-----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, RCPU0U4NhYdT/SPnU5LYMthEwCA+Vg+M0lI9tU3Efe4PA+Gs9N22ptOlpHXSm3/p v7eqU5jgGZGTmesCwKSaEA== /in/edgar/work/20000815/0000912057-00-037788/0000912057-00-037788.txt : 20000922 0000912057-00-037788.hdr.sgml : 20000921 ACCESSION NUMBER: 0000912057-00-037788 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 20000527 FILED AS OF DATE: 20000815 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TEKTRONIX INC CENTRAL INDEX KEY: 0000096879 STANDARD INDUSTRIAL CLASSIFICATION: [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: 703161 BUSINESS ADDRESS: STREET 1: 14200 SW KARL DRIVE CITY: BEAVERTON 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 a10-k.txt 10-K - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 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 27, 2000 OR / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ------ TO ------
COMMISSION FILE NUMBER 1-4837 ------------------------ TEKTRONIX, INC. (Exact name of Registrant as specified in its charter) OREGON 93-0343990 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 14200 S.W. KARL BRAUN DRIVE 97077 BEAVERTON, OREGON (Zip Code) (Address of principal executive offices)
Registrant's telephone number, including area code: (503) 627-7111 Securities registered pursuant to Section 12(b) of the Act:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON 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 $1,625,964,523 at July 31, 2000. At July 31, 2000 there were 48,072,773 Common Shares of the Registrant outstanding. DOCUMENTS INCORPORATED BY REFERENCE
DOCUMENT PART OF 10-K INTO WHICH INCORPORATED - -------- ------------------------------------- Registrant's Proxy Statement Part III dated August 18, 2000 2000 Annual Report to Shareholders Parts I, II and IV
- -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- PART I ITEM 1. BUSINESS. GENERAL Tektronix, Inc. is a technology company focused on providing test, measurement, and monitoring solutions to the semiconductor, computer and networking industries to enable them to design, build, deploy and manage next-generation global communications networks and Internet technologies. Revenue is derived principally through the development and marketing of a broad range of products in several key product categories: INSTRUMENTATION, including oscilloscopes, signal sources, accessories and other products; DIGITAL SYSTEMS, including logic analyzers; COMMUNICATIONS, including protocol analyzers, network monitoring products, transmission test products for optical networks, mobile handset and infrastructure test equipment, and mobile call generation systems; and VIDEO TEST, including waveform monitors, digital video compression testers conforming to the Motion Picture Engineering Group (MPEG) standards, and picture quality analysis and monitoring products. In addition, Tektronix derives revenue through support services for its products. Tektronix is an Oregon corporation organized in 1946. It is headquartered in Beaverton, Oregon, and conducts operations worldwide through wholly owned subsidiaries. See Item 1--"Business-Geographic Areas of Operations." References herein to "Tektronix" or the "Company" are to Tektronix, Inc. and its consolidated subsidiaries, unless the context indicates otherwise. The Company's common stock is listed on the New York Stock Exchange under the symbol TEK. See Item 5--"Market for Registrant's Common Equity and Related Stockholder Matters--Market Information." Tektronix historically operated in three major business divisions: Measurement, Color Printing and Imaging, and Video and Networking. On January 1, 2000, the Company sold substantially all of the assets of the Color Printing and Imaging division to Xerox Corporation. On September 24, 1999, the Company sold the Video and Networking division to Grass Valley Group, Inc. The Color Printing and Imaging division products included color printers and related supplies. Video and Networking division products included video distribution and production, video storage, and newsroom automation products. As a result of these divestitures, the Company now operates principally in one business segment. See Item 7--"Management's Discussion and Analysis of Financial Condition and Results of Operations." Financial information about the Company's historical business segments is set forth in the Notes to Consolidated Financial Statements, "Business Segments," on pages 40 and 41 of the 2000 Annual Report to Shareholders. PRODUCTS Test and measurement products include a broad range of instruments designed to allow an engineer or technician to view, measure, test or calibrate electrical and optical circuits, mechanical motion, sound or radio waves. Tektronix has provided high quality test and measurement equipment for more than fifty years. Because of their wide range of capabilities, they are used in a variety of applications, including research, design, testing, installation, manufacturing and service in the semiconductor, computer, telecommunications, video, communications network, aerospace, consumer electronics and education industries. This includes products that allow the communications and video industries to reliably, accurately, and repeatably test the communications and video services ultimately provided to their customers. INSTRUMENTATION OSCILLOSCOPES. 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. Oscilloscopes are 1 useful across a wide range of industries in manufacturing, test and design applications and can be adapted to measure mechanical motion such as vibration, sound, light, heat, pressure, strain and velocity. 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 to develop new products. For example the next generation Digital Phosphor Oscilloscope technology, introduced by Tektronix in fiscal 1999, gives design engineers real-time insight into the workings of a circuit. It provides 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. Today's engineers expect oscilloscopes to display and analyze a signal. Engineers working in different industries expect the results of this analysis to be given to them in their own industry-specific language. Tektronix addresses these industry specific challenges through application-specific modules and software that are now available on many of its products, allowing faster time to market with industry specific solutions. As an example, in Fiscal 2000 Tektronix worked with Intel and Rambus to develop a series of application specific modules to address jitter and timing analysis. Tektronix also provides to communications equipment manufacturers application modules to test equipment performance and conformity with standards defined by the International Telecommunications Union. Tektronix now also offers personal computer based instruments as a result of its acquisition of Gage Applied, Inc. in April 2000. SIGNAL SOURCES. Tektronix offers a complete line of advanced signal source products that complement oscilloscopes, logic analyzers and other measurement instruments. Tektronix Arbitrary Waveform Generators (AWGs) allow the user to generate controlled "real world" signals, including simulated glitches, drift, noise, and other anomalies that products encounter when they leave the lab or manufacturing floor. Tektronix AWGs incorporate features designed specifically for disk drive testing, automotive anti-lock brakes and engine control, communications testing, biomedical simulations, and countless other applications. Tektronix logic source products generate digital data, and are used to create complex logic stimuli and introduce precisely controlled errors or distortions to characterize, verify and improve performance of digital integrated circuits or systems. ACCESSORIES. Tektronix offers a broad range of accessories for its instrumentation products, including probes, optical products, and application software. DIGITAL SYSTEMS LOGIC ANALYZERS. Tektronix offers card-modular and stand alone logic analyzers. Logic analyzers are 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. The core of a logic analyzer is its digital acquisition capability. Tektronix has provided a series of breakthrough innovations in digital acquisition, beginning with MagniVu in 1997, and continuing with usable deep memory in 1999. These innovations have significantly reduced our customers time-to-market and have redefined the logic analyzer market. 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. The largest customers for digital systems products include computer and communication systems developers. Communication systems developers include producers of cell phones, network switches and routers, network access devices, and information appliances. Other customers include digital 2 systems developers across a wide range of industries, including industrial control, automotive, military and aerospace, and many others. COMMUNICATIONS As the telecommunications 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 telecommunications transmission. 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 products, including cable and fiber optic test products, network monitoring, and high quality streaming video products are used by these manufacturers and operators. Equipment manufacturers recommend to the operators test products that are appropriate for the installation and maintenance of the communications and video equipment they produce. PROTOCOL ANALYZERS. Protocol analyzers are instruments that monitor the traffic on a network to determine that it conforms to the specific set of rules, procedures, and conventions that are the expected "protocols" for that particular network and layer. 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. NETWORK MONITORING PRODUCTS. Tektronix network monitoring technologies and related product lines were acquired in 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. TRANSMISSION TEST PRODUCTS FOR OPTICAL NETWORKS. Transmission test products help operators verify network functionality from the physical to the protocol layers. The fundamental measure of performance or quality in digital systems is the probability of any transmitted bit being received in error. Analog transmission test measures frequency response, noise, and cross talk. Tektronix offers a full complement of communications test sets for optical DWDM (Dense Wave Division Multiplexing) 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. For example, a technician would use an OTDR to locate a fault in 20 miles of underground fiber. By generating the signal and analyzing it through the fiber it can locate the fault, display the location, and allow the technician to dig up the cable at the correct point for repair. Link-layer test equipment includes the ST2400 SDH/SONET Test Set and the CTS850 SDH/PDH and Jitter/Wander Test Set. Tektronix also offers network operators with portable test solutions allowing field maintenance and testing of 10 Gigabit per second (GB/s) optical networks. MOBILE HANDSET & INFRASTRUCTURE TEST EQUIPMENT. 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, such as Personal Communications Services (PCS) mobile phones and base stations. They allow telecommunications equipment manufacturers, who produce tens of thousands of units per month, to complete production tests quickly without sacrificing the thoroughness and accuracy that ensure product quality. In addition to manufacturing its own line of RF analyzers, Tektronix sells and supports the wireless RF test products from Rohde & Schwarz and Advantest in the United States, Canada and Mexico. One such product, the CMU200, is the only test set on the market that can provide full coverage of frequency bands ranging to 2.7 GHz, consistent with emerging standards such as Bluetooth and reassigned bands such as 450 MHz. 3 Tektronix' Mobile Call Generation System (MCGS) is widely used for final testing in mobile network components manufacturing and system integration as well as for testing mobile network components in network operators' plants. New version 2.0 enables wireless network operators to quickly resolve roaming and billing verification issues. Using the MCGS 2.0, wireless network operators can simulate real traffic in a controlled environment at any time. The MCGS 2.0 also offers international roaming verification. This allows wireless network operators to verify that the network is compatible with roaming wireless customers. By testing for the most commonly used international standards, network operators can be sure service to the customer will not be lost due to network incompatibility. VIDEO TEST Tektronix is the leading supplier of Test & Measurement equipment to traditional TV broadcasters and content providers, continuing a long relationship since the analog era. Tektronix has been awarded eight Emmy awards for technical excellence. Tektronix products assist customers in the transition from analog to digital, including high definition formats. As a voting member of various committees responsible for establishing standards for evolving technologies, Tektronix plays an important role in this transition. Historically, video signals were transmitted through the air from the broadcaster's antenna to the consumer's TV set. As technology and standards evolved, alternative transmission methods arose, including cable, satellite, and now the Internet. With the emergence of these new technologies, compressing the video signal prior to transmission has become essential to preserve bandwidth. This adds to the complexity of transmitting a viable video signal. Tektronix product solutions offer customers the ability to monitor and manage the quality of their video signal transmission, and to manage the balance between infrastructure cost and the quality of transmitted signals. Tektronix also offers solutions to quality problems inherent in these new technologies. For example, during fiscal 2000 Tektronix announced a new technique for detecting and correcting audio and visual delay errors. Using digital watermarking technology, this solution corrects these errors automatically, in real time, at the point of distribution. This is the first automated solution for this pervasive problem. WAVEFORM MONITORS. Waveform monitors display the details of a video signal. They are specialized oscilloscopes that are designed specifically for video signals. Some waveform monitors also have vectorscope capabilities that allow the user to understand information about the color in the video signal. There are waveform monitors for analog video signals, serial digital video signals and high definition video signals. These instruments are used primarily by customers who create and manipulate video content in production and post-production facilities. MPEG DIGITAL VIDEO COMPRESSION TESTERS. MPEG testers allow detailed analysis of MPEG-2 errors in digital video products. Tektronix' new MTS300 MPEG Test System is built for engineers who design or evaluate digital video products such as encoders, decoders and multiplexers. This product follows the Emmy-Registered Trademark- award-winning heritage of the MTS215, adding a new, high-performance architecture. The new architecture offers greater performance characteristics such as data rates to 140 Mb/s and a rugged chassis. PICTURE QUALITY ANALYSIS & MONITORING. Digital video test products also include picture quality analysis and monitoring products. The PQA200, used by companies that manufacture equipment, rates the quality of video content. The PQM300 is an "operational" piece of test equipment used by companies that transmit and transport video content, offering real time, in-service rating of the quality of the picture based on blockiness, gaussian noise and freeze frame. 4 VIDEOTELE.COM VideoTele.com (VTC), provides high quality streaming video products to networking, telecommunications and broadcast service providers. This business was transferred to a separate, wholly owned subsidiary of Tektronix on February 26, 2000. MANUFACTURING Tektronix' primary manufacturing facilities are located in Beaverton, Oregon. Additional software and product development occurs in Chelmsford, Massachusetts, and Bangalore, India. Some products, components and accessories are assembled in the People's Republic of China. Protocol analysis products are manufactured at a plant in Berlin, Germany. Some telecommunications test products are manufactured in Italy. PC-based instruments are manufactured in Montreal, Canada. 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. Raw materials, additional components, data processing equipment and computer peripheral devices for use in products and systems are purchased 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 adverse effect on the Company's manufacturing operations. 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, 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 by the Company's competitors. Except for VTC products, sales in Japan are made by Sony/Tektronix Corporation. Tektronix' principal customers are electronic and computer equipment component manufacturers and service providers, semiconductor manufacturers, communications and networking 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 and radio and television stations and networks. 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 27, 2000, Tektronix' unfilled Measurement product orders amounted to approximately $169.9 million, as compared to approximately $91.1 million for unfilled Measurement product orders at May 29, 1999. Tektronix expects that substantially all unfilled product orders at May 27, 2000 will be filled during its current fiscal year. Orders received by the Company are subject to cancellation by the customer. 5 GEOGRAPHIC AREAS OF OPERATIONS Tektronix conducts operations worldwide on a geographic regional basis, with those regions known as the United States, Americas, Europe, Pacific (excluding Japan) and Japan. The Americas region is based in Beaverton, Oregon and covers Canada and Latin America. The European region, which is based in Bracknell, England, covers the European countries and also some countries in the Middle-East and Africa. The Pacific and Japan regions cover the Pacific Rim, Australia, New Zealand and Japan, and are based in Hong Kong. International sales include both export sales from United States subsidiaries and sales by non-U.S. subsidiaries. See "Business Segments" in the Notes to Consolidated Financial Statements on pages 40 and 41 of the Company's 2000 Annual Report to Shareholders, containing information on sales based upon the location of the purchaser and long-lived assets by geographic area. 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 27, 2000, May 29, 1999, and May 30, 1998 amounted to approximately $136.5 million (of which $117.3 million was for Measurement products), $144.7 million (of which $108.0 million was for Measurement products), and $143.0 million (of which $105.6 million was for Measurement products), 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. 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. PATENTS AND INTELLECTUAL PROPERTY The Company holds approximately 750 patents, which cover a wide range of products and technologies and have various expiration dates. 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 generally are not patentable in their entirety. The Company also seeks to protect significant trademarks and software through trademark and copyright registration. 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. 6 Tektronix is the world's largest manufacturer of oscilloscopes and no single competitor offers as complete a product line. The Company is the leader in sales of test and measurement equipment for the television industry. It is also one of the leaders in sales of logic analyzers and 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 Technologies (formerly the measurement business of Hewlett Packard). Tektronix competes with a number of large, worldwide electronics firms that manufacture specialized equipment for the television industry with respect to its television test and measurement products. EMPLOYEES At May 27, 2000, Tektronix had 4,276 employees, of whom 1,479 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 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 62 1990 Richard H. Wills..... Chief Executive Officer 45 1997 and President Colin L. Slade....... Vice President and 46 2000 Chief Financial Officer James F. Dalton...... Vice President, General 41 1998 Counsel and Secretary David E. Coreson..... Vice President, Central 54 2000 Operations Lee M. Ellison....... Vice President, Global Sales 45 2000 and International Operations
