-----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, BqGQhbfSG46Cv/TzxkEPELJ96/RSSIFnELQcIJ6AJCFqiga9t6gIpdrxhpKAdsCT 54T4zB8o4t7aPEwDvMFEZw== 0000893877-99-000574.txt : 19990827 0000893877-99-000574.hdr.sgml : 19990827 ACCESSION NUMBER: 0000893877-99-000574 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 19990529 FILED AS OF DATE: 19990826 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TEKTRONIX INC CENTRAL INDEX KEY: 0000096879 STANDARD INDUSTRIAL CLASSIFICATION: INSTRUMENTS FOR MEAS & TESTING OF ELECTRICITY & ELEC SIGNALS [3825] IRS NUMBER: 930343990 STATE OF INCORPORATION: OR FISCAL YEAR END: 0531 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-04837 FILM NUMBER: 99700335 BUSINESS ADDRESS: STREET 1: 2660 SW PKWY CITY: WILSONVILLE STATE: OR ZIP: 97070 BUSINESS PHONE: 5036277111 MAIL ADDRESS: STREET 1: P O BOX 100 CITY: WILSONVILLE STATE: OR ZIP: 97070-1000 10-K 1 ANNUAL REPORT ================================================================================ UNITED STATES 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 for the fiscal year ended May 29, 1999 or [ ] Transition report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from _______ to _______ Commission file number 1-4837 TEKTRONIX, INC. (Exact name of Registrant as specified in its charter) Oregon 93-0343990 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 26600 S.W. Parkway Avenue Wilsonville, Oregon 97070 (Address of principal executive (Zip Code) offices) Registrant's telephone number, including area code: (503) 627-7111 Securities registered pursuant to Section 12(b) of the Act: Name of each exchange on Title of each class which registered ------------------------- -------------------------- Common Shares, New York Stock Exchange without par value Series A No Par Preferred New York Stock Exchange Shares Purchase Rights Securities registered pursuant to Section 12(g) of the Act: None ------------------------ Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] The aggregate market value of the voting stock held by nonaffiliates of the Registrant was approximately $879,268,521 at August 2, 1999. At August 2, 1999 there were 47,077,115 Common Shares of the Registrant outstanding. DOCUMENTS INCORPORATED BY REFERENCE ----------------------------------- Part of 10-K into Document which incorporated -------- ------------------ Registrant's Proxy Statement Part III dated August 20, 1999 1999 Annual Report to Shareholders Parts I, II and IV ================================================================================ PART I Item 1. Business. Tektronix is an Oregon corporation organized in 1946. Its principal executive offices are located at 26600 S.W. Parkway Avenue, Wilsonville, Oregon 97070, approximately 18 miles south of Portland. Its telephone number is (503) 627-7111. References herein to "Tektronix" or the "Company" are to Tektronix, Inc. and its wholly-owned subsidiaries, unless the context indicates otherwise. Tektronix manufactures and distributes electronic products within three broad segments through three major business divisions: Measurement, Color Printing and Imaging, and Video and Networking. Measurement products include a broad range of instruments designed to allow an engineer or technician to view, measure, test or calibrate electrical circuits, mechanical motion, sound or radio waves. Color Printing and Imaging products include a comprehensive line of computer network capable color printers, ink and related supplies. Video and Networking products include video distribution, production, storage and newsroom automation products. On June 24, 1999, Tektronix, Inc. announced that its Board of Directors approved a plan to separate the Company into two independent publicly traded companies. One will contain Tektronix' Measurement Business Division, and the other will contain the Color Printing and Imaging Division. Tektronix plans an initial public offering for approximately 15% of the new color printing and imaging company prior to the end of the current fiscal year. The remaining shares would be distributed to Tektronix shareholders at some time after the offering. On August 9, 1999, the Company announced that it had reached an agreement to sell substantially all of the Company's Video and Networking Division, excluding the VideoTele.com product family, to a private investment group. The VideoTele.com product family merged into the Measurement Business Division effective May 30, 1999. The new privately held company will be named Grass Valley Group Inc., and Tektronix will hold a 10 percent equity interest. The companies have signed a tentative agreement, subject to adjustments at the date of consummation, and expect to close the transaction by the end of September 1999. Products -------- The table below sets forth the business divisions' contributions to total net sales of the Company for the last three fiscal years (in thousands of dollars).
Measurement Color Printing Video and Business and Imaging Networking ------------------- ------------------- ------------------- Amount Percent Amount Percent Amount Percent --------- ------- --------- ------- --------- ------- 1997 $ 852,827 44.0% $ 638,456 32.9% $ 448,799 23.1% 1998 $ 962,858 46.2% $ 728,697 34.9% $ 394,247 18.9% 1999 $ 844,882 45.4% $ 725,354 39.0% $ 291,254 15.6%
Revenues, earnings from operations and other financial data of the Company's business segments for the three years ended May 29, 1999, are set forth on page 34 of the Company's 1999 Annual Report to Shareholders and are incorporated herein by reference. Measurement Business Products ----------------------------- Tektronix has provided high quality test and measurement equipment for more than fifty years. Because of their wide range of capabilities Measurement Business products are used in a variety of applications, including research, design, testing, installation, manufacturing and service in the semiconductor, computer, telecommunications, video, communication network, aerospace, consumer electronics and education industries. 1 Semiconductors and Computers Tektronix' Measurement Business products, including oscilloscopes and logic analyzers are used by customers in connection with the development of high-performance semiconductors and computers. o Tektronix pioneered the development of high precision oscilloscopes over 50 years ago and holds the leading market share in this category. The oscilloscope is the primary debug tool for the design engineer. Oscilloscopes are used when an electrical signal needs to be viewed, measured, tested or verified. Tektronix oscilloscopes are available in a wide range of configurations (handheld to desktop), bandwidths and other performance characteristics. Tektronix has designed a substantial portion of its oscilloscope product line to provide consistent "architecture." This consistency allows customers reduced learning time and reduces the time required by the Company to develop new products. Oscilloscopes are useful across a wide range of industries in manufacturing, test and design applications and can be adapted to measure mechanical motion (vibration), sound, light, heat, pressure, strain and velocity. Introduced by Tektronix in fiscal 1999, the next generation Digital Phosphor Oscilloscope technology gives design engineers a new tool for quickly finding faults in complex electronic circuits, such as those in cell phones, pagers, high speed modems and embedded digital electronics. o Logic analyzers are also important debug tools for the design engineer to capture, display and examine streams of data coded as binary digits (bits), including streams that occur simultaneously over many channels. Tektronix logic analyzers, the TLA 700 series, utilize Microsoft's Windows operating system and offer performance leadership to develop next generation microprocessor systems and high speed computer architectures. Communications and Video Reliable, accurate, and repeatable testing is the only way to offer high quality links that support ever-expanding communications services. The products developed by companies in the semiconductor and computer industries are critical components of products created by communications and video equipment manufacturers. Tektronix Measurement Business products, including protocol analyzers, transmission test sets, radio frequency (RF) analyzers and digital video test products are used in the communications and video industries. o The Tektronix protocol analysis product line was acquired from Siemens in 1997. These industry-leading products monitor and simulate the exchange of data between telecommunications and information technology facilities, measuring and testing standardized interfaces of network components and instruments. o Transmission test products help operators verify network functionality from the physical to the protocol layers. Tektronix offers a full complement of communications test sets for optical DWDM systems to ensure transmission quality. For optical-layer testing, Tektronix provides optical spectrum analyzers, power meters, optical time domain reflectometers (OTDRs), and wave length meters. Products used for physical-layer test include oscilloscopes, BERTs, O/E converters, and logic analyzers. Link-layer test equipment includes the ST2400 SDH/SONET Test Set and the CTS850 SDH/PDH and Jitter/Wander Test Set. o RF analyzers display and measure signal amplitude versus frequency rather than amplitude versus time (as is the case for oscilloscopes). These products are used to design, check and adjust communications transmitting and receiving equipment. In addition to manufacturing its own line of RF analyzers, Tektronix sells and supports the wireless RF test products from Rohde & Schwarz in the United States, Canada and Mexico. In particular, these products provide solutions in the areas of Personal Communications Services (PCS) mobile phones and base stations. Tektronix also distributes RF test products from Advantest in the United States, Canada and Mexico. 2 o Digital video test products include MPEG digital video compression testers and picture quality analysis and monitoring products. Tektronix also offers the broadest line of digital test and measurement instruments for video and audio, ranging from handheld devices to full rack instruments. Tektronix has a long history with the television broadcast industry and has been awarded eight Emmy awards for technical excellence. Communication Network Operations As the telecom industry evolves to digital video and Internet-based data networks, operators must be able to perform complete compliance testing for the many standards that govern telecom transmission -- on the physical, transmission, protocol, and other layers. The equipment created by communications and video equipment manufacturers is used by the communications network operators to operate the global networks that carry Internet, video and wired/wireless voice traffic. Many Tektronix Measurement Business products, including cable and fiber optic test products, network monitoring, and high quality streaming video products, are used in this industry, with equipment manufacturers recommending test products that are appropriate for the installation and maintenance of the communications and video equipment they produce. o Tektronix network monitoring technologies and related product lines were acquired in February 1999 from Necsy SpA, located in Padova, Italy. These products perform services designed to measure voice, data and fax transmission quality for fixed and mobile networks. Other products include systems to stress mobile networks from air interface to base station and perform tests for software verification, load, roaming and system integration for all components in the system. o VideoTele.com products support the transmission, storage and distribution of video over networks, addressing the growing need to move digital video data. The VideoTele.com (VTC) business within the Measurement Business Division provides high quality streaming video products to networking, telecommunications and broadcast service providers who deploy broadcast-quality video through their standard network infrastructure for remote video collaboration and video trunking. Color Printing and Imaging Products ----------------------------------- Tektronix' color printing and imaging products include color printers and related supplies. Color printers produce full color hard copies of images produced by personal computers, workstations and terminals. The use of color in computing and printing has been stimulated by enhancements in the underlying microprocessor technology of personal computers and workstations, by large system and peripheral storage capabilities, by enhancements in computer display capability, and by the increased use of the Internet and business intranets. As businesses look to enhance productivity and corporate branding and identity, they are increasingly depending on fast color printing for a wide range of documents, including letterhead, presentations created by computer programs such as Microsoft's PowerPoint, printed Web pages and newsletters. Tektronix has been manufacturing and distributing color printers for over thirteen years. Early users were graphics artists, engineers and scientists. Workgroup office users have now become significant users of the Company's color printers. The Company's Phaser(R) printers, are compatible with the industry standard Adobe PostScript page description language, which specifies how an image is transferred to hard copy. By adopting the PostScript standard, color printers can be used in conjunction with a wide range of third-party graphics software. Phaser color printers utilize laser technology and a proprietary printing technology that consumes solid ink sticks marketed as ColorStix(R). The solid ink, of the Company's own formulation, is melted and then jetted onto paper. This technology produces vivid and stable images, allows printing on plain rather than coated paper, and can be applied to a wide range of sizes and gauges of paper. Solid ink color printers combine laser-class speed, low cost per page, and high quality output. Tektronix' printers are controlled by software designed and implemented by the Company. 3 Color printing products include: o The Phaser 740 and 780 color laser printers and the Phaser 840 color solid ink printer with a variety of configurations designed to meet customer needs from general office use to graphics design. o Related supplies, including solid ink, transparencies, and laser toner cartridges. Video and Networking Products ----------------------------- Driven by government mandates for digital signal transmission, emerging opportunities in cable and digital satellite channels, and the rise of the Internet as a content-distribution medium, broadcasters and video professionals are steadily converting their content production and distribution facilities from analog to digital technologies. With airtime worth hundreds of thousands of dollars per second and viewers willing to switch channels at the first hint of an interruption, these facilities must have high levels of reliability and performance. Tektronix' video products are used in the transition to digital at major broadcast outlets and video production companies around the world. The Company's video products, which are produced at its facilities in Nevada City, California, are used by the television industry for production and distribution of digital content or programming. Tektronix offers award-winning production equipment, including switchers, routers, modular products, and digital video servers. Tektronix Grass Valley brand of production switchers take video signals from a variety of sources (for example, archived video from a Tektronix Profile(R) digital video server, shots from a camera in the field, and another set in the studio), combine or mix them with effects (such as the background behind a weatherman), and send them to different places in the studio or actually air them. Tektronix Grass Valley routing or master control products provide a central point for video, audio and data to enter and then be switched to another location. Signals from various sources (for example, cameras, digital disks, VTRs, etc.) in broadcast facilities need to be "routed" to other locations to create a finished product. Tektronix Grass Valley modular products are sometimes referred to as facility "glue," because they combine video signals coming into, going out of, and moving around television facilities. Modular products are relatively small and inexpensive devices that fall into a number of general categories (for example, distribution amplifiers, timing products, converters such as encoders and decoders, and signal processors). Modular products convert, translate, distribute and process various video and audio signals so that they may be used by other devices. Tektronix' Profile digital video server is used in the worldwide broadcast/video digital transition. The Profile digital video server is basically a computer-based digital video recorder which eliminates manual exchange of and maintenance costs associated with video tapes. The Profile digital video server saves time for deadline-driven journalists and broadcasters who need to instantaneously and simultaneously view and edit material. For example, the server allows the editing and playback of stories and highlights while they are being fed from the field to the station. Profile's ability to store and manipulate vast amounts of video "data" is key to helping broadcasters, cable networks, direct-to-home satellite services, and professional TV production facilities make the transition to digital. Profile products also contribute to creating network revenue, as they are used to insert commercials into broadcasts and to "regionalize" national broadcasts for local audiences. Video and networking products include: o Video distribution products covering multiple video formats used by the broadcast industry in standard and high-definition television, including master control switchers and routing and control systems. o Video production products used by broadcasters and their production artists for live broadcast, mobile news, sports production and post-production applications, including video production switchers and video editing and special effects tools. 4 o Profile digital video servers used for signal storage and media access. o Newsroom automation products. These products are primarily manufactured by Avstar Systems, LLC and distributed exclusively by Tektronix. During the second quarter of fiscal 1999, the Company sold to Network Computing Devices, Inc., the assets associated with the Network Displays business unit of the Video and Networking Division. During the third quarter of fiscal 1999, the Company entered into an agreement with Avid Technology, Inc. to jointly form Avstar Systems, LLC, a venture to fund and develop newsroom computer systems and related software applications by combining companies' newsroom computer systems technology and personnel. Avstar Systems products are available exclusively through Tektronix' worldwide sales channels. During fiscal 1999, Video and Networking discontinued development, manufacturing and sales of non-linear digital editing products sold under the Lightworks name. Manufacturing ------------- During fiscal 1994, the Company sold its integrated circuits operation to Maxim Integrated Products, Inc. (Maxim) and transferred its hybrid circuits operation to a joint venture with Maxim. In early 1995, the Company completed the sale of approximately 65% of the stock of its printed circuit board operation in the initial public offering of Merix Corporation. As a result of these activities and other component operation divestitures, the Company's manufacturing operations are no longer highly integrated. The Company purchases components from each of the aforementioned companies. Tektronix currently holds 27% of the outstanding common stock of Merix. Tektronix also purchases raw materials, additional components, data processing equipment and computer peripheral devices for use in its products and systems from a variety of third-party suppliers. Although supply shortages are experienced from time to time, the Company currently believes that it will be able to acquire the required materials and components as needed. Because some of these components are unique, disruptions in supply can have an effect on the Company's manufacturing operations. Tektronix owns substantially all of its manufacturing facilities. Its primary manufacturing facilities are located in or near the Portland, Oregon metropolitan area. Additional software and product development occurs in Boston, Massachusetts and Bangalore, India. Some of Tektronix' products, components and accessories are assembled in the People's Republic of China. A logistics center is maintained in Heerenveen, The Netherlands. Grass Valley products are manufactured in Nevada City, California. In June of 1998, the Company purchased certain assets of CAM Advanced Technologies (M) Sdn Bhd, a printer component manufacturer with manufacturing facilities in Penang, Malaysia. The acquisition allows for lower cost color printer component manufacturing capacity. Telecommunications test products are manufactured at a plant in Berlin acquired in connection with the purchase from Siemens described above. See Item 2, "Properties," for additional information regarding the Company's manufacturing facilities. Certain Tektronix products are manufactured for the Japanese market at a plant in Gotemba, Japan by Sony/Tektronix Corporation, a Japanese corporation equally owned by Tektronix and Sony Corporation. Sony/Tektronix also designs and manufactures arbitrary waveform and function generators and benchtop semiconductor testers for sale worldwide by Tektronix. Sales and Distribution ---------------------- Tektronix maintains its own worldwide sales and field maintenance organization, staffed with technically trained personnel. Sales in the United States, Canada, Brazil, the United Kingdom, Germany, France, Italy, Poland, Spain, The Netherlands, Belgium, Sweden, Denmark, Norway, Finland, Switzerland, Australia, Austria, Hong Kong, Taiwan, Korea, Singapore, China, India, Argentina and Mexico are made through the Company, its subsidiaries and their field offices, or independent distributors and resellers located in principal market areas. Certain of the Company's independent distributors also sell products manufactured 5 by the Company's competitors. Except for Grass Valley and VTC products, sales in Japan are made by Sony/Tektronix Corporation. Grass Valley products are sold in Japan through a subsidiary. Tektronix' principal customers are electronic and computer equipment component manufacturers and service providers, communications companies, private industrial concerns engaged in commercial or governmental projects, military and nonmilitary agencies of the United States and of foreign countries, public utilities, educational institutions, radio and television stations and networks, graphics arts companies and users of sophisticated office products. Certain products are sold to both equipment users and original equipment manufacturers. Most Tektronix product sales are sold as standard catalog items. Tektronix attempts to fill its orders as promptly as possible. At May 29, 1999, Tektronix' unfilled product orders amounted to approximately $137 million, as compared to approximately $134 million at May 30, 1998. Tektronix expects that substantially all unfilled product orders at May 29, 1999 will be filled during its current fiscal year. Orders received by the Company are subject to cancellation by the customer. International Sales ------------------- The following table sets forth the breakdown between U.S. and international sales, based upon purchaser location, for each of the last three fiscal years (in thousands of dollars):
U.S. Sales International Sales --------------------- --------------------- Amount Percent Amount Percent ----------- ------- ----------- ------- 1997 $ 1,027,294 53.0% $ 912,788 47.0% 1998 $ 1,077,649 51.7% $ 1,008,153 48.3% 1999 $ 946,036 50.8% $ 915,454 49.2%
See "Business Segments" in the Notes to Consolidated Financial Statements on page 34 of the Company's 1999 Annual Report to Shareholders, containing information on sales and long-lived assets by geographic area (with sales based upon the location of the purchaser), which is incorporated by reference. Tektronix products are sold worldwide. European sales are made principally to customers in Germany, France, the United Kingdom, Switzerland, Italy, Spain, Sweden, and The Netherlands. Other international sales are principally to customers located principally in Japan, Korea, Canada, Australia, the People's Republic of China and Hong Kong. International sales include both export sales from the United States and sales by non-U.S. subsidiaries. Fluctuating foreign currency exchange rates and other factors beyond the control of Tektronix, such as the stability of international monetary conditions, tariff and trade policies and domestic and foreign tax and economic policies, affect the level and profitability of international sales. The Company does not believe it is materially exposed to foreign currency exchange rate fluctuation, although the Company is unable to predict the effect of these factors on its business. The Company hedges certain foreign currency exchange rate exposures in order to minimize their impact. Research and Development ------------------------ Tektronix operates in an industry characterized by rapid technological change, and research and development are important elements in its business. Expenditures for research and development during fiscal years ended May 31, 1997, May 30, 1998 and May 29, 1999 amounted to approximately $188,192,000, $203,312,000 and $204,655,000, respectively. Substantially all of these funds were Company generated. Research and development activities are conducted by research and design groups and specialized product development groups within the three business divisions. These activities include: (i) research on basic devices and techniques (ii) the design and development of products and components and specialized equipment and (iii) the development of processes needed for production. Most of Tektronix' research and development is devoted to enhancing and developing its own products. 6 Patents and Intellectual Property --------------------------------- It is Tektronix' policy to seek patents in the United States and appropriate foreign countries for its significant patentable developments. However, electronic equipment as complex as most of Tektronix' products is generally not patentable in its entirety. The Company also seeks to protect significant trademarks and software through trademark and copyright registration. The Company has entered into license arrangements for components important to the manufacturing of some of its printers. The Company's printer business relies on an integrated strategy of licensed and internally developed technology to produce its industry-leading products. This technology includes software, equipment, printing processes and ink developments. As with any company whose business involves intellectual property, Tektronix is subject to claims of infringement. There are no material pending claims. Competition ----------- The electronics industry continues to become more competitive, both in the United States and abroad. Primary competitive factors are customer service, product performance, technology, product availability and price. Tektronix believes that its reputation in the marketplace is a significant positive competitive factor. With respect to many of its products, the Company competes with companies that have substantially larger resources. Tektronix is the world's largest manufacturer of oscilloscopes and no single competitor offers as complete a product line. The Company is also the leader in sales of test and measurement equipment for the television industry, and a leader in the rapidly growing telecommunications market. In general, Tektronix competes with a number of companies in specialized areas of other test and measurement products and one large broad line measurement products supplier, Agilent (formerly the measurement business of Hewlett Packard). Tektronix is also the leader in unit sales of office workgroup laser-class color printers, including color laser and solid ink jet color printers. While the market for color printers is currently growing rapidly, it is still much smaller than the market for monochrome printers. Moreover, it is characterized by intense and increasing competition, resulting in a competitive pricing environment. Because the market for color printers is still small compared to the market for monochrome printers, distribution of products from manufacturer to end user is less efficient. The Company expects distribution channels to expand as color hard copy becomes a more prominent feature in computer applications. Tektronix competes with a number of large, worldwide electronics firms that manufacture specialized equipment for the television industry, both with respect to its television test and measurement products and its Grass Valley products. Grass Valley products include leading high-performance production switchers and high-performance distribution/processing equipment. Tektronix is the leading supplier of multi-channel disk-based recording devices to the professional television industry. Employees --------- At May 29, 1999, Tektronix had 7,571 employees, of whom 2,178 were located in foreign countries. Tektronix' employees in the United States and most foreign countries are not covered by collective bargaining agreements. The Company believes that relations with its employees are good. Environment ----------- The Company's facilities are subject to numerous laws and regulations concerning the discharge of materials into the environment, or otherwise relating to protection of the environment. The Company operates a licensed hazardous waste management facility at its Beaverton campus. Although future regulatory actions cannot be predicted with certainty, compliance with environmental laws has not had and 7 is not expected to have a material effect upon the capital expenditures, earnings or competitive position of the Company. Executive Officers of the Company --------------------------------- The following are the executive officers of the Company:
Has Served As An Executive Officer of Name Position Age Tektronix Since - ------------------- --------------------------------- --- --------------- Jerome J. Meyer Chairman of the Board, 61 1990 Chief Executive Officer and President William D. Walker Vice Chairman of the Board, 68 1992 (also Director served in 1990 and from 1969 to 1984) Carl W. Neun Senior Vice President 55 1993 and Chief Financial Officer James F. Dalton Vice President, General 40 1998 Counsel and Secretary Gerald K. Perkel Vice President and President, 43 1995 Color Printing and Imaging Division Richard H. Wills Vice President and President, 44 1997 Measurement Business Division Timothy E. Vice President and 46 1991 Thorsteinson President, Video and Networking Division
The executive officers are elected by the board of directors of the Company at its annual meeting, except for interim elections to fill vacancies. Executive officers hold their positions until the next annual meeting, or until their successors are elected, or until such tenure is terminated by death, resignation or removal in the manner provided in the bylaws. There are no arrangements or understandings between executive officers or any other person pursuant to which the executive officers were elected, and none of the executive officers are related. All of the named executive officers have been employed by Tektronix in management positions for the last five years except for Mr. William D. Walker, who is not an employee of the Company and has been a director of the Company since 1980. Item 2. Properties. The Company's offices are located at 26600 S.W. Parkway, Wilsonville, Oregon. Listed below are the principal facilities. All properties are maintained in good working order and, except for those held for sale or lease, are substantially utilized and are suitable for the conduct of its business. The Company believes that its facilities are adequate for their intended uses. Tektronix owns an industrial park (the "Howard Vollum Park") near Beaverton, Oregon. The Howard Vollum Park includes 20 buildings arranged in a campus-like setting and containing an aggregate of approximately 2.2 million gross square feet of enclosed floor space. A substantial portion of the Company's product manufacturing and administrative activities are located at Howard Vollum Park. Most of the Company's Measurement Business Division and a variety of the Video Networking Division products are manufactured at Howard Vollum Park. The Company leases certain excess space at the Howard Vollum Park to other corporations. The Company has entered into an agreement to sell approximately 55 acres on 8 the Vollum site, subject to a number of contingencies. The Company owns an 8.8 acre parcel of unimproved land, located immediately to the west of Howard Vollum Park. This parcel is in the process of being sold. Within the past six months, Tektronix made a road dedication of 19 acres to Washington County. A facility leased in Bend, Oregon contains 42,000 square feet of vacant manufacturing space currently available for sub-lease. The Company's Color Printing and Imaging Division and corporate headquarters occupy four buildings containing approximately 800,000 square feet on property owned by the Company in Wilsonville, Oregon, approximately 16 miles south of Howard Vollum Park. Tektronix' Video and Networking Division also has operating facilities in Nevada City, California comprised of approximately 151,000 square feet on owned property. The Company has entered into an agreement to sell the Video and Networking Division and to lease the Nevada City site to the new company. The buildings described above were constructed after 1957. Warehouses, production facilities and other critical operations are protected by fire sprinkler installations. Most manufacturing, office and engineering areas are air-conditioned. A 92,600 square foot logistics center leased by Tektronix is located in Heerenveen, The Netherlands. Tektronix owns a manufacturing plant for color printer components, consisting of approximately 160,000 square feet in Penang, Malaysia. Field offices near London (83,000 square feet) and Sydney, Australia (23,000 square feet) are located in buildings owned by the Company. Both of these offices are currently in use but are for sale. Tektronix expects to close the sales of these properties within the next six months. Field Offices in other foreign countries occupy leased premises of approximately 911,000 square feet. Tektronix' U.S. Sales and Service field offices aggregate approximately 239,666 square feet of leased space, of which 28,000 square feet is vacant. Tektronix also owns a facility in Nanticoke, Pennsylvania (approximately 9,000 square feet), which is leased to another company. Item 3. Legal Proceedings. There are no material pending legal proceedings. Item 4. Submission of Matters to a Vote of Security Holders. No matter was submitted to a vote of security holders during the fourth quarter of the fiscal year covered by this report. Forward-looking Statements -------------------------- Statements and information included in this Form 10-K that relate to the Company's goals, strategies and expectations as to future results, events and expectations are based on the Company's current expectations. They constitute forward-looking statements subject to a number of risk factors that could cause actual results to differ materially from those currently expected or desired. As with many high technology companies, risk factors that could cause the Company's actual results or activities to differ materially from these forward-looking statements include, but are not limited to: worldwide economic and business conditions in the electronics industry, including the continuing effects of the Asian economic crisis and its secondary effects on demand for the Company's products; competitive factors, including pricing pressures, technological developments and new products offered by competitors; changes in product and sales mix, and the related effects on gross margins; the Company's ability to deliver 9 a timely flow of competitive new products and market acceptance of these products; the availability of parts and supplies from third-party suppliers on a timely basis and at reasonable prices; inventory risks due to changes in market demand or the Company's business strategies; changes in effective tax rates; customer demand; currency fluctuations; and the fact that a substantial portion of the Company's sales are generated from orders received during the quarter, making prediction of quarterly revenues and earnings difficult. Risk factors related to the plan to separate the Measurement and Color Printing and Imaging businesses include, but are not limited to: the ability of Tektronix to successfully separate and operate the Measurement and Color Printing and Imaging businesses and complete the strategic restructuring plan; the potential disruption in the Company's business and to its employee base during this process; risks that a proposed initial public offering for the separated Color Printing and Imaging entity and the subsequent distribution of stock to Tektronix shareholders will not be feasible or will not be successfully consummated; and risks that the Company will be unable to complete the sale of the Video and Networking Division. Tektronix has other risk factors in its business, including but not limited to: the Company's ability to successfully implement the strategic direction and restructuring actions announced in fiscal 1999, including reducing its expenditures; the effects of year 2000 compliance issues; the timely introduction of new products scheduled during the current year, which could be affected by engineering or other development program slippage, the ability to ramp up production or to develop effective sales channels; customers' acceptance of and demand for new products; changes in the regulatory environment affecting the transition to high-definition television within the time frame anticipated by the Company; the significant operational and strategic uncertainties the Company faces within the Video and Networking Division; and other risk factors. The Company may make other forward-looking statements from time to time. Forward-looking statements speak only as of the date made. The Company undertakes no obligation to publicly release the result of any revisions to forward-looking statements which may be made to reflect subsequent events or circumstances or to reflect the occurrence of unanticipated events. PART II Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters. The information required by this item is included on page 39 of the Company's 1999 Annual Report to Shareholders and is incorporated herein by reference. Item 6. Selected Financial Data. The information required by this item is included on page 40 of the Company's 1999 Annual Report to Shareholders and is incorporated herein by reference. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. The information required by this item is included on pages 19 through 24 of the Company's 1999 Annual Report to Shareholders and is incorporated herein by reference. Item 7A. Quantitative and Qualitative Disclosures About Market Risk The information required by this item is included on pages 22 and 23 of the Company's 1999 Annual Report to Shareholders and is incorporated herein by reference. 10 Item 8. Financial Statements and Supplementary Data. The information required by this item is included on pages 26 through 39 of the Company's 1999 Annual Report to Shareholders and is incorporated herein by reference. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. None. PART III Item 10. Directors and Executive Officers of the Registrant. The information required by this item regarding directors is included under "Board of Directors" and "Election of Directors" on pages 3 through 9 of the Company's Proxy Statement dated August 20, 1999. The information required by this item regarding executive officers is contained under "Executive Officers of the Company" in Item 1 of Part I hereof. The information required by Item 405 of Regulation S-K is included under "Section 16(a) Beneficial Ownership Reporting Compliance" on page 20 of the Company's Proxy Statement dated August 20, 1999. Item 11. Executive Compensation. The information required by this item is included under "Directors' Compensation" and "Executive Compensation" on pages 9 through 14 of the Company's Proxy Statement dated August 20, 1999. Item 12. Security Ownership of Certain Beneficial Owners and Management. The information required by this item is included under "Security Ownership of Certain Beneficial Owners" and "Election of Directors" on pages 1 and 2 and 7 though 9 of the Company's Proxy Statement dated August 20, 1999. Item 13. Certain Relationships and Related Transactions. None. PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8 - K (a) The following documents are filed as part of this report: (1) Financial Statements. The following documents are included in the Company's 1999 Annual Report to Shareholders at the pages indicated and are incorporated herein by reference: Page in 1999 Annual Report to Shareholders ---------------------- Independent Auditors' Report 25 Consolidated Statements of Operations 26 Consolidated Balance Sheets 27 Consolidated Statements of Cash Flows 28 Consolidated Statements of Shareholders' Equity 29 Notes to Consolidated Financial Statements 30 through 39 11 (2) Financial Statement Schedules. No financial statement schedules are required to be filed with this report. Separate financial statements for the registrant have been omitted because the registrant is primarily an operating company and the subsidiaries included in the consolidated financial statements are substantially totally held. All subsidiaries of the registrant are included in the consolidated financial statements. Summarized financial information for 50 percent or less owned persons in which the registrant has an interest, and for which summarized financial information must be provided, is included in the Notes to Consolidated Financial Statements appearing in the Company's Annual Report to Shareholders. (3) Exhibits: (3)(i) Restated Articles of Incorporation, as amended. Incorporated by reference to Exhibit (3) of Form 10-Q dated October 9, 1998, SEC File No. 1-4837. (ii) Bylaws, as amended. (4)(i) Indenture dated as of November 16, 1987, as amended by First Supplemental Indenture dated as of July 13, 1993, covering the registrant's 7-1/2% notes due August 1, 2003, and the registrant's 7-5/8% notes due August 15, 2002. Indenture incorporated by reference to Exhibit 4(i) of Form 10-K dated August 22, 1990, SEC File No. 1-4837. (ii) Pursuant to Item 601(b)(4)(iii) of Regulation S-K, the registrant agrees to furnish to the Commission upon request copies of agreements relating to other indebtedness. (iii) Rights Agreement dated as of August 16, 1990. Incorporated by reference to Exhibit 1 of Form 8-K dated August 27, 1990, SEC File No. 1-4837. (10)+(i) 1982 Stock Option Plan, as amended. Incorporated by reference to Exhibit 10(iii) of Form 10-K dated August 22, 1989, SEC File No. 1-4837. +(ii) Stock Incentive Plan, as amended. Incorporated by reference to Exhibit 10(ii)of Form 10-Q dated April 9, 1993, SEC File No. 1-4837. +(iii) Restated Annual Performance Improvement Plan. Incorporated by reference to Exhibit 10(i) of Form 10-Q dated April 9, 1993, SEC File No. 1-4837. +(iv) Restated Deferred Compensation Plan. Incorporated by reference to Exhibit 10(i)of Form 10-Q dated December 20, 1984, SEC File No. 1-4837. +(v) Retirement Equalization Plan, Restatement. Incorporated by reference to Exhibit (10)(v) of Form 10-K dated August 20, 1996, SEC File No. 1-4837. +(vi) Indemnity Agreement entered into between the Company and its named officers and directors. Incorporated by reference to Exhibit 10(ix) of Form 10-K dated August 18, 1996, SEC File No. 1-4837. +(vii) Form of Executive Severance Agreement entered into between the Company and its named officers. Incorporated by reference to Exhibit 10(ix) of Form 10-K dated August 9, 1995, SEC File No. 1-4837. +(viii) Executive Compensation and Benefits Agreement (Jerome J. Meyer) dated as of October 24, 1990. Incorporated by reference to Exhibit 10(ii) of Form 10-Q dated December 21, 1990, SEC File No. 1-4837. +(ix) Amendment to Supplemental Executive Retirement Agreement (Jerome J. Meyer). Incorporated by reference to Exhibit 10(ii) of Form 10-Q dated October 7, 1994, SEC File No. 1-4837. 12 +(x) Amendment to Supplemental Executive Retirement Agreement (Jerome J. Meyer) dated June 16, 1998. Incorporated by reference to Exhibit (10)(x) of Form 10-K for the fiscal year ended May 30, 1998, SEC File No. 1-4837. +(xi) Executive Compensation and Benefits Agreement (Carl W. Neun) dated as of March 29, 1993. Incorporated by reference to Exhibit 10(xiv) of Form 10-K dated August 11, 1994, SEC File No. 1-4837. +(xii) Amendment to Supplemental Executive Retirement Agreement (Carl W. Neun) dated September 24, 1997. Incorporated by reference to Exhibit 10(i) of Form 10-Q dated January 13, 1998, SEC File No. 1-4837. (xiii) Non-Employee Directors' Deferred Compensation Plan, 1995 Restatement dated July 1, 1995. Incorporated by reference to Exhibit 10(xv) of Form 10-K dated August 9, 1995, SEC File No. 1-4837. +(xiv) Non-Employee Directors Stock Compensation Plan. Incorporated by reference to Exhibit 10(xvi) of Form 10-K dated August 9, 1995, SEC File No. 1-4837. +(xv) Supplemental Executive Retirement Plan for named executive officers dated September 26, 1996. Incorporated by reference to Exhibit 10(xvi) of Form 10-K dated May 31, 1997, SEC File No. 1-4837. +(xvi) Severance and Bonus Agreement with Tim Thorsteinson, dated April 9, 1999. +(xvii) Amendment to Non-Employee Directors Stock Compensation Plan, effective June 23, 1999. +(xviii) 1998 Stock Option Plan. Incorporated by reference to Exhibit 10(i) of Form 10-Q for the quarter ended August 19, 1998, SEC File No. 1-4837. (xix) Standstill Agreement among the Company and Relational Investors, et al, dated July 6, 1999. Incorporated by reference to Exhibit 5 of Schedule 13D filed July 6, 1999, SEC File No. 5-10548. (13) Portions of the 1999 Annual Report to Shareholders that are incorporated herein by reference. (21) Subsidiaries of the registrant. (23) Independent Auditors' Consent. (24) Powers of Attorney. (27) Financial Data Schedule. - -------------- + Compensatory Plan or Arrangement (b) No reports on Form 8-K have been filed during the last quarter of the period covered by this Report. 13 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. TEKTRONIX, INC. By CARL W. NEUN -------------------------------------- Carl W. Neun, Senior Vice President and Chief Financial Officer Dated: August 26, 1999 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. Signature Capacity Date - --------- -------- ---- JEROME J. MEYER* Chairman, Chief August 26, 1999 - ----------------------------- Executive Officer, Jerome J. Meyer and President CARL W. NEUN Senior Vice President August 26, 1999 - ----------------------------- and Chief Financial Carl W. Neun Officer, Principal Financial and Accounting Officer PAULINE LO ALKER * Director August 26, 1999 - ----------------------------- Pauline Lo Alker A. GARY AMES * Director August 26, 1999 - ----------------------------- A. Gary Ames GERRY B. CAMERON * Director August 26, 1999 - ----------------------------- Gerry B. Cameron DAVID N. CAMPBELL * Director August 26, 1999 - ----------------------------- David N. Campbell PAUL C. ELY, JR. * Director August 26, 1999 - ----------------------------- Paul C. Ely, Jr. 14 Signature Capacity Date - --------- -------- ---- FRANK C. GILL * Director August 26, 1999 - ----------------------------- Frank C. Gill A.M. GLEASON * Director August 26, 1999 - ----------------------------- A.M. Gleason MERRILL A. MCPEAK * Director August 26, 1999 - ----------------------------- Merrill A. McPeak RALPH V. WHITWORTH * Director August 26, 1999 - ----------------------------- Ralph V. Whitworth *By JAMES F. DALTON August 26, 1999 ----------------------------- James F. Dalton as attorney-in-fact 15 EXHIBIT INDEX ------------- Exhibit Number Description ------- ----------- (3)(i) Restated Articles of Incorporation, as amended. Incorporated by reference to Exhibit (3) of Form 10-Q dated October 9, 1998, SEC File No. 1-4837. (ii) Bylaws, as amended. (4)(i) Indenture dated as of November 16, 1987, as amended by First Supplemental Indenture dated as of July 13, 1993, covering the registrant's 7-1/2% notes due August 1, 2003, and the registrant's 7-5/8% notes due August 15, 2002. Indenture incorporated by reference to Exhibit 4(i) of Form 10-K dated August 22, 1990, SEC File No. 1-4837. (ii) Pursuant to Item 601(b)(4)(iii) of Regulation S-K, the registrant agrees to furnish to the Commission upon request copies of agreements relating to other indebtedness. (iii) Rights Agreement dated as of August 16, 1990. Incorporated by reference to Exhibit 1 of Form 8-K dated August 27, 1990, SEC File No. 1-4837. (10)+(i) 1982 Stock Option Plan, as amended. Incorporated by reference to Exhibit 10(iii) of Form 10-K dated August 22, 1989, SEC File No. 1-4837. +(ii) Stock Incentive Plan, as amended. Incorporated by reference to Exhibit 10(ii)of Form 10-Q dated April 9, 1993, SEC File No. 1-4837. +(iii) Restated Annual Performance Improvement Plan. Incorporated by reference to Exhibit 10(i) of Form 10-Q dated April 9, 1993, SEC File No. 1-4837. +(iv) Restated Deferred Compensation Plan. Incorporated by reference to Exhibit 10(i)of Form 10-Q dated December 20, 1984, SEC File No. 1-4837. +(v) Retirement Equalization Plan, Restatement. Incorporated by reference to Exhibit (10)(v) of Form 10-K dated August 20, 1996, SEC File No. 1-4837. +(vi) Indemnity Agreement entered into between the Company and its named officers and directors. Incorporated by reference to Exhibit 10(ix) of Form 10-K dated August 25, 1996, SEC File No. 1-4837. +(vii) Form of Executive Severance Agreement entered into between the Company and its named officers. Incorporated by reference to Exhibit 10(ix) of Form 10-K dated August 9, 1995, SEC File No. 1-4837. +(viii) Executive Compensation and Benefits Agreement (Jerome J. Meyer) dated as of October 24, 1990. Incorporated by reference to Exhibit 10(ii) of Form 10-Q dated December 21, 1990, SEC File No. 1-4837. Exhibit Number Description ------- ----------- +(ix) Amendment to Supplemental Executive Retirement Agreement (Jerome J. Meyer). Incorporated by reference to Exhibit 10(ii) of Form 10-Q dated October 7, 1994, SEC File No. 1-4837. +(x) Amendment to Supplemental Executive Retirement Agreement (Jerome J. Meyer) dated June 16, 1998. Incorporated by reference to Exhibit (10)(x) of Form 10-K for the fiscal year ended May 30, 1998, SEC File No. 1-4837. +(xi) Executive Compensation and Benefits Agreement (Carl W. Neun) dated as of March 29, 1993. Incorporated by reference to Exhibit 10(xiv) of Form 10-K dated August 11, 1994, SEC File No. 1-4837. +(xii) Amendment to Supplemental Executive Retirement Agreement (Carl W. Neun) dated September 24, 1997. Incorporated by reference to Exhibit 10(i) of Form 10-Q dated January 13, 1998, SEC File No. 1-4837. (xiii) Non-Employee Directors' Deferred Compensation Plan, 1995 Restatement dated July 1, 1995. Incorporated by reference to Exhibit 10(xv) of Form 10-K dated August 9, 1995, SEC File No. 1-4837. +(xiv) Non-Employee Directors Stock Compensation Plan. Incorporated by reference to Exhibit 10(xvi) of Form 10-K dated August 9, 1995, SEC File No. 1-4837. +(xv) Supplemental Executive Retirement Plan for named executive officers dated September 26, 1996. Incorporated by reference to Exhibit 10(xvi) of Form 10-K dated May 31, 1997, SEC File No. 1-4837. +(xvi) Severance and Bonus Agreement with Tim Thorsteinson, dated April 9, 1999. +(xvii) Amendment to Non-Employee Directors Stock Compensation Plan, effective June 23, 1999. +(xviii) 1998 Stock Option Plan. Incorporated by reference to Exhibit 10(i) of Form 10-Q for the quarter ended August 19, 1998, SEC File No. 1-4837. (xix) Standstill Agreement among the Company and Relational Investors, et al, dated July 6, 1999. Incorporated by reference to Exhibit 5 of Schedule 13D filed July 6, 1999, SEC File No. 5-10548. (13) Portions of the 1999 Annual Report to Shareholders that are incorporated herein by reference. (21) Subsidiaries of the registrant. (23) Independent Auditors' Consent. (24) Powers of Attorney. (27) Financial Data Schedule. - -------------- + Compensatory Plan or Arrangement EX-3.II 2 BYLAWS, AS AMENDED As Amended through July 6, 1999 BYLAWS OF TEKTRONIX, INC. ARTICLE I SHAREHOLDERS Section 1. ANNUAL MEETING. The annual meeting of shareholders shall be held on the date and at the time each year as shall be fixed by the board of directors and stated in the notice of meeting, for the purpose of electing directors and for the transaction of such other business as may properly come before the meeting. Section 2. SPECIAL MEETINGS. Special meetings of the shareholders may be called by the Chairman of the Board or by the board of directors, and shall be called by the Chairman of the Board at the request of the holders of not less than one tenth of all the outstanding shares of the corporation entitled to vote at the meeting. Section 3. PLACE OF MEETINGS. The place of each annual meeting and any special meeting of the shareholders shall be determined by the board of directors. Section 4. NOTICE OF MEETING. Written or printed notice stating the date, time and place of the shareholders meeting and, in the case of a special meeting or a meeting for which special notice is required by law, the purposes for which the meeting is called, shall be delivered by the corporation to each shareholder entitled to vote at the meeting and, if required by law, to any other shareholders entitled to receive notice, not earlier than sixty days nor less than thirty days before the meeting date. If mailed, the notice shall be deemed delivered when it is mailed to the shareholder with postage prepaid at the shareholder's address shown in the corporation's record of shareholders. Section 5. CLOSING OF TRANSFER RECORDS OR FIXING OF RECORD DATE. The board of directors may fix a future date as the record date to determine the shareholders entitled to notice of a shareholders meeting, demand a special meeting, vote, take any other action or receive payment of any share or cash dividend or other distribution. This date shall not be earlier than seventy days or, in the case of a meeting, later than thirty-five days before the meeting or action requiring a determination of shareholders. The record date for any meeting, vote or other action of the shareholders shall be the 1 same for all voting groups. If not otherwise fixed by the board of directors, the record date to determine shareholders entitled to notice of and to vote at an annual or special shareholders meeting is the close of business on the day before the notice is first mailed or delivered to shareholders. If not otherwise fixed by the board of directors, the record date to determine shareholders entitled to receive payment of any share or cash dividend or other distribution is the close of business on the day the board of directors authorizes the share or cash dividend or other distribution. Section 6. VOTING LISTS. After a record date for a meeting is fixed, the corporation shall prepare an alphabetical list of all shareholders entitled to notice of the shareholders meeting. The list shall be arranged by voting group and, within each voting group, by class or series of shares, and it shall show the address of and number of shares held by each shareholder. The shareholders list shall be available for inspection by any shareholder, upon proper demand as may be required by law, beginning two business days after notice of the meeting is given and continuing through the meeting, at the corporation's principal office or at a place identified in the meeting notice in the city where the meeting will be held. The corporation shall make the shareholders list available at the meeting, and any shareholder or the shareholder's agent or attorney shall be entitled to inspect the list at any time during the meeting or any adjournment. Refusal or failure to prepare or make available the shareholders list does not affect the validity of action taken at the meeting. Section 7. QUORUM; ADJOURNMENT. (a) Shares entitled to vote as a separate voting group may take action on a matter at a meeting only if a quorum of those shares exists with respect to that matter. A majority of the votes entitled to be cast on the matter by the voting group constitutes a quorum of that voting group for action on that matter. (b) A majority of votes represented at the meeting, although less than a quorum, may adjourn the meeting from time to time to a different time and place without further notice to any shareholder of any adjournment. At an adjourned meeting at which a quorum is present, any business may be transacted that might have been transacted at the meeting originally held. (c) Once a share is represented for any purpose at a meeting, it shall be present for quorum purposes for the remainder of the meeting and for any adjournment of that meeting unless a new record date is or must be set for the adjourned meeting. A new record date must be set if the meeting is adjourned to a date more than 120 days after the date fixed for the original meeting. 