<PAGE>
==============================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
[ X ] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarter ended February 26, 2000, 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
TEKTRONIX, INC.
(Exact name of registrant as specified in its charter)
OREGON 93-0343990
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
14200 SW KARL BRAUN DRIVE
BEAVERTON, OREGON 97077
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (503) 627-7111
(Former name, former address and former fiscal year, if changed since last
report)
NOT APPLICABLE
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
------- ------
AT MARCH 25, 2000 THERE WERE 48,203,907 COMMON SHARES OF TEKTRONIX, INC.
OUTSTANDING. (Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.)
<PAGE>
TEKTRONIX, INC. AND SUBSIDIARIES
- --------------------------------
INDEX
- ------
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets - 2
February 26, 2000 and May 29, 1999
Condensed Consolidated Statements of Operations - 3
for the Quarter ended February 26, 2000
and the Quarter ended February 27, 1999
for the Three quarters ended February 26, 2000
and the Three quarters ended February 27, 1999
Condensed Consolidated Statements of Cash Flows - 4
for the Three quarters ended February 26, 2000
and the Three quarters ended February 27, 1999
Notes to Condensed Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial 13
Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk 21
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 22
SIGNATURE 23
</TABLE>
1
<PAGE>
TEKTRONIX, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
<TABLE>
<CAPTION>
Feb. 26, May 29,
(In thousands) 2000 1999
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 849,511 $ 39,747
Accounts receivable - net 157,675 165,979
Inventories 110,611 158,305
Net assets of discontinued operations - 338,990
Other current assets 55,986 83,417
------------ ------------
Total current assets 1,173,783 786,438
Property, plant and equipment - net 190,901 283,769
Deferred tax assets 19,476 56,405
Other long-term assets 209,491 121,723
------------ ------------
Total assets $ 1,593,651 $ 1,248,335
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term debt $ 3,580 $ 115,687
Accounts payable 239,823 171,306
Accrued compensation 80,861 108,982
Deferred revenue 12,995 2,438
Income taxes payable 92,606 -
------------ ------------
Total current liabilities 429,865 398,413
Long-term debt 150,523 150,722
Other long-term liabilities 79,296 77,638
Shareholders' equity:
Common stock 157,211 143,263
Retained earnings 754,819 458,613
Accumulated other comprehensive income 21,937 19,686
------------ ------------
Total shareholders' equity 933,967 621,562
------------ ------------
Total liabilities and shareholders' equity $ 1,593,651 $ 1,248,335
============ ============
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
2
<PAGE>
TEKTRONIX, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
Quarter ended Three quarters ended
Feb. 26, Feb. 27, Feb. 26, Feb. 27,
(In thousands except for per share amounts) 2000 1999 2000 1999
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $ 277,044 $ 273,009 $ 819,062 $ 809,520
Cost of sales 153,601 145,729 451,330 477,245
---------- ---------- ---------- ----------
Gross profit 123,443 127,280 367,732 332,275
Research and development expenses 30,412 29,666 101,355 107,602
Selling, general and administrative
expenses 81,938 72,461 225,273 244,500
Equity in business ventures' income (loss) (356) 286 (699) (8,894)
Non-recurring charges 36,617 - 36,617 81,488
Charges related to the
sale of Video and Networking 5,513 - 31,613 -
---------- ---------- ---------- ----------
Operating income (loss) (31,393) 25,439 (27,825) (110,209)
Other income (expense) - net 5,487 (7,437) (135) (9,438)
---------- ---------- ---------- ----------
Earnings (loss) from continuing
operations before taxes (25,906) 18,002 (27,960) (119,647)
Income tax expense (benefit) (9,067) 5,761 (9,145) (38,286)
---------- ---------- ---------- ----------
Net earnings (loss) from continuing
operations (16,839) 12,241 (18,815) (81,361)
Discontinued operations:
Earnings (loss) from operations of
Color Printing and Imaging
(less applicable income tax expense (benefit)
of $(6,825), 1,064, (2,063), and 2,507,
respectively) (12,675) 2,261 (3,995) 5,329
Gain on sale of Color Printing
and Imaging (less applicable income tax
expense of $198,476) 340,307 - 340,307 -
---------- ---------- ---------- ----------
Net earnings from discontinued
operations 327,632 2,261 336,312 5,329
---------- ---------- ---------- ----------
Net earnings (loss) $ 310,793 $ 14,502 $ 317,497 $ (76,032)
========== ========== ========== ==========
Earnings (loss) per share - basic $ 6.57 $ 0.31 $ 6.74 $ (1.59)
Earnings (loss) per share - diluted $ 6.49 $ 0.31 $ 6.68 $ (1.59)
Earnings (loss) per share from continuing
operations - basic and diluted $ (0.36) $ 0.26 $ (0.40) $ (1.70)
Earnings per share from
discontinued operations - basic $ 6.93 $ 0.05 $ 7.14 $ 0.11
Earnings per share from
discontinued operations - diluted $ 6.84 $ 0.05 $ 7.08 $ 0.11
Dividends per share $ 0.12 $ 0.12 $ 0.36 $ 0.36
Average shares outstanding - basic 47,297 46,846 47,126 47,944
Average shares outstanding - diluted 47,890 47,249 47,503 47,944
The accompanying notes are an integral part of these condensed consolidated financial statements.
</TABLE>
3
<PAGE>
TEKTRONIX, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
Three quarters ended
Feb. 26, Feb. 27,
(In thousands) 2000 1999
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings (loss) $ 317,497 $ (76,032)
Adjustments to reconcile net earnings (loss) to net
cash provided by (used in) operating activities:
(Earnings) loss from discontinued operations 3,995 (5,329)
Pre-tax gain on sale of Color Printing and Imaging (538,783) -
Pre-tax net non-recurring charges 51,136 120,534
Charges related to the sale of Video and Networking 31,613 -
Depreciation and amortization expense 41,141 48,514
Payment to fund pension plan (42,500) -
Deferred income tax expense (benefit) 36,367 (65,962)
(Gain) loss on sale of fixed assets (14,647) 1,657
(Gain) loss on sale of investments 619 (7,294)
Equity in business ventures' loss 699 8,894
Changes in operating assets and liabilities:
Accounts receivable 3,722 77,632
Inventories (17,052) (31,841)
Other current assets 29,182 (2,876)
Accounts payable 183 (15,867)
Accrued compensation (25,137) (70,884)
Income taxes payable 92,733 -
Other-net 1,288 (11,878)
------------ ------------
Net cash used in continuing operations (27,944) (30,732)
Net cash provided by (used in) discontinued operations 22,401 (43,641)
------------ ------------
Net cash used in operating activities (5,543) (74,373)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of property, plant and equipment (30,323) (50,851)
Acquisition of business (4,500) (4,300)
Net proceeds from sale of Color Printing and Imaging 906,130 -
Net proceeds from sale of Video and Networking 22,600 -
Net proceeds from sale of fixed assets 42,469 5,506
Net proceeds from sale of investments 2,813 8,929
------------ ------------
Net cash provided by (used in) investing activities 939,189 (40,716)
CASH FLOWS FROM FINANCING ACTIVITIES
Net change in short-term debt (112,661) 132,605
Repayment of long-term debt (199) (576)
Issuance of common stock 36,146 1,335
Repurchase of common stock (30,246) (85,524)
Dividends (16,922) (17,280)
------------ ------------
Net cash provided by (used in) financing activities (123,882) 30,560
------------ ------------
Net increase (decrease) in cash and cash equivalents 809,764 (84,529)
Cash and cash equivalents at beginning of period 39,747 120,541
------------ ------------
Cash and cash equivalents at end of period $ 849,511 $ 36,012
============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOWS
Income taxes paid - net $ 4,728 $ 13,373
Interest paid 16,135 14,427
NON-CASH INVESTING ACTIVITIES
Note receivable for sale of Video and Networking assets $ 28,000 -
Note receivable for sale of receivables to Grass Valley Group Inc. 4,300 -
Common stock of Grass Valley Group Inc. for sale of Video and
Networking assets 6,300 -
The accompanying notes are an integral part of these condensed consolidated financial statements.
