-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, TE7HHyOYn9kZB+koyU/YB5QzEqbrAzhJg7QaF64Rg2hfnlNjx7th/ME8QPDQoKSM 1GdCFU5+Y93sOCHDEG9m0Q== 0000030841-95-000010.txt : 19950605 0000030841-95-000010.hdr.sgml : 19950605 ACCESSION NUMBER: 0000030841-95-000010 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19950331 FILED AS OF DATE: 19950602 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: DYNATECH CORP CENTRAL INDEX KEY: 0000030841 STANDARD INDUSTRIAL CLASSIFICATION: INSTRUMENTS FOR MEAS & TESTING OF ELECTRICITY & ELEC SIGNALS [3825] IRS NUMBER: 042258582 STATE OF INCORPORATION: MA FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-07438 FILM NUMBER: 95544779 BUSINESS ADDRESS: STREET 1: 3 NEW ENGLAND EXECUTIVE PARK CITY: BURLINGTON STATE: MA ZIP: 01803-5087 BUSINESS PHONE: 6172726100 MAIL ADDRESS: STREET 1: 3 NEW ENGLAND EXECUTIVE PARK CITY: BURLINGTON STATE: MA ZIP: 01803-5087 10-K 1 DYNATECH FORM 10-K MARCH 31, 1995 U.S. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF X THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED) For the fiscal year ended March 31, 1995 Commission file number 0-7438 Dynatech Corporation (Exact name of registrant as specified in its charter) MASSACHUSETTS 04-2258582 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 3 New England Executive Park Burlington, Massachusetts 01803-5087 (Address of principal executive offices)(Zip code) Registrant's telephone number, including area code: (617) 272-6100 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock, par value $.20 per share (Title of class) 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. {X} At May 9, 1995 the aggregate market value of the Common Stock of the registrant held by non-affiliates was $330,928,130. At May 9, 1995 there were 17,584,338 shares of Common Stock of the registrant outstanding. DOCUMENTS INCORPORATED BY REFERENCE Portions of the 1995 Annual Report to Shareholders are incorporated by reference in Parts I and II. Portions of the proxy statement for the 1995 Annual Meeting of Shareholders are incorporated by reference in Part III. PART I Item 1. BUSINESS Products and Services Incorporated in Massachusetts in 1959, Dynatech Corporation (the "Company") has its principal offices at 3 New England Executive Park, Burlington, Massachusetts 01803. Production facilities are located in fifteen states and two Western European countries. The Company operates in two business segments: Information Support Products and Diversified Instrumentation. Information support products include instruments, equipment, and software which is used by a wide customer base to support voice, data, and video communications. Diversified instrumentation comprises primarily medical-related equipment and software, and nonstrategic businesses held for sale. A summary of the Company's sales, earnings, and identifiable assets by business segment is found in the 1995 Annual Report which is incorporated herein by reference. The following table sets forth the approximate percentage of revenue attributable to each of the Company's business segments for the past three fiscal years: 1995 1994 1993 ---- ---- ---- Information Support Products 75% 72% 70% Diversified Instrumentation 25% 28% 30% These segments are described in detail below. INFORMATION SUPPORT PRODUCTS The Information Support Products segment is focused on the support of voice, data and video communications. Products sold within this segment may be grouped in the following categories: communications test, data transmission, industrial connectivity, and display. Communications Test Products The Company's communications test products encompass a wide range of portable instruments and test systems designed, manufactured, and marketed by Telecommunications Techniques Corporation. These products are sold to: i) service providers including the Regional Bell Operating Companies, long-distance companies, competitive access providers, cable television operators, and PTTs; ii) service users including large corporate and government network operators; and iii) manufacturers of communications equipment and systems. Since the breakup of the AT&T system in 1984, the amount of digital traffic transmitted through the worldwide telecommunications system has increased dramatically, in part due to the proliferation of computers and networks, and the increased desire to communicate electronically. The increasing volume of digital communications traffic is leading to the adoption of new high-speed transmission technologies such as Synchronous Optical Network (SONET), a high-speed, fiber-based technology now being widely deployed by network service providers. The Company believes that the test products are critical to the smooth functioning of a wide range of communications networks. The market for test products is driven in part by the rapid deployment of new technologies and new communications standards, as well as efforts on the part of communication service providers and users to improve service quality and to reduce costs. These factors have led to demand for communications test products which integrate more test functionality and intelligence. The Company's test products are sold under the following brand names: T-BERD(Registered Trademark), FIREBERD(Registered Trademark), CENTEST (Registered Trademark), INTERCEPTOR(Registered Trademark) and FIBERSCAN (Registered Trademark). The Company's digital loop test products test the link between a service provider's central office and the customer premises. Technicians use these products to perform fault location and data quality testing of voice or data circuits, whether carried on copper wire pairs or fiber optic cable. Digital transport test products test high-speed ATM, SONET, DS3, DS1, DS0 transmission circuits and measure multiple performance parameters. The products are used by service providers to determine the quality of newly installed high-speed circuits by performing various measurements over a timed test period. The Company introduced in fiscal 1995 a version of its T-BERD 310 analyzer which integrates SONET test functions with capabilities for testing and monitoring DS1, DS3, and DS0 circuits. The Company's data communications analyzers perform up to 60 simultaneous performance and error measurements on a wide range of network transmission equipment. For its family of FIREBERD 4000 and 6000 products, the Company offers a wide range of test interfaces, including Euro-ISDN, an emerging communications protocol used in Europe, which enable users to tailor the instrument to specific test requirements. Internetwork protocol analyzers bridge the gap between local area networks (LAN) and wide area networks (WAN) by providing the capability to monitor and test network traffic as it passes from a LAN to a WAN and back to a LAN. The FIREBERD 500, a new test platform introduced in fiscal 1995, is capable of analyzing ATM, frame relay, FDDI and SMDS communications architectures. The FIREBERD 500 enables network managers to monitor network behavior and quickly pinpoint problems anywhere within the internetwork. The Company anticipates strong market demand for these products as a result of growth of interconnections between LANs and WANs and demands for network reliability. The Company's rack-mounted centralized test systems are used in the service provider central office environment to test high-speed communication circuits remotely. The CENTEST 650 allows monitoring and testing of DS3 signals for ongoing maintenance, so that network trouble spots can be quickly identified and mobile repair crews can be efficiently directed from a centralized location. The FIBERSCAN product line consists of modular, portable fiber optic test instruments which allow both central office and field technicians to isolate fiber optic cable breaks and measure degradation caused by aging connectors and related components. The instrument includes an optical time domain reflectometer used to locate cable breaks and damage, an optical power meter used to determine the signal levels on optical fibers, and a stable optical source. The Company serves the international telecommunications industry by providing portable digital testing capability for transmission systems that operate in accordance with the CCITT standards. These products comply with International Telecommunications Union standards, which are used everywhere that North American standards are not. The Company introduced in fiscal 1995 the INTERCEPTOR 1402S which allows technicians to maintain existing PDH networks as well as higher speed SDH service and equipment. Data Transmission Products Dynatech's data transmission products provide users of information networks with management tools to ensure reliable network operation and products to condition the data for transmission via private or public networks. The Company's equipment is designed primarily to manage data transmission and communication networks in a computer environment. A significant portion of the legacy network that most corporations retain consists of private "leased line" networks constructed during the 1970s and 1980s. Network operators found constructing private networks cost effective since carrier services were geared more to carrying telephone traffic than data traffic. Following the breakup of the AT&T system, additional service providers began to offer services geared for high-speed data networking. The deployment of local area networks and distributed network systems, combined with the evolution of new high-speed transmission technologies such as ATM and frame relay, offer large corporate users advantages in speed and throughput. The challenge facing many network operators is to integrate new technologies into existing legacy network systems to take advantage of lower cost and higher throughput. To address this market, the Company announced the development of its DynaStar(Registered Trademark) family of branch access products in fiscal 1995. These products provide a wide range of access, feeder, and concentration functions for supporting both legacy and newly emerging applications. The DynaStar product line facilitates the interconnection between geographically dispersed branch locations and central computing sites via wide area technologies including ISDN, frame relay, and ATM. A version of the product can aggregate traffic from legacy WAN sources such as SNA and X.25 and combine this traffic with local LAN traffic on an ATM or frame relay link for integrated network access and service. The Company markets a line of X.25 packet switching products which include PADs (packet assemblers/dissassemblers), switches, bridges/routers, and dial-in/out LAN access equipment. These products support both public and private networks, with scalability up to 40 ports. Packet switching, a communications protocol which breaks data into "packets" for efficient transmission over private or public data networks, is a cost-effective means for companies to transmit data over long distances. Other data transmission products include electronic matrix switches and network availability products designed to manage the interconnection of remote analyzers to various network interfaces. The network availability product is used for fault testing, including very critical protocol-level monitoring, without the need for dispatch of personnel to perform valid end-to-end circuit analysis. In addition, the Company provides analysis and simulation instruments which focus on emulation tools that support the MIL-STD-1553 and the ARINC 429 local area networks (LAN) used in today's military and commercial aircraft, respectively. The Company also manufactures a series of wireless communications components and systems. These include lightweight modular telephone headsets and miniaturized two-way communications devices for government covert surveillance and intelligence operations. Other wireless products include portable radio systems used to improve communications and productivity at hospitals, and wireless video transmitters/receivers sold primarily to the personal security market. Industrial Connectivity Products Dynatech supplies ruggedized personal computers and compatible input and output boards under the name of Industrial Computer Source for industrial and scientific applications. The Company designs its products to operate in adverse environments and to withstand excessive vibration, noise, temperature, dust and moisture. Display Products - ---------------- Dynatech's display products consist primarily of professional video equipment and interactive graphics hardware and software. Several technological and market trends are expected to have a profound effect on the broadcast and cable-TV industry which is the cornerstone of the professional video equipment market. The entry of new video service providers such as direct satellite broadcasters and telephone service providers is expanding the available distribution channels for the delivery of video content. Increased competition in the broadcast industry may consequently lead to the development and introduction of complex two-way, video-based information services. Technological advancements, such as new video compression standards and upgraded high-speed, high-bandwidth delivery systems over fiber optics, are expected to increase capacity and reliability, and facilitate two-way