-----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, CJyvrbGkVmA2Et3FpJfi1AnGJB4GlNAtrkigi+oKCiSQOazmS8QjO8ap0W6x7cM5 nUDgKySvw2lphiqcfgI2IQ== 0000950135-94-000408.txt : 19940701 0000950135-94-000408.hdr.sgml : 19940701 ACCESSION NUMBER: 0000950135-94-000408 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19940331 FILED AS OF DATE: 19940617 FILER: COMPANY DATA: COMPANY CONFORMED NAME: DYNATECH CORP CENTRAL INDEX KEY: 0000030841 STANDARD INDUSTRIAL CLASSIFICATION: 3577 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: 94534794 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 CORPORATION FORM 10-K 1 U.S. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K /X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED) For the fiscal year ended March 31, 1994 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 13, 1994 the aggregate market value of the Common Stock of the registrant held by non-affiliates was $149,487,642. At May 13, 1994 there were 9,297,009 shares of Common Stock of the registrant outstanding. DOCUMENTS INCORPORATED BY REFERENCE Portions of the 1994 Annual Report to Shareholders are incorporated by reference in Parts I and II. Portions of the proxy statement for the 1994 Annual Meeting of Shareholders are incorporated by reference in Part III. 2 PART I Item 1. BUSINESS 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 sixteen states and two Western European countries. As part of an ongoing management process of reviewing the contribution of our businesses to strategic Corporate plans, the Company adopted a formal plan which included a series of streamlining and restructuring actions and discontinuance of certain nonstrategic business units. These actions resulted in pretax charges of approximately $50 million recorded in the fourth quarter ended March 31, 1994. Specific reference is made to the information contained on the Section entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations" and Notes to Consolidated Financial Statements in the Company's 1994 Annual Report. These actions take the form of separating businesses into two business segments: Information Support Products and Diversified Instrumentation. These areas are described below. INFORMATION SUPPORT PRODUCTS The Information Support Products segment is focused on the support of voice, data and video communications, with related product categories of Transmission products, Generation products, and Presentation products. Transmission Products Telecommunications Techniques Corporation supplies innovative test and measurement instruments used in the development, installation, and maintenance of sophisticated telecommunications networks. The Telecom Test Division manufactures a wide range of portable instruments and permanently located systems which include the T-BERD(TM), CENTEST(TM) and FIBERSCAN(TM) product lines. The CEPT Telecom Division, manufactures the INTERCEPTOR product line of test instruments used primarily to support transmission standards specific to certain international telecommunications networks. The Network Services Group manufactures portable multi-function instruments, including the FIREBERD product line of multi-functional digital communications analyzers. The T-BERD product line was developed for testing needs related to the T-Carrier, or North American digital telecommunications standard. This line of portable test instruments contains a wide range of products designated by three numbering series: 100,200 and 300. The 100 series primarily consists 3 of handheld, battery operated instruments utilized by local and long distance telephone company personnel to isolate and locate problems in the field. The newly introduced T-BERD 107A has captured significant market share by incorporating many features useful to technicians in a light weight package. The 200 series products are used by personnel in the central offices of the network services provider, closest to the end customer, often referred to as the "digital loop" and provide more sophistication and a broader scope of measurements than the 100 series. This broadened feature set allows central office personnel the flexibility as to the number and types of measurements available, as well as the capability to automate these measurements over time. The newly introduced, Distributed Test Manager software (DTM), allows T-BERD poducts to be remotely controlled from a network management center thereby enabling enhanced coverage of multiple points in the network. The 300 series is designed for the highest speed testing requirements. These products enable the central office or long distance carrier technician to pinpoint problems with networks typically running at speeds between 45 Mb/sec and 622 Mb/sec. The new T-BERD 310 SONET options enable the monitoring and testing of SONET (Synchronous Optical Network) technology now being widely deployed by network service providers. The CENTEST product line consists of a family of rack-mounted systems for use in the central office environment to test high speed communication circuits remotely. The new CENTEST 650 allows monitoring and testing of DS3 signals for ongoing maintenance, so that network trouble spots can be quickly identified and maintenance resources efficiently directed from a centralized location. The FIBERSCAN product line consists of an innovative, modular, portable fiber optic test instrument which allows both central office and field technicians to isolate fiber optic cable breaks and measure degradation caused by aging connectors and related components. The instrument is based on a modular concept, consisting of a flexible hardware and software platform and multiple "modules" that enable the user to customize the instrument to individual needs. 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 INTERCEPTOR(TM) products serve the international telecommunications industry by providing portable digital testing capability for transmission systems that operate in accordance with the CCITT standards. The INTERCEPTOR 1402 operates within a wide range of data rates. The FIREBERD series of multi-function communications analyzers typically test at the physical and logical levels of network organization, and operate at rates between 50 b/sec and 52 Mb/sec. FIREBERD instruments perform 4 as many as 60 simultaneous performance and error measurements on a wide range of network transmission media equipment. The FIREBERD 4000 and 6000 are portable instruments, built around a modular architecture accomodating a wide range of interfaces and speeds. The new FIREBERD 500 Internetwork Analyzer bridges the gap between LANS (Local Area Networks) and WANS (Wide Area Networks) by providing the capability to simultaneously monitor and test network traffic as it passes from LAN to WAN and back to the LAN. Dramatic growth in the LAN marketplace has placed increasing burdens on the WANs that connect them, along with an associated increase in reliance on the reliability of the overall network. Data communications products provide users of information networks with the 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. Packet switching, a communications protocol which breaks up data into "packets" for efficient transmission over private or public data networks, has become a cost-effective means for companies to transmit data over long distances. Frame relay, a high-speed bandwidth on demand type of packet switching, is being used to connect geographically dispersed local area networks. Dynatech's CPX product family of high performance packet switching equipment offer internetworking solutions that support frame relay and/or X.25 at T1 and E1 data rates and is being used to integrate multiple protocols by large multinational companies building high speed global networks. These products include the CPX 216FR, which provides multiprotocol (X.25, asynchronous, and synchronous) access to Frame Relay or X.25 networks; the CPX 802x which allows dial in/out LAN access while concurrently supporting LAN bridging/routing for the IP and IPX protocols; and the CPX FastBank which integrates circuit switching (T1/E1) and packet switching and saves on expenditures for recurring line charges and equipment costs. Dynatech Communications products are designed to assist managers in maintaining and optimizing diverse, heterogeneous data communications networks. Historically, the functions include cable management, circuit performance measurement, disaster recovery, and remote WAN diagnosis. These functions are accomplished with a variety of tools which include basic digital patch panels to electronic matrix switches. Growth in local area networks has brought an increasingly complex task of managing end-user system response times and overall network availability. With distributed file servers and peer-to-peer networking requirements, the need for cost effective management of remote servers from a centralized management 5 point has skyrocketed. The Enterprise Access System (EAS) is a remotely controlled switching product designed to manage the interconnection of remote analyzers to various network interfaces. With EAS and the associated DN-190 control system, an organization can utilize the talents of highly trained technicians at any communications site within reach of a telephone connection. Fault testing, including very critical protocol-level monitoring, can be performed without the need for dispatch of personnel to perform valid end-to-end circuit analysis. Switching capabilities onboard EAS allow managers to spare faulty ports or even substitute entire communication devices using simple point and click commands from the DN-190 terminal. Networking options from DN-190 to remote EAS sites include dial-up (async), X.25, and Frame Relay. The EAS hardware platform is designed for management of very high speed data rates across multiple vendor platforms and multiple interfaces including RS-449, RS-530, Token Ring, Ethernet, RS-232, X.21, V.35, T1/E1 and ISDN, and can be adapted to a mix of technology and