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. Ellison. Mr. Ellison began at Tektronix in June 2000. Mr. Ellison has a 7 20-year sales background in the telecommunications industry. The last 15 of those years were with Glenayre Technologies, a leading supplier of wireless network infrastructure and devices and enhanced services platforms. While at Glenayre, he held positions as Senior Vice President of Corporate Business Development and Senior Vice President of Sales and Marketing and General Manager of Global Operations (where he managed 18 international offices). Prior to Glenayre, he held positions of national sales manager and director of major accounts for telecom-related companies. FORWARD-LOOKING STATEMENTS Statements and information included in this report that relate to future results and events (including new products) are based on the Company's current expectations. Words such as "may," "could," "expects," "believes," "forecasts," "plans," "estimates," "intends" and "anticipates" constitute forward-looking statements subject to a number of risk factors, assumptions and uncertainties that could cause actual results to differ materially from those currently expected or desired. These risks are related to, but are not limited to, timely delivery of competitive products, competition, supplier risks, worldwide economic and market conditions, the transition to a smaller company, comparability of results, intellectual property risks, environmental risks, financial market risk and other risk factors listed here and from time-to-time in the Company's filings with the Securities and Exchange Commission and press releases. TIMELY DELIVERY OF COMPETITIVE PRODUCTS Tektronix sells its products to customers that participate in rapidly changing high technology markets, which are characterized by short product life cycles. The Company's ability to deliver a timely flow of competitive new products and market acceptance of those products, as well as the ability to increase production or to develop and maintain effective sales channels, is essential to growing the business. Because Tektronix sells test and measurement products that enable its customers to develop new technologies, the Company must accurately predict the ever-evolving needs of those customers and deliver appropriate products and technologies at competitive prices to meet customer demands. The Company's ability to deliver such products could be affected by engineering or other development program slippage as well as the availability of parts and supplies from third party providers on a timely basis and at reasonable prices. Failure to deliver competitive products in a timely manner and at a reasonable price could have an adverse effect on the results of operations, financial condition or cash flows of the Company. COMPETITION Tektronix participates in the highly competitive test, measurement and monitoring industry, competing directly with Agilent Technologies, Inc., TTC/Wavetek, Wandel and Goltermann, Inc., LeCroy Corporation and others for customers. Competition in the Company's business is based primarily on product performance, technology, customer service, product availability and price. Some of the Company's competitors may have greater resources to apply to each of these factors and in some cases have built significant reputations with the customer base in each market in which Tektronix competes. The Company faces pricing pressures that have had and may continue to have an adverse impact on the Company's earnings. If the Company is unable to compete effectively on these and other factors, it could have a material adverse effect on the Company's results of operations, financial condition or cash flows. In the current business environment, the Company must also compete with these and other companies to attract and retain talented employees who will be key to the ongoing success of the Company. Risks relating to this competition could include higher than anticipated compensation expense, additional stock option issuances, new product delays and other related delays in the execution of the Company's strategic plan. 8 SUPPLIER RISKS The Company's manufacturing operations are dependent on the ability of suppliers to deliver quality components, subassemblies and completed products in time to meet critical manufacturing and distribution schedules. The Company periodically experiences constrained supply of certain component parts in some product lines as a result of strong demand in the industry for those parts. Such constraints, if persistent, may adversely affect operating results until alternate sourcing can be developed. Volatility in the prices of these component parts, an inability to secure enough components at reasonable prices to build new products in a timely manner in the quantities and configurations demanded or, conversely, a temporary oversupply of these parts, could adversely affect the Company's future operating results. WORLDWIDE ECONOMIC AND MARKET CONDITIONS Tektronix currently maintains operations in the U.S., Europe, the Pacific, the Americas and Japan. During the last fiscal year, nearly one-half of the Company's revenues were from international sales. In addition, some of the Company's manufacturing operations and key suppliers are located in foreign countries. As a result, the business is subject to the worldwide economic and market conditions risks generally associated with doing business abroad, such as fluctuating exchange rates, the stability of international monetary conditions, tariff and trade policies, domestic and foreign tax policies, foreign governmental regulations, political unrest, disruptions or delays in shipments and changes in other economic conditions. These factors, among others, could influence the Company's ability to sell in international markets, as well as its ability to manufacture products or procure supplies. A significant downturn in the global economy could adversely affect the Company's results of operations, financial position or cash flows. TRANSITION TO A SMALLER COMPANY Tektronix is in the process of transitioning from a portfolio of businesses to a company focused solely on the test, measurement and monitoring market. During fiscal year 2000, Tektronix divested itself of two of its three previously existing business divisions, Video and Networking and Color Printing and Imaging. Risks associated with these divestitures and the overall transition include the retention of some potential liabilities and other exposures related to a larger more diversified business, and the ability to successfully implement the strategic direction and restructuring actions announced in fiscal 1999 and 2000, including consolidating duplicative functions and re-sizing the existing cost structure to that of a smaller company. Failure to successfully resolve issues related to this transition in a timely manner could adversely affect the Company's future results of operations, financial condition or cash flows. COMPARABILITY OF RESULTS During 1999, the Company was subject to the effects of the Asian economic crisis and its impact on the entire global economy, which resulted in lower-than-expected sales, orders, margins and growth for the Company in that year. During 2000, the global economy has improved resulting in favorable comparisons to 1999. Although management expects continued strong growth through fiscal year 2001, it does not expect growth of the magnitude experienced in 2000 on an on-going basis. These and other factors inherent to the Company's business, including the effects of estimates, assumptions and allocations used in the preparation of stand-alone Measurement financial statements on the comparability of reported figures and the reliability of ratios and trends calculated based upon these results make it difficult to predict operating results for future quarters. INTELLECTUAL PROPERTY RISKS As a technology-based company, Tektronix' success depends on developing and protecting its intellectual property. Tektronix relies generally on patent, copyright, trademark and trade secret laws in 9 the United States and abroad. Electronic equipment as complex as most of the Company's products, however, is generally not patentable in its entirety. Tektronix also licenses intellectual property from third parties and relies on those parties to maintain and protect their technology. The Company cannot be certain that actions the Company takes to establish and protect proprietary rights will be adequate. If the Company is unable to adequately protect its technology, or if the Company is unable to continue to obtain or maintain licenses for protected technology from third parties, it could have a material adverse affect on the Company's results of operations and financial condition. From time to time in the usual course of business, the Company receives notices from third parties regarding intellectual property infringement or takes action against others with regard to intellectual property rights. Even where the Company is successful in defending or pursuing such claims, the Company may incur significant costs. In the event of a successful claim against the Company, Tektronix could lose its rights to needed technology or be required to pay license fees for the infringed rights, either of which could have an adverse impact on the Company's business. ENVIRONMENTAL RISKS Tektronix is subject to a variety of federal, state, local and foreign environmental regulations relating to the use, storage, discharge and disposal of its hazardous chemicals used during the Company's manufacturing process. The Company operates a licensed hazardous waste management facility at its Beaverton campus. If Tektronix fails to comply with any present and future regulations, the Company could be subject to future liabilities or the suspension of production. In addition, such regulations could restrict the Company's ability to expand its facilities or could require Tektronix to acquire costly equipment, or to incur other significant expenses to comply with environmental regulations. FINANCIAL MARKET RISK The Company is exposed to financial market risks, including interest rate, equity price, and foreign currency exchange rate risks. The Company is exposed to interest rate risk primarily through its short-term investments and long-term borrowings, which are used to finance operations. The Company does not hedge its interest rate exposure. The Company invests primarily in short-term, investment grade securities of various issuers, types and maturities. These investments are held by high-quality financial institutions, government and government agencies and corporations, thereby reducing credit risk. As of May 27, 2000, and May 29, 1999, the weighted average maturity of the portfolio was less than two months. The Company enters into debt obligations to support general corporate purposes, including acquisitions, working capital requirements and capital expenditures. At May 27, 2000 and May 29, 1999, the Company's debt obligations had fixed interest rates. In management's opinion, a 10% change in interest rates would not be material to the Company's results of operations, financial condition or cash flows. The Company is exposed to equity price risk primarily through its marketable equity securities portfolio, including investments in Merix and other companies. The Company has not entered into any hedging programs to mitigate equity price risk. In management's opinion, an adverse change of 20% in the value of theses securities would not be material to the Company's results of operations, financial condition or cash flows. The Company is exposed to foreign currency exchange rate risk primarily through transactions and commitments denominated in foreign currencies. 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. In management's opinion, a hypothetical 10% adverse change in foreign currency exchange rates would not have a significant effect on the Company's results of operations, financial position or cash flows. 10 OTHER RISK FACTORS Other risk factors include but are not limited to changes in the mix of products sold, regulatory and tax legislation, changes in effective tax rates, inventory risks due to changes in market demand or the Company's business strategies, potential litigation and claims arising in the normal course of business, credit risk of customers, the fact that a substantial portion of the Company's sales are generated from orders received during each quarter and other risk factors. ITEM 2. PROPERTIES. The Company's headquarters and primary manufacturing facilities are located at Beaverton, Oregon. 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. The Beaverton facilities are located in a business park (the "Howard Vollum Park"), which is owned by Tektronix. The Howard Vollum Park includes numerous buildings arranged in a campus-like setting and containing an aggregate of approximately 1.6 million gross square feet of enclosed floor space. The buildings 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. The Company leases certain excess space at the Howard Vollum Park to other corporations. A facility in Chelmsford, Massachusetts is leased for Tektronix' Broadband Transmission Test operations. Gage Applied, Inc., which was acquired during the fiscal year and which manufactures personal computer based instruments, is located in a leased facility in Montreal, Canada. Manufacturing space is also leased in Germany and Italy, relating to communications products. The Company owns a facility in Nevada City, California that is leased to Grass Valley Group Inc. (GVG). GVG purchased the Video and Networking division from Tektronix in September 1999 and continues to operate from the leased premises. Facilities in Wilsonville, Oregon and in Penang, Malaysia were sold to Xerox in January 2000 as a part of the sale of the Color Printing and Imaging division. Tektronix leases sales and service field offices throughout the world. 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. 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 47 of the Company's 2000 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 48 of the Company's 2000 Annual Report to Shareholders and is incorporated herein by reference. 11 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. The information required by this item is included on pages 21 through 28 of the Company's 2000 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 page 28 of the Company's 2000 Annual Report to Shareholders and is incorporated herein by reference. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. The information required by this item is included on pages 30 through 47 of the Company's 2000 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 18, 2000. 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 21 of the Company's Proxy Statement dated August 18, 2000. 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 18, 2000. 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 through 9 of the Company's Proxy Statement dated August 18, 2000. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. None. 12 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 2000 Annual Report to Shareholders at the pages indicated and are incorporated herein by reference:
PAGE IN 2000 ANNUAL REPORT TO SHAREHOLDERS ---------------------- Independent Auditors' Report........................... 29 Consolidated Statements of Operations.................. 30 Consolidated Balance Sheets............................ 31 Consolidated Statements of Cash Flows.................. 32 Consolidated Statements of Shareholders' Equity........ 33 Notes to Consolidated Financial Statements............. 34 through 46
(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. Articles of Amendment of Tektronix, Inc. establishing Series B No Par Preferred Shares. (ii) Bylaws, as amended. Incorporated by reference to Exhibit (3) of Form 8-K dated June 21, 2000, SEC File No. 1-4837. (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. (iv) Rights Agreement dated as of June 21, 2000, between Tektronix, Inc. and ChaseMellon Shareholder Services, L.L.C. Incorporated by reference to Exhibit (4) of Form 8-K dated June 21, 2000, SEC File No. 1-4837.