</TABLE>
4
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
BASIS OF PRESENTATION
The condensed consolidated financial statements and notes have been prepared by
the company without audit. Certain information and footnote disclosures normally
included in annual financial statements, prepared in accordance with generally
accepted accounting principles, have been condensed or omitted. Management
believes that the condensed statements include all necessary adjustments, which
are of a normal and recurring nature and are adequate to present financial
position, results of operations and cash flows for the interim periods. The
condensed information should be read in conjunction with the financial
statements and notes incorporated by reference in the company's latest annual
report on Form 10-K. The company's fiscal year is the 52 or 53 weeks ending the
last Saturday in May. Fiscal years 2000 and 1999 are 52 weeks.
DISCONTINUED OPERATIONS
On January 1, 2000, the company sold substantially all of the assets of the
Color Printing and Imaging division to Xerox Corporation (Xerox). The purchase
price was $925.0 million in cash, with certain liabilities of the division
assumed by Xerox. During the third quarter of 2000, Tektronix recorded a net
gain of $340.3 million on this sale. The gain was calculated as the excess of
the proceeds received over the net book value of the assets transferred,
$198.5 million in income tax expense, a $50.0 million accrual for contingent
liabilities and potential purchase price adjustments related to the sale and
$14.4 million in transaction and other costs.
On January 26, 2000, Tektronix announced a plan for the use of the net proceeds
from the sale. The plan included a $550.0 million common stock repurchase
program comprised of a Dutch Auction tender offer followed by an open market
purchase of shares, the repayment of substantially all of the outstanding
short-term debt and the retention of the remaining proceeds for other corporate
purposes.
The company accounted for the Color Printing and Imaging division as a
discontinued operation in accordance with Accounting Principles Board Opinion
No. 30, "Reporting the Results of Operations - Reporting the Effects of Disposal
of a Segment of a Business, and Extraordinary, Unusual and Infrequently
Occurring Events and Transactions." Summarized results of operations through
December 31, 1999, and the gain on sale of the Color Printing and Imaging
division were as follows:
<TABLE>
<CAPTION>
Quarter ended Three quarters ended
Feb. 26, Feb. 27, Feb. 26, Feb. 27,
(In thousands except for per share amounts) 2000 1999 2000 1999
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $ 24,302 $ 197,598 $ 369,459 $ 512,230
--------- --------- --------- ---------
Earnings (loss) before taxes (19,500) 3,325 (6,058) 7,836
Income tax expense (benefit) (6,825) 1,064 (2,063) 2,507
--------- --------- --------- ---------
Earnings (loss) from operations (12,675) 2,261 (3,995) 5,329
Gain on sale of Color Printing and Imaging
(less applicable tax of $198,476) 340,307 - 340,307 -
--------- --------- --------- ---------
Net earnings $ 327,632 $ 2,261 $ 336,312 $ 5,329
========= ========= ========= =========
Net earnings per diluted share $ 6.84 $ 0.05 $ 7.08 $ 0.11
========= ========= ========= =========
</TABLE>
5
<PAGE>
Summarized net assets for the Color Printing and Imaging division were as
follows:
<TABLE>
<CAPTION>
May 29,
(In thousands) 1999
- -----------------------------------------------------------------------
<S> <C>
Current assets $ 272,210
Long-term assets 177,810
Current liabilities (98,633)
Long-term liabilities (12,397)
------------
Net assets of discontinued operations $ 338,990
============
</TABLE>
REPURCHASE OF COMMON STOCK
The company's plan for the use of the net proceeds from the sale of the Color
Printing and Imaging division included a $550.0 million share repurchase
program. On February 23, 2000, the company purchased 107,394 shares of its
common stock at $44 per share, totaling $4.7 million, through a Dutch Auction
tender offer. On March 15, 2000, the Board of Directors approved a program to
purchase up to $545.0 million of the company's common stock on the open market
or through negotiated transactions.
SALE OF VIDEO AND NETWORKING
On August 9, 1999, the company announced that it had reached an agreement to
sell substantially all of the operating assets of its Video and Networking
division to Grass Valley Group Inc. During the first quarter of 2000, Tektronix
recorded pre-tax charges of $26.1 million for losses expected to be incurred in
connection with the transaction. These charges were calculated based upon the
excess of the estimated net book value of assets to be transferred over the
proceeds, as well as asset impairments expected to be incurred as a result of
the sale. On September 24, 1999, the companies closed the transaction. Tektronix
received cash of $23.7 million, net of transaction costs of $1.1 million, a note
receivable of $22.5 million, and a 10% equity interest in Grass Valley Group
Inc., which was recorded in other long-term assets and is accounted for under
the cost method. The actual loss on the sale was $26.1 million. Management
concluded that accounting for the Video and Networking division as a
discontinued operation, in accordance with Accounting Principles Board Opinion
No. 30, was not appropriate as a portion of the division was retained by the
company, including the VideoTele.com business, which generated net sales of
$33.2 million in 1999.
On February 25, 2000, Tektronix and Grass Valley Group Inc. entered into a
subsequent agreement. Under this agreement, the company sold unbilled revenue
on systems contracts in progress that were not a part of the original
transaction. As consideration for the assets sold, the note receivable was
amended to increase the principal balance and decrease the interest rate. The
note is now carried at $28.0 million, with $23.0 million classified as
long-term and $5.0 million classified as short-term. In addition, a $4.3
million short-term note receivable was recorded for the sale of certain trade
receivables that were also excluded from the original transaction.
Charges of $5.5 million were incurred in conjunction with these
new arrangements.
In connection with the new agreement, Tektronix has also agreed to sell, at a
fixed price, its 10% equity interest in Grass Valley Group Inc., to the
majority shareholder of that company. This transaction is expected to occur
on May 25, 2000, but is contingent upon certain conditions specified in the
agreement. The company does not expect any gain or loss from this transaction
to be material.
6
<PAGE>
PURCHASE OF MAXTEK COMPONENTS CORPORATION
On January 7, 2000, the company acquired Maxim Integrated Products, Inc.'s
(Maxim) 50% ownership interest in Maxtek Components Corporation (Maxtek),
formerly a joint venture between Tektronix and Maxim. The purchase price and
related goodwill are not material. The transaction was accounted for by the
purchase method of accounting, and accordingly, the results of operations of
Maxtek have been consolidated 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 company will account for Maxtek as a
wholly-owned subsidiary with its results included in the Measurement segment.