vendor hardware. Dynatech Tactical Communications is a manufacturer of audio accessories for two-way handheld radios primarily for the government technical surveillance/security market, as well as miniature audio/video and telemetry transmitters for covert surveillance and intelligence operations. Unex Corporation manufactures lightweight modular telephone headsets under its PROTOCOL(TM), PROSET(TM) and ProBridge(TM) product lines. Dynatech Wireless Technologies, Inc. manufactures electronic devices used to enhance productivity in fast food restaurants. Its Integra wireless communication system provides wireless communication between the menu board and the order taken. Other applications include Voice Call, a two-way portable radio system to improve communications between nurses and other healthcare employees. Trontech, Inc. specializes in the manufacture of RF and microwave amplifiers used by military contractors and communications equipment suppliers. Trontech has targeted its low-noise amplifier technology toward products used by major manufacturers of cellular base stations and high power amplifiers used in digital cellular radio base stations. Dynatech Spectrum, Inc. manufactures wireless video transmitters receivers sold primarily to the personal security market. Industrial Computer Source, Inc. (ICS) is a worldwide supplier of ruggedized personal computers and plug-in input and output boards for industrial and scientific applications. ICS designs its products to operate in adverse 6 environments and to withstand excessive vibration, noise, temperature, dust and moisture. Generation Products Dynatech designs and sells products and systems worldwide through its two business units, Distribution Products and Production Products and its two product companies, Dynatech NewStar and DaVinci Systems, Inc., to television and radio stations, video production facilities, cable television, and corporate and industrial users of video equipment. Distribution Products center on technologies used mainly by television broadcast organizations and incorporate the product lines of Utah Scientific, Alpha Image and Digistore. Utah Scientific manufactures routing switchers, and machine control and master control systems for managing the flow of information within a television station. Alpha Image Ltd. is a United Kingdom manufacturer of digital routers, and protocol conversion video products. Digistore, an electronically digital commercial playback system, is used to acquire, store and play back commercials in a fully automated manner. Production Products focus on post-production systems and technologies which incorporates the product lines of ColorGraphics, Quanta, Cable Products, Alpha Image's digital production switcher, and Editing Machines Corporation. ColorGraphics Systems manufactures high end computer graphics systems used to create images for broadcasting, production studios, and corporate users of graphics and special effects systems. Products include D/P Animator, a digital paint and animation system used to create electronic graphics and animations, and D/P MAX(TM), a digital editing and layering system which takes multiple video recordings and merges various segments to produce a new video. The D/P MAX capabilities were used to help create the Diet Coke advertisements, interacting with film of well known stars of the past. The DP/Mosiac digital disk recorder permits storage and recall of digital images on a real-time basis. Quanta Corporation manufactures video character and graphics generators for displaying alphanumeric titles in a variety of fonts for broadcast and nonbroadcast applications. Its high-end character generators, DELTA(TM) and ORION(TM), combine the ability to create high-quality text on a video screen in hundreds of different font styles with the ability to produce softly shaded, intricate backgrounds and video painting. Quanta's systems also can be configured to display many foreign languages, including Chinese, Japanese, and Arabic. Quanta systems provided all of the host broadcaster on-air graphics at the 1994 Winter Olympics. 7 Dynatech Cable Products Group addresses specific opportunities in the cable TV market. The "All Channel Message System", permits emergency alert information to be broadcast over any combination of cable channels automatically. Currently, Dynatech is shipping a local storage, switching and control system for commercial and program insertion to StarNet, a unit of the Lenfest Group. StarNet will enable cable operators to download and insert national, regional, and local commercials and cross-channel promotion into cable programming, and to automate the scheduling and billing of these insertions. Editing Machines Corporation, acquired in January 1994, manufactures non-linear editors for broadcast and post production based on standard computer platforms. DaVinci Systems, Inc. produces the Renaissance 8:8:8 digital color correction system which is used to tint, enhance, and color-match television commercials. It is sold to the postproduction and teleproduction market and to commercial production facilities. Dynatech NewStar produces a software-driven client/server PC networked system used to computerize radio and television newsrooms, including the control of robotic cameras. NEWSTAR allows writers to access newswire material, write and edit late-breaking news on dedicated terminals and then transmit the stories directly to the broadcast studio. NewStar's real-time election results system, LEADER, automatically counts and displays votes to television viewers. This instant-update product was used during the last presidential election at stations throughout the country, and handled hundreds of local and national races simultaneously. Presentation Products Presentation products aid the user in the display of video and graphic images in a form that is useful and accessible. Parallax Graphics offers products 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. Its primary product, XVideo, is a live video windowing system for SUN Microsystems and Hewlett Packard Series 700 workstations. V.I. Corporation supplies its DataViews software to developers to create custom graphics for displaying real time data. Applications for this software include manufacturing process control and communications network analysis. For instance, V.I.'s products have been used to create interfaces to monitor manufacturing robots in China. 8 DIVERSIFIED INSTRUMENTATION The Diversified Instrumentation segment consists of Dynatech's remaining electronics and software businesses which include selected businesses in the Diversified Products group offered for sale as they do not fit our long term strategy. Medical and Diagnostic Products Medical and diagnostic products consist of laboratory, radiotherapy planning and test and measurement products. Dynatech Laboratories, Inc. (DLI) is a producer of Microtiter(R) technology products for the diagnostic marketplace. DLI manufactures and sells laboratory diagnostic equipment and supplies for research and clinical testing in the fields of immunology, microbiology, serology, and cancer research. DLI'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. DIAS(TM) (Dynatech Immuno - Assay System) modular microplate "walk-away" system, which was recently introduced, is a fully configured system that combines several elements, including a reader, multi-reagent dispenser, multi-reagent washer, diluter/dispenser, and random access plate incubators. DIAS incorporates process quantitative analysis and is sold to the research lab market (universities and pharmaceutical companies) and the clinical laboratory market. Additionally, DLI makes and sells disposable plastic laboratory ware for handling and transporting test specimens, including items specifically treated to absorb or covalently bind proteins. Computerized Medical Systems (CMS) markets software products used in conjunction with radiation therapy treatment of oncology patients. CMS's newest product, FOCUS(TM), a three dimensional (3-D) radiation therapy treatment planning system (RTP), 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. CMS continues to offer its two dimensional (2-D) RTP product during the market transition to the 3-D RTP. Dynatech Nevada, Inc. 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 9 such as an electrocardiography (ECG) machine to determine whether or not the equipment is functioning properly. A product to test non-invasive blood pressure monitors, CuffLink, allows the selection of preprogrammed blood pressures to simulate a human response to the monitor without using live subjects. In addition to simulation capabilities, the CuffLink provides diagnostic functions which can be used by a hospital biomedical technician or product manufacturer as a test measurement and quality assurance device. ComCoTec, Inc., a manufacturer of software solutions for the pharmacy industry, has developed the 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 driving force behind the administration of all health benefits is cost containment, and with the RxCLAIM System, ComCoTec can efficiently process millions of prescriptions for third-party payors. Its newest product, RX SERVER(TM), offers central control over pharmacies via point-of-service checks including eligibility checking and drug utilization review. Diversified Products Asinc, Incorporated pioneered and leads the world market for passenger cabin video information systems. Its flagship product, AIRSHOW(R), displays position defining maps, airport terminal charts and in-flight information. XKD Corporation, d.b.a. Display Solutions, manufactures monitors for aircraft and other training simulators as well as high-resolution and high-speed industrial applications. Piiceon, Inc. is a leading supplier of after-market computer products for SUN Microsystems, Compaq, Alpha Micro Systems and IBM computer users. Dynatech Microwave Technology is an industry leader of electromechanical coaxial switches used in microwave