets 23,030 16,185
Total Current Assets 213,714 209,280
Property, Plant and Equipment
Land 4,557 5,236
Buildings 46,243 47,414
Machinery and equipment 123,194 115,022
Construction in progress 12,043 5,634
Less accumulated depreciation (117,772) (113,660)
Net Property, Plant and Equipment 68,265 59,646
Goodwill and Other Intangibles 9,936 11,876
Other Assets 12,243 11,558
Total Assets $ 304,158 $ 292,360
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 16,876 $ 16,504
Accrued liabilities 30,504 35,350
Accrued liabilities related to restructuring 5,499 11,894
Income taxes payable 2,800 1,584
Current maturities of long-term obligations
and short term debt 383 1,145
Total Current Liabilities 56,062 66,477
Long-term Obligations 389 563
Deferred Income Taxes 11,983 10,178
Other Liabilities 13,386 12,203
Total Liabilities 81,820 89,421
Stockholders' Equity
Common stock 4,589 4,524
Additional paid-in capital 74,407 69,490
Retained earnings 150,479 133,736
Cumulative translation adjustment (7,137) (4,811)
Total Stockholders' Equity 222,338 202,939
Total Liabilities and Stockholders' Equity $ 304,158 $ 292,360
Total Shares Outstanding 18,355,974 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 THREE QUARTERS ENDED
1/23/98 1/24/97 1/23/98 1/24/97
<S> <C> <C> <C> <C>
Revenues $ 110,181 $ 108,450 $ 325,945 $ 315,077
Cost of Goods Sold 52,817 49,823 152,757 145,601
Gross Margin 57,364 58,627 173,188 169,476
Operating Expenses
Marketing and administrative 35,679 37,390 108,983 110,043
Research and development 10,148 10,076 31,282 30,631
Total Operating Expenses 45,827 47,466 140,265 140,674
Operating Income 11,537 11,161 32,923 28,802
Non-Operating Expenses (Income)
Interest Expense 27 54 77 238
Other (245) (491) (872) (1,535)
Total Non-Operating
Expenses (Income) (218) (437) (795) (1,297)
Income Before Income Taxes 11,755 11,598 33,718 30,099
Provision for Income Taxes 4,233 4,176 12,139 10,714
Net Income $ 7,522 $ 7,422 $ 21,579 $ 19,385
Earnings Per Share
Basic $ 0.41 $ 0.43 $ 1.18 $ 1.12
Diluted $ 0.40 $ 0.41 $ 1.14 $ 1.09
Cash Dividends Declared
Per Share $ 0.0875 $ 0.0800 $ 0.2625 $ 0.2400
Average Shares Outstanding 18,338,574 17,417,314 18,259,694 17,380,490
Average Shares and Share
Equivalents Outstanding 18,879,983 17,892,880 18,861,645 17,755,598
</TABLE>
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
Fluke Corporation and Subsidiaries
unaudited (in thousands)
<CAPTION>
THREE QUARTERS ENDED
1/23/98 1/24/97
<S> <C> <C>
Operating Activities
Net Income $ 21,579 $ 19,385
Items not affecting cash:
Depreciation and amortization 11,687 10,964
Deferred income tax 2,380 (739)
Other 841 98
Net change in:
Accounts receivable (1,681) (7,997)
Inventories (2,089) 2,329
Prepaid expenses (7,000) 1,215
Accounts payable 683 (1,368)
Accrued liabilities (3,412) (2,906)
Accrued liabilities related to restructuring (6,395) ---
Income taxes payable 2,003 1,213
Other assets and liabilities --- (86)
Net Cash Provided by Operating Activities 18,596 22,108
Investing Activities
Additions to property, plant and equipment (21,734) (10,721)
Proceeds from disposal of property, plant
and equipment 2,239 191
Net Cash Used By Investing Activities (19,495) (10,530)
Financing Activities
Proceeds from short-term obligations 746 ---
Payments on short-term obligations (1,531) ---
Proceeds from long-term obligations 23 660
Payments on long-term obligations (174) (4,155)
Cash dividends paid (4,649) (4,578)
Proceeds from issuance of common stock 3,432 1,256
Net Cash Used By Financing Activities (2,153) (6,817)
Effect of Foreign Currency Exchange Rates
on Cash and Cash Equivalents (360) (315)
Net Increase (Decrease) In Cash and Cash
Equivalents (3,412) 4,446
Cash and Cash Equivalents at Beginning of Period 40,916 36,631
Cash and Cash Equivalents at End of Period $ 37,504 $ 41,077
Supplemental Cash Flow Information
Income Taxes Paid $ 7,905 $ 7,601
Interest Paid $ 78 $ 245
</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 January 23, 1998 and April 25, 1997
and the Consolidated Statements of Income for the quarter and three
quarters ended January 23, 1998 and January 24, 1997 and the Statements
of Cash Flows for three quarters ended January 23, 1998 and January 24,
1997.
2. The results of operations for the quarter and three quarters ended
January 23, 1998, and January 24, 1997, are not necessarily indicative
of the results to be expected for the full year.