interactive video services to business and residential users. The Company believes these developments are pushing the conversion within the professional video industry from analog to digital systems used for the generation, handling, storage, and transmission of video content. Concurrent developments are making possible the increased integration of video in computer networks, such as ATM technology for high-speed handling of multimedia traffic. The Company's professional video products are sold worldwide to television and radio stations, video production facilities, cable television, and corporate and educational users through three business units, Distribution and Production Products, NewStar newsroom automation products, and DaVinci color correction systems. Distribution products center on transmission and management technologies used mainly by television broadcasters. The products include routing switchers, and machine control and master control systems for managing the flow of information within a television station, and an electronically digital commercial playback system, sold under the Digistore name, which is used to acquire, store and play back commercials in a fully automated manner. Production products are used to create images for broadcasting, production studios, and corporate users of graphics and special effects systems. These products are used to create many of the unique special effects that distinguish television commercials and film productions. Products include: digital paint and animation systems for creating electronic graphics; digital editing and layering systems which merge multiple video recordings to produce a new video; and digital disk recorders for storage and recall of digital images on a real-time basis. Other production products include video character and graphics generators for displaying alphanumeric titles in a variety of fonts for broadcast and nonbroadcast applications. The Company's high-end character generators are able to create high-quality text on a video screen in hundreds of different font styles, colors, and backgrounds, as well as in many foreign languages, including Chinese, Japanese, and Arabic. Dynatech also develops, markets, and manufactures products which are specific to the cable television industry. These products include equipment for broadcasting emergency alert information over any combination of cable channels automatically, and commercial and program insertion systems which download and insert national, regional, and local commercials and cross-channel promotion into cable programming. DaVinci Systems produces the Rennaissance 8:8:8 line of digital color correction systems which are used to tint, enhance, and color-match television commercials. It is sold to the postproduction and teleproduction market and to commercial production facilities. The NewStar business unit produces a software-driven client/server PC-networked system used to computerize radio and television newsrooms, including the control of robotic cameras. Interactive products include computer hardware and software which combine full-color live video using real-time digital video compression with computer graphics and text for such applications as product training, display of financial market information, geographic display, and information systems. These UNIX-based products, developed and sold by Parallax Graphics, include a live video windowing system for SUN Microsystems and Hewlett Packard Series 700 workstations. Included in interactive product offerings is software sold under the DataViews name, used in the development of custom graphic user interfaces for various UNIX-based computer systems. Applications for this software include the creation of custom graphics for displaying real time data such as found in manufacturing process control and communications network analysis. AIRSHOW pioneered and leads the world market for passenger cabin video information systems. Its flagship product displays position defining maps, airport terminal charts, and in-flight information. Dynatech offers software solutions for the pharmacy industry, via ComCoTec's RxCLAIM On-Line Transaction Processing System, an on-line prescription claims adjudication system. The third-party prescription claims industry is growing rapidly as prescription drug plans become an increasingly important part of an employee benefit program. The RxCLAIM System assists in the administration of health benefits by efficiently processing prescriptions for third-party payors. DIVERSIFIED INSTRUMENTATION The Diversified Instrumentation segment consists of two divisions: 1) medical and diagnostic products, which do not relate to information support, and 2) selected nonstrategic businesses held for sale. Medical and Diagnostic Products The Company's medical and diagnostic products consist of laboratory, radiation therapy planning, and test and measurement products, and are sold under the name of Dynatech Laboratories, Computerized Medical Systems, Dynatech Nevada, and Dynatech Precision Sampling. Dynatech manufactures and sells laboratory diagnostic equipment and supplies for research and clinical testing in the fields of immunology, microbiology, serology, and cancer research. The Company's instruments are designed around a microplate format and employ enzyme-linked immunosorbent assay (ELISA) techniques for testing antigens and antibodies in blood serum and other body fluids. These techniques use enzymes, chemiluminescent or fluorescing reagents as labels that give off color or light at the completion of tests. Results can be read and recorded by the Company's sensitive reading instruments. Among the Company's products is a modular microplate system which combines several elements, including a reader, multi-reagent dispenser, multi-reagent washer, diluter/dispenser, and random access plate incubators. The system incorporates process quantitative analysis and is sold to the research lab market (universities and pharmaceutical companies) and the clinical laboratory market. Additionally, the Company makes and sells disposable plastic laboratory ware for handling and transporting test specimens, including items specifically treated to adsorb or covalently bind proteins. The Company also markets software products used in conjunction with radiation therapy treatment of cancer patients. Our newest product, FOCUS, a three dimensional (3-D) radiation therapy treatment planning system (RTP), was approved for sale by the Federal Drug Administration in February 1995. This product allows oncologists and medical physicists to develop a treatment plan which delivers the maximum radiation dose to the tumor while minimizing radiation dose to surrounding healthy tissue. The Company continues to offer its two dimensional (2-D) RTP product during the market transition to the 3-D RTP. Dynatech supplies the hospital market with sophisticated instruments for checking the electrical safety and performance of instruments such as defibrillators. It also markets patient simulators. These instruments produce simulated patient outputs which are fed into patient monitoring devices such as an electrocardiography (ECG) machines and non-invasive blood pressure monitors. The Company also manufactures a comprehensive line of state-of-the-art, fully automated systems for use in the analysis of volatile organic contaminates in drinking water, wastewater, and soils. Diversified Instrumentation Businesses Held for Sale The Company is presently in process of divesting four standalone and unrelated business units. Their product offerings consist of microwave amplifiers, simulator monitors, after-market computer enhancements, and surge suppression and line conditioning products. DISCONTINUED OPERATIONS AND DIVESTED BUSINESSES The Company adopted a formal plan to discontinue certain nonstrategic business units and to sell these operations during fiscal 1995. These operations include Micro Processor Systems, Inc., which was sold in April 1994, and Whistler Corporation, which was sold in June 1994. In addition, the Company announced a plan to sell at least 11 product lines and businesses as part of its 1994 restructuring plan. As of May 15, 1995, the Company has sold or otherwise disposed of eight businesses and product lines for approximately $32.3 million in cash and promissory notes. CUSTOMERS AND MARKETING Dynatech markets its products to a diverse customer base. The Company's information support products are sold to a broad range of communications service providers, including telephone companies, broadcasters, cable television operations, and a wide array of computer and data communication users, corporate and industrial customers, and scientific and educational organizations. Customers for the Company's diversified instrumentation products include pharmaceutical companies, research and testing laboratories, hospitals and clinical laboratories. The Company also has OEM agreements with several reagent manufacturers. Most of the Company's revenues are generated through a direct sales force. The Company also uses distributorships and representative relationships to sell its products for certain products in areas of the United States and the rest of the world with relatively low sales volume. COMPETITION The markets in which the Company competes are highly competitive and are characterized by rapidly changing technology. Principal competitors within the Information Support Products segment include businesses with significant financial, development, marketing, and manufacturing resources, as well as numerous small specialized companies. The Company believes it holds a relatively favorable position with respect to the important competitive factors in each of its markets. The Company considers rapid product development, product functionality and features, and highly trained technical sales and support staff to be key competitive factors. MAJOR CUSTOMERS The Company's sales of goods and services to various agencies of the United States federal government were approximately $25,741,000, $24,123,000, and $25,273,000 in fiscal years ended 1995, 1994, and 1993, respectively. No single customer accounted for more than 10% of sales in any of the three years. INTERNATIONAL The Company maintains marketing subsidiaries or branches in major countries in Western Europe and Asia and has distribution agreements in many other countries where sales volume does not warrant a direct sales organization. The Company's foreign sales from continuing operations (including exports from the United States directly to foreign customers) were approximately 37%, 35%, and 37% of consolidated net sales in fiscal years 1995, 1994, and 1993, respectively. The Company maintains production facilities in England and the Channel Islands which manufacture information support products and medical instrumentation. The Company's international business is subject to risks customarily found in foreign operations, such as fluctuations in currency exchange rates, import and export controls, and regulatory policies of foreign governments. A summary of the Company's sales, earnings and identifiable assets by geographic area is found in the 1995 Annual Report which is incorporated herein by reference. PRODUCT DEVELOPMENT As the technologies in the Company's markets are continually changing, the Company's success depends on its ability to develop new products and improve existing ones. All businesses within the Company maintain product development capability focused on and experienced in the technologies important to the specific business. On a segment basis, product development expense in the years ended March 31, 1995, 1994, and 1993 were as follows: Information Support Products, $42,356,000, $41,792,000, and $37,977,000, respectively; Diversified Instrumentation, $10,689,000, $11,996,000, and $13,132,000, respectively. BACKLOG The Company's backlog of orders believed to be firm at March 31, 1995 and 1994 were $74,272,000 and $93,981,000, respectively. Of the decrease, $10,565,000 related to companies divested in fiscal 1995. All but $1,795,000 of backlog at March 31, 1995 is expected to be delivered within the fiscal year ended March 1996. On a segment basis, backlog at March 31, 1995 and 1994 was as follows: Information Support Products $53,898,000 and $50,791,000, respectively; Diversified Instrumentation $20,374,000, of which $18,169,000 relates to medical and diagnostic products, and $43,190,000, of which $22,964,000 relates to medical and diagnostic products, respectively. EMPLOYEES The Company employs approximately 2,600 people of which approximately 175 employees are with businesses that are held for sale. Employees having requisite skills for the Company's purposes are generally available in the areas where its facilities are located. The Company considers its labor relations to be excellent. PATENTS AND TRADEMARKS The Company generally seeks patent protection for inventions and improvements to its products, which it believes to be patentable. It holds numerous United States and foreign patents and patent applications covering many products. While the Company considers its patent position important, it believes its technical marketing and manufacturing capabilities are of greater competitive significance. FIREBERD, T-BERD, Centest, Interceptor, Fiberscan, DynaStar, NewStar, ArtStar, Microtiter, Microelisa, and