-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, KwhM90yHJgBdLW0YRDPWnhrgqyRuu75uWykQx3FxPlSaCCm02Bqi1BRb8B1NGRxG HQcTpO2GGl9Hfub0GadsCg== 0000950135-97-000511.txt : 19970222 0000950135-97-000511.hdr.sgml : 19970222 ACCESSION NUMBER: 0000950135-97-000511 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970212 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: DYNATECH CORP CENTRAL INDEX KEY: 0000030841 STANDARD INDUSTRIAL CLASSIFICATION: INSTRUMENTS FOR MEAS & TESTING OF ELECTRICITY & ELEC SIGNALS [3825] IRS NUMBER: 042258582 STATE OF INCORPORATION: MA FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-12657 FILM NUMBER: 97527974 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-Q 1 DYNATECH CORPORATION FORM 10-Q 1 U.S. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended December 31, 1996 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 Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No . --- --- At January 15, 1997 there were 18,605,706 shares of common stock of the registrant outstanding. 2 2 PART I. FINANCIAL INFORMATION ----------------------------- Item 1. Financial Statements DYNATECH CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands except per share data) (Unaudited)
Three Months Ended Nine Months Ended December 31 December 31 1996 1995 1996 1995 ------- ------- -------- -------- Sales $92,007 $80,540 $258,854 $215,811 Cost of sales 33,522 30,623 95,032 82,134 ------- ------- -------- -------- Gross profit 58,485 49,917 163,822 133,677 Selling, general and administrative expense 30,084 26,238 84,031 72,947 Product development expense 10,163 9,094 30,065 27,290 Purchased incomplete technology 20,627 -- 20,627 16,852 Amortization of intangibles 1,558 1,389 4,683 3,643 ------- ------- -------- -------- Operating income (Loss) (3,947) 13,196 24,416 12,945 Interest expense (86) (506) (365) (1,537) Interest income 942 526 2,166 1,644 Other income 130 490 552 916 ------- ------- -------- -------- Income (Loss) from continuing operations before income taxes (2,961) 13,706 26,769 13,968 Provision (Benefit) for income taxes (65) 5,565 11,976 5,663 ------- ------- -------- -------- Income (Loss) from continuing operations (2,896) 8,141 14,793 8,305 Loss from discontinued operations, net of taxes -- (334) -- (866) ------- ------- -------- -------- Net income (Loss) $(2,896) $ 7,807 $ 14,793 $ 7,439 ======= ======= ======== ======== Income (Loss) per common share: Continuing Operations $ (0.16) $ 0.45 $ 0.82 $ 0.46 Discontinued Operations -- $ (.02) -- $ (.05) ------- ------- -------- -------- $ (0.16) $ 0.43 $ 0.82 $ 0.41 ======= ======= ======== ======== Weighted average number of common shares 18,161 18,336 18,124 17,930 ======= ======= ======== ========
See notes to condensed consolidated financial statements. 3 3 DYNATECH CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands)
Dec. 31 March 31 1996 1996 -------- -------- (Unaudited) ASSETS Current assets: Cash and cash equivalents $ 56,781 $ 46,094 Accounts receivable, net 63,018 45,367 Inventories: Raw materials 18,002 10,210 Work in process 12,573 9,381 Finished goods 8,798 7,325 -------- -------- 39,373 26,916 Other current assets 8,985 5,981 Net assets of discontinued operations held for sale 4,283 22,824 -------- -------- Total current assets 172,440 147,182 Property and equipment, net 22,264 18,551 Intangible assets, net 49,538 28,406 Other assets 18,393 11,050 -------- -------- $262,635 $205,189 ======== ======== LIABILITIES Current liabilities: Notes payable & current portion of long-term debt $ 511 $ 655 Accounts payable 14,954 9,849 Other accrued expenses 49,079 30,817 -------- -------- Total current liabilities 64,544 41,321 Long-term debt 40,280 1,800 Deferred income taxes 156 531 Deferred compensation 1,333 818 SHAREHOLDERS' EQUITY Common stock 3,721 3,721 Additional paid-in capital 8,769 12,102 Retained earnings 180,450 165,657 Cumulative translation adjustments 1,760 342 Treasury stock (38,378) (21,103) -------- -------- Total shareholders' equity 156,322 160,719 -------- -------- $262,635 $205,189 ======== ========
See notes to condensed consolidated financial statements. 4 4 DYNATECH CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (In thousands)
Nine Months Ended December 31 1996 1995 -------- -------- Operating activities: Income from continuing operations $ 14,793 $ 8,305 Adjustments for noncash items included in net income: Depreciation 6,710 6,255 Amortization of intangibles 4,683 3,643 Purchased incomplete technology 20,627 16,852 Increase (Decrease) in deferred taxes 938 (2,635) Other 390 81 Change in operating assets and liabilities, net of effects of business acquisitions and divestitures (29,451) (6,746) -------- -------- Net cash flows provided by continuing operations 18,690 25,755 Net cash flows provided by (used in) discontinued operations 3,761 (15,318) -------- -------- Net cash flows provided by operating activities 22,451 10,437 -------- -------- Investing activities: Purchases of property and equipment (6,676) (6,255) Disposals of property and equipment 186 117 Proceeds from sales of businesses 44,467 5,901 Business acquired in purchase transaction (65,751) (12,322) Other (256) (614) -------- -------- Net cash flows (used in) continuing operations (28,030) (13,173) Net cash flows provided by (used in) discontinuing operations (911) 1,130 -------- -------- Net cash flows used