FORMATION OF VIDEOTELE.COM AS A WHOLLY-OWNED SUBSIDIARY
The company formed a new subsidiary and transferred to it substantially all
of the assets and liabilities relating to its VideoTele.com business,
effective February 26, 2000. All of the outstanding stock of this subsidiary
is owned by the company, and employees of the company working for the
subsidiary are receiving options to purchase approximately 25% of the equity
of the subsidiary. VideoTele.com recorded net sales of $17.1 million for the
three quarters ended February 26, 2000, which were included in net sales of the
Measurement segment.
NON-RECURRING CHARGES
In the third quarter of 2000, the company announced and began to implement a
series of actions (the 2000 plan) intended to further consolidate worldwide
operations and transition the company from a portfolio of businesses to a single
smaller business focused on test, measurement and monitoring. Major actions
under the 2000 plan include the exit from and consolidation within underutilized
facilities, including the write-off of assets that will be abandoned in
conjunction with this action, the impairment of certain shared assets, the
write-off and disposal of certain excess service and other inventories and
focused headcount reductions to streamline the cost structure to that of a
smaller stand-alone Measurement business and to eliminate duplicative functions
within the company's infrastructure. The company recorded pre-tax non-recurring
charges of $64.8 million to account for these actions, including $19.1 million
for the impairment of assets, $16.8 million for lease cancellation fees and
future payments on exited leased facilities and volume-based contracts,
$15.5 million for the write-off and disposal of excess inventories and $13.4
million for severance.
In the second quarter of 1999, the company announced and began to implement a
series of actions (the 1999 plan) intended to align worldwide operations with
market conditions and to improve the profitability of its operations. These
actions included a net reduction of approximately 15% of the company's worldwide
workforce, the exit from certain facilities and the streamlining of product and
service offerings.
Under the 1999 plan, the company recorded pre-tax charges of $125.7 million,
including restructuring charges of $115.8 million and other non-recurring
charges of $9.9 million for related actions. The $115.8 million in restructuring
charges included $56.9 million in severance expense, $27.1 million for the
write-off and disposal of excess inventory, $17.0 million for the impairment of
long-term assets and $14.8 million for lease cancellation fees. The $9.9 million
for related actions included $5.1 million of expected sales returns,
$0.8 million of bad debt expense and $4.0 million of costs to fulfill
commitments to deliver software enhancements on previously sold product, all
associated with exiting the non-linear digital editing business.
7
<PAGE>
Pre-tax net non-recurring charges impacted the company's results of operations
as follows:
<TABLE>
<CAPTION>
Location of charge in the
condensed consolidated Three quarters ended
(In thousands) statements of operations Feb. 26, 2000 Feb. 27, 1999
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Asset write-offs and
impairments Non-recurring charges $ 22,629 $ 17,397
Lease buy-outs and
abandonment of facilities Non-recurring charges 15,547 9,411
Inventory write-offs Cost of sales 14,758 27,760
Severance and benefits Non-recurring charges (1,560) 54,680
Bad debt expense related to Selling, general and
discontinued products administrative expenses (238) 803
Sales returns and allowances Net sales - 6,464
Commitment for enhancements
related to discontinued Research and development
products expenses - 4,019
----------- -----------
$ 51,136 $ 120,534
=========== ===========
</TABLE>
Pre-tax net non-recurring charges for the quarter and three quarters ended
February 26, 2000, total $51.1 million, including $64.8 million in new charges
under the 2000 plan and $13.7 million in reversals and adjustments of prior
non-recurring charges. Of the net $51.1 million, $14.8 million was recorded in
cost of sales, while $36.6 million was recorded in non-recurring charges and
$0.3 million was reversed to selling, general and administrative expenses, for a
total net charge to operating expenses of $36.3 million.
The pre-tax charges incurred and related actions taken under the 1999 and 2000
plans affected the company's financial position in the following manner:
<TABLE>
<CAPTION>
Equipment Payables
and other and other Accrued
(In thousands) assets liabilities Inventories compensation
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Original charges (the 1999 plan) $ 18,200 $ 19,894 $ 27,760 $ 54,680
Fiscal year 1999 activity:
Cash paid out - (7,415) - (20,844)
Non-cash disposals or write-offs (17,055) - (27,070) -
Adjustments to plan (Q4 1999) (455) 4,049 (690) 2,244
---------- ---------- ---------- ----------
Balance May 29, 1999 $ 690 $ 16,528 $ - $ 36,080
---------- ---------- ---------- ----------
Fiscal year 2000 activity:
New charges (the 2000 plan) $ 19,142 $ 16,787 $ 15,460 $ 13,362
Adjustments to plan 1,531 - 903 -
Reversal of excess charges
(the 1999 plan) - (600) - (14,799)
Cash paid out - (10,001) - (19,898)
Non-cash disposals or write-offs (21,363) - (16,363) -
---------- ---------- ---------- ----------
Balance February 26, 2000 $ - $ 22,714 $ - $ 14,745
========== ========== ========== ==========
</TABLE>
8
<PAGE>
The original charge of $18.2 million for equipment and other assets included
asset impairments of $17.4 million and $0.8 million in reserves for bad debt
expense. The impaired assets were primarily related to discontinued product
lines in Color Printing and Imaging and Video and Networking and included
manufacturing assets of $6.2 million, goodwill and other intangibles of
$6.5 million and leasehold improvements and other assets of $4.7 million.
Under the 2000 plan, a new charge of $19.1 million was taken to account for the
write-off of assets that will be abandoned in conjunction with exited
facilities, the impairment of certain shared assets that were appropriate to
support a portfolio of businesses but are not required to support the
stand-alone Measurement business and the write-down of prepaid royalties that
were impaired as a result of the decision to de-emphasize certain product lines
that are not strategic to the company's business.
The original $19.9 million charge for payables and other liabilities included
reserves for lease buy-outs and abandonment of facilities, sales returns and
allowances and commitments for enhancements related to discontinued products.
This reserve was increased by $4.0 million during 1999 to provide for additional
costs to exit certain sales and service offices worldwide and to fulfill certain
contractual commitments, partly offset by a decrease in original sales returns
allowances.
Under the 2000 plan, the company recorded a new charge of $16.8 million to
account for lease cancellation fees and future payments on exited leased
facilities and volume-based contracts. The facilities being exited include
excess administrative space and sales facilities. Many of the remaining sales
personnel will work out of home offices.
The $27.8 million original charge to inventories under the 1999 plan included
inventories impaired as a result of the consolidation of Measurement service
offerings, the discontinuation of three Color Printing and Imaging product
lines and the discontinuation of non-linear digital editing products sold
under the Lightworks name.
Under the 2000 plan, the company recorded a charge of $15.5 million to
account for the write-off and disposal of certain service inventories,
impaired as a result of management's commitment to streamlining Measurement's
service business, and VideoTele.com inventory that was not transferred to the
new subsidiary due to the discontinuation of certain product lines.
