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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED MAY 30, 1998 OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 1-4837
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TEKTRONIX, INC.
(Exact name of Registrant as specified in its charter)
OREGON 93-0343990
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
26600 S.W. PARKWAY AVENUE
WILSONVILLE, OREGON 97070
(Address of principal executive (Zip Code)
offices)
Registrant's telephone number, including area code:
(503) 627-7111
Securities registered pursuant to Section 12(b) of the Act:
NAME OF EACH EXCHANGE ON WHICH
TITLE OF EACH CLASS REGISTERED
- -------------------------------------- --------------------------------------
Common Shares, New York Stock Exchange
without par value Pacific Stock Exchange
Series A No Par Preferred New York Stock Exchange
Shares Purchase Rights Pacific Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: NONE
------------------------
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 / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. / /
The aggregate market value of the voting stock held by nonaffiliates of the
Registrant was approximately $1,345,950,348 at August 3, 1998.
At August 3, 1998 there were 49,638,025 Common Shares of the Registrant
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
<TABLE>
<CAPTION>
PART OF 10-K INTO WHICH
DOCUMENT INCORPORATED
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<S> <C>
Registrant's Proxy Statement Part III
dated August 20, 1998
1998 Annual Report to Shareholders Parts I, II and IV
</TABLE>
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PART I
ITEM 1. BUSINESS.
Tektronix is an Oregon corporation organized in 1946. Its principal
executive offices are located at 26600 S.W. Parkway Avenue, Wilsonville, Oregon
97070, approximately 18 miles south of Portland. Its telephone number is (503)
627-7111. References herein to "Tektronix" or the "Company" are to Tektronix,
Inc. and its wholly-owned subsidiaries unless the context indicates otherwise.
Tektronix' products cover a wide range of electronic equipment. Measurement
Business products include general purpose test instruments, such as digital and
analog oscilloscopes, logic analyzers, digital multimeters, VXI standard modular
products and probes; RF and wireless test instruments, such as spectrum
analyzers, communication test sets and high frequency signal sources;
telecommunications instruments, such as optical time domain reflectometers
(OTDRs) and cable testers; and television test instruments, such as audio and
video measurement sets, waveform monitors, vectorscopes, signal generators and
RF/cable measurement products. Color printing and imaging products include color
printers, ink and related products and supplies. Video and networking products
include digital video storage products; integrated video system solutions,
including switchers, digital picture manipulating and editing equipment;
business network computers and interactive video services products;
windows-based terminals; Lightworks digital non-linear editing systems; newsroom
solutions; and video transmission products.
PRODUCTS
The table below sets forth the contribution to total net sales of the
Company's product groupings for the last three fiscal years (in thousands of
dollars).
<TABLE>
<CAPTION>
MEASUREMENT COLOR PRINTING VIDEO AND
BUSINESS AND IMAGING NETWORKING
PRODUCTS PRODUCTS PRODUCTS
----------------- ----------------- -----------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
-------- ------- -------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
1996.................. $812,250 45.9% $561,642 31.8% $394,966 22.3%
1997.................. $852,827 44.0% $638,456 32.9% $448,799 23.1%
1998.................. $962,858 46.2% $728,697 34.9% $394,247 18.9%
</TABLE>
MEASUREMENT BUSINESS PRODUCTS
Because of their wide range of capabilities, measurement business products
are used in a variety of applications, including research, design, testing,
installation, manufacturing and service in the computer, television,
telecommunications, process control, commercial aerospace, automotive and
military industries.
Tektronix pioneered the development of high precision oscilloscopes over 50
years ago, and the oscilloscope is the Company's primary measurement product.
Oscilloscopes are used by engineers and technicians when an electrical signal
needs to be viewed, measured, tested or calibrated. Oscilloscopes are used
extensively in the computer, communications, aerospace and other industries for
design, manufacturing and maintenance. In addition to electrical signals,
oscilloscopes can be adapted to measure mechanical motion (vibration), sound,
light, heat, pressure, strain and velocity.
Oscilloscopes produce graphic representations of electrical signals on a
cathode ray tube or other display device. Normally, the display shows the signal
as a graph of its amplitude over a certain period of time, which may range from
minutes to less than a billionth of a second. Oscilloscopes provide a convenient
way to visually monitor and interpret analog electrical fluctuations, mechanical
motion and sound.
The development of the microprocessor and associated growth in
microprocessor-based devices stimulated both the existing analog markets and new
digital markets. In addition, the microprocessor made
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possible significant improvements in oscilloscope design and performance. Many
of the oscilloscopes and other measurement products manufactured by Tektronix
feature digital storage and conversion functions, programmable operations, the
ability to work in conjunction with personal computers and workstations and
combinations of these capabilities. In addition, trends toward smaller
microelectronic devices have opened new segments for specialized measurement
equipment, such as connectors, probes, adapters, and cameras and plotters to
record displayed wave- forms.
Tektronix has designed a substantial portion of its oscilloscope product
line to provide a consistent "architecture" across products and to enhance ease
of use. Because the Company manufactures oscilloscopes in a wide range of
configurations, bandwidths and other performance characteristics and in sizes
ranging from hand-held to large laboratory units, this design provides customers
with reduced learning time and higher productivity. The design also reduces the
time required by the Company to develop new products because many essential user
interface aspects have been standardized. Some elements of this design also have
been patented and provide the Company with certain competitive advantages.
The Company also offers modular instruments delivered on printed circuit
cards that can be mixed and matched by customers and plugged directly into the
backplane of industry-standard VXI-based card cages. These are controlled by
personal computers or workstations to form complete instrument systems tailored
to customers' particular requirements. A number of measurement products are now
available in the VXI standard, which products are used primarily in
manufacturing applications. Tektronix has been instrumental in the development
of VXI-based hardware and software industry standards.
Measurement business products also include video and audio test products.
Video and audio test products include vectorscopes, waveform monitors, signal
generators, automated test equipment, demodulators, and aural modulation
monitors and synchronizers, which are used primarily by the television industry
to test and display the quality of video and audio signals. The resolution of
images and the fidelity of sounds, as well as the stability of the signals that
carry them, are essential to program quality. Tektronix' video and audio test
products excel at the many forms of test and measurement vital to creating and
maintaining signals of the highest quality. With the transition to digital
television and video compression, new products include an MPEG based signal
generator and analyzer, and digital television test products.
Market changes are driving the development of new categories of products
from Tektronix. The proliferation of electronic technology requires technicians
and field engineers to use smart electronic tools for servicing, maintaining and
troubleshooting problems in electrical equipment. Tektronix' broad line of
hand-held instruments, sold through distributors, are smart, rugged products
designed specifically to address these needs.
Tektronix offers a full range of sophisticated, easy-to-use handheld
instruments, including digital multimeters and the award-winning
TekScope-Registered Trademark- handheld oscilloscope/digital multimeter
combination. Tektronix' handheld instruments range in suggested retail price
from below $100 up to about $3,400.
The Company also makes benchtop basic instruments. Applications include
education, light manufacturing, electronic troubleshooting and basic electronic
design.
Logic analyzers are a principal tool for electronic designers, engineers and
technicians in testing and trouble-shooting computers, computer peripheral
devices and digital electronic systems and instruments. Logic analyzers capture,
display and examine streams of data coded as binary digits (bits), which are
transmitted simultaneously over many channels. The Company offers several lines
of logic analyzers, including the 3000 Series, a standalone, mid-range analyzer
targeted at medium sized designs, the newer TLA 500 Series, a high performance,
mid-priced analyzer optimized for embedded software debug, the
DAS-Registered Trademark- Digital Analysis System, a broad application logic
analyzer that combines logic analysis and pattern generation by using card
modular plug-in units to permit a range of performance in one system, and the
new TLA 700 series, which incorporates Microsoft's Windows operating system and
has a novel high speed
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front-end and is designed specifically for engineers that design electronic
products. DAS systems are also used by software engineers in the development and
optimization of microprocessor-based designs.
Spectrum analyzers are used in communications and other industries to
display and measure signal amplitude versus frequency rather than amplitude
versus time (the latter being what an oscilloscope typically displays). It is an
essential tool used to design, check and adjust communications transmitting and
receiving equipment.
Products designed for the telecommunications industry play an increasingly
important role in the Company's measurement business portfolio. Tektronix is a
leading supplier of a broad range of test solutions for emerging networks,
designed for ensuring integrity and optimizing performance of networks, and
verifying design and assuring quality of communications equipment. Cable testers
and fiber optic testers use time-domain-reflectometry techniques to locate
faults in metallic and fiber optic cables. Essentially, these instruments send
signals from one end of a cable and then measure the reflection time of the
signals to determine the location of the fault. Cable testers and fiber optic
testers are widely used in the telecommunication and cable television
industries. The Company also provides RF test instruments for the cable
television market, and has developed a series of products for SDH or SONET
transmission testing in the telecommunications industry. The Company's
September, 1997 acquisition of Siemens Communications Test Equipment GmbH
extended Telecom Test Product offerings serving needs being created by the
growth of the Internet and other telecommunications requirements. Tektronix also
sells and supports German manufacturer Rohde & Schwarz' wireless communications
and TV products in the United States and Canada, including the first measurement
solutions for Personal Communications Services (PCS), mobile phones and base
stations available to North American manufacturers.
Tektronix' distributorship arrangement with Advantest, a Japanese instrument
manufacturer, expands the Company's offering within North America and Mexico,
adding more than 100 solutions to the communications test product portfolio.
Other measurement business products include digitizers, signal sources,
curve tracers, wireless and modular lines of general purpose test instruments.
COLOR PRINTING AND IMAGING PRODUCTS
Tektronix' color printing and imaging products include color printers and
related products and supplies. Color printers produce full color hard copies of
images produced by personal computers, workstations and terminals. The Company's
Phaser-Registered Trademark- brand printers are compatible with the industry
standard PostScript-Registered Trademark- page description language, which
specifies how an image is transferred to hard copy. By adopting the Postscript
standard, color printers can be used in conjunction with a wide range of third-
party graphics software. Tektronix produces Phaser color printers using dye
sublimation and laser technologies. In addition, Tektronix has developed a
proprietary printing technology that uses sticks of solid ink, of the Company's
own formulation, that are melted and then jetted onto the paper. This technology
produces vivid and stable images, allows printing on plain rather than coated
paper, and can be applied to a wide range of sizes and gauges of paper.
Tektronix' printers are controlled by software designed and implemented by the
Company.
The use of color in computing and printing has been stimulated by
enhancements in the underlying microprocessor technology of personal computers
and workstations, by large system and peripheral storage capabilities, by
enhancements in computer display capability, and by the increased use of the
Internet. As personal computers increasingly become capable of displaying
complex, colorful images, there has been an accompanying growth in demand for
printers that can print such images in color.
Tektronix has been manufacturing and selling color printers for over
thirteen years. Early users were graphics artists, engineers and scientists. In
recent years, workgroup office users have also become significant users of the
Company's color printers.
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In September of 1996, the Company introduced its Phaser 350 printer,
followed in January of 1997 by the Phaser 360, and in July of 1997, its Phaser
560 printer. These are improved, follow-on products to the Phaser 340 introduced
in 1995, and the Phaser 550 introduced in January of 1996. The Phaser 350 and
Phaser 360 are solid-ink color printers combining laser-class speed, low cost
per page, and high quality output. The Phaser 560 is a high-performance color
laser printer. The Phaser 350, 360 and 560 printers are intended to broaden the
appeal of color for the average business user and help move color into the
office printing environment.
In September of 1997, the Company introduced the Phaser 380 printer, a
high-performance tabloid print size printer complimenting the Phaser 300x
tabloid size printer and the Phaser 600 wide format printer. These are solid
ink, high quality output color printers for the specialty graphics and office
markets. The Phaser 600 printer prints vivid, saturated color on any paper up to
36 inches wide. The wide-format color printer targets two fast-expanding markets
for large color prints: in-house departments (including design departments
within Fortune 1000 companies, government, and advertising agencies) and "pay
for print" businesses (including service bureaus, reprographic shops, color
photo labs, and quick-print shops). In January of 1996, the Company introduced
the Phaser 450 printer, an improved follow-on product to the Phaser 440. This
printer produces photographic quality color prints using dye sublimation
technology. The Phaser 480x, introduced in 1994, produces tabloid-size prints
using similar technology. Both products are targeted to the specialty printing
market.
Also included in color printing and imaging products are supplies for use
with the Company's color printers, including inks, toner, transfer ribbons,
maintenance kits and media (paper and transparencies). These supplies are a very
significant source of ongoing color printing and imaging revenue and profit. The
Company also manufactures a scanner accessory that enables a color printer to
function as a color copier.
VIDEO AND NETWORKING PRODUCTS
As television continues to move to digital, non-tape based technologies
while expanding its offering content and distribution, markets have emerged for
products capable of supporting development of content through the integration of
computer applications. Those trends, coupled with the increasing use of cable
and satellite to distribute content, are expanding the market for Tektronix'
video products. These trends may result in increased demand for lower cost
production products based on industry standard platforms and for systems that
support the development and distribution of new forms of content.
The Company's video products are produced at its facilities in Grass Valley,
California and Beaverton, Oregon. Grass Valley-TM- products are used by the
television industry for program production and distribution. Products include
studio production equipment, signal processing, distribution equipment and
transmission systems. Studio production equipment is used in the creative
process of television program production and assembly. Production equipment
products include production switchers, special effects devices and editing
controllers. Production switchers allow an operator to select signals from
various sources, such as cameras, video tape recorders and network or remote
transmissions, and to combine these signals into the continuous program seen by
the viewing audience. Signal processing and distribution equipment is used in
the process of moving signals within a television production facility or between
facilities. Such equipment includes routing switchers, amplifiers, timing
systems and signal conversion devices. Transmission systems are used in the
process of transporting signals between facilities. Transmission system products
include fiber optic video transmitter/receiver systems, digital video
coders/decoders, cross-connect switches and interactive conferencing systems
including distance learning systems. Customers for Grass Valley products include
the television networks, local television stations, post-production houses
(which assemble commercials and television programs from recorded footage),
telephone and cable companies and corporate and educational users.