transmission. Qualimetrics, Inc. of Sacramento, California is a leading supplier of atmospheric monitoring instrumentation. Lightning Location & Protection, Inc. (LLP) is a manufacturer of thunderstorm sensors and lightning tracking systems and is the exclusive operator of the National Lightning Detection Network (NLDN), which allow electric utilities and other industries impacted by severe weather to track 10 lightning strike activity. In October 1993 Atmospheric Research Systems Inc. (ARSI), a competing technology manufacturer was acquired, to supplement product offerings. Dynatech Precision Sampling Corporation 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. LEA Dynatech, Inc. produces surge protection and line conditioning products for commercial applications. These products prevent damage to electronic equipment due to electrical surge and RF noise problems. Innovative Electronics, Inc. manufactures software that provides protocol conversion between a point-of-sale terminal and the mainframe computer, allowing the exchange of information such as in-store data processing, record keeping, and automated credit card verification. Digital Technology, Inc. (DTI) provides analysis and simulation instruments which focuses on emulation tools which support the MIL-STD-1553 and the ARINC 429 local area networks (LAN) used in today's military and commercial aircraft, respectively. DISCONTINUED OPERATIONS The Corporation 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 a manufacturer of police radar detectors and auto security systems. CUSTOMERS AND MARKETING Dynatech markets its products to a diverse range of customers. Transmission products are sold to telephone companies, cable television operators, interexchange carriers, foreign telecommunications administrations and Fortune 1000 private network users. The Company employs its own sales engineering force for direct sale and has representative agreements with a number of agents and distributors in the United States, Europe and Asia. Customers for generation products and presentation products include large industrial companies, computer manufacturers, government agencies, radio and television stations, and other businesses which need to transmit and/or process information in either digital or analog mode. 11 Customers for the Company's medical diagnostic and treatment planning products include pharmaceutical companies, research laboratories, hospitals and clinical laboratories. The Company also has OEM agreements with several reagent manufacturers to supply instruments tailored to their test systems for resale to the clinical laboratory market, and has distribution arrangements with general and specialized distributors and sales agents of laboratory equipment and supplies. Automatic sampling systems are sold mainly to chromatograph manufacturers for integration into their instruments. COMPETITION In the field of transmission products, the Company believes it is one of the leading suppliers. In generation products, the Company believes it is one of the largest suppliers of computerized graphics equipment to the television industry, and is one of the leaders in newsroom automation and broadcast switching products. The Company believes that the design and quality of its products permit it to compete effectively in these markets. The Company has a small share of the video character generator and specialty computer markets. The Company has a number of competitors in the presentation products area. Principal competitors are smaller specialized companies. Competitors in the medical products markets include diagnostic instruments firms as well as smaller, specialized manufacturers. The Company believes it holds a relatively favorable position with respect to the relevant competitive factors in each of these markets. MAJOR CUSTOMER The Company's sales of goods and services to various agencies of the United States federal government were approximately $24,123,000, $25,273,000 and $20,808,000 in fiscal years ended 1994, 1993 , and 1992, respectively. No single customer accounted for more than 10% of sales in any of the three years. DIVESTMENTS In July 1993, the Company sold the business operations of Sensors, Inc. and Dynatech Electro Optics Corp. In December 1993 the Company sold certain assets of Threshold Corporation. In March 1994 the Company sold the Weather Cental product line of Colorgraphics, Inc. These divestments did not have a material effect on operating results or financial position of the Company. 12 INTERNATIONAL The Company maintains twenty four 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 35%, 37%, and 36% of consolidated net sales in fiscal years 1994, 1993, and 1992, 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 1994 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. Each business entity within the Company maintains its own product development group. On a segment basis, product development expense in the years ended March 31, 1994, 1993, and 1992 were as follows: Information Support Products $37,619,000, $33,623,000 and $30,441,000, respectively; Diversified Instrumentation $16,169,000, $17,486,000, $17,489,000, respectively. Major new products developed during the 1994 fiscal year include: T-BERD 310 SONET testing option for our communications analyzer, T-BERD 107A and CENTEST 650 test instruments for the telecommunications market; video boards for Hewlett Packard Series 700 workstations; FOCUS, a 3-D radiation therapy planning system for the oncological market; DIAS modular microplate system for the clinical laboratory market and AIRSHOW 400, a passenger cabin video information system. BACKLOG The Company's backlog of orders believed to be firm at March 31, 1994 and 1993 were $93,981,000 and $91,578,000, respectively. All but $11,905,000 of backlog at March 31, 1994 is expected to be delivered within the fiscal year ended March 1995. On a segment basis, backlog at March 31, 1994 and 1993 was as follows: Information Support Products $51,894,000 and $49,023,000, respectively; Diversified Instrumentation $42,087,000 and $42,555,000, respectively. 13 EMPLOYEES The Company employs approximately 3,200 people of which approximately 350 employees are with businesses that are classified as discontinued operations. 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. 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. Dyna-Test, Dyna-Net, Fireberd, T-Berd, Dynabus, NewStar, ArtStar, Microtiter, Microelisa, Airshow, Whistler and Spectrum 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. Many components and assemblies included in the Company's radar detectors and components of other products 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. 14 EXECUTIVE OFFICERS OF THE REGISTRANT The executive officers of the Corporation are as follows:
Officer Name Current Position Age Since - - - ---- ---------------- --- ------- Warren M. Rohsenow Honorary Chairman of the 73 1959 Board of Directors J. P. Barger Chairman of the Board of Directors 67 1959 John F. Reno President, and Chief Executive Officer 55 1979 Robert H. Hertz Treasurer and Chief Financial Officer, 51 1980 Clerk Jack Shirman Group Vice President 59 1991 Venture Group John R. Peeler Division Vice President 39 1992 Communications Test John R. South Division Vice President 53 1993 Medical and Diagnostics Roger C. Cady Corporate Vice President 55 1993 Business Development John A. Mixon Corporate Vice President 48 1989 Human Resources James R. Turner Corporate Vice President 65 1960 John C. Maag Corporate Controller 44 1987 Nancy J. Jenkins Assistant Secretary 48 1990 Edward T. O'Dell Secretary, Assistant Clerk, 58 1975 attorney whose professional corporation is a partner of Goodwin, Procter & Hoar, general counsel to the Company
15 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 Mixon. 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. Mixon joined the Company in July 1989. From 1987 to 1989 he was Vice President-Human Resources for Interturbine Corporation, which serves industrial/aerospace markets. 16 Item 2. PROPERTIES The Company's policy is generally to lease real property for its manufacturing and sales operations. It does however, own three buildings used for manufacturing.
Segment Areas Square Lease Location Utilizing Facilities Feet Termination - - - -------- -------------------- ------ ----------- Owned Facilities: - - - ----------------- Carson City, Nevada Diversified Instrumentation 22,000 Sacramento, California Diversified Instrumentation 50,000 Baton Rouge, Louisiana Diversified Instrumentation 13,000 Leased Facilities: - - - ------------------ Burlington, Massachusetts Headquarters 22,200 1998 Germantown, Maryland Information Support Products 136,000 1998 Germantown, Maryland Information Support Products 30,000 2003 Woodbridge, Virginia Information Support Products 60,000 1997 Newington, Virginia Information Support Products 60,000 1997 San Diego, California Information Support Products 43,500 1994 Salt Lake City, Utah Information Support Products 41,700 1998 Guernsey, Channel Islands Information Support Products 40,000 2002 and Diversified Instrumentation Madison, Wisconsin Information Support Products 26,700 1995 Hudson, New Hampshire Information Support Products 25,400 1996 Northampton, Massachusetts Information Support Products 22,600 1994 Salt Lake City, Utah Information Support Products 19,800 1995 St. Quentin En Yvelines, France Information Support Products 19,100 1996 Los Gatos, California Information Support Products 18,000 1996 Chelmsford, Massachusetts Information Support Products 15,000 1994 Chantilly, Virginia Diversified Instrumentation 50,500 1996 Calabasas, California Diversified Instrumentation 25,000 1997 Tustin, California Diversified Instrumentation 24,900 1999 Maryland Heights, Missouri Diversified Instrumentation 21,000 1994 San Jose, California Diversified Instrumentation 19,200 1995
17 LEASED FACILITIES (continued): - - - ------------------------------