The original charge of $54.7 million in accrued compensation reflects a
planned headcount reduction of 1,371 employees worldwide. This charge was
increased by a net $2.2 million during the fourth quarter of 1999. The
$2.2 million consisted of an $8.6 million reserve for severance of an
additional 282 employees worldwide across all responsibilities, offset in
part by reversal of a $6.4 million reserve for pension settlement that was
not needed as settlement accounting was not appropriate during 1999. As a
result of the sale of the Color Printing and Imaging division, the company
evaluated the balance in the severance reserve and determined that the
amounts remaining under the 1999 plan were not required, as the remaining
employees to be terminated were transferred to Xerox in conjunction with the
sale or voluntarily left the company without severance. As such, the excess
reserves of $14.8 million for 332 employees were reversed to non-recurring
charges during the third quarter of 2000. Headcount reduction under the 1999
plan of reorganization totaled 1,321 employees worldwide. Severance of $40.4
million has been paid to approximately 1,274 of these employees, while the
other 47 employees will be paid severance of $1.7 million, through the first
quarter of fiscal year 2001.
Under the 2000 plan, $13.4 million in accrued compensation was recorded to
reflect focused headcount reductions of 339 employees, a net increase of seven
employees over the 332 reversed, to streamline the company's cost structure to
that of a smaller stand-alone Measurement business and to eliminate excess and
duplicative functions. The planned reductions are primarily in manufacturing
with the remaining cuts in administrative and sales functions.
9
<PAGE>
SALE OF BUILDINGS
During the third quarter of 2000, the company completed the sale of several
buildings in conjunction with its plan to exit from and consolidate within
facilities while transitioning to a stand-alone Measurement business. These
sales resulted in total pre-tax gains of $12.0 million, which were included in
other income (expense)- net in the condensed consolidated statements of
operations. Included were $3.3 million in gains on the sales of office,
warehouse and manufacturing facilities on the Beaverton, Oregon campus and an
$8.7 million gain on the sale of an office facility in Marlow, England.
RECEIVABLES
On September 10, 1996, the company entered into a five-year revolving
receivables 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 zero and $40.0 million were sold under this agreement
as of February 26, 2000 and May 29, 1999, respectively, and are therefore not
reflected in the accounts receivable balance in the accompanying Condensed
Consolidated Balance Sheet.
INVENTORIES
Inventories consisted of:
<TABLE>
<CAPTION>
Feb. 26, May 29,
(In thousands) 2000 1999
- ----------------------------------------------------------------------------------
<S> <C> <C>
Materials and work in process $ 41,673 $ 54,766
Finished goods 68,938 103,539
----------- -----------
Inventories $ 110,611 $ 158,305
=========== ===========
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of:
<CAPTION>
Feb. 26, May 29,
(In thousands) 2000 1999
- ----------------------------------------------------------------------------------
<S> <C> <C>
Land $ 1,739 $ 4,642
Buildings 157,961 186,525
Machinery and equipment 285,369 405,978
----------- -----------
445,069 597,145
Accumulated depreciation (254,168) (313,376)
----------- -----------
Property, plant and equipment - net $ 190,901 $ 283,769
=========== ===========
</TABLE>
10
<PAGE>
COMPREHENSIVE INCOME (LOSS)
Comprehensive income (loss) and its components, net of tax, were as follows:
<TABLE>
<CAPTION>
Quarter ended Three quarters ended
Feb. 26, Feb. 27, Feb. 26, Feb. 27,
(In thousands) 2000 1999 2000 1999
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net earnings (loss) $ 310,793 $ 14,502 $ 317,497 $ (76,032)
Other comprehensive income (loss):
Currency translation adjustment (3,761) (5,781) 1,396 5,461
Unrealized gain (loss) on
available-for-sale securities 761 (601) 484 (5,047)
Reclassification adjustment for
realized gains (losses) included
in net earnings (loss) - (497) 371 (4,376)
---------- ---------- ---------- ----------
Comprehensive income (loss) $ 307,793 $ 7,623 $ 319,748 $ (79,994)
========== ========== ========== ==========
</TABLE>
BUSINESS SEGMENTS
The company has historically operated in three main segments: Measurement, Color
Printing and Imaging, and Video and Networking. Operations for the Color
Printing and Imaging division were accounted for as discontinued during the
quarter, as substantially all of the assets of the division were sold to Xerox
in a transaction that closed January 1, 2000. In addition, substantially all of
the operating assets of the Video and Networking division were sold to Grass
Valley Group Inc. in a transaction that closed September 24, 1999.
The information provided below was obtained from internal information that was
provided to the company's chief financial officer for the purpose of corporate
management. Assets, liabilities and expenses attributable to corporate activity
were not allocated to the operating segments. Inter-segment sales were not
material and were included in net sales to external customers below. Figures
shown for 1999 were restated to include results for the VideoTele.com business
within Measurement and exclude them from Video and Networking.
<TABLE>
<CAPTION>
Quarter ended Three quarters ended
Feb. 26, Feb. 27, Feb. 26, Feb. 27,
(In thousands) 2000 1999 2000 1999
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales to external customers
(by segment):
Measurement $ 270,627 $ 211,200 $ 751,986 $ 635,649
Video and Networking and other 6,417 61,809 67,076 173,871
---------- ---------- ---------- ----------
Net sales $ 277,044 $ 273,009 $ 819,062 $ 809,520
========== ========== ========== ==========
Net sales to external customers
(by region):
United States $ 139,290 $ 124,620 $ 426,985 $ 391,972
Europe 56,116 80,240 193,597 234,575
Pacific 34,788 34,260 92,712 95,350
Japan 28,012 20,845 63,558 50,851
Americas 18,838 13,044 42,210 36,772
---------- ---------- ---------- ----------
Net sales $ 277,044 $ 273,009 $ 819,062 $ 809,520
========== ========== ========== ==========
11
<PAGE>
Operating income (loss):
Measurement $ 34,324 $ 30,367 $ 83,015 $ 47,321
Video and Networking (2,256) (5,778) (21,269) (36,639)
Charges related to the sale of
Video and Networking (5,513) - (31,613) -
Non-recurring charges (51,136) - (51,136) (120,534)
Other income (loss) (6,812) 850 (6,822) (357)
--------- --------- --------- ---------
Operating income (loss) $ (31,393) $ 25,439 $ (27,825) $(110,209)
========= ========= ========= =========
</TABLE>
INCOME TAXES
The provision for income tax expense (benefit) consisted of:
<TABLE>
<CAPTION>
Quarter ended Three quarters ended
Feb. 26, Feb. 27, Feb. 26, Feb. 27,
(In thousands) 2000 1999 2000 1999
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
United States $ (2,720) $ 11,768 $ (2,743) $(78,208)
State (907) 557 (915) (3,704)
Foreign (5,440) (6,564) (5,487) 43,626
-------- -------- -------- --------
Income tax expense (benefit) $ (9,067) $ 5,761 $ (9,145) $(38,286)
======== ======== ======== ========
</TABLE>
The annual effective rate used to calculate the 2000 income tax expense
(benefit) was 37%, while the rate for 1999 was 32%. For the quarter and three
quarters ended February 26, 2000, the company recorded income tax expense of
$191.7 million and $196.4 million, respectively, on earnings from discontinued
operations. This is compared to income tax expense of $1.1 million and $2.5
million for the quarter and three quarters ended February 27, 1999,
respectively. The significant increase is due to the gain on the sale of the
Color Printing and Imaging division realized during the third quarter of 2000.