Tektronix U.K. Development Centre Limited (previously named Lightworks
Editing Systems Limited), a United Kingdom subsidiary of the Company, designs,
manufactures and distributes non-linear
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editing systems used for film and video editing. Video products also include the
Company's Profile-Registered Trademark- disk-based, multi-channel video storage
and playback system. In contrast to conventional tape storage technology, the
Profile system provides instant access to stored video images and better
reliability due to the durability of the media. The Company's line of
professional video disk recording products is manufactured at its facility in
Beaverton, Oregon. High-speed computer networking interfaces sold by the Company
allow the connection of a number of Profile disk recorders to allow sharing of
material between multiple users. Customers for these products include major
television networks, local broadcast stations, satellite program providers and
postproduction companies.
The Company's main networking product is a line of network computers, which
are X windows-based graphics terminals that provide multiple windowing and
networking capability. Also commonly referred to as X terminals, network
computers allow users to communicate with one or more host computers and other
devices such as printers, that make up a networked computing system. Most
applications include a central "server" (containing applications and data)
connected to multiple network computers, thereby allowing a number of users to
access those applications and data. The Company no longer manufactures its older
line of proprietary graphics terminals, but it still has a service business for
its installed base of such products. This service business has continually
declined as the installed base of these proprietary graphics terminals declines.
The Company's networking products also include WinDD-TM- software, which
allows network computer users on a Unix-Registered Trademark- network to run
Microsoft Windows based applications in native mode (that is, without
translation or emulation).
The Company produces the NewStar-TM- line of television newsroom computer
systems. These products provide a complete computer based environment for the
collection, management and presentation of television news stories. They provide
management of incoming wire service and video feeds, computerized script
development and story lineup for transmission to air. EditStar-TM-, a
combination of the NewStar journalist software and the Company's Profile video
disk recorder, provides a unique tool for concurrent editing of the script and
video. Customers for NewStar systems include large and small television news
operations worldwide.
The Company has formed a separate business unit, called VideoTele.com, to
sell products to service providers wanting to move video signals over
telecommunications networks.
MANUFACTURING
During fiscal 1994, the Company sold its integrated circuits operation to
Maxim Integrated Products, Inc. and transferred its hybrid circuits operation to
a joint venture with Maxim, and in early 1995 completed the sale of
approximately 65% of the stock of its printed circuit board operation in the
initial public offering of Merix Corporation. As a result of these activities
and other component operation divestitures, the Company's manufacturing
operations are no longer highly integrated. The Company purchases products from
each of the companies now operating the respective component operations.
Tektronix also purchases raw materials, additional components, data
processing equipment and computer peripheral devices for use in its products and
systems. The Company purchases raw materials and additional components of its
products from a variety of third party suppliers. Such purchased materials and
components are generally available to Tektronix as needed. Although shortages
are experienced from time to time, the Company currently believes that it will
be able to acquire the required components as needed. Because some of these
components are unique, disruptions in supply can have an effect on Company
operations.
Tektronix owns substantially all of its manufacturing facilities. Its
primary manufacturing facilities are located in or near the Portland, Oregon
metropolitan area. Some software and product development occurs in Madison,
Wisconsin, Boston, Massachusetts, London, U.K., and Bangalore, India. Some of
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Tektronix' products, components and accessories are assembled in the Peoples
Republic of China. A
logistics center is maintained in Heerenveen, The Netherlands. Grass Valley
products are manufactured in Nevada City, California. A color printer component
manufacturing plant is located in Penang, Malaysia. Telecommunications test
products are manufactured at a plant in Berlin acquired in connection with the
Siemens purchase described above. See Item 2, "Properties", for additional
information regarding the Company's manufacturing facilities.
Certain Tektronix products are manufactured for the Japanese market at a
plant in Gotemba, Japan by Sony/Tektronix Corporation, a Japanese corporation
equally owned by Tektronix and Sony Corporation. Sony/Tektronix also designs and
manufactures arbitrary waveform and function generators and benchtop
semiconductor testers in Japan for sale worldwide by Tektronix. In June of 1998,
the Company purchased certain assets of CAM Advanced Technologies (M) Sdn Bhd, a
printer component manufacturer with manufacturing facilities in Penang,
Malaysia. The acquisition adds lower cost color printer component manufacturing
capacity.
SALES AND DISTRIBUTION
Tektronix maintains its own worldwide sales and field maintenance
organization, staffed with technically trained personnel. Sales in the United
States, Canada, Brazil, the United Kingdom, Germany, France, Italy, Spain, The
Netherlands, Belgium, Sweden, Denmark, Norway, Finland, Switzerland, Australia,
Austria, Hong Kong, Taiwan, Korea, Singapore, China, India and Mexico are made
through the Company and its subsidiaries and their field offices or distribution
channels located in principal market areas. In most countries, all sales are
made either directly by Tektronix or by independent distributors to whom
Tektronix provides direct technical and administrative assistance. Certain of
the Company's independent distributors also sell products manufactured by the
Company's competitors. Sales of joint venture products in the Peoples Republic
of China are made by three companies which are joint ventures between Tektronix
and three different Peoples Republic of China corporations. Except for Grass
Valley products, sales in Japan are made by Sony/Tektronix Corporation. A number
of the Tektronix field offices in the U.S. also perform major maintenance and
reconditioning operations. Tektronix' principal customers are electronic and
computer equipment manufacturers and service providers, private industrial
concerns engaged in commercial or governmental projects, military and
nonmilitary agencies of the United States and of foreign countries, public
utilities, educational institutions, radio and television stations and networks,
graphics arts companies and users of sophisticated office products. Certain
products are sold both to equipment users and to original equipment
manufacturers.
Most Tektronix product sales are sold as standard catalog items. Tektronix
attempts to fill its orders as promptly as possible.
At May 30, 1998, Tektronix' unfilled product orders amounted to
approximately $134 million, as compared to approximately $175 million at May 31,
1997. Tektronix expects that substantially all unfilled product orders at May
30, 1998 will be filled during its current fiscal year. Orders received by the
Company are subject to cancellation by the customer.
INTERNATIONAL SALES
The following table sets forth the breakdown between U.S. and international
sales, based upon purchaser location, for each of the last three fiscal years
(in thousands of dollars):
<TABLE>
<CAPTION>
U.S. SALES INTERNATIONAL SALES
------------------- -------------------
AMOUNT PERCENT AMOUNT PERCENT
---------- ------- ---------- -------
<S> <C> <C> <C> <C>
1996................................. $ 890,930 50.4% $ 877,928 49.6%
1997................................. $1,027,294 53.0% $ 912,788 47.0%
1998................................. $1,077,649 51.7% $1,008,153 48.3%
</TABLE>
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See "Business Segments" in the Notes to Consolidated Financial Statements at
page 28 of the Company's 1998 Annual Report to Shareholders, containing
information on sales, operating income and assets by geographic area based upon
the location of the seller, which is incorporated by reference.
Tektronix products are sold worldwide. European sales are made principally
in Germany, France, the United Kingdom, Switzerland, Italy, Spain, Sweden, and
The Netherlands. Other international sales are principally in Japan, Korea,
Canada, Australia, the People's Republic of China and Hong Kong. International
sales include both export sales from the United States and sales by non-U.S.
subsidiaries. Fluctuating exchange rates and other factors beyond the control of
Tektronix, such as the stability of international monetary conditions, tariff
and trade policies and domestic and foreign tax and economic policies, affect
the level and profitability of international sales. The Company does not believe
it is materially exposed to exchange rate fluctuation, although the Company is
unable to predict the effect of these factors on its business. The Company
hedges against certain currency exposures in order to minimize their impact.
RESEARCH AND DEVELOPMENT
Tektronix operates in an industry characterized by rapid technological
change and research and development are important elements in its business.
Expenditures during fiscal years ended May 25, 1996, May 31, 1997, and May 30,
1998 for research and development amounted to approximately $164,292,000,
$188,192,000, and $203,312,000 respectively. Almost all of these funds were
Company generated.
Research and development activities are conducted by research and design
groups and specialized product development groups within the three product
groups. These activities include: (i) research on basic devices and techniques
(ii) the design and development of products and components and specialized
equipment and (iii) the development of processes needed for production. Most of
Tektronix' research and development is devoted to enhancing and developing its
own products.
PATENTS AND INTELLECTUAL PROPERTY
It is Tektronix' policy to seek patents in the United States and appropriate
foreign countries for its significant patentable developments. However,
electronic equipment as complex as most of Tektronix' products is generally not
patentable in its entirety. The Company also seeks to protect significant
trademarks and software through trademark and copyright registration. The
Company has entered into license arrangements for components important to the
manufacturing of some of its printers. The Company's printer business relies on
an integrated strategy of licensed and internally developed technology to
produce its industry leading products. This technology includes software,
equipment, printing process and ink developments. As with any company whose
business involves intellectual property, Tektronix is subject to claims of
infringement. There are no material pending claims.
COMPETITION
The electronics industry continues to become more competitive, both in the
United States and abroad. Primary competitive factors are product performance,
technology, customer service, product availability and price. Tektronix believes
that its reputation in the marketplace is a significant positive competitive
factor. With respect to many of its products, the Company competes with
companies that have substantially larger resources.
Tektronix is the world's largest manufacturer of oscilloscopes and no single
competitor offers as complete a product line. The Company is also the leader in
sales of test and measurement equipment for the television industry. Tektronix
competes with a number of companies in specialized areas of other test and
measurement products, and it competes with one very large company that sells a
broad line of test and measurement products.
Tektronix is also the leader in unit sales of office workgroup laser-class
color printers, including color laser and solid ink jet color printers. While
the market for color printers is currently growing rapidly, it is
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still much smaller than the market for monochrome printers. Moreover, it is
characterized by intense and increasing competition, resulting in a competitive
pricing environment. Because the market for color hard copy is still small
compared to the market for monochrome printers, distribution of products from
manufacturer to end user is less efficient. The Company expects distribution
channels to expand as color hard copy becomes a more prominent feature in
computer applications.
Tektronix competes with a number of large, worldwide electronics firms that
manufacture specialized equipment for the television industry, both with respect
to its television test and measurement products and its Grass Valley products.
Grass Valley products include leading high-performance production switchers and
high-performance distribution/processing equipment.
Tektronix is a leading supplier of network computers. Network computer
products are based on standard architecture originally developed by the
Massachusetts Institute of Technology. Consequently, it is difficult for any
manufacturer to develop a proprietary advantage in either the underlying
hardware or in elements of the operating system, and competition in the
netstation market is accordingly intense.
Tektronix is the leading supplier of multi-channel disk-based recording
devices to the professional television industry. The Company expects this market
to experience significant growth as broadcasters and other professional video
users replace video tape recorders with disk-based products.
EMPLOYEES
At May 30, 1998, Tektronix had 8,630 employees, of whom 2,258 were located
in foreign countries. Tektronix' employees in the United States and most foreign
countries are not covered by collective bargaining agreements. The Company
believes that relations with its employees are good.
ENVIRONMENT
The Company's facilities are subject to numerous laws and regulations
concerning the discharge of materials into the environment, or otherwise
relating to protection of the environment. The Company operates a licensed
hazardous waste management facility at its Beaverton campus. Although future
regulatory actions cannot be predicted with certainty, compliance with
environmental laws has not had and is not expected to have a material effect
upon the capital expenditures, earnings or competitive position of the Company.
EXECUTIVE OFFICERS OF THE COMPANY
The following are the executive officers of the Company:
<TABLE>
<CAPTION>
HAS SERVED AS
AN EXECUTIVE
OFFICER OF
NAME POSITION AGE TEKTRONIX SINCE
- ---------------------------- ---------------------------- --- ---------------
<S> <C> <C> <C>
Jerome J. Meyer............. Chairman of the Board, Chief 60 1990
Executive Officer and
President
William D. Walker........... Vice Chairman of the Board, 67 1992 (also
Director served in 1990
and from 1969
to 1984)
James F. Dalton............. Vice President, General 39 1998
Counsel and Secretary
Carl W. Neun................ Senior Vice President and 54 1993
Chief Financial Officer
</TABLE>
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<TABLE>
<CAPTION>
HAS SERVED AS
AN EXECUTIVE
OFFICER OF
NAME POSITION AGE TEKTRONIX SINCE
- ---------------------------- ---------------------------- --- ---------------
<S> <C> <C> <C>
Richard H. Wills............ Vice President and 43 1997
President, European
Operations
Douglas C. Shafer........... Vice President and 37 1997
President, Americas
Operations
Timothy E. Thorsteinson..... Vice President and 45 1991
President, Video and
Networking Division
Gerald Perkel............... Vice President and 42 1995
President, Color Printing
and Imaging Division
Daniel Terpack.............. Vice President and 57 1993
President, Measurement
Business Division
Daniel R. Brophy............ Vice President and 60 1996
President, Pacific
Operations
</TABLE>
The executive officers are elected by the board of directors of the Company
at its annual meeting, except for interim elections to fill vacancies. Executive
officers hold their positions until the next annual meeting or until their
successors are elected, or until such tenure is terminated by death, resignation
or removal in the manner provided in the bylaws. There are no arrangements or
understandings between executive officers or any other person pursuant to which
the executive officers were elected and none of the executive officers are
related.
All of the executive officers named have been employed by Tektronix in
management positions for the last five years except: Mr. William D. Walker, who
is not an employee of the Company and has been a director of the Company since
1980; and Mr. Daniel R. Brophy, who joined the Company in December 1994 and
prior to that time served as Assistant Vice President of Ascom Timeplex, a
division of Ascom Holding AG, an international telecommunications company.
ITEM 2. PROPERTIES.
The Company's offices are located at 26600 S.W. Parkway, Wilsonville,
Oregon. Listed below are the principal facilities. All properties are maintained
in good working order and, except for those held for sale or lease, are
substantially utilized and are suitable for the conduct of its business. The
Company believes that its facilities are adequate for their intended uses.
Tektronix owns an industrial park (the "Howard Vollum Park") near Beaverton,
Oregon. The Howard Vollum Park includes 21 buildings arranged in a campus-like
setting and containing an aggregate of approximately 2.5 million gross square
feet of enclosed floor space. A substantial portion of the Company's product
manufacturing and administrative activities is located at Howard Vollum Park.
Most of the Company's Measurement Business Division and a variety of the Video
Networking Division products are manufactured at Howard Vollum Park. The Company
leases certain excess space at the Howard Vollum Park to other corporations. The
Company also owns property near Howard Vollum Park, which is leased to another
corporation. The Company has entered into an agreement to sell approximately 40
acres on the Vollum site, subject to a number of contingencies.