2 Section 8. VOTING. If a quorum exists, action on a matter, other than the election of directors, by a voting group is approved if the votes cast within the voting group favoring the action exceed the votes cast opposing the action, unless a greater number of affirmative votes is required by law or the Restated Articles of Incorporation. Unless otherwise provided in the Restated Articles of Incorporation, directors are elected by a plurality of the votes cast by the shares entitled to vote in the election at a meeting at which a quorum is present. Section 9. PROXIES. At all meetings of shareholders, a shareholder may vote by proxy executed in writing by the shareholder or by his duly authorized attorney in fact. Such proxy shall be filed with the secretary of the corporation before or at the time of the meeting. No proxy shall be valid after eleven months from the date of its execution, unless otherwise provided in the proxy. Section 10. VOTING OF SHARES BY CERTAIN HOLDERS. (a) Shares standing in the name of another corporation may be voted by such officer, agent or proxy as the bylaws of such corporation may prescribe, or, in the absence of such provision, as the board of directors of such other corporation may determine. (b) Shares held by an administrator, executor, guardian or conservator may be voted by him, either in person or by proxy, without a transfer of such shares into his name. Shares standing in the name of a trustee may be voted by him, either in person or by proxy, but no trustee shall be entitled to vote shares held by him without a transfer of such shares into his name. (c) Shares standing in the name of a receiver may be voted by such receiver, and shares held by or under the control of a receiver may be voted by such receiver without the transfer thereof into his name if authority so to do be contained in an appropriate order of the court by which such receiver was appointed. (d) A shareholder whose shares are pledged shall be entitled to vote such shares until the shares have been transferred into the name of the pledgee, and thereafter the pledgee shall be entitled to vote the shares so transferred. (e) Neither treasury shares nor shares held by the corporation in a fiduciary capacity, nor shares held by another corporation if a majority of the shares entitled to vote for the election of directors of such other corporation is held by the corporation, shall be voted at any meeting or counted in determining the total number of outstanding shares at any given time. Section 11. PROPER BUSINESS FOR SHAREHOLDERS' MEETING. To be properly brought before the meeting, business must be either (a) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the board of 3 directors, (b) otherwise properly brought before a meeting by or at the direction of the board of directors, or (c) otherwise properly brought before the meeting by a shareholder. In addition to any other applicable requirements, for business to be properly brought before an annual meeting by a shareholder, the shareholder must have given timely notice thereof in writing to the Secretary of the corporation. To be timely, a shareholder's notice must be delivered to or mailed and received at the principal executive office of the corporation not less than 50 days nor more than 75 days prior to the meeting; PROVIDED, HOWEVER, that in the event that less than 65 days' notice or prior public disclosure of the date of the meeting is given or made to shareholders, notice by the shareholder to be timely must be so received not later than the close of business on the 10th day following the day on which such notice of the date of the annual meeting was mailed or such public disclosure was made, whichever first occurs. A shareholder's notice to the Secretary shall set forth (a) one or more matters appropriate for shareholder action that the shareholder proposes to bring before the meeting, (b) a brief description of the matters desired to be brought before the meeting and the reasons for conducting such business at the meeting, (c) the name and record address of the shareholder, (d) the class and number of shares of the corporation that the shareholder owns or is entitled to vote and (e) any material interest of the shareholder in such matters. Notwithstanding anything in these bylaws to the contrary, no business shall be conducted at the annual meeting except in accordance with the procedure set forth in this Section 11; PROVIDED, HOWEVER, that nothing in this Section 11 shall be deemed to preclude discussion by any shareholder of any business properly brought before the annual meeting. The Chairman of the Board shall, if the facts warrant, determine and declare to the meeting that the business was not properly brought before the meeting in accordance with the provisions of this Section 11, and if the Chairman of the Board should so determine, shall so declare to the meeting any such business not properly brought before the meeting shall not be transacted. Section 12. SHAREHOLDER NOMINATION OF DIRECTORS. Not less than 50 days nor more than 75 days prior to the date of any annual meeting of shareholders, any shareholder who intends to make a nomination at the annual meeting shall deliver a notice to the Secretary of the corporation setting forth (a) as to each nominee whom the shareholder proposes to nominate for election or reelection as a director, (i) the name, age, business address and residence address of the nominee, (ii) the principal occupation or employment of the nominee, (iii) the class and number of shares of capital stock of the corporation that are beneficially owned by the nominee and (iv) any other information concerning the nominee that would be required, under the rules of the Securities and Exchange Commission, in a proxy statement soliciting proxies for the election of such nominee; and (b) as to the shareholder giving the notice, (i) the name and record address of the shareholder and (ii) the class and number of shares of capital stock of the corporation that are beneficially owned by the shareholder; PROVIDED, HOWEVER, that in the event that less than 65 days' notice or prior public disclosure of the date of the annual meeting is given or made to shareholders, notice by the shareholder to be timely must be so delivered not later than the close of business on the 10th day following the day on which such notice of the date of the meeting was 4 mailed or such public disclosure was made, whichever first occurs. Such notice shall include a signed consent to serve as a director of the corporation, if elected, of each such nominee. The corporation may require any proposed nominee to furnish such other information as may reasonably be required by the corporation to determine the eligibility of such proposed nominee to serve as a director of the corporation. Section 13. SHAREHOLDER NOMINATION OF DIRECTORS - SPECIAL MEETINGS. Any shareholder who intends to make a nomination at any special meeting of shareholders held for the purpose of electing directors shall deliver a timely notice to the Secretary of the corporation setting forth (a) as to each nominee whom the shareholder proposes to nominate for election or reelection as a director, (i) the name, age, business address and residence address of the nominee, (ii) the principal occupation or employment of the nominee, (iii) the class and number of shares of capital stock of the corporation that are beneficially owned by the nominee and (iv) any other information concerning the nominee that would be required, under the rules of the Securities and Exchange Commission, in a proxy statement soliciting proxies for the election of such nominee; and (b) as to the shareholder giving the notice, (i) the name and record address of the shareholder and (ii) the class and number of shares of capital stock of the corporation that are beneficially owned by the shareholder. To be timely for these purposes, such notice must be given (a) if given by the shareholder (or any of the shareholders) who or that made a demand for a meeting pursuant to which such meeting is to be held, concurrently with the delivery of such demand, and (b) otherwise, not later than the close of business on the 10th day following the day on which the notice of the special meeting was mailed. Such notice shall include a signed consent to serve as a director of the corporation, if elected, of each such nominee. The corporation may require any proposed nominee to furnish such other information as may reasonably be required by the corporation to determine the eligibility of such proposed nominee to serve as a director of the corporation. ARTICLE II BOARD OF DIRECTORS Section 1. GENERAL POWERS. The business and affairs of the corporation shall be managed by its board of directors. Section 2. NUMBER, TENURE AND QUALIFICATIONS. The directors of the corporation shall be divided into three classes of directors designated Class I, Class II and Class III. Effective as of the July 6, 1999 Special Board meeting, the number of directors of the corporation shall be eleven, consisting of four Class I directors, four Class II directors, and three Class III directors. At each annual meeting of shareholders following such initial classification and election, directors elected to succeed those directors whose terms expire shall be elected to serve three-year terms and until their successors are elected and qualified, so that the term of one class of directors will 5 expire each year. When the number of directors is changed by amendment of this Section 2, any newly created directorships, or any decrease in directorships, shall be so apportioned among the classes so as to make all classes as nearly equal as possible, provided that no decrease in the number of directors constituting the Board of Directors shall shorten the term of any incumbent director. Directors need not be residents of the State of Oregon or shareholders of the corporation. Section 3. ANNUAL AND REGULAR MEETINGS. The annual meeting of the board of directors may be held before or after the annual meeting of shareholders, on the day and at the time and place designated by the Chairman of the Board. The board of directors may provide by resolution, the time and place, either within or without the State of Oregon, for the holding of regular meetings without notice other than such resolution. Section 4. SPECIAL MEETINGS. Special meetings of the board of directors may be called by or at the request of the Chairman of the Board or any two directors. The person or persons authorized to call special meetings of the board of directors may fix any place, either within or without the State of Oregon, as the place for holding any special meeting of the board of directors called by them. Section 5. NOTICE. Notice of the date, time and place of any special meeting of the board of directors shall be given at least three days prior to the meeting by notice communicated in person, by telephone, telegraph, teletype, other form of wire or wireless communication, mail or private carrier. If written, notice shall be effective at the earliest of (a) when received, (b) five days after its deposit in the United States mail, as evidenced by the postmark, if mailed postpaid and correctly addressed, or (c) on the date shown on the return receipt, if sent by registered or certified mail, return receipt requested and the receipt is signed by or on behalf of the addressee. Notice by all other means shall be deemed effective when received by or on behalf of the director. Notice of any regular or special meeting need not describe the purposes of the meeting unless required by law or the Restated Articles of Incorporation. Section 6. QUORUM. A majority of the number of directors fixed by Section 2 of this Article II shall constitute a quorum for the transaction of business at any meeting of the board of directors, but if less than such majority is present at a meeting, a majority of the directors present may adjourn the meeting from time to time without further notice. Section 7. MANNER OF ACTING. The act of the majority of the directors present at a meeting at which a quorum is present shall be the act of the board of directors, unless a greater number is required by law or these bylaws. Section 8. VACANCIES. Any vacancy on the board of directors, including a vacancy resulting from an increase in the number of directors, may be filled by the 6 shareholders, the board of directors, the remaining directors if less than a quorum (by the vote of a majority thereof) or by a sole remaining director. Any vacancy not filled by the directors shall be filled by election at an annual meeting or at a special meeting of shareholders called for that purpose. A vacancy that will occur at a specified later date, by reason of a resignation or otherwise, may be filled before the vacancy occurs, but the new director may not take office until the vacancy occurs. Section 9. COMPENSATION. By resolution of the board of directors, the directors may be paid their expenses, if any, of attendance at each meeting of the board of directors, and may be paid a fixed sum for attendance at each meeting of the board of directors or a stated salary as director. No such payment shall preclude any director from serving the corporation in any other capacity and receiving compensation therefor. Section 10. PRESUMPTION OF ASSENT. A director of the corporation who is present at a meeting of the board of directors at which action on any corporate matter is taken shall be presumed to have assented to the action taken unless his dissent shall be entered in the minutes of the meeting or unless he shall file his written dissent to such action with the person acting as the secretary of the meeting before the adjournment thereof or shall forward such dissent by registered mail to the secretary of the corporation immediately after the adjournment of the meeting. Such right to dissent shall not apply to a director who voted in favor of such action. It shall be the duty of the person acting as secretary of the meeting to record in the minutes any negative votes, abstentions or dissents if requested to do so by the director so voting, abstaining or dissenting. Section 11. INFORMAL ACTION BY DIRECTORS. Any action required to be taken at a meeting of directors, or any action which may be taken at a meeting of directors, may be taken without a meeting if a consent in writing setting forth the action so taken shall be signed by all the directors entitled to vote with respect to the subject matter thereof. Such consent shall have the same effect as a unanimous vote of the directors. Section 12. REMOVAL. The shareholders may remove one or more directors with or without cause at a meeting called expressly for that purpose, unless the Restated Articles of Incorporation provide for removal for cause only. Section 13. TRANSACTIONS WITH DIRECTORS. Any contract or other transaction between the corporation and one or more of its directors, or between the corporation and another party in which one or more of its directors are interested shall be valid notwithstanding the presence or participation of such director or directors in a meeting of the board of directors which acts upon or in reference to such contract or transaction, if the fact of such interest shall be disclosed or known to the board of directors and it shall authorize and approve such contract or transaction by a vote of a majority of the directors present. Such interested director or directors may be 7 counted in determining whether a quorum is present at any such meeting, but shall not be counted in calculating the majority necessary to carry such vote. This section shall not invalidate any contract or other transaction which would otherwise be valid under applicable law. Section 14. MEETING BY TELEPHONE CONFERENCE CALL. A meeting of the board of directors may be held by means of conference telephone or similar communications equipment through which all persons participating in the meeting can hear each other. Participation in a meeting pursuant to this section shall constitute presence in person at the meeting. Notice (including waiver of notice) and quorum requirements as specified in Sections 5 and 6 of this Article shall apply to meetings pursuant to this section. A record shall be kept of the action taken for insertion into the minute book. ARTICLE III COMMITTEES Section 1. DESIGNATION. The board of directors, by resolution adopted by a majority of the number of directors fixed by Section 2 of Article II of these bylaws, may designate from among its members an executive committee and one or more other committees. The designation of a committee, and the delegation of authority to it, shall not operate to relieve the board of directors, or any member thereof, of any responsibility imposed upon it or him by law. No member of any committee shall continue to be a member thereof after he ceases to be a director of the corporation. The board of directors shall have the power at any time, by resolution adopted by a majority of the number of directors fixed by Section 2 of Article II of these bylaws, to increase or decrease the number of members of any committee, to fill vacancies thereon, to change any member thereof, and to change the functions or terminate the existence thereof. Section 2. POWERS. During the interval between meetings of the board of directors, and subject to such limitations as may be imposed by resolution of the board of directors, the executive committee shall have and may exercise all the authority of the board of directors in the management of the corporation. Any other committee shall have such authority of the board of directors as the board shall delegate by resolution adopted by a majority of the number of directors fixed by Section 2 of Article II of these bylaws. Notwithstanding the foregoing, neither the executive committee nor any other committee shall have the authority of the board of directors in reference to amending the articles of incorporation; adopting a plan of merger or consolidation; recommending to the shareholders the sale, lease, exchange, mortgage, pledge or other disposition of all or substantially all the property and assets of the corporation otherwise than in the usual and regular course of its business; recommending to the shareholders a voluntary dissolution of the corporation or 8 revocation thereof; or amending the bylaws of the corporation. Reports on actions taken by a committee shall be submitted to the next succeeding meeting of the board of directors. Section 3. PROCEDURE; MEETINGS; QUORUM. Each committee shall appoint a chairman from among its members and a secretary who may, but need not, be a member of the committee or of the board of directors. The chairman shall preside at all committee meetings and the secretary shall keep a record of its proceedings. Regular meetings of a committee, of which no notice shall be necessary, shall be held on such days and at such places as shall be fixed by resolution adopted by a majority of the committee. Special meetings of a committee shall be called at the request of any member of the committee, and shall be held upon notice by letter or telegram mailed or delivered for transmission not later than during the second day preceding the day of the meeting, or by word of mouth or telephone received not later than the day immediately preceding the day of the meeting. Any notice required by this section may be waived in writing signed by the member or members entitled to the notice, whether before, or after the meeting time stated therein. Attendance of any member of a committee at a special meeting shall constitute a waiver of notice of such meeting. A majority of the committee, from time to time, shall be necessary to constitute a quorum for the transaction of business, and the act of a majority of the members present at a meeting at which a quorum is present shall be the act of the committee. The board of directors may vote to the members of any committee a reasonable fee as compensation for attendance at meetings of such committee. Section 4. MEETING BY TELEPHONE CONFERENCE CALL. A meeting of a committee may be held by means of conference telephone or similar telephone communications equipment through which all persons participating in the meeting can hear each other. Participation in the meeting pursuant to this section shall constitute presence in person at the meeting. Notice (including waiver of notice) and quorum requirements as specified in Section 3 of this Article shall apply to meetings pursuant to this section. A record shall be kept of action taken for insertion into the minute book. Section 5. INFORMAL ACTION BY COMMITTEE. Any action which may be taken at a meeting of a committee may be taken without a meeting if a consent in writing setting forth the actions so taken shall be signed by all members of the committee entitled to vote with respect to the subject matter thereof. The action shall be effective on the date when the last signature is placed on the consent or at such earlier time as is set forth therein. The consent shall have the same effect as a unanimous vote of the committee. 9 ARTICLE IV OFFICERS Section 1. NUMBER. The officers of the corporation shall be a Chairman of the Board of Directors (the "Chairman of the Board"); a President; a Secretary; and such other officers and assistant officers as may be elected or appointed from time to time by the board of directors. The officers of the corporation shall have such powers and duties as may be prescribed by the board of directors. Any two or more offices may be held by the same person. Section 2. ELECTION AND TERM OF OFFICE. The officers of the corporation shall be elected annually by the board of directors at the first meeting of the board of directors held after the annual meeting of the shareholders. If the election of officers shall not be held at the meeting, it shall be held as soon thereafter as is convenient. Each officer shall hold office until a successor shall have been duly elected and shall have qualified or until the officer's death, resignation or removal in the manner hereinafter provided. Section 3. REMOVAL. Any officer or agent elected or appointed by the board of directors may be removed by the board of directors at any time with or without cause. Election or appointment of an officer or agent shall not of itself create contract rights. Section 4. VACANCIES. A vacancy in any office because of death, resignation, removal, disqualification or otherwise, may be filled by the board of directors for the unexpired portion of the term. Section 5. CHAIRMAN OF THE BOARD. The Chairman of the Board of Directors shall be the chief executive officer of the corporation and, subject to the control of the board of directors, shall in general supervise and control all of the business and affairs of the corporation. The Chairman of the Board may execute in behalf of the corporation all contracts, agreements, stock certificates and other instruments. The Chairman of the Board shall from time to time report to the board of directors all matters within the Chairman's knowledge affecting the corporation which should be brought to the attention of the board. The Chairman of the Board, or such other individuals as may be designated by the Board of Directors from time to time, shall vote all shares of stock in other corporations owned by the corporation, and shall be empowered to execute proxies, waivers of notice, consents and other instruments in the name of the corporation with respect to such stock. He shall preside at all meetings of the board of directors and shareholders. The Chairman of the Board shall perform such other duties as may be prescribed from time to time by the board of directors. 10 Section 6. PRESIDENT. The President shall be the chief operating officer of the corporation and shall supervise the operations of the corporation, subject to the direction of the board of directors and the Chairman of the Board. The President shall perform such other duties as may be prescribed from time to time by the board of directors or the Chairman of the Board. Section 7. SECRETARY. The Secretary shall keep the minutes of all meetings of the directors and shareholders, and shall have custody of the minute books and other records pertaining to the corporate business. The Secretary shall countersign all stock certificates and other instruments requiring the seal of the corporation and shall perform such other duties as may be prescribed from time to time by the board of directors. Section 8. SALARIES. The salaries of the officers shall be fixed from time to time by the board of directors and no officer shall be prevented from receiving such salary because the officer is also a director of the corporation. ARTICLE IV-A NON-CORPORATE OFFICERS A. The Chairman of the Board of the corporation shall have the power, in the exercise of his or her discretion, to appoint persons to hold positions and titles such as vice president, treasurer, assistant vice president, assistant secretary, president of a division, or similar titles as the business of the corporation may require, subject to such limits in appointment power as the board of directors may determine. Each such appointee shall have such title, shall serve in such capacity, and shall have such authority and perform such duties as the Chairman of the Board of the corporation shall determine; provided that no such appointee shall have executive powers, be in charge of a principal business unit, division or function or perform similar policy making functions. The board of directors shall be advised of any such appointment at a meeting of the board of directors, and the appointment shall be noted in the minutes of the meeting. The minutes shall state that such persons are non-corporate officers appointed pursuant to this Article IV-A of these bylaws. B. Any such appointee, absent specific election by the board of directors as an elected corporate officer (i) shall not be considered an officer elected by the board of directors pursuant to Article IV of these bylaws, (ii) shall not be considered an 'officer' of the corporation for the purposes of Rule 3b-2 promulgated under the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder (collectively, the "Act"), or an 'executive officer' of the corporation for the purposes of Rule 3b-7 promulgated under the Act, and similarly shall not be considered an 'officer' of the corporation for the purposes of Section 16 of the Act, or an 'executive officer' of the corporation for the purposes of Section 14 of the Act, and 11 (iii) shall be empowered to represent himself or herself to third parties as an appointed vice president, etc., only, and shall be empowered to execute documents, bind the corporation, or otherwise act on behalf of the corporation only as authorized by the Chairman of the Board or the President of the corporation or by resolution of the board of directors. An elected corporate officer of the corporation may also be appointed to a position pursuant to this Article IV-A. C. A person appointed to a position pursuant to this Article IV-A may be removed at any time by the Chairman of the Board or by the board of directors of the corporation. ARTICLE V INDEMNITY OF DIRECTORS AND OFFICERS A. The corporation shall indemnify to the fullest extent then permitted by law any person who is made, or threatened to be made, a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative, investigative or otherwise (including an action, suit or proceeding by or in the right of the corporation) by reason of the fact that the person is or was a director or officer of the corporation or is or was serving at the request of the corporation as a director or officer of another corporation, partnership, joint venture, trust or other enterprise against all expenses (including attorneys' fees), judgments, amounts paid in settlement and fines actually and reasonably incurred in connection therewith. B. Expenses incurred in connection with an action, suit or proceeding may be paid or reimbursed by the corporation in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of the director or officer to repay such amounts if it shall ultimately be determined that such person is not entitled to be indemnified by the corporation. C. The indemnification provided hereby shall not be deemed exclusive of any other rights to which those indemnified may be entitled under the Restated Articles of Incorporation, any statute, agreement, or vote of shareholders or directors or otherwise, both as to action in any official capacity and as to action in another capacity while holding an office, and shall continue as to a person who has ceased to be a director or officer and shall inure to the benefit of the heirs, executors and administrators of such person. D. The corporation shall have power to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the corporation, or fiduciary with respect to any employee benefit plans of the corporation or is or was serving at the request of the corporation as a director, officer, employee or 12 agent, or as a fiduciary of an employee benefit plan, of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against and incurred by the person in any such capacity, or arising out of the person's status as such, whether or not the corporation would have the power to indemnify the person against such liability under the provisions of the Restated Articles of Incorporation or the Oregon Business Corporation Act. E. Any person other than a director or officer who is or was an employee or agent of the corporation, or fiduciary within the meaning of the Employee Retirement Income Security Act of 1974 with respect to any employee benefit plans of the corporation, or is or was serving at the request of the corporation as an employee or agent of another corporation, partnership, joint venture, trust or other enterprise may be indemnified to such extent as the board of directors in its discretion at any time or from time to time may authorize. ARTICLE VI CONTRACTS, LOANS, CHECKS AND DEPOSITS Section 1. CONTRACTS. The board of directors may authorize any officer or officers, agent or agents, to enter into any contract or execute and deliver any instrument in the name of and on behalf of the corporation, and such authority may be general or confined to specific instances. Section 2. LOANS. No loans shall be contracted on behalf of the corporation and no evidence of indebtedness shall be issued in its name unless authorized by a resolution of the board of directors. Such authority may be general or confined to specific instances. Section 3. CHECKS, DRAFT, ETC. All checks, drafts or other orders for the payment of money, notes or other evidences of indebtedness issued in the name of the corporation, shall be signed by such officer or officers, agent or agents of the corporation and in such manner as shall from time to time be determined by or pursuant to resolution of the board of directors. Section 4. DEPOSITS. All funds of the corporation not otherwise employed shall be deposited from time to time to the credit of the corporation in such banks, trust companies or other depositories as the board of directors may select. 