Segment Areas Square Lease Location Utilizing Facilities Feet Termination - - - -------- -------------------- ------ ----------- Tampa, Florida Diversified Instrumentation 18,900 1995 Pomona, California Diversified Instrumentation 17,500 1996 Tucson, Arizona Diversified Instrumentation 18,200 1997 Dayton, Ohio Diversified Instrumentation 16,700 1994 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 leases 77,400 square feet for a discontinued operation. 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 18 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 Security Dealers National Market System and published in The Wall Street Journal may be found in the Company's 1994 Annual Report which is incorporated herein by reference. (b) There were approximately 1,130 common stockholders of record as of May 13, 1994. (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" in the Company's 1994 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 contained in the section in the Company's 1994 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 in the Company's 1994 Annual Report together with the Report of Independent Accountants dated May 23, 1994, 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. 19 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 1994 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, 1994 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 1994 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, 1994 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 1994 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, 1994 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 1994 Annual Meeting of Shareholders which will be filed with the U.S. Securities and Exchange Commission within 120 days after the close of the 20 Company's fiscal year ended March 31, 1994 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) Financial statements and financial statement schedules The financial statements and financial statement schedules listed in the accompanying Index to Financial Statements and Financial Statements Schedules are filed as part of this Annual Report on Form 10-K. (b) Reports on Form 8-K No reports on Form 8-K were filed during the quarter ended March 31, 1994. (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. 21 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. (13) Dynatech Corporation 1994 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. (d) Schedules The schedules listed in the accompanying Index to Financial Statements and Financial Statement Schedules are filed as part of this Annual Report on Form 10-K. 22 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 16, 1994 By: /S/ ROBERT H. HERTZ ------------------------------------- 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. /S/ WARREN M. ROHSENOW Honorary Chairman of the Board, June 16, 1994 - - - ------------------------- Director Warren M. Rohsenow /S/ J. P. BARGER Chairman of the Board, Director June 16, 1994 - - - ------------------------- J. P. Barger /S/ JOHN F. RENO President, Director June 16, 1994 - - - ------------------------- John F. Reno /S/ JOHN C. MAAG Controller June 16, 1994 - - - ------------------------- John C. Maag /S/ THEODORE COHN Director June 16, 1994 - - - ------------------------- Theodore Cohn /S/ O. GENE GABBARD Director June 16, 1994 - - - ------------------------- O. Gene Gabbard /S/ JAMES B. HANGSTEFER Director June 16, 1994 - - - ------------------------- James B. Hangstefer /S/ WARREN A. LAW Director June 16, 1994 - - - ------------------------- Warren A. Law /S/ RICHARD K. LOCHRIDGE Director June 16, 1994 - - - ------------------------- Richard K. Lochridge /S/ PAULA STERN Director June 16, 1994 - - - ------------------------- Paula Stern
EX-13 2 EXCERPTS OF 1994 ANNUAL REPORT TO STOCKHOLDERS 1 EXHIBIT 13 DYNATECH CORPORATION FORM 10-K EXCERPTS OF 1994 ANNUAL REPORT TO STOCKHOLDERS 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) 2 Dynatech Corporation Five-Year Summary (Amounts in thousands except per share data)
Years ended March 31 1994 1993 1992 1991 1990 - - - -------------------------------------------------------------------------------------------------------------------------------- Sales $ 458,449 $ 474,197 $ 429,570 $ 427,523 $ 376,696 Cost of sales 218,563 212,672 195,083 192,613 175,888 --------- --------- --------- --------- --------- Gross profit 239,886 261,525 234,487 234,910 200,808 Selling, general and administrative expense 160,146 164,533 146,539 142,119 124,496 Product development expense 53,788 51,109 47,930 46,962 38,949 Streamlining and restructuring charges 37,582 --- --- --- 2,700 Amortization of intangibles 18,153 12,176 10,281 8,088 5,568 --------- --------- --------- --------- --------- Operating income (loss) (29,783) 33,707 29,737 37,741 29,095 Interest expense (3,794) (2,229) (3,470) (5,768) (6,400) Interest income 1,244 1,592 2,248 2,957 2,086 Other income (expense) (2) 837 (639) (711) 906 --------- --------- --------- --------- --------- Income (loss) from continuing operations before taxes (32,335) 33,907 27,876 34,219 25,687 Provision (benefit) for income taxes (6,115) 14,746 11,897 14,644 11,369 --------- --------- --------- --------- --------- Income (loss) from continuing operations (26,220) 19,161 15,979 19,575 14,318 Discontinued operations, net of income taxes (3,763) (2,726) (2,556) (4,005) 417 --------- --------- --------- --------- --------- Net income (loss) $ (29,983) $ 16,435 $ 13,423 $ 15,570 $ 14,735 ========= ========= ========= ========= ========= Income (loss) per common share Continuing operations $ (2.82) $ 2.09 $ 1.71 $ 2.06 $ 1.39 Discontinued operations (.41) (.30) (.28) (.42) .04 --------- --------- --------- --------- --------- $ (3.23) $ 1.79 $ 1.43 $ 1.64 $ 1.43 ========= ========= ========= ========= ========= Net working capital $ 91,010 $ 118,509 $ 126,278 $ 126,453 $ 127,696 Total assets $ 280,553 $ 303,023 $ 312,531 $ 291,774 $ 269,926 Long-term debt $ 33,006 $ 50,873 $ 80,845 $ 75,051 $ 75,874 Shareholders' equity $ 142,643 $ 171,904 $ 158,649 $ 150,102 $ 136,592 Shares of stock outstanding 9,297 9,253 9,211 9,390 9,704 Shareholders' equity per share $ 15.34 $ 18.58 $ 17.22 $ 15.99 $ 14.08
3 Management's Discussion and Analysis of Financial Condition and Results of Operations The following table reflects consolidated costs and expenses from continuing operations as a percent of sales and indicates the year-to-year percentage change in operating results of the Corporation. This table should be read in conjunction with Consolidated Statements of Operations and related Notes to Consolidated Financial Statements.
Percent of Sales Percent of Change 1994 1993 1992 vs. vs. vs. Years ended March 31 1994 1993 1992 1993 1992 1991 ------------------------------------------------------------------------------------------------------------------------------ Sales 100.0% 100.0% 100.0% (3.3)% 10.4% 0.5% Gross profit 52.3 55.2 54.6 (8.3) 11.5 (0.2) Selling, general and administrative expense 34.9 34.7 34.1 (2.7) 12.3 3.1 Product development expense 11.7 10.8 11.2 5.2 6.6 2.1 Streamlining and restructuring charges 8.2 --- --- --- --- --- Amortization of intangibles 4.0 2.6 2.4 49.1 18.4 27.1 Operating income (loss) (6.5) 7.1 6.9 (188.4) 13.4 (21.2) Interest expense (0.8) (0.5) (0.8) 70.2 (35.8) (39.8) Interest income 0.3 0.3 0.5 (21.9) (29.2) (24.0) Other income (expense) --- 0.2 (0.1) (100.2) 231.0 (10.1) Income (loss) from continuing operations before taxes (7.1) 7.2 6.5 (195.4) 21.6 (18.5) Income taxes (1.3) 3.1 2.8 (141.5) 23.9 (18.8) Income (loss) from continuing operations (5.7) 4.0 3.7 (236.8) 19.9 (18.4)
Fiscal 1994 Compared to Fiscal 1993 As part of an ongoing management process of reviewing the contribution of our businesses to strategic Corporate plans and the long term goal of enhancing shareholder value, Management, with the approval of the Board of Directors, 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 $2.67 per share). These actions, which will result in reduction of 10% of the work force, include the sale or closure of nonstrategic businesses, and consolidation and centralization of various ongoing production and sales facilities. The sale and closure activities are projected to be completed within eighteen months and the consolidation and centralization efforts are expected to be completed during fiscal 1995. Implementation of these actions is targeted to result in annualized cost savings approximating $12 million, of which some portion will be reinvested in order to remain at the forefront of emerging technological trends. Revenues of underperforming nonstrategic businesses to be disposed approximated $89 million in fiscal 1994. A portion of the employee-related actions were implemented in the fourth quarter of fiscal 1994. Although plans are in place to carry out the remaining actions, some plans may be refined in order to identify the best means of achieving reductions in cost structure. 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 include accelerated amortization of intangible assets related to discontinued businesses and closedown costs of sales and engineering facilities. In addition, the Corporation adopted, and the Board of Directors approved, a formal plan to discontinue its consumer automotive business units. As part of such plan, the Corporation intends to sell or close these operations during fiscal 1995. As a result, a fourth quarter charge of $4.4 million ($2.5 million after taxes or $.27 per share) was recorded to write down assets to estimated net realizable values. These businesses employ approximately 10% of the work force and account for approximately $51 million of fiscal 1994 sales. 