13 (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) Executive Severance Agreement, as amended (Jerome J. Meyer) dated as of October 6, 1993. Incorporated by reference to Exhibit 10(i) of Form 10-Q dated October 7, 1994, SEC File No. 1-4837. +(viii) Form of Executive Severance Agreement entered into between the Company and its named officers who are current employees. +(ix) 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. +(x) 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. +(xi) 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. +(xii) 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. +(xiii) 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. (xiv) Non-Employee Directors' Deferred Compensation Plan, 1999 Restatement dated July 1, 1999. Incorporated by reference to Exhibit 10(iii) of Form 10-Q dated October 8, 1999, SEC File No. 1-4837. +(xv) Non-Employee Directors Stock Compensation Plan, as amended through Amendment No. 2. Incorporated by reference to Exhibit 10(ii) of Form 10-Q dated October 8, 1999, SEC File No. 1-4837. +(xvi) 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. +(xvii) Separation Agreement dated December 16, 1999 between Carl W. Neun and the registrant.
14 +(xviii) 1998 Stock Option Plan, as amended. Incorporated by reference to Exhibit 10(i) of Form 10-Q dated October 8, 1999, 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 2000 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. 15 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 /s/ COLIN L. SLADE ----------------------------------------- Colin L. Slade, VICE PRESIDENT AND CHIEF FINANCIAL OFFICER Dated: August 11, 2000
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 --------- -------- ---- /s/ RICHARD H. WILLS* --------------------------------- Chief Executive Officer, President and August 11, 2000 Richard H. Wills Director /s/ J.J. MEYER* --------------------------------- Chairman of the Board August 11, 2000 Jerome J. Meyer /s/ COLIN L. SLADE Vice President and Chief Financial --------------------------------- Officer, Principal Financial and August 11, 2000 Colin L. Slade Accounting Officer /s/ PAULINE LO ALKER* --------------------------------- Director August 11, 2000 Pauline Lo Alker /s/ A. GARY AMES* --------------------------------- Director August 11, 2000 A. Gary Ames /s/ GERRY B. CAMERON* --------------------------------- Director August 11, 2000 Gerry B. Cameron /s/ D. CAMPBELL* --------------------------------- Director August 11, 2000 David N. Campbell
16
SIGNATURE CAPACITY DATE --------- -------- ---- /s/ PAUL C. ELY, JR.* --------------------------------- Director August 11, 2000 Paul C. Ely, Jr. /s/ FRANK C. GILL* --------------------------------- Director August 11, 2000 Frank C. Gill /s/ RALPH V. WHITWORTH* --------------------------------- Director August 11, 2000 Ralph V. Whitworth /s/ WILLIAM D. WALKER* --------------------------------- Director August 11, 2000 William D. Walker
*By: /s/ JAMES F. DALTON ---------------------------- James F. Dalton August 11, 2000 AS ATTORNEY-IN-FACT
17 EXHIBIT LIST
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. Articles of Amendment of Tektronix, Inc. establishing Series B No Par Preferred Shares. (ii) Bylaws, as amended. Incorporated by reference to Exhibit (3) of Form 8-K dated June 21, 2000, SEC File No. 1-4837. (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. (iv) Rights Agreement dated as of June 21, 2000, between Tektronix, Inc. and ChaseMellon Shareholder Services, L.L.C. Incorporated by reference to Exhibit (4) of Form 8-K dated June 21, 2000, 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) Executive Severance Agreement, as amended (Jerome J. Meyer) dated as of October 6, 1993. Incorporated by reference to Exhibit 10(i) of Form 10-Q dated October 7, 1994, SEC File No. 1-4837. +(viii) 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. +(ix) 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. +(x) 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. +(xi) 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.
EXHIBIT NUMBER DESCRIPTION ---------------- ----------- +(xii) 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. +(xiii) 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. (xiv) Non-Employee Directors' Deferred Compensation Plan, 1999 Restatement dated July 1, 1999. Incorporated by reference to Exhibit 10(iii) of Form 10-Q dated October 8, 1999, SEC File No. 1-4837. +(xv) Non-Employee Directors Stock Compensation Plan, as amended through Amendment No. 2. Incorporated by reference to Exhibit 10(ii) of Form 10-Q dated October 8, 1999, SEC File No. 1-4837. +(xvi) 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. +(xvii) Separation Agreement dated December 16, 1999 between Carl W. Neun and the registrant. +(xviii) 1998 Stock Option Plan, as amended. Incorporated by reference to Exhibit 10(i) of Form 10-Q dated October 8, 1999, 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 2000 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.(I) 2 ex-3_i.txt EXHIBIT (3)(I) Exhibit (3)(i) ARTICLES OF AMENDMENT OF TEKTRONIX, INC. ESTABLISHING SERIES B NO PAR PREFERRED SHARES Pursuant to the Oregon Business Corporation Act, these Articles of Amendment were adopted by the undersigned corporation: 1. The name of the corporation is Tektronix, Inc. 2. On June 21, 2000, the following amendment to the Restated Articles of Incorporation, as amended, of the corporation was duly adopted by the Board of Directors pursuant to ORS 60.134: Article XIV is added to read as follows: ARTICLE XIV This Article XIV sets forth, the designation, preferences, limitations and relative rights of a series of No Par Preferred Shares of the corporation as determined by the board of directors of the corporation pursuant to its authority under Oregon Revised Statutes 60.134 and Section 3 of Article III of these Restated Articles of Incorporation. 1. DESIGNATION AND AMOUNT. The shares of such series shall be designated as "Series B No Par Preferred Shares" and the number of shares constituting such series shall be 125,000. 2. DIVIDENDS AND DISTRIBUTIONS. (i) The holders of shares of Series B No Par Preferred Shares shall be entitled to receive, when and as declared by the board of directors, out of funds legally available for the purpose, dividends in an amount per share equal to 1,000 (the "Adjustment Number") multiplied by the aggregate per share amount of all cash dividends, and the Adjustment Number multiplied by the aggregate per share amount (payable in kind) of all non-cash dividends or other distributions other than a dividend payable in Common Shares or a subdivision of the outstanding Common Shares (by reclassification or otherwise), declared on the Common Shares, without par value, of the corporation (the "Common Shares") after the first issuance of any share or fraction of a share of Series B No Par Preferred Shares. (ii) The corporation shall declare a dividend or distribution on the Series B No Par Preferred Shares as provided in subparagraph 2 (i) at the same time that it declares a dividend or distribution on the Common Shares (other than a dividend payable in Common Shares). (iii) Dividends shall not be cumulative. Unpaid dividends shall not bear interest. Dividends paid on the Series B No Par Preferred Shares in an amount less than the total amount of such dividends at the time accrued and payable on such shares shall be allocated pro rata on a share-by-share basis among all such shares at the time outstanding. 3. VOTING RIGHTS. The holders of Series B No Par Preferred Shares shall have the following voting rights: (i) Each Series B No Par Preferred Share shall entitle the holder thereof to the number of votes equal to the Adjustment Number then in effect on all matters submitted to a vote of the shareholders of the corporation. (ii) Except as otherwise provided herein or by law, the holders of Series B No Par Preferred Shares and the holders of common shares shall vote together as one class on all matters submitted to a vote of shareholders of the corporation. 4. CERTAIN RESTRICTIONS. (i) Whenever dividends or distributions payable on the Series B No Par Preferred Shares as provided in Section 2 have not been declared or paid for any fiscal year, until all such dividends and distributions for such fiscal year on Series B No Par Preferred Shares outstanding shall have been declared and paid in full, the corporation shall not in such fiscal year (a) declare or pay dividends on or make any other distributions on any shares of stock ranking junior or on a parity (either as to dividends or upon liquidation, dissolution or winding up) to the Series B No Par Preferred shares except dividends paid ratably on the Series B No Par Preferred Shares and all such parity stock on which dividends are payable in proportion to the total amounts to which the holders of all such shares are then entitled and dividends or distributions payable in Common Shares; (b) purchase or otherwise acquire for consideration any Series B No Par Preferred Shares or any shares of stock ranking on a parity with the Series B No Par Preferred Shares, except in accordance with a purchase offer made in writing or by publication (as determined by the board of directors) to all holders of such shares upon such terms as the board of directors, after consideration of the respective dividend rates and other relative rights and preferences of the respective series and classes, shall determine in 2 good faith will result in fair and equitable treatment among the respective series or classes. (ii) The corporation shall not permit any subsidiary of the corporation to purchase or otherwise acquire for consideration any shares of stock of the corporation unless the corporation could, under subparagraph 4(i), purchase or otherwise acquire such shares at such time and in such manner. 5. RESTRICTION ON ISSUANCE OF SHARES; REACQUIRED SHARES. The corporation shall not issue any Series B No Par Preferred Shares except upon exercise of rights (the "Rights") issued pursuant to the Rights Agreement dated as of June 21, 2000, between the corporation and ChaseMellon Shareholder Services, L.L.C., (the "Rights Agreement"), a copy of which is on file with the secretary of the corporation at its principal executive office and shall be made available to shareholders of record without charge upon written request. Any Series B No Par Preferred Shares purchased or otherwise acquired by the corporation in any manner whatsoever may be restored to the status of authorized but unissued shares after, the acquisition thereof. All such shares shall upon any such restoration become authorized but unissued shares of Preferred Shares and may be reissued as part of a new series of Preferred Shares to be created by the board of directors, subject to the conditions and restrictions on issuance set forth herein. 6. LIQUIDATION, DISSOLUTION OR WINDING UP. (i) Upon any liquidation (voluntary or otherwise), dissolution or winding up of the corporation, no distribution shall be made to the holders of shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series B No Par Preferred Shares unless, prior thereto, the holders of shares of Series B No Par Preferred Shares shall have received the Adjustment Number multiplied by the per share amount to be distributed to holders of Common Shares, plus an amount equal to declared and unpaid dividends and distributions thereon to the date of such payment (the "Series B Liquidation Preference"). Following the payment of the full amount of the Series B Liquidation Preference, no additional distributions shall be made to the holders of shares of Series B No Par Preferred Shares. (ii) In the event that there are not sufficient assets available to permit payment in full of the Series B Liquidation Preference and the liquidation preferences of all other series of Preferred Shares, if any, which rank senior to or on a parity with the Series B No Par Preferred shares, then assets shall be distributed first to holders of any series of Preferred Shares ranking senior to the Series B No Par Preferred Shares to the extent of their liquidation preferences and such remaining assets shall be distributed ratably to the holders of Series B No Par Preferred Shares and such parity shares in proportion to their respective liquidation preferences. 7. CONSOLIDATION, MERGER, ETC. In case the corporation shall enter into any consolidation, merger, combination or other transaction in which the Common 3 Shares are exchanged for or changed into other stock or securities, cash and/or any other property, then in any such case the Series B No Par Preferred Shares shall at the same time be similarly exchanged or changed in an amount per share equal to the Adjustment Number multiplied by the aggregate amount of stock, securities, cash and/or any other property (payable in kind), as the case may be, into which or for which each Common Share is changed or exchanged. 8. ANTI-DILUTION, ADJUSTMENTS TO ADJUSTMENT NUMBER. In the event the corporation shall at any time after September 7, 2000 (the "Rights Declaration Date") (i) declare any dividend on Common Shares payable in shares of Common Shares, (ii) subdivide the outstanding Common Shares, or (iii) combine the outstanding Common Shares into a smaller number of shares, then in each such case the Adjustment Number for all purpose of this Article XIV shall be adjusted by multiplying the Adjustment Number then in effect by a fraction, the numerator of which is the number of Common Shares outstanding immediately after such event and the denominator of which is the number of Common Shares that were outstanding immediately prior to such event. In the event the corporation shall at any time after the Rights Declaration Date, fix a record date for the issuance of rights, options or warrants to all holders of Common Shares entitling them (for a period expiring within 45 calendar days after such record date) to subscribe for or purchase Common Shares or securities convertible into Common Shares at a price per Common Shares (or having a conversion price per share, if a security convertible into Common Shares) less than the then Current Per Share Market Price (as defined in Section 11(d) of the Rights Agreement) of the Common Shares on such record date, then in each such case the Adjustment Number for all purposes of this Article XIV shall be adjusted by multiplying the Adjustment Number then in effect by a fraction, the numerator of which shall be the number of Common Shares outstanding on such record date plus the, number of additional Common Shares to be offered for subscription or purchase (or into which the convertible securities so to be offered are initially convertible) and the denominator of which shall be the number of common Shares outstanding on such record date plus the number of shares of Common Stock which the aggregate offering price of the total number of common Shares so to be offered (and/or the aggregate initial conversion price of the convertible securities so to be offered) would purchase at such Current Per Share Market Price (as defined in Section 11(d) of the Rights Agreement). In case such subscription price may be paid in a consideration part or all of which shall be in a form other than cash, the value of such consideration shall be as determined in good faith by the board of directors. Common Shares owned by or held for the account of the corporation shall, not be deemed outstanding for the purpose of any such computation. Such adjustment shall be made successively whenever such a record date is fixed. In the event that such rights, options or warrants are not so issued, the Adjustment Number shall be readjusted as if such record date had not been fixed; and to the extent such rights, options or warrants are issued but not exercised prior to their expiration, the Adjustment Number shall be readjusted to be the number which would have resulted from the adjustment provided for in this paragraph 8 if only the rights, options or warrants that were exercised had been issued. 