13 ARTICLE VII CERTIFICATES FOR SHARES AND THEIR TRANSFER Section 1. CERTIFICATES FOR SHARES. Certificates representing shares of the corporation shall be in such form as shall be determined by the board of directors. Such certificates shall be signed by the Chairman of the Board or a Vice President and by the Secretary or an Assistant Secretary and may be sealed with the seal of the corporation or a facsimile thereof. All certificates for shares shall be consecutively numbered or otherwise identified. The name and address of the person to whom the shares represented thereby are issued, with the number of shares and date of issue, shall be entered on the share transfer records of the corporation. All certificates surrendered to the corporation for transfer shall be cancelled and no new certificate shall be issued until the former certificate for a like number of shares shall have been surrendered and cancelled, except that in case of a lost, destroyed or mutilated certificate a new one may be issued therefore upon such terms and indemnity to the corporation as the board of directors may prescribe. Section 2. TRANSFER OF SHARES. Transfer of shares of the corporation shall be made only on the share transfer records of the corporation by the holder of record thereof or by his legal representative, who shall furnish proper evidence of authority to transfer, or by his attorney thereunto authorized by power of attorney duly executed and filed with the secretary of the corporation. The person in whose name shares stand on the books of the corporation shall be deemed by the corporation to be the owner thereof for all purposes. Section 3. TRANSFER AGENT AND REGISTRAR. The board of directors may from time to time appoint one or more transfer agents and one or more registrars for the shares of the corporation, with such powers and duties as the board of directors shall determine by resolution. The signatures of the president or vice president and the secretary or assistant secretary upon a certificate may be facsimiles if the certificate is countersigned by a transfer agent or registered by a registrar other than the corporation itself or an employee of the corporation. Section 4. OFFICER CEASING TO ACT. In case any officer who has signed or whose facsimile signature has been placed upon a stock certificate shall have ceased to be such officer before such certificate is issued, it may be issued by the corporation with the same effect as if he were such officer at the date of its issuance. Section 5. FRACTIONAL SHARES. The corporation shall not issue certificates for fractional shares. 14 ARTICLE VIII FISCAL YEAR The fiscal year of the corporation shall end on the last Saturday in May of each year. ARTICLE IX DIVIDENDS The board of directors may from time to time declare, and the corporation may pay, dividends on its outstanding shares in the manner and upon the terms and conditions provided by law. ARTICLE X SEAL The seal of the corporation shall be in the form of a circle containing therein "TEKTRONIX, INC. CORPORATE SEAL OREGON." ARTICLE XI AMENDMENTS These bylaws may be altered, amended or repealed and new bylaws may be adopted by the board of directors at any regular or special meeting. I HEREBY CERTIFY that the foregoing are the bylaws of TEKTRONIX, INC. adopted at a meeting of the board of directors of the company held on September 9, 1963, and as amended with regard to Article IV at a meeting of the board of directors of the company held on December 22, 1966, and as amended with regard to Article IV at a meeting of the board of directors of the company held on January 30, 1969, and as amended with regard to Article II at a meeting of the board of directors of the company held on July 17, 1969, and as amended with regard to Article IV at a meeting of the board of directors of the company held on September 24, 1970, and as amended with regard to Article IV at a meeting of the board of directors of the company held on September 30, 1971, and as amended with regard to Article V at a meeting of the board of directors of the company held on September 27, 1973, and as amended with regard to Article IV at a meeting of the board of directors of the company held on September 26, 1974, and as amended with regard to Article I at a meeting of the board of directors 15 of the company held on April 28, 1977, and as amended with regard to Article I at a meeting of the board of directors of the company held on May 20, 1977, and as amended with regard to Article IV at a meeting of the board of directors of the company held on January 18, 1979, and as amended with regard to Article II at a meeting of the board of directors of the company held on February 28, 1980, and as amended with regard to Article II at a meeting of the board of directors of the company held on May 22, 1980, and as amended with regard to Articles I, II and III at a meeting of the board of directors of the company held on June 25, 1980, and as amended with regard to Article II at a meeting of the board of directors of the company held on September 9, 1980, with the amendment to be effective September 27, 1980, and as amended with regard to Article I at a meeting of the board of directors of the company held on July 23, 1981, and approved by the shareholders at a meeting held on September 26, 1981, and as amended with regard to Article VI at a meeting of the board of directors of the company held on May 3, 1983, and as amended with regard to Article II at a meeting of the board of directors of the company held on June 30, 1983, and as amended with regard to Articles III and IV at a meeting of the board of directors of the company held on March 1, 1984, and as amended with regard to Article I at a meeting of the board of directors of the company held on December 6, 1984, and as amended with regard to Article II at a meeting of the board of directors of the company held on August 13, 1985, and as amended with regard to Article II at a meeting of the board of directors of the company held on October 24, 1985, and as amended with regard to Article II at a meeting of the board of directors of the company held on July 17, 1986, and as amended with regard to Article V at a meeting of the board of directors of the company held on September 27, 1986, and as amended with regard to Article II at a meeting of the board of directors of the company held on June 23, 1988, and as amended with regard to Article II at a meeting of the board of directors of the company held on July 21, 1988, and as amended with regard to Article II at a meeting of the board of directors of the company held on July 20, 1989, and as amended with regard to Articles I, II and IV at a meeting of the board of directors of the company held on November 29, 1989, and as amended with regard to Articles II and IV at a meeting of the board of directors of the company held on April 25, 1990, and as amended with regard to Article I at a meeting of the board of directors of the company held on June 20, 1990, and as amended with regard to Article II at a meeting of the board of directors of the company held on July 19, 1990, and as amended with regard to Articles II and IV at a meeting of the board of directors of the company held on October 24, 1990, and as amended with regard to Article II at a meeting of the board of directors of the company held on March 20, 1991, and as amended with regard to Article I at a meeting of the board of directors of the company held on July 17, 1991, and as amended with regard to Articles I, II, IV, and VII at a meeting of the board of directors of the company held on September 26, 1991, and as amended with regard to Article II at a meeting of the board of directors of the company held on January 29, 1992, and as amended with regard to Article II by action of the board of directors of the company without a meeting, effective July 10, 1992, and as amended with regard to Article IV at a meeting of the board of directors of the company held on September 23, 1992, and as amended with 16 regard to Article II by action of the board of directors of the company without a meeting, effective September 24, 1992, and as amended with regard to Article I at a meeting of the board of directors of the company held on October 18, 1992, and as amended with regard to Article II at a meeting of the board of directors of the company held on December 2, 1992, and as amended with regard to Article IV-A at a meeting of the board of directors of the company held on March 31, 1993, and as amended with regard to Articles I and II at a meeting of the board of directors of the company held on June 23, 1994, and as amended with regard to Article II at a meeting of the board of directors of the company held on December 15, 1994, and as amended with regard to Article II by action of the board of directors of the company without a meeting, effective March 1, 1995, and as amended with regard to Article I at a meeting of the board of directors of the company held on September 20, 1995, and as amended with regard to Article II at a meeting of the board of directors of the company held on January 17, 1996, and as amended with regard to Articles II and IV at a meeting of the board of directors of the company held on June 19, 1996, and as amended with regard to Article II at a meeting of the board of directors of the company held on March 19, 1997, and as amended with regard to Article II at a meeting of the board of directors of the company held on May 15, 1997, and as amended with regard to Article II at a meeting of the board of directors of the company held on June 26, 1997, and as amended with regard to Article II at a meeting of the board of directors of the company held on March 17, 1999, and as amended with regard to Article II at a meeting of the board of directors of the company held on July 6, 1999. JAMES F. DALTON ----------------------------------- Secretary 17 EX-10.XVI 3 SEVERANCE AND BONUS AGREEMENT W/TIM THORSTEINSON [Tektronix logo] INTER-OFFICE COMMUNICATION - -------------------------------------------------------------------------------- To: Tim Thorsteinson 58-760 April 9, 1999 From: Jerry Meyer Subject: Project Mayflower As you know, the Company has decided to explore strategic alternatives relating to the Profile and Grass Valley businesses (VCP). In your capacity as President of VND, I have asked you to lead this project from an operational perspective. In the event we close a transaction to sell VCP to a third party, it is likely your employment with Tektronix will be impacted. This memo describes the impact of a transaction on your employment and related compensation matters. Severance Pay. In the event you are asked to go with the new company, and you agree to do so for a minimum of six months (or some lesser time period determined by me at my discretion), you will be entitled to those benefits under the Executive Severance Agreement dated September 22, 1993, as amended ("ESA"), except that you will not be entitled to any FY00 APIP prorated payment under section 3.3. In lieu of FY00 APIP, you will be eligible for the transaction bonus described below. Your eligibility for FY99 APIP will be unaffected by this memo. The one-year base pay will be based on a salary of $330,000. You will be entitled to participate in the results program during your period of continued employment. If you are not asked to go with the new company (or you are asked to go with the new company but you elect not to do so) and you remain employed by Tektronix, you will not be entitled to any severance pay and the ESA will remain in effect according to its terms. If you are not asked to go with the new company (or you are asked to go with the new company but you elect not to do so) and are laid off by Tektronix, you will be entitled to the ESA benefits described above. Transaction Bonus. In the event we close a transaction, you will be entitled to a lump sum payment of $330,000 if the transaction is completed with no negative impact to Tektronix. This means that the transaction must be completed without any additional loss or charge to Tektronix. The transaction proceeds and reserves already taken must be sufficient to cover the net book value of the VCP assets and all related transaction and transition costs. These costs include provisions for contingent liabilities and for any costs associated with severance. We will apply generally accepted accounting principles to Page 2 make these determinations to the extent possible and I will make any judgments if necessary. If Tektronix or the new company ask you to go with the new company for a minimum of six months (or some other lesser time period or milestone-based transition agreed to by Tektronix and the new company at our discretion), and you elect not to do so, you will receive no Transaction Bonus. If you are not asked to go with the new company and remain employed with Tektronix, you will receive no Transaction Bonus. If you are not asked to go with the new company and are laid off from Tektronix within one year of the closing date, you will be entitled to 100% of the Transaction Bonus. Stock Options. If you do not remain employed by Tektronix after the close of the transaction (whether by layoff or termination of employment through transfer to the new company, but not through voluntary resignation), we will accelerate 100% of your outstanding but unvested stock options to vest on your last day of employment. No other terms of the stock option agreement will be altered, including the provision that the options will lapse if not exercised within 90 days of your termination of employment. There are no other changes to any other plan or agreement you may have in place with Tektronix, including the SERP, pension, 401(k), LTIP, change in control, or welfare benefit plans. Your rights and obligations under those plans are governed by their terms. All benefits provided for in this letter are conditioned upon your execution of the Release of Claims as provided in your ESA. If we are unable to close a transaction with a third party, and we determine to continue to operate the business within Tektronix or spin it off into an independent operation, we will address the impact on your employment separately and this memo will have no application to those alternatives. If we fail to close a transaction by October 31, 1999, all terms of this memo will terminate. I look forward to successfully consummating a transaction that will be in the best interests of our shareholders, customers, and employees. gb AGREED TIM THORSTEINSON J.J. MEYER - ----------------------------- Tim Thorsteinson Date: 4/12/99 EX-10.XVII 4 AMEND. TO NON-EMPLOYEE DIRECTORS STOCK COMP. PLAN TEKTRONIX, INC. NON-EMPLOYEE DIRECTORS STOCK COMPENSATION PLAN AMENDMENT NO. 2 (Effective June 23, 1999) Insert: 7. Election to Receive Chair and Meeting Fees in Common Shares of the Company. 7.1 Each non-employee director of the Company may elect to receive Common Shares of the Company instead of a cash payment for committee chair fees, committee meeting fees, and board meeting fees (collectively, the "Fees"). 7.2 The election shall be made by delivering a notice of election to the Company Secretary on or before December 20, and shall be effective as to all Fees earned for the next calendar year, beginning January 1 and ending December 31. Once made, an election may be terminated by notice to the Secretary on or before December 20, effective as to all fees earned for the immediately following calendar year. 7.3 As soon as reasonably practicable, but not more often than once each calendar quarter, the Administrator shall cause to be purchased Common Shares of the Company in the open market in an amount equal to the accumulated Fees since last purchase. The number of shares acquired shall be equal to the accumulated fees, less appropriate commissions and transaction fees, divided by the purchase price of the stock. The Administrator may delay purchases in accordance with paragraph 3.2 (b) above, depending on market conditions and securities law requirements. In the event that shares must be purchased in a fashion requiring multiple purchases at different prices, such purchases shall be allocated in a fashion that treats each director equally. 7.4 Purchased shares shall be in the name of and distributed to the director, except that if the director has elected to defer receipt of the stock pursuant to the Deferral Plan described in paragraph 3.2(d), the shares shall be delivered to the trustee in accordance with that plan. Re-number No. 7, Amendment or Termination: Miscellaneous, to Section 8. EX-13 5 PORTIONS OF THE 1999 ANNUAL REPORT OF SHAREHOLDERS Financial Highlights
DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS FOR THE YEARS ENDED MAY 29,1999 MAY 30,1998 MAY 31,1997 - ------------------------------------------------------------------------------------------------------- Net sales $ 1,861,490 $ 2,085,802 $ 1,940,082 Measurement 844,882 962,858 852,827 Color Printing and Imaging 725,354 728,697 638,456 Video and Networking 291,254 394,247 448,799 United States 946,036 1,077,649 1,027,294 International 915,454 1,008,153 912,788 Operating margin (3.7)% 5.5% 8.5% Return on equity (7.3)% 10.6% 15.9% Net earnings (loss) $ (51,161) $ 82,285 $ 114,785 Basic earnings (loss) per share $ (1.07) $ 1.63 $ 2.32 Diluted earnings (loss) per share (1.07) 1.60 2.29 Dividends per share 0.48 0.46 0.40
Management Review GENERAL Tektronix, Inc. (Tektronix or the Company) operates in three major business divisions: Measurement, Color Printing and Imaging, and Video and Networking, as well as in five major geographies: the United States; Europe; the Americas, including Mexico, Canada and South America; the Pacific, excluding Japan; and Japan. The Measurement division derives revenue principally through the development and marketing of seven key product groups: oscilloscopes, signal sources, probing solutions, digital systems development products, handheld communication test instruments, and video and audio test instruments. The Color Printing and Imaging division derives revenue principally through the development and marketing of color printers and supplies. The Company's color printer technologies include solid ink and color laser. The Video and Networking division derives revenue principally through the development and marketing of digital storage products, production switchers, digital picture manipulators, routing switchers, linear editing systems, on-air master control solutions and video transmission products. All three divisions also derive revenue through providing support services for products sold worldwide. In June 1999, the Company's Board of Directors unanimously approved a plan that is intended to result in the formation of two separate publicly traded companies. One company will be comprised of the current Measurement division, and the other will be comprised of the current Color Printing and Imaging division. Management believes that this plan will enable each business to pursue its optimal long-term strategy without the limitations necessarily imposed by a larger, more diverse company. The new measurement company will retain the Tektronix name and be headquartered in Beaverton, Oregon. The new color printing and imaging company, which has not yet been named, will be headquartered in Wilsonville, Oregon. Tektronix is considering an initial public offering (IPO) for approximately 15% of the new color printing and imaging company prior to the end of fiscal year 2000. Subject to the successful completion of an IPO and receipt of a favorable tax ruling from the Internal Revenue Service, the remaining shares will be distributed, on a tax-free basis, to Tektronix shareholders at some time after the offering. Although the Company expects that the separation of the businesses will have no significant impact on employment levels, execution of this plan may result in future non-recurring charges. Such amounts cannot be estimated at this time. Management also announced in June 1999 that the Company intends to sell or secure a strategic alliance for its Video and Networking division, excluding the VideoTele.com product family. The VideoTele.com product family merged into the Measurement division effective May 30, 1999. Prior to the sale or strategic alliance of Video and Networking, the division plans to consolidate many functions in order to allow for improved profitability at lower revenue levels. During the first quarter of fiscal year 2000, Video and Networking plans to take the following actions: consolidate all manufacturing and customer support activities at the Grass Valley site; move administrative functions, including sales operations, information systems, finance, and human resources, to Grass Valley; form two focused marketing teams tied to the Profile and Grass Valley product lines; and combine the U.S. sales operation into one function. RESULTS OF OPERATIONS OVERVIEW Tektronix recognized a net loss for 1999 of $51.2 million, or $1.07 per diluted share, while 1998 net earnings were $82.3 million, or $1.60 per diluted share, and 1997 net earnings were $114.8 million, or $2.29 per diluted share. The fiscal year 1999 net loss reflects pre-tax non-recurring charges of $120.5 million, including net restructuring charges of $110.6 million and net other non-recurring charges of $9.9 million for related actions. Fiscal year 1998 net earnings include pre-tax non-recurring charges of $79.0 million related to the $60.0 million restructuring of the Video and Networking division, $17.0 million of acquired in-process research and development (IPR&D) and $2.0 million of severance costs associated with the acquisition of Siemens' Communications Test Equipment GmbH (CTE). Excluding the non-recurring charges, 1999 net earnings would have been $30.8 million or $0.64 per diluted share, while 1998 net earnings would have been $135.2 million or $2.63 per diluted share. Results of operations, excluding non-recurring charges and as reported, for the fiscal year ended May 29, 1999 were as follows:
EXCLUDING NON- NON-RECURRING RESULTS AS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS RECURRING CHARGES CHARGES REPORTED - ------------------------------------------------------------------------------------------------------------------ Net sales $ 1,866,610 $ (5,120) $ 1,861,490 Cost of sales 1,125,485 25,767 1,151,252 ----------- ----------- ----------- Gross profit (loss) 741,125 (30,887) 710,238 Research and development expenses 200,636 4,019 204,655 Selling, general and administrative expenses 479,911 803 480,714 Equity in business ventures' loss 9,230 - 9,230 Non-recurring charges - 84,780 84,780 ----------- ----------- ----------- Operating income (loss) 51,348 (120,489) (69,141) Interest expense 15,712 - 15,712 Other income - net 9,616 - 9,616 ----------- ----------- ----------- Earnings (loss) before taxes 45,252 (120,489) (75,237) Income tax expense (benefit) 14,481 (38,557) (24,076) ----------- ----------- ----------- Net earnings (loss) $ 30,771 $ (81,932) $ (51,161) =========== =========== =========== Basic earnings (loss) per share $ 0.65 $ (1.72) $ (1.07) Diluted earnings (loss) per share 0.64 (1.71) (1.07) Average shares outstanding - basic 47,700 47,700 47,700 Average shares outstanding - diluted 48,032 48,032 47,700
19 NON-RECURRING CHARGES In the second quarter of fiscal year 1999, the Company announced and began to implement a series of actions intended to align worldwide operations with current market conditions and to improve the profitability of its operations. The Company expects that, when fully implemented, these actions will reduce ongoing annual costs by approximately $70.0 million. The actions include a net reduction of approximately 15% of the Company's worldwide workforce, the exit from certain facilities and the streamlining of product and service offerings. Management expects that the majority of the actions will be completed by the end of the second quarter of fiscal year 2000 and expects to require $52.6 million in cash to be used in connection with actions not yet completed, primarily for severance and lease cancellations. Major actions can be summarized by each of the three business divisions. Measurement's service business is being consolidated from several depots in the United States and Europe into two depots in each of these geographies. This consolidation will result in headcount reduction and the write-down and disposal of redundant inventory. These actions are in process and will be completed in the first quarter of fiscal year 2000. Measurement closed the Bend, Oregon, manufacturing facility during the third quarter of 1999 and consolidated that process into its Beaverton, Oregon, facilities. This action resulted in headcount reduction and lease settlements. Measurement reduced headcount throughout the division, primarily in manufacturing, and will continue to reduce headcount through the first quarter of fiscal year 2000. During the year, Color Printing and Imaging discontinued three product lines - wide format, dye sublimation and B-size solid ink. This action resulted and will continue to result in write-offs of disposed inventory through the first quarter of fiscal year 2000. Color Printing and Imaging also reduced headcount throughout the division, primarily in manufacturing during the third and fourth quarters of 1999. During 1999, Video and Networking discontinued development, manufacturing, and sales of non-linear digital editing products sold under the Lightworks name. This decision resulted in headcount reduction, write-offs of disposed inventory, incremental sales returns and bad debts, and costs to fulfill commitments to deliver software enhancements on previously sold product. Additional write-offs of disposed inventory will be completed by the end of the first quarter of fiscal year 2000. Outside of the divisions, selective involuntary terminations have occurred and will occur throughout corporate functions and in the Company's foreign subsidiaries through the second quarter of fiscal year 2000. The Company recorded pre-tax non-recurring charges of $125.7 million to account for these actions, including restructuring charges of $115.8 million and other non-recurring charges of $9.9 million for related actions. The non-recurring charges include a $5.1 million charge to sales for expected returns of discontinued products and $27.1 million in charges to cost of sales for the write-off of excess inventory resulting from discontinued product lines and consolidation of service centers worldwide. Combined, these two charges resulted in a decrease in gross profit of $32.2 million. Also included in the non-recurring charges are $4.0 million in research and development expense to complete customer committed software upgrades in discontinued product lines, $0.8 million in charges to bad debt expense for doubtful accounts with balances related to discontinued products, $56.9 million in severance expense related to employee separation, $14.8 million in charges to facilities for lease cancellation fees and $17.0 million in charges to long-term assets associated with discontinued product lines. The $9.9 million of other non-recurring charges for actions related to the restructuring consist of the charge to sales, the charge to research and development, and the charges to bad debt expense, while the remaining charges comprise the $115.8 million in restructuring charges. In the second quarter of fiscal year 1998, the Company announced and began to implement a restructuring plan designed to return the Video and Networking division to profitable growth and recorded a pre-tax reserve of $60.0 million to account for these actions. The plan provided for headcount reduction and the discontinuation of certain products within the Lightworks and Grass Valley product lines, as well as the discontinuation of the Network Displays business. During 1999, it was determined that $4.1 million of this reserve would not be needed, and as such, the amount was reversed to the locations of the original charges in the Consolidated Statement of Operations. The original plan anticipated closing the Network Displays business and provided reserves for employee severance and inventory disposals. During the third quarter of 1999, the Network Displays business was sold, resulting in less severance and inventory disposals than originally planned. The $4.1 million includes $4.3 million and $1.3 million in excess reserves for severance and inventory write-offs, respectively, that were reversed, net of additional reserves recorded of $0.7 million for lease cancellation fees and $0.8 million for miscellaneous payables. As of May 29, 1999, the implementation of this plan was substantially complete. Also in the second quarter of fiscal year 1998, the Company expensed $17.0 million for the acquisition of IPR&D and $2.0 million in severance costs associated with the acquisition of CTE. During the third quarter of 1999, it was determined that $1.1 million of this $2.0 million severance reserve for CTE would not be needed, as originally anticipated, because certain employees who were to be terminated left the Company voluntarily, without receiving severance benefits. Accordingly, such amount was reversed to non-recurring charges. NET SALES AND ORDERS Net sales for 1999 were $1.862 billion, an 11% decrease from sales of $2.086 billion in 1998. Sales were down in all geographies except Europe, which posted modest increases over 1998. The United States and Japan experienced the largest declines, down 12% or $131.6 million and 37% or $50.4 million, respectively. The decline in sales to the United States can be attributed mainly to lower Measurement and Video and Networking sales. Sales to Japan decreased across all business divisions, primarily due to the effects of the Asian economic crisis. Net sales for 1998 were 8% higher than sales of $1.940 billion for 1997. Sales for 1998 were up over 1997 in all geographies, with the United States and Europe experiencing the largest increases, up 5% or $50.4 million and 9% or $43.5 million, respectively. 20 The following table summarizes the Company's net sales for the last three years by its three business divisions:
IN THOUSANDS 1999 1998 1997 - --------------------------------------------------------------------------------- Measurement $ 844,882 $ 962,858 $ 852,827 Color Printing and Imaging 725,354 728,697 638,456 Video and Networking 291,254 394,247 448,799