The Company's Color Printing and Imaging Division, and corporate
headquarters occupy four buildings containing approximately 790,000 square feet
on property owned by the Company in Wilsonville, Oregon, approximately 16 miles
south of Howard Vollum Park.
Tektronix' Video and Networking Division also has operating facilities in
Nevada City, California comprised of approximately 151,000 square feet on owned
property. An additional surplus site located at
9
<PAGE>
Bitney Springs, California is currently offered for sale. The Bitney Springs
site consists of approximately 190,000 owned square feet and is mostly vacant.
NewStar software development occurs at leased facilities in Madison, Wisconsin.
The buildings described above were constructed after 1957. Warehouses,
production facilities and other critical operations are protected by fire
sprinkler installations. Most manufacturing, office and engineering areas are
air-conditioned.
A 92,600 square foot logistics center leased by Tektronix is located in
Heerenveen, The Netherlands. A surplus building previously used as the logistics
center in Heerenveen, consisting of 104,000 square feet, is offered for sale. A
manufacturing plant for color printer components, consisting of approximately
160,000 square feet, is located in Penang, Malaysia. Acquisition of the facility
is expected to be completed in September 1998.
Field offices near London (83,000 square feet) and Sydney, Australia (23,000
square feet) are located in buildings owned by the Company. The Lightworks video
editing manufacturing operations are located on leased premises in Reading and
London U.K. Field Offices in other foreign countries occupy leased premises of
approximately 475,000 square feet.
Tektronix' U.S. Sales and Service field offices aggregate approximately
317,000 square feet of leased space, of which 31,000 square feet is vacant.
Tektronix also owns an approximately 9,000 square foot facility in Nanticoke,
Pennsylvania, which is leased to another company.
ITEM 3. LEGAL PROCEEDINGS.
There are no material pending legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matter was submitted to a vote of security holders during the fourth
quarter of the fiscal year covered by this report.
FORWARD LOOKING STATEMENTS
Statements and information included in this Form 10-K that relate to the
Company's goals, strategies and expectations as to future results, events and
expectations are based on the Company's current expectations. They constitute
forward-looking statements subject to a number of risk factors that could cause
actual results to differ materially from those currently expected or desired. As
with many high technology companies, risk factors that could cause the Company's
actual results or activities to differ materially from these forward-looking
statements include but are not limited to: world-wide economic and business
conditions in the electronics industry, including the continuing effect of the
Asian economic crisis on demand for the Company's products; competitive factors,
including pricing pressures, technological developments and products offered by
competitors; changes in product and sales mix, and the related effects on gross
margins; the Company's ability to deliver a timely flow of competitive new
products and market acceptance of these products; the availability of parts and
supplies from third party suppliers on a timely basis and at reasonable prices;
inventory risks due to changes in market demand or the Company's business
strategies; changes in effective tax rates; customer demand; currency
fluctuations; the fact that a substantial portion of the Company's sales are
generated from orders received during the quarter, making prediction of
quarterly revenues and earnings difficult; and other risk factors listed from
time to time in the Company's reports filed with the Securities and Exchange
Commission and press releases.
Additional risk factors specific to the Company's current plans and
expectations that could cause the Company's actual results or activities to
differ materially from those stated include: the significant operational issues
the Company faces in executing its strategy in Video and Networking; the timely
10
<PAGE>
introduction of new products scheduled during the Company's fiscal year, which
could be affected by engineering or other development program slippages, the
ability to ramp up production or to develop effective sales channels; the
customer's acceptance of, and demand for, those products; and changes in the
regulatory environment affecting the transition to high-definition television
within the time frame anticipated by the Company.
The Company may make other forward-looking statements from time to time.
Forward-looking statements speak only as of the date made. The Company
undertakes no obligation to publicly release the result of any revisions to
forward-looking statements which may be made to reflect subsequent events or
circumstances or to reflect the occurrence of unanticipated events.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
The information required by this item is included on page 34 of the
Company's 1998 Annual Report to Shareholders and is incorporated herein by
reference.
ITEM 6. SELECTED FINANCIAL DATA.
The information required by this item is included on page 35 of the
Company's 1998 Annual Report to Shareholders and is incorporated herein by
reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
The information required by this item is included on pages 18 through 20 of
the Company's 1998 Annual Report to Shareholders and is incorporated herein by
reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The information required by this item is included on pages 22 through 35 of
the Company's 1998 Annual Report to Shareholders and is incorporated herein by
reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information required by this item regarding directors is included under
"Board of Directors" and "Election of Directors" on pages 2 through 9 of the
Company's Proxy Statement dated August 20, 1998.
The information required by this item regarding executive officers is
contained under "Executive Officers of the Company" in Item 1 of Part I hereof.
The information required by Item 405 of Regulation S-K is included under
"Section 16(a) Beneficial Ownership Reporting Compliance" on page 21 of the
Company's Proxy Statement dated August 20, 1998.
ITEM 11. EXECUTIVE COMPENSATION.
The information required by this item is included under "Directors'
Compensation" and "Executive Compensation" on pages 6 through 11 of the
Company's Proxy Statement dated August 20, 1998.
11
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required by this item is included under "Ownership of
Shares" and "Election of Directors" on pages 1 and 4 though 8 of the Company's
Proxy Statement dated August 20, 1998.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
None.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
(1) Financial Statements.
The following documents are included in the Company's 1998 Annual Report to
Shareholders at the pages indicated and are incorporated herein by reference:
<TABLE>
<CAPTION>
PAGE IN 1998 ANNUAL
REPORT TO SHAREHOLDERS
----------------------
<S> <C>
Independent Auditors' Report........................... 21
Consolidated Statements of Operations.................. 22
Consolidated Balance Sheets............................ 23
Consolidated Statements of Cash Flows.................. 24
Consolidated Statements of Shareholders' Equity........ 25
Notes to Consolidated Financial Statements............. 26 through 34
</TABLE>
(2) Financial Statement Schedules.
No financial statement schedules are required to be filed with this
report.
Separate financial statements for the registrant have been omitted because
the registrant is primarily an operating company and the subsidiaries included
in the consolidated financial statements are substantially totally held. All
subsidiaries of the registrant are included in the consolidated financial
statements. Summarized financial information for 50 percent or less owned
persons in which the registrant has an interest, and for which summarized
financial information must be provided, is included in the Notes to Consolidated
Financial Statements appearing in the Company's Annual Report to Shareholders.
(3) Exhibits:
<TABLE>
<S> <C> <C>
(3)(i) Restated Articles of Incorporation, as amended. Incorporated by
reference to Exhibit (3) of Form 10-Q dated September 28, 1990, SEC
File No. 1-4837.
(ii) Bylaws, as amended. Incorporated by reference to Exhibit (3) of Form
10-K dated August 21, 1997, SEC File No. 1-4837.
(4)(i) Indenture dated as of November 16, 1987, as amended by First
Supplemental Indenture Dated as of July 13, 1993, covering the
registrant's 7 1/2% notes due August 1, 2003,and the registrant's
7 5/8% notes due August 15, 2002. Indenture incorporated by reference
to Exhibit 4(i) of Form 10-K dated August 22, 1990, SEC File No.
1-4837.
(ii) Pursuant to Item 601(b)(4)(iii) of Regulation S-K, the registrant agrees
to furnish to the Commission upon request copies of agreements
relating to other indebtedness.
+(10)(i) 1982 Stock Option Plan, as amended. Incorporated by reference to Exhibit
10(iii) of Form 10-K dated August 22, 1989, SEC File No. 1-4837.
</TABLE>
12
<PAGE>
<TABLE>
<S> <C> <C>
+(ii) Stock Incentive Plan, as amended. Incorporated by reference to Exhibit
10(ii) of Form 10-Q dated April 9, 1993, SEC File No. 1-4837.
+(iii) Restated Annual Performance Improvement Plan. Incorporated by reference
to Exhibit 10(i) of Form 10-Q dated April 9, 1993, SEC File No.
1-4837.
+(iv) Restated Deferred Compensation Plan. Incorporated by reference to
Exhibit 10(i)of Form 10-Q dated December 20, 1984, SEC File No.
1-4837.
+(v) Retirement Equalization Plan, Restatement, Incorporated by reference to
Exhibit (10) (v) of Form 10-K dated August 20, 1996, SEC File No.
1-4837.
+(vi) Indemnity Agreement entered into between the Company and its named
officers and directors. Incorporated by reference to Exhibit 10(ix) of
Form 10-K dated August 18, 1996, SEC File No. 1-4837.
+(vii) Form of Executive Severance Agreement entered into between the Company
and its named officers. Incorporated by reference to Exhibit 10(ix) of
Form 10-K dated August 9, 1995, SEC File No. 1-4837.
+(viii) Executive Compensation and Benefits Agreement (Jerome J. Meyer) dated as
of October 24, 1990. Incorporated by reference to Exhibit 10(ii) of
Form 10-Q dated December 21, 1990, SEC File No. 1-4837.
+(ix) Amendment to Supplemental Executive Retirement Agreement (Jerome J.
Meyer). Incorporated by reference to Exhibit 10(ii) of Form 10-Q dated
October 7, 1994, SEC File No. 1-4837.
+(x) Amendment to Supplemental Executive Retirement Agreement (Jerome J.
Meyer) dated June 16, 1998.
+(xi) Executive Compensation and Benefits Agreement (Carl W. Neun) dated as of
March 29, 1993. Incorporated by reference to Exhibit 10(xiv) of Form
10-K dated August 11, 1994, SEC File No. 1-4837.
+(xii) Amendment to Supplemental Executive Retirement Agreement (Carl W. Neun)
dated September 24, 1997. Incorporated by reference to Exhibit 10(i)
of Form 10-Q dated January 13, 1998, SEC File No. 1-4837.
(xiii) Rights Agreement dated as of August 16, 1990. Incorporated by reference
to Exhibit 1 of Form 8-K dated August 27, 1990, SEC File No. 1-4837.
+(xiv) Non-Employee Directors' Deferred Compensation Plan, 1995 Restatement
dated July 1, 1995. Incorporated by reference to Exhibit 10 (xv) of
Form 10-K dated August 9, 1995, SEC File No. 1-4837.
+(xv) Non-Employee Directors Stock Compensation Plan. Incorporated by
reference to Exhibit 10(xvi) of Form 10-K dated August 9, 1995, SEC
File No. 1-4837.
+(xvi) Supplemental Executive Retirement Plan for named executive officers
dated September 26, 1996. Incorporated by reference to Exhibit 10(xvi)
of Form 10-K dated May 31, 1997, SEC File No. 1-4837.
(13) Portions of the 1998 Annual Report to Shareholders that are incorporated
herein by reference.
(21) Subsidiaries of the registrant.
(23) Independent Auditors' Consent.
(24) Powers of Attorney.
(27) Financial Data Schedule.
</TABLE>
- ------------------------
+ Compensatory Plan or Arrangement
(b) No reports on Form 8-K have been filed during the last quarter of
the period covered by this Report.
13
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
<TABLE>
<S> <C> <C>
TEKTRONIX, INC.
By: /s/ CARL W. NEUN
-----------------------------------------
Carl W. Neun,
SENIOR VICE PRESIDENT AND CHIEF FINANCIAL
OFFICER
Dated: August 13, 1998
</TABLE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
/s/ JEROME J. MEYER*
- ------------------------------ Chairman, Chief Executive August 18, 1998
Jerome J. Meyer Officer, and President
Senior Vice President and
/s/ CARL W. NEUN Chief Financial Officer,
- ------------------------------ Principal Financial and August 13, 1998
Carl W. Neun Accounting Officer
/s/ PAULINE LO ALKER*
- ------------------------------ Director August 18, 1998
Pauline Lo Alker
/s/ A. GARY AMES*
- ------------------------------ Director August 18, 1998
A. Gary Ames
/s/ GERRY B. CAMERON*
- ------------------------------ Director August 18, 1998
Gerry B. Cameron
/s/ DAVID N. CAMPBELL*
- ------------------------------ Director August 18, 1998
David N. Campbell
/s/ PAUL C. ELY, JR.*
- ------------------------------ Director August 18, 1998
Paul C. Ely, Jr.
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
/s/ A. M. GLEASON*
- ------------------------------ Director August 18, 1998
A. M. Gleason
/s/ MERRILL A. MCPEAK*
- ------------------------------ Director August 18, 1998
Merrill A. McPeak
/s/ WILLIAM D. WALKER*
- ------------------------------ Director August 18, 1998
William D. Walker
</TABLE>
<TABLE>
<S> <C> <C> <C>
*By: /s/ JAMES F. DALTON
-------------------------
James F. Dalton August 18, 1998
AS ATTORNEY-IN-FACT
</TABLE>
15
<PAGE>
AMENDMENT TO SUPPLEMENTAL
EXECUTIVE RETIREMENT AGREEMENT
June 16, 1998
By Agreement dated October 24, 1990, Jerome J. Meyer ("Executive"), and
Tektronix, Inc. ("Tektronix"), entered into a Supplemental Executive Retirement
Agreement. By action of the Board on June 16, 1998, the Supplemental Executive
Retirement Agreement is hereby amended as follows:
Paragraph 3.1 (d) "Final Average Pay," is hereby deleted and replaced with
the following:
(d) "Final Average Pay" means the average total cash compensation for
the highest three of the last five consecutive twelve month periods
immediately preceding Executive's retirement or termination as a Tektronix'
employee. Total cash compensation for this purpose consists of base pay,
profit share and any incentive compensation, plus any amounts deferred at
the election of executive under any deferred compensation plan of
Tektronix.
Except as specifically amended herein, the Supplemental Executive
Retirement Agreement dated October 24, 1990 shall remain in full force and
effect.
Tektronix, Inc.
By:_______________________ ____________________________
James F. Dalton Jerome J. Meyer
Vice President, General
Counsel and Secretary
<PAGE>
Management Review
RESULTS OF OPERATIONS
OVERVIEW
Tektronix had record sales and orders for its fiscal year ended May
30, 1998. Net earnings for 1998 were $82.3 million, or $1.60 per
diluted share. Net earnings in 1997 of $114.8 million, or $2.29 per
share, increased 15% over fiscal 1996 earnings of $99.6 million, or
$1.95 per share. Fiscal year 1998 earnings included pre-tax non-
recurring charges of $79.0 million related to the $60.0 million
restructuring of the Video and Networking Division, $17.0 million of
acquired in-process research and development and $2.0 million of
integration costs associated with the acquisition of Siemens'
Communications Test Equipment GmbH (CTE). Excluding the non-recurring
charges, fiscal year 1998 earnings would have been $135.2 million, or
$2.63 per share, an increase of 18% over fiscal year 1997 earnings.