Airshow are among registered trademarks which the Company considers valuable assets. Dynatech is a registered service mark in the United States and a registered trade or service mark (issued or applied for) in most other major industrialized countries of the world. SUPPLIERS Materials and components used in the Company's products are normally available stock items or can be obtained to Company specifications from more than one potential supplier. The Company's plasticware is molded by subcontractors using molds owned by the Company. Some components and assemblies are purchased in Asia under volume contracts. ENVIRONMENTAL FACTORS Federal, state and local laws or regulations which have been enacted or adopted regulating the discharge of materials into the environment have not had, and under present conditions the Company does not foresee that it will have, a material adverse effect on capital expenditures, earnings, or competitive position of the Company. EXECUTIVE OFFICERS OF THE REGISTRANT The executive officers of the Company are as follows: Officer Name Current Position Age Since John F. Reno President and Chief Executive Officer 56 1979 Robert H. Hertz Treasurer and Chief Financial Officer, 52 1980 Clerk John R. Peeler Corporate Vice President 40 1992 Communications Test Business John R. South Corporate Vice President 54 1993 Medical and Diagnostics Products Business George A. Merrick Corporate Vice President 47 1994 Display Business Roger C. Cady Corporate Vice President 56 1993 Business Development John A. Mixon Corporate Vice President 49 1989 Human Resources James R. Turner Corporate Vice President 66 1960 John C. Maag Corporate Controller 45 1987 Nancy J. Jenkins Assistant Treasurer 49 1990 Edward T. O'Dell Secretary, Assistant Clerk, 59 1975 attorney whose professional corporation is a partner of Goodwin, Procter & Hoar, general counsel to the Company Officers are elected annually by the Board of Directors at its meeting following the Annual Meeting of Shareholders and serve until the next annual election or until their successors have been elected at any other Director's meeting. There are no arrangements or understandings between any of the Directors or Officers and any other person regarding election as a Director or Officer of the Company. Each of the Company's officers has served in various capacities with the Company for more than five years, except Messrs. South, Cady and Merrick. Mr. South joined the Company in July 1990. From 1987 to 1990 he was a Vice President for SmithKline Beecham Clinical Laboratories, a provider of laboratory testing services. Mr. Cady joined the Company in March 1993. From 1986 to 1993 he was President and founder of Arcadia Consulting, a management consulting firm which assisted high technology companies. Mr. Merrick joined the Company in September 1994. From 1990 to 1994 he served as Executive Vice President of Worldwide Sales and Marketing at Ampex Systems Corp., a supplier of professional video, broadcasting, and recording products. Item 2. PROPERTIES ------------------- The Company's policy is generally to lease real property for its manufacturing and sales operations. It does however, own two buildings used for manufacturing. Segment Areas Square Lease Location Utilizing Facilities Feet Termination Owned Facilities: Carson City, Nevada Diversified Instrumentation 22,000 Baton Rouge, Louisiana Diversified Instrumentation 13,000 Leased Facilities: Burlington, Massachusetts Headquarters 22,200 1998 Germantown, Maryland Information Support Products 68,000 2001 Germantown, Maryland Information Support Products 98,000 2003 Germantown, Maryland Information Support Products 14,700 1997 San Diego, California Information Support Products 62,400 1999 Nashua, New Hampshire Information Support Products 57,600 1999 Salt Lake City, Utah Information Support Products 48,100 1997 Guernsey, Channel Islands Information Support Products 40,000 2002 and Diversified Instrumentation Woodbridge, Virginia Information Support Products 30,000 1997 Northampton, Massachusetts Information Support Products 22,500 1995 St. Quentin En Yvelines, France Information Support Products 19,100 1998 Los Gatos, California Information Support Products 18,000 1996 Chantilly, Virginia Diversified Instrumentation 50,000 2001 St. Louis, Missouri Diversified Instrumentation 25,000 1999 Tustin, California Diversified Instrumentation 24,300 1999 San Jose, California Diversified Instrumentation 19,200 1995 Tampa, Florida Diversified Instrumentation 18,900 1995 Lombard, Illinois Diversified Instrumentation 16,100 1998 The Company has other leases for manufacturing space, but in each case the total footage is under 15,000 square feet. The Company also leases several sales and service offices in the United States, Western Europe, Japan, and Hong Kong. In addition the Company is liable for certain leased premises that are not being utilized due to consolidation and centralization efforts of facilities. It considers its facilities adequate and suitable for its foreseeable needs and believes that similar facilities will continue to be available at comparable prices after adjusting for inflation. The Company owns a substantial portion of the machines, tools and equipment required for its operations and considers this property to be in good condition. The Company also leases equipment and machines on terms which allow the Company the flexibility it desires related to such machinery and equipment. Item 3. LEGAL PROCEEDINGS - ------------------------- The Company is party to several pending legal proceedings and claims, none of which, in the opinion of management or counsel primarily responsible for such matters, is considered to be material. Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - ----------------------------------------------------------- None PART II Item 5. MARKET FOR REGISTRANT'S COMMON STOCK - --------------------------------------------- AND RELATED SECURITY HOLDER MATTERS ----------------------------------- (a) The Company's common stock is traded in the over-the-counter NASDAQ National Market System. The quarterly range of high and low prices for the past two years as reported by the National Association of Securities Dealers Automated Quotations National Market System and published in The Wall Street Journal may be found in the Company's 1995 Annual Report on page 32, which is incorporated herein by reference. (b) There were approximately 1,050 common stockholders of record as of May 15, 1995. (c) The Company has never paid a cash dividend on its common stock and does not intend to make such a payment in the foreseeable future. Item 6. SELECTED FINANCIAL DATA - ------------------------------- Reference is made to information contained in the section entitled "Five-Year Summary" on page 16 in the Company's 1995 Annual Report, copies of which have been filed with the U.S. Securities and Exchange Commission pursuant to Rule 14a-3(c) under the Securities Exchange Act of 1934, as amended, which information is incorporated herein by reference. Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF - ----------------------------------------------- FINANCIAL CONDITION AND RESULTS OF OPERATIONS --------------------------------------------- Reference is made to the information on pages 17 - 19 in the Company's 1995 Annual Report, copies of which have been filed with the U.S. Securities and Exchange Commission pursuant to Rule 14a-3(c) under the Securities Exchange Act of 1934, as amended, which information is incorporated herein by reference. Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - --------------------------------------------------- Reference is made to the Company's consolidated financial statements and notes thereto on pages 20 - 31 in the Company's 1995 Annual Report together with the Report of Independent Accountants dated May 15, 1995 on page 32 and "Summary of Operations by Quarter" on page 32, copies of which have been filed with the U.S. Securities and Exchange Commission pursuant to Rule 14a-3(c) under the Securities Exchange Act of 1934, as amended, which information 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 - ----------------------------------------------------------- Reference is made to the information responsive to Items 401 and 405 of Regulation S-K contained in the Company's definitive Proxy Statement relating to its 1995 Annual Meeting of Shareholders which will be filed with the U.S. Securities and Exchange Commission within 120 days after the close of the Company's fiscal year ended March 31, 1995 pursuant to Rule 14a-6(b) under the Securities and Exchange Act of 1934, as amended; said information is incorporated herein by reference. Item 11. EXECUTIVE COMPENSATION - ------------------------------- Reference is made to the information responsive to Item 402 of Regulation S-K contained in the Company's definitive Proxy Statement relating to its 1995 Annual Meeting of Shareholders which will be filed with the U.S. Securities and Exchange Commission within 120 days after the close of the Company's fiscal year ended March 31, 1995 pursuant to Rule 14a-6(b) under the Securities Exchange Act of 1934, as amended; said information is incorporated herein by reference. Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT - ---------------------------------------------------------------------------- Reference is made to the information responsive to Item 403 of Regulation S-K contained in the Company's definitive Proxy Statement relating to its 1995 Annual Meeting of Shareholders which will be filed with the U.S. Securities and Exchange Commission within 120 days after the close of the Company's fiscal year ended March 31, 1995 pursuant to Rule 14a-6(b) under the Securities Exchange Act of 1934, as amended; said information is incorporated herein by reference. Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS - ------------------------------------------------------- Reference is made to the information responsive to Item 404 of Regulation S-K contained in the Company's definitive Proxy Statement relating to its 1995 Annual Meeting of Shareholders which will be filed with the U.S. Securities and Exchange Commission within 120 days after the close of the Company's fiscal year ended March 31, 1995 pursuant to Rule 14a-6(b) under the Securities Exchange Act of 1934, as amended; said information is incorporated herein by reference. PART IV Item 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K - ---------------------------------------------------------------------------- (a) Documents filed as part of this report (1) Financial statements No financial statements have been filed with this Form 10-K other than those incorporated by reference in Item 8. (2) Financial statement schedules Page ---- II. Valuation and Qualifying Accounts 26 Schedules other than those listed above have been omitted because they are either not required or not applicable or because the required information has been included elsewhere in the financial statements or notes thereto. Individual financial statements of the Company have been omitted because it is primarily an operating Company and no subsidiaries have material minority equity interests, nor are any indebted to any person other than the parent or consolidated subsidiaries, in amounts which are material in relation to total consolidated assets at the date of the March 31, 1995 balance sheet, except indebtedness incurred in the ordinary course of business which is not overdue. (b) Reports on Form 8-K No reports on Form 8-K were filed during the quarter ended March 31, 1995. (c) Exhibits Exhibit No. - ----------- (3) Articles of Organization and By-Laws - (1) The Registrant's Restated Articles of Organization, as amended, and By-Laws, as amended, were filed as Exhibit 3 to Form 10-K for the year ended March 31, 1992, and are incorporated herein by reference. (2) Shareholder Rights Agreement, dated as of February 16, 1989, between Dynatech Corporation and The First National Bank of Boston, as Rights Agent, was filed as an Exhibit to a Current Report on Form 8-K filed on February 27, 1990, and is incorporated herein by reference. (3) Shareholder Rights Agreement, as amended and restated as of March 12, 1990, was filed as an Exhibit to a Current Report on Form 8-K filed on April 11, 1990, and is incorporated herein by reference. (4) Instruments defining the rights of security holders - (1) Multicurrency Revolving Credit and Term Loan Agreement, as amended, dated December 22, 1992 between Dynatech and The First National Bank of Boston and others is incorporated by reference to Exhibit 4(a) on Form 10-Q for the quarter ended December 31, 1992. Exhibit No. - ----------- (2) Note Agreement dated as of December 15, 1990 between Dynatech and Nationwide Life Insurance Company is incorporated by reference to Exhibit 4(b) on Form 10-Q for the quarter ended December 31, 1990. (10) Material Contracts - (1) 1982 Incentive Stock Option Plan, as amended, incorporated by reference to Exhibit 10(2) to Form 10-K for the year ended March 31, 1990. (2) Form of Special Termination Agreement between Dynatech Corporation and each of Messrs. Barger, Reno and Hertz incorporated by reference to Exhibit 10(5) to Form 10-K for the year ended March 31, 1990. (3) Form of Special Termination Agreement between Dynatech