Measurement sales for 1999 were $844.9 million, down 12% or $118.0 million from sales for 1998. The decline was realized across all geographies, except Europe, which posted modest increases over 1998. The largest decline was realized in sales to the United States, down 17% or $81.8 million, with an additional decline in Japan, down 34% or $31.0 million. With respect to products, most of the sales decline was in wireless communication test equipment and general-purpose equipment such as oscilloscopes and logic analyzers. These declines reflect the effects of the Asian economic crisis, including its effects on other regions of the world, and softness in the semiconductor industry throughout the first half of the year. Measurement sales for 1998 were 13% higher than for 1997, driven by sales of logic analyzers and telecommunications test products, including those from CTE. Although Measurement sales were down each quarter of 1999 from sales for corresponding quarters of 1998, the business finished the year with a strong fourth quarter. Sales of $230.6 million for the fourth quarter of 1999 were 12% to 14% higher than sales realized in each of the first three quarters of the year, with significant growth in the Pacific as this region shows signs of recovery. This level of sequential growth did not occur at the end of 1998. Fourth quarter sales for 1998 were $247.3 million, up 0% to 9% over sales for each of the first three quarters of the year. Color Printing and Imaging sales were $725.4 million for 1999, down slightly from sales of $728.7 million for 1998. Sales to Europe increased 8% or $17.8 million, year over year, while sales to all other regions declined. First and second quarter sales were flat or declined from sales for respective quarters in 1998, due mainly to cautionary capital spending and significantly lower average selling prices. Sales for the third and fourth quarters of 1999, however, were up 8% and 5%, respectively, over sales for corresponding periods in 1998. This late-year growth was caused by an increase in unit sales of 59% and 50% for the third and fourth quarters, respectively, over unit sales for corresponding periods in 1998. This unit growth was generated by positive market response to printer products introduced during the second quarter of 1999. Sales did not increase proportionate to unit growth due to a significant decrease in the average selling price of its printers. Sales for 1998 increased 14% over 1997, due to positive market response to three new printers introduced during the year and increased sales of printing supplies. Video and Networking sales were $291.3 million in 1999, down 26% or $103.0 million from sales for 1998. The decline in sales was realized across all geographies and nearly all product lines as a result of the Company's divestiture of the Network Displays business, discounting actions taken in response to intense competition and market softness in the broadcast industry. Divestiture of the Network Displays business accounted for approximately 44% or $44.8 million of the sales decline. Although Video and Networking sales were down each quarter of 1999 from those for corresponding quarters of 1998, this division also finished the year with a strong fourth quarter showing sequential growth of a magnitude greater than in 1998. Sales of $96.0 million for the fourth quarter of 1999 were 37% to 68% higher than those realized in each of the first three quarters of the year, compared to fourth quarter sales of $106.9 million in 1998, up 9% to 14% over sales for each of the first three quarters of the respective year. In 1998, sales decreased 12% from sales for 1997 to $394.2 million due to a reduction in product offerings as well as general weakness in the broadcast market. Orders for 1999 were $1.760 billion, a decrease of 8% from orders of $1.912 billion for 1998. The United States and Japan experienced the largest declines, down 9% or $89.9 million and 35% or $40.7 million, respectively. Measurement experienced the largest declines in orders from these regions. Overall orders in 1997 were $1.829 billion. Measurement orders for 1999 were $786.6 million, down 9% or $74.3 million from orders of $860.9 million for 1998. The decline was realized across all geographies except Europe, which posted an order increase of 9% or $17.0 million for the year. The most significant order declines were realized in the United States and Japan. Measurement experienced year over year order declines of 12% or $50.7 million and 33% or $26.6 million, respectively, from these regions. Orders for 1997 were $795.2 million. Color Printing and Imaging orders for 1999 were $708.8 million, up 3% from orders of $687.3 million for 1998. Orders from Japan declined 30% or $5.5 million, while orders from all other regions increased. Orders for 1997 were $607.5 million. Video and Networking orders for 1999 were down 27% or $99.0 million to $264.9 million from $363.9 million in 1998. The decline in orders was realized across all geographies and nearly all product lines as a result of the Company's divestiture of the Network Displays business, discounting actions taken in response to intense competition and market softness in the broadcast industry. Orders in 1997 were $426.4 million. OPERATING COSTS AND EXPENSES The Company's gross profit decreased 18% or $155.1 million from 1998 to $710.2 million as a result of declining sales and lower margins. As a percentage of net sales, gross profit decreased from 41.5% to 38.2%. Excluding non-recurring charges, gross profit decreased 18% or $162.7 million, and gross profit as a percentage of sales decreased from 43.3% to 39.7%. Measurement gross margin remained consistent with the prior year, while Color Printing and Imaging and Video and Networking margins declined. Color Printing and Imaging gross margin decreased mainly due to significantly lower sales prices on printer products and higher costs of components purchased from Japanese vendors. Video and Networking gross margin decreased due to discounting actions taken in response to intense competition, as well as the impact of certain fixed costs of sales on lower sales volume. As a percentage of net sales, gross profit decreased in 1998 from 42.9% in 1997, due mainly to non-recurring charges. 21 Operating expenses were $779.4 million, up 4% or $29.4 million from $750.0 million in 1998, due mainly to an increase in non-recurring charges and loss on investments accounted for under the equity method, partly offset by a decrease in selling, general and administrative expenses. Non-recurring charges were $44.3 million greater than those incurred in 1998, while loss on investments accounted for under the equity method increased $11.7 million. Selling, general and administrative expenses were $480.7 million, a decrease of 6% or $28.0 million from 1998 as a result of restructuring and other cost-cutting actions taken by the Company. Selling, general and administrative expenses were $481.1 million in 1997. Despite lower sales in 1999, the Company continued to invest in engineering activities. Research and development expenses were $204.7 million, or 11.0% of net sales, in 1999 and $203.3 million and $188.2 million in 1998 and 1997, respectively, or 9.7% of net sales in both years. Management expects that, when fully implemented, restructuring actions will reduce ongoing annual operating costs by approximately $70.0 million. Interest expense increased 56% to $15.7 million due to an increase in short-term debt balances in 1999. Interest expense was $10.1 million in 1998, 17% less than $12.1 million in 1997. Other income was $9.6 million in 1999, compared with $17.6 million in 1998 and $15.9 million in 1997. The current year decline primarily reflected $20.5 million less in gains realized on the sale of equity securities in other companies, offset in part by $14.6 million more in gains on the sale of fixed assets. The Company continues to hold insignificant equity positions that it intends to liquidate over time. Income taxes decreased significantly from expense of $40.5 million in 1998 to benefit of $24.1 million in 1999 as a result of the current year loss before taxes. The Company's effective tax rate for 1999 was 32%, compared to 33% in 1998 and 32% in 1997. FINANCIAL CONDITION LIQUIDITY AND CAPITAL RESOURCES Cash flows from operating activities and borrowing capacity are expected to be sufficient to fund operations and capital expenditures through May 2001. The Company expects that cash payments required to carry out the remaining restructuring activities will be approximately $52.6 million. If the Company is successful in selling the Video and Networking division, any proceeds may be used to pay down outstanding debt or for other corporate purposes. At May 29, 1999, the Company maintained bank credit facilities totaling $310.0 million, of which $187.7 million was unused. Unused facilities include $151.2 million in lines of credit and $36.5 million under a revolving credit agreement from United States and foreign banks. Additional details, including maturity dates of agreements, are included under "Short-term and Long-term Debt" in the Notes to Consolidated Financial Statements. BALANCE SHEET The Company realized a decrease in working capital of 44% or $176.3 million from the end of 1998. Current assets decreased $41.4 million during the year, with cash and cash equivalents decreasing $80.8 million, accounts receivable decreasing $33.1 million, inventory increasing $46.6 million, and other current assets increasing $25.8 million. The decrease in cash and cash equivalents, combined with the increase in short-term debt of $110.3 million, total approximately $191.1 million of net cash consumed year to date. Cash requirements included the repurchase of approximately 3.6 million common shares for $85.5 million, capital expenditures of $107.5 million, dividends of $22.9 million, severance of $20.8 million, and other operating, investing and financing requirements. Accounts receivable decreased since the end of 1998 due to a general decrease in sales during the period. Average days sales outstanding for the year improved from 51.1 days in 1998 to 47.3 days in 1999. Inventory increased mainly as a result of significant purchases made in order to take advantage of vendor discounts and the ramp-up of components and finished goods related to new printer products introduced during the year. Other current assets increased primarily from an increase in net current tax benefits due to timing differences on taxes related to restructuring actions, payment of taxes on 1998 net earnings, and the tax benefit related to the net loss realized for the fiscal year. Current liabilities increased $134.8 million during 1999, with an increase in short-term debt of $110.3 million, an increase in accounts payable of $29.5 million, and an increase in deferred revenue of $4.9 million, offset in part by a decrease in accrued compensation of $9.8 million. Accounts payable increased as a result of increased inventory levels, current liabilities associated with non-recurring charges and the Company's ability to negotiate more favorable payment terms with a major supplier. Deferred revenue increased due to an increase in service agreements associated with sales. Accrued compensation decreased due to lower headcount and lower accruals for incentives, offset in part by the restructuring reserve for severance. Other long-term assets decreased $36.9 million from the sale of investments, a slight decline in the market values of remaining investments held for sale, and the recognition of losses on investments accounted for under the equity method. Shareholders' equity decreased by $163.4 million from the end of 1998, due to the net loss of $51.2 million, dividends of $22.9 million, a net decrease of $80.3 million in common stock, a $9.3 million decrease in unrealized holding gains and a $0.3 million increase in the accumulated currency translation adjustment. Common stock decreased due to the repurchase of common shares offset by shares issued to employees through stock options and stock awards. The decrease in unrealized holding gains resulted principally from the sale of marketable equity securities. FINANCIAL MARKET RISK MANAGEMENT The Company is exposed to financial market risks, including interest rate, equity price, and foreign currency exchange rate risks. Tektronix is exposed to interest rate risk primarily through its use of short-term and long-term borrowings to finance operations. A hypothetical 1% fluctuation in interest rates would not have a material adverse effect on the Company's financial position, results of operations or cash flows. The Company is exposed to equity price risk primarily through its mar- 22 ketable equity securities portfolio. A hypothetical 20% decline in equity prices of such securities would not have a material adverse effect on the Company's financial position, results of operations or cash flows. The Company has not entered into any hedging programs to mitigate interest rate or equity price risks. The Company is exposed to foreign currency exchange rate risk primarily through transactions and commitments denominated in foreign currencies. The Color Printing and Imaging division, in particular, is a party to a high volume of Japanese Yen-denominated purchases. The Company utilizes natural hedges as well as derivative financial instruments, primarily forward foreign currency exchange contracts, to mitigate this risk. The Company's policy is to only enter into derivative transactions when the Company has an identifiable exposure to risk, thus not creating additional foreign currency exchange rate risk. A hypothetical 20% adverse change in foreign currency exchange rates would not have a significant effect on the Company's financial position, results of operations or cash flows. FUTURE ACCOUNTING CHANGES In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging Activities." The new statement will require recognition of all derivatives as either assets or liabilities on the balance sheet at fair value. The new statement is effective for fiscal year 2002, but early adoption is permitted. Management has not yet completed an evaluation of the effect this standard will have on the Company's consolidated financial statements. YEAR 2000 UPDATE Tektronix, Inc.'s Year 2000 Program (Program) is proceeding as planned. The Program is addressing the issue of computer programs and embedded computer chips being unable to distinguish between the year 1900 and the year 2000. To improve access to business information through common, integrated computing systems across the Company, Tektronix began a worldwide business systems replacement program with an enterprise system that uses programs primarily from Oracle Corporation. This new enterprise system makes substantially all of the Company's business computer systems year 2000 ready, and is now fully installed. Other information technology projects have not been delayed due to the implementation of the Year 2000 Program. Program Tektronix' Program is divided into three major sections: (1) infrastructure (information, logistics and other technology used in the Company's business, including hardware and software, which is sometimes referred to as IT); (2) products (hardware and software products delivered to customers); and (3) external suppliers and providers (vendors, manufacturers and suppliers to the Company). The general phases common to all sections are: (1) identification and prioritization of various systems through an extensive inventory of all items used throughout the Company including customer products and services and material third party manufacturers, suppliers and vendors; (2) remediation of material systems through replacement or updates; (3) testing, including the sending, receiving and processing of various information types to ensure ongoing functionality, integrity and accuracy; and (4) contingency planning to establish alternate solutions for any material systems determined not to be year 2000 compliant. Material items are those believed by the Company to have a risk involving the safety of individuals or that may cause damage to property or the environment, or affect the continuation of business activities or materially affect revenues. The identification and prioritization phase of the Program is complete. Although the remediation and testing phases of the Program will continue through the end of the calendar year, these phases were substantially complete as of May 29, 1999, with the exception that external suppliers continue to be evaluated, as discussed below. Evaluation of suppliers, as well as contingency planning for all three sections, is in process and is scheduled for substantial completion by September 1999. The Company's products that are not year 2000 ready have been identified, and as a part of the remediation phase of the Program, the Company has determined to what extent upgrades will be made available to make non-compliant products ready. Product remediation is now substantially complete. All newly introduced products will be year 2000 ready. The Company maintains a website for customers to review product readiness, including product upgrades, customer-serviceable fixes, and non-compliant products for which upgrades will not be available. The Company is in the process of assessing whether products or services provided by external suppliers will be interrupted as a result of their failure to address the year 2000 problem. To determine their preparedness, the Company has joined the High Tech Consortium, LLC (HTC). This is a consortium of approximately 15 other high technology companies, organized for the purpose of assessing the readiness of common or shared suppliers. HTC has developed an assessment methodology for suppliers. The supplier certification process includes written representations from suppliers regarding their year 2000 readiness programs, as well as onsite reviews. Many of Tektronix' material suppliers will be included in the HTC assessment process. Those that are not will be reviewed individually by the Company to determine what assurances can be obtained regarding their readiness. Costs Costs associated with modifications to become year 2000 ready, as well as the total cost of the Year 2000 Program (but not including the costs of the Oracle enterprise system), are estimated as follows: IN THOUSANDS - ------------ Costs incurred through May 29, 1999 $ 2,162 Estimated remaining costs 481 ------- Total costs $ 2,643 ======= The total costs associated with required modifications to become year 2000 ready, as well as the total costs of the Year 2000 Program, are not expected to be material to the Company's financial position or operating results. Such costs are expensed as incurred in accordance with generally accepted accounting principles. 23 Risks The failure to correct a material year 2000 problem could result in an interruption in, or a failure of, certain normal business activities or operations. Such failures could materially and adversely affect the Company's results of operations, liquidity and financial condition. Due to the general uncertainty inherent in the year 2000 problem, resulting in part from the uncertainty of the year 2000 readiness of third-party suppliers and customers, the Company is unable to determine at this time whether the consequences of year 2000 failures will have a material impact on the Company's results of operations, liquidity or financial condition. The Year 2000 Program is expected to significantly reduce the Company's level of uncertainty about the year 2000 problem and, in particular, about the year 2000 compliance and readiness of its material third-party suppliers. The Company believes that, with the implementation of new business systems and completion of the Program as scheduled, the possibility of significant interruptions of normal operations should be reduced. Tektronix believes that its most reasonably likely worst-case year 2000 scenarios would relate to problems with the systems of third parties rather than with the Company's internal systems or its products. The Company believes the risks are greatest with transportation supply chains and critical suppliers of materials, because the Company has less control over assessing and remediating the year 2000 problems of third parties. A worst-case scenario involving a transportation supply chain or a critical supplier of materials would be the partial or complete shutdown of transportation facilities or the supplier, with the resulting inability to provide critical materials to the Company on a timely basis. The Company does not maintain the capability to replace most third-party materials with internal production. Contingency planning will consider alternatives where efforts to work with critical suppliers to ensure year 2000 capability have not been successful. The Company is not in a position to identify or to avoid all possible scenarios. The Company is currently assessing scenarios and taking steps to mitigate the impacts of various scenarios if they were to occur. This contingency planning will continue through 1999, as the Company learns more about the preparations and vulnerabilities of third parties regarding year 2000 issues. Due to the large number of variables involved, the Company cannot provide an estimate of the damage it might suffer if any of these scenarios were to occur. The above contains forward-looking statements including, without limitation, statements relating to the Company's plans, strategies, objectives, expectations, intentions and resources and are made pursuant to the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995. Readers are cautioned that forward-looking statements contained in the "Year 2000 Update" should be read in conjunction with the Company's disclosures under "Forward-looking Statements." FORWARD-LOOKING STATEMENTS Statements and information included in the Chairman's letter and Management Review and elsewhere in this report that relate to future results and events (including new products) are based on the Company's current expectations. They constitute forward-looking statements subject to a number of risk factors that could cause actual results to differ materially from those currently expected or desired. As with many high technology companies, risk factors that could cause the Company's actual results or activities to differ materially from these forward-looking statements include, but are not limited to: worldwide economic and business conditions in the electronics industry, including the continuing effects of the Asian economic crisis on demand for the Company's products; competitive factors, including pricing pressures, technological developments and new products offered by competitors; changes in product and sales mix, and the related effects on gross margins; the Company's ability to deliver a timely flow of competitive new products, and market acceptance of these products; the availability of parts and supplies from third-party suppliers on a timely basis and at reasonable prices; inventory risks due to changes in market demand or the Company's business strategies; changes in effective tax rates; customer demand; currency fluctuations; and the fact that a substantial portion of the Company's sales are generated from orders received during the quarter, making prediction of quarterly revenues and earnings difficult. Risk factors related to the plan to separate the Measurement and Color Printing and Imaging businesses include, but are not limited to: the ability of Tektronix to successfully separate and operate the Measurement and Color Printing and Imaging businesses and complete the strategic restructuring plan; the potential disruption in the Company's business and to its employee base during this process; risks that a proposed initial public offering for the separated Color Printing and Imaging entity and the subsequent distribution of stock to Tektronix shareholders will not be feasible or will not be successfully consummated; and risks that the Company will be unable to sell or secure a strategic partner for its Video and Networking division. Tektronix has other risk factors in its business, including but not limited to: the Company's ability to successfully implement the strategic direction and restructuring actions announced in fiscal 1999, including reducing its expenditures; the effects of year 2000 compliance issues; the timely introduction of new products scheduled during the current year, which could be affected by engineering or other development program slippage, the ability to ramp up production or to develop effective sales channels; customers' acceptance of and demand for new products; changes in the regulatory environment affecting the transition to high-definition television within the time frame anticipated by the Company; the significant operational and strategic uncertainties the Company faces within the Video and Networking division; worldwide economic and business conditions in the electronics industry, including the continuing effects of the Asian economic crisis and its secondary effects on demand for the Company's products; competitive factors, including pricing pressures, technological developments and new products of competitors; and other risk factors listed from time-to-time in the Company's Securities and Exchange Commission reports and press releases. 24 Management's Letter The consolidated financial statements of Tektronix, Inc. and subsidiaries have been prepared by management and have been audited by Tektronix' independent auditors, Deloitte & Touche LLP, as stated in their independent auditors' report. Management is responsible for the consolidated financial statements, which have been prepared in conformity with generally accepted accounting principles and include amounts based on management's judgment. Management is also responsible for maintaining internal control, including systems designed to provide reasonable assurance that assets are safeguarded and that transactions are executed and recorded in accordance with established policies and procedures. Tektronix' controls and systems were developed by Tektronix management and have the full support and endorsement of the Board of Directors. Compliance is mandatory. The Board of Directors is responsible for the Company's financial and accounting policies, practices and reports. Its Audit Committee, composed entirely of outside directors, meets regularly with the independent auditors, representatives of management, and the internal auditors to review accounting, reporting, auditing and internal control matters. Both the independent auditors and the internal auditors have access to the Audit Committee, with and without management representatives in attendance. MERRILL A. MCPEAK Chairman, Audit Committee CARL W. NEUN Senior Vice President and Chief Financial Officer Independent Auditors' Report To the Directors and Shareholders of Tektronix, Inc.: We have audited the accompanying consolidated balance sheets of Tektronix, Inc. and subsidiaries as of May 29, 1999 and May 30, 1998, and the related consolidated statements of operations, shareholders' equity, and cash flows for the years ended May 29, 1999, May 30, 1998, and May 31, 1997. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Tektronix, Inc. and subsidiaries at May 29, 1999 and May 30, 1998, and the results of their operations and their cash flows for the years ended May 29, 1999, May 30, 1998, and May 31, 1997, in conformity with generally accepted accounting principles. DELOITTE & TOUCHE LLP Portland, Oregon June 23, 1999 25
Consolidated Statements of Operations IN THOUSANDS, EXCEPT PER SHARE AMOUNTS FOR THE YEARS ENDED MAY 29,1999 MAY 30,1998 MAY 31,1997 - ------------------------------------------------------------------------------------------------------- Net sales $ 1,861,490 $ 2,085,802 $ 1,940,082 Cost of sales 1,151,252 1,220,475 1,107,355 ----------- ----------- ----------- Gross profit 710,238 865,327 832,727 Research and development expenses 204,655 203,312 188,192 Selling, general and administrative expenses 480,714 508,749 481,083 Equity in business ventures' earnings (loss) (9,230) 2,513 1,556 Non-recurring charges 84,780 40,478 - ----------- ----------- ----------- Operating income (loss) (69,141) 115,301 165,008 Interest expense 15,712 10,076 12,111 Other income - net 9,616 17,589 15,905 ----------- ----------- ----------- Earnings (loss) before taxes (75,237) 122,814 168,802 Income tax expense (benefit) (24,076) 40,529 54,017 ----------- ----------- ----------- Net earnings (loss) $ (51,161) $ 82,285 $ 114,785 =========== =========== =========== Basic earnings (loss) per share $ (1.07) $ 1.63 $ 2.32 Diluted earnings (loss) per share (1.07) 1.60 2.29 Dividends per share 0.48 0.46 0.40 Average shares outstanding - basic 47,700 50,438 49,513 Average shares outstanding - diluted 47,700 51,320 50,236 The accompanying notes are an integral part of these consolidated financial statements.
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Consolidated Balance Sheets IN THOUSANDS MAY 29,1999 MAY 30,1998 - ------------------------------------------------------------------------------------------------- ASSETS Current assets: Cash and cash equivalents $ 39,747 $ 120,541 Accounts receivable - net 313,274 346,342 Inventories 273,370 226,770 Other current assets 93,267 67,432 ----------- ----------- Total current assets 719,658 761,085 Property, plant and equipment - net 442,257 425,153 Deferred tax assets 56,405 25,102 Other long-term assets 141,045 177,893 ----------- ----------- Total assets $ 1,359,365 $ 1,389,233 =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Short-term debt $ 115,687 $ 5,442 Accounts payable 251,349 221,834 Accrued compensation 110,001 119,842 Deferred revenue 20,009 15,102 ----------- ----------- Total current liabilities 497,046 362,220 Long-term debt 150,722 150,681 Other long-term liabilities 90,035 91,391 Commitments and contingencies - - Shareholders' equity: Preferred stock, no par value (authorized 1,000 shares; none issued) - - Common stock, no par value (authorized 200,000 shares; issued and outstanding 46,909 in 1999, and 50,345 in 1998) 143,263 223,527 Retained earnings 458,613 532,679 Accumulated other comprehensive income 19,686 28,735 ----------- ----------- Total shareholders' equity 621,562 784,941 ----------- ----------- Total liabilities and shareholders' equity $ 1,359,365 $ 1,389,233 =========== =========== The accompanying notes are an integral part of these consolidated financial statements.