FUTURE ACCOUNTING CHANGES
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative
Instruments and Hedging Activities." The statement will require recognition of
all derivatives as either assets or liabilities on the balance sheet at fair
value. The statement is effective for the company's fiscal year 2002, as
deferred by SFAS No. 137, but early adoption is permitted. Management has not
yet completed an evaluation of the effects this standard will have on the
company's consolidated financial statements.
In December of 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements."
The bulletin will be effective for the company's first quarter of fiscal year
2001. Management has not yet completed an evaluation of the effects this
bulletin will have on the company's consolidated financial statements.
12
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL
The company has historically operated in three major business divisions:
Measurement, Color Printing and Imaging, and Video and Networking, as well as in
five major geographies: the United States; Europe; the Americas, including
Mexico, Canada and South America; the Pacific, excluding Japan; and Japan.
SALE OF COLOR PRINTING AND IMAGING
On January 1, 2000, the company sold substantially all of the assets of the
Color Printing and Imaging division to Xerox Corporation (Xerox). The purchase
price was $925.0 million in cash, with certain liabilities of the division
assumed by Xerox. During the third quarter of 2000, Tektronix recorded a net
gain of $340.3 million on this sale. The gain was calculated as the excess of
the proceeds received over the net book value of the assets transferred,
$198.5 million in income tax expense, a $50.0 million accrual for contingent
liabilities and potential purchase price adjustments related to the sale and
$14.4 million in transaction and other costs.
On January 26, 2000, Tektronix announced a plan for the use of the net proceeds
from the sale. The plan included a $550.0 million common stock repurchase
program comprised of a Dutch Auction tender offer followed by an open market
purchase of shares, the repayment of substantially all of the outstanding
short-term debt, and the retention of the remaining proceeds for other corporate
purposes. On February 23, 2000, the company purchased 107,394 shares of its
common stock for $44 per share, totaling $4.7 million, through the Dutch Auction
tender offer. On March 15, 2000, the Board of Directors approved a program to
purchase up to $545.0 million of the company's common stock on the open market
or through negotiated transactions.
The company accounted for the Color Printing and Imaging division as a
discontinued operation in accordance with Accounting Principles Board Opinion
No. 30, "Reporting the Results of Operations -Reporting the Effects of
Disposal of a Segment of a Business, and Extraordinary, Unusual and
Infrequently Occurring Events and Transactions." Operating results of the
division through December 31, 1999, have been included in net earnings from
discontinued operations for the periods reported. During the quarter and
three quarters ended February 26, 2000, Color Printing and Imaging realized
net sales of $24.3 million and $369.5 million, respectively, and net losses of
$12.7 million and $4.0 million, respectively. During the quarter and three
quarters ended February 27, 1999, Color Printing and Imaging realized net sales
of $197.6 million and $512.2 million, respectively, and net earnings of
$2.3 million and $5.3 million, respectively.
SALE OF VIDEO AND NETWORKING
On August 9, 1999, the company announced that it had reached an agreement to
sell substantially all of the operating assets of its Video and Networking
division to Grass Valley Group Inc. During the first quarter of 2000, Tektronix
recorded pre-tax charges of $26.1 million for losses expected to be incurred in
connection with the transaction. These charges were calculated based upon the
excess of the estimated net book value of assets to be transferred over the
proceeds, as well as asset impairments expected to be incurred as a result of
the sale. On September 24, 1999, the companies closed the transaction. Tektronix
received cash of $23.7 million, net of transaction costs of $1.1 million, a note
receivable of $22.5 million, and a 10% equity interest in Grass Valley Group
Inc., which was recorded in other long-term assets and is accounted for under
the cost method. The actual loss on the sale was $26.1 million. Management
concluded that accounting for the Video and Networking division as a
discontinued operation, in accordance with Accounting Principles Board Opinion
No. 30, was not appropriate as a portion of the division was retained by the
company, including the VideoTele.com business, which generated net sales of
$33.2 million in 1999.
13
<PAGE>
Video and Networking operating results through September 24, 1999, have been
included in those from continuing operations for the periods reported. During
the quarter and three quarters ended February 26, 2000, Video and Networking
realized net sales of zero and $59.6 million, respectively, and operating losses
of $2.3 million and $21.3 million, respectively. For the quarter and three
quarters ended February 27, 1999, Video and Networking net sales were $61.8
million and $173.9 million, respectively, while operating losses were $5.8
million and $36.6 million, respectively.
On February 25, 2000, Tektronix and Grass Valley Group Inc. entered into a
subsequent agreement. Under this agreement, the company sold unbilled revenue
on systems contracts in progress that were not a part of the original
transaction. As consideration for the assets sold, the note receivable was
amended to increase the principal balance and decrease the interest rate. The
note is now carried at $28.0 million, with $23.0 million classified as
long-term and $5.0 million classified as short-term. In addition, a $4.3
million short-term note receivable was recorded for the sale of certain trade
receivables that were also excluded from the original transaction. Charges of
$5.5 million were incurred in conjunction with these new arrangements.
In connection with the new agreement, Tektronix has also agreed to sell, at a
fixed price, its 10% equity interest in Grass Valley Group Inc., to the
majority shareholder of that company. This transaction is expected to occur
on May 25, 2000, but is contingent upon certain conditions specified in the
agreement. The company does not expect any gain or loss from this transaction
to be material.
PURCHASE OF MAXTEK COMPONENTS CORPORATION
On January 7, 2000, the company acquired Maxim Integrated Products Inc.'s
(Maxim) 50% ownership interest in Maxtek Components Corporation (Maxtek),
formerly a joint venture between Tektronix and Maxim. The purchase price and
related goodwill are not material. The transaction was accounted for by the
purchase method of accounting, and accordingly, the results of operations of
Maxtek have been consolidated 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 company will account for Maxtek as a
wholly-owned subsidiary with its results included in the Measurement segment.
FORMATION OF VIDEOTELE.COM AS A WHOLLY-OWNED SUBSIDIARY
The company formed a new subsidiary and transferred to it substantially all
of the assets and liabilities relating to its VideoTele.com business,
effective February 26, 2000. All of the outstanding stock of this subsidiary
is owned by the company, and employees of the company working for the
subsidiary are receiving options to purchase approximately 25% of the equity
of the subsidiary. VideoTele.com recorded net sales of $17.1 million for the
three quarters ended February 26, 2000, which were included in net sales of the
Measurement segment.
NON-RECURRING CHARGES
In the second quarter of 1999, the company announced and began to implement a
series of actions (the 1999 plan) intended to align worldwide operations with
market conditions and to improve the profitability of its operations.
The company recorded pre-tax charges of $125.7 million to account for these
actions. During the third quarter of 2000, the company evaluated the remaining
reserves under the 1999 plan, to determine whether they were still required.