in investing activities (28,941) (12,043) -------- -------- Financing activities: Debt borrowings 39,750 7,857 Repayment of debt (390) (462) Proceeds from exercise of stock options 1,382 586 Purchases of treasury stock (22,334) -- -------- -------- Net cash flows provided by financing activities 18,408 7,981 -------- -------- Effect of exchange rate on cash (1,231) 257 -------- -------- Increase in cash and cash equivalents 10,687 6,632 -------- -------- Cash and cash equivalents at beginning of year 46,094 27,795 -------- -------- Cash and cash equivalents at end of period $ 56,781 $ 34,427 ======== ======== Supplemental data: Cash paid during the period for interest $ 426 $ 1,498 Cash paid during the period for income taxes $ 22,471 $ 7,911 Tax benefit of disqualifying dispositions of stock options $ -- $ 126 Stock issued for acquisition of Tele-Path Industries $ -- $ 13,700
See notes to condensed consolidated financial statements. 5 5 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS A. Condensed Consolidated Financial Statements In the opinion of management ("Dynatech" or the "Company"), the unaudited condensed consolidated balance sheet at December 31, 1996, and the unaudited consolidated statements of income and unaudited consolidated condensed statements of cash flows for the interim periods ended December 31, 1996 and 1995 include all adjustments (consisting only of normal recurring adjustments) necessary to present fairly those financial statements. In accordance with the rules of the Securities and Exchange Commission, certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. The year-end balance sheet data was derived from audited financial statements, but does not include disclosures required by generally accepted accounting principles. It is suggested that these condensed statements be read in conjunction with the Company's most recent Annual Report or Form 10-K for the fiscal year ended March 31, 1996. This Form 10-Q contains forward-looking statements which involve risks and uncertainties. The Company's actual results may differ significantly from the results discussed in the forward-looking statements. Factors that might cause such a difference include, but are not limited to, product demand and market acceptance risks, the effect of economic conditions, the impact of competitive products and pricing, product development, commercialization and technological difficulties, capacity and supply constraints or difficulties, consolidating of capital resources, general business and economic conditions, the effect of the Company's accounting policies, and other risks detailed in the Company's Annual Report and 10-K for the fiscal year ended March 31, 1996. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make certain estimates and assumptions that affect the reported amount of costs and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reported period. Significant estimates in these financial statements include allowances for accounts receivable, net realizable value of inventories, tax valuation reserves, and its net realizable value of assets from discontinued operations held for sale. Actual results could differ from those estimates. B. Acquisitions On December 31, 1996 Dynatech acquired substantially all of the business and assets and assumed certain liabilities of Itronix Corporation ("Itronix") of Spokane, Washington for approximately $65.8 million in cash, of which approximately $40 million of debt was borrowed under the Company's line of credit. Itronix designs and manufactures ruggedized integrated computing and communications devices which help make inside service technicians more efficient. The products are used by organizations with large mobile service fleets, such as telephone companies, communication service providers and insurance companies. Acquired complete technology and other intangible assets of approximately $26.5 million are being amortized over two to fifteen years. 6 6 Incident to this acquisition, the Company purchased the incomplete technology activities of Itronix, resulting in a one-time pretax charge in the quarter ended December 31, 1996 of approximately $20.6 million, or ($.74) per share after tax. This purchased incomplete technology that had not reached technological feasibility and which had no alternative future use was valued using a risk adjusted cash flow model, under which future cash flows associated with in-process research and development were discounted considering risks and uncertainties related to the viability of and potential changes in future target market and to the completion of the products that will ultimately be marketed by the Company. C. Divestments During the first nine months of fiscal 1997, the Company sold six businesses for approximately $44.5 million in cash. The effects of these transactions were reflected in the net assets held for sale and did not effect fiscal 1997 earnings. In January 1997 the Corporation sold one business which had been classified as discontinued operations for approximately $1.7 million. The Company intends to dispose of the remaining units held for sale during fiscal 1997. Management believes that the net proceeds from these dispositions will exceed the carrying amounts and anticipated ongoing costs to operate the business in 1997. Anticipated gains will not be reflected in the statements of operations until they are realized at the completion of the divestiture program. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Continuing Operations Results of Continuing Operations - -------------------------------- Consolidated sales increased 14.2% and 20.0% for the three and nine months ended December 31, 1996, respectively, compared to the equivalent prior year periods. Communications Test sales rose 25.0% for the nine months ended in fiscal 1997. The increase is attributable in part to sale of test systems reflecting the ongoing investment by new service providers to expand their network infrastructures. Sales for the Industrial and Scientific Communications and Non-Broadcast Video Technology business were up 10.0% and 14.0%, respectively, over the corresponding nine months ended December 31, 1996. Backlog from ongoing operations was $52.4 million at December 31, 1996 as compared with $57.3 million at March 31, 1996. The decrease is due in part to the high level of shipments of wireless test products in the Communications Test business. Consolidated Gross Profit for the current quarter and nine months was 63.6% and 63.3% of sales, respectively, compared to 62.0% and 61.9% for each of the respective prior year periods. The increase in Gross Profit is a result of increased sales of certain higher margin products. Product Development expense was 11.0% of total sales for the current quarter and 11.6% of total sales for the first nine months of fiscal 1997 as compared to 11.3% and 12.6%, respectively, for the comparable periods in the prior year. Selling, General and Administrative expenses were 32.7% and 32.5% for the three and nine months ended December 31, 1996, respectively, as compared to 32.6% and 33.8%, respectively, for the corresponding periods a year ago. While relatively unchanged for the current three months, the nine month decrease is due to greater efficiencies in selling communications test products, leverage in sales costs in the industrial and scientific communications business and the effect of 1996 communications test acquisitions. The increase 7 7 in amortization of intangible assets, $1.6 million for the third quarter and $4.7 million for the nine months as compared to $1.4 million and $3.6 million, respectively, for the prior year, is due to Communication Test acquisitions made during the second half of fiscal 1996. Interest income increased due to earnings on cash received from proceeds of assets held for sale. The effective tax rate for the nine months ended December 31, 1996 was 40.5% excluding a one-time charge for purchased incomplete technology. The effective rate including the one-time charge is 44.7%. The difference in rate is attributable to the non-tax deductibility on a state basis of the incomplete technology charge. Capital Resources and Liquidity - ------------------------------- The Company's funded debt was 20.7% of total capital at December 31, 1996, as compared to 1.5% at March 31, 1996. The increase is due to borrowings utilized to facilitate the acquisition of Itronix Corporation in the third quarter. The current ratio rate decreased to 2.7 to 1 at December 31, 1996 from 3.6 to 1 at March 31, 1996. Cash inflows from proceeds of business assets held for sale approximated $44.5 million in the first nine months of fiscal 1997 with related cash inflows of approximately $3.8 million from discontinued operations. Cash outflows of approximately $65.8 million were expended for the purchase of Itronix Corporation in the third quarter. Net cash flows from operating activities were $18.7 million for the nine-month period ended December 31, 1996. Cash outflows of approximately $22.3 million were used to purchase 697,500 shares of treasury stock. The total number of shares authorized for repurchase under the current plan has been increased to 3,000,000. Approximately 1,500,000 have been repurchased to date. Dynatech believes it has sufficient resources to finance its cash requirements over the next year. PART II. OTHER INFORMATION -------------------------- Item 6. (a) Exhibits Exhibit 27 - Financial Data Schedule (b) Reports on Form 8-K A Form 8-K was filed by the registrant on October 21, 1996, pursuant to Item 2 of Form 8-K, reporting the sale of business assets of Unex Corporation. A Form 8-K was filed by the registrant on December 31, 1996. Pursuant to Item 7(a)(4) of Form 8-K, the registrant will file financial statements of the business being acquired and pro forma financial information as soon as it is available on Form 8-K/A, and in any event, by March 17, 1997. 8 8 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. DYNATECH CORPORATION ----------------------------------------- Date February 12, 1997 ALLAN M. KLINE ----------------------- ----------------------------------------- Vice President, Chief Financial Officer and Treasurer Date February 12, 1997 ROBERT W. WOODBURY, JR. ----------------------- ----------------------------------------- Corporate Controller, Principal Accounting Officer EX-27 2 FINANCIAL DATA SCHEDULE WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
5 0000030841 1,000 U.S. DOLLARS 9-MOS MAR-31-1997 APR-01-1996 DEC-31-1996 1 56,781 0 64,444 1,426 39,373 8,985 62,128 39,864 262,635 64,544 0 0 0 3,721 152,601 262,635 258,854 258,854 95,032 139,406 (552) 0 (1,801) 26,769 11,976 14,793 0 0 0 14,793 .82 .82
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