NET SALES AND PRODUCT ORDERS
Net sales in 1998 were $2.086 billion, an 8% increase over 1997
sales of $1.940 billion. Growth in the Measurement Business and Color
Printing and Imaging Divisions offset the slower sales of the Video
and Networking Division as product lines were streamlined. Sales to
customers in the United States of $1.078 billion were 5% above the
level for the prior year, and represented 52% of total sales.
International sales rose 10%, from $912.8 million to $1.008 billion,
with strong sales growth in Europe at $548.8 million, up $43.5 million
or 9% from 1997, and in the Americas at $114.7 million, up $36.5
million or 47% from 1997. Sales to the Pacific region, excluding
Japan, were up 3% to $209.0 million in 1998 from $202.4 million in
1997. Sales to Japan were up 7% to $135.6 million in 1998.
Net sales in 1997 were 10% higher than they were in 1996. U.S.
sales of $1.027 billion in 1997 were 15% above those of the prior
year.
Product orders for 1998 were $1.912 billion, an increase of 5% over
1997 orders of $1.829 billion. Orders in 1996 were $1.658 billion.
The following table summarizes the Company's net sales for the last
three years by its three business divisions:
<TABLE>
<CAPTION>
IN THOUSANDS 1998 1997 1996
- ----------------------------------------------------------------
<S> <C> <C> <C>
Measurement Business $ 962,858 $ 852,827 $ 812,250
Color Printing and Imaging 728,697 638,456 561,642
Video and Networking 394,247 448,799 394,966
</TABLE>
Measurement Business sales of $962.9 million in 1998 represented 46%
of total sales and grew 13% from 1997. Growth in 1998 was driven by
sales of the TLA 700 logic analyzer and telecommunications test
products. Measurement Business sales in 1997 were 5% higher than in
1996 due to the introduction of new logic analyzer products and the
TDS 200 oscilloscope during the second half of the year. Product
orders in 1998 were $860.9 million, compared to $795.2 million in 1997
and $754.0 million in 1996.
Color Printing and Imaging sales increased 14%, from sales of $638.5
million in 1997 to $728.7 million in 1998. The introduction of three
new printers during the year (the Phaser 560, Phaser 380, and Phaser
360) and increased sales of printing supplies drove growth in sales
and orders. Color Printing and Imaging sales accounted for 35% of
total sales in 1998 compared to 33% in 1997. Sales in 1997 increased
14% over 1996, due to the introduction of the Phaser 350 in that year
and continued demand for the Phaser 550. Product orders rose 13% to
$687.3 million in 1998 from $607.5 million in 1997. Product orders
were $531.1 million in 1996.
Video and Networking sales in 1998 of $394.2 million were 12% lower
than in 1997 due to a reduction in product offerings through the
elimination of certain non-profitable product lines as well as general
weakness in the broadcast market. In addition, 1997 sales were
particularly strong in the netstation business, including two
significant installations of networked computers that year. The
decline was tempered by continued sales growth of the Profile PDR 200
professional video server. Sales increased 14%, from $395.0 million
in 1996 to $448.8 million in 1997, due to strength in Profile video
<PAGE>
disk recorders and networked computers. Product orders were $363.8
million in 1998, down 15% from orders of $426.4 million in 1997.
Product orders in 1996 were $372.4 million.
OPERATING COSTS AND EXPENSES
Gross margin was 41.5% of sales in 1998. Excluding non-recurring
charges, gross margin would have been 43.3% of sales, an increase from
42.9% in 1997 due to cost management across all three divisions,
streamlining in Video and Networking to focus on profitable products,
and cost savings as a result of the restructuring of that business.
Non-recurring charges decreased reported gross margin due to $38.5
million of Video and Networking inventory written off as part of the
restructuring of that business. Gross margins increased to 42.9% in
1997, from 41.9% in 1996, due to an improved mix of higher margin
supplies sales in Color Printing and Imaging and lower manufacturing
costs in Video and Networking.
Research and development expenses were 9.7% of sales in 1998 and
1997 and 9.3% of sales in 1996 at $203.3 million, $188.2 million and
$164.3 million, respectively. Selling, general and administrative
expenses were $508.7 million, or 24.4% of sales, in 1998 compared to
$481.1 million, or 24.8% of sales, in 1997 and $437.9 million, or
24.8% of sales, in 1996.
Page 18
Operating margin was 5.5% of sales in 1998. Excluding non-recurring
charges, operating margins continued an increasing trend, rising to
9.3% in 1998 from 8.5% in 1997 and 8.1% in 1996. Increasing gross
margins and continued focus on cost management contributed to the
increase in 1998. The improvement in 1997 was due primarily to higher
gross margins, partly offset by higher research and development
spending and lower equity in business ventures' earnings.
Interest expense decreased 17% to $10.1 million due to a decrease in
both long-term and short-term debt balances in 1998. Interest expense
was $12.1 million in 1997, 13% less than the $14.0 million in 1996.
Other income was $17.6 million in 1998 compared with other income of
$15.9 million in 1997 and $12.9 million in 1996. The improvement
primarily reflected higher gains on sales of equity securities in
other companies. The Company continues to hold equity positions that
it intends to liquidate over time.
The Company's effective tax rate for 1998 was 33%, compared to 32%
in 1997 and 30% in 1996.
FINANCIAL CONDITION
OVERVIEW
Tektronix continues to focus on improving the efficient management
of the capital invested in its business. To monitor that progress,
the Company uses the economic value added (EVA) measure. EVA is
determined by the Company by deducting taxes and a cost of capital
charge from operating income, excluding non-recurring charges, which
management believes provides an objective means of determining if the
Company's earnings are able to cover the cost of financing its
invested capital. Invested capital is the average net assets of the
Company excluding cash and debt. The Company generated EVA of $40.6
million in 1998, compared to $21.8 million in 1997 and $11.9 million
in 1996. The improvement in 1998 is a result of both the strong
earnings for the year, exclusive of non-recurring charges, and
continued improvements in invested capital, as average accounts
receivable and average inventories both decreased from 1997.
LIQUIDITY
The Company's financial condition continues to be strong. Cash
flows from operating activities and borrowing capacity are expected to
be sufficient to fund capital expenditures for fiscal year 1999,
currently estimated to be slightly less than 1998 expenditures. Cash
provided by operations of $167.8 million in 1998 was sufficient to
fund capital expenditures for increased manufacturing capacity. The
Company expects that cash payments required to carry out the remaining
restructuring activities will be approximately $8.0 million. At May
30, 1998, the Company maintained bank credit facilities totaling
$307.6 million, of which $303.1 million was unused. Unused facilities
include $153.1 million in lines of credit and $150.0 million under a
revolving credit agreement from United States and foreign banks.
Additional details, including maturity dates of agreements and certain
<PAGE>
financial covenants, are included under "Short-term and Long-term
Debt" in the Notes to Consolidated Financial Statements.
BALANCE SHEET
Current assets decreased by $2.8 million from 1997. Cash decreased
$22.2 million as funds were expended to invest in facilities for
continued growth of Color Printing and Imaging and for the
acquisition of CTE. Accounts receivable increased by $40.5 million,
due in part to an increase in year over year sales in the fourth
quarter. Average days sales outstanding for the year improved from
54.6 days in 1997 to 51.1 days in 1998. Inventories decreased by
$23.7 million as Video and Networking streamlined product offerings
allowing for significantly lower inventory requirements. Color
Printing and Imaging inventories were down slightly for the year
despite increasing sales and orders.
Net property, plant and equipment increased by $82.0 million due to
capital expenditures of $155.1 million in 1998, primarily related to
the expansion of manufacturing capacity for Color Printing and
Imaging.
Net deferred tax assets increased $21.9 million due to timing
differences related to restructuring activities and a decline in the
deferred tax liability related to unrealized holding gains as
securities were sold and market prices on the remaining holdings
declined. Other long-term assets declined by $31.7 million due to
the disposition of certain of the Company's available-for-sale
securities, offset by the acquisition of identified intangibles.
Current liabilities increased by $45.7 million primarily due to
increases in trade payables, accrued compensation for incentive plans, and
accruals related to the remaining restructuring activities.
Shareholders' equity increased by $13.6 million, or 2%, over 1997.
Earnings net of dividends of $59.1 million was offset by a decrease in
unrealized holding gains of $28.7 million and a decrease in the
currency adjustment of $13.6 million.
DERIVATIVES AND FOREIGN EXCHANGE
The Company has exposure to interest-rate risk, primarily from its
use of short-term and long-term borrowings to finance operations, and
to investment risk, primarily from its equity investment portfolio.
The Company has not entered into any derivatives to hedge against
these interest-rate or investment risks.
The Company is also exposed to exchange-rate risk on transactions
and commitments denominated in foreign currencies and uses foreign
exchange contracts to mitigate this risk. Changes in foreign exchange
rates are not expected to have a significant effect on the Company's
financial position, results of operations or cash flows. The
Company's policy is to only enter into derivative transactions when
the company has an identifiable exposure to risk, and to only enter
into such transactions with creditworthy financial institutions.
Page 19
FUTURE ACCOUNTING CHANGES
In June 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 130, "Reporting
Comprehensive Income" and SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information." SFAS No. 130 establishes
requirements for disclosure of comprehensive income and becomes
effective for the first quarter ending August 1998. Reclassification
of earlier financial statements for comparative purposes is required.
SFAS No. 131 establishes standards for disclosure about operating
segments in annual financial statements and selected information in
interim financial reports. The new disclosures will first be presented
in the Company's annual report for the fiscal year ending May 1999.
Information presented for earlier years will be restated for
comparative purposes. Adoption of these statements may result in
additional disclosures but will have no impact on the Company's
consolidated financial statements.
In June 1998, the FASB issued SFAS NO. 133, "Accounting for
Derivative Instruments and Hedging Activities." The new statement will
require recognition of all derivatives as either assets or liabilities
on the balance sheet at fair value. The new statement is effective for
fiscal year 2001, but early adoption is encouraged. Management has
not completed an evaluation of the effects this standard will have on
the Company's consolidated financial statements.
<PAGE>
YEAR 2000
In connection with the Company's ongoing program to standardize and
upgrade its key internal financial, information and operational
systems, an assessment has been made of the ability of these systems
to operate in, and to process transactions and data involving, the
year 2000 and beyond. The Company believes that all key internal
systems that are not already year 2000 ready will be modified,
upgraded or replaced prior to the year 2000. The Company is currently
engaged in assessing the capability of its products to handle the
transition to and operate in the year 2000, and has a plan in place to
address product issues prior to the year 2000. The Company is working
with major suppliers and customers to resolve year 2000 interface
issues. Management believes that the cost of these projects over the
next two years will not have a material effect on the Company's
financial position or overall trends in results of operations.
However, because of the existence of numerous systems and related
components within the Company and the interdependency of these
systems, it is possible that certain systems at the Company, or
systems at entities that provide services or goods for the Company,
may fail to operate in the year 2000. Although it is not currently
anticipated, the inability to complete the Company's year 2000 plans
on a timely basis or the failure of a system at the Company or at an
entity that provides services or goods to the Company may have a
material impact on future operating results or financial condition.
FORWARD LOOKING STATEMENTS
Statements and information included in the Chairman's letter and
Management Review and elsewhere in this report that relate to the
Company's goals, strategies and expectations as to future results and
events are based on the Company's current expectations. They
constitute forward looking statements subject to a number of risk
factors that could cause actual results to differ materially from
those currently expected or desired. As with many high technology
companies, risk factors that could cause the Company's actual results
or activities to differ materially from these forward looking
statements include, but are not limited to: worldwide economic and
business conditions in the electronics industry, including the
continuing effect of the Asian economic crisis on demand for the
Company's products; competitive factors, including pricing pressures,
technological developments and products offered by competitors;
changes in product and sales mix, and the related effects on gross
margins; the Company's ability to deliver a timely flow of competitive
new products, and market acceptance of these products; the
availability of parts and supplies from third party suppliers on a
timely basis and at reasonable prices; inventory risks due to changes
in market demand or the Company's business strategies; changes in
effective tax rates; customer demand; currency fluctuations; the fact
that a substantial portion of the Company's sales are generated from
orders received during the quarter, making prediction of quarterly
revenues and earnings difficult; and other risk factors listed from
time to time in the Company's Securities and Exchange Commission
reports and in press releases.
Additional risk factors specific to the Company's current plans and
expectations that could cause the Company's actual results or
activities to differ materially from those stated include: the
significant operational issues the Company faces in executing its
strategy in Video and Networking; the timely introduction of new
products scheduled during the Company's fiscal year, which could be
affected by engineering or other development program slippages, the
ability to ramp up production or to develop effective sales channels;
the customers' acceptance of, and demand for, those products; and
changes in the regulatory environment affecting the transition to high-
definition television within the time frame anticipated by the
Company.
Forward looking statements in this report speak only as of the date
made. The Company undertakes no obligation to publicly release the
result of any revisions to these forward looking statements which may
be made to reflect subsequent events or circumstances or to reflect
the occurrence of unanticipated events.
Page 20
<PAGE>
Management's Letter
The consolidated financial statements of Tektronix, Inc. and
subsidiaries have been prepared by management and have been audited by
Tektronix' independent auditors, Deloitte & Touche LLP, as stated in
their independent auditors' report. Management is responsible for the
consolidated financial statements, which have been prepared in
conformity with generally accepted accounting principles and include
amounts based on management's judgment.
Management is also responsible for maintaining internal control,
including systems designed to provide reasonable assurance that assets
are safeguarded and that transactions are executed and recorded in
accordance with established policies and procedures.
Tektronix' controls and systems were developed by Tektronix
management and have the full support and endorsement of the Board of
Directors. Compliance is mandatory.
The Board of Directors is responsible for the Company's financial
and accounting policies, practices and reports. Its Audit Committee,
composed entirely of outside directors, meets regularly with the
independent auditors, representatives of management, and the internal
auditors to review accounting, reporting, auditing and internal
control matters. Both the independent auditors and the internal
auditors have free access to the Audit Committee, with and without
management representatives in attendance.