As a result of the sale of the Color Printing and Imaging division, the
company determined that the $14.8 million balance in accrued compensation was
not required, as the remaining employees to be terminated were transferred to
Xerox in conjunction with the sale or voluntarily left the company without
severance. Accordingly, the excess reserves were reversed to non-recurring
charges.
14
<PAGE>
In the third quarter of 2000, the company announced and began to implement a
series of actions (the 2000 plan) intended to further consolidate worldwide
operations and transition the company from a portfolio of businesses to a
smaller single business focused on test, measurement and monitoring. Major
actions under the 2000 plan include, the exit from and consolidation within
underutilized facilities, including the write-off of assets that will be
abandoned in conjunction with this action, the impairment of certain shared
assets, the write-off and disposal of certain excess service and other
inventories and focused headcount reductions to streamline the company's cost
structure to that of a smaller stand-alone Measurement business and to eliminate
duplicative functions within the company's infrastructure. The company recorded
pre-tax non-recurring charges of $64.8 million to account for these actions,
including $19.1 million for the impairment of assets, $16.8 million for lease
cancellation fees and future payments on exited leased facilities and
volume-based contracts, $15.5 million for the write-off and disposal of excess
inventories and $13.4 million for severance worldwide.
Pre-tax net non-recurring charges for the quarter and three quarters ended
February 26, 2000, total $51.1 million, including $64.8 million in new
charges under the 2000 plan and $13.7 million in reversals and adjustments of
prior non-recurring charges. Of the net $51.1 million, $14.8 million was
recorded in cost of sales, while $36.6 million was recorded in non-recurring
charges and $0.3 million was reversed to selling, general and administrative
expenses, for a total net charge to operating expenses of $36.3 million.
The $19.1 million charge was taken to account for the write-off of assets
that will be abandoned in conjunction with exited facilities, the impairment
of certain shared assets that were appropriate to support a portfolio of
businesses but are not required to support the stand-alone Measurement
business and the write-down of prepaid royalties that were impaired as a
result of the decision to de-emphasize certain product lines that are not
strategic to the company's business.
The company also recorded a charge of $16.8 million to account for lease
cancellation fees and future payments on exited leased facilities and
volume-based contracts. The facilities being exited include excess
administrative space and sales facilities. Many of the remaining sales personnel
will work out of home offices.
A charge of $15.5 million was taken to account for the write-off and disposal
of certain service inventories, impaired as a result of management's
commitment to streamlining Measurement's service business, and VideoTele.com
inventory that was not transferred to the new subsidiary due to the
discontinuation of certain product lines.
Lastly, $13.4 million in accrued compensation was recorded to reflect focused
headcount reductions of 339, a net increase of seven employees over the 332
reversed, to streamline the company's cost structure to that of a smaller
stand-alone Measurement business and to eliminate excess and duplicative
functions. The planned reductions are primarily in manufacturing with the
remaining cuts in administrative and sales functions worldwide.
SALE OF BUILDINGS
During the third quarter of 2000, the company completed the sale of several
buildings in conjunction with its plan to exit from and consolidate within
facilities while transitioning to a stand-alone Measurement business. These
sales resulted in total pre-tax gains of $12.0 million, which were included in
other income (expense)- net in the condensed consolidated statements of
operations. Included were $3.3 million in gains on the sales of office,
warehouse and manufacturing facilities on the Beaverton, Oregon campus and an
$8.7 million gain on the sale of an office facility in Marlow, England.
15
<PAGE>
RESULTS OF OPERATIONS
Quarter and Three Quarters Ended February 26, 2000
vs.
Quarter and Three Quarters Ended February 27, 1999
NET EARNINGS (LOSS) FROM CONTINUING OPERATIONS
The company recognized a net loss from continuing operations of $16.8 million,
or $0.36 per diluted share, during the third quarter of 2000 as compared to net
earnings from continuing operations of $12.2 million, or $0.26 per diluted
share, during the same period in 1999. For the first three quarters of 2000, the
company recognized a net loss from continuing operations of $18.8 million, or
$0.40 per diluted share, as compared to a net loss from continuing operations of
$81.4 million, or $1.70 per diluted share, for the first three quarters of 1999.
Excluding pre-tax net non-recurring charges of $56.6 million ($36.8 million
after tax), which included $5.5 million in charges related to the sale of Video
and Networking, the company would have recognized net earnings from continuing
operations of $20.0 million, or $0.42 per diluted share for the third quarter of
2000. For the first three quarters of 2000, the company would have recognized
$35.0 million, or $0.74 per diluted share in net earnings from continuing
operations, excluding $82.7 million in pre-tax net non-recurring charges
($53.8 million after tax), which included $31.6 million in charges related to
the sale of Video and Networking. This is compared to net earnings from
continuing operations of $0.6 million, or $0.01 per diluted share, excluding
pre-tax net non-recurring charges of $120.5 million ($82.0 million after
tax), for the first three quarters of 1999.
NET EARNINGS (LOSS) FROM DISCONTINUED OPERATIONS
The company recognized net earnings from discontinued operations of
$327.6 million, or $6.84 per diluted share, for the third quarter of 2000, as
compared to $2.3 million, or $0.05 per diluted share, for the same period in
1999. For the first three quarters of 2000, the company recognized $336.3
million, or $7.08 per diluted share, in net earnings from discontinued
operations, as compared to $5.3 million, or $0.11 per diluted share, for the
first three quarters of 1999. Net earnings from discontinued operations for
the third quarter of 2000 included the $340.3 million net gain on the sale of
the Color Printing and Imaging division.
NET SALES
Net sales of $277.0 million from continuing operations for the third quarter
of 2000, were up slightly over third quarter 1999 net sales of $273.0 million.
Net sales for Measurement were $270.6 million, as compared to net sales of
$211.2 million for the third quarter of 1999, an increase of 28% over the
prior year. Growth was driven by overall strength in the computer,
telecommunications and semiconductor markets and new product introductions
over the last twelve months. Measurement experienced growth in all geographies
except Europe, where net sales were down $3.1 million or 5%. The decline in
Europe was due largely to unfavorable foreign currency exchange rates and an
increase in backlogged orders. Although management does not expect net sales
to Europe to continue to decline, management does expect that they will
represent a smaller portion of Measurement's total sales over the next several
quarters. The United States and the Americas experienced the most significant
sales growth, up $36.7 million or 38% and $9.3 million or 97% over 1999,
respectively. Growth in these regions was realized across nearly all product
lines, with particularly strong sales in oscilloscopes, logic analyzers and
communications test products. Oscilloscope and logic analyzer sales increased
due to favorable market conditions and strong demand for new products released
late in fiscal year 1999. Growth in the sales of communications products was
driven by strong demand for mobile production test products, as well as a new
high speed optical transmission test product.
16
<PAGE>
Net sales from continuing operations for the first three quarters of 2000 were
$819.1 million, as compared to net sales of $809.5 million for the first three
quarters of 1999. Measurement net sales were $752.0 million, an 18% increase
over net sales of $635.6 million for the first three quarters of 1999.