Corporation and each of its other Executive Officers incorporated by reference to Exhibit 10(6) to Form 10-K for the year ended March 31, 1990. (4) 1992 Stock Option Plan incorporated by reference to Exhibit 3 to Form 10-Q for the quarter ended June 30, 1992. (5) Letter Agreement dated March 24, 1993 by and between JP Barger and Dynatech Corporation incorporated by reference to Exhibit 10(5) to Form 10-K of the year ended March 31, 1993. (6) 1994 Stock Option and Incentive Plan incorporated by reference to Exhibit 4.1 to Form S-8 filed on January 30, 1995. (13) Dynatech Corporation 1995 Annual Report to Stockholders which, except for those portions expressly incorporated herein by reference, is furnished only for the information of the Securities Exchange Commission and is not deemed to be filed. (21) Subsidiaries of the Registrant. (23) Consent of Independent Accountants. (27) Financial Data Schedule 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. DYNATECH CORPORATION ----------------------- June 1, 1995 By: ROBERT H. HERTZ ----------------------- Treasurer and Chief Financial Officer 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. RICHARD K. LOCHRIDGE Chairman of the Board, Director June 1, 1995 - -------------------- JOHN F. RENO President, and Chief Executive - ------------ Officer, Director June 1, 1995 ROBERT H. HERTZ Treasurer and Chief Financial Officer June 1, 1995 - --------------- JOHN C. MAAG Controller, Principal Accounting - ------------ Officer June 1, 1995 RONALD L. BITTNER Director June 1, 1995 - ----------------- THEODORE COHN Director June 1, 1995 - ------------- WILLIAM R. COOK Director June 1, 1995 - --------------- O. GENE GABBARD Director June 1, 1995 - --------------- JAMES B. HANGSTEFER Director June 1, 1995 - ------------------- ROBERT G. PAUL Director June 1, 1995 - -------------- REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Shareholders of Dynatech Corporation: Our report on the consolidated financial statements of Dynatech Corporation has been incorporated by reference in this Form 10-K from the 1995 Annual Report to Shareholders of Dynatech Corporation. In connection with our audits of such financial statements, we have also audited the related financial statement schedule on page 26 of this Form 10-K. In our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information required to be included therein. Boston, Massachusetts COOPERS & LYBRAND L.L.P. May 15, 1995 DYNATECH CORPORATION SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED MARCH 31, 1995, 1994 AND 1993 RESERVE FOR DOUBTFUL ACCOUNTS (In thousands) BALANCE, March 31, 1992 $3,540 Additions charged to income 1,985 Write-off of uncollectible accounts, net (1,891) ------- BALANCE, March 31, 1993 3,634 Additions charged to income 1,232 Write-off of uncollectible accounts, net (961) ------- BALANCE, March 31, 1994 3,905 Additions charged to income 2,685 Write-off of uncollectible accounts, net (1,293) Allowances of divisions sold (220) ------- BALANCE, March 31, 1995 $5,077 ======= EX-13 2 EXHIBIT 13 TO FORM 10-K Dynatech Corporation EXHIBIT 13 DYNATECH CORPORATION FORM 10-K EXCERPTS OF 1995 Annual Report To Shareholders Five Year Summary Management's Discussion and Analysis of Financial Consolidation and Results of Operations Consolidated Financial Statements Notes to Consolidated Financial Statements Summary of Operations by Quarter (Unaudited) Five-Year Summary (Amounts in thousands except per share data) Years ended March 31 1995 1994 1993 1992 1991 Sales .......................................................... $ 488,776 $ 458,449 $ 474,197 $ 429,570 $ 427,523 Cost of sales .................................................. 230,802 218,563 212,672 195,083 192,613 Gross profit ................................................... 257,974 239,886 261,525 234,487 234,910 Selling, general and administrative expense .................... 160,878 160,146 164,533 146,539 142,119 Product development expense .................................... 53,045 53,788 51,109 47,930 46,962 Streamlining and restructuring charges ......................... -- 37,582 -- -- -- Amortization of intangibles .................................... 8,471 18,153 12,176 10,281 8,088 Operating income (loss) ........................................ 35,580 (29,783) 33,707 29,737 37,741 Interest expense ............................................... (3,919) (3,794) (2,229) (3,470) (5,768) Interest income ................................................ 1,518 1,244 1,592 2,248 2,957 Other income (expense) ......................................... 1,627 (2) 837 (639) (711) Income (loss) from continuing operations before taxes .......... 34,806 (32,335) 33,907 27,876 34,219 Provision (benefit) for income taxes ........................... 14,619 (6,115) 14,746 11,897 14,644 Income (loss) from continuing operations ....................... 20,187 (26,220) 19,161 15,979 19,575 Discontinued operations, net of income taxes ................... -- (3,763) (2,726) (2,556) (4,005) Extraordinary charge, net of income taxes ...................... (1,019) -- -- -- -- Net income (loss) .............................................. $ 19,168 $ (29,983) $ 16,435 $ 13,423 $ 15,570 Income (loss) per common share (a) Continuing operations ..................................... $ 1.13 $ (1.41)(b) $ 1.04 $ 0.85 $ 1.03 Discontinued operations ................................... -- (0.20) (0.14) (0.13) (0.21) Extraordinary charge ...................................... (0.06) -- -- -- -- $ 1.07 $ (1.61) $ 0.90 $ 0.72 $ 0.82 Net working capital ............................................ $ 91,513 $ 91,010 $ 118,509 $ 126,278 $ 126,453 Total assets ................................................... $ 256,392 $ 280,553 $ 303,023 $ 312,531 $ 291,774 Long-term debt ................................................. $ 7,915 $ 33,006 $ 50,873 $ 80,845 $ 75,051 Shareholders' equity ........................................... $ 154,320 $ 142,643 $ 171,904 $ 158,649 $ 150,102 Shares of stock outstanding (a) ................................ 17,573 18,594 18,506 18,421 18,780 Shareholders' equity per share (a) ............................. $ 8.78 $ 7.67 $ 9.29 $ 8.61 $ 7.99 (a) Restated for the 2-for-1 stock split in March 1995 (b) Includes streamlining and restructuring charges and nonrecurring operating expenses of $1.75 per share
Management's Discussion and Analysis of Financial Condition and Results of Operations The following table and commentary should be read in conjunction with the Consolidated Financial Statements and related Notes to Consolidated Financial Statements. Percent of Sales Percent of Change 1995 1994 1993 vs. vs. vs. Years ended March 31 1995 1994 1993 1994 1993 1992 Sales ....................................................... 100.0% 100.0% 100.0% 6.6% (3.3)% 10.4% Gross profit ................................................. 52.8 52.3 55.2 7.5 (8.3) 11.5 Selling, general and administrative expense .................. 32.9 34.9 34.7 0.5 (2.7) 12.3 Product development expense .................................. 10.9 11.7 10.8 (1.4) 5.2 6.6 Streamlining and restructuring charges ....................... -- 8.2 -- (100.0) --- * -- Amortization of intangibles .................................. 1.7 4.0 2.6 (53.3) 49.1 18.4 Operating income (loss) ...................................... 7.3 (6.5) 7.1 219.5 (188.4) 13.4 Interest expense ............................................. (0.8 (0.8) (0.5) 3.3 70.2 (35.8) Interest income .............................................. 0.3 0.3 0.3 22.0 21.9 (29.2) Other income (expense) ....................................... 0.3 -- 0.2 --- * (100.2) 231.0 Income (loss) from continuing operations before taxes ........ 7.1 (7.1) 7.2 207.6 (195.4) 21.6 Income taxes ................................................. 3.0 (1.3) 3.1 339.1 (141.5) 23.9 Income (loss) from continuing operations ..................... 4.1 (5.7) 4.0 177.0 (236.8) 19.9 * not meaningful
Fiscal 1995 Compared to Fiscal 1994 Sales Consolidated sales increased 6.6% in fiscal 1995 as a result of a 4.4% increase in domestic sales and 16% growth in international sales. International sales including export sales were 37.3% of consolidated sales in fiscal 1995 and 35.2% of consolidated sales in fiscal 1994. Information Support Products segment sales rose 11.5% in fiscal 1995 due principally to a 23.2% growth for Communications test products. Industrial connectivity sales rose 22.4% and communications display sales increased 10.8% while sales of transmission products were down 7.6%. Sales of medical and diagnostic products in the Diversified Instrumentation segment increased 16.4%. The sale of eight businesses during fiscal 1994 and 1995 coupled with sales declines in nonstrategic businesses held for sale, accounting for a $16.4 million decrease in revenues, resulted in an overall reduction of 5.9% for the Diversified Instrument segment. Backlog from ongoing operations was $72.1 million at March 31, 1995, compared with $73.8 million at March 31, 1994. Gross Profit Consolidated gross profit for fiscal 1995 was 52.8% compared to 52.3% for the prior year. The increase in rate was primarily driven by operating efficiencies from business restructuring and higher volume. Information Support Products margins declined to 56.6% compared to 57.4% in fiscal 1994, due primarily to higher production costs for new product introductions and price sensitivity in video graphics markets. Medical and diagnostic products margins in the Diversified Instrumentation segment improved to 51.1% compared to 48.3% for the prior year resulting from greater sales of medical software products. Margins of operations sold or held for sale were substantially below the consolidated average. Expenses As a percentage of consolidated sales, selling, general and administrative expenses decreased to 32.9% in fiscal 1995 compared to 34.9% in fiscal 1994 resulting in part from the streamlining actions. Amortization of intangibles declined due to business divestments and discontinuance of product lines. Product development expense was 10.9% of sales in fiscal 1995 compared to 11.7% in fiscal 1994. The reduction was attributed primarily to completion of a number of projects during 1995 which had been accelerated in 1994. Interest expense from continuing and discontinued operations declined compared to the prior year as a result of repayment of loan debt from favorable operating cash flow. Interest income, primarily from short-term deposits in Europe, increased reflecting higher investment rates, earnings on notes acquired in divestment activities and favorable operating cash flow. Other income rose from foreign exchange gains and leased equipment revenues. Taxes The effective tax rate declined in fiscal 1995 to 42% compared to 51.8% in the prior year, excluding the effects of the streamlining and restructuring charges, as a result of lower nondeductible amortization charges and the inability in fiscal 1994 to deduct various foreign and state operating losses. Income (Loss) From Continuing Operations Income from continuing operations was $20,187,000 or $1.13 per share in fiscal 1995 compared to a loss of $26,220,000 or $(1.41) per share in the prior year. Fiscal 1994 income from continuing operations was $6,374,000, or $.34 per share, excluding the impact of the provision for streamlining and restructuring and fourth quarter nonrecurring expenses. Extraordinary Charge In February 1995 the Corporation recorded an extraordinary charge of $1.7 million ($1 million, net of taxes), reflecting a prepayment penalty for early debt redemption of its $30 million 10.15% term notes. This redemption, partially accomplished by the use of excess cash, was undertaken as part of Dynatech's efforts to reduce its interest costs. Net Income (Loss) Net income in fiscal 1995 was $19,168,000 for a record $1.07 per share, exceeding the previous high of $1.04 per share in fiscal 1988. The net loss in fiscal 1994 was $29,983,000, or $(1.61) per share. Net income in the current year includes an after-tax extraordinary charge of $1 million, or $(.06) per share. The net loss in fiscal 1994 included an after-tax provision for streamlining and restructuring and nonrecurring charges of $32,594,000 or $(1.75) per share, and an after-tax provision for disposition of discontinued operations and related operating losses of $3,763,000 or $(.20) per share. Streamlining and Restructuring In the fourth quarter of fiscal 1994 the Corporation announced a series of reorganization actions of approximately $50 million designed to focus on supplying support products to providers of the global information infrastructure. In connection with these actions, the Corporation recorded a $37.6 million streamlining and restructuring provision ($24.8 million after taxes or $1.33 per share). These actions, resulted in a reduction of 10% of the work force, and included the sale or closure of nonstrategic businesses, and consolidation and centralization of various ongoing production and sales facilities. The sale and closure of eight businesses and product lines from continuing operations and the consolidation and centralization efforts were completed during fiscal 1995. Remaining divestitures are anticipated to be completed by September 1995. Implementation of these actions resulted in estimated annualized cost savings of $12 