3. Restatement of Financial Results
On October 15, 1997, a two-for-one stock split was effected in the form
of a 100 percent stock dividend. Prior period Common Stock and
Retained Earnings accounts as well as shares and per share amounts in
the accompanying financial statements have been restated to
retroactively reflect the effect of this stock split.
4. Earnings Per Share
In February 1997, the Financial Accounting Standards Board issued
Statement No. 128, "Earnings per Share" which must be adopted in the
Company's third quarter of fiscal 1998. This statement requires
reporting both basic and diluted earnings per share. Basic earnings per
share is computed using the weighted-average shares outstanding.
Diluted earning per share is computed by including the dilutive effect
of stock options, the Company's only common share equivalents.
<TABLE>
<CAPTION>
QUARTER ENDED THREE QUARTERS ENDED
1/23/98 1/24/97 1/23/98 1/24/97
<S> <C> <C> <C> <C>
Total shares outstanding at
beginning of the period 18,332,592 17,401,680 18,092,960 17,305,910
Weighted average shares
issued under employee
stock plans 5,982 15,634 166,734 74,580
Weighted average
shares outstanding 18,338,574 17,417,314 18,259,694 17,380,490
Weighted average effect
of dilutive stock options 541,409 475,566 601,951 375,108
Weighted average shares
and share equivalents
outstanding 18,879,983 17,892,880 18,861,645 17,755,598
Net Income (in thousands) $ 7,522 $ 7,422 $ 21,579 $ 19,385
Earnings Per Share
Basic $ 0.41 $ 0.43 $ 1.18 $ 1.12
Diluted $ 0.40 $ 0.41 $ 1.14 $ 1.09
</TABLE>
5. The components of inventories are as follows:
<TABLE>
(in thousands)
<CAPTION>
1/23/98 4/25/97
<S> <C> <C>
Finished Goods $17,532 $17,789
Work-in-Process 12,512 11,160
Purchased Parts and Materials 25,662 25,573
Total Inventories $55,706 $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 JANUARY 23, 1998
TO THE QUARTER ENDED JANUARY 24, 1997
Revenues of $110 million for the third quarter were 2 percent higher
than the same quarter last year. The stronger US dollar, relative to
most currencies, had a negative impact of 5 percent. Computer network
installation and maintenance tools continue to be the Company's fastest
growing products but did not meet the high growth rates experienced
last year. Revenues from the US distribution channel were flat.
Economic problems in South Korea and the ASEAN countries resulted in
lower revenues from those regions when compared to the same quarter
last year.
US revenues of $47 million were up 1 percent over the third quarter
last year. Contributing to the low growth was the performance of the
US distribution channel where revenues were flat compared to last year.
The Company did not offer quarter-end incentives to its industrial
distributors as it has in the past. The Company believes this caused
some distributors to delay their normal stocking orders in anticipation
of these incentives. Discontinuing this practice should improve the
management and profitability of this sales channel in the future. The
Company completed its certification of representatives that sell
computer network installation and maintenance tools and expanded the
number of these representatives for broader geographic coverage.
Despite these actions, revenue growth for these products slowed
compared to last year. Several large orders for these products
expected during the third quarter were delayed. The Company
anticipates these orders to be placed in the fourth quarter.
In Europe, local currency revenues increased by 11 percent. However,
the stronger US dollar resulted in European revenue growth of only 1
percent compared to the same quarter last year. Revenues from the
Intercon region, countries outside Europe and the United States, grew 5
percent to $21 million compared to the same quarter in 1997. Intercon
revenues in local currencies grew 9 percent but currencies in Japan,
Singapore and Canada also weakened compared to the US dollar. Revenues
from Latin America and The People's Republic of China had good growth.
The weaker currency in Japan, and economic uncertainties in Korea and
the ASEAN countries, resulted in lower revenues in those three markets
compared to the third quarter of 1997.
Operating income of $12 million increased 3 percent over the same
quarter last year. Lower gross margins were offset by lower marketing
and administrative expenses. The lower gross margins were due to
product mix and the effect of the stronger US dollar when converting
local currency revenues. The Company held local currency prices
relatively flat as it balanced profitability with the goal to increase
market share. The Company responded to the flat revenue growth by
taking several actions to minimize expenses. For example, new hiring
was temporarily put on hold and certain marketing programs were
delayed. Marketing and administrative expenses also benefited
approximately 5 percent from the effect of the strong US dollar when
converting the local currency expenses of the Company's non-US sales
subsidiaries.
Restructuring actions in Europe are proceeding on schedule. The three
primary activities consist of centralizing finance and administration,
centralizing product repairs, and re-aligning the sales force.
COMPARISON OF THE THREE QUARTERS ENDED JANUARY 23, 1998
TO THE THREE QUARTERS ENDED JANUARY 24, 1997
The $326 million in revenues during the three quarters ended January
23, 1998, were 3 percent higher than the same period last year. Most
of the growth in revenues comes from handheld tools, primarily those
used to install and maintain computer networks, which increased 30
percent compared to the three quarters ended January 24, 1997.