4 9. NO REDEMPTION. The Series B No Par Preferred Shares shall not be redeemable at the option of the corporation or any holder thereof. Notwithstanding the foregoing sentence, the corporation may acquire Series B No Par Preferred Shares in any other manner permitted by law. 10. AMENDMENT. Subsequent to the Distribution Date (as defined in the Rights Agreement) these articles of incorporation shall not be further amended in any manner which, would materially alter or change the preferences, limitations and relative rights of the Series B No Par Preferred Shares so as to affect them adversely without the affirmative vote of the holders of a majority of the outstanding Series B No Par Preferred Shares, voting separately as a class. 11. FRACTIONAL SHARES. Series B No Par Preferred Shares may be issued in fractions of a share in integral multiples of one one-thousandth of a share, which shall entitle the holder, in proportion to such holders' fractional shares, to exercise voting rights, receive dividends, participate in distributions and to have the benefit of all other rights of holders of Series B No Par Preferred Shares. Dated: July 31, 2000 TEKTRONIX, INC. By: JAMES F. DALTON ------------------------------- James F. Dalton, Secretary 5 EX-10.8 3 ex-10_8.txt EXHIBIT 10.8 LIST OF NAMED EXECUTIVE OFFICERS WITH WHOM TEKTRONIX HAS EXECUTIVE SEVERANCE AGREEMENTS IN SUBSTANTIALLY THE FORM ATTACHED, EXCEPT MR. WILLS' AGREEMENT IS A TWO-YEAR AGREEMENT VERSUS A ONE-YEAR. Richard H. Wills James F. Dalton Colin L. Slade David E. Coreson EXECUTIVE SEVERANCE AGREEMENT Effective as of __________________ (NAME) (ADDRESS) EXECUTIVE TEKTRONIX, INC., an Oregon corporation P.O. Box 500 Beaverton, Oregon TEKTRONIX Tektronix considers the establishment and maintenance of a sound and vital management to be essential to protecting and enhancing the best interests of Tektronix and its shareholders. In order to induce Executive to remain employed by Tektronix in the face of uncertainties about the long-term strategies of Tektronix and their potential impact on the scope and nature of Executive's position with Tektronix, this Agreement sets forth the severance benefits that Tektronix will provide to Executive in the event Executive's employment by Tektronix is terminated under the circumstances described in this Agreement. 1. EMPLOYMENT RELATIONSHIP. Executive is currently employed by Tektronix as [TITLE]. Executive and Tektronix acknowledge that either party may terminate this employment relationship at any time and for any reason, subject to the obligation of Tektronix to provide the benefits specified in this Agreement in accordance with the terms hereof. Executive acknowledges that the purpose of this Agreement is to provide both for the retention of Executive and for flexibility in Tektronix's use of Executive's services. Consequently, Executive agrees that, for purposes of this Agreement, Executive's employment by Tektronix shall not be deemed terminated if Executive is assigned additional or different titles, and/or tasks and responsibilities from those currently held or assigned, provided, that any changes leave Executive with substantial management responsibility, consistent with Executive's areas of professional expertise. 2. RELEASE OF CLAIMS. In consideration for the severance benefits outlined in this Agreement, Executive agrees to execute a Release of Claims in the form attached as Exhibit A ("Release of Claims"). Executive promises to execute and deliver the Release of Claims to Tektronix within the later of forty-five (45) days from the date Executive receives the Release of Claims or on the last day of Executive's active employment. 3. COMPENSATION UPON TERMINATION. In the event that Executive's employment is terminated at any time by Tektronix other than for Cause (as defined in Section 6.1 of this Agreement), death, or Disability (as defined in Section 6.2 of this Agreement), subject to Executive's execution of a Release of Claims and compliance with the terms of this agreement (including Section 7), Executive shall be entitled to the following benefits: 3.1 As severance pay and in lieu of any further pay for periods subsequent to the date of termination, Tektronix shall pay Executive, in a single payment within the later of forty-five (45) days after termination of employment or eight days after execution of the Release of Claims, an amount in cash equal to Executive's annual base pay at the rate in effect immediately prior to the date of termination, or, if greater, an amount in cash equal to Executive's average annual base pay for the three years ending with Executive's last pay change preceding termination. 3.2 Pursuant to COBRA, Executive is entitled to extend coverage under any group health plan in which Executive and Executive's dependents are enrolled at the time of termination of employment for the 18-month statutory period, or so long as Executive remains eligible under COBRA. At the time of payment of the severance pay referenced in paragraph 3.1 above, Tektronix will pay Executive a lump sum payment in an amount equivalent to the reasonably estimated cost Executive may incur to extend for a period of eighteen (18) months under the COBRA continuation laws Executive's group health and dental plan coverage in effect at the time of termination. Executive may use this payment, as well as any payment made under 3.1, for such COBRA continuation coverage or for any other purpose. 3.3 Unless Executive's employment terminates at the end of the fiscal year, and except as provided in Section 5, Executive shall be entitled to a portion of the benefits under any incentive plans in effect at the time of termination (including the Annual Performance Improvement Plan), prorated for the portion of the plan year during which Executive was a participant. For purposes of this Agreement, Executive's participation in the Annual Performance Improvement Plan will be considered to have ended on Executive's last day of active employment. Prorated awards shall not be due and payable by Tektronix to Executive until the date that all awards are paid after the close of the incentive period. Unless the applicable plan provides for a greater payment for a participant whose employment terminates prior to the end of an incentive period (in which case the applicable plan payment shall be made), the proration shall be calculated pursuant to this Section 3.3. The payment, if any, that would have been made under Executive's award had Executive been made a participant for the full incentive period shall be calculated at the end of the incentive period. Such amount shall be divided by the total number of days in the incentive period and the result multiplied by the actual number of days Executive participated in the plan. 3.4 Tektronix will pay up to $18,000 to a third party outplacement firm selected by 2 Executive to provide career counseling assistance to Executive for a period of one (1) year following Executive's termination date. 3.5 Tektronix will permit Executive to continue to participate in its Executive Financial Counseling Program through the remainder of the term of Executive's current participation (which shall in no case be longer than one (1) year after the effective date of Executive's termination). 4. SUBSEQUENT EMPLOYMENT. The amount of any payment provided for in this Agreement shall not be reduced, offset or subject to recovery by Tektronix by reason of any compensation earned by Executive as the result of employment by another employer after termination. 5. OTHER AGREEMENTS. 5.1 In the event that severance benefits are payable to Executive under any other agreement with Tektronix in effect at the time of termination, the benefits provided in this Agreement shall not be payable to Executive. Executive may, however, elect to receive all of the benefits provided for in this Agreement in lieu of all of the benefits provided in all such Other Agreements. Any such election shall be made with respect to the Other Agreements as a whole, and Executive cannot select some benefits from one agreement and other benefits from this Agreement. For purposes of this Section 5.1, "Other Agreement" shall include, but not limited to, any change of control, "golden parachute" or employment agreement, but shall exclude any stock option agreement or stock bonus agreement or stock appreciation right agreement that may provide for accelerated vesting or related benefits upon the occurrence of a change in control. 5.2 The vesting or accrual of stock options, restricted stock, stock bonuses, or any other stock awards shall not continue following termination. Any agreements between Executive and Tektronix that relate to stock awards (including but not limited to stock options, long term incentive program, stock bonuses and restricted stock) shall be governed by such agreements and shall not be affected by this Agreement. 6. DEFINITIONS. 6.1 CAUSE. Termination by Tektronix of Executive's employment for "Cause" shall mean termination upon (a) the willful and continued failure by Executive to perform substantially Executive's reasonably assigned duties with Tektronix (other than any such failure resulting from Executive's incapacity due to physical or mental illness) after a demand for substantial performance is delivered to Executive by the Chairman of the Board of Directors or the President of Tektronix which specifically identifies the manner in which such executive believes that Executive has not substantially performed Executive's duties, or (b) the willful engaging by Executive in illegal conduct which is materially and demonstrably injurious to Tektronix. For purposes of this Section 6.1, no act, or failure to act, 3 on Executive's part shall be considered "willful" unless done, or omitted to be done, by Executive in knowing bad faith and without reasonable belief that Executive's action or omission was in, or not opposed to, the best interests of Tektronix. Any act, or failure to act, based upon authority given pursuant to a resolution duly adopted by the Board of Directors or based upon the advice of counsel for Tektronix shall be conclusively presumed to be done, or omitted to be done, by Executive in good faith and in the best interests of Tektronix. 6.2 DISABILITY. Termination by Tektronix of Executive's employment based on "Disability" shall mean termination because of Executive's absence from Executive's duties with Tektronix on a full-time basis for one hundred eighty (180) consecutive days as a result of Executive's incapacity due to physical or mental illness, unless within thirty (30) days after notice of termination by Tektronix following such absence Executive shall have returned to the full-time performance of Executive's duties. 7. NON-SOLICITATION. Executive agrees that for 18 months after Executive's employment with Tektronix terminates for any reason, with or without cause, whether by Tektronix or Executive, Executive shall not recruit, attempt to hire, solicit, or assist others in recruiting or hiring, any person who is an employee of Tektronix, or any of its subsidiaries, in each case as of the date of employment termination, or induce or attempt to induce any such employee to terminate his or her employment with Tektronix or any of its subsidiaries. In addition to other remedies that may be available to Tektronix, Tektronix shall have no obligation to pay any benefits to Executive pursuant to this Agreement, and Executive shall repay to Tektronix all benefits paid under this Agreement, if Executive violates this Section 7. 8. SUCCESSORS; BINDING AGREEMENT. 8.1 This Agreement shall be binding on and inure to the benefit of Tektronix and its successors and assigns. 8.2 This Agreement shall inure to the benefit of and be enforceable by Executive and Executive's legal representatives, executors, administrators and heirs. 9. RESIGNATION OF CORPORATE OFFICES. Executive will resign Executive's office, if any, as a director, officer or trustee of Tektronix, its subsidiaries or affiliates, effective as of the date of termination of employment. Executive agrees to provide Tektronix such written resignation(s) upon request. 10. GOVERNING LAW, ARBITRATION; REMEDIES FOR BREACH. This Agreement shall be construed in accordance with and governed by the laws of the State of Oregon. Any dispute or controversy arising under or in connection with this Agreement or the breach thereof, shall be settled exclusively by arbitration in Portland, Oregon in accordance with the Commercial Arbitration Rules of the American Arbitration Association, and judgment upon the award rendered by the Arbitrator may be entered in any court having jurisdiction thereof. Nothing in this Agreement shall preclude either party from seeking 4 injunctive relief from any court of competent jurisdiction, including a temporary restraining order and a preliminary injunction, to preserve the status quo or prevent irreparable harm. Executive acknowledges and agrees that a violation of Section 7 of this Agreement may cause irreparable harm for which Tektronix may not be fully or adequately compensated by recovery of monetary damages. 