million. In connection with the streamlining and restructuring actions, the Corporation recognized additional pretax charges in the fourth quarter of fiscal 1994 of approximately $8 million for nonrecurring operating expenses. These costs included accelerated amortization of intangible assets related to discontinued businesses and closedown costs of sales and engineering facilities. In addition, the Corporation sold Whistler Corporation and Micro Processor Systems, Inc., its consumer automotive business units during fiscal 1995. As a result, a fourth quarter charge in fiscal 1994 of $4.4 million ($2.5 million after taxes or $.14 per share) was recorded as a disposition provision in discontinued operations to write down assets to estimated net realizable values. These businesses employed approximately 10% of the work force and accounted for approximately $51 million and $11 million, respectively, of fiscal 1994 and fiscal 1995 sales. The streamlining and restructuring liability is utilized when the planned reorganization action has occurred. Cash outlays in fiscal 1995 approximated $11 million and are anticipated to be $5 million during fiscal 1996. The remaining liability will be applied to the sale of the nonstrategic businesses and long term lease terminations. Fiscal 1994 Compared to Fiscal 1993 Sales Consolidated sales declined 3.3% in fiscal 1994 as a result of both lower domestic and international sales. International sales were 35.2% of consolidated sales in fiscal 1994 and 36.6% of consolidated sales in fiscal 1993. Information Support Products segment sales declined 1% in fiscal 1994. Communications test products increased 1.6% to $116 million and industrial connectivity products rose 31.2%. Communications display products declined 7.8% and Transmission products decreased 6.7%. Sales in the Diversified Instrumentation segment declined 8.9% compared to the prior year reflecting a 7.1% decline of medical and diagnostic products. Backlog stood at $94 million at March 31, 1994, compared with $91.6 million at March 31, 1993, a 2.6% increase. Gross Profit Consolidated gross profit was 52.3% for fiscal 1994 compared to 55.2% for the prior year. The decrease in rate was a result of higher production costs for new products, price sensitivity in communications display products markets and lower production levels at various facilities. Information Support Products gross margin declined to 57.4% compared to 59.9% in the prior year while Diversified Instrumentation margins declined 4.7 percentage points to 39.3%. Expenses Selling, general and administrative expenses were 34.9% of sales in fiscal 1994 compared to 34.7% in fiscal 1993. The slightly higher rate was primarily driven by higher marketing investments for the communication display business. Product development expense increased compared to the prior year resulting from costs related to SONET and fiber-optic communications test instruments in the Information Support Products segment. Amortization of intangibles increased due to accelerated amortization in the fourth quarter related to discontinued product lines. Interest expense from continuing and discontinued operations decreased compared to the prior year caused by repayment of loan debt from favorable operating cash flow. Interest income, primarily from short-term deposits in Europe, declined due to lower investment rates. Taxes Excluding the effects of streamlining and restructuring charges and fourth quarter nonrecurring expenses, the effective tax rate increased in fiscal 1994 to 51.8% compared to 43.5% in the prior year. The high level of nondeductible amortization charges and the inability to deduct various foreign and state operating losses were contributing factors to the higher effective tax rate. During fiscal 1994 the Corporation adopted Statement of Financial Accounting Standards No. 109 which had no impact on the consolidated financial statements. Income (Loss) From Continuing Operations The loss from continuing operations was $26,220,000, or $(1.41) per share, in fiscal 1994 as compared to income of $19,161,000, or $1.04 per share, in the prior year. Excluding the impact of the provision for streamlining and restructuring, and fourth quarter nonrecurring expenses, fiscal 1994's net income was $6,374,000, or $.34 per share. Net Income (Loss) The net loss in fiscal 1994 was $29,983,000, or $(1.61) per share compared with net income of $16,435,000, or $.90 per share, in fiscal 1993. Discontinued operations reflected losses of $3,763,000 and $2,726,000 in fiscal 1994 and 1993, respectively. Capital Resources and Liquidity Dynatech's funded debt stood at 7% of total capital at March 31, 1995, the lowest year end level in Company history. Cash proceeds from divestitures and favorable operating cash flow enabled Dynatech to repay its $30 million term notes in February 1995. The working capital ratio at March 31, 1995 improved to 2 to 1, an increase from 1.9 to 1 at March 31, 1994, resulting from utilization of the streamlining and restructuring liability. Net cash flows from operating activities were $42 million in fiscal 1995 before cash outlays approximating $11 million for streamlining and restructuring, $35.1 million in fiscal 1994 and $40.9 million in fiscal 1993. The decrease in fiscal 1995 over fiscal 1994 was due to cash outlays for discontinued operations. Combined accounts receivable and inventories at year-end were 27% of fiscal 1995 sales compared to 29% in fiscal 1994 and 30% in fiscal 1993. Cash balances primarily reflect short-term deposits in Europe. Investment in property and equipment was $16,426,000 in fiscal 1995 compared to $17,834,000 and $14,347,000 in fiscal 1994 and 1993, respectively. Average net fixed assets employed in continuing operations were $37,022,000, or 8% of fiscal 1995 sales, compared to $38,771,000 or 8% of sales in fiscal 1994. Dynatech anticipates that its capital spending in property and equipment in fiscal 1996 will be at the same approximate level as that in fiscal 1995. Funding for capital expenditures generally will be provided from internal sources. The Corporation's financial performance, together with its reserve debt capacity and working capital, leave it well positioned to finance its current and future cash requirements including the remaining streamlining and restructuring actions. Inflation rates were moderate during fiscal 1995 and did not have a major impact on operations. Consolidated Statements of Operations Dynatech Corporation (Amounts in thousands except per share data) Years ended March 31 1995 1994 1993 Sales .............................................................................. $ 488,776 $ 458,449 $ 474,197 Cost of sales ...................................................................... 230,802 218,563 212,672 Gross profit ....................................................................... 257,974 239,886 261,525 Selling, general and administrative expense ........................................ 160,878 160,146 164,533 Product development expense ........................................................ 53,045 53,788 51,109 Streamlining and restructuring charges ............................................. -- 37,582 -- Amortization of intangibles ........................................................ 8,471 18,153 12,176 Operating income (loss) ............................................................ 35,580 (29,783) 33,707 Interest expense ................................................................... (3,919) (3,794) (2,229) Interest income .................................................................... 1,518 1,244 1,592 Other income (expense) ............................................................. 1,627 (2) 837 Income (loss) from continuing operations before income taxes ....................... 34,806 (32,335) 33,907 Provision (benefit) for income taxes ............................................... 14,619 (6,115) 14,746 Income (loss) from continuing operations ........................................... 20,187 (26,220) 19,161 Discontinued operations Operating losses, net of income tax benefit of $766 in 1994, and $1,832 in 1993, respectively .................................................. -- (1,254) (2,726) Provision for dispositions, net of income tax benefit of $1,890 in 1994 ......... -- (2,509) -- Income (loss) before extraordinary charge .......................................... 20,187 (29,983) 16,435 Extraordinary charge for early retirement of debt, net of income tax benefit of $738 ....................................................................... (1,019) -- -- Net income (loss) .................................................................. $ 19,168 $ (29,983) $ 16,435 Income (loss) per common share Continuing operations ......................................................... $ 1.13 $ (1.41) $ 1.04 Discontinued operations ....................................................... -- (0.20) (0.14) Extraordinary charge .......................................................... (0.06) -- -- $ 1.07 $ (1.61) $ 0.90 Weighted average number of common shares ........................................... 17,846 18,579 18,348 The accompanying notes are an integral part of the consolidated financial statements.
Consolidated Balance Sheets Dynatech Corporation (Amounts in thousands except share data) March 31 1995 1994 ASSETS Current assets: Cash and cash equivalents ................................................................ $ 27,795 $ 23,101 Accounts receivable, less allowance of $5,077 and $3,905, respectively ................... 72,152 73,090 Inventories: Raw materials ......................................................................... 26,752 26,923 Work in process ....................................................................... 14,168 14,091 Finished goods ........................................................................ 19,560 20,671 60,480 61,685 Other current assets ..................................................................... 24,251 26,683 Net current assets of discontinued operations ............................................ -- 10,805 Total current assets ..................................................................... 184,678 195,364 Property and equipment, at cost: Land, buildings and improvements ......................................................... 1,927 4,847 Machinery and equipment .................................................................. 68,618 73,742 Furniture and fixtures ................................................................... 16,523 18,097 Leasehold improvements ................................................................... 5,173 7,051 92,241 103,737 Less accumulated depreciation and amortization ........................................... (57,450) (64,484) 34,791 39,253 Other assets: Intangible assets, net .................................................................. 29,104 37,238 Other ................................................................................... 7,819 8,698 $ 256,392 $ 280,553 The accompanying notes are an integral part of the consolidated financial statements.
Consolidated Balance Sheets Dynatech Corporation (Amounts in thousands except share data) March 31 1995 1994 LIABILITIES and SHAREHOLDERS' EQUITY Current liabilities: Notes payable and current portion of long-term debt ..................................... $ 4,374 $ 2,911 Accounts payable ........................................................................ 19,651 20,234 Accrued expenses: Compensation and benefits ............................................................. 23,922 18,767 Taxes, other than income taxes ........................................................ 3,139 2,533 Deferred revenue ...................................................................... 3,644 5,875 Streamlining and restructuring ........................................................ 22,556 35,276 Other ................................................................................. 14,656 18,108 Accrued income taxes .................................................................... 1,223 650 Total current liabilities ............................................................... 93,165 104,354 Long-term debt ............................................................................. 7,915 33,006 Deferred income taxes ...................................................................... 992 550 Shareholders' equity: Serial preference stock, par value $1 per share; authorized 100,000 shares; none issued Common stock, par value $.20 per share; authorized 24,000,000 shares; issued 18,605,298 and 12,387,216 shares, respectively ................................. 3,721 2,477 Additional paid-in capital .............................................................. 7,432 9,414 Retained earnings ....................................................................... 151,414 185,957 Cumulative translation adjustments ...................................................... 2,659 (757) Treasury stock, at cost; 1,032,760 and 3,090,247 shares, respectively ................... (10,906) (54,448) Total shareholders' equity .............................................................. 154,320 142,643 $ 256,392 $ 280,553 The accompanying notes are an integral part of the consolidated financial statements.