/s/ MERRILL A. MCPEAK
MERRILL A. MCPEAK
Chairman, Audit Committee
/s/ CARL W. NEUN
CARL W. NEUN
Senior Vice President and
Chief Financial Officer
Independent Auditors' Report
TO THE DIRECTORS AND SHAREHOLDERS OF TEKTRONIX, INC.:
We have audited the accompanying consolidated balance sheets of
Tektronix, Inc. and subsidiaries as of May 30, 1998 and May 31, 1997,
and the related consolidated statements of operations, shareholders'
equity, and cash flows for the years ended May 30, 1998, May 31, 1997,
and May 25, 1996. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion
on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present
fairly, in all material respects, the financial position of Tektronix,
Inc. and subsidiaries at May 30, 1998 and May 31, 1997, and the
results of their operations and their cash flows for the years ended
May 30, 1998, May 31, 1997, and May 25, 1996, in conformity with
generally accepted accounting principles.
Portland, Oregon
June 24, 1998
Page 21
<PAGE>
Consolidated Statements of Operations
<TABLE>
<CAPTION>
IN THOUSANDS, EXCEPT PER SHARE AMOUNTS
FOR THE YEARS ENDED MAY 30,1998 MAY 31,1997 MAY 25,1996
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $2,085,802 $1,940,082 $1,768,858
Cost of sales 1,220,475 1,107,355 1,028,331
-----------------------------------
Gross profit 865,327 832,727 740,527
Research and development expenses 203,312 188,192 164,292
Selling, general and administrative expenses 508,749 481,083 437,949
Equity in business ventures' earnings 2,513 1,556 5,081
Non-recurring charges 40,478 - -
-----------------------------------
Operating income 115,301 165,008 143,367
Interest expense 10,076 12,111 13,985
Other income - net 17,589 15,905 12,884
-----------------------------------
Earnings before taxes 122,814 168,802 142,266
Income taxes 40,529 54,017 42,680
-----------------------------------
Net earnings $ 82,285 $ 114,785 $ 99,586
===================================
Basic earnings per share $ 1.63 $ 2.32 $ 2.00
Diluted earnings per share 1.60 2.29 1.95
Dividends per share 0.46 0.40 0.40
Average shares outstanding - basic 50,438 49,513 49,795
Average shares outstanding - diluted 51,320 50,236 50,986
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
Page 22
<PAGE>
Consolidated Balance Sheets
<TABLE>
<CAPTION>
IN THOUSANDS MAY 30,1998 MAY 31,1997
- ----------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 120,541 $ 142,726
Accounts receivable - net 346,342 305,832
Inventories 214,347 238,040
Other current assets 67,432 64,913
-----------------------
Total current assets 748,662 751,511
Property, plant and equipment - net 425,153 343,130
Deferred tax assets 25,102 12,540
Other long-term assets 177,893 209,560
-----------------------
Total assets $1,376,810 $1,316,741
=======================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term debt $ 5,442 $ 6,155
Accounts payable 209,411 181,366
Accrued compensation 119,842 90,946
Deferred revenue 15,102 25,622
-----------------------
Total current liabilities 349,797 304,089
Long-term debt 150,681 151,579
Other long-term liabilities 91,391 89,790
Commitments and contingencies - -
Shareholders' equity:
Preferred stock, no par value
(authorized 1,000 shares; none issued) - -
Common stock, no par value
(authorized 80,000 shares; issued and outstanding
50,345 in 1998, and 50,104 in 1997) 223,527 226,591
Retained earnings 532,679 473,582
Currency adjustment 20,813 34,447
Unrealized holding gains - net 7,922 36,663
-----------------------
Total shareholders' equity 784,941 771,283
-----------------------
Total liabilities and shareholders' equity $1,376,810 $1,316,741
=======================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
Page 23
<PAGE>
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
IN THOUSANDS
FOR THE YEARS ENDED MAY 30,1998 MAY 31,1997 MAY 25,1996
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings $ 82,285 $ 114,785 $ 99,586
Adjustments to reconcile net earnings to cash
provided by operating activities:
Depreciation expense 65,939 59,591 47,137
Inventory write-down related to restructuring 38,482 - -
Non-recurring charges 40,478 - -
Deferred taxes (5,400) 14,425 26,041
Gain on sale of investments (28,244) (27,678) (20,197)
Changes in operating assets and liabilities:
Accounts receivable (35,640) 66,403 (66,647)
Inventories (4,856) 26,754 (19,681)
Other current assets (5,119) 22,213 864
Accounts payable 21,027 (179) 1,037
Accrued compensation 4,087 (28,580) 14,026
Other liabilities 3,047 5,672 (33,622)
Other - net (8,326) 8,923 661
-----------------------------------
Net cash provided by operating activities 167,760 262,329 49,205
-----------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of property, plant and equipment (155,066) (112,005) (106,708)
Acquisition of business (46,600) - -
Proceeds from sale of fixed assets 5,819 9,073 19,776
Proceeds from sale of investments 37,003 33,848 23,263
-----------------------------------
Net cash used by investing activities (158,844) (69,084) (63,669)
-----------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net change in short-term debt (517) (38,451) 7,339
Issuance of long-term debt 172 358 50,000
Repayment of long-term debt (1,023) (50,609) (3,020)
Issuance of common stock 35,358 26,018 18,104
Repurchase of common stock (38,422) (3,797) (29,985)
Dividends (23,188) (19,809) (19,944)
-----------------------------------
Net cash provided (used) by financing activities (27,620) (86,290) 22,494
-----------------------------------
Effect of exchange rate changes (3,481) (873) (3,147)
-----------------------------------
Increase (decrease) in cash and cash equivalents (22,185) 106,082 4,883
Cash and cash equivalents at beginning of year 142,726 36,644 31,761
-----------------------------------
Cash and cash equivalents at end of year $ 120,541 $ 142,726 $ 36,644
===================================
SUPPLEMENTAL DISCLOSURES OF CASH FLOWS
Income taxes paid $ 19,981 $ 13,663 $ 18,669
Interest paid 12,571 14,633 16,594
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
Page 24
<PAGE>
Consolidated Statements of Shareholders' Equity
<TABLE>
<CAPTION>
COMMON STOCK UNREALIZED
IN THOUSANDS, ----------------- RETAINED CURRENCY HOLDING
EXCEPT PER SHARE AMOUNTS SHARES AMOUNT EARNINGS ADJUSTMENT GAINS - NET TOTAL
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE MAY 27, 1995 49,624 $ 216,251 $ 298,964 $ 76,948 $ 12,052 $604,215
Shares issued to
employees 667 18,104 18,104
Shares repurchased (1,260) (29,985) (29,985)
Net earnings 99,586 99,586
Dividends -
$0.40 per share (19,944) (19,944)
Currency adjustment (24,879) (24,879)
Unrealized holding
gains - net 28,225 28,225
-----------------------------------------------------------------
BALANCE MAY 25, 1996 49,031 204,370 378,606 52,069 40,277 675,322
Shares issued to
employees 1,173 26,018 26,018
Shares repurchased (100) (3,797) (3,797)
Net earnings 114,785 114,785
Dividends-
$0.40 per share (19,809) (19,809)
Currency adjustment (17,622) (17,622)
Unrealized holding
gains - net (3,614) (3,614)
-----------------------------------------------------------------
BALANCE MAY 31, 1997 50,104 226,591 473,582 34,447 36,663 771,283
Shares issued to
employees 1,151 35,358 35,358
Shares repurchased (910) (38,422) (38,422)
Net earnings 82,285 82,285
Dividends-
$0.46 per share (23,188) (23,188)
Currency adjustment (13,634) (13,634)
Unrealized holding
gains - net (28,741) (28,741)
-----------------------------------------------------------------
BALANCE MAY 30, 1998 50,345 $ 223,527 $ 532,679 $ 20,813 $ 7,922 $784,941
=================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
Page 25
<PAGE>
Notes to Consolidated Financial Statements
ACCOUNTING POLICIES
THE COMPANY
Tektronix, Inc. ("Tektronix" or "the Company") is a global high-
technology company based on a portfolio of measurement, color
printing, and video and networking businesses. Headquartered in
Wilsonville, Oregon, Tektronix employs more than 8,600 people and
maintains operations in 25 countries outside the United States.
Tektronix was founded in 1946.
FINANCIAL STATEMENT PRESENTATION
The consolidated financial statements include the accounts of
Tektronix and its majority-owned subsidiaries. Investments in joint
ventures and minority-owned companies where the Company exercises
significant influence are accounted for on the equity basis.
Significant intercompany transactions and balances have been
eliminated. Certain items have been reclassified to conform with the
current year's presentation with no effect on previously reported
earnings.
The presentation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions. These estimates and assumptions affect the
reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the consolidated
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimated.
EARNINGS PER SHARE
Basic earnings per share is based on the average number of common
shares outstanding during each period. Diluted earnings per share
reflects the potential shares issuable upon assumed exercise of
outstanding stock options based on the treasury stock method. All
share, per share and option amounts have been restated to give effect
to the three-for-two stock split effective October 31, 1997.
FISCAL YEAR
The Company's fiscal year is the 52 or 53 weeks ending the last
Saturday in May. Fiscal years 1998 and 1996 were 52 weeks; fiscal year
1997 was 53 weeks.
FOREIGN CURRENCY TRANSLATION
For most non-U.S. subsidiaries, the local currency is the functional
currency, and, therefore, assets and liabilities are translated into
U.S. dollars at current exchange rates, and net earnings are
translated at average exchange rates for the year. Gains and losses
resulting from the translation of net assets are reported as a
separate component of shareholders' equity. Gains and losses from
foreign currency transactions are included in net earnings.
DERIVATIVES
Gains and losses on foreign exchange contracts used to hedge
existing assets and liabilities are recognized in income in the period
in which the related hedged transaction occurs. Gains and losses
related to hedges of firm commitments are deferred and included in the
basis of the hedged transaction when it is completed.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash deposits in banks and highly
liquid investments with original maturities of three months or less at
the time of purchase.
ACCOUNTS RECEIVABLE
Accounts receivable have been reduced by an allowance for doubtful
accounts, which was $4.8 million in 1998 and $3.1 million in 1997. The
charges to this reserve have not been material.
On September 10, 1996, the Company entered into a five-year
revolving receivable purchase agreement with Citibank NA to sell,
without recourse, an undivided interest of up to $50.0 million in a
defined pool of trade accounts receivable. Receivables of $50.0
million sold under this agreement were reflected as operating cash
flows in the Statements of Cash Flows for the year ended May 31, 1997.
<PAGE>
INVENTORIES
Inventories are stated at the lower of cost or market. Cost is
determined on the first-in, first-out (FIFO) basis.
<TABLE>
<CAPTION>
IN THOUSANDS 1998 1997
- ----------------------------------------------------------------
<S> <C> <C>
Materials and work in process $ 76,289 $ 134,743
Finished goods 138,058 103,297
-----------------------
Inventories $ 214,347 $ 238,040
=======================
</TABLE>
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost. Depreciation is
based on the estimated useful lives of the assets, ranging from ten to
forty years for buildings and three to seven years for machinery and
equipment, and is generally provided using the straight-line method.
<TABLE>
<CAPTION>
IN THOUSANDS 1998 1997
- ----------------------------------------------------------------
<S> <C> <C>
Land $ 5,932 $ 6,096
Buildings 217,036 199,396
Machinery and equipment 594,677 493,791
-----------------------
817,645 699,283
Accumulated depreciation and amortization (392,492) (356,153)
-----------------------
Property, plant and equipment - net $ 425,153 $ 343,130
=======================
</TABLE>
Page 26
INVESTMENTS
Investments in marketable equity securities are classified as
available-for-sale and reported at fair market value in the
consolidated balance sheets as other long-term assets. The unrealized
holding gains and losses are excluded from earnings and reported, net
of deferred income taxes, as a separate component of shareholders'
equity.
INTANGIBLE ASSETS
Intangible assets are included as other long-term assets at cost.
Amortization is provided on a straight-line basis over periods
generally not exceeding fifteen years. Long-lived assets and
intangibles are reviewed for impairment when events or circumstances
indicate costs may not be recoverable. If impairment exists, the
asset's book value will be written down to its fair value.
INCOME TAXES
Deferred income taxes, reflecting the impact of temporary
differences between the assets and liabilities recognized for
financial reporting purposes and amounts recognized for tax purposes,
are based on tax laws currently enacted. Deferred tax assets are
reduced by a valuation allowance when it is more likely than not that
some portion of the deferred tax assets will not be realized.
ENVIRONMENTAL COSTS
The Company accrues environmental costs when it is probable that the
Company has incurred a liability and the amount can be reasonably
estimated.
FUTURE ACCOUNTING CHANGES
In June 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 130, "Reporting
Comprehensive Income" and SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information." SFAS No. 130 establishes
requirements for disclosure of comprehensive income and becomes
effective for the first quarter ending August 1998. Reclassification
of earlier financial statements for comparative purposes is required.
SFAS No. 131 establishes standards for disclosure about operating
segments in annual financial statements and selected information in
interim financial reports. The new disclosures will first be presented
in the Company's annual report for the fiscal year ending May 1999.
<PAGE>
Information presented for earlier years will be restated for
comparative purposes. Adoption of these statements may result in
additional disclosures but will have no impact on the Company's
consolidated financial statements.
In June 1998, the FASB issued SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities." The new statement will
require recognition of all derivatives as either assets or liabilities
on the balance sheet at fair value. The new statement becomes
effective in fiscal year 2001, but early adoption is encouraged.
Management has not completed an evaluation of the effects this
standard will have on the Company's consolidated financial statements.
RESTRUCTURING
In the second quarter of 1998, the Company announced and began to
implement a restructuring plan designed to return the Video and
Networking business to profitability. A pre-tax provision of $60.0
million was recorded to account for these actions, which included
streamlining its product offerings and reducing the unit's cost
structure to increase operational efficiency. The plan has resulted
in the separation of certain employees worldwide and the exiting of
certain facilities and product lines at an expected total cost of
$21.5 million. These costs are included in non-recurring charges for
the year ended May 30, 1998 in the Consolidated Statements of
Operations. In addition, the decision to streamline product offerings
required a $38.5 million write-down of inventories, which is included
in cost of sales for the year ended May 30, 1998 in the Consolidated
Statements of Operations.