11. FEES AND EXPENSES. In the event that either party initiates arbitration under the circumstances described in this Agreement to obtain or enforce any right or benefit provided by this Agreement, the Arbitrator shall determine the prevailing party and shall award to the prevailing party, and the other party shall pay, the prevailing parties reasonable attorneys' fees and costs incurred in connection with such proceeding. 12. AMENDMENT. No provision of this Agreement may be modified unless such modification is agreed to in a writing signed by Executive and Tektronix. TEKTRONIX, INC. By: ---------------------------------- ---------------------------------------- (Employee Signature) Title: ------------------------------ 5 Exhibit A RELEASE OF CLAIMS This Release of Claims (the "Release") is made and executed by _________________ in connection with the termination of my employment with Tektronix, Inc. ("Tektronix") and in consideration of my receiving valuable severance pay and benefits as provided for in the Executive Severance Agreement ("Agreement"). These benefits are substantial consideration to which I am not otherwise entitled. On behalf of myself and my spouse, heirs, administrators and assigns, and to the fullest extent possible under applicable law, I hereby release Tektronix, its parent and related corporations, affiliates, or joint ventures, all predecessors and successors for all such entities, and all officers, directors, employees, agents, shareholders, representatives and insurers of the aforementioned (collectively the "Company") from any and all liability, damages or causes of action, whether known or unknown relating to my employment with the Company or the termination of that employment, including but not limited to any claims for additional compensation in any form, or damages or for personal injuries or attorneys' fees. This release specifically includes, but is not limited to, all claims for relief or remedy under any common law theories, including but not limited to, breach of contract or tort or tort-like theories and under any local, state or federal civil rights, labor and employment laws, including but not limited to, Employee Retirement Income Security Act (ERISA), Title VII of the Civil Rights Act of 1964, the Post-Civil War Civil Rights Acts (42 USCA Sections 1981-1988), the Civil Rights Act of 1991, the Equal Pay Act, the Age Discrimination in Employment Act, the Older Workers' Benefit Protection Act, the Americans with Disabilities Act, the Worker Adjustment and Retraining Notification Act, the Contract Work Hours and Safety Standards Act, the Walsh-Healy Act, the Rehabilitation Act of 1973, the Uniformed Services Employment and Reemployment Rights Act of 1994, the Vietnam Era Veterans Readjustment Assistance Act, the Fair Labor Standards Act, Executive Order 11,246, the Family and Medical Leave Act, and all comparable local and state laws, all as amended, and including any regulations or guidelines thereunder. This Release shall not affect any rights which I may have under any medical insurance, disability, workers' compensation, unemployment compensation or retirement plans maintained y the Company. I acknowledge that I have been given at least 45 days to consider whether to execute this Release of Claims and accept benefits under the Executive Severance Agreement; that I have been advised of my right to consult with an attorney or financial advisor of my choice and at my own expense; that the Executive Severance Agreement gives me severance pay and benefits which the Company would otherwise have no obligation to give me; and that I voluntarily enter into the Release of Claims. I understand that the Release of Claims is to be signed within 45 days from the date I received it or on my last day of employment, whichever is later, and that I may revoke the Release, provided I do so in writing within seven (7) days of signing the Release. I understand and agree 6 that the Company will have no obligation to pay me any benefits under the Agreement until the expiration of the revocation period, provided I have not revoked the Release of Claims. I understand that if I revoke the Release of Claims my termination will nonetheless remain in full force and effect and I will not be entitled to any benefits under the Agreement. I acknowledge that I have had time to consider the alternatives and consequences of my election to receive benefits under the Agreement and of signing the Release; that I am aware of my right to consult an attorney or financial advisor at my own expense; and that, in consideration for executing this Release and my election to receive benefits under the Agreement, I have received additional benefits and compensation of value to which I would not otherwise be entitled. Every provision of this Release is intended to be severable. In the event any term or provision contained in this Release is determined to be illegal, invalid or unenforceable, such illegality, invalidity or unenforceability shall not affect the other terms and provisions of this Release which shall continue in full force and effect. I HAVE READ THE FOREGOING RELEASE. I UNDERSTAND THE EFFECT OF THIS RELEASE. I UNDERSTAND THAT I AM RELEASING LEGAL RIGHTS, AND I VOLUNTARILY ENTER INTO THE RELEASE. Dated Signed: , 2000 Effective Date: , 2000 ------------------ --------------- (8th Day Following Date Signed) - ------------------------------------- Employee Name - ------------------------------------- Employee Signature 7 Exhibit B NOTICE TO ELIGIBLE PARTICIPANTS The following sets forth our understanding of certain conditions required by The Older Workers Benefit Protection Act for "knowing and willing" release of certain claims by employees over forty (40) years of age. Tektronix, Inc. ("the Company") is providing the same information and time frames in seeking a Release of Claims from all employees offered severance benefits under an Executive Severance Agreement. PLEASE READ THE FOLLOWING INFORMATION BEFORE SIGNING THE RELEASE OF CLAIMS. A. Consultation of Attorney: You have the right to consult with an attorney of your choice before you sign the Release of Claims. No one in the Company is authorized to give you advice on whether or not to consult with an attorney or whether or not to sign the Release of Claims ("Release"). The decision whether to consult an attorney or not is yours alone. Except as provided for in the Executive Severance Agreement, Tektronix does not pay for legal fees. B. Period of Consideration: You will have at least forty-five (45) calendar days to consider this offer of severance benefits under the Executive Severance Agreement and whether to accept the benefits and sign the Release of Claims. This means that you may wait until the end of the 45 day period to sign these documents and be entitled to receive severance benefits, provided you meet all other conditions of the Executive Severance Agreement. You may accept benefits by signing the Release at any time on or before the last day of the 45-day period. Please note that if you do not sign the Release by that day, you will not be eligible for the severance benefits offered. C. Period of Revocation: After you have signed the Release, you have seven (7) calendar days to revoke both your acceptance of benefits and the Release. By revoking the Release, you are exercising your right to change your mind. If you revoke the Release, though, you will not be eligible to receive the severance benefits. D. Exchange for Consideration: The Release is in exchange for "consideration" (benefits) which exceeds anything to which you may have been entitled. This means that you will receive severance benefits that you would not otherwise receive from Tektronix. Severance benefits are extra, in part, because you signed the Release. Additional Information: In the case of a separation program offered to a group of employees, we are required to make available to you certain information. The required information is listed below, with the Company's response included in parenthesis: (1) the class or group of employees covered by the program 8 DIRECT REPORTS TO THE COMPANY'S CHIEF EXECUTIVE OFFICER (2) the eligibility factors for the program SEE EXECUTIVE SEVERANCE AGREEMENT (3) time limits for the program; ALL PERSONS BEING OFFERED BENEFITS UNDER A RELEASE OF CLAIMS MUST SIGN THE AGREEMENT AND RETURN IT TO TEKTRONIX AT THE ADDRESS INDICATED ON THE RELEASE OF CLAIMS WITHIN 45 DAYS AFTER RECEIVING THE RELEASE OF CLAIMS. IF YOU DECIDE TO SIGN THE RELEASE OF CLAIMS AND RETURN IT TO THE COMPANY, YOU HAVE 7 DAYS FROM THE DATE OF YOUR SIGNATURE TO REVOKE THE RELEASE OF CLAIMS. (4) the job titles and ages of employees eligible or selected for the program; SEE LIST MAINTAINED BY THE COMPANY'S VICE PRESIDENT, HUMAN RESOURCES (5) the ages of employees in the same classification either not eligible or not selected SEE LIST MAINTAINED BY THE COMPANY'S VICE PRESIDENT, HUMAN RESOURCES PLEASE READ THE RELEASE AND GIVE IT CAREFUL CONSIDERATION BEFORE SIGNING. 9 EX-10.17 4 ex-10_17.txt EXHIBIT 10.17 [LETTERHEAD] December 16, 1999 Personal and Confidential Carl W. Neun 3530 Lakeview Blvd. Lake Oswego, OR 97035 Dear Carl: As you know, following the sale of the Color Printing and Imaging Division ("CPID"), your employment situation with Tektronix will be changing. The purpose of this letter agreement (the "Agreement") is to describe the timing and impact of certain matters relating to your employment and additional benefits to be paid to you in accordance with this Agreement. This letter is contingent upon the closing of the Xerox/CPID transaction. 1. Resignation as Officer. Currently you are Senior Vice President and Chief Financial Officer of Tektronix, Inc. and an officer of certain of Tektronix' subsidiaries. You will resign all of these officer positions following the closing of the sale of CPID, the specific date to be determined by me (the "Effective Date"). Forms of resignation are attached as Exhibit A. I anticipate that this will be approximately the same time that I step down as Chief Executive Officer. 2. New Assignment. On the Effective Date you will go on special assignment, reporting to me as Chairman to assist in an orderly transition of the management of Tektronix to a new Chief Executive Officer and a new Chief Financial Officer and on special projects I may assign to you. You will remain available to work on these matters on an on-call full-time basis until May 27, 2000. You will continue as an employee of Tektronix and your annual base pay and benefits will remain at their current levels through your last day of employment, except as provided in this Agreement. Tektronix will provide office space and clerical assistance for you as needed until May 27, 2000. You will continue to be treated as an "insider" of Tektronix for purposes of Tektronix' insider trading policies. 3. Last Day of Employment. Your official separation date and last day of employment will be May 27, 2000, at which time you will go through the normal employment termination exit process. 4. Announcements. Any internal or public announcement by Tektronix or you of the reasons for your departure from Tektronix shall be consistent with the press release issued by Tektronix on October 21, 1999. Tektronix and you will not make statements inconsistent with this reason for your departure. 5. Final Paycheck. You will receive a final paycheck on your last day of employment for work through that date. Unless your assignment requires full-time work by you until May 27, 2000, you will be expected to use all of your accrued vacation by your last day of employment. 6. Cash Payment. In recognition of your past contributions to Tektronix, and in consideration of the services to be rendered prior to May 27, 2000 and subject to your fulfilling your obligations under this Agreement (including execution of the Release in accordance with paragraph 17 and your continued employment through May 27, 2000 except for a termination on account of your death or disability), Tektronix will pay you a cash payment equal to $876,000 (the "Cash Payment"), subject to applicable withholding. Tektronix shall pay the Cash Payment by June 15, 2000. 7. Termination of Certain Agreements. The benefits provided for in this Agreement are paid to you in lieu of, and not in addition to, severance amounts payable under the Executive Severance Agreement, the Tektronix Severance Pay Plan, the Change of Control Agreement, or any other plan, policy or practice of Tektronix. The Executive Severance Agreement dated September 22, 1993 and the Change of Control Agreement dated September 22, 1993 and the Change of Control Agreement dated September 10, 1993 will be terminated as of the Closing of the sale of CPID and of no further force and effect. You specifically acknowledge that, in the event there is a "change of control" within the meaning of the Change of Control Agreement after the Closing of the sale of CPID, you will not be entitled to any benefits under the Change of Control Agreement. 8. Group Health Benefits. Tektronix will reimburse you for up to $15,000 in retirement health plan premiums (medical and dental) beginning May 28, 2000, but for not more than 24 months. After the Tektronix-paid medical coverage ends, you may continue to participate in the retiree medical plan by paying the full premium cost yourself. In addition, under the federal COBRA continuation regulations, you are entitled to extend coverage under a Tektronix dental plan in which you or your dependents are enrolled for the eighteen-month statutory period. The employee benefits department will be sending you a coverage election form at the beginning of June 2000. 9. Option Vesting. Attached on Exhibit B is a statement that shows the status of your options through November 17, 1999. Subject to your fulfilling your obligations under this Agreement (including execution of the Release and continued employment through May 27, 2000 other than in the event of death or disability), as of your last day of employment (A) the vesting of all unvested unexercised stock options will be accelerated in full and (B) the options may be exercised at any time until May 27, 2005, but in no event later than the original expiration date for the options as set forth in the applicable option agreement. *NOTE: In all cases, the extension to exercise does not extend the original term of the option grant. For example, if an option were to expire on its own terms on December 31, 2000, the extension of the exercise period as provided in this Agreement would NOT extend the exercise date beyond that date. In the event of your death, your estate has only 90 days to exercise the options. MECHANICS OF EXERCISE AFTER SEPARATION. You can continue to use the "cashless" exercise option. Upon exercise, taxes, including FICA, will continue to be withheld, and Tektronix will report the income and withholdings to the IRS. The income will be reported as wage income, and you will receive a W-2 (not a 1099) at the end of the year in which the option is exercised. 