Consolidated Statements of Shareholders' Equity Dynatech Corporation (Amounts in thousands) Total Number of Shares Additional Cumulative Share- Common Treasury Common Paid-In Retained Translation Treasury holders' Stock Stock Stock Capital Earnings Adjustments Stock Equity Balance, March 31, 1992 .............. 12,384 (3,174) $ 2,477 $ 9,288 $199,505 $ 3,619 $(56,240) $158,649 Net income - 1993 .................... 16,435 16,435 Purchases of treasury stock .......... (58) (1,079) (1,079) Translation adjustments .............. (3,966) (3,966) Exercise of stock options ............ 101 (128) 1,993 1,865 Balance, March 31, 1993 .............. 12,384 (3,131) 2,477 9,160 215,940 (347) (55,326) 171,904 Net loss - 1994 ...................... (29,983) (29,983) Translation adjustments .............. (410) (410) Exercise of stock options and other issuances ................ 3 41 (111) 878 767 Tax benefit from exercise of stock options ................... 365 365 Balance, March 31, 1994 .............. 12,387 (3,090) 2,477 9,414 185,957 (757) (54,448) 142,643 Net income - 1995 .................... 19,168 19,168 Purchases of treasury stock .......... (597) (12,576) (12,576) Translation adjustments .............. 3,416 3,416 Exercise of stock options and other issuances ................ 90 (215) 1,790 1,575 Retirement of treasury stock ......... (3,085) 3,085 (617) (53,711) 54,328 --- Two-for-one stock split .............. 9,303 (521) 1,861 (1,861) --- Tax benefit from exercise of stock options ................... 94 94 Balance, March 31, 1995 .............. 18,605 (1,033) $ 3,721 $ 7,432 $151,414 $ 2,659 $(10,906) $154,320 The accompanying notes are an integral part of the consolidated financial statements.
Consolidated Statements of Cash Flows Dynatech Corporation (Amounts in thousands) Years ended March 31 1995 1994 1993 Operating activities: Net income (loss) from continuing operations ..................................... $ 20,187 $(26,220) $ 19,161 Adjustment for noncash items included in net income (loss): Depreciation ................................................................. 14,112 13,754 12,950 Amortization of intangibles .................................................. 8,471 18,153 12,176 Streamlining and restructuring charges ....................................... -- 35,276 -- Increase (decrease) in deferred income taxes ................................. 7,187 (79) (1,686) Other ........................................................................ 283 1,947 692 Changes in operating assets and liabilities net of effects of purchase acquisitions and divestitures ............................ (16,013) (13,545) (5,776) Net cash provided by continuing operations ....................................... 34,227 29,286 37,517 Net cash provided by (used in) discontinued operations ........................... (3,250) 5,771 3,420 Net cash flows from operating activities ......................................... 30,977 35,057 40,937 Investing activities: Purchases of property and equipment .............................................. (16,426) (17,834) (14,347) Disposals of property and equipment .............................................. 437 636 622 Proceeds from sales of businesses ................................................ 27,140 3,262 384 Businesses acquired in purchase transactions, net of cash acquired ......................................................... (1,056) (2,757) (5,584) Other ............................................................................ (1,095) 2,629 536 Net cash flows used in investing activities ...................................... 9,000 (14,064) (18,389) Financing activities: Debt borrowings .................................................................. 6,121 -- 1,771 Repayment of debt ................................................................ (30,246) (20,312) (33,777) Premium paid on early retirement of debt ......................................... (1,757) -- -- Proceeds from exercise of stock options .......................................... 1,461 767 1,865 Purchases of treasury stock ...................................................... (12,576) -- (1,079) Net cash flows used in financing activities ...................................... (36,997) (19,545) (31,220) Effect of exchange rate on cash ....................................................... 1,714 (2,697) (2,238) Increase (decrease) in cash and cash equivalents ...................................... 4,694 (1,249) (10,910) Cash and cash equivalents at beginning of year ........................................ 23,101 24,350 35,260 Cash and cash equivalents at end of year .............................................. $ 27,795 $ 23,101 $ 24,350 Change in operating asset and liability components: Decrease (increase) in trade accounts receivable ................................. $ (1,215) $ 12,717 $(10,062) Decrease (increase) in inventories ............................................... (2,820) (4,876) 401 Decrease (increase) in other current assets ...................................... 180 (15,629) (3,095) Increase (decrease) in accounts payable .......................................... 129 (3,232) 2,344 Increase (decrease) in accrued expenses and taxes ................................ (12,287) (2,525) 4,636 Change in operating assets and liabilities ....................................... $(16,013) $(13,545) $ (5,776) Supplemental disclosures of cash flow information: Cash paid during the year for Interest ..................................................................... $ 4,833 $ 5,090 $ 7,442 Income taxes ................................................................. $ 7,672 $ 11,798 $ 18,121 Tax benefit of disqualifying dispositions of stock options ....................... $ 94 $ 365 -- The accompanying notes are an integral part of the consolidated financial statements.
Notes to Consolidated Financial Statements Dynatech Corporation Summary of Significant Accounting Policies Principles of Consolidation The consolidated financial statements include the accounts of the parent company and its wholly owned domestic and international subsidiaries. Intercompany accounts and transactions have been eliminated. Certain prior-year amounts have been reclassified to conform with the current year. Revenue Recognition Revenue from product sales is recognized at the time of shipment. Research, Development and Warranty Costs Costs relating to research, development and product warranty are expensed as incurred. Warranty costs are not material to the consolidated financial statements. Foreign Operations Foreign currency denominated assets and liabilities are translated into U.S. dollars at current exchange rates and related translation adjustments are reported as a component of shareholders' equity. Results of operations are translated at the average exchange rates during the respective periods. Cash Equivalents Cash equivalents represent highly liquid debt instruments with a maturity of three months or less at the time of purchase. Financial instruments, which potentially subject the Corporation to concentrations of credit risk, consist primarily of short-term deposits in Europe with major banks located in various cities with investment levels and debt ratings set to limit exposure with any one institution. Derivatives The Company enters into a limited number of forward exchange contracts to manage the exposure to foreign currency fluctuations associated with certain monetary assets and liabilities denominated in a foreign currency as well as certain highly anticipated cash flows or firm commitments. Gains and losses on these contracts are recognized in income coincidently with those of the underlying exposure. Inventories Inventories are stated at the lower of cost (first-in, first-out or average) or market. Intangible Assets Intangible assets acquired primarily from business acquisitions are summarized as follows: (Amounts in thousands) 1995 1994 Product technology ................................. $30,859 $30,843 Excess of cost over net assets acquired ............ 18,687 20,474 Other intangible assets ............................ 14,123 15,413 63,669 66,730 Less accumulated amortization ...................... 34,565 29,492 Total .............................................. $29,104 $37,238
Product technology and other intangible assets are amortized on a straight-line basis primarily over 3 to 10 years, but in no event longer than their expected useful lives. Amortization expense related to product technology was $4,329,000 in fiscal 1995, $10,685,000 in fiscal 1994, and $6,078,000 in fiscal 1993, and was excluded from cost of sales. Excess of cost over fair market value of net assets is being amortized on a straight-line basis primarily over 15 years. Depreciation and Amortization Depreciation of machinery, equipment and fixtures is computed on the straight-line method over estimated useful lives of 2 to 10 years. Leasehold improvements are amortized over the lesser of the lives of the leases or estimated useful lives of the improvements. Buildings are depreciated on the straight-line method over the estimated useful lives. The cost of improvements is charged to the property accounts, while maintenance and repairs are charged to income as incurred. Upon retirement or other disposition of property and equipment, the cost and related depreciation are removed from the accounts, and any resulting gain or loss is reflected in the Statement of Operations. Income Taxes Deferred tax assets and liabilities are recognized on the income reported in the financial statements regardless of when such taxes are payable. These deferred taxes are measured by applying currently enacted tax rates. The Corporation's policy is not to provide for U.S. taxes on undistributed earnings of foreign subsidiaries to the extent that such earnings are determined to be permanently invested outside the United States. Income Per Share Income per share is based on the weighted average number of common shares outstanding and the effect of the deferred stock compensation for directors. No effect has been given to the assumed exercise of outstanding stock options as no material dilutive effect would result on income per share in fiscal 1995, 1994, or 1993. Stock Split On January 26, 1995 the Company's Board of Directors voted a two-for-one stock split to be effective March 15, 1995 to shareholders of record at February 15, 1995. All references in the financial statements to weighted average number of shares outstanding and related prices, per share amounts, and stock plan data have been restated to reflect this split. The par value for the additional shares issued was transferred from additional paid in capital to common stock. Streamlining and Restructuring In the fourth quarter of fiscal 1994 the Corporation announced a series of reorganization actions amounting to $50 million designed to focus on supplying products to the information support marketplace. In connection with these actions the Corporation recorded a streamlining and restructuring provision of $37.6 million ($24.8 million after taxes or $1.33 per share). These actions resulted in a reduction of 10% of the work force and included the sale or closure of nonstrategic businesses and consolidation and centralization of various ongoing production and sales facilities. These provisions included employee severance, lease termination or restructuring, and revaluation of various assets held for sale to estimated net realizable value. The sale and closure of eight businesses and product lines and the consolidation and centralization efforts were completed during fiscal 1995. The remaining divestitures are anticipated to be completed by September 1995. Net assets of continuing operations held for sale are stated at their estimated net realizable value at March 31, 1995 and consist of working capital of $2 million, property and equipment of $1.9 million, and other assets of $0.3 million. In connection with the streamlining and restructuring actions, the Corporation recognized additional pretax charges in the fourth quarter of fiscal 1994 approximating $8 million for nonrecurring operating expenses. These costs included accelerated amortization of intangible assets related to discontinued businesses and closedown costs of sales and engineering facilities. Discontinued Operations Effective March 31, 1994 the Corporation adopted, and the Board of Directors approved, a formal plan to discontinue its consumer automotive businesses units and to sell or close these operations during fiscal 1995. As a result, a $4.4 million charge ($2.5 million after taxes or $.14 per share) was recorded to write down assets to estimated net realizable values. These businesses were subsequently sold during fiscal 1995. Summary operating results of the discontinued operations follow: (Amounts in thousands) 1995 1994 1993 Sales .......................... $10,753 $51,235 $53,773 Gross margin ................... 3,254 14,362 14,769 Operating income ............... 318 494 372 Loss before taxes .............. -- 2,020 4,558 Net loss ....................... -- 1,254 2,726
Notes Payable Short-term notes payable, primarily in Europe, were $4,351,000 and $2,739,000 at March 31, 1995 and 1994, respectively. The maximum amount of short-term borrowings, domestic and foreign, at any month-end during the year was $4,351,000 in fiscal 1995, $2,830,000 in 1994, and $3,853,000 in 1993. The average amount of short-term borrowings during the year was $3,430,000 in fiscal 1995, $2,733,000 in 1994, and $3,292,000 in 1993. The approximate weighted average interest rate was 6.2% in fiscal 1995, 6.6% in 1994, and 9% in 1993 (calculated by dividing interest expense for such borrowings by the weighted average borrowings outstanding during the year). The weighted average interest rate at year-end was 6.3% in fiscal 1995, 6.3% in 1994, and 8.6% in 1993. At year-end, the Corporation had short-term unused lines of credit aggregating $6,748,000 for foreign operations. Long-Term Debt Long-term debt is summarized below: (Amounts in thousands) 1995 1994 Revolving credit and term bank loan ......... $ 7,900 $ 3,000 Term notes .................................. -- 30,000 Other long-term debt ........................ 38 178 Total debt .................................. 7,938 33,178 Less current portion ...................... 23 172 Long-term debt .............................. $ 7,915 $33,006