ACQUISITION
On September 30, 1997, the Company acquired Siemens' Communications
Test Equipment GmbH (CTE), a wholly owned subsidiary of Siemens AG
based in Berlin, Germany, for $46.6 million in cash, including direct
acquisition costs. The transaction was accounted for by the purchase
method of accounting, and accordingly, the results of operations of
CTE have been included in the Company's financial statements since the
date of acquisition. Pro forma comparative results of operations are
not presented because they are not materially different from the
Company's reported results of operations. The purchase price was
allocated as follows:
<TABLE>
<CAPTION>
IN THOUSANDS 1998
- ----------------------------------------------------------------
<S> <C>
Fair value of identified net assets acquired $ 6,600
Acquired in-process research and development 17,000
Identified intangibles 23,000
-----------
Total purchase price $ 46,600
===========
</TABLE>
Acquired in-process research and development of $17.0 million was
expensed in the second quarter of the current year (see Non-recurring
Charges below).
The identified intangibles include $18.0 million of completed
technology and $5.0 million of workforce-in-place and are being
amortized on a straight-line basis over 15 years.
NON-RECURRING CHARGES
<TABLE>
<CAPTION>
IN THOUSANDS 1998
- ----------------------------------------------------------------
<S> <C>
Restructuring of the Video and Networking Division $ 59,960
In-process research and development acquired in the
purchase of CTE 17,000
Integration costs associated with the
purchase of CTE 2,000
-----------
Total non-recurring charges 78,960
Inventory write-down included in cost of sales (38,482)
-----------
Non-recurring charges $ 40,478
===========
</TABLE>
Page 27
<PAGE>
BUSINESS SEGMENTS
The Company and its affiliates operate predominately in a single
industry segment: the design, manufacture, sale and service of
electronic measurement, design and display instruments and systems
used in science, industry and education. Geographically, the Company
operates primarily in the industrialized world. Net sales, earnings
before taxes and total assets in the United States, Europe and other
geographical areas were:
<TABLE>
<CAPTION>
IN THOUSANDS 1998 1997 1996
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales:
United States sales to customers $1,077,649 $1,027,294 $ 890,930
United States export sales to customers 263,717 258,984 271,446
United States transfers to affiliates 989,211 824,520 720,969
-----------------------------------
United States sales 2,330,577 2,110,798 1,883,345
-----------------------------------
European sales to customers 536,817 483,949 470,840
European transfers to affiliates 25,216 5,006 3,183
-----------------------------------
European sales 562,033 488,955 474,023
-----------------------------------
Other area sales to customers 207,619 169,855 135,642
Other area transfers to affiliates 29,641 22,975 23,815
-----------------------------------
Other area sales 237,260 192,830 159,457
-----------------------------------
Eliminations (1,044,068) (852,501) (747,967)
-----------------------------------
Net sales $2,085,802 $1,940,082 $1,768,858
===================================
Earnings before taxes:
United States $ 139,647 $ 178,930 $ 124,618
Europe 24,820 33,093 25,867
Other areas 5,022 (8,555) 8,174
Corporate and eliminations (46,675) (34,666) (16,393)
-----------------------------------
Earnings before taxes $ 122,814 $ 168,802 $ 142,266
===================================
Total assets:
United States $1,034,256 $ 991,928 $ 988,578
Europe 232,196 181,757 198,220
Other areas 87,445 89,663 69,883
Corporate and eliminations 22,913 53,393 71,815
-----------------------------------
Total assets $1,376,810 $1,316,741 $1,328,496
===================================
</TABLE>
Transfers of products and services are made at arms-length prices
between geographic areas. The profit on transfers between geographic
areas is not recognized until sales are made to unaffiliated
customers. Area earnings before taxes include all directly incurred
and allocable costs, except identified corporate expenses. Assets are
those that are specifically associated with the operations of each
geographic area.
<PAGE>
OTHER LONG-TERM ASSETS
<TABLE>
<CAPTION>
IN THOUSANDS 1998 1997
- ----------------------------------------------------------------------------
<S> <C> <C>
Investment in business ventures $ 76,226 $ 85,696
Licensing agreements and other intangibles - net 62,610 37,151
Investment in marketable equity securities 19,450 66,709
Property held for sale 11,366 13,939
Other 8,241 6,065
-----------------------
Other long-term assets $ 177,893 $ 209,560
=======================
</TABLE>
Investment in business ventures includes a 50% investment in a
business venture in Japan and a 27% interest in Merix Corporation.
The Company's share of the assets, liabilities, net sales and net
earnings of the business venture in Japan, as well as the Company's
sales to, purchases from, and accounts receivable consisted of:
<TABLE>
<CAPTION>
IN THOUSANDS 1998 1997 1996
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current assets $ 60,236 $ 55,322 $ 74,946
Property, plant and equipment - net 18,632 19,913 23,371
Other long-term assets 6,482 12,129 12,743
Current liabilities 20,562 18,511 32,775
Other long-term liabilities 9,162 8,988 9,323
-----------------------------------
Net sales $ 135,704 $ 152,054 $ 147,860
Gross profit 34,436 40,742 44,756
Operating income 849 3,068 113
Earnings before taxes 3,584 2,792 53
Net earnings (loss) 1,277 1,184 (306)
-----------------------------------
Sales to $ 117,173 $ 112,770 $ 114,307
Purchases from 17,810 19,596 13,650
Accounts receivable 12,354 9,866 9,524
</TABLE>
At May 30, 1998, the carrying value of the Company's investment in
Merix was $17.6 million, with a fair value, based upon quoted market
price, of $19.7 million. The Company's portion of the undistributed
earnings of the business ventures was $20.7 million in 1998 and $20.2
million in 1997.
Proceeds from the sales of marketable equity securities in 1998,
1997 and 1996 were $37.0 million, $33.8 million and $23.3 million,
respectively. Realized gains were computed based on the average cost
of the underlying securities and are disclosed in the "Other Income -
Net" note. At the end of 1998, 1997 and 1996, unrealized holding
gains of $12.9 million, $58.8 million and $67.2 million (less deferred
taxes of $5.0 million, $22.1 million and $26.9 million), respectively,
were included as a separate component of shareholders' equity.
Licensing agreements and other intangibles have been reduced by
accumulated amortization of $25.3 million at fiscal year-end 1998 and
$17.5 million at fiscal year-end 1997.
Property held for sale is stated at the lower of cost or estimated
fair value less costs to sell and includes certain properties no
longer used in the Company's operations.
Page 28
<PAGE>
SHORT-TERM AND LONG-TERM DEBT
The Company's short-term debt consisted of:
<TABLE>
<CAPTION>
IN THOUSANDS 1998 1997
- ----------------------------------------------------------------------------
<S> <C> <C>
Lines of credit $ 4,466 $ 4,486
Current maturities of long-term debt 976 1,669
-----------------------
Short-term debt $ 5,442 $ 6,155
=======================
</TABLE>
The Company has a $150.0 million revolving credit agreement with
Morgan Guaranty Trust Company of New York, as agent, that matures in
July 2001. The Company has an agreement with U.S. National Bank of
Oregon to issue up to $100.0 million in commercial paper, backed by
the revolving credit agreement. At May 30, 1998, the Company
maintained bank credit facilities of $307.6 million, of which $303.1
million was unused. Unused facilities include $153.1 million in lines
of credit and $150.0 million under the revolving credit agreement. A
$20.0 million line of credit expires in October 1998 with all
remaining lines providing no specific expiration date.
The Company's long-term debt consisted of:
<TABLE>
<CAPTION>
IN THOUSANDS 1998 1997
- ----------------------------------------------------------------------------
<S> <C> <C>
7.5% Notes due August 1, 2003 $ 100,000 $ 100,000
7.625% Notes due August 15, 2002 50,000 50,000
Other long-term agreements 1,657 3,248
-----------------------
Long-term instruments 151,657 153,248
Current maturities (976) (1,669)
-----------------------
Long-term debt $ 150,681 $ 151,579
=======================
</TABLE>
Certain of the Company's debt agreements require the maintenance of
specified interest rate coverage ratios and a minimum consolidated
tangible net worth. At May 30, 1998, the Company had unrestricted
retained earnings of $156.9 million after meeting those requirements.
Aggregate long-term debt payments will be $1.0 million in 1999, $0.6
million in 2000, $0.1 million in 2001, none in 2002 and $50.0 million
in 2003.
OTHER LONG-TERM LIABILITIES
<TABLE>
<CAPTION>
IN THOUSANDS 1998 1997
- ----------------------------------------------------------------------------
<S> <C> <C>
Accrued postretirement benefits $ 37,082 $ 41,778
Accrued pension 35,004 30,019
Other 19,305 17,993
-----------------------
Other long-term liabilities $ 91,391 $ 89,790
=======================
</TABLE>
<PAGE>
OTHER INCOME - NET
<TABLE>
<CAPTION>
IN THOUSANDS 1998 1997 1996
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Gain on sale of marketable equity securities $ 28,244 $ 27,678 $ 20,197
Loss on disposition of fixed assets (2,441) (5,031) (1,844)
Other (8,214) (6,742) (5,469)
-----------------------------------
Other income - net $ 17,589 $ 15,905 $ 12,884
===================================
</TABLE>
COMMITMENTS AND CONTINGENCIES
The Company leases a portion of its capital equipment and certain of
its facilities under operating leases that expire at various dates.
Rental expense was $28.8 million in 1998, $27.4 million in 1997, and
$25.3 million in 1996. In addition, the Company has long-term or
minimum purchase agreements with various suppliers and vendors. The
future minimum obligations under operating leases and other
commitments having an initial or remaining noncancelable term in
excess of one year as of May 30, 1998 were:
<TABLE>
<CAPTION>
OPERATING
IN THOUSANDS LEASES COMMITMENTS
- ----------------------------------------------------------------------------
<S> <C> <C>
1999 $ 20,032 $ 16,121
2000 14,902 9,262
2001 10,300 4,232
2002 7,208 334
2003 5,439 -
Future years 15,068 -
-----------------------
Total $ 72,949 $ 29,949
=======================
</TABLE>
In the normal course of business, the Company and its subsidiaries
are parties to various legal claims, actions and complaints, including
matters involving patent infringement and other intellectual property
claims. Although it is not possible to predict with certainty whether
or not the Company and its subsidiaries will ultimately be successful
in any of these legal matters or, if not, what the impact might be,
the Company believes that disposition of these matters will not have a
material adverse effect on the Company's financial position, results
of operations, or cash flows.
SHAREHOLDERS' EQUITY
STOCK OPTION AND INCENTIVE COMPENSATION PLANS
The Company has stock option plans for selected employees. There
were 4,974,000 shares reserved for issuance under these plans at May
30, 1998. Under the terms of the plans, incentive stock options are
granted at an option price not less than the market value at the date
of grant. Nonqualified stock options may not be granted at less than
100% of the market value on the valuation date selected by the Board
of Directors. Options granted prior to January 1, 1997, generally
vest over four years and expire ten years from the date of grant.
Most options granted after January 1, 1997, vest over two years and
expire five years from the date of grant. There were 1,172 employees
holding options at May 30, 1998.
Page 29
<PAGE>
Additional information with respect to option activity is set forth
below:
<TABLE>
<CAPTION>
OUTSTANDING EXERCISABLE
--------------------- -------------------
WEIGHTED WEIGHTED
NUMBER OF AVERAGE NUMBER OF AVERAGE
SHARES IN EXERCISE SHARES IN EXERCISE
THOUSANDS PRICE THOUSANDS PRICE
- ---------------------------------------------------------------
<S> <C> <C> <C> <C>
May 27, 1995 3,539 $17 1,302 $14
Granted 1,470 30
Exercised (752) 15
Canceled (285) 23
- ---------------------------------------------------------------
May 25, 1996 3,972 $23 1,484 $17
Granted 1,088 32
Exercised (975) 17
Canceled (212) 27
- ---------------------------------------------------------------
May 31, 1997 3,873 $26 1,428 $21
Granted 1,149 40
Exercised (1,093) 23
Canceled (405) 30
- ---------------------------------------------------------------
May 30, 1998 3,524 $31 1,509 $26
===============================================================
</TABLE>
The following table summarizes information about options
outstanding and exercisable at May 30, 1998:
<TABLE>
<CAPTION>
OUTSTANDING EXERCISABLE
- -------------------------------- -----------------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
RANGE OF NUMBER OF REMAINING AVERAGE NUMBER OF AVERAGE
EXERCISE SHARES IN CONTRACTUAL EXERCISE SHARES IN EXERCISE
PRICES THOUSANDS LIFE PRICE THOUSANDS PRICE
- ---------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 9-24 876 5.6 years $20 716 $19
25-30 821 7.7 years 29 316 28
31-36 707 4.4 years 34 393 34
37-40 280 4.2 years 40 76 40
41-47 840 4.6 years 40 8 43
- ---------------------------------------------------------------
3,524 5.5 years $31 1,509 $26
===============================================================
</TABLE>
The Company accounts for stock options according to APB Opinion No.
25, "Accounting for Stock Issued to Employees." Under APB No. 25, no
compensation expense is recognized in the Company's consolidated
financial statements for employee stock options because the exercise
price of the options equals the market price of the underlying stock
on the date of grant. Alternatively, under the fair value method of
accounting provided for by SFAS No. 123, "Accounting for Stock-Based
Compensation," the measurement of compensation cost is based on the
<PAGE>
fair value of employee stock options at the grant date and requires
the use of option pricing models to value the options. The weighted
average estimated fair value of options granted during 1998, 1997 and
1996 was $12, $11 and $10 per share, respectively.
The Company also has plans for certain executives and outside
directors that provide stock-based compensation other than options.
Under APB No. 25, compensation cost for these plans is measured based
on the market price of the stock at the date the terms of the award
become fixed. Under the fair value approach of SFAS No. 123,
compensation cost is measured based on the market price of the stock
at the grant date. The weighted average grant-date fair value of the
shares granted under these plans during 1998, 1997 and 1996 was $41,
$31 and $25 per share, respectively. The total shares granted under
these plans and the compensation cost recognized in income were not
material.