4 For the quarter ended March 31, 1994, consolidated sales decreased 7.2% compared with record fourth quarter sales of the prior year. Information Support Products segment sales declined 2.1% while sales in the Diversified Instrumentation segment declined 16.6% with significant decreases for medical and diagnostic products 20%, and aircraft video information systems 35%. International sales continued to decline in Europe and parts of Asia. Gross margin was down five points in the fourth quarter compared to the same period of fiscal 1993 resulting from higher production costs for new products, lower production levels at certain operations, and competitive price pressures in certain communications markets. As a result, fourth quarter losses from continuing operations without the effects of the streamlining and restructuring charges and fourth quarter nonrecurring operating expenses were $1.8 million. With the effects of the streamlining and restructuring charges, and fourth quarter nonrecurring operating expenses, the net loss from continuing operations was $34.4 million ($3.70 per share) as compared with net income from continuing operations of $5.8 million, or $.63 per share, in the fourth quarter of 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 were flat in fiscal 1994. Transmission products increased 1.6% to approximately $235 million, while Generation products declined 5.9% and Presentation products decreased 3%. Sales in the Diversified Instrumentation segment declined 9.4% compared to the prior year reflecting an 8.4% decline of medical and diagnostic products and a 22.4% decline for aircraft video information systems. 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 Generation products markets and lower production levels at various facilities. Information Support Products gross margin declined to 55.8% compared to 58.1% in the prior year while Diversified Instrumentation margins declined 4.6 percentage points to 45.2%. 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 Generation products. Product development expense increased compared to the prior year resulting from costs related to recently introduced 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 $(2.82) per share, in the current year compared to income of $19,161,000, or $2.09 per share, in the prior year. Excluding the impact of the provision for streamlining and restructuring, and fourth quarter nonrecurring expenses, current year's net income was $6,374,000, or $.69 per share. Fiscal 1993 Compared to Fiscal 1992 Sales Consolidated sales increased 10.4% in fiscal 1993 as a result of a 5% base business growth and 5.4% of growth from business acquisitions in fiscal 1992 and 1993 accounted for by the purchase method of accounting 5 net of divested operations in these periods. International sales were 36.6% of consolidated sales in fiscal 1993 and 36% of consolidated sales in fiscal 1992. Information Support Products segment sales rose 18.6% in fiscal 1993 reflecting an 18.6% growth for Transmission products, a 19.3% increase for Generation products and a 17.5% increase for Presentation products. Sales in the Diversified Instrumentation segment declined 2.2% compared to the prior year reflecting the divestment of three businesses during fiscal 1992. Backlog stood at $91.6 million at March 31, 1993, compared with $85.8 million at March 31, 1992, a 6.7% increase. Gross Profit Consolidated gross profit for fiscal 1993 was 55.2% compared to 54.6% for the prior year. The increase in rate was primarily driven by operating efficiencies utilizing plant cost containment measures. Information Support Products margins were 58.1% compared to 58.7% in fiscal 1992 while Diversified Instrumentation margins improved to 49.8% compared to 48.4% for the prior year. Expenses As a percentage of consolidated sales, selling, general and administrative expenses increased to 34.7% in fiscal 1993 compared to 34.1% in fiscal 1992. The higher rate resulted in part from costs to litigate certain claims and increased selling costs from expanding worldwide sales efforts in the Information Support Products segment. Amortization of intangibles increased 18.4% resulting from the ICS purchase acquisition in fiscal 1992. Product development expense was 10.8% of sales in fiscal 1993 compared to 11.2% in fiscal 1992. Interest expense 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, declined reflecting lower investment rates. Taxes The effective tax rate increased in fiscal 1993 to 43.5% compared to 42.7% in the prior year as a result of the expiration of federal research and development tax credits. Income From Continuing Operations Income from continuing operations increased 19.9% to $19,161,000 in fiscal 1993 compared to $15,979,000 in the prior year. In addition to the reasons indicated above, pretax gains (losses) on sales of assets of divested operations were $112,000 in fiscal 1993 and $(1,923,000) in fiscal 1992. Income per common share from continuing operations for fiscal 1993 was $2.09, a 22.2% increase compared to fiscal 1992. Income per share from continuing operations for fiscal 1992 was $1.71. Capital Resources and Liquidity Dynatech's funded debt was reduced to 20% of total capital at March 31, 1994, the lowest year end level in eight years. The working capital ratio at March 31, 1994 was 1.9 to 1, a decline from 2.5 to 1 at March 31, 1993. The decrease in the ratio is primarily attributable to the significant increase in accrued liabilities related to restructuring. Net cash flows from operating activities decreased to $35.1 million in fiscal 1994 from $40.9 million in fiscal 1993 and $37.5 million in fiscal 1992. The decrease in fiscal 1994 over fiscal 1993 was due to decreased gross margins and operating profits. Continued strong effective working capital management resulted in net long-term debt declining $17.9 million during the year. Combined accounts receivable and inventories at year-end were 29% of fiscal 1994 sales compared to 30% in fiscal 1993 and 32% in fiscal 1992. Cash balances primarily reflect short-term deposits in Europe. Investment in property and equipment was $17,834,000 in fiscal 1994 compared to $14,347,000 and $16,269,000 in fiscal 1993 and 1992, respectively. Average net fixed assets employed in continuing operations were $38,771,000, or 8% of fiscal 1994 sales, compared to $38,546,000 or 8% of sales in fiscal 1993. Dynatech anticipates that its capital spending in property and equipment in fiscal 1995 will decline from fiscal 1994 as a result of the streamlining actions. 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 necessary streamlining and restructuring actions. Expected cash outlays for the streamlining and restructuring actions are anticipated to be $18 million during fiscal 1995. Inflation rates were moderate during fiscal 1994 and did not have a major impact on operations. 6 Consolidated Statements of Operations Dynatech Corporation (Amounts in thousands except per share data)
Years ended March 31 1994 1993 1992 - - - ----------------------------------------------------------------------------------------------------------- Sales $458,449 $474,197 $429,570 Cost of sales 218,563 212,672 195,083 -------- -------- -------- Gross profit 239,886 261,525 234,487 Selling, general and administrative expense 160,146 164,533 146,539 Product development expense 53,788 51,109 47,930 Streamlining and restructuring charges 37,582 --- --- Amortization of intangibles 18,153 12,176 10,281 -------- -------- -------- Operating income (loss) (29,783) 33,707 29,737 Interest expense (3,794) (2,229) (3,470) Interest income 1,244 1,592 2,248 Other income (expense) (2) 837 (639) -------- -------- -------- Income (loss) from continuing operations before income taxes (32,335) 33,907 27,876 Provision (benefit) for income taxes (6,115) 14,746 11,897 -------- -------- -------- Income (loss) from continuing operations (26,220) 19,161 15,979 Discontinued operations Operating losses, net of income tax benefit of $766, $1,832, and $1,771, respectively (1,254) (2,726) (2,556) Provision for dispositions, net of income tax benefit of $1,890 (2,509) --- --- -------- -------- -------- Net income (loss) $(29,983) $ 16,435 $ 13,423 ======== ======== ======== Income (loss) per common share Continuing operations $ (2.82) $ 2.09 $ 1.71 Discontinued operations (0.41) (.30) (.28) -------- -------- -------- $ (3.23) $ 1.79 $ 1.43 ======== ======== ======== Weighted average number of common shares 9,290 9,174 9,355 ======== ======== ========
The accompanying notes are an integral part of the consolidated financial statements. 7 Consolidated Balance Sheets Dynatech Corporation (Amounts in thousands except share data)
March 31 1994 1993 - - - ----------------------------------------------------------------------------------------------------------------- ASSETS Current assets: Cash and cash equivalents $ 23,101 $ 24,350 Accounts receivable, less allowance of $3,905 and $3,634, respectively 73,090 85,229 Inventories: Raw materials 26,923 28,671 Work in process 14,091 12,089 Finished goods 20,671 17,933 --------- --------- 61,685 58,693 Other current assets 26,683 12,697 Net current assets of discontinued operations 10,805 16,879 --------- --------- Total current assets 195,364 197,848 --------- --------- Property and equipment, at cost: Land, buildings and improvements 4,847 4,779 Machinery and equipment 73,742 68,263 Furniture and fixtures 18,097 17,624 Leasehold improvements 7,051 7,375 --------- --------- 103,737 98,041 Less accumulated depreciation and amortization (64,484) (59,752) --------- --------- 39,253 38,289 Other assets: Intangible assets, net 37,238 52,236 Net assets of discontinued operations 2,643 6,590 Other 6,055 8,060 --------- --------- $ 280,553 $ 303,023 ========= =========
The accompanying notes are an integral part of the consolidated financial statements. 8 Consolidated Balance Sheets Dynatech Corporation