10. Restricted Stock. The restricted shares previously awarded under the Long Term Incentive Plan ("LTIP") for fiscal years 1998-2000 (12,000 shares) and held by Tektronix will remain subject to the existing terms and will be released only if, when and to the extent that the existing performance criteria have been satisfied. This determination will be made after May 27, 2000 in accordance with the LTIP. The treatment of the restricted shares previously awarded under the LTIP for fiscal years 1999-2001 (10,000) and held by Tektronix will be as determined by the Board of Directors of Tektronix prior to May 27, 2001. 11. Income Tax Returns. Income tax returns for the calendar years 1999 and 2000 will (if you so desire) be prepared by Deloitte & Touche and paid for by Tektronix. 12. Financial Counseling Services. Brownson, Rehmus & Foxworth will continue to provide counseling services, to be paid for by Tektronix, through December 31, 2000. 13. Results Share and APIP. You will continue to participate in the Results Sharing Plan until your last day of employment on the same terms as you now participate. You will continue to participate in the Annual Performance Improvement Plan ("APIP") until your last day of employment on the same terms as you now participate, except that, subject to your fulfilling the terms of this Agreement (including execution of the Release and continued employment through May 27, 2000 other than in the event of death or disability), the minimum amount that Tektronix will pay you under the APIP for FY2000 will be $219,000. If the APIP performance criteria for FY2000 are revised following the sale of CPID, the revised criteria will also apply in calculating your benefits (subject to the $219,000 minimum payment). 14. SERP. Your benefits will continue to accrue under your Supplemental Executive Retirement Agreement with Tektronix dated March 17, 1993 (the "SERP Agreement") until May 27, 2000. You will be paid a benefit (your "SERP") under the SERP Agreement in accordance with its terms, with the following modifications. Other capitalized terms used here have the meanings provided in the SERP Agreement. Your SERP will be calculated, before offsets under the Cash Balance Plan, the Retirement Equalization Plan and the Split Dollar Policy, at 39.57 [Note: Calculation is attached] percent of your Final Average Compensation for the five year period ending May 27, 2000. Final Average Compensation will include only base pay, Results Share and APIP and will not include other payments or benefits made pursuant to this Agreement. Your SERP will be calculated as of May 27, 2000, using the amount of the Retirement Plan Offsets (under the Cash Balance Plan and Retirement Equalization Plan) determined as of that date. The Split Dollar Offset as of May 27, 2000 shall be $1,863,192. Your unfunded SERP will be paid in a lump sum that is the actuarial equivalent of the SERP benefit stated in single life annuity form. Tektronix and you agree that the factor to be used to convert the monthly annuity to an actuarial equivalent lump sum amount shall be 148.2180092. Tektronix will pay your unfunded SERP benefit to you at a time it selects, but no earlier than May 27, 2000 and no later than December 31, 2000. In making such selection Tektronix will consider the income tax impact on you and Tektronix, but will have absolute discretion over the time of payment. Your benefits under the Cash Balance Plan, Retirement Equalization Plan and Split Dollar Policy will be paid as provided in the applicable plan or policy. 15. Split Dollar Life Insurance. Tektronix will pay to the insurance company on your behalf $54,733 on June 23, 2000 and another $54,733 on June 23, 2001 for the premiums on the split dollar life insurance policy maintained on your life in accordance with Amendment No. 1 dated June 23, 1994 to your Executive Severance Agreement. At the same time as these payments, Tektronix will pay you an amount of cash equal to your projected federal and state income tax and payroll tax obligation on the combination of the $54,733 payment and such amount of cash. Tektronix will have the right, at its discretion, to prepay at any time the payments provided by this paragraph 15. These payments are in lieu of any other payments by Tektronix under Amendment No. 1 to the Executive Severance Agreement and of any obligation to gross up those payments for taxes. Tektronix will continue to pay interest due on the loan secured by such life insurance until April 20, 2002, at which point the principal amount of the loan will be repaid out of the cash surrender value of the policy. Upon payoff of such loan, the Split Dollar Life Insurance policy shall be released from the collateral assignment as security for such loan and shall belong solely to you. 16. Other Benefits. Your participation in the executive health examination program and reimbursements to you for home security system costs will terminate on December 31, 2000. Tektronix will pay up to $18,000 to a third party outplacement firm selected by you to provide career counseling assistance to you for a period of two years following your last day of employment. Other executive benefits (including your golf membership) will terminate on the Effective Date. Tektronix will continue to reimburse you for reasonable business expenses relating to the performance of your duties under this Agreement, but this shall not include reimbursement for any travel expenses to the Portland area from any city where you may be located. 17. Release. You understand that as a condition to receiving the Cash Payment and certain of the other benefits offered in this Agreement, you must execute, deliver and not revoke your acceptance of the terms set forth in the Release of Claims attached hereto as Exhibit C. The Release should be executed and returned on your last day of employment. You have the right to consult with legal counsel of your own choice and at your own expense and we advise you to do so before signing the Release. 18. Assistance in Litigation. In the event Tektronix requests assistance, you agree to assist until December 31, 2001, in defense of ongoing or future litigation or claims about which you have knowledge without additional compensation. You will, however, be reimbursed for reasonable out-of-pocket expenses approved in advance by Tektronix. 19. Confidentiality. You agree to hold confidential the terms of this Agreement. You may disclose the terms to your wife, accountant, attorney, financial advisor, and taxing authorities only as may be necessary for your legal and financial affairs or as required by law. Except for these disclosures, you agree not to reveal the terms of this Agreement. You understand that Tektronix may have a legal obligation to disclose some or all of the terms of this Agreement. This provision will continue in full force and effect even after all payments have been made under this Agreement. 20. Noncompetition. Until May 27, 2002, you agree that you will not, without the prior written consent of the Chairman of the Board of Directors of Tektronix, directly or indirectly, whether as employee, officer, director, independent contractor, consultant, stockholder, partner, or otherwise, engage or assist others to engage in or have any interest in any business which competes with Tektronix in the sale of test and measurement equipment in any geographic area in which Tektronix markets or has marketed its products during the year preceding the date of this letter; provided, however, that this paragraph will not prevent you from holding shares in a publicly traded company that competes with Tektronix so long as your ownership interest is less than five percent (5%) of the outstanding shares of the Company. You agree and acknowledge that the time, scope, and geographic area and other provisions of this paragraph have been specifically negotiated and that such time, scope, geographic areas, and other provisions are reasonable under the circumstances. You further agrees that if, despite this express agreement, a court should hold any portion of this paragraph as unenforceable for any reason, the maximum restrictions of time, scope and geographic area reasonable under the circumstances, as determined by the court, will be substituted for the restrictions held unenforceable. 21. Non-Solicitation. Until May 27, 2001, you agree that neither you nor any business in which you are an officer, a director, a partner or have an ownership interest will actively solicit directly or indirectly any existing employee of Tektronix without the written consent of Tektronix. The foregoing covenant shall not apply to a business in which you are an officer, director, partner or owner, if you had no prior actual knowledge of the solicitation. "Ownership interest" in a publicly traded company shall mean the ownership of more than five percent (5%) of the outstanding shares of the company. 22. General. You acknowledge that this Agreement contains the entire agreement between you and Tektronix regarding the terms of your separation from employment. There have been no other representations or commitments by Tektronix other than those stated above. If you have any questions or we can provide additional information, please let me know. Sincerely, JEROME J. MEYER Jerome J. Meyer Attachments: Exhibit A - Form of Resignation Exhibit B - Stock Option Statement Exhibit C - Release of Claims ACKNOWLEDGED AND AGREED: CARL W. NEUN - -------------------------------------------- Carl W. Neun Date: December 17, 1999 ---------------------------------------- EX-13 5 ex-13.txt EXHIBIT 13 MANAGEMENT REVIEW FORWARD-LOOKING STATEMENTS Statements and information included in this report that relate to future results and events (including new products) are based on the company's current expectations. Words such as "may," "could," "expects," "believes," "forecasts," "plans," "estimates," "intends" and "anticipates" constitute forward-looking statements subject to a number of risk factors, assumptions and uncertainties that could cause actual results to differ materially from those currently expected or desired. Some of these risk factors are discussed in the Risks and Outlook section of the Management Review. GENERAL Tektronix, Inc. (Tektronix or the company) historically operated in three major business divisions: Measurement, Color Printing and Imaging, and Video and Networking, as well as in five major geographies: the United States; Europe; the Americas, including Mexico, Canada and South America; the Pacific, excluding Japan; and Japan. During the year, the company sold the Color Printing and Imaging and Video and Networking divisions and now operates as a focused test, measurement and monitoring company, providing measurement solutions to customers in many industries, including computers, telecommunications and semiconductors. As a focused Measurement company, Tektronix enables its customers to design, build, deploy and manage next-generation global communications networks and internet technologies. Revenue is derived principally through the development and marketing of a broad range of products in several key product categories: oscilloscopes; logic analyzers; communications test equipment, including products for network monitoring and protocol test, broadband transmission test and mobile production test; video test equipment; and accessories. Revenue is also derived through providing support services for products sold worldwide. SALE OF COLOR PRINTING AND IMAGING On January 1, 2000, the company sold substantially all of the assets of the Color Printing and Imaging division to Xerox Corporation (Xerox). The purchase price was $925.0 million in cash, with certain liabilities of the division assumed by Xerox. During the third quarter of fiscal year 2000, Tektronix recorded a net gain of $340.3 million on this sale. The gain was calculated as the excess of the proceeds received over the net book value of the assets transferred, $198.5 million in income tax expense, a $60.0 million accrual for estimated liabilities related to the sale and $14.4 million in transaction and related costs. On January 26, 2000, Tektronix announced a plan for the use of the net proceeds from the sale. The plan included a common stock repurchase program, the repayment of substantially all of the company's outstanding short-term debt and the retention of the remaining proceeds for other corporate purposes. On February 23, 2000, the company purchased 0.1 million shares of its common stock for $44 per share, totaling $4.7 million, through a Dutch Auction tender offer. On March 15, 2000, the Board of Directors approved a program to purchase up to $545.0 million of the company's common stock on the open market or through negotiated transactions. As of May 27, 2000, the company had repurchased 0.7 million shares for $35.1 million under this program. The company accounted for the Color Printing and Imaging division as a discontinued operation in accordance with Accounting Principles Board (APB) Opinion No. 30, "Reporting the Results of Operations - Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions." In accordance with this accounting guidance, operating results of the division through December 31, 1999, were excluded from each applicable line of the Consolidated Statements of Operations and included in Net earnings from discontinued operations for the periods reported. Net assets of the division were excluded from each applicable line of the Consolidated Balance Sheets for all periods reported and included in Net assets of discontinued operations on those statements. The cash flows of the division were also excluded from each applicable line of the Consolidated Statements of Cash Flows and included in Net cash provided by (used in) discontinued operations on those statements. During the year ended May 27, 2000, Color Printing and Imaging realized net sales of $369.5 million and a net loss from operations of $4.0 million. During the fiscal years ended May 29, 1999 and May 30, 1998, Color Printing and Imaging realized net sales of $725.4 million and $728.7 million and net earnings of $13.4 million and $45.2 million, respectively. SALE OF VIDEO AND NETWORKING On August 9, 1999, the company announced that it had reached an agreement to sell substantially all of the operating assets of its Video and Networking division to Grass Valley Group Inc. During the first quarter of 2000, Tektronix recorded pre-tax charges of $26.1 million for losses expected to be incurred in connection with the transaction. These charges were calculated based upon the excess of the estimated net book value of assets to be transferred over the proceeds, as well as asset impairments incurred as a result of the sale. On September 24, 1999, the companies closed the transaction. Tektronix received cash of $23.7 million, before transaction costs of $1.1 million, a note receivable of $22.5 million, and a 10% equity interest in Grass Valley Group Inc., which was recorded in Other long-term assets and accounted for under the cost method. The actual loss on the sale was $26.1 million. 