The pro forma impact to both net earnings and earnings per share
from calculating stock-related compensation cost consistent with the
fair value alternative of SFAS No. 123 is indicated below:
<TABLE>
<CAPTION>
1998 1997 1996
------------------------------
<S> <C> <C> <C>
Pro forma net earnings (in thousands) $ 74,520 $ 109,240 $ 97,015
Pro forma earnings
per share -
basic $ 1.48 $ 2.21 $ 1.95
diluted 1.45 2.17 1.90
</TABLE>
The fair value of each option was estimated at the date of grant using
a Black-Scholes option pricing model with the following weighted average
assumptions:
<TABLE>
<CAPTION>
1998 1997 1996
------------------------------
<S> <C> <C> <C>
Expected life (in years) 3.0 5.0 5.0
Risk-free interest rate 5.8% 6.3% 5.7%
Volatility 40.0% 35.2% 33.9%
Dividend yield 1.2% 1.3% 1.4%
</TABLE>
For purposes of the pro forma disclosures, the estimated fair value
of the stock-based awards is amortized over the vesting period.
Because SFAS No. 123 is applicable only to awards granted after May
27, 1995, the pro forma effect will not be fully reflected until 1999.
SHAREHOLDER RIGHTS AGREEMENT
In August 1990, the Company's Board of Directors approved a
shareholder rights agreement and declared a dividend of one right for
each outstanding common share. Each right entitles the holder to
purchase one one-thousandth of a share of no par preferred stock at an
exercise price of $60, subject to adjustment. Generally, the rights
become exercisable ten days after a person or group acquires or
commences a tender offer that would result in beneficial ownership of
20% or more of the common shares. In addition, the rights become
exercisable if any party becomes the beneficial owner of 10% or more
of the outstanding common shares and is determined by the Board to be
an adverse party. Upon the
Page 30
occurrence of certain additional events specified in the shareholder rights
agreement, each right would entitle its holder to purchase common shares of
the Company (or, in some cases, a potential acquiring company) or other
property having a value of twice the right's exercise price. The rights,
which are not currently exercisable, expire in September 2000, but may be
redeemed by action of the Board prior to that time, under certain
circumstances, for $0.01 per right.
BENEFIT PLANS
PENSION AND POSTRETIREMENT BENEFIT PLANS
The Company has defined benefit retirement plans covering most
employees. The U.S. pension plan was amended in 1998, converting it
from a final average pay plan to a cash balance plan. Under the new
plan, an initial account was established for all participants who were
active employees as of December 31, 1997. Beginning January 1, 1998, a
specified percentage of eligible compensation will be credited to each
participant's account. In addition, each participant's account will
<PAGE>
earn interest credits, based on the one-year Treasury Bill rate plus
0.5%. Upon separation from Tektronix, participating employees may
choose to have their account balances paid to them in the form of a
lump sum amount or as an annuity. As a result of this plan amendment,
the pension benefit obligation was reduced by $38.9 million, which is
being amortized as a reduction in pension expense over the average
remaining service period of the active participants in the plan.
For 1998, the Company increased the expected long-term rate of
return assumption to reflect historical rates of return on plan
assets. As a result of this change, pension expense in 1998 was
reduced by $3.8 million. The retirement rate assumption was also
revised to reflect actual demographic experience. As a result of this
change, the pension benefit obligation as of May 30, 1998, was
increased by $5.5 million. Finally, upon transition to the cash
balance plan on January 1, 1998, the discount rate was reduced to
reflect current market conditions. The impact of this change was to
increase the pension benefit obligation by $63.9 million.
The following tables provide information about changes in the
benefit obligation and plan assets and the funded status of the
Company's pension and postretirement benefit plans.
<TABLE>
<CAPTION>
PENSION BENEFITS POSTRETIREMENT
BENEFITS
IN THOUSANDS 1998 1997 1998 1997
- ----------------------------------------------------- ---------------------
<S> <C> <C> <C> <C>
CHANGE IN BENEFIT OBLIGATION
Beginning balance $ 495,945 $ 512,270 $ 15,070 $ 16,952
Service cost 14,161 11,897 188 177
Interest cost 37,829 37,430 1,145 1,244
Actuarial (gain) loss 68,544 (35,106) 1,252 (1,209)
Plan amendments (38,882) (3,527) - -
CTE acquisition 2,732 - - -
Benefit payments (25,036) (22,934) (1,711) (2,094)
Other adjustments (1,565) (4,085) - -
-----------------------------------------------
Ending balance 553,728 495,945 15,944 15,070
===============================================
CHANGE IN FAIR VALUE OF PLAN ASSETS
Beginning balance 474,222 402,715 - -
Actual return 86,512 55,611 - -
Employer contributions 4,379 41,437 - -
Benefit payments (25,036) (22,934) - -
Other adjustments (1,349) (2,607) - -
-----------------------------------------------
Ending balance 538,728 474,222 - -
===============================================
Net unfunded status of the plan 15,000 21,723 15,944 15,070
Unrecognized initial net
asset (obligation) (124) 1,735 - -
Unrecognized prior service cost 46,320 9,834 16,026 18,697
Unrecognized net gain (loss) (37,414) (8,141) 9,112 11,110
-----------------------------------------------
Net liability recognized $ 23,782 $ 25,151 $ 41,082 $ 44,877
===============================================
</TABLE>
The projected benefit obligation, accumulated benefit obligation, and
fair value of plan assets for certain non-U.S. plans with accumulated
benefit obligations in excess of plan assets were $18.7 million, $17.2
million and zero, respectively, for 1998, and $15.2 million, $13.1
million and zero, respectively, for 1997.
Page 31
Assumptions used in the accounting for the Company's pension and
postretirement benefit plans were:
<TABLE>
<CAPTION>
ASSUMPTIONS ON A WEIGHTED
AVERAGE BASIS 1998 1997 1996
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
PENSION BENEFITS
Discount rate 7.0% 7.8% 7.6%
Rate of compensation increase 3.7% 3.8% 3.8%
Expected return on plan assets 10.9% 10.2% 9.3%
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
POSTRETIREMENT BENEFITS
<S> <C> <C> <C>
Discount rate 7.3% 8.0% 7.8%
Rate of compensation increase 3.8% 3.8% 3.8%
</TABLE>
Effective July 1, 1998, the Company replaced its self-funded
indemnity health plan for retirees with an insured indemnity plan.
Accordingly, the assumed health care cost trend rates used to measure
the expected cost of benefits were adjusted to reflect the terms of
the new plan. As a result, the annual rate of change in the cost of
health care benefits for 1999 under the new indemnity plan was assumed
to be a decrease of 14.3% for participants under the age of 65 and an
increase of 4.7% for participants age 65 and over. These rates were
assumed to increase to 13.5% and 16.0%, respectively, for 2000 and
2001, and then were assumed to decrease gradually until they reach an
ultimate rate of 5.3% and 5.5%, respectively, in 2007. For the
existing retiree HMO plans, the rate of increase in the cost of health
care benefits was assumed to be 9.8% for 1999, decreasing gradually to
a rate of 5.3% in 2004 and remaining at that level thereafter. A 1%
change in these assumptions would not have a material effect on either
the postretirement benefit obligation at May 30, 1998, or the benefit
credit reported for 1998.
The components of net pension benefit cost and postretirement benefit
credit recognized in income were:
<TABLE>
<CAPTION>
IN THOUSANDS 1998 1997 1996
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
PENSION BENEFITS
Service cost $ 14,161 $ 12,084 $ 9,469
Interest cost 37,829 37,627 37,414
Expected return on plan assets (48,634) (39,335) (33,574)
Amortization of transition asset (2,059) (1,858) (1,835)
Amortization of prior service cost (2,209) (740) (780)
Recognized net loss 1,792 2,655 999
Other benefit plans 1,992 1,327 1,454
-----------------------------------
Net benefit cost $ 2,872 $ 11,760 $ 13,147
===================================
POSTRETIREMENT BENEFITS
Service cost $ 188 $ 177 $ 168
Interest cost 1,145 1,244 1,359
Amortization of prior service cost (2,671) (2,671) (2,671)
Recognized net gain (747) (631) (714)
-----------------------------------
Net benefit credit $ (2,085) $ (1,881) $ (1,858)
===================================
</TABLE>
EMPLOYEE SAVINGS PLAN
The Company has an employee savings plan that qualifies as a
deferred salary arrangement under Section 401(k) of the Internal
Revenue Code. Participating U.S. employees may defer up to 15% of
their compensation, subject to certain regulatory limitations.
Employee contributions are invested, at the employees' direction,
among a variety of investment alternatives. The Company's matching
contribution, which was previously invested entirely in Company stock,
was increased from 3% to 4% of compensation effective January 1, 1998,
and may now be invested in any one of the 401(k) plan funds. In
addition, the Company contributes Company stock to the plan for all
eligible employees equal to 2% of compensation. The Company's total
contributions were approximately $16.4 million in 1998, $14.2 million
in 1997, and $12.1 million in 1996.
DERIVATIVE FINANCIAL INSTRUMENTS
The Company utilizes derivative financial instruments to reduce the
impact of foreign exchange risks where internal netting strategies
cannot be effectively employed. The Company does not hold or issue
derivative financial instruments for trading purposes. The Company's
derivative activities do not create risk because fluctuations in the
value of the instruments used for hedging purposes are offset by
fluctuations in the value of the underlying exposures being hedged.
The notional or contract amounts of the hedging instruments do not
<PAGE>
represent amounts exchanged by the parties and, thus, are not a
measure of the Company's exposure due to the use of derivatives. The
amounts exchanged are calculated on the basis of the notional amounts
and other terms of the instruments. The Company is exposed to credit-
related losses in the event of nonperformance by counterparties to
financial instruments. However, the Company has entered into these
instruments with creditworthy financial institutions and considers the
risk of nonperformance to be remote.
FOREIGN EXCHANGE RISK MANAGEMENT
The Company uses foreign exchange contracts to hedge its exchange
rate risks. At the end of 1998 and 1997, the notional amounts of the
Company's outstanding contracts were $127.4 million and $113.6
million, respectively. Generally, these contracts have maturities
that do not exceed one year and require the Company to exchange
foreign currencies for U.S. dollars at maturity. The purpose of the
Company's hedging activities is to reduce the risk that the eventual
cash flows of the underlying assets, liabilities and firm commitments
will be adversely affected by changes in exchange rates. The deferred
gains or losses attributable to foreign exchange contracts are not
material.
Page 32
FAIR VALUE OF FINANCIAL INSTRUMENTS
For short-term financial instruments, including cash and cash
equivalents, accounts receivable, short-term debt, accounts payable
and accrued compensation, the carrying amount approximates the fair
value because of the immediate or short-term nature of those
instruments. The fair value of marketable equity securities is based
on quoted market prices at the reporting date. The fair value of long-
term debt is estimated based on quoted market prices for similar
instruments or by discounting expected cash flows at rates currently
available to the Company for instruments with similar risks and
maturities. The differences between the fair values and carrying
amounts of the Company's financial instruments, including derivatives,
at May 30, 1998, and May 31, 1997, were not material.
CONCENTRATIONS OF CREDIT RISK
Financial instruments that potentially subject the Company to
concentrations of credit risk consist principally of trade accounts
receivable. The risk is limited due to the large number of entities
comprising the Company's customer base and their dispersion across
many different industries and geographies. At May 30, 1998, the
Company had no significant concentrations of credit risk.
INCOME TAXES
The components of earnings before taxes on a geographical basis are
contained in the "Business Segments" note. The provision for income
taxes consisted of:
<TABLE>
<CAPTION>
IN THOUSANDS 1998 1997 1996
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current:
Federal $ 30,979 $ 21,457 $ 9,104
State 5,060 3,742 1,961
Non-U.S. 10,826 7,854 10,789
-----------------------------------
46,865 33,053 21,854
Deferred:
Federal (180) 15,921 16,363
State (460) 2,015 3,338
Non-U.S. (5,696) 3,028 1,125
-----------------------------------
(6,336) 20,964 20,826
-----------------------------------
Total provision $ 40,529 $ 54,017 $ 42,680
===================================
</TABLE>
The provisions differ from the amounts that would result by applying
the U.S. statutory rate to earnings before taxes. A reconciliation of
the difference is:
<PAGE>
<TABLE>
<CAPTION>
IN THOUSANDS 1998 1997 1996
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income taxes based on U.S. statutory rate $ 42,985 $ 59,081 $ 49,793
Foreign sales corporations (6,391) (5,935) (4,565)
Change in beginning of year valuation allowance (505) (3,824) (5,526)
State income taxes, net of U.S. tax 2,990 3,742 3,445
Other - net 1,450 953 (467)
----------------------------------
Total provision $ 40,529 $ 54,017 $ 42,680
==================================
</TABLE>
Tax benefits of $7.8 million, $5.6 million and $5.0 million
associated with the exercise of employee stock options were credited
to common stock in 1998, 1997 and 1996, respectively.
Net deferred tax assets and liabilities are included in the
following consolidated balance sheet accounts:
<TABLE>
<CAPTION>
IN THOUSANDS 1998 1997
- ----------------------------------------------------------------------------
<S> <C> <C>
Other current assets $ 52,434 $ 43,106
Deferred tax assets 25,102 12,540
-----------------------
Net deferred tax assets $ 77,536 $ 55,646
=======================
</TABLE>
The temporary differences and carryforwards that give rise to
deferred tax assets and liabilities were as follows:
<TABLE>
<CAPTION>
IN THOUSANDS 1998 1997
- ----------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Reserves and other liabilities $ 43,179 $ 41,858
Accrued postretirement benefits 16,022 17,502
Accumulated depreciation 9,162 9,918
Intangibles 8,271 -
AMT and foreign tax credit carryforwards 8,243 14,088
Restructuring costs and separation programs 7,463 -
Accrued pension liability 6,632 6,289
Net operating losses of non-U.S. subsidiaries 5,324 10,432
-----------------------
Gross deferred tax assets 104,296 100,087
Less valuation allowance (2,600) (3,105)
-----------------------
Deferred tax assets 101,696 96,982
-----------------------
Deferred tax liabilities:
Software development costs (19,167) (17,464)
Unrealized gains on marketable equity securities (4,993) (22,092)
Unamortized LIFO reserve - (1,780)
-----------------------
Deferred tax liabilities (24,160) (41,336)
-----------------------
Net deferred tax assets $ 77,536 $ 55,646
=======================
</TABLE>
At May 30, 1998, there were no unused foreign tax credit carryovers.