(Amounts in thousands except share data) March 31 1994 1993 - - - ------------------------------------------------------------------------------------------------------------------------------------ LIABILITIES and SHAREHOLDERS' EQUITY Current liabilities: Notes payable and current portion of long-term debt $ 2,911 $ 4,420 Accounts payable 20,234 24,235 Accrued expenses: Compensation and benefits 18,767 21,693 Interest 1,283 1,243 Insurance 2,883 2,068 Taxes, other than income taxes 2,533 2,655 Deferred revenue 5,875 5,147 Streamlining and restructuring 35,276 --- Other 13,942 13,670 Accrued income taxes 650 4,208 -------- -------- Total current liabilities 104,354 79,339 -------- -------- Long-term debt 33,006 50,873 Deferred income taxes 550 907 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 12,387,216 and 12,383,878 shares, respectively 2,477 2,477 Additional paid-in capital 9,414 9,160 Retained earnings 185,957 215,940 Cumulative translation adjustments (757) (347) Treasury stock, at cost; 3,090,247 and 3,131,062 shares, respectively (54,448) (55,326) -------- -------- Total shareholders' equity 142,643 171,904 -------- -------- $280,553 $303,023 ======== ========
The accompanying notes are an integral part of the consolidated financial statements. 9 Consolidated Statements of Shareholders' Equity Dynatech Corporation (Amounts in thousands)
Number of Shares Additional Cumulative Total Common Treasury Common Paid-In Retained Translation Treasury Shareholders Stock Stock Stock Capital Earnings Adjustments Stock Equity - - - ------------------------------------------------------------------------------------------------------------------------------------ Balance, March 31, 1991 12,373 (2,983) $2,475 $9,170 $186,082 $4,851 $(52,476) $150,102 Net income - 1992 13,423 13,423 Purchases of treasury stock (191) (3,764) (3,764) Translation adjustments (1,232) (1,232) Exercise of stock options 11 2 118 120 ------- ------- ------- ------ -------- ------- -------- -------- 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 ======= ======= ======= ====== ======== ======= ======== ========
The accompanying notes are an integral part of the consolidated financial statements. 10 Consolidated Statements of Cash Flows Dynatech Corporation
(Amounts in thousands) Years ended March 31 1994 1993 1992 - - - ------------------------------------------------------------------------------------------------------------------------------------ Operating activities: Net income (loss) from continuing operations $(26,220) $ 19,161 $ 15,979 Adjustment for noncash items included in net income (loss): Depreciation 13,754 12,950 12,440 Amortization of intangibles 18,153 12,176 10,281 Streamlining and restructuring charges 35,276 --- --- Increase (decrease) in deferred income taxes (79) (1,686) (936) Other 1,947 692 1,087 Changes in operating assets and liabilities, net of effects of purchase acquisitions and divestitures (13,545) (5,776) 242 -------- -------- -------- Net cash provided by continuing operations 29,286 37,517 39,093 Net cash provided by (used in) discontinued operations 5,771 3,420 (1,581) -------- -------- -------- Net cash flows from operating activities 35,057 40,937 37,512 -------- -------- -------- Investing activities: Purchases of property and equipment (17,834) (14,347) (16,269) Disposals of property and equipment 636 622 926 Proceeds from sales of businesses 3,262 384 2,650 Businesses acquired in purchase transactions, net of cash acquired (2,757) (5,584) (22,582) Other 2,629 536 341 -------- -------- -------- Net cash flows used in investing activities (14,064) (18,389) (34,934) -------- -------- -------- Financing activities: Debt borrowings --- 1,771 7,400 Repayment of debt (20,312) (33,777) (3,044) Proceeds from exercise of stock options 767 1,865 120 Purchases of treasury stock --- (1,079) (3,764) -------- -------- -------- Net cash flows from (used in) financing activities (19,545) (31,220) 712 -------- -------- -------- Effect of exchange rate on cash (2,697) (2,238) (1,445) -------- -------- -------- Increase (decrease) in cash and cash equivalents (1,249) (10,910) 1,845 Cash and cash equivalents at beginning of year 24,350 35,260 33,415 -------- -------- -------- Cash and cash equivalents at end of year $ 23,101 $ 24,350 $ 35,260 ======== ======== ======== Change in operating asset and liability components: Decrease (increase) in trade accounts receivable $ 12,717 $(10,062) $ (3,723) Decrease (increase) in inventories (4,876) 401 3,450 (Increase) in other current assets (15,629) (3,095) (565) Increase (decrease) in accounts payable (3,232) 2,344 184 Increase (decrease) in accrued expenses and taxes (2,525) 4,636 896 -------- -------- -------- Change in operating assets and liabilities $(13,545) $ (5,776) $ 242 ======== ======== ======== Supplemental disclosures of cash flow information: Cash paid during the year for: Interest $ 5,090 $ 7,442 $ 8,005 Income taxes $ 11,798 $ 18,121 $ 10,116 Tax benefit of disqualifying dispositions of stock options $ 365 --- ---
The accompanying notes are an integral part of the consolidated financial statements. 11 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. As more fully described in the notes, certain prior-year amounts have been restated to reflect continuing operations. In addition, 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. Such amounts are not material to the consolidated financial statements. Foreign Operations Foreign currency denominated assets and liabilities are translated into U.S. dollars at the exchange rates existing at the balance sheet dates. 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 levels and ratings set to limit exposure with any one institution. Intangible Assets Intangible assets acquired primarily from business acquisitions are summarized as follows:
(Amounts in thousands) 1994 1993 -------------------------------------------------------------------------- Product technology $30,843 $39,855 Excess of cost over net assets acquired 20,474 22,206 Other intangible assets 15,413 25,293 ------- ------- 66,730 87,354 Less accumulated amortization 29,492 35,118 ------- ------- Total $37,238 $52,236 ======= =======
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 $10,685,000 in fiscal 1994, $6,078,000 in fiscal 1993, and $5,909,000 in fiscal 1992, 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. Inventories Inventories are stated at the lower of cost (first-in, first-out or average) or market. 12 Profit-Sharing and 401(k) Savings Plan 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 ($2,000,000 in 1994, $2,300,000 in 1993, and $1,600,000 in 1992) were charged to expense. Income Taxes In fiscal 1994 the Corporation adopted Statement of Financial Accounting Standards No. 109 entitled "Accounting for Income Taxes." Deferred income tax assets and liabilities reflect income tax rates currently in effect rather than historical rates. The adoption of Statement 109 did not have a material impact on the operating results, components of income tax expense, or financial position of the Corporation. 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 upon the weighted average number of common shares outstanding each year. Common stock equivalents resulting from the assumed exercise of outstanding stock options had no significant effect on income per share in fiscal 1994, 1993, or 1992. 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 streamlining and restructuring provision of $37.6 million ($24.8 million after taxes or $2.67 per share). These actions, which will result in reduction of 10% of the work force, include the sale or closure of nonstrategic businesses and consolidation and centralization of various ongoing production and sales facilities. These actions include employee severance, lease termination or restructuring, and revaluation of various assets held for sale to estimated net realizable value. The sale and closure activities are projected to be completed within 18 months, and the consolidation and centralization efforts are expected to be completed during fiscal 1995. Revenues of underperforming nonstrategic businesses to be disposed approximated $89 million in fiscal 1994. A portion of the employee-related actions were implemented in the fourth quarter of fiscal 1994. Net assets of continuing operations held for sale are stated at their estimated net realizable value at March 31, 1994 and consist of working capital of $7.8 million, property and equipment of $7.2 million, and other assets of $4.3 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 include 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 $.27 per share) was recorded to write down assets to estimated net realizable values. The consolidated financial statements have been reclassified to report separately the net assets and operating results of the discontinued businesses. Prior-year operating results have been restated to reflect continuing operations. Net current assets of the discontinued operations consist primarily of accounts receivable and inventories less accounts payable and accrued expenses. Summary operating results of the discontinued operations follow:
(Amounts in thousands) 1994 1993 1992 --------------------------------------------------------------------------- Sales $51,235 $53,773 $56,794 Gross margin 14,362 14,769 17,425 Operating income 494 372 223 Loss before taxes 2,020 4,558 4,327 Net loss 1,254 2,726 2,556
13 Notes Payable Short-term notes payable, primarily in Europe, were $2,739,000 and $3,853,000 at March 31, 1994 and 1993, respectively. The maximum amount of short-term borrowings, domestic and foreign, at any month-end during the year was $2,830,000 in fiscal 1994, $3,853,000 in 1993, and $5,833,000 in 1992. The average amount of short-term borrowings during the year was $2,733,000 in fiscal 1994, $3,292,000 in 1993, and $5,209,000 in 1992. The approximate weighted average interest rate was 6.6% in fiscal 1994, 9% in 1993, and 10.5% in 1992 (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 1994, 8.6% in 1993, and 8.7% in 1992. At year-end, the Corporation had short-term unused lines of credit aggregating $9,903,000 for foreign operations. Long-Term Debt Long-term debt is summarized below:
(Amounts in thousands) 1994 1993 ------------------------------------------------------------------------ Revolving credit and term bank loan $ 3,000 $19,400 Term notes 30,000 30,000 Other long-term debt 178 2,040 ------- ------- Total debt 33,178 51,440 Less current portion 172 567 ------- ------- Long-term debt $33,006 $50,873 ======= =======