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Consolidated Statements of Cash Flows IN THOUSANDS FOR THE YEARS ENDED MAY 29,1999 MAY 30,1998 MAY 31,1997 - ------------------------------------------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES Net earnings (loss) $ (51,161) $ 82,285 $ 114,785 Adjustments to reconcile net earnings (loss) to cash provided (used) by operating activities: Depreciation and amortization expense 74,792 67,425 59,591 Inventory write-down related to restructuring 25,767 38,482 - Non-recurring charges 94,722 40,478 - Deferred taxes (24,196) (6,336) 14,425 Loss (gain) on sale of fixed assets (12,121) 2,441 5,031 Gain on sale of investments (7,737) (28,244) (27,678) Equity in business ventures' (earnings) loss 9,230 (2,513) (1,556) Changes in operating assets and liabilities: Accounts receivable 32,265 (28,810) 66,403 Inventories (78,113) (18,312) 26,754 Other current assets (26,705) (5,119) 22,213 Accounts payable 4,906 31,829 (179) Accrued compensation (61,144) 3,363 (28,580) Other - net 11,139 (9,340) 10,247 ----------- ----------- ----------- Net cash provided (used) by operating activities (8,356) 167,629 261,456 ----------- ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES Acquisition of property, plant and equipment (107,525) (155,066) (112,005) Acquisition of businesses (4,300) (46,600) - Proceeds from sale of fixed assets 24,187 3,601 9,073 Proceeds from sale of investments 8,929 36,114 33,848 ----------- ----------- ----------- Net cash used by investing activities (78,709) (161,951) (69,084) ----------- ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Net change in short-term debt 110,069 (713) (38,451) Issuance of long-term debt - 125 358 Repayment of long-term debt (629) (1,023) (50,609) Issuance of common stock 5,260 35,358 26,018 Repurchase of common stock (85,524) (38,422) (3,797) Dividends (22,905) (23,188) (19,809) ----------- ----------- ----------- Net cash provided (used) by financing activities 6,271 (27,863) (86,290) ----------- ----------- ----------- Increase (decrease) in cash and cash equivalents (80,794) (22,185) 106,082 Cash and cash equivalents at beginning of year 120,541 142,726 36,644 ----------- ----------- ----------- Cash and cash equivalents at end of year $ 39,747 $ 120,541 $ 142,726 =========== =========== =========== SUPPLEMENTAL DISCLOSURES OF CASH FLOWS Income taxes paid $ 10,100 $ 19,981 $ 13,663 Interest paid 16,662 12,571 14,633 The accompanying notes are an integral part of these consolidated financial statements.
28
Consolidated Statements of Shareholders' Equity ACCUMULATED COMMON STOCK OTHER IN THOUSANDS, ----------------------- RETAINED COMPREHENSIVE EXCEPT PER SHARE AMOUNTS SHARES AMOUNT EARNINGS INCOME TOTAL - ------------------------------------------------------------------------------------------------------------- BALANCE MAY 25, 1996 49,031 $ 204,370 $ 378,606 $ 92,346 $ 675,322 Components of comprehensive income: Net earnings - - 114,785 - 114,785 Currency adjustment - - - (17,622) (17,622) Unrealized holding gains - net - - - (3,614) (3,614) ---------- Total comprehensive income 93,549 ---------- Shares issued to employees 1,173 26,018 - - 26,018 Shares repurchased (100) (3,797) - - (3,797) Dividends - $0.40 per share - - (19,809) - (19,809) -------- ---------- ---------- ---------- ---------- BALANCE MAY 31, 1997 50,104 226,591 473,582 71,110 771,283 ======== ========== ========== ========== ========== Components of comprehensive income: Net earnings - - 82,285 - 82,285 Currency adjustment - - - (13,634) (13,634) Unrealized holding gains - net - - - (28,741) (28,741) ---------- Total comprehensive income 39,910 ---------- Shares issued to employees 1,151 35,358 - - 35,358 Shares repurchased (910) 38,422) - - (38,422) Dividends - $0.46 per share - - (23,188) - (23,188) -------- ---------- ---------- ---------- ---------- BALANCE MAY 30, 1998 50,345 223,527 532,679 28,735 784,941 ======== ========== ========== ========== ========== Components of comprehensive income (loss): Net loss - - (51,161) - (51,161) Currency adjustment - - - 281 281 Unrealized holding losses - net - - - (9,330) (9,330) ---------- Total comprehensive loss (60,210) ---------- Shares issued to employees 127 5,260 - - 5,260 Shares repurchased (3,563) (85,524) - - (85,524) Dividends - $0.48 per share - - (22,905) - (22,905) -------- ---------- ---------- ---------- ---------- BALANCE MAY 29, 1999 46,909 $ 143,263 $ 458,613 $ 19,686 $ 621,562 ======== ========== ========== ========== ========== The accompanying notes are an integral part of these consolidated financial statements.
29 Notes to Consolidated Financial Statements ACCOUNTING POLICIES THE COMPANY Tektronix, Inc. (Tektronix or the Company) is a global high technology company based on a portfolio of Measurement, Color Printing and Imaging, and Video and Networking business divisions. Headquartered in Wilsonville, Oregon, Tektronix employs more than 7,500 people and maintains operations in 26 countries outside the United States. Tektronix was founded in 1946. FINANCIAL STATEMENT PRESENTATION The consolidated financial statements include the accounts of Tektronix and its majority-owned subsidiaries. Investments in joint ventures and minority-owned companies where the Company exercises significant influence are accounted for on the equity basis. Significant intercompany transactions and balances have been eliminated. Certain prior year amounts have been reclassified to conform to the current year's presentation with no effect on previously reported earnings. The Company's fiscal year is the 52 or 53 weeks ending the last Saturday in May. Fiscal years 1999 and 1998 were 52 weeks; fiscal year 1997 was 53 weeks. USE OF ESTIMATES The presentation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results may differ from those estimated. EARNINGS PER SHARE Basic earnings per share was calculated based on the weighted average number of common shares outstanding during each period. For the year in which the Company reported a net loss, diluted earnings per share was calculated based on the same shares as basic earnings per share. For the years in which the Company reported net earnings, diluted earnings per share was calculated based on these same shares plus the potential shares issuable upon assumed exercise of outstanding stock options based on the treasury stock method. All share, per share and option amounts have been restated to give effect to the three-for-two stock split effective October 31, 1997. FOREIGN CURRENCY TRANSLATION For most non-U.S. subsidiaries, the local currency is the functional currency, and, therefore, assets and liabilities are translated into U.S. dollars at current exchange rates, and net earnings are translated at average exchange rates for the year. Gains and losses resulting from the translation of net assets are included in accumulated other comprehensive income. Gains and losses from foreign currency transactions are included in the determination of net earnings. DERIVATIVES Gains and losses on foreign exchange contracts that are identified as and are effective as hedges of existing assets and liabilities are recognized in the determination of net earnings for the period in which the exchange rate changes. Gains and losses related to hedges of firm commitments are deferred and included in the basis of the hedged transaction when it is completed. The deferred gains or losses attributable to foreign exchange contracts are not material. CASH AND CASH EQUIVALENTS Cash and cash equivalents include cash deposits in banks and highly liquid investments with maturities of three months or less from the time of purchase. ACCOUNTS RECEIVABLE Accounts receivable have been reduced by an allowance for doubtful accounts, which was $5.1 million in 1999 and $4.8 million in 1998. The charges to this reserve have not been material. In September 1996, the Company entered into a five-year revolving receivables purchase agreement with Citibank NA to sell, without recourse, an undivided interest of up to $50.0 million in a defined pool of trade accounts receivable. Receivables of $40.0 million were sold under this agreement as of May 29, 1999 and are therefore not reflected in the accounts receivable balance in the accompanying Consolidated Balance Sheet. In February 1999, the Company entered into a one-year receivables purchase agreement with NationsBanc Commercial Corporation to sell, without recourse, an undivided interest in a defined pool of trade accounts receivable. Receivables of $15.0 million were sold under this agreement as of May 29, 1999 and are therefore not reflected in the accounts receivable balance in the accompanying Consolidated Balance Sheet. At May 30, 1998, $50.0 million of receivables were sold under the agreement with Citibank NA described above. The $5.0 million increase from 1998 in receivables sold is shown as cash provided by operating activities in the Consolidated Statement of Cash Flows for the year ended May 29, 1999. INVENTORIES Inventories are stated at the lower of cost or market. Cost is determined based on a currently adjusted standard basis, which approximates actual cost on a first-in, first-out basis. The Company periodically reviews its inventory for obsolete or slow-moving items. Inventories at fiscal year ends were as follows:
IN THOUSANDS 1999 1998 - --------------------------------------------------------------------------------- Materials and work in process $ 118,624 $ 88,712 Finished goods 154,746 138,058 ----------- ------------ Inventories $ 273,370 $ 226,770 =========== ============
30 SOFTWARE DEVELOPMENT COSTS Development costs incurred in the research and development of new software products and enhancements to existing software products are expensed as incurred until technological feasibility has been established. After technological feasibility has been established, any additional development costs are capitalized in accordance with Statement of Financial Accounting Standards (SFAS) No. 86, "Accounting for the Costs of Computer Software to be Sold, Leased or Otherwise Marketed." Such capitalized costs are amortized over the lesser of five years or the economic life of the related product. The Company performs a quarterly review of the recoverability of capitalized software costs. Any costs determined to be non-recoverable are written off. Software development costs capitalized and amortized during the year ended May 29, 1999 were as follows: IN THOUSANDS - ----------------------------------------------------------------- Balance - net May 30, 1998 $ 3,949 Software development costs capitalized 5,322 Amortization of capitalized costs (855) Adjustments due to non-recoverability (included in non-recurring charges) (708) ------- Balance - net May 29, 1999 $ 7,708 ======= PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment are stated at cost. Depreciation is based on the estimated useful lives of the assets, ranging from ten to forty years for buildings and three to seven years for machinery and equipment, and is generally provided using the straight-line method. Property, plant and equipment at fiscal year ends were as follows:
IN THOUSANDS 1999 1998 - ------------------------------------------------------------------------------------- Land $ 5,764 $ 5,932 Buildings 255,314 217,036 Machinery and equipment 591,210 594,677 ----------- ----------- 852,288 817,645 Accumulated depreciation and amortization (410,031) (392,492) ----------- ----------- Property, plant and equipment - net $ 442,257 $ 425,153 =========== ===========
INVESTMENTS Investments in marketable equity securities are classified as available-for-sale and reported at fair market value in the Consolidated Balance Sheets as other long-term assets. The unrealized holding gains and losses are excluded from earnings and included, net of deferred income taxes, in accumulated other comprehensive income. INTANGIBLE ASSETS Intangible assets, primarily goodwill, patents and trademarks, are included as other long-term assets and are stated at cost. Amortization is provided on a straight-line basis over periods generally not exceeding fifteen years. Long-lived assets and intangibles are reviewed for impairment when events or circumstances indicate costs may not be recoverable. Impairment exists when the carrying value of the intangible asset is greater than the net undiscounted future cash flows expected to be provided by the asset. If impairment exists, the asset's book value will be written down to its fair value. Fair value is determined through quoted market values or through the calculation of the net present value of discounted future cash flows expected to be provided by the asset. REVENUE RECOGNITION Revenue from product sales is generally recognized at the time the product is shipped. Upon shipment, the Company also provides for the estimated cost that may be incurred for product warranties and post-sales support. Service revenue is deferred and recognized over the contract period or as services are rendered. INCOME TAXES Deferred income taxes, reflecting the impact of temporary differences between assets and liabilities recognized for financial reporting and tax purposes, are based on tax laws currently enacted. Deferred tax assets are reduced by a valuation allowance when it is more likely than not that some portion of the deferred tax assets will not be realized. ADVERTISING Advertising costs are charged to operations when the advertising first takes place. The Company does not incur any direct-response advertising costs. Advertising expenses were $54.1 million, $56.8 million and $49.2 million in 1999, 1998 and 1997, respectively. ENVIRONMENTAL COSTS The Company accrues environmental costs when it is probable that the Company has incurred a liability and the amount can be reasonably estimated. FUTURE ACCOUNTING CHANGES In June 1998, the Financial Accounting Standards Board issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." The new statement will require recognition of all derivatives as either assets or liabilities on the balance sheet at fair value. The new statement is effective for fiscal year 2002, but early adoption is permitted. Management has not yet completed an evaluation of the effect this standard will have on the Company's consolidated financial statements. ACQUISITIONS On February 1, 1999, the Company acquired the assets of the Network Monitoring and Mobile Test Systems business of Necsy Network Control Systems, S.p.A. (Necsy), a Padova, Italy based, wholly owned subsidiary of Italtel, an Italian telecommunications manufacturer, which is a joint venture between Telecom Italia and Siemens AG. The cash purchase price and related goodwill are not material. The transaction was accounted for by the purchase method of accounting, and accordingly, the results of operations of Necsy have been included in the Company's financial statements since the date of acquisition. Pro forma comparative results of operations are not presented because they are not materially different from the Company's reported results of operations. On September 30, 1997, the Company acquired Siemens' Communications Test Equipment GmbH (CTE), a wholly owned subsidiary of Siemens AG based in Berlin, Germany, for approximately $46.6 million in cash, 31 including direct acquisition costs. The transaction was accounted for by the purchase method of accounting, and accordingly, the results of operations of CTE have been included in the Company's financial statements since the date of acquisition. Pro forma comparative results of operations are not presented because they are not materially different from the Company's reported results of operations. The purchase price was allocated as follows: IN THOUSANDS - ------------ Fair value of identified net assets acquired $ 6,600 Acquired in-process research and development 17,000 Identified intangibles 23,000 ---------- Total purchase price $ 46,600 ========== The acquired in-process research and development (IPR&D) of $17.0 million was comprised of several projects in the telecommunication test equipment market. The value of the IPR&D was expensed in the second quarter of fiscal year 1998 because at the time of the acquisition, technological feasibility had not been established and no future alternative uses existed for any of the projects. To determine the valuation of in-process technology, management considered the state of development of each project, the expected time and cost to complete each project, the expected income from the projects, and the risks associated with the development. These risks include technological feasibility issues, demand for the final products, and competition. The Income Approach was utilized in determining the valuation of the IPR&D. This approach determines the net present value of the future cash flows based on predicted revenues and costs associated with the first generation of products, using a discount rate commensurate with the risks identified. A discount rate of 26% was used in the valuation of the IPR&D. Research and development costs to bring the projects from the acquired company to technological feasibility were approximately $5.0 million, and the products were completed at various dates during fiscal year 1998 and fiscal year 1999. The identified intangibles of $23.0 million include $18.0 million of completed technology and $5.0 million of workforce-in-place and are being amortized on a straight-line basis over 15 years. The acquired completed technology of $18.0 million consists of several products in the telecommunications test equipment market that supplemented the Company's current product offerings. The valuation of the completed technology was determined by calculating the net present value of future cash flows based on predicted revenues and expenses associated with the existing products. A discount rate of 16% was used in the calculation. NON-RECURRING CHARGES In the second quarter of fiscal year 1999, the Company announced and began to implement a series of actions (Fiscal Year 1999 Plan) intended to align worldwide operations with current market conditions and to improve the profitability of its operations. These actions include a net reduction of approximately 15% of the Company's worldwide workforce, the exit from certain facilities and the streamlining of product and service offerings. Management expects that the majority of the actions will be completed by the end of the second quarter of fiscal year 2000 and expects to require $52.6 million in cash to be used in connection with actions not yet completed, primarily for severance and lease cancellations. Major actions can be summarized by each of the three business divisions. Measurement's service business is being consolidated from several depots in the United States and Europe into two depots in each of these geographies. This consolidation will result in headcount reduction and the write-down and disposal of redundant inventory. These actions are in process and will be completed in the first quarter of fiscal year 2000. Measurement closed the Bend, Oregon manufacturing facility during the third quarter and consolidated that process into its Beaverton, Oregon facilities. This action resulted in headcount reduction and lease settlements. Measurement reduced headcount throughout the division, primarily in manufacturing, and will continue to reduce headcount through the first quarter of fiscal year 2000. During the second quarter of 1999, Color Printing and Imaging discontinued three product lines - wide format, dye sublimation and B-size solid ink. This action resulted and will continue to result in write-offs of disposed inventory through the first quarter of fiscal year 2000. Color Printing and Imaging also reduced headcount throughout the division, primarily in manufacturing during the third and fourth quarters of 1999. During 1999, Video and Networking discontinued development, manufacturing, and sales of non-linear digital editing products sold under the Lightworks name. This decision resulted in headcount reduction, write-offs of disposed inventory, incremental sales returns and bad debts, and costs to fulfill commitments to deliver software enhancements on previously sold product. Additional write-offs of disposed inventory will be completed by the end of the first quarter of fiscal year 2000. Outside of the divisions, selective involuntary terminations have occurred and will occur throughout corporate functions and in the Company's foreign subsidiaries through the second quarter of fiscal year 2000. The Company recorded pre-tax charges of $125.7 million to account for these actions, including restructuring charges of $115.8 million and other non-recurring charges of $9.9 million for related actions. The $115.8 million in restructuring charges include $27.1 million in charges to cost of sales for the write-off of excess inventory resulting from discontinued product lines and consolidation of service centers worldwide, $56.9 million in severance expense related to employee separation, $14.8 million in charges to facilities for lease cancellation fees and $17.0 million in charges to long-term assets associated with discontinued product lines. The $9.9 million for related actions include $5.1 million of expected sales returns of previously sold product, $0.8 million of bad debt expense related to existing accounts receivable that will not be collected and $4.0 million of costs to fulfill commitments to deliver software enhancements on previously sold product, all associated with exiting the non-linear digital editing business. The Company decided to exit this business due to the failure of prior restructuring efforts to return the business to profitability. In the second quarter of fiscal year 1998, the Company announced and began to implement a restructuring plan (Fiscal Year 1998 Plan) designed to return the Video and 32 Networking business to profitable growth and recorded a pre-tax reserve of $60.0 million to account for these actions. The plan provided for headcount reduction and the discontinuation of certain products within the Lightworks and Grass Valley product lines, as well as the discontinuation of the Network Displays business. During 1999, it was determined that $4.1 million of this reserve would not be needed, and as such, the amount was reversed to the locations of the original charges in the Consolidated Statement of Operations. The original plan anticipated closing the Network Displays business and provided reserves for severance and inventory disposals. During the third quarter of 1999, the Network Displays business was sold, resulting in less severance and inventory disposals than originally planned. The $4.1 million includes $4.3 million and $1.3 million in excess reserves for severance and inventory write-offs, respectively, that were reversed, net of additional reserves recorded of $0.7 million for lease cancellation fees and $0.8 million for miscellaneous payables. As of May 29, 1999, the implementation of this plan was substantially complete. Also in the second quarter of fiscal year 1998, the Company expensed $17.0 million for the acquisition of IPR&D and $2.0 million in severance costs associated with the acquisition of CTE. During the third quarter of 1999, it was determined that $1.1 million of this $2.0 million severance reserve for CTE would not be needed as originally anticipated because certain employees who were to be terminated left the Company voluntarily, without severance. Accordingly, such amount was reversed to non-recurring charges. Net non-recurring charges incurred under the Fiscal Year 1998 Plan and Fiscal Year 1999 Plan impacted the Company's results of operations for the years ended May 29, 1999 and May 30, 1998 as follows:
LOCATION OF CHARGE IN THE IN THOUSANDS CONSOLIDATED STATEMENTS OF OPERATIONS 1999 1998 - --------------------------------------------------------------------------------------------- Severance and benefits Non-recurring charges $ 51,575 $ 14,933 Inventory write-offs Cost of sales 25,767 38,482 Lease buy-outs and abandonment of facilities Non-recurring charges 17,735 4,139 Asset write-offs and impairments Non-recurring charges 15,470 2,406 Sales returns and allowances Net sales 5,120 - Commitment for enhancements related Research and development to discontinued products expenses 4,019 - Bad debt expense related to Selling, general and discontinued products administrative expenses 803 - In-process research and development acquired in the purchase of CTE Non-recurring charges - 17,000 Severance costs associated with the purchase of CTE Non-recurring charges - 2,000 --------- --------- $ 120,489 $ 78,960 ========= =========
The non-recurring charges incurred under the Fiscal Year 1999 Plan affected the Company's financial position in the following manner:
EQUIPMENT PAYABLES ACCRUED AND OTHER AND OTHER IN THOUSANDS COMPENSATION INVENTORIES ASSETS LIABILITIES - ---------------------------------------------------------------------------------------------- Original charges $ 54,680 $ 27,760 $ 18,200 $ 19,894 Activity: Cash paid out (20,844) - - (7,415) Non-cash disposals or write-offs - (27,070) (17,055) - Adjustments to plan 2,244 (690) (455) 4,049 ----------- ----------- ----------- ----------- Balance May 29, 1999 $ 36,080 $ - $ 690 $ 16,528 =========== =========== =========== ===========
The charge of $54.7 million in accrued compensation reflects original planned headcount reduction of 1,371 employees worldwide. This charge was increased by a net $2.2 million during the year. The $2.2 million consists of an $8.6 million reserve for severance of an additional 282 employees worldwide across all responsibilities, offset in part by reversal of a $6.4 million reserve for pension settlement that was not needed as settlement accounting was not appropriate during the year. Headcount reduction under the current plan of reorganization now totals 1,653 employees worldwide. Approximately 865 employees have been terminated under the plan. Severance of $20.8 million has been paid to approximately 570 of these employees, while the other 295 employees will be paid severance in the first quarter of fiscal year 2000. The remaining 788 employees will be terminated at varying times through the second quarter of fiscal year 2000. The $27.8 million charge to inventories includes inventories related to the consolidation of Measurement service offerings, the discontinuation of three Color Printing and Imaging product lines and the discontinuation of non-linear digital editing products sold under the Lightworks name, which were written off during the second quarter. The charge of $18.2 million for equipment and other assets includes asset impairments of $17.4 million and $0.8 million in reserve for bad debt expense. The impaired assets are primarily related to discontinued product lines in Color Printing and Imaging and Video and Networking and include manufacturing assets of $6.2 million, goodwill and other intangibles of $6.5 million, and leasehold improvements and other assets of $4.7 million. All of the assets included in this impairment charge will be disposed of through abandonment at varying times through the second quarter of fiscal year 2000. The $19.9 million charge for payables and other liabilities includes reserves for lease buy-outs and abandonment of facilities, sales returns and allowances and commitments for enhancements related to discontinued products. This reserve was increased by $4.0 million during the year to provide for additional costs to exit certain sales and service offices worldwide and to fulfill certain contractual commitments, partly offset by a decrease in original sales returns allowances. SUBSEQUENT EVENTS In June 1999, the Company's Board of Directors unanimously approved a plan that is intended to result in the formation of two separate, publicly traded companies. One company will be comprised of the current 33 Measurement division, and the other will be comprised of the current Color Printing and Imaging division. Management believes that this plan will enable each business to pursue its optimal long-term strategy without the limitations necessarily imposed by a larger, more diverse company. The new measurement company will retain the Tektronix name and be headquartered in Beaverton, Oregon. The new color printing and imaging company, which has not yet been named, will be headquartered in Wilsonville, Oregon. Tektronix is considering an initial public offering (IPO) for approximately 15% of the new color printing and imaging company prior to the end of fiscal year 2000. Subject to the successful completion of an IPO, and receipt of a favorable tax ruling from the Internal Revenue Service (IRS), the remaining shares will be distributed, on a tax-free basis, to Tektronix shareholders at some time after the offering. Although the Company expects the separation of the businesses will have no significant impact on employment levels, execution of this plan may result in future non-recurring charges. Such amounts cannot be estimated at this time. Management also announced in June 1999 that the Company intends to sell or secure a strategic alliance for its Video and Networking division, excluding the VideoTele.com product family. This product family merged into the Measurement division effective May 30, 1999. Prior to the sale or strategic alliance of Video and Networking, the division plans to consolidate many functions in order to allow for improved profitability at lower revenue levels. During the first quarter of fiscal year 2000, Video and Networking plans to take the following actions: consolidate all manufacturing and customer support activities at the Grass Valley site; move administrative functions, including sales operations, information systems, finance and human resources, to Grass Valley; form two focused marketing teams tied to the Profile and Grass Valley product lines; and combine the U.S. sales operation into one function. BUSINESS SEGMENTS The Company has adopted SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information," as of the fiscal year ended May 29, 1999. Information presented for earlier years has been restated for comparative purposes. The Company is organized based on the products and services that it offers. Under this organizational structure, the Company operates in three main segments: Measurement, Color Printing and Imaging, and Video and Networking. Measurement derives revenue principally through the development and marketing of seven key product groups: oscilloscopes, signal sources, probing solutions, digital systems development products, handheld communication test instruments, and video and audio test instruments. Color Printing and Imaging derives revenue principally through the development and marketing of color printers and supplies. The Company's color printer technologies include solid ink and color laser. Video and Networking derives revenue principally through the development and marketing of digital storage products, production switchers, digital picture manipulators, routing switchers, linear editing systems, on-air master control solutions and video transmission products. All three operating segments also derive revenue through providing support services for products sold worldwide. No single customer or single foreign country provides 10% or more of the Company's revenues. The information provided below is obtained from internal information that is provided to the Company's chief operating decision-maker for the purpose of corporate management. Assets, liabilities and expenses attributable to corporate activity are not allocated to the three operating segments. Depreciation expense by division is not included in the internal information provided to the chief operating decision-maker and is therefore not presented below. Inter-segment sales are not material and are included in net sales to external customers below.