There were $8.2 million of alternative minimum tax (AMT) credits that
can be carried forward indefinitely.
Page 33
<PAGE>
QUARTERLY FINANCIAL DATA (UNAUDITED)
In the opinion of management, this unaudited quarterly financial
summary includes all adjustments necessary to present fairly the
results for the periods represented (in thousands, except per share
amounts):
<TABLE>
<CAPTION>
AUG. 30, NOV. 29, FEB. 28, MAY 30,
QUARTER ENDED 1997 1997 1998 1998
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $ 481,274 $ 529,046 $ 517,570 $ 557,912
Gross profit 201,273 191,995 224,854 247,205
Operating income (loss) 38,317 (32,932) 48,599 61,317
Earnings (loss) before taxes 39,874 (31,667) 51,106 63,501
Net earnings (loss) 26,716 (21,217) 34,241 42,545
Basic earnings (loss) per share $ 0.53 $ (0.42) $ 0.68 $ 0.84
Diluted earnings (loss) per share 0.52 (0.42) 0.67 0.83
Average shares outstanding -
basic 50,303 50,546 50,483 50,452
diluted 51,442 50,546 51,408 51,413
Dividends per share $ 0.10 $ 0.12 $ 0.12 $ 0.12
Common stock prices:
High $ 43.50 $ 46.42 $ 46.25 $ 48.19
Low 36.42 37.08 35.56 36.06
AUG. 31, NOV. 30, MAR. 1, MAY 31,
QUARTER ENDED 1996 1996 1997 1997
- ----------------------------------------------------------------------------------------
Net sales $ 440,115 $ 477,166 $ 478,886 $ 543,915
Gross profit 191,272 199,762 205,233 236,460
Operating income 32,874 38,452 41,255 52,427
Earnings before taxes 33,405 38,905 42,297 54,195
Net earnings 22,715 26,456 28,762 36,852
Basic earnings per share $ 0.46 $ 0.54 $ 0.58 $ 0.74
Diluted earnings per share 0.45 0.53 0.57 0.72
Average shares outstanding -
basic 49,149 49,287 49,616 49,973
diluted 49,888 50,125 50,409 51,006
Dividends per share $ 0.10 $ 0.10 $ 0.10 $ 0.10
Common stock prices:
High $ 29.92 $ 32.67 $ 34.83 $ 39.83
Low 23.92 24.67 31.59 32.25
</TABLE>
The Company's common stock is traded on the New York and Pacific
Stock Exchanges. There were 3,880 shareholders of record at June 24,
1998. The market prices quoted above are the composite prices
reported by The Wall Street Journal rounded to full cents per share.
Dividends are paid at the discretion of the Board of Directors
dependent upon their judgment of the Company's future earnings,
expenditures and financial condition.
All share and per share amounts have been restated to give effect to
the three-for-two stock split effective October 31, 1997.
Page 34
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF TEKTRONIX, INC.
<TABLE>
<CAPTION>
Percentage of Voting
Name of Subsidiary and Securities Owned by
Jurisdiction in Which Organized Immediate Parent
<S> <C>
Tektronix Ges.m.b.H. (Austria) 100%
Tektronix GmbH (Germany) 100
Tektronix Canada Inc. (Canada) 100
Tektronix Australia Pty. Limited (Australia) 100
Tektronix S.A.(France) 100
Tektronix N.V. (Belgium) 100
Tektronix, S.A. de C.V. (Mexico) 100
Tektronix A/S (Denmark) 100
Tektronix S.p.A. (Italy) 100
Tektronix Norge A/S (Norway) 100
Tektronix AB (Sweden) 100
Tektronix Oy (Finland) 100
Tektronix Industria e Comercio Ltda. (Brazil) 100
Tektronix Holland N.V. (The Netherlands) 100
Tektronix International A.G. (Switzerland) 100
Tektronix Distribution Europe B.V. (The Netherlands) 100
Tektronix Polska Sp. z o.o. (Poland) 100
Tektronix U.K. Limited (United Kingdom) 100
Tektronix U.K. Holdings Limited (United Kingdom) 100
Tektronix U.K. Development Centre Limited 100
(United Kingdom)
Tektronix Espanola, S.A. (Spain) 100
GVG Japan, Ltd. (Japan) 100
Tektronix Foreign Sales Corporation (Guam) 100
Tektronix China, Limited (Hong Kong) 100
Tektronix Hong Kong Limited (Hong Kong) 100
Tektronix Electronics (China) Co., Ltd. (China) 100
Tektronix Taiwan, Ltd. (Taiwan) 100
Tektronix Southeast Asia Pte Ltd (Singapore) 100
Tektronix Engineering Development (India) Limited (India) 100
Tektronix Korea, Ltd. (Korea) 100
Tektronix Development Company (Oregon) 100
Tektronix International, Inc. (Oregon) 100
Tektronix Federal Systems, Inc. (Oregon) 100
Tektronix Funding Corporation (Oregon) 100
Tektronix Asia, Ltd. (Oregon) 100
Tektronix Export, Inc.(Oregon) 100
<PAGE>
<S> <C>
. . . . . . . . . . . . . . . . . . . . . . .
Subsidiaries - Less than 100% Ownership
(Parent Company/Oregon Corp. listed above):
Yangzhong Tektronix Electronic Instrument Co., Ltd. 85
(China)
Shanghai Tektronix Electronic Instrument Co., Ltd. 65
(China)
Chongqing Tektronix Electronic Instrument Co., Ltd. 60
(China)
Tektronix (India) Limited (India) 94
Sony/Tektronix Corporation (Japan) 50
MaxTek Components Corporation (U.S.) 50
</TABLE>
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement Nos.
33-59171, 33-58511, 33-33496, 33-30648 and 333-42413 of Tektronix, Inc. on Form
S-8 and Registration Statement Nos. 33-58635, 33-58513, 33-18658, and 33-59648
of Tektronix, Inc. on Form S-3 of our report dated June 23, 1997, incorporated
by reference in this Annual Report on Form 10-K of Tektronix, Inc. for the year
ended May 30, 1998.
DELOITTE & TOUCHE LLP
DELOITTE & TOUCHE LLP
Portland, Oregon
August 20, 1998
<PAGE>
POWER OF ATTORNEY
The undersigned constitutes and appoints JEROME J. MEYER, CARL W. NEUN and JAMES
F. DALTON and each of them, as the undersigned's true and lawful attorneys and
agents, with full power of substitution and resubstitution for the undersigned
and in the undersigned's name, place and stead, in any and all capacities, to
sign the Tektronix, Inc. Annual Report on Form 10-K for the year ended May 30,
1998 and any and all amendments thereto, and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys and agents, and each of them,
full power and authority to do any and all acts and things necessary or
advisable to be done, as fully and to all intents and purposes as the
undersigned might or could do in person, hereby ratifying and confirming all
that said attorneys and agents or either of them, or their or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Dated: August 13, 1998 /s/ JEROME J. MEYER
--------------------
Jerome J. Meyer
<PAGE>
POWER OF ATTORNEY
The undersigned constitutes and appoints JEROME J. MEYER, CARL W. NEUN and JAMES
F. DALTON and each of them, as the undersigned's true and lawful attorneys and
agents, with full power of substitution and resubstitution for the undersigned
and in the undersigned's name, place and stead, in any and all capacities, to
sign the Tektronix, Inc. Annual Report on Form 10-K for the year ended May 30,
1998 and any and all amendments thereto, and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys and agents, and each of them,
full power and authority to do any and all acts and things necessary or
advisable to be done, as fully and to all intents and purposes as the
undersigned might or could do in person, hereby ratifying and confirming all
that said attorneys and agents or either of them, or their or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Dated: August 10, 1998 /s/ PAULINE LO ALKER
---------------------
Pauline Lo Alker
<PAGE>
POWER OF ATTORNEY
The undersigned constitutes and appoints JEROME J. MEYER, CARL W. NEUN and JAMES
F. DALTON and each of them, as the undersigned's true and lawful attorneys and
agents, with full power of substitution and resubstitution for the undersigned
and in the undersigned's name, place and stead, in any and all capacities, to
sign the Tektronix, Inc. Annual Report on Form 10-K for the year ended May 30,
1998 and any and all amendments thereto, and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys and agents, and each of them,
full power and authority to do any and all acts and things necessary or
advisable to be done, as fully and to all intents and purposes as the
undersigned might or could do in person, hereby ratifying and confirming all
that said attorneys and agents or either of them, or their or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Dated: August 10, 1998 /s/ A. GARY AMES
-----------------
A. Gary Ames
<PAGE>
POWER OF ATTORNEY
The undersigned constitutes and appoints JEROME J. MEYER, CARL W. NEUN and JAMES
F. DALTON and each of them, as the undersigned's true and lawful attorneys and
agents, with full power of substitution and resubstitution for the undersigned
and in the undersigned's name, place and stead, in any and all capacities, to
sign the Tektronix, Inc. Annual Report on Form 10-K for the year ended May 30,
1998 and any and all amendments thereto, and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys and agents, and each of them,
full power and authority to do any and all acts and things necessary or
advisable to be done, as fully and to all intents and purposes as the
undersigned might or could do in person, hereby ratifying and confirming all
that said attorneys and agents or either of them, or their or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Dated: August 10, 1998 /s/ GERRY B. CAMERON
---------------------
Gerry B. Cameron
<PAGE>
POWER OF ATTORNEY
The undersigned constitutes and appoints JEROME J. MEYER, CARL W. NEUN and JAMES
F. DALTON and each of them, as the undersigned's true and lawful attorneys and
agents, with full power of substitution and resubstitution for the undersigned
and in the undersigned's name, place and stead, in any and all capacities, to
sign the Tektronix, Inc. Annual Report on Form 10-K for the year ended May 30,
1998 and any and all amendments thereto, and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys and agents, and each of them,
full power and authority to do any and all acts and things necessary or
advisable to be done, as fully and to all intents and purposes as the
undersigned might or could do in person, hereby ratifying and confirming all
that said attorneys and agents or either of them, or their or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Dated: August 14, 1998 /s/ DAVID N. CAMPBELL
----------------------
David N. Campbell
<PAGE>
POWER OF ATTORNEY
The undersigned constitutes and appoints JEROME J. MEYER, CARL W. NEUN and JAMES
F. DALTON and each of them, as the undersigned's true and lawful attorneys and
agents, with full power of substitution and resubstitution for the undersigned
and in the undersigned's name, place and stead, in any and all capacities, to
sign the Tektronix, Inc. Annual Report on Form 10-K for the year ended May 30,
1998 and any and all amendments thereto, and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys and agents, and each of them,
full power and authority to do any and all acts and things necessary or
advisable to be done, as fully and to all intents and purposes as the
undersigned might or could do in person, hereby ratifying and confirming all
that said attorneys and agents or either of them, or their or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Dated: August 13, 1998 /s/ PAUL C. ELY, JR.
--------------------
Paul C. Ely, Jr.
<PAGE>
POWER OF ATTORNEY
The undersigned constitutes and appoints JEROME J. MEYER, CARL W. NEUN and JAMES
F. DALTON and each of them, as the undersigned's true and lawful attorneys and
agents, with full power of substitution and resubstitution for the undersigned
and in the undersigned's name, place and stead, in any and all capacities, to
sign the Tektronix, Inc. Annual Report on Form 10-K for the year ended May 30,
1998 and any and all amendments thereto, and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys and agents, and each of them,
full power and authority to do any and all acts and things necessary or
advisable to be done, as fully and to all intents and purposes as the
undersigned might or could do in person, hereby ratifying and confirming all
that said attorneys and agents or either of them, or their or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Dated: August 13, 1998 /s/ A.M. GLEASON
-----------------
A. M. Gleason
<PAGE>
POWER OF ATTORNEY
The undersigned constitutes and appoints JEROME J. MEYER, CARL W. NEUN and JAMES
F. DALTON and each of them, as the undersigned's true and lawful attorneys and
agents, with full power of substitution and resubstitution for the undersigned
and in the undersigned's name, place and stead, in any and all capacities, to
sign the Tektronix, Inc. Annual Report on Form 10-K for the year ended May 30,
1998 and any and all amendments thereto, and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys and agents, and each of them,
full power and authority to do any and all acts and things necessary or
advisable to be done, as fully and to all intents and purposes as the
undersigned might or could do in person, hereby ratifying and confirming all
that said attorneys and agents or either of them, or their or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Dated: August 10, 1998 /s/ MERRILL A. McPEAK
----------------------
Merrill A. McPeak
<PAGE>
POWER OF ATTORNEY
The undersigned constitutes and appoints JEROME J. MEYER, CARL W. NEUN and JAMES
F. DALTON and each of them, as the undersigned's true and lawful attorneys and
agents, with full power of substitution and resubstitution for the undersigned
and in the undersigned's name, place and stead, in any and all capacities, to
sign the Tektronix, Inc. Annual Report on Form 10-K for the year ended May 30,
1998 and any and all amendments thereto, and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys and agents, and each of them,
full power and authority to do any and all acts and things necessary or
advisable to be done, as fully and to all intents and purposes as the
undersigned might or could do in person, hereby ratifying and confirming all
that said attorneys and agents or either of them, or their or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Dated: August 10, 1998 /s/ WILLIAM D. WALKER
----------------------
William D. Walker
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S CONSOLIDATED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAY-30-1998
<PERIOD-END> MAY-30-1998
<CASH> 120,541
<SECURITIES> 0
<RECEIVABLES> 351,102
<ALLOWANCES> 4,760
<INVENTORY> 214,347
<CURRENT-ASSETS> 748,662
<PP&E> 817,645
<DEPRECIATION> 392,492
<TOTAL-ASSETS> 1,376,810
<CURRENT-LIABILITIES> 349,797
<BONDS> 150,681
223,527
0
<COMMON> 0
<OTHER-SE> 561,414
<TOTAL-LIABILITY-AND-EQUITY> 1,376,810
<SALES> 0
<TOTAL-REVENUES> 2,085,802
<CGS> 0
<TOTAL-COSTS> 1,220,475
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10,076
<INCOME-PRETAX> 122,814
<INCOME-TAX> 40,529
<INCOME-CONTINUING> 82,285
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 82,285
<EPS-PRIMARY> 1.63
<EPS-DILUTED> 1.60
</TABLE>