The Corporation has an unsecured $100 million revolving credit and term bank loan agreement with several commercial banks, which allows for unsecured $30 million term notes with unrelated parties, and 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 issued pursuant to a note agreement are payable in four equal annual principal payments commencing on December 15, 1997 and mature on December 15, 2000. Interest is payable semiannually. The approximate weighted average interest rate was 10.5% in fiscal 1994 and 8.4% in fiscal 1993. The composite rate at March 31, 1994 was 13.3% and at March 31, 1993 was 9.8%. The terms of the revolving credit agreement and note purchase agreement require, among other things, specific levels of working capital, current ratio, fixed charge coverage ratio and minimum tangible net worth. Due to the streamlining and restructuring charges, the Corporation was not in compliance with the current ratio or fixed charge coverage ratio covenants under the existing revolving credit agreement. The revolving credit agreement was amended by the lending institutions as of March 31, 1994 and as a result, the Corporation was in compliance with all requirements. Aggregate maturities of the above term debt for each of the years in the five-year period ending March 31, 1999 are $172,000, $5,000, $376,000, $9,000,000, and $8,625,000, respectively. 14 Income Taxes Effective April 1, 1993 the Corporation adopted SFAS No. 109. The effect of the adoption of this statement had no impact on the operating results, components of income tax expense, or financial position of the Company. The components of the provision (benefit) for income taxes from continuing operations are as follows:
(Amounts in thousands) 1994 1993 1992 - - - ------------------------------------------------------------------------------------------------------------------------------------ Provision for income taxes: United States $ (5,997) $ 10,385 $ 7,507 Foreign (1,514) 1,743 2,016 State 1,396 2,618 2,374 -------- -------- -------- Total $ (6,115) $ 14,746 $ 11,897 ======== ======== ======== Components of income tax provision: Current: Federal $ 5,961 $ 11,976 $ 8,156 Foreign (343) 1,809 2,028 State 1,903 2,941 2,434 -------- -------- -------- Total current 7,521 16,726 12,618 -------- -------- -------- Deferred: Federal (11,958) (1,591) (649) Foreign (1,171) (66) (12) State (507) (323) (60) -------- -------- -------- Total deferred (13,636) (1,980) (721) -------- -------- -------- Total $ (6,115) $ 14,746 $ 11,897 ======== ======== ========
Reconciliations between U.S. federal statutory rate and the effective tax rate (benefit) follow:
1994 1993 1992 - - - ------------------------------------------------------------------------------------------------------------------------------------ Tax at U.S. Federal statutory rate (35.0)% 34.0% 34.0% Increases (reductions) to statutory tax rate resulting from: Foreign income subject to tax at a rate different than U.S. rate 0.9 (1.1) --- State income taxes, net of federal income tax benefit 6.7 5.1 5.6 Research and development tax credit (1.2) (0.3) (1.6) Nondeductible amortization 10.5 5.2 5.2 Other (0.8) 0.6 (0.5) ----- ---- ---- Total (18.9)% 43.5% 42.7% ===== ==== ====
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%. 15 The tax effects of the principal temporary differences under Accounting Principles Board Statement No. 11 resulting in deferred tax expense (benefit) follow:
(Amounts in thousands) 1993 1992 ------------------------------------------------------------------------------------ Depreciation and amortization $ (255) $(450) Vacation (213) (69) Inventory valuation, net 7 626 Bad debts 69 (249) Repatriation of foreign earnings, net of foreign tax credit (500) --- Liquidation of foreign subsidiaries --- (118) Streamlining and restructuring charges --- --- Accounting reserves (1,088) (461) ------- ----- $(1,980) $(721) ======= =====
The principal components of the deferred tax assets and liabilities under SFAS No. 109 follow:
(Amounts in thousands) 1994 1993 ------------------------------------------------------------------------------------- Deferred tax assets: Net operating loss carryforwards $11,327 $10,026 Streamlining and restructuring charges 17,792 --- Vacation benefits 687 534 Bad debt allowance 504 509 Inventory capitalization 1,002 1,135 Depreciation and amortization 1,369 268 Other deferred assets 5,066 4,595 ------- ------- 37,747 17,067 Valuation allowance (13,656) (10,026) ------- ------- 24,091 7,041 ------- ------- Deferred tax liabilities: Depreciation and amortization 550 1,175 Other deferred liabilities 1,257 805 ------- ------- 1,807 1,980 ------- ------- Net deferred tax assets $22,284 $ 5,061 ======= ======= Deferred income taxes are included in the following balance sheet accounts: Other current assets $19,802 $5,968 Other assets 3,032 --- Deferred income taxes (550) (907) ------- ------- $22,284 $ 5,061 ======= =======
The net increase in the valuation allowance for fiscal 1994 resulted from various state and foreign net operating loss carry forwards and certain streamlining and restructuring charges. 16 Stock Options Under Dynatech's Stock Option Plans, common stock is available 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 249,573, 255,573, and 366,635 at March 31, 1994, 1993, and 1992, respectively. A summary of changes in the outstanding options is as follows:
1994 1993 1992 ------------------------------------------------------------------------------------------------ Shares under option, beginning of year 410,492 429,282 399,460 Options granted (at an exercise price of $27.50 in 1994, $22.25 in 1993, and $18.25 in 1992) 10,000 135,500 82,500 Options exercised (40,815) (100,620) (5,920) Options canceled (26,774) (53,670) (46,758) -------- -------- ------- Shares under option, end of year 352,903 410,492 429,282 ======== ======== ======== Shares exercisable 145,603 158,002 199,788 Price of options exercised $17.25 to $17.25 to $17.25 to $28.25 $28.25 $20.50
In fiscal 1993 and 1994 the Corporation delivered 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 and office facilities and equipment which expire at various dates through 2014. Future minimum annual fixed rentals required during the years ending in fiscal 1995 through 1999 under noncancelable operating leases having an original term of more than one year are $9,295,000, $7,212,000, $5,355,000, $4,502,000, and $1,742,000, respectively. The aggregate obligation subsequent to fiscal 1999 is $4,390,000. Rent expense from continuing operations was approximately $12,267,000, $12,507,000, and $11,342,000 in fiscal 1994, 1993, and 1992, 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 17 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 During fiscal 1994, the Corporation fundamentally changed its organization and strategy and separated Dynatech into 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 a group of electronics and software businesses. Segment information for the years ended March 31, 1994, 1993, and 1992 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) 1994 1993 1992 - - - ---------------------------------------------------------------------------------- Net sales Information Support Products $307,444 $307,599 $259,300 Diversified Instrumentation 151,005 166,598 170,270 -------- -------- -------- $458,449 $474,197 $429,570 ======== ======== ======== Operating income from continuing operations Information Support Products $ 16,410 $ 37,048 $ 33,087 Diversified Instrumentation 955 7,869 8,026 -------- -------- -------- 17,365 44,917 41,113 Corporate expenses (9,566) (11,210) (11,376) Interest expense, net (2,550) (637) (1,222) Streamlining and restructuring* (37,582) --- --- Other income (expense) (2) 837 (639) -------- -------- -------- Pretax income (loss) from continuing operations $(32,335) $ 33,907 $ 27,876 ======== ======== ======== Identifiable assets Information Support Products $161,993 $175,536 $182,097 Diversified Instrumentation 67,963 81,810 90,349 General corporate 37,149 22,208 11,403 Discontinued operations 13,448 23,469 28,682 -------- -------- -------- $280,553 $303,023 $312,531 ======== ======== ======== Capital expenditures Information Support Products $ 12,046 $ 9,166 $ 8,598 Diversified Instrumentation 4,723 4,099 5,700 Corporate 103 165 125 Discontinued operations 962 917 1,846 -------- -------- -------- $ 17,834 $ 14,347 $ 16,269 ======== ======== ======== Depreciation and amortization Information Support Products $ 21,550 $ 16,232 $ 12,937 Diversified Instrumentation 10,143 8,674 9,568 Corporate 214 220 216 -------- -------- -------- $ 31,907 $ 25,126 $ 22,721 ======== ======== ======== * On a segment basis, the provision related to Information Support Products $(24,136), Diversified Instrumentation $(12,446), and Corporate $(1,000).
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 1994, 1993, and 1992 included currency gains (losses) of approximately $(364,100), $31,200, and $358,100, respectively. 18 The cumulative amount of undistributed earnings of consolidated foreign subsidiaries for which federal income taxes have not been provided was $35,723,000 at March 31, 1994. 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, 1994, 1993, and 1992 is summarized below:
Outside U.S. (Amounts in thousands) United States (principally Europe) Combined - - - ----------------------------------------------------------------------------- Sales to unaffiliated customers 1994 $370,771* $87,678 $458,449 1993 378,021* 96,176 474,197 1992 346,578* 82,992 429,570 Income (loss) before taxes from continuing operations 1994 $(24,484) $(7,851) $(32,335) 1993 27,103 6,804 33,907 1992 23,773 4,103 27,876 Identifiable assets at March 31, 1994 $200,620 $79,933 $280,553 March 31, 1993 215,134 87,889 303,023 March 31, 1992 225,101 87,430 312,531 * Includes export sales of $73,745, $77,513, and $71,839 in 1994, 1993, and 1992, respectively.