Revenues from customers in the US grew 6 percent to $150 million
compared to the same quarters last year. This represents 46 percent of
total revenues. European revenues of $109 million for the three
quarters ended January 23, 1998 represents a decrease of 4 percent from
the comparable period last year. The strong US dollar had an 11
percent negative impact on the Company's European revenues. Local
currency revenues in Europe actually increased 7 percent with the
United Kingdom, Sweden and Belgium showing the most growth.
Revenues from the Intercon region grew 10 percent to over $67 million
compared to the three quarters ended January 24, 1997. Revenues from
The People's Republic of China increased 26 percent compared to the
same period last year. Contributing to this growth was the new sales
office located in Chengdu in the province of Sichuan, which opened in
May 1997 and is the Company's third office in this important market.
The Company also had excellent growth in South America and Canada. The
weak South Korean economy and the political uncertainty in Hong Kong
resulted in decreased revenues in those markets compared to the three
quarters ended January 24, 1997.
The Company improved operating income to $33 million during the period,
a 14 percent increase over the same three quarters in the prior year.
Gross margin as a percent of revenue decreased slightly due to the
negative effect of the strong US dollar on revenues. Marketing and
administrative expenses declined and research and development expenses
grew 2 percent. Savings from the closure of the Hamburg, Germany
research and development office in May 1997, are being used to fund the
development of more mission centric products. Marketing and
administrative expenses benefited 5 percent when local currency
expenses of the Company's non-US sales subsidiaries were converted to
US dollars.
LIQUIDITY AND CAPITAL RESOURCES
On December 15, 1997, the Company's Board of Directors authorized
management to purchase $30 million of its common stock on the open
market. The repurchase program seeks to offset dilution associated
with stock options issued under the Company's stock incentive programs.
The purchases will be made from time to time on the open market, and
will be funded from operating cash flow. The Board of Directors also
declared a quarterly cash dividend of $0.0875 per share which was paid
on February 13, 1998 to stockholders of record as of January 23, 1998.
Capital expenditures of $22 million in the three quarters ended January
23, 1998 was double the expenditures for the comparable period last
year. Capital expenditures will continue to exceed historical averages
through the end of the current fiscal year due to continued investment
in the business information system and additional investments in
manufacturing equipment. The Company expects to fund these
expenditures and other working capital requirements through cash
generated from normal operations.
The current ratio was 3.8 to 1 at January 23, 1998 compared to 3.1 to 1
at April 25, 1997. The improvement was primarily a result of paying
down both current liabilities and the accrued liability related to
restructuring which declined by over $6 million as the Company incurred
planned costs to reorganize its European operations.
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.
YEAR 2000
The Company has an active program which is evaluating the impact of the
Year 2000 on all of its activities - products, information technology,
manufacturing, purchasing, and facilities. The Company is currently
implementing a new enterprise-wide Oracle system which will address most
of the business application software issues related to the Year 2000.
This new system, when completed, will cost approximately $15 million in
capitalized software, hardware and consulting services. Although the
complete assessment of all Year 2000 exposures have not been completed,
it is anticipated that the cost of the evaluation, compliance testing,
and conversion, if necessary, will not be a materially significant
expense to the Company.
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
There were no reports on Form 8-K filed during the three
months ended January 23, 1998.
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 3, 1998 /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 THREE QUARTERS ENDED
1/23/98 1/24/97 1/23/98 1/24/97
<S> <C> <C> <C> <C>
Total shares outstanding at
beginning of the period 18,332,592 17,401,680 18,092,960 17,305,910
Weighted average of shares
issued under employee
stock plans 5,982 15,634 166,734 74,580
Weighted average
shares outstanding 18,338,574 17,417,314 18,259,694 17,380,490
Effect of Dilutive
Stock Options 541,409 475,566 601,951 375,108
Weighted average shares
and share equivalents
outstanding 18,879,983 17,892,880 18,861,645 17,755,598
Earnings Per Share
Basic $ 0.41 $ 0.43 $ 1.18 $ 1.12
Diluted $ 0.40 $ 0.41 $ 1.14 $ 1.09
Net Income (in thousands) $ 7,522 $ 7,422 $ 21,579 $ 19,385
</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>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> APR-24-1998
<PERIOD-START> APR-26-1997
<PERIOD-END> JAN-23-1998
<CASH> 37504
<SECURITIES> 0
<RECEIVABLES> 82002
<ALLOWANCES> 744
<INVENTORY> 55706
<CURRENT-ASSETS> 213714
<PP&E> 186037
<DEPRECIATION> 117772
<TOTAL-ASSETS> 304158
<CURRENT-LIABILITIES> 56062
<BONDS> 0
0
0
<COMMON> 4558
<OTHER-SE> 217749
<TOTAL-LIABILITY-AND-EQUITY> 304158
<SALES> 325945
<TOTAL-REVENUES> 325945
<CGS> 152757
<TOTAL-COSTS> 140265
<OTHER-EXPENSES> (872)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 77
<INCOME-PRETAX> 33718
<INCOME-TAX> 12139
<INCOME-CONTINUING> 21579
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 21579
<EPS-PRIMARY> 1.18
<EPS-DILUTED> 1.14
</TABLE>