IN THOUSANDS 1999 1998 1997 - -------------------------------------------------------------------------------------------- Net sales to external customers (by division): Measurement $ 844,882 $ 962,858 $ 852,827 Color Printing and Imaging 725,354 728,697 638,456 Video and Networking 291,254 394,247 448,799 ----------- ----------- ----------- Net sales $ 1,861,490 $ 2,085,802 $ 1,940,082 ----------- ----------- ----------- Net sales to external customers (by region): United States $ 946,036 $ 1,077,649 $ 1,027,294 Europe 562,592 548,829 505,258 Pacific 182,972 208,874 202,408 Japan 85,227 135,632 126,898 Americas 84,663 114,818 78,224 ----------- ----------- ----------- Net sales $ 1,861,490 $ 2,085,802 $ 1,940,082 ----------- ----------- ----------- Operating income (loss): Measurement $ 91,148 $ 133,568 $ 100,381 Color Printing and Imaging 17,982 67,724 71,960 Video and Networking (48,035) (9,912) (8,384) Non-recurring charges (120,489) (78,960) - Business ventures' earnings (loss) and other (9,747) 2,881 1,051 ----------- ----------- ----------- Operating income (loss) $ (69,141) $ 115,301 $ 165,008 ----------- ----------- -----------
Certain facility, information systems and other expenses are incurred by Corporate and allocated to the divisions based on a percentage of sales, number of employees or payroll costs.
IN THOUSANDS 1999 1998 1997 - -------------------------------------------------------------------------------------------- Segment assets: Measurement $ 465,576 $ 500,339 $ 435,110 Color Printing and Imaging 464,572 376,092 291,894 Video and Networking 231,906 264,486 283,601 Corporate 197,311 248,316 306,136 ----------- ----------- ----------- Segment assets $ 1,359,365 $ 1,389,233 $ 1,316,741 ----------- ----------- ----------- Long-lived assets: United States $ 505,924 $ 523,791 $ 504,478 International 77,378 79,255 48,212 Deferred tax assets 56,405 25,102 12,540 ----------- ----------- ----------- Long-lived assets $ 639,707 $ 628,148 $ 565,230 ----------- ----------- ----------- Capital expenditures: Measurement $ 19,633 $ 23,719 $ 18,172 Color Printing and Imaging 23,898 60,111 28,879 Video and Networking 13,196 12,507 13,649 Corporate 50,798 58,729 51,305 ----------- ----------- ----------- Capital expenditures $ 107,525 $ 155,066 $ 112,005 ----------- ----------- -----------
34 OTHER LONG-TERM ASSETS
IN THOUSANDS 1999 1998 - ------------------------------------------------------------------------------- Investment in business ventures $ 73,225 $ 76,226 Licensing agreements and other intangibles - net 49,930 62,610 Notes, contracts and leases 8,410 5,854 Investment in marketable equity securities 5,876 19,450 Other 3,604 13,753 ----------- ----------- Other long-term assets $ 141,045 $ 177,893 =========== ===========
Significant investments in business ventures, accounted for under the equity method, include a 50% investment in Sony/Tektronix Corporation and a 27% interest in Merix Corporation (Merix). The Company's share of the assets, liabilities, net sales and net earnings of Sony/Tektronix, as well as the Company's sales to, purchases from, and accounts receivable consisted of:
IN THOUSANDS 1999 1998 1997 - --------------------------------------------------------------------------------------- Current assets $ 55,036 $ 60,236 $ 55,322 Property, plant and equipment - net 18,665 18,632 19,913 Other long-term assets 6,795 6,482 12,129 Current liabilities 15,015 20,562 18,511 Other long-term liabilities 10,157 9,162 8,988 ----------- ----------- ----------- Net sales $ 98,171 $ 135,704 $ 152,054 Gross profit 25,628 34,436 40,742 Operating income (loss) (6,539) 849 3,068 Earnings (loss) before taxes (6,048) 3,584 2,792 Net earnings (loss) (4,625) 1,277 1,184 ----------- ----------- ----------- Sales to $ 77,332 $ 117,173 $ 112,770 Purchases from 20,718 17,810 19,596 Accounts receivable 7,506 12,354 9,866
Purchases from other related parties Merix, Maxim Integrated Products, Inc. and Maxtek Components Corporation, totaled $37.3 million, $50.1 million, and $52.1 million for 1999, 1998 and 1997, respectively. All other transactions and resulting balances with related parties were insignificant. At May 29, 1999, the carrying value of the Company's investment in Merix was $12.1 million, with a fair value, based upon quoted market price, of $10.2 million. The Company's portion of the undistributed earnings of the business ventures was $20.3 million in 1999 and $20.7 million in 1998. Licensing agreements and other intangibles have been reduced by accumulated amortization of $22.2 million at fiscal year-end 1999 and $25.3 million at fiscal year-end 1998. Proceeds from the sales of marketable equity securities in 1999, 1998 and 1997 were $8.9 million, $36.1 million and $33.8 million, respectively. Realized gains were computed based on the average cost of the underlying securities and are disclosed in "Other Income - Net." At the end of 1999, 1998 and 1997, unrealized holding gains (losses) of $(2.3) million, $12.9 million and $58.8 million (less deferred taxes [benefit] of $[0.9] million, $5.0 million and $22.1 million), respectively, were included in accumulated other comprehensive income. SHORT-TERM AND LONG-TERM DEBT The Company's short-term debt at year-ends consisted of:
IN THOUSANDS 1999 1998 - ------------------------------------------------------------------------------- Commercial paper $ 69,526 $ - Revolving credit 44,000 - Lines of credit 1,655 4,466 ----------- ----------- Short-term instruments 115,181 4,466 Current maturities of long-term debt 506 976 ----------- ----------- Short-term debt $ 115,687 $ 5,442 =========== ===========
The Company has a $150.0 million unsecured revolving credit agreement with Morgan Guaranty Trust Company of New York, as agent, that matures in July 2001. In addition, the Company has an agreement with U.S. National Bank of Oregon to issue up to $100.0 million in commercial paper, backed by the revolving credit agreement. The interest rate applicable to the revolving credit agreement is LIBOR plus 0.3%. At May 29, 1999, the Company maintained unsecured bank credit facilities of $310.0 million, of which $187.7 million was unused. Unused facilities included $151.2 million in lines of credit and $36.5 million under the revolving credit agreement. A $20.0 million unsecured line of credit expires in October 1999 with all remaining lines providing no specific expiration date. The Company's long-term debt at year-ends consisted of:
IN THOUSANDS 1999 1998 - ------------------------------------------------------------------------------- 7.5% notes due August 1, 2003 $ 100,000 $ 100,000 7.625% notes due August 15, 2002 50,000 50,000 Other long-term agreements 1,228 1,657 ----------- ----------- Long-term instruments 151,228 151,657 Current maturities (506) (976) ----------- ----------- Long-term debt $ 150,722 $ 150,681 =========== ===========
Certain of the Company's debt agreements require compliance with debt covenants. Management believes that the Company is in compliance with such requirements for the fiscal year ended May 29, 1999. The Company amended its credit agreement with Morgan Guaranty Trust Company of New York, as agent, effective November 28, 1998, to exclude certain charges from covenant calculations. Aggregate long-term debt payments will be $0.7 million in 2000, $0.2 million in 2001, $0.1 million in 2002, $50.2 million in 2003 and $100.0 million in 2004. OTHER LONG-TERM LIABILITIES
IN THOUSANDS 1999 1998 - ------------------------------------------------------------------------------- Accrued postretirement benefits $ 36,050 $ 37,082 Accrued pension 34,067 35,004 Unearned service revenue 11,145 10,740 Other 8,773 8,565 ----------- ----------- Other long-term liabilities $ 90,035 $ 91,391 =========== ===========
OTHER INCOME - NET
IN THOUSANDS 1999 1998 1997 - -------------------------------------------------------------------------------------------- Gain (loss) on disposition of fixed assets $ 12,121 $ (2,441) $ (5,031) Gain on sale of marketable equity securities 7,737 28,244 27,678 Currency gains (losses) (3,448) (278) 753 Other (6,794) (7,936) (7,495) ----------- ----------- ----------- Other income - net $ 9,616 $ 17,589 $ 15,905 =========== =========== ===========
35 COMMITMENTS AND CONTINGENCIES The Company leases a portion of its capital equipment and certain of its facilities under operating leases that expire at various dates. Rental expense was $31.0 million in 1999, $28.8 million in 1998, and $27.4 million in 1997. In addition, the Company has long-term or minimum purchase agreements with various suppliers and vendors. The future minimum obligations under operating leases and other commitments having an initial or remaining non-cancelable term in excess of one year as of May 29, 1999 were:
OPERATING IN THOUSANDS LEASES COMMITMENTS - ------------------------------------------------------------------------------- 2000 $ 20,987 $ 14,343 2001 16,344 5,937 2002 13,525 2,370 2003 10,796 1,303 2004 8,600 - Future years 60,459 - ----------- ----------- Total $ 130,711 $ 23,953 =========== ===========
In the normal course of business, the Company and its subsidiaries are parties to various legal claims, actions and complaints, including matters involving patent infringement and other intellectual property claims. Although it is not possible to predict with certainty whether or not the Company and its subsidiaries will ultimately be successful in any of these legal matters or, if not, what the impact might be, the Company believes that disposition of these matters will not have a material adverse effect on the Company's financial position, results of operations, or cash flows. SHAREHOLDERS' EQUITY Stock Option and Incentive Compensation Plans The Company has stock option plans for selected employees. There were 8,819,000 shares reserved for issuance under these plans at May 29, 1999. Under the terms of the plans, incentive stock options are granted at an option price not less than the market value at the date of grant. Nonqualified stock options may not be granted at less than 100% of the market value on the valuation date selected by the Board of Directors. Options granted prior to January 1, 1997, generally vest over four years and expire ten years from the date of grant. Most options granted after January 1, 1997, vest over two years and expire five years from the date of grant. There were 1,161 employees holding options at May 29, 1999. Additional information with respect to option activity is set forth below:
OUTSTANDING EXERCISABLE ---------------------- ---------------------- WEIGHTED WEIGHTED NUMBER OF AVERAGE NUMBER OF AVERAGE SHARES IN EXERCISE SHARES IN EXERCISE THOUSANDS PRICE THOUSANDS PRICE - ----------------------------------------------------------------------------------- May 25, 1996 3,972 $ 23 1,484 $ 17 Granted 1,088 32 Exercised (975) 17 Canceled (212) 27 - ----------------------------------------------------------------------------------- May 31, 1997 3,873 $ 26 1,428 $ 21 Granted 1,149 40 Exercised (1,093) 23 Canceled (405) 30 - ----------------------------------------------------------------------------------- May 30, 1998 3,524 $ 31 1,509 $ 26 Granted 2,219 26 Exercised (138) 19 Canceled (1,766) 36 - ----------------------------------------------------------------------------------- May 29, 1999 3,839 $ 27 2,065 $ 25 ===================================================================================
The following table summarizes information about options outstanding and exercisable at May 29, 1999:
OUTSTANDING EXERCISABLE -------------------------------------- ---------------------- WEIGHTED AVERAGE WEIGHTED WEIGHTED RANGE OF NUMBER OF REMAINING AVERAGE NUMBER OF AVERAGE EXERCISE SHARES IN CONTRACTUAL EXERCISE SHARES IN EXERCISE PRICES THOUSANDS LIFE PRICE THOUSANDS PRICE - ----------------------------------------------------------------------------------------- $8.80-17.90 915 3.27 years $ 17 711 $ 16 18.00-28.70 1,046 6.16 years 26 905 26 28.80-29.40 1,236 4.62 years 29 0 0 29.50-40.20 625 4.49 years 36 437 36 40.30-43.90 17 3.32 years 44 12 44 --------- ----------- -------- -------- -------- 3,839 4.69 years $ 27 2,065 $ 25 ========= =========== ======== ======== ========
The Company accounts for stock options according to Accounting Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued to Employees." Under APB No. 25, no compensation expense is recognized in the Company's consolidated financial statements for employee stock options because the exercise price of the options equals the market price of the underlying stock on the date of grant. Alternatively, under the fair value method of accounting provided for by SFAS No. 123, "Accounting for Stock-Based Compensation," the measurement of compensation cost is based on the fair value of employee stock options at the grant date and requires the use of option pricing models to value the options. The weighted average estimated fair value of options granted during 1999, 1998 and 1997 was $10, $12 and $11 per share, respectively. The Company also has plans for certain executives and outside directors that provide stock-based compensation other than options. Under APB No. 25, compensation cost for these plans is measured based on the market price of the stock at the date the terms of the award become fixed. Under the fair value approach of SFAS No. 123, compensation cost is measured based on the market price of the stock at the grant date. The weighted average grant-date fair value of the shares granted under these plans during 1999, 1998 and 1997 was $32, $41 and $31 per share, respectively. Compensation cost recognized in income related to shares granted under these plans was not material. The pro forma impact to both net earnings and earnings per share from calculating stock-related compensation cost consistent with the fair value alternative of SFAS No. 123 is indicated below:
1999 1998 1997 - ------------------------------------------------------------------------------------------------- Pro forma net earnings (loss) (in thousands) $ (61,029) $ 74,520 $ 109,240 Pro forma earnings (loss) per share: Basic $ (1.28) $ 1.48 $ 2.21 Diluted (1.28) 1.45 2.17
The fair value of each option was estimated at the date of grant using a Black-Scholes option pricing model with the following weighted average assumptions:
1999 1998 1997 - -------------------------------------------------------------------------------------------------- Expected life (in years) 3.0 3.0 5.0 Risk-free interest rate 5.6% 5.8% 6.3% Volatility 57.8% 40.0% 35.2% Dividend yield 2.1% 1.2% 1.3%
36 For purposes of the pro forma disclosures, the estimated fair value of the stock-based awards is amortized over the vesting period. Because SFAS No. 123 is applicable only to awards granted after May 27, 1995, the pro forma effect was not fully reflected until 1999. SHAREHOLDER RIGHTS AGREEMENT In August 1990, the Company's Board of Directors (the Board) approved a shareholder rights agreement and declared a dividend of one right for each outstanding common share. Each right entitles the holder to purchase one one-thousandth of a share of no par preferred stock at an exercise price of $40, subject to adjustment. Generally, the rights become exercisable ten days after a person or group acquires or commences a tender offer that would result in beneficial ownership of 20% or more of the common shares. In addition, the rights become exercisable if any party becomes the beneficial owner of 10% or more of the outstanding common shares and is determined by the Board to be an adverse party. Upon the occurrence of certain additional events specified in the shareholder rights agreement, each right would entitle its holder to purchase common shares of the Company (or, in some cases, a potential acquiring company) or other property having a value of twice the right's exercise price. The rights, which are not currently exercisable, expire in September 2000, but may be redeemed by action of the Board prior to that time, under certain circumstances, for $0.01 per right. BENEFIT PLANS PENSION AND POSTRETIREMENT BENEFIT PLANS Tektronix sponsors one IRS-qualified defined benefit plan, the Tektronix Cash Balance Plan, and one non-qualified defined benefit plan, the Retirement Equalization Plan, for eligible employees in the United States. The Company also sponsors pension plans in Germany, the Netherlands and the United Kingdom. In addition, the Company provides postretirement life insurance benefits to all current employees and provides certain retired and active employees with postretirement health care benefits. As a result of corporate restructuring and layoffs during fiscal year 1999, the cash balance plan experienced a decline in the number of active participants. As of January 31, 1999, the number of employees affected was deemed significant. An interim measurement was performed and curtailment accounting was implemented. A $3.3 million curtailment gain was recognized, which reduced pension expense. As of the remeasurement date, the discount rate was reduced from 7.3% to 7.0%. In 1998, the U.S. pension plan was amended, converting it from a final average pay plan to a cash balance plan. As a result of this plan amendment, the pension benefit obligation was reduced by $38.9 million. The reduction is being amortized over the average remaining service period of the active participants in the plan. Upon transition to the cash balance plan on January 1, 1998, the discount rate was reduced to reflect current market conditions. The impact of this change was an increase in the pension benefit obligation of $63.9 million as of January 1998. The following tables provide information about changes in the benefit obligation and plan assets and the funded status of the Company's pension and postretirement benefit plans.