19 Acquisitions and Divestments 1994 Acquisitions In January 1994, the Corporation acquired the assets of Editing Machines Corporation (EMC) of Washington, DC for approximately $500,000 in cash. EMC develops high-end digital nonlinear video and audio editing software and markets this software to the post-production and corporate video markets. Acquired intangible assets of $225,000 are being amortized over five years. The investment in excess of fair market value of assets purchased of $29,000 is being amortized over 15 years. On October 10, 1993 the Corporation acquired all of the outstanding shares of Atmospheric Research Systems Inc. (ARSI) of Palm Bay, Florida, for approximately $2.3 million in cash. ARSI manufactures commercial lightning detection and location systems that cover broad geographic areas. Acquired intangible assets of $1 million are being amortized over their estimated useful lives of seven years. The investment in excess of fair market value of assets purchased of $1.9 million is being amortized over fifteen years. The Corporation assumed liabilities of $1.6 million in connection with the above acquisitions. The acquisitions were 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 acquisitions for the period April 1, 1993 through the date of acquisition and for the twelve months ended March 31, 1994 are not material to the consolidated financial statements, pro forma information is not reflected herein. 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. 1992 Acquisitions In fiscal 1992, five acquisitions, recorded as purchases, were made for $23.2 million in cash and assumed liabilities of $7.7 million. The effects of the purchase acquisitions for the period April 1, 1991 through the dates of acquisition and for the twelve months ended March 31, 1992 are not material to the consolidated financial statements. Divestments During fiscal 1994 the Corporation sold four businesses for $3.3 million. The effects of these transactions are 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. In fiscal 1992 the Corporation sold certain assets of four businesses for $4.4 million, of which $1.8 million was represented by promissory notes. The Company recognized a pretax loss, which is included in other expense, of approximately $1,923,000 on the sale of these assets. Subsequent Events - Divestments Subsequent to year-end the Corporation sold Micro Processor Systems, Inc., which has been classified as a discontinued operation, and two other businesses. The effects of these transactions are not material to the consolidated financial statements. 20 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, 1994 and 1993, and the related consolidated statements of operations, shareholders' equity and cash flows for each of the three years in the period ended March 31, 1994. 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, 1994 and 1993, and the consolidated results of its operations and its cash flows for each of the three years in the period ended March 31, 1994, in conformity with generally accepted accounting principles. COOPERS & LYBRAND Boston, Massachusetts May 23, 1994 21 Summary of Operations by Quarter (Unaudited) (Amounts in thousands except per share data)
1994 Quarter First(b) Second (b) Third(b) Fourth(b) 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 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 Continuing operations $ .37 $ .35 $ .15 $ (3.70) $ (2.82) Net income (loss) $ .38 $ .35 $ .14 $ (4.10) $ (3.23) Market Share Price (a) - High $ 33.25 $ 29.25 $ 24.75 $ 23.25 Low $ 25.75 $ 23.00 $ 20.50 $ 18.50 1994 Quarter First(b) Second (b) Third(b) Fourth(b) Year - - - ----------------------------------------------------------------------------------------------------- Sales $110,383 $118,329 $120,525 $124,960 $474,197 Gross profit 60,039 65,432 67,045 69,009 261,525 Income from continuing operations 2,942 4,857 5,605 5,757 19,161 Net income 1,380 4,239 5,213 5,603 16,435 Income (loss) per common share Continuing operations $ .32 $ .53 $ .61 $ .63 $ 2.09 Net income $ .15 $ .46 $ .57 $ .61 $ 1.79 Market Share Price (a) - High $ 20.00 $ 19.25 $ 23.50 $ 30.25 Low $ 17.00 $ 15.50 $ 15.50 $ 22.50 (a) Dynatech common shares are traded on the NASDAQ - National Market System No cash dividends have been paid on Dynatech common shares. (b) Amounts restated as a result of treating certain operations as discontinued operations (c) Amounts reflect reorganization charges, net of tax, of $35,103.
22 Index to Consolidated Financial Statements and Financial Statement Schedules
Reference (page) ---------------------------------- Form 10-K Annual Report to Shareholders ---------------------------------- Consolidated balance sheets at March 31, 1994 and 1993 and the related consolidated statements of operations, shareholders' equity and cash flows for each of the three years in the period ended March 31, 1994 and related notes to financial statements 16 - 27 Report of Independent Accountants 27 Data submitted herewith: Report of Independent Accountants F-2 Schedules: VIII. Valuation and Qualifying Accounts F-3 X. Supplementary Income Statement Information F-4
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, 1994 balance sheet, except indebtedness incurred in the ordinary course of business which is not overdue. 23 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 1994 Annual Report to Shareholders of Dynatech Corporation and appears on page 27 therein. In connection with our audits of such financial statements, we have also audited the related financial statement schedules listed in the index on page F-1 of this Form 10-K. In our opinion, the financial statement schedules referred to above, when considered in relation to the basic financial statements taken as a whole, present fairly, in all material respects, the information required to be included therein. Boston, Massachusetts COOPERS & LYBRAND May 23, 1994 24 DYNATECH CORPORATION SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED MARCH 31, 1994, 1993 AND 1992 RESERVE FOR DOUBTFUL ACCOUNTS (In thousands) BALANCE, March 31, 1991 $3,086 Additions charged to income 2,770 Write-off of uncollectible accounts, net (2,316) ------ 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 ======
25 DYNATECH CORPORATION SCHEDULE X - SUPPLEMENTARY INCOME STATEMENT INFORMATION _______________
Classification Charged to Income in Fiscal Year Ended March 31 - - - -------------- ----------------------------------------------- 1994 1993 1992 ---- ---- ---- Advertising $8,480,000 $7,888,000 $5,845,000
EX-21 3 SUBSIDIARIES OF THE REGISTRANT 1 DYNATECH CORPORATION Subsidiaries of the Registrant EXHIBIT 21
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. California Asinc, Incorporated California Atmospheric Research Systems, Inc. Florida Bradley Telcom Corporation (inactive) New Jersey ColorGraphics Systems, Inc. Wisconsin ComCoTec, Inc. Illinois Computerized Medical Systems, Inc. Missouri DaVinci Systems, Inc. Florida Digital Technology, Inc. Ohio Dolphin Networks, Inc. Georgia Dyna FSC Corporation U.S. Virgin Islands Dynatech Cable Products Group, Inc. Utah Dynatech Communications, Inc. Delaware Dynatech Laboratories, Inc. Delaware Dynatech Leasing Corporation Nevada Dynatech Microwave Technology, Inc. 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. Wisconsin Geomet Data Services, Inc. Arizona
2 Dynatech Spectrum, Inc. California Industrial Computer Source, Inc. California Innovative Electronics, Inc. Florida Interface Technology, Inc. California L.E.A. Dynatech, Incorporated Florida Lightning Location and Protection, Inc. Arizona LP Com (inactive) California Micro Processor Systems, Inc. Michigan Parallax Graphics, Inc. California Piiceon, Inc. California Qualimetrics, Inc. California Quanta Corporation Utah Quanta International Corporation Utah Science Associates, Inc. (in liquidation) New Jersey Telecommunications Techniques Corporation Maryland Trigon Industries, Inc. California Trontech, Inc. New Jersey Unex Corporation Massachusetts U.S. Computer Systems, Inc. Ohio Utah Scientific Inc. Nevada V.I. Corporation Massachusetts Weathertronics International, Inc. (inactive) California Whistler Corporation Massachusetts XKD Corporation California Alpha Image, Limited England Cromemco, G.m.b.H. (inactive) Germany Cromemco, Limited (inactive) England Cybermation, Limited (inactive) England Dynatech A.G. (in liquidation) Switzerland Dynatech Video Group, Ltd. England Dynatech Communications, Ltd. Canada
3 Dynatech Communications, Ltd. England Dynatech Scandinavia A/S 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 Laboratories, Ltd. England Dynatech Medical Products, Ltd. Guernsey, Channel Islands Dynatech Produkte A.G. Switzerland Dynatech Systems, Limited England Industrial Computer Source France France Laboratorie Dynatech SARL France Piiceon, Ltd. England Qualimetrics, Limited England Telecommunications Techniques Company (UK), Ltd. England Dynatech Laboratories s.r.o. Czech Republic Telecommunications Techniques Company (Ireland) Ltd. Ireland V.I. Corporation (Europe) Ltd. England
EX-23 4 CONSENT OF INDEPENDENT ACCOUNTANTS 1 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 and 33-50768) of our reports dated May 23, 1994, on our audits of the consolidated financial statements and financial statement schedules of Dynatech Corporation as of March 31, 1994 and 1993 and for each of the years ended March 31, 1994, and 1993 and 1992, which reports have been incorporated by reference or included in this Annual Report on Form 10-K. Boston, Massachusetts COOPERS & LYBRAND June 13, 1994 -----END PRIVACY-ENHANCED MESSAGE-----