Measurement experienced growth in all geographies, with the United States and
Japan experiencing the largest increases, up $75.2 million or 24% and $16.1
million or 35% over 1999, respectively. Net sales to the United States
increased year-to-date in similar product lines and for similar reasons as the
third quarter of 2000. The increase in net sales to Japan was due mainly to
improved market conditions in the region and strong customer acceptance of new
products introduced late last fiscal year.
ORDERS
Third quarter 2000 orders for Measurement were $267.7 million, up $72.2 million
or 37% over orders for the same period in 1999. Orders were up across all
geographies, with the United States and the Americas experiencing the largest
increases. Orders from the United States were $140.4 million, up $46.4 million
or 49%, while orders from the Americas were $18.0 million, up $10.0 million or
125%, respectively. Orders from these regions increased in the same product
lines and for the same reasons as net sales increased for the quarter. While the
company expects continued strong orders, management does not expect to realize
similar year-over-year orders growth in the next several quarters.
Measurement orders for the first three quarters of 2000 were $753.0 million, up
$161.2 million or 27% over orders for the same period in 1999. Orders were up
across all geographies, particularly from the United States and the Pacific.
Orders from the United States were $390.7 million, up $106.2 million or 37% from
orders for the same period in 1999, while orders from the Pacific were
$93.1 million, up $18.0 million or 24%. The United States orders were
impacted by the same favorable conditions that impacted net sales. Orders from
the Pacific increased due to economic recovery in that region.
GROSS PROFIT
The company's gross profit from continuing operations was $123.4 million for the
third quarter of 2000, a decrease from gross profit of $127.3 million for the
same period in 1999. Excluding net non-recurring charges to cost of sales of
$14.8 million in the third quarter of 2000, gross profit was $138.2 million or
49.9% of net sales, as compared to $127.3 million or 46.6% of net sales for
the third quarter of 1999.
The company's gross profit from continuing operations was $367.7 million for the
first three quarters of 2000, an increase over gross profit of $332.3 million
for the same period in 1999. Excluding net non-recurring charges to cost of
sales of $14.8 million, gross profit was $382.5 million for the first three
quarters of 2000. This is compared to $366.6 million for the first three
quarters of 1999, excluding net non-recurring charges of $6.5 million to net
sales and $27.8 million to cost of sales. As a percentage of net sales,
excluding net non-recurring charges, gross profit increased from 44.9% to 46.7%
for the first three quarters of 2000.
Measurement gross profit improved from $107.3 million or 50.8% of net sales for
the third quarter of 1999, to $139.9 million, or 51.7% of net sales for the
third quarter of 2000. For the first three quarters of 2000, Measurement gross
profit was $372.7 million, or 49.6% of net sales as compared to $311.0 million,
or 48.9% of net sales for the first three quarters of 1999. The increase in both
periods resulted mainly from higher margins on oscilloscopes introduced late in
fiscal year 1999, as well as increased sales volume. Measurement generated
unusually high gross margins due to the favorable mix of products sold, and
while the company expects continued strength in gross margins, management does
not expect future margins as high as those realized during the third quarter,
on an on-going basis.
17
<PAGE>
OPERATING EXPENSES
Operating expenses from continuing operations were $154.8 million, up
$53.0 million from $101.8 million for the third quarter of 1999. The increase
was primarily due to net non-recurring charges of $41.8 million, which
included $5.5 million in charges related to the sale of Video and Networking,
recorded in the third quarter of 2000. Excluding net non-recurring charges,
operating expenses were $113.0 million or 40.8% of net sales, up
$11.2 million over the third quarter of 1999, due mainly to an increase in
selling, general and administrative expenses. Excluding non-recurring
charges, selling, general and administrative expenses were $82.2 million or
29.7% of net sales for the quarter, an increase of $9.7 million from
$72.5 million or 26.5% of net sales for the third quarter of 1999. This
increase resulted primarily from commissions on higher sales, other
incentives and bonuses and transition expenses and a series of one-time
compensation related credits in 1999 that did not repeat in 2000, offset in
part by the elimination of Video and Networking expenses from the company's
cost structure.
For the first three quarters of 2000, operating expenses from continuing
operations were $395.6 million, down $46.9 million from $442.5 million for the
first three quarters of 1999, due mainly to lower net non-recurring charges, as
well as a decrease in selling, general and administrative expenses. Net
non-recurring charges for the first three quarters of 2000 were $67.9 million,
which included $31.6 million in charges related to the sale of Video and
Networking, $18.4 million lower than the $86.3 million in net non-recurring
charges recorded during the first three quarters of 1999. Excluding
non-recurring charges, selling, general and administrative expenses were
$225.5 million or 27.5% of net sales for the first three quarters of 2000, a
decrease of $18.2 million from $243.7 million or 29.9% of net sales for the
same period in 1999. This decline resulted primarily from only four months of
Video and Networking results included in the current year offset in part by a
series of one-time compensation related credits, included in 1999 that were
not repeated in 2000 and an increase in commissions on higher sales and other
incentives and bonuses. Losses on investments accounted for under the equity
method were $0.7 million, $8.2 million lower than those recognized in the same
period of 1999, primarily due to Tektronix' $5.9 million share of the loss
reported by Merix Corporation during the first three quarters of 1999.
OPERATING MARGIN
Measurement operating income for the third quarter of 2000 was $34.3 million, as
compared to $30.4 million generated during the same period of 1999. Operating
margin was approximately 12.7% of net sales for the quarter, as compared to
14.4% for the third quarter of 1999. Operating margins for 1999 benefited from
a series of one-time compensation related credits that were not repeated in
2000. Management currently expects future Measurement operating margins at the
high-end of the company's model, which is approximately 10% to 12%, excluding
any non-recurring charges or transition costs.
INCOME TAXES
The annual effective rate used to calculate 2000 income taxes was 37%, while the
rate for 1999 was 32%. Income taxes from continuing operations decreased from
expense of $5.8 million for the third quarter of 1999 to benefit of $9.1 million
for the third quarter of 2000 as a result of losses from continuing operations
before taxes. The income tax benefit related to discontinued operations was
$6.8 million for the current quarter, as compared to expense of $1.1 million
for the third quarter of 1999.
Income tax benefit from continuing operations was $9.1 million for the first
three quarters of 2000, as compared to income tax benefit of $38.3 million for
the same period in 1999 as a result of decreased losses before taxes. Income tax
benefit related to discontinued operations was $2.1 million for the first three
quarters of 2000, as compared to expense of $2.5 million for the first three
quarters of 1999 due to losses before taxes. As a result of the gain realized on
the sale of the Color Printing and Imaging division, the company recorded income
tax expense of $198.5 million during the quarter and three quarters ended
February 26, 2000.
18
<PAGE>
FINANCIAL CONDITION
At February 26, 2000, the company held $849.5 million in cash and cash
equivalents and bank credit facilities totaling $273.3 million, of which
$264.7 million was unused. Unused facilities include $113.7 million in lines
of credit and $151.0 million under revolving credit agreements with United
States and foreign banks.
WORKING CAPITAL
At February 26, 2000, the company's working capital was $743.9 million, an
increase of $355.9 million from the end of 1999 due mainly to an increase in
current assets. Current assets increased $387.3 million during the first three
quarters of 2000, with cash and cash equivalents increasing, offset in part by
the sale of the Color Printing and Imaging division's net assets, which were
$339.0 million at year end, and decreases in accounts receivable, inventories,
and other current assets.