The Corporation has an unsecured $100 million revolving credit and term bank loan agreement with several commercial banks, which allows for borrowings in various currencies and provides for interest to be payable at one half of one percent per annum over the London Inter-Bank Offering Rate, three eighths of one percent over the Certificate of Deposit rate, or at the base or money market rate quoted by the lender, depending upon the currencies borrowed and the form of borrowing. Principal borrowings outstanding at December 31, 1996 under the revolving credit and term bank loan will convert to a term loan payable in eight equal quarterly installments beginning March 31, 1997. A commitment fee at a rate of .25% is charged on the unused portion. The $30 million of 10.15% term notes were repaid in February 1995 to reduce debt and manage interest-rate exposure. An extraordinary charge of $1.7 million was recorded as a result of the early debt redemption that required the payment of premiums. The approximate weighted average interest rate was 10.7% in fiscal 1995 and 10.5% in fiscal 1994. The composite rate at March 31, 1995 was 8.4% and at March 31, 1994 was 13.3%. The terms of the revolving credit agreement require, among other things, specific levels of current ratio, fixed charge coverage ratio and minimum tangible net worth. Aggregate maturities of the above term debt for each of the years in the four-year period ending March 31, 1999 are $23,000, $1,003,000, $3,950,000, and $2,962,000, respectively. Income Taxes The components of the provision (benefit) for income taxes from continuing operations are as follows: (Amounts in thousands) 1995 1994 1993 Provision for income taxes: United States ........................... $ 10,002 $ (5,997) $ 10,385 Foreign .......................... 1,882 (1,514) 1,743 State ............................ 2,735 1,396 2,618 Total .............................. $ 14,619 $ (6,115) $ 14,746 Components of income tax provision: Current: Federal .......................... $ 5,359 $ 5,961 $ 11,976 Foreign .......................... 1,218 (343) 1,809 State ............................ 1,687 1,903 2,941 Total current .................... 8,264 7,521 16,726 Deferred: Federal .......................... 4,643 (11,958) (1,591) Foreign .......................... 664 (1,171) (66) State ............................ 1,048 (507) (323) Total deferred ................... 6,355 (13,636) (1,980) Total .............................. $ 14,619 $ (6,115) $ 14,746
Reconciliations between U.S. federal statutory rate and the effective tax rate (benefit) follow: 1995 1994 1993 Tax at U.S. Federal statutory rate ........................................... 35.0% (35.0)% 34.0% Increases (reductions) to statutory tax rate resulting from: Foreign income subject to tax at a rate different than U.S. rate ............. (0.4) 0.9 (1.1) State income taxes, net of federal income tax benefit ........................ 5.1 6.7 5.1 Research and development tax credit .......................................... (1.0) (1.2) (0.3) Nondeductible amortization ................................................... 2.3 10.5 5.2 Other ........................................................................ 1.0 (0.8) 0.6 Total ...................................................................... 42.0% (18.9)% 43.5%
The high level of nondeductible amortization charges, the inability to deduct various state and foreign operating losses, and certain streamlining and restructuring charges were contributing factors to the low tax benefit for fiscal 1994. Excluding the effects of the streamlining and restructuring charges and fourth quarter nonrecurring operating expenses, the effective tax rate was 51.8%. The principal components of the deferred tax assets and liabilities follow: (Amounts in thousands) 1995 1994 Deferred tax assets: Net operating loss carryforwards ................. $ 11,802 $ 11,327 Streamlining and restructuring charges ........... 9,914 17,792 Vacation benefits ................................ 794 687 Bad debt allowance ............................... 1,148 504 Inventory capitalization ......................... 931 1,002 Depreciation and amortization .................... 2,076 1,369 Other deferred assets ............................ 5,175 5,066 31,840 37,747 Valuation allowance .............................. (13,173) (13,656) 18,667 24,091 Deferred tax liabilities: Depreciation and amortization .................... 992 550 Other deferred liabilities ....................... 1,461 1,257 2,453 1,807 Net deferred tax assets .......................... $ 16,214 $ 22,284 Deferred income taxes are included in the following balance sheet accounts: Other current assets ............................. $ 14,393 $ 19,802 Other assets ..................................... 2,813 3,032 Deferred income taxes ............................ (992) (550) $ 16,214 $ 22,284
The valuation allowance principally applies to net operating loss carryforwards that may not be fully utilized by the Company. Employee Retirement Plans The Corporation has a trusteed employee retirement profit sharing and 401(k) savings plan for eligible U.S. employees. The Plan does not provide for stated benefits upon retirement. Corporate contributions ($3,000,000 in 1995, $2,000,000 in 1994, and $2,300,000 in 1993) were charged to expense. Employees outside the U.S. are covered principally by government-sponsored plans that are deferred contribution plans and the cost of company provided plans is not material. Effective April 1, 1995 the Company adopted a nonqualified deferred compensation plan which permits certain key employees to annually elect to defer a portion of their compensation for their retirement. The amount of compensation deferred and related investment earnings will be placed in an irrevocable rabbi trust and presented as assets in the Corporation's balance sheet because they will be available to the general creditors of the Corporation in the event of the Company's insolvency. An offsetting liability will reflect amounts due employees. Stock Options Under Dynatech's Stock Option Plans, common stock is available for grant to key employees at prices not less than fair market value (110% of fair market value for employees holding more than 10% of the outstanding common stock) at the date of grant determined by the Board of Directors. Incentive or nonqualified options may be issued under the Plans and are exercisable from 1 to 10 years after grant. Options available for future grants under the Plans were 0, 499,146, and 511,146 at March 31, 1995, 1994, and 1993, respectively. A summary of changes in the outstanding options is as follows: 1995 1994 1993 Shares under option, beginning of year ......... 705,806 820,984 858,564 Options granted (at an exercise price of $10.375 to $17.50 in 1995, $13.75 in 1994, and $11.125 in 1993) ............................. 927,000 20,000 271,000 Options exercised .............................. (193,920) (81,630) (201,240) Options canceled ............................... (142,166) (53,548) (107,340) Shares under option, end of year ............... 1,296,720 705,806 820,984 Shares exercisable ............................. 163,936 291,206 316,004 Price of options exercised ..................... $8.625 to $8.625 to $8.625 to $14.125 $14.125 $14.125
The Corporation delivers treasury shares upon the exercise of stock options and the difference between the cost of the treasury shares, on a last-in, first-out basis, and the exercise price of the options, is reflected in additional paid-in capital. Shareholder Rights Plan In February 1989, the Board of Directors adopted a Shareholder Rights Plan and declared a dividend distribution of one Right for each outstanding share of Dynatech's common stock. The Plan was amended in March 1990. Each Right, when exercisable, entitles a qualifying shareholder to buy shares of Dynatech junior participating cumulative preferred stock. The Rights would only become exercisable (i) 10 days after a person has become the beneficial owner of 15% or more of Dynatech's common stock, or (ii) 10 business days after the commencement of a tender offer that would result in the ownership of 15% or more of the common stock, or (iii) upon determination by the Board of Directors that a person who holds 10% or more of Dynatech's common stock intends to, or is likely to, act in certain specified manners adverse to the interests of Dynatech and its shareholders. In the event Dynatech is acquired and is not the surviving corporation in a merger, or in the event of the acquisition of 50% or more of the assets or earning power of Dynatech, each Right would then entitle the qualified holder to purchase, at the then-current exercise price, shares of common stock of the acquiring company having a value of twice the exercise price of the Right. Furthermore, if any party were to acquire 15% or more of Dynatech's common stock or were determined to be an adverse person as described above, qualified holders of the Rights would be entitled to acquire shares of Dynatech junior participating cumulative preferred stock having a value of twice the then-current exercise price. At the option of the Board of Directors, all of the Rights could be exchanged into shares of common or preferred stock. The Rights will expire February 16, 1999, but may be redeemed at the option of the Board for $.02 per Right until one of the triggering events described above has occurred. The Rights do not entitle holders to any voting power or other shareholder benefits. Issuance of the Rights does not dilute the shareholders' ownership of Dynatech, nor does it affect reported earnings per share. Commitments and Contingencies The Corporation has operating leases covering plant, office facilities and equipment which expire at various dates through 2014. Future minimum annual fixed rentals required during the years ending in fiscal 1996 through 2000 under noncancelable operating leases having an original term of more than one year are $10,156,000, $8,233,000, $6,716,000, $4,827,000, and $3,933,000, respectively. The aggregate obligation subsequent to fiscal 2000 is $10,333,000. Rent expense from continuing operations was approximately $10,447,000, $12,267,000, and $12,507,000 in fiscal 1995, 1994, and 1993, respectively. The Corporation is a party to several pending legal proceedings and claims. Although the outcome of such proceedings and claims cannot be determined with certainty, the corporation's counsel and management are of the opinion that the final outcome should not have a material adverse effect on the Corporation's operations or financial position. Segment Information and Geographic Areas Dynatech's operations and strategy are reported in two business segments: Information Support Products and Diversified Instrumentation. Information Support Products consists of businesses which support voice, video, and data communications. Diversified Instrumentation represents medical and diagnostic products and selected nonstrategic businesses held for sale. Segment information for the years ended March 31, 1995, 1994, and 1993 is summarized below: Assets identifiable to industry segments are those assets used in Company operations and do not include general corporate assets. Corporate assets consist primarily of cash and deferred income taxes. (Amounts in thousands) 1995 1994 1993 Net sales Information Support Products ................ $ 367,390 $ 329,487 $ 332,702 Diversified Instrumentation ................. 121,386 128,962 141,495 $ 488,776 $ 458,449 $ 474,197 Operating income (loss) from continuing operations Information Support Products ................ $ 39,858 $ 22,700 $ 46,506 Diversified Instrumentation ................. 6,437 (5,335) (1,589) 46,295 17,365 44,917 Corporate expenses ............................... (10,715) (9,566) (11,210) Interest expense, net ............................ (2,401) (2,550) (637) Streamlining and restructuring ................... -- (37,582) * -- Other income (expense) ........................... 1,627 (2) 837 Pretax income (loss) from continuing operations .. $ 34,806 $ (32,335) $ 33,907 Identifiable assets Information Support Products ................ $ 178,411 $ 168,934 $ 185,307 Diversified Instrumentation ................. 44,323 61,022 72,039 General corporate ........................... 33,658 37,149 22,208 Discontinued operations ..................... -- 13,448 23,469 $ 256,392 $ 280,553 $ 303,023 Capital expenditures Information Support Products ................ $ 12,888 $ 13,174 $ 9,752 Diversified Instrumentation ................. 3,145 3,595 3,513 Corporate ................................... 184 103 165 Discontinued operations ..................... 209 962 917 $ 16,426 $ 17,834 $ 14,347 Depreciation and amortization Information Support Products ................ $ 17,920 $ 22,364 $ 16,710 Diversified Instrumentation ................. 4,466 9,329 8,196 Corporate ................................... 197 214 220 $ 22,583 $ 31,907 $ 25,126 * On a segment basis, the provision was allocated to Information Support Products $(24,136), Diversified Instrumentation $(12,446), and Corporate $(1,000).