PENSION BENEFITS POSTRETIREMENT BENEFITS IN THOUSANDS 1999 1998 1999 1998 - --------------------------------------------------------------------------------------------------------- CHANGE IN BENEFIT OBLIGATION Beginning balance $ 553,729 $ 495,945 $ 15,944 $ 15,070 Service cost 15,001 14,161 201 188 Interest cost 38,082 37,829 1,102 1,145 Actuarial loss 9,455 68,545 1,169 1,252 Curtailment 367 - - - Plan amendments 825 (38,882) - - CTE acquisition - 2,732 - - Benefit payments (36,643) (25,289) (1,953) (1,711) Exchange rate changes (3,906) (1,736) - - Participant contributions 626 424 - - ----------- ----------- ----------- ----------- Ending balance $ 577,536 $ 553,729 $ 16,463 $ 15,944 =========== =========== =========== =========== CHANGE IN FAIR VALUE OF PLAN ASSETS Beginning balance $ 538,728 $ 474,222 - - Actual return 49,559 86,512 - - Employer contributions 3,505 4,208 - - Benefit payments (36,643) (25,289) - - Other adjustments (6,524) (925) - - ----------- ----------- ----------- ----------- Ending balance $ 548,625 $ 538,728 - - =========== =========== =========== =========== Net unfunded status of the plan $ 28,911 $ 15,000 $ 16,463 $ 15,944 Unrecognized initial net obligation (1,887) (124) - - Unrecognized prior service cost 38,047 46,320 13,355 16,026 Unrecognized net gain (loss) (40,410) (37,414) 7,300 9,112 ----------- ----------- ----------- ----------- Net liability recognized $ 24,661 $ 23,782 $ 37,118 $ 41,082 =========== =========== =========== ===========
The projected benefit obligation, accumulated benefit obligation, and fair value of plan assets for certain non-U.S. plans with accumulated benefit obligations in excess of plan assets were $22.9 million, $20.2 million and zero, respectively, for 1999, and $18.7 million, $17.2 million and zero, respectively, for 1998. Assumptions used in the accounting for the Tektronix pension and postretirement benefit plans were:
ASSUMPTIONS ON A WEIGHTED AVERAGE BASIS 1999 1998 1997 - --------------------------------------------------------------------------------------- PENSION BENEFITS Discount rate 7.0% 7.0% 7.8% Rate of compensation increase 3.8% 3.7% 3.8% Expected return on plan assets 10.9% 10.9% 10.2% POSTRETIREMENT BENEFITS Discount rate 7.3% 7.3% 8.0% Rate of compensation increase 3.4% 3.8% 3.8%
Effective July 1, 1998, the Company replaced its self-funded indemnity health plan for retirees with an insured indemnity plan. The assumed health care cost trend rates used to measure the expected cost of benefits under the indemnity plan were assumed to increase by 13.3% for participants under the age of 65 and 15.6% for participants age 65 and over in the fiscal year 2000. Thereafter, these rates were assumed to gradually decrease until they reach 5.3% and 5.5%, respectively, in 2007. For the existing retiree HMO plans, the rate of increase in the cost of health care benefits was assumed 37 to be 9.3% for 2000, decreasing gradually to a rate of 5.3% in 2007. A 1.0% change in these assumptions would not have a material effect on either the postretirement benefit obligation at May 29, 1999 or the benefit credit reported for 1999. The components of net pension benefit cost and postretirement benefit credit recognized in income were:
IN THOUSANDS 1999 1998 1997 - --------------------------------------------------------------------------------------- PENSION BENEFITS Service cost $ 15,001 $ 14,161 $ 12,084 Interest cost 38,082 37,829 37,627 Expected return on plan assets (50,890) (48,634) (39,335) Amortization of transition asset (1,839) (2,059) (1,858) Amortization of prior service cost (4,039) (2,209) (740) Curtailment gain (3,311) - - Recognized actuarial net loss 3,722 1,792 2,655 Other benefit plans 2,294 1,992 1,327 ----------- ----------- ----------- Net benefit cost (credit) $ (980) $ 2,872 $ 11,760 =========== =========== =========== POSTRETIREMENT BENEFITS Service cost $ 201 $ 188 $ 177 Interest cost 1,102 1,145 1,244 Amortization of prior service cost (2,671) (2,671) (2,671) Recognized net gain (644) (747) (631) ----------- ----------- ----------- Net benefit credit $ (2,012) $ (2,085) $ (1,881) =========== =========== ===========
EMPLOYEE SAVINGS PLAN The Company has an employee savings plan that qualifies as a deferred salary arrangement under Section 401(k) of the Internal Revenue Code. Participating U.S. employees may defer up to 15% of their compensation, subject to certain regulatory limitations. Employee contributions are invested, at the employees' direction, among a variety of investment alternatives. The Company's matching contribution, which was previously invested entirely in Company stock, was increased from 3% to 4% of compensation effective January 1, 1998, and may now be invested in any one of the 401(k) plan funds. In addition, the Company contributes Company stock to the plan for all eligible employees equal to 2% of compensation. The Company's total contributions were approximately $11.4 million in 1999, $16.4 million in 1998, and $14.2 million in 1997. DERIVATIVE FINANCIAL INSTRUMENTS The Company utilizes derivative financial instruments, primarily forward foreign currency exchange contracts, to reduce the impact of foreign currency exchange rate risks where natural hedging strategies cannot be effectively employed. At the end of 1999 and 1998, the notional amounts of the Company's outstanding contracts were $75.3 million and $127.4 million, respectively. The notional or contract amounts of the hedging instruments do not represent amounts exchanged by the parties and, thus, are not a measure of the Company's exposure due to the use of derivatives. The amounts exchanged are calculated on the basis of the notional amounts and other terms of the instruments. Generally, these contracts have maturities that do not exceed one year and require the Company to exchange foreign currencies for U.S. dollars at maturity. The Company does not hold or issue derivative financial instruments for trading purposes. The purpose of the Company's hedging activities is to reduce the risk that the eventual cash flows of the underlying assets, liabilities and firm commitments will be adversely affected by changes in exchange rates. The Company's derivative activities do not create foreign currency exchange rate risk because fluctuations in the value of the instruments used for hedging purposes are offset by fluctuations in the value of the underlying exposures being hedged. The Company is exposed to credit-related losses in the event of nonperformance by counterparties to financial instruments. However, the Company has entered into these instruments with creditworthy financial institutions and considers the risk of nonperformance to be remote. FAIR VALUE OF FINANCIAL INSTRUMENTS For short-term financial instruments, including cash and cash equivalents, accounts receivable, short-term debt, accounts payable and accrued compensation, the carrying amount approximates the fair value because of the immediate or short-term nature of those instruments. The fair value of marketable equity securities is based on quoted market prices at the reporting date. The fair value of long-term debt is estimated based on quoted market prices for similar instruments or by discounting expected cash flows at rates currently available to the Company for instruments with similar risks and maturities. The differences between the fair values and carrying amounts of the Company's financial instruments, including derivatives, at May 29, 1999, and May 30, 1998, were not material. CONCENTRATIONS OF CREDIT RISK Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of trade accounts receivable. The risk is limited due to the large number of entities comprising the Company's customer base and their dispersion across many different industries and geographies. At May 29, 1999, the Company had no significant concentrations of credit risk. COMPREHENSIVE INCOME The Company adopted SFAS No. 130, "Reporting Comprehensive Income," as of the first quarter of fiscal year 1999. SFAS No. 130 establishes new rules for the reporting of comprehensive income and its components, but has no impact on the Company's net earnings or total shareholders' equity. Comprehensive income (loss) and its components were as follows:
IN THOUSANDS 1999 1998 1997 - -------------------------------------------------------------------------------------------- Net earnings (loss) (net of tax of $[24,067], 40,529 and 54,017, respectively) $ (51,161) $ 82,285 $ 114,785 Other comprehensive income (loss): Currency translation adjustment (net of tax of $188, [9,089] and [11,748], respectively) 281 (13,634) (17,622) Unrealized gain (loss) on available- for-sale securities (net of tax of $878, [2,708] and 3,837, respectively) (4,688) (11,795) 14,566 Reclassification adjustment for realized gains included in net income (net of tax of $[3,095], [11,298] and [12,120], respectively) (4,642) (16,946) (18,180) ----------- ----------- ----------- Total comprehensive income (loss) $ (60,210) $ 39,910 $ 93,549 =========== =========== ===========
38 INCOME TAXES The provision for income taxes consisted of:
IN THOUSANDS 1999 1998 1997 - --------------------------------------------------------------------------------------- Current: Federal $ (20,003) $ 30,979 $ 21,457 State (1,030) 5,060 3,742 Non-U.S. 21,153 10,826 7,854 ----------- ----------- ----------- 120 46,865 33,053 Deferred: Federal (29,178) (180) 15,921 State (1,299) (460) 2,015 Non-U.S. 6,281 (5,696) 3,028 ----------- ----------- ----------- (24,196) (6,336) 20,964 ----------- ----------- ----------- Total provision $ (24,076) $ 40,529 $ 54,017 =========== =========== ===========
The provisions differ from the amounts that would result by applying the U.S. statutory rate to earnings before taxes. A reconciliation of the difference is:
IN THOUSANDS 1999 1998 1997 - -------------------------------------------------------------------------------------------- Income taxes based on U.S. statutory rate $ (26,333) $ 42,985 $ 59,081 State income taxes, net of U.S. tax (1,514) 2,990 3,742 Foreign sales corporation - (6,391) (5,935) Change in beginning of year valuation allowance - (505) (3,824) Other - net 3,771 1,450 953 ----------- ----------- ----------- Total provision $ (24,076) $ 40,529 $ 54,017 =========== =========== ===========
Tax benefits of $0.3 million, $7.8 million and $5.6 million associated with the exercise of employee stock options were credited to common stock in 1999, 1998 and 1997, respectively. Net deferred tax assets and liabilities are included in the following consolidated balance sheet accounts:
IN THOUSANDS 1999 1998 - ------------------------------------------------------------------------------- Other current assets $ 59,325 $ 52,434 Deferred tax assets 56,405 25,102 ----------- ----------- Net deferred tax assets $ 115,730 $ 77,536 =========== ===========
The temporary differences and carryforwards that gave rise to deferred tax assets and liabilities were as follows:
IN THOUSANDS 1999 1998 - ------------------------------------------------------------------------------- Deferred tax assets: Reserves and other liabilities $ 45,988 $ 43,179 Restructuring costs and separation programs 20,904 7,463 Net operating losses 20,786 5,324 AMT and foreign tax credit carryforwards 20,412 8,243 Accrued postretirement benefits 14,949 16,022 Accumulated depreciation 12,348 9,162 Intangibles 4,909 8,271 Accrued pension liability 3,382 6,632 ----------- ----------- Gross deferred tax assets 143,678 104,296 Less valuation allowance (2,600) (2,600) ----------- ----------- Deferred tax assets 141,078 101,696 ----------- ----------- Deferred tax liabilities: Software development costs (26,280) (19,167) Unrealized gains on marketable equity securities 932 (4,993) ----------- ----------- Deferred tax liabilities (25,348) (24,160) ----------- ----------- Net deferred tax assets $ 115,730 $ 77,536 =========== ===========
At May 29, 1999, there were $16.5 million of unused foreign tax credit carryovers which, if not used, will expire in 2004. There were $3.9 million of alternative minimum tax (AMT) credits that can be carried forward indefinitely. There were $15.0 million of U.S. net operating loss carryovers which, if not used, will expire in 2019. U.S. taxes have not been provided on $103.2 million of accumulated unremitted earnings of non-U.S. subsidiaries because such earnings are or will be reinvested in operations or will be offset by appropriate credits for foreign income taxes paid. QUARTERLY FINANCIAL DATA (UNAUDITED) In the opinion of management, this unaudited quarterly financial summary includes all adjustments necessary to present fairly the results for the periods represented (in thousands, except per share amounts):
AUG. 29, NOV. 28, FEB. 27, MAY 29, QUARTER ENDED 1998 1998 1999 1999 - ------------------------------------------------------------------------------------------------------- Net sales $ 418,979 $ 432,164 $ 470,608 $ 539,739 Gross profit 171,468 139,053 189,053 210,664 Operating income (loss) (7,360) (123,618) 28,835 33,002 Earnings (loss) before taxes (6,858) (126,280) 21,327 36,574 Net earnings (loss) (4,663) (85,871) 14,502 24,871 Basic earnings (loss) per share $ (0.09) $ (1.82) $ 0.31 $ 0.53 Diluted earnings (loss) per share (0.09) (1.82) 0.31 0.53 Average shares outstanding: Basic 49,475 47,077 46,846 46,877 Diluted 49,475 47,077 47,249 47,167 Dividends per share $ 0.12 $ 0.12 $ 0.12 $ 0.12 Common stock prices: High $ 38.38 $ 25.75 $ 32.38 $ 29.44 Low 16.56 13.69 19.38 17.56 AUG. 30, NOV. 29, FEB. 28, MAY 30, QUARTER ENDED 1997 1997 1998 1998 - ------------------------------------------------------------------------------------------------------- Net sales $ 481,274 $ 529,046 $ 517,570 $ 557,912 Gross profit 201,273 191,995 224,854 247,205 Operating income (loss) 38,317 (32,932) 48,599 61,317 Earnings (loss) before taxes 39,874 (31,667) 51,106 63,501 Net earnings (loss) 26,716 (21,217) 34,241 42,545 Basic earnings (loss) per share $ 0.53 $ (0.42) $ 0.68 $ 0.84 Diluted earnings (loss) per share 0.52 (0.42) 0.67 0.83 Average shares outstanding: Basic 50,303 50,546 50,483 50,452 Diluted 51,442 50,546 51,408 51,413 Dividends per share $ 0.10 $ 0.12 $ 0.12 $ 0.12 Common stock prices: High $ 43.50 $ 46.42 $ 46.25 $ 48.19 Low 36.42 37.08 35.56 36.06
The Company's common stock is traded on the New York and Pacific Stock Exchanges. There were 3,834 shareholders of record at June 24, 1999. The market prices quoted above are the composite prices reported by The Wall Street Journal rounded to full cents per share. Dividends are paid at the discretion of the Board of Directors dependent upon their judgment of the Company's future earnings, expenditures and financial condition. All share and per share amounts have been restated to give effect to the three-for-two stock split effective October 31, 1997. 39 Selected Financial Data
AMOUNTS ARE IN MILLIONS, EXCEPT PER SHARE CONSOLIDATED FINANCIAL PERFORMANCE AND EMPLOYEES. RETURNS ARE BASED ON AVERAGE NET ASSETS. 1999 1998 1997 1996 1995 - ------------------------------------------------------------------------------------------------------------------------ Net sales $ 1,861.5 $ 2,085.8 $ 1,940.1 $ 1,768.9 $ 1,498.0 Gross margin 38.2% 41.5% 42.9% 41.9% 45.3% Excluding non-recurring charges (1) 39.7% 43.3% 42.9% 41.9% 45.3% Research and development expenses 11.0% 9.7% 9.7% 9.3% 11.1% Selling, general and administrative expenses 25.8% 24.4% 24.8% 24.8% 26.7% Operating margin (3.7)% 5.5% 8.5% 8.1% 7.7% Excluding non-recurring charges (1) 2.8% 9.3% 8.5% 8.1% 7.7% Pretax margin (4.0)% 5.9% 8.7% 8.0% 7.4% Excluding non-recurring charges (1) 2.4% 9.7% 8.7% 8.0% 7.4% Earnings margin (2.7)% 3.9% 5.9% 5.6% 5.4% Excluding non-recurring charges (1) 1.7% 6.5% 5.9% 5.6% 5.4% Net earnings (loss) $ (51.2) $ 82.3 $ 114.8 $ 99.6 $ 81.6 Excluding non-recurring charges (1) $ 30.8 $ 135.2 $ 114.8 $ 99.6 $ 81.6 Basic earnings (loss) per share $ (1.07) $ 1.63 $ 2.32 $ 2.00 1.67 Excluding non-recurring charges(1) $ 0.65 $ 2.68 $ 2.32 $ 2.00 $ 1.67 Diluted earnings (loss) per share $ (1.07) $ 1.60 $ 2.29 $ 1.95 1.64 Excluding non-recurring charges(1) $ 0.64 $ 2.63 $ 2.29 $ 1.95 $ 1.64 Weighted average shares Outstanding: Basic 47.7 50.4 49.5 49.8 48.9 Diluted 47.7 51.3 50.2 51.0 49.8 Dividends per share $ 0.48 $ 0.46 $ 0.40 $ 0.40 $ 0.40 Cash and cash equivalents $ 39.7 $ 120.5 $ 142.7 $ 36.6 31.8 Total assets $ 1,359.4 $ 1,389.2 $ 1,316.7 $ 1,328.5 1,218.3 Long-term debt $ 150.7 $ 150.7 $ 151.6 $ 202.0 105.0 Total debt $ 266.4 $ 156.1 $ 157.7 $ 246.6 192.6 Total capitalization $ 621.6 $ 784.9 $ 771.3 $ 675.3 604.2 Return on equity (7.3)% 10.6% 15.9% 15.6% 15.2% Excluding non-recurring charges (1) 4.0% 16.8% 15.9% 15.6% 15.2% Ending shares outstanding 46.9 50.3 50.1 49.0 49.6 Book value per share $ 13.25 $ 15.59 $ 15.39 $ 13.77 $ 12.18 Closing share price $ 23.19 $ 38.25 $ 38.25 $ 25.25 30.67 Capital expenditures $ 107.5 $ 155.1 $ 112.0 $ 106.7 103.8 Depreciation expense $ 71.4 $ 65.9 $ 59.6 $ 47.1 40.9 Square feet in use 3.7 4.0 3.8 4.1 4.3 Employees 7,571 8,630 8,392 7,929 7,712 Net sales per employee (in thousands) $ 246.1 $ 241.7 $ 231.2 $ 223.1 194.2 Revenue from new products(2) 71% 74% 73% 67% 62% (1) Amounts for 1999 do not include non-recurring charges of $120.5 million pre-tax, $81.9 million net of tax ($1.71 per diluted share). Amounts for 1998 do not include non-recurring charges of $79.0 million pre-tax, $52.9 million net of tax ($1.05 per basic share, $1.03 per diluted share). See also the "Management Review" and the "Non-recurring Charges" Note to the Consolidated Financial Statements. (2) Represents percentage of total product sales generated by products introduced within the last two years. 40
EX-21 6 SUBSIDIARIES OF THE REGISTRANT EXHIBIT 21 SUBSIDIARIES OF TEKTRONIX, INC. Percentage of Voting Name of Subsidiary and Securities Owned by Jurisdiction in Which Organized Immediate Parent Tektronix Ges.m.b.H. (Austria) 100% Tektronix GmbH (Germany) 100 Tektronix Canada Inc. (Canada) 100 Tektronix Australia Pty. Limited (Australia) 100 Tektronix S.A.(France) 100 Tektronix N.V. (Belgium) 100 Tektronix, S.A. de C.V. (Mexico) 100 Tektronix A/S (Denmark) 100 Tektronix S.p.A. (Italy) 100 Tektronix Norge A/S (Norway) 100 Tektronix AB (Sweden) 100 Tektronix Oy (Finland) 100 Tektronix Industria e Comercio Ltda. (Brazil) 100 Tektronix Holland N.V. (The Netherlands) 100 Tektronix International A.G. (Switzerland) 100 Tektronix Distribution Europe B.V. (The Netherlands) 100 Tektronix Polska Sp. z o.o. (Poland) 100 Tektronix U.K. Limited (United Kingdom) 100 Tektronix U.K. Holdings Limited (United Kingdom) 100 Tektronix Espanola, S.A. (Spain) 100 GVG Japan, Ltd. (Japan) 100 Tektronix Foreign Sales Corporation (Guam) 100 Tektronix Hong Kong Limited (Hong Kong) 100 Tektronix Electronics (China) Co., Ltd. (China) 100 Tektronix Taiwan, Ltd. (Taiwan) 100 Tektronix Southeast Asia Pte Ltd (Singapore) 100 Tektronix Engineering Development (India) Limited (India) 100 Tektronix Korea, Ltd. (Korea) 100 Tektronix Development Company (Oregon) 100 Tektronix International, Inc. (Oregon) 100 Tektronix Federal Systems, Inc. (Oregon) 100 Tektronix Funding Corporation (Oregon) 100 Tektronix Asia, Ltd. (Oregon) 100 Tektronix Export, Inc.(Oregon) 100 Tektronix (Yangzhong) Co., Ltd. (China) 100 Tektronix Color Printing (Malaysia) Sdn. Bhd. (Malaysia) 100 Tektronix Berlin GmbH & Co., KG (Germany) 100 Tektronix Berlin Verwaltungs GmbH (Germany) 100 Tektronix Padova S.p.A. (Italy) 100 . . . . . . . . . . . . . . . . . . . . . . . Subsidiaries - Less than 100% Ownership (Parent Company/Oregon Corp. listed above): Tektronix (India) Limited (India) 95 Sony/Tektronix Corporation (Japan) 50 MaxTek Components Corporation (U.S.) 50 EX-23 7 INDEPENDENT AUDITORS CONSENT INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in Registration Statement Nos. 33-59171, 33-58511, 33-33496, 33-30648, 333-42413, and 333-68607 of Tektronix, Inc. on Form S-8 and Registration Statement Nos. 33-58635, 33-58513, 33-18658, 33-59648, and 333-73345 of Tektronix, Inc. on Form S-3 of our report dated June 23, 1999, incorporated by reference in this Annual Report on Form 10-K of Tektronix, Inc. for the year ended May 29, 1999. DELOITTE & TOUCHE LLP Portland, Oregon August 24, 1999 EX-24 8 POWERS OF ATTORNEY POWER OF ATTORNEY The undersigned constitutes and appoints JEROME J. MEYER, CARL W. NEUN and JAMES F. DALTON and each of them, as the undersigned's true and lawful attorneys and agents, with full power of substitution and resubstitution for the undersigned and in the undersigned's name, place and stead, in any and all capacities, to sign the Tektronix, Inc. Annual Report on Form 10-K for the year ended May 29, 1999 and any and all amendments thereto, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys and agents, and each of them, full power and authority to do any and all acts and things necessary or advisable to be done, as fully and to all intents and purposes as the undersigned might or could do in person, hereby ratifying and confirming all that said attorneys and agents or either of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Dated: August 17, 1999 JEROME J. MEYER ----------------------------------------- (Signature) Jerome J. Meyer ----------------------------------------- (Type or Print Name) POWER OF ATTORNEY The undersigned constitutes and appoints JEROME J. MEYER, CARL W. NEUN and JAMES F. DALTON and each of them, as the undersigned's true and lawful attorneys and agents, with full power of substitution and resubstitution for the undersigned and in the undersigned's name, place and stead, in any and all capacities, to sign the Tektronix, Inc. Annual Report on Form 10-K for the year ended May 29, 1999 and any and all amendments thereto, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys and agents, and each of them, full power and authority to do any and all acts and things necessary or advisable to be done, as fully and to all intents and purposes as the undersigned might or could do in person, hereby ratifying and confirming all that said attorneys and agents or either of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Dated: August 17, 1999 PAULINE LO ALKER ----------------------------------------- (Signature) Pauline Lo Alker ----------------------------------------- (Type or Print Name) POWER OF ATTORNEY The undersigned constitutes and appoints JEROME J. MEYER, CARL W. NEUN and JAMES F. DALTON and each of them, as the undersigned's true and lawful attorneys and agents, with full power of substitution and resubstitution for the undersigned and in the undersigned's name, place and stead, in any and all capacities, to sign the Tektronix, Inc. Annual Report on Form 10-K for the year ended May 29, 1999 and any and all amendments thereto, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys and agents, and each of them, full power and authority to do any and all acts and things necessary or advisable to be done, as fully and to all intents and purposes as the undersigned might or could do in person, hereby ratifying and confirming all that said attorneys and agents or either of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Dated: August 17, 1999 A. GARY AMES ----------------------------------------- (Signature) A. Gary Ames ----------------------------------------- (Type or Print Name) POWER OF ATTORNEY The undersigned constitutes and appoints JEROME J. MEYER, CARL W. NEUN and JAMES F. DALTON and each of them, as the undersigned's true and lawful attorneys and agents, with full power of substitution and resubstitution for the undersigned and in the undersigned's name, place and stead, in any and all capacities, to sign the Tektronix, Inc. Annual Report on Form 10-K for the year ended May 29, 1999 and any and all amendments thereto, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys and agents, and each of them, full power and authority to do any and all acts and things necessary or advisable to be done, as fully and to all intents and purposes as the undersigned might or could do in person, hereby ratifying and confirming all that said attorneys and agents or either of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Dated: August 20, 1999 GERRY B. CAMERON ----------------------------------------- (Signature) Gerry B. Cameron ----------------------------------------- (Type or Print Name) POWER OF ATTORNEY The undersigned constitutes and appoints JEROME J. MEYER, CARL W. NEUN and JAMES F. DALTON and each of them, as the undersigned's true and lawful attorneys and agents, with full power of substitution and resubstitution for the undersigned and in the undersigned's name, place and stead, in any and all capacities, to sign the Tektronix, Inc. Annual Report on Form 10-K for the year ended May 29, 1999 and any and all amendments thereto, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys and agents, and each of them, full power and authority to do any and all acts and things necessary or advisable to be done, as fully and to all intents and purposes as the undersigned might or could do in person, hereby ratifying and confirming all that said attorneys and agents or either of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Dated: August 17, 1999 DAVID N. CAMPBELL ----------------------------------------- (Signature) David N. Campbell ----------------------------------------- (Type or Print Name) POWER OF ATTORNEY The undersigned constitutes and appoints JEROME J. MEYER, CARL W. NEUN and JAMES F. DALTON and each of them, as the undersigned's true and lawful attorneys and agents, with full power of substitution and resubstitution for the undersigned and in the undersigned's name, place and stead, in any and all capacities, to sign the Tektronix, Inc. Annual Report on Form 10-K for the year ended May 29, 1999 and any and all amendments thereto, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys and agents, and each of them, full power and authority to do any and all acts and things necessary or advisable to be done, as fully and to all intents and purposes as the undersigned might or could do in person, hereby ratifying and confirming all that said attorneys and agents or either of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Dated: August 17, 1999 PAUL C. ELY, JR. ----------------------------------------- (Signature) Paul C. Ely, Jr. ----------------------------------------- (Type or Print Name) POWER OF ATTORNEY The undersigned constitutes and appoints JEROME J. MEYER, CARL W. NEUN and JAMES F. DALTON and each of them, as the undersigned's true and lawful attorneys and agents, with full power of substitution and resubstitution for the undersigned and in the undersigned's name, place and stead, in any and all capacities, to sign the Tektronix, Inc. Annual Report on Form 10-K for the year ended May 29, 1999 and any and all amendments thereto, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys and agents, and each of them, full power and authority to do any and all acts and things necessary or advisable to be done, as fully and to all intents and purposes as the undersigned might or could do in person, hereby ratifying and confirming all that said attorneys and agents or either of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Dated: August 16, 1999 FRANK C. GILL ----------------------------------------- (Signature) Frank C. Gill ----------------------------------------- (Type or Print Name) POWER OF ATTORNEY The undersigned constitutes and appoints JEROME J. MEYER, CARL W. NEUN and JAMES F. DALTON and each of them, as the undersigned's true and lawful attorneys and agents, with full power of substitution and resubstitution for the undersigned and in the undersigned's name, place and stead, in any and all capacities, to sign the Tektronix, Inc. Annual Report on Form 10-K for the year ended May 29, 1999 and any and all amendments thereto, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys and agents, and each of them, full power and authority to do any and all acts and things necessary or advisable to be done, as fully and to all intents and purposes as the undersigned might or could do in person, hereby ratifying and confirming all that said attorneys and agents or either of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Dated: August 18, 1999 A.M. GLEASON ----------------------------------------- (Signature) A.M. Gleason ----------------------------------------- (Type or Print Name) POWER OF ATTORNEY The undersigned constitutes and appoints JEROME J. MEYER, CARL W. NEUN and JAMES F. DALTON and each of them, as the undersigned's true and lawful attorneys and agents, with full power of substitution and resubstitution for the undersigned and in the undersigned's name, place and stead, in any and all capacities, to sign the Tektronix, Inc. Annual Report on Form 10-K for the year ended May 29, 1999 and any and all amendments thereto, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys and agents, and each of them, full power and authority to do any and all acts and things necessary or advisable to be done, as fully and to all intents and purposes as the undersigned might or could do in person, hereby ratifying and confirming all that said attorneys and agents or either of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Dated: August 17, 1999 MERRILL A. (TONY) MCPEAK ----------------------------------------- (Signature) Merrill A. (Tony) McPeak ----------------------------------------- (Type or Print Name) POWER OF ATTORNEY The undersigned constitutes and appoints JEROME J. MEYER, CARL W. NEUN and JAMES F. DALTON and each of them, as the undersigned's true and lawful attorneys and agents, with full power of substitution and resubstitution for the undersigned and in the undersigned's name, place and stead, in any and all capacities, to sign the Tektronix, Inc. Annual Report on Form 10-K for the year ended May 29, 1999 and any and all amendments thereto, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys and agents, and each of them, full power and authority to do any and all acts and things necessary or advisable to be done, as fully and to all intents and purposes as the undersigned might or could do in person, hereby ratifying and confirming all that said attorneys and agents or either of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Dated: August 17, 1999 RALPH V. WHITWORTH ----------------------------------------- (Signature) Ralph V. Whitworth ----------------------------------------- (Type or Print Name) EX-27 9 FINANCIAL DATA SCHEDULE
5 THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE COMPANY'S CONSOLIDATED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS 1,000 12-MOS MAY-29-1999 MAY-29-1999 39,747 0 313,274 0 273,370 719,658 852,288 410,031 1,359,365 497,046 150,722 143,263 0 0 478,299 1,359,365 1,861,490 1,861,490 1,151,252 1,151,252 779,379 0 15,712 (75,237) (24,076) (51,161) 0 0 0 (51,161) (1.07) (1.07) Amount represents net accounts receivable. Amount includes retained earnings and other comprehensive income.
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