Cash and cash equivalents increased $809.8 million during the first three
quarters of the year. Sources of cash included $906.1 million in net proceeds
from the sale of the Color Printing and Imaging division, net proceeds from
sales of fixed assets of $44.7 million and net proceeds from the sale of the
Video and Networking division of $22.6 million. These increases were offset
in part by the payment of approximately $112.7 million in short-term debt and
a $42.5 million funding of the company's cash balance pension plan. Over the
next eighteen months, the company expects one-time operating cash outflows of
approximately $200.0 million, relating to current income taxes payable,
contingent liabilities and potential purchase price adjustments relating to
the sale of the Color Printing and Imaging division, restructuring activity
requirements and employee incentives. In addition, the company could realize
significant financing cash outflow of up to $545.0 million due to the
repurchase of shares of its common stock under the share repurchase plan.
Accounts receivable declined $8.3 million due to a decrease of $80.0 million in
Video and Networking accounts receivable, which were excluded from the sale to
Grass Valley Group Inc., offset in part by an increase of $55.0 million in
receivables, due to a reduction of receivables sold under the company's
securitization agreement, and a $17.0 million increase in Measurement accounts
receivable, due to increased sales over the fourth quarter of 1999 and the
acquisition of Maxtek.
Inventory declined $47.7 million, due mainly to $43.6 million of Video and
Networking inventory that was sold to Grass Valley Group Inc., the write-off and
disposal of $14.8 million in excess service and other inventories through
non-recurring charges and a $5.4 million increase in Measurement's inventory
reserves. These declines were offset in part by growth in Measurement inventory,
primarily purchased materials and work in process balances, which increased due
to higher sales over the fourth quarter of 1999, and the addition of
$5.9 million of inventory acquired in the Maxtex transaction.
Other current assets decreased $27.4 million from year end, primarily due to
$47.0 million in current tax assets realized in conjunction with the gain on the
sale of the Color Printing and Imaging division. This decrease was offset in
part by the recording of the $5.0 million current portion of a note receivable
from Grass Valley Group Inc., a current note receivable of $4.3 million for
receivables sold to Grass Valley Group Inc., and an increase in other
receivables of $5.4 million for transition services provided by Tektronix and
billed to Grass Valley Group Inc.
19
<PAGE>
Current liabilities increased $31.5 million during the first three quarters of
2000, due mainly to an increase in income taxes payable of $92.6 million related
to the gain on the sale of the Color Printing and Imaging division. In addition,
accounts payable increased $68.5 million, due mainly to a $50.0 million accrual
for contingent liabilities and potential purchase price adjustments related to
the sale of the Color Printing and Imaging division, a $6.2 million increase
related to non-recurring charges and a general increase related to higher sales
and inventory levels over the fourth quarter of 1999. Partially offsetting these
increases was the payment of Video and Networking payables not sold to Grass
Valley Group Inc. Partially offsetting these increases in current liabilities,
was a decrease in short-term debt of $112.1 million and a decrease in accrued
compensation of $28.1 million. Short-term debt declined as the debt was repaid
with cash received from the sale of Color Printing and Imaging. Accrued
compensation decreased due to an approximate $28.0 million reduction in accrued
payroll and related benefits due to the timing of payments and headcount
reductions during the three quarters ended February 26, 2000 and the pay-out of
$19.9 million in accrued severance and benefits. These decreases were offset in
part by approximately $21.1 million in accruals for employee incentives earned
during the first three quarters of 2000.
LONG-TERM FINANCIAL POSITION
Other long-term assets increased $87.8 million, due mainly to the recording of
the $23.0 million long-term portion of a note receivable from Grass Valley Group
Inc., a 10% equity interest in that company, which is accounted for under the
cost method and an increase of $42.5 million in pension assets due to a funding
of the company's cash-balance pension plan. The $312.4 million increase in
shareholders' equity is due mainly to net earnings of $317.5 million and a net
increase in common stock of $13.9 million, offset in part by dividends paid of
$16.9 million. Effective after the payment of the second quarter 2000 dividend
on January 31, the company discontinued the payment of cash dividends to
shareholders in order to reinvest future earnings in targeted growth
opportunities.
FORWARD-LOOKING STATEMENTS
Statements and information included in this Form 10-Q 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; competitive
factors, including pricing pressures, technological developments and new
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; and 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.
Tektronix has other risk factors in its business, including, but not limited
to: the continued growth in wireless communication infrastructure and the
semiconductor industry; the effects of year 2000 compliance issues later in
the year; the timely introduction of new products scheduled during the
current year, which could be affected by engineering or other development
program slippage, the ability to ramp up production or to develop effective
sales channels; customers' acceptance of and demand for new products; the
ability to reduce expenditures; and other risk factors listed from
time-to-time in the company's Securities and Exchange Commission reports and
press releases.
20
<PAGE>
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
Reference is made to Item 7A of the company's Annual Report on Form 10-K for the
year ended May 29, 1999.
21
<PAGE>
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit:
(27) (i) Financial Data Schedule.
----------------------
(b) Reports on Form 8-K:
Tektronix filed a report on Form 8-K on, January 12, 2000 with
respect to the sale of the Color Printing and Imaging division
to Xerox Corporation.
Tektronix filed a report on Form 8-K(A) on January 25, 2000
amending the above filing.
22
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
April 10, 2000 TEKTRONIX, INC.
By /s/ Colin L. Slade
---------------------------
Colin L. Slade
Vice President and
Chief Financial Officer
23
<PAGE>
EXHIBIT INDEX
EXHIBIT NO. EXHIBIT DESCRIPTION
(27) (i) Financial Data Schedule.
- ----------------------
24
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAY-27-2000
<PERIOD-END> FEB-26-2000
<CASH> 849,511
<SECURITIES> 0
<RECEIVABLES> 157,675<F1>
<ALLOWANCES> 0
<INVENTORY> 110,611
<CURRENT-ASSETS> 1,173,783
<PP&E> 445,069
<DEPRECIATION> 254,168
<TOTAL-ASSETS> 1,593,651
<CURRENT-LIABILITIES> 429,865
<BONDS> 150,523
0
0
<COMMON> 157,211
<OTHER-SE> 776,756<F2>
<TOTAL-LIABILITY-AND-EQUITY> 1,593,651
<SALES> 819,062
<TOTAL-REVENUES> 819,062
<CGS> 451,330
<TOTAL-COSTS> 451,330
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (27,960)
<INCOME-TAX> (9,145)
<INCOME-CONTINUING> (18,815)
<DISCONTINUED> 336,312
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 317,497
<EPS-BASIC> 6.74<F3>
<EPS-DILUTED> 6.68<F4>
<FN>
<F1>Amount represents net accounts receivable.
<F2>Amount includes retained earnings and other comprehensive income.
<F3>Amount includes earnings per common share from discontinued operations of
$7.14.
<F4>Amount includes earnings per common share from discontinued operations of
$7.08.
</FN>
</TABLE>