Sales in the Diversified Instrumentation segment related to nonstrategic businesses sold or held for divestment were $58,689,000 in 1995, $75,082,000 in 1994, and $83,483,000 in 1993. Operations outside the United States consist of manufacturing communications and medical diagnostic products in the Channel Islands and England and sales of a majority of Dynatech's products through wholly owned subsidiaries in Europe and Asia. Net income (loss) in fiscal 1995, 1994, and 1993 included currency gains (losses) of approximately $431,000, $(364,100), and $31,200, respectively. The cumulative amount of undistributed earnings of consolidated foreign subsidiaries for which federal income taxes have not been provided was $37,918,000 at March 31, 1995. These earnings which reflect full provision for non-U.S. income taxes, are indefinitely reinvested in non-U.S. operations or will be remitted substantially free of additional tax. Accordingly, no provision has been made for taxes that might be payable upon remittance of such earnings nor is it practicable to determine the amount of this liability. Information by geographic areas for the years ended March 31, 1995, 1994, and 1993 is summarized below: Outside U.S. (Amounts in thousands) United States (principally Europe) Combined Sales to unaffiliated customers 1995 $388,120* $100,656 $488,776 1994 370,771* 87,678 458,449 1993 378,021* 96,176 474,197 Income (loss) before taxes from continuing operations 1995 $27,930 $6,876 $34,806 1994 (24,484) (7,851) (32,335) 1993 27,103 6,804 33,907 Identifiable assets at March 31, 1995 $177,317 $79,075 $256,392 March 31, 1994 200,620 79,933 280,553 March 31, 1993 215,134 87,889 303,023 * Includes export sales of $81,808, $73,745, and $77,513, in 1995, 1994, and 1993, respectively.
Acquisitions and Divestments 1995 Acquisitions In October 1994, the Corporation acquired selected assets of Time Logic Inc. (TLI) of Moorpark, California for approximately $1 million in cash. TLI manufactures telecine editing systems for the post-production and corporate video markets. Acquired intangible assets of $450,000 are being amortized over five years. The investment in excess of fair market value of assets purchased of $606,000 is being amortized over 15 years. The acquisition was accounted for under the purchase method of accounting, and results of its operations have been included from the date of acquisition. Since the effects of the purchase acquisition for the period April 1, 1994 through the date of acquisition and for the twelve months ended March 31, 1995 is not material to the consolidated financial statements, pro forma information is not reflected herein. In addition, the Company purchased technology rights and licenses from various parties aggregating $2.1 million which are being amortized over five years. 1994 Acquisitions In fiscal 1994, two acquisitions, recorded as purchases, were made for $2.8 million in cash and assumed liabilities of $1.6 million. The effects of the purchase acquisitions for the period April 1, 1993 through the dates of acquisition and for the twelve months ended March 31, 1994 are not material to the consolidated financial statements. 1993 Acquisitions In fiscal 1993, two acquisitions, recorded as purchases, were made for $6.6 million in cash and assumed liabilities of $1.2 million. The effects of the purchase acquisitions for the period April 1, 1992 through the dates of acquisition and for the twelve months ended March 31, 1993 are not material to the consolidated financial statements. Divestments During fiscal 1995 the Corporation sold two businesses which had been classified as discontinued operations for approximately $13.9 million in cash and long-term promissory notes approximating $3.1 million. Eight other businesses were sold for approximately $13.2 million in cash and long-term promissory notes approximating $2.1 million. The effects of these transactions were reflected in fiscal 1994 and did not effect fiscal 1995 earnings. In fiscal 1994 the Corporation sold four businesses for $3.3 million. The effects of these transactions were not material to the consolidated financial statements. In fiscal 1993 the Corporation sold certain assets of two businesses on which a pretax gain of approximately $112,000 was recognized. Report of Independent Accountants To the Board of Directors and Shareholders of Dynatech Corporation: We have audited the accompanying consolidated balance sheets of Dynatech Corporation at March 31, 1995 and 1994, and the related consolidated statements of operations, shareholders' equity and cash flows for each of the three fiscal years in the period ended March 31, 1995. 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 our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Dynatech Corporation as of March 31, 1995 and 1994, and the consolidated results of its operations and its cash flows for each of the three fiscal years in the period ended March 31, 1995, in conformity with generally accepted accounting principles. Coopers & Lybrand L.L.P. Boston, Massachusetts May 15, 1995 Summary of Operations by Quarter (Unaudited) (Amounts in thousands except per share data) 1995 Quarter First Second Third Fourth Year Sales ................................................ $117,772 $121,377 $127,242 $122,385 $488,7762 Gross profit ......................................... 61,048 63,803 67,239 65,884 257,974 Income from continuing operations .................... 3,660 5,084 5,608 5,835 20,187 Net income ........................................... 3,660 5,084 5,608 4,816(d) 19,168(d) Income per common share (b) Continuing operations .......................... $ .20 $ .29 $ .32 $ .33 $ 1.13 Net income ..................................... $ .20 $ .29 $ .32 $ .27 $ 1.07 Market Share Price (a)(b) - High ..................... $ 11.00 $ 11.25 $ 16.75 $ 19.38 Low ...................... $ 7.88 $ 10.38 $ 10.75 $ 13.50 1994 Quarter First Second Third Fourth Year Sales ................................................... $117,749 $111,360 $113,381 $ 115,959 $ 458,449 Gross profit ............................................ 63,176 58,899 59,629 58,182 239,886 Income (loss) from continuing operations ................ 3,452 3,290 1,425 (34,387) (26,220) Net income (loss) ....................................... 3,553 3,267 1,274 (38,077)(c) (29,983)(c) Income (loss) per common share (b) Continuing operations ............................. $ .19 $ .18 $ .08 $ (1.85) $ (1.41) Net income (loss) ................................. $ .19 $ .18 $ .07 $ (2.05) $ (1.61) Market Share Price (a)(b)- High ......................... $ 16.63 $ 14.63 $ 12.38 $ 11.63 Low .......................... $ 12.88 $ 11.50 $ 10.25 $ 9.25 (a) Dynatech common shares are traded on the NASDAQ - National Market System No cash dividends have been paid on Dynatech common shares. (b) Restated for the 2-for-1 stock split in March 1995. (c) Amounts reflect reorganization charges, net of tax, of $35,103. (d) Includes extraordinary charge, net of tax, of $1,019 for early retirement of debt.
EX-21 3 EXHIBIT 21 10-K EXHIBIT 21 DYNATECH CORPORATION Subsidiaries of the Registrant State or other jurisdiction Name of Parent of Subsidiary of organization Dynatech Corporation - Parent Massachusetts Dynatech U.S.A., Inc. Massachusetts Alpha Image, Inc. Delaware Alta Group, Inc (inactive) California Airshow, Incorporated California ColorGraphics Systems, Inc. Wisconsin ComCoTec, Inc. Illinois Computerized Medical Systems, Inc. Missouri DaVinci Systems, Inc. Florida Digital Technology, Inc. Ohio Dyna FSC Corporation (inactive) U.S. Virgin Islands Dynatech Cable Products Group, Inc. Utah Dynatech Communications, Inc. Delaware Dynatech Laboratories, Inc. Delaware Dynatech Leasing Corporation Nevada Dynatech Nevada, Inc. Nevada Dynatech NewStar, Inc. Wisconsin Dynatech Precision Sampling Corporation Louisiana Dynatech Tactical Communications, Inc. Massachusetts Dynatech Video Group, Inc. Utah Dynatech Video & Specialty Computers, Inc. (inactive) Wisconsin Industrial Computer Source, Inc. California L.E.A. Dynatech, Incorporated Florida Parallax Graphics, Inc. California Piiceon, Inc. California Quanta Corporation Utah Quanta International Corporation Utah Science Associates, Inc. (in liquidation) New Jersey Telecommunications Techniques Corporation Maryland Trontech, Inc. New Jersey Unex Corporation Massachusetts U.S. Computer Systems, Inc. Ohio Utah Scientific Inc. Nevada DataViews Corporation Massachusetts XKD Corporation California Cromemco, G.m.b.H. (inactive) Germany Dynatech A.G. (in liquidation) Switzerland TTC Canada Ltd. Canada Dynatech Corporation Ltd. England Dynatech Scandinavia A/S (inactive) Norway Dynatech Communications SRL Italy Dynatech Communications Svenska A.B. Sweden Dynatech Data Communications, Ltd. Guernsey, Channel Islands Dynatech Communications Espani (in liquidation) Spain Dynatech Communications G.m.b.H. Germany Dynatech Deutschland, G.m.b.H. Germany Dynatech Gesellschaft Furdated Verarbeitung Germany Dynatech Systems France, SA France Dynatech Holdings Ltd. Guernsey, Channel Islands Dynatech Holdings Ltd. England Dynatech Holdings S.A.R.L. France Dynatech Hong Kong, Ltd. Hong Kong Dynatech Investments, Ltd. Guernsey, Channel Islands Nihon Dynatech K.K. Japan Dynatech Medical Products, Ltd. Guernsey, Channel Islands Industrial Computer Source France France Laboratorie Dynatech SARL France Dynatech Laboratories s.r.o. Czech Republic Telecommunications Techniques Company (Ireland) Ltd. Ireland EX-23 4 EXHIBIT 23 FORM 10-K EXHIBIT 23 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the incorporation by reference in the registration statements of Dynatech Corporation on Form S-3 (File Nos. 2-78465, 2-81026, 2-82260, 2-85387, 2-86457, 2-92391, 2-94757, 33-365, 33-2387, 33-5544, 33-17169, 33-24058 and 33-30610) and on Form S-8 (File Nos. 2-87779, 33-10465, 33-17243, 33-42427, 33-50768, 33-57491 and 33-57495) of our reports dated May 15, 1995, on our audits of the consolidated financial statements and financial statement schedules of Dynatech Corporation as of March 31, 1995 and 1994 and for each of the years ended March 31, 1995, and 1994 and 1993, which reports have been incorporated by reference or included in this Annual Report on Form 10-K. Boston, Massachusetts COOPERS & LYBRAND L.L.P. June 2, 1995 EX-27 5 FDS -- WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
5 1000 USD YEAR MAR-31-1995 APR-01-1994 MAR-31-1995 27795 0 77229 5077 60480 184678 92241 57450 256392 93165 7915 3721 0 0 150599 256392 488776 488776 230802 230802 222394 0 3919 34806 14619 20187 0 (1019) 0 19168 1.07 1.07
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