21 Management concluded that the sale of the Video and Networking division did not meet the criteria to be recorded as a discontinued operation in accordance with APB Opinion No. 30, as the VideoTele.com business, a portion of the division, was retained by the company. Accordingly, Video and Networking operating results through September 24, 1999, were included in results from continuing operations for the periods reported. During the year ended May 27, 2000, Video and Networking realized net sales of $59.6 million and operating losses of $21.3 million. For the years ended May 29, 1999 and May 30, 1998, Video and Networking net sales were $256.7 million and $368.2 million while operating results were losses of $42.6 million and income of $0.1 million, respectively. On February 25, 2000, Tektronix and Grass Valley Group Inc. entered into a subsequent agreement. Under this agreement, the company sold unbilled revenue on systems contracts in progress that were not a part of the original transaction. As consideration for the assets sold, the note receivable was amended to increase the principal balance and decrease the stated interest rate from 8% to 7%. The note is now carried at $27.9 million with $23.9 million classified as long-term and the remaining $4.0 million classified as short-term. In addition, a $4.6 million note receivable ($3.2 million short-term and $1.4 million long-term) was recorded for the sale of certain trade receivables that were also excluded from the original transaction. Charges of $5.5 million were incurred in conjunction with this subsequent agreement and were recorded in Charges related to the sale of Video and Networking on the Consolidated Statements of Operations. In addition, on May 25, 2000, Tektronix sold its 10% equity interest in Grass Valley Group Inc., to the majority shareholder of that company and received $6.5 million in cash, which approximated book value. STRATEGIC ACQUISITIONS During the year, the company completed the strategic acquisition of two companies for which the purchase prices and related goodwill were not material. On April 14, 2000, the company acquired Gage Applied Sciences, Inc. (Gage), a Montreal, Canada-based company focused on the high-performance, personal computer card-based instrumentation test market. In conjunction with that acquisition, the company expensed $1.1 million for the acquisition of in-process research and development (IPR&D), which was included in Non-recurring charges in the Consolidated Statements of Operations. On January 7, 2000, the company acquired Maxim Integrated Products Inc.'s (Maxim) 50% ownership interest in Maxtek Components Corporation (Maxtek), formerly a joint venture between Tektronix and Maxim, bringing the company's total ownership to 100%. Maxtek is focused on the design and manufacture of sophisticated multi-chip modules. The transactions were accounted for by the purchase method of accounting, and accordingly, the results of operations of Gage and Maxtek have been consolidated in the company's financial statements and included in the Measurement segment since the dates 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. FORMATION OF VIDEOTELE.COM AS A WHOLLY-OWNED SUBSIDIARY On February 26, 2000, the company formed a new subsidiary and transferred to it substantially all of the assets and liabilities relating to its VideoTele.com business. All of the outstanding stock of this subsidiary is owned by the company, and employees of the company working for the subsidiary have received options to purchase approximately 25% of the equity of the subsidiary. The company is considering alternatives which could reduce its ownership in the subsidiary. VideoTele.com recorded net sales of $24.5 million in 2000, which were included in net sales of the Measurement segment. SALE OF MERIX CORPORATION STOCK In May 2000, the company sold 1.15 million shares of its investment in Merix Corporation (Merix) in conjunction with a public offering by Merix. This sale resulted in a net gain of approximately $11.4 million, which was included in Other income - net in the Consolidated Statements of Operations. The company's share of Merix' earnings through the date of sale of $1.9 million have been included in Equity in business ventures' earnings (loss) in the company's Consolidated Statements of Operations. As a result of this transaction, the company accounts for its remaining investment in Merix under the cost method and no longer records a portion of the earnings of Merix in its results of operations each period as it did under the equity method. The company intends to liquidate its remaining 0.5 million shares of Merix stock through open market sales over time. SALE OF LAND AND BUILDINGS During 2000, the company completed the sale of several significant buildings and parcels of land in conjunction with its plan to exit from and consolidate within facilities while transitioning to a focused Measurement business. These sales resulted in total pre-tax gains of approximately $22.6 million, which were included in Other income - net in the Consolidated Statements of Operations. Included were $12.2 million in gains on the sales of land and office, warehouse and manufacturing facilities in Oregon, an $8.7 million gain on the sale of an office facility in Marlow, England and a $1.7 million gain on the sale of a multi-function building in Australia. RESULTS OF OPERATIONS The company recognized consolidated net earnings of $349.0 million or $7.25 per diluted share for the year ended May 27, 2000, as compared to a net loss of $51.2 million or $1.07 per diluted share in 1999 and net earnings of $82.3 million or $1.60 per diluted share in 1998. NET EARNINGS (LOSS) FROM CONTINUING OPERATIONS The company recognized net earnings from continuing operations of $12.7 million, or $0.26 per diluted share, for the year ended May 27, 2000, as compared to a net loss 22 from continuing operations of $64.5 million, or $1.35 per diluted share, during the same period in 1999. For the year ended May 30, 1998, the company realized net earnings from continuing operations of $37.0 million, or $0.72 per diluted share. During 2000, the company recorded pre-tax net non-recurring charges of $83.8 million ($54.5 million after-tax). These charges included $51.1 million in charges related to the 2000 restructuring plan, $31.6 million in charges related to the sale of Video and Networking and a $1.1 million IPR&D charge related to the acquisition of Gage. Excluding these charges, the company would have recognized net earnings from continuing operations of $67.2 million, or $1.40 per diluted share, for the year ended May 27, 2000. Highlights of results of operations, excluding non-recurring charges and as reported, for the fiscal year ended May 27, 2000 were as follows:
EXCLUDING NON- NON-RECURRING RESULTS AS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS RECURRING CHARGES CHARGES REPORTED - -------------------------------------------------------------------------------------------------------------------------------- Net sales $ 1,120,555 $ - $ 1,120,555 Cost of sales 581,433 14,758 596,191 Gross profit 539,122 (14,758) 524,364 Research and development expenses 136,494 - 136,494 Selling, general and administrative expenses 317,212 (238) 316,974 Non-recurring charges - 37,716 37,716 Charges related to the sale of Video and Networking - 31,613 31,613 Operating income 87,965 (83,849) 4,116 Net earnings from continuing operations $ 67,243 $ (54,517) $ 12,726 Earnings per share from continuing operations - basic $ 1.42 $ (1.15) $ 0.27 Earnings per share from continuing operations - diluted 1.40 (1.13) 0.26 Average shares outstanding - basic 47,278 47,278 47,278 Average shares outstanding - diluted 48,135 48,135 48,135
Net earnings from continuing operations in 2000, included other income of $8.3 million, primarily comprised of approximately $22.6 million of gains on the sale of significant land and buildings, $7.1 million of losses on the disposition of other fixed assets, $11.6 million of gains resulting from the sale of marketable equity securities, a $3.7 million loss related to the impairment of stock warrants and $2.0 million of foreign currency losses. In addition, other income included $13.1 million of other expenses such as charitable contributions, bank fees, losses related to the impairment of other assets, losses on liabilities related to assets previously sold and other miscellaneous non-operating expenses. For the year ended May 29, 1999, the company would have recognized $17.4 million, or $0.36 per diluted share, in net earnings from continuing operations, excluding $81.9 million in after-tax net non-recurring charges. Highlights of 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 $ 1,141,256 $ (5,120) $ 1,136,136 Cost of sales 631,655 25,767 657,422 Gross profit 509,601 (30,887) 478,714 Research and development expenses 140,646 4,019 144,665 Selling, general and administrative expenses 328,799 803 329,602 Non-recurring charges - 84,780 84,780 Operating income (loss) 30,926 (120,489) (89,563) Net earnings (loss) from continuing operations $ 17,399 $ (81,932) $ (64,533) Earnings (loss) per share from continuing operations - basic $ 0.36 $ (1.72) $ (1.35) Earnings (loss) per share from continuing operations - diluted 0.36 (1.71) (1.35) Average shares outstanding - basic 47,700 47,700 47,700 Average shares outstanding - diluted 48,032 48,032 47,700
Net earnings from continuing operations in 1999, included other income of $10.4 million, primarily comprised of approximately $14.3 million of gains on the sale of significant land and buildings, $2.2 million of losses on the disposition of other fixed assets, $6.4 million of gains resulting from the sale of marketable equity securities and $3.4 million of foreign currency losses. In addition, other income included $4.7 million of other expenses such as charitable contributions and bank fees. Fiscal year 1998 net earnings from continuing operations, included pre-tax non-recurring charges of $79.0 million ($52.9 million after-tax). Excluding these non-recurring charges, 1998 net earnings from continuing operations would have been $89.9 million or $1.75 per diluted share. NET EARNINGS FROM DISCONTINUED OPERATIONS The company recognized net earnings from discontinued operations of $336.3 million, or $6.99 per diluted share, for the year ended May 27, 2000, as compared to net earnings of $13.4 million, or $0.28 per diluted share, for the same period in 1999. For the year ended May 30, 1998, the company recognized $45.2 million, or $0.88 per diluted share, in net earnings from discontinued operations. Net earnings from discontinued operations for 2000 included the $340.3 million net gain on the sale of the Color Printing and Imaging division. NON-RECURRING CHARGES In the third quarter of 2000, the company announced and began to implement a series of actions (the 2000 plan) intended to further consolidate worldwide operations and transition the company from a portfolio of businesses to a smaller single business focused on test, measurement and monitoring. Major actions under the 2000 plan include the exit from and consolidation within underutilized facilities, including the write-off of assets that will be abandoned in 23 conjunction with this action, the write-off and disposal of certain excess service and other inventories and focused headcount reductions to streamline the company's cost structure to that of a smaller focused Measurement business and to eliminate duplicative functions within the company's infrastructure. The company recorded pre-tax non-recurring charges of $64.8 million to account for these actions, including $19.1 million for the impairment of assets, $16.8 million for lease cancellation fees and future payments on exited leased facilities and volume-based contracts, $15.5 million for the write-off and disposal of excess inventories and $13.4 million for severance worldwide. The $19.1 million charge was taken to account for the write-off of assets that will be abandoned in conjunction with exited facilities, the impairment of certain assets that were appropriate to support a portfolio of businesses but are not required to support the focused Measurement business and the write-down of prepaid royalties that were impaired as a result of the decision to de-emphasize certain product lines that are not strategic to the company's business. The company also recorded a charge of $16.8 million to account for lease cancellation fees and future payments on exited leased facilities and volume-based contracts. The facilities being exited include excess administrative space and sales facilities. Many of the remaining sales personnel will work out of home offices. A charge of $15.5 million was taken to account for the write-off and disposal of certain service inventories impaired as a result of management's commitment to streamline Measurement's service business, and VideoTele.com inventory that was impaired due to the discontinuation of certain product lines. Lastly, $13.4 million in accrued compensation was recorded to reflect focused headcount reductions of 339 employees, a net increase of seven employees over the 332 reversed under the 1999 plan, to streamline the company's cost structure to that of a smaller focused Measurement business and to eliminate excess and duplicative functions. The planned reductions are primarily in manufacturing with the remaining cuts in administrative and sales functions worldwide. Total 2000 pre-tax net non-recurring charges of $83.8 million included $64.8 million in charges related to restructuring, $14.8 million in reversals of prior restructuring charges, $1.1 million in other restructuring-related adjustments, $31.6 million in charges related to the sale of Video and Networking and a $1.1 million IPR&D charge related to the Gage acquisition. For a discussion of the charges related to the sale of the Video and Networking division, see the Sale of Video and Networking section of this Management Review. The IPR&D charge is discussed in the Strategic Acquisitions section of this Management Review. In the second quarter of 1999, the company announced and began to implement a series of actions (the 1999 plan) intended to align Tektronix' worldwide operations with market conditions and to improve the profitability of its operations. The company recorded pre-tax charges of $125.7 million to account for these actions. During the third quarter of 2000, the company evaluated the remaining reserves under the 1999 plan, to determine whether they were still required. As a result of the sale of the Color Printing and Imaging division, the company determined that the $14.8 million balance in accrued compensation was not required, as the remaining 332 employees to be terminated were transferred to Xerox in conjunction with the sale or voluntarily left the company without severance. Accordingly, the excess reserves were reversed to non-recurring charges in the third quarter of 2000. Total 1999 pre-tax net non-recurring charges of $120.5 million included $125.7 million in charges related to the 1999 plan and ($5.2) million in restructuring-related and other non-recurring adjustments. During 1998, the company recorded pre-tax non-recurring charges of $79.0 million, consisting of $60.0 million in restructuring charges, as well as $17.0 million for the expensing of acquired IPR&D and $2.0 million of severance costs associated with the acquisition of Siemens' Communications Test Equipment GmbH. The restructuring charges represented the cost of a plan designed to return the Video and Networking division to profitable growth, including severance of $14.9 million, inventory impairments of $38.5 million, lease buy-outs and abandonment of facilities of $4.2 million and $2.4 million in asset impairments. All actions under this plan were completed or the charges were reversed before May 27, 2000, as the division was sold to Grass Valley Group Inc. during the year. NET SALES Consolidated net sales of $1,120.6 million for 2000 were down slightly from 1999 net sales of $1,136.1 million. This decline was due to the sale of the Video and Networking division during the year, which resulted in a $197.0 million decrease in that division's sales, offset in part by an increase in Measurement sales of $171.2 million and the addition of other sales of $10.3 million in 2000. These other sales represented circuit board sales to Grass Valley Group Inc. under a specific sales agreement that did not exist in 1999 or 1998 and will not continue in fiscal 2001. Net sales for Measurement were up 19% at $1,050.7 million, as compared to net sales of $879.5 million for 1999. Growth was driven by overall strength in the computer, telecommunications and semiconductor markets and sales of new products released late in fiscal year 1999 and during fiscal year 2000. Measurement experienced sales growth in all geographies. The United States and the Americas experienced the most significant sales growth, up $110.1 million or 25% and $25.3 million or 66% over 1999, respectively. Growth in these regions was realized across nearly all product lines, with particularly strong sales in oscilloscopes, logic analyzers and communications test products. Oscilloscope and logic analyzer sales increased due to favorable market conditions and strong demand for new products released late in fiscal year 1999 and during fiscal year 2000. Growth in the sale of communications products was driven by strong demand for mobile production test products, protocol analysis products and a new high speed optical transmission test product. 24 Consolidated net sales for 1999 were 16% lower than net sales of $1,357.1 million in 1998. Measurement net sales for 1999 were 11% lower than sales of $988.9 million for 1998. The decline in 1999 was attributed mainly to softness in the semiconductor industry in the first half of the year and the worldwide effects of the Asian economic crisis. ORDERS Consolidated orders for 2000 were $1,106.3 million, up $54.8 million or 5% over orders of $1,051.5 million in 1999, due to an increase of $249.4 million in Measurement orders, offset in part by a decrease of $194.6 million in Video and Networking orders. Measurement orders for 2000 were $1,067.3 million, up $249.4 million or 30% over 1999 orders of $817.9 million. Orders were up across all geographies, with the United States and the Pacific experiencing the largest increases. Orders from the United States were $565.5 million, up $155.9 million or 38%, while orders from the Pacific were $133.0 million, up $29.4 million or 28%, impacted by the same favorable conditions that impacted net sales. While the company expects continued strong Measurement orders, management does not expect to realize similar year-over-year orders growth in the next fiscal year due to favorable comparisons of 2000 over 1999. Consolidated 1998 orders were $1,244.8 million, while Measurement orders were $886.9 million. Orders for 1999 declined from those for 1998 due to the same negative conditions that impacted net sales. GROSS PROFIT The company's gross profit from continuing operations was $524.4 million for the year ended May 27, 2000, an increase from gross profit of $478.7 million for 1999. Excluding net non-recurring charges to cost of sales of $14.8 million in 2000, gross profit was $539.1 million or 48.1% of net sales. This is compared to gross profit of $509.6 million or 44.7% of net sales, excluding non-recurring charges to sales and cost of sales of $5.1 million and $25.8 million, respectively, for 1999. The significant increase in gross margin in the current year was due mainly to the sale of the Video and Networking division and overall improvement in Measurement margins. Measurement gross profit improved in each of the last three years. In 2000, Measurement gross profit grew to $529.8 million, or 50.4% of net sales, from $432.6 million or 49.2% of net sales for 1999. The increase resulted mainly from higher sales levels and improved margins. Gross margins improved due to higher margins on oscilloscopes introduced late in fiscal year 1999, higher margins on communications products introduced during 2000 and increased sales volume on a partially fixed cost base. Excluding non-recurring charges to cost of sales of $38.5 million, 1998 gross profit was $625.2 million or 46.1% of net sales. Overall margins decreased from 1998 to 1999 for the same reasons as net sales during that period. Measurement gross profit was $481.4 million or 48.7% of net sales in 1998. Despite the decrease in sales from 1998 to 1999, Measurement gross margins improved due to the favorable mix of products sold, higher returns on pension assets allocated to the division and lower incentive related costs incurred during 1999. OPERATING EXPENSES For the year ended May 27, 2000, operating expenses were $520.2 million, down from $568.3 million for 1999. Excluding non-recurring charges of $69.1 million, 2000 operating expenses were $451.2 million, down $27.5 million from 1999 operating expenses of $478.7 million, excluding non-recurring charges of $89.6 million. This decline was due mainly to a decrease in selling, general and administrative expenses and earnings from investments in business ventures in 2000 as compared to losses in 1999. Excluding non-recurring charges of $(0.3) million, selling, general and administrative expenses were $317.2 million or 28% of net sales for 2000, a decrease of $11.6 million from $328.8 million or 29% of net sales, excluding $0.8 million of non-recurring charges, for 1999. This decline resulted primarily from only four months of Video and Networking results included in the current year, offset in part by an increase in commissions on higher sales and other performance-related incentives and bonuses. Equity in business ventures' earnings (loss) increased from losses of $9.2 million in 1999 to income of $2.5 million in 2000. The significant losses in 1999 resulted mainly from $5.5 million of Merix' losses and $4.6 million of Sony/Tektronix' losses. Operating expenses for 1998 were $539.6 million or $499.1 million, excluding $40.5 million in net non-recurring charges. The $20.4 million decline from 1998 to 1999 was due mainly to a decrease in selling, general and administrative expenses, offset in part by the losses from business ventures in 1999 discussed above. Selling, general and administrative expenses were $358.7 million in 1998 or 26% of net sales. The $29.9 million decrease from 1998 to 1999 was primarily due to the restructuring actions and cost reduction efforts during that period. 25 NON-OPERATING INCOME AND EXPENSE Interest expense was $15.8 million, $17.8 million and $14.0 million in 2000, 1999 and 1998, respectively. Interest expense fluctuated in direct proportion to the amount of short-term debt held by the company in each year. Interest income was $23.0 million, $2.1 million and $4.0 million in 2000, 1999 and 1998 respectively. The significant increase in 2000 was mainly due to interest earned on the proceeds from the sale of the Color Printing and Imaging division. Other income - net was $8.3 million in 2000, as compared to $10.4 million and $18.3 million in 1999 and 1998, respectively. Other income included $15.5 million, $12.1 million and ($2.4) million of net gains (losses) on the disposition of fixed assets in 2000, 1999 and 1998, respectively. Also included were $7.9 million, $6.4 million and $28.3 million of net gains on the sale of marketable equity securities in 2000, 1999 and 1998 respectively. Partially offsetting these gains were other losses and expenses of $13.1 million in 2000 and $4.7 million and $7.3 million in 1999 and 1998, respectively. These other losses and expenses included charitable contributions, bank fees, losses related to the impairment of other assets, losses on liabilities related to assets previously sold and other miscellaneous non-operating expenses. INCOME TAXES Income tax expense from continuing operations was $6.9 million in 2000, as compared to an income tax benefit of $30.4 million in 1999 and expense of $18.2 million in 1998. The increase in expense in 2000 is due mainly to increased earnings from continuing operations before taxes. The decrease from 1998 to 1999 is due mainly to losses from continuing operations before taxes in 1999 as compared to earnings from continuing operations before taxes in 1998. Income tax expense related to discontinued operations was $196.4 million in 2000, including $198.5 million in expense related to the gain on the sale of the Color Printing and Imaging division, offset in part by a tax benefit of $2.1 million related to the 2000 net operating loss from the division. Tax expense related to earnings from discontinued operations was $6.3 million in 1999 and $22.3 million in 1998. The company's effective tax rate for 2000 was 35% as compared to 32% in 1999 and 33% in 1998. The increase in the tax rate from 1999 to 2000 was attributed mainly to the significant gain on the sale of the Color Printing and Imaging division realized in 2000. The decrease from 1998 to 1999 was mainly due to the losses before taxes in 1999. FINANCIAL CONDITION LIQUIDITY AND CAPITAL RESOURCES At May 27, 2000, the company held $783.7 million in cash and cash equivalents and short-term investments, as well as bank credit facilities totaling $272.3 million, of which $263.7 million was unused. Unused facilities included $113.7 million in miscellaneous lines of credit and $150.0 million under revolving credit agreements with United States and foreign banks. At May 27, 2000, the company's working capital was $781.8 million, an increase of $393.8 million from the end of 1999. Current assets increased $325.6 million during 2000, with increases in cash and cash equivalents and short-term investments, offset in part by the sale of the net assets associated with the Color Printing and Imaging division, which were $339.0 million at year end, and decreases in inventories and other current assets. Cash and cash equivalents increased $644.1 million during 2000. Significant sources of cash included: $906.1 million in net proceeds from the sale of the Color Printing and Imaging division; $53.1 million in net proceeds from sales of fixed assets; $22.6 million in net proceeds from the sale of Video and Networking and $21.4 million in net proceeds from the sale of marketable equity securities. Significant outflows of cash included: approximately $123.0 million in tax payments; $115.7 million in short-term debt; $99.9 million in short-term investments; a $42.5 million funding of the company's cash balance pension plan; $42.3 million in capital expenditures; $36.7 million in cash payments related to the 2000 restructuring plan; $16.9 million in dividends paid and approximately $13.0 million used in acquisitions of businesses. Cash flows from operating activities and borrowing capacity are expected to be sufficient to fund operations and capital expenditures through May 2002. Short-term investments were funded with a portion of the proceeds from the sale of the Color Printing and Imaging division, which were invested in various types of current investments with maturities greater than 90 days and less than one year. Inventory declined $44.3 million, due mainly to $43.6 million of Video and Networking inventory that was eliminated due to the sale of the division to Grass Valley Group Inc. Excluding the decline above, overall inventory was nearly flat. Measurement and other inventory increased $14.8 million on higher sales, offset by the $15.5 million 2000 non-recurring charge. Other current assets decreased $37.4 million from 1999, primarily due to a net decrease of $31.3 million in current income tax benefits - net, mainly as a result of the sale of the Color Printing and Imaging division. In addition, there was a $5.9 million decrease in prepaid expenses from 1999 due mainly to the write-down of prepaid royalties that were impaired as a result of the decision to de-emphasize certain product lines that are not strategic to the company's business and an overall decrease in other prepaid expenses due to the decrease in the size of the company. Short-term debt declined $115.2 million as the debt was repaid with cash received from the sale of the Color Printing and Imaging division. Accrued compensation declined $13.4 million, due mainly to a $49.5 million decrease in accrued payroll, including a $24.7 million decline in restructuring reserves and other declines related to reduced headcount, partially offset by a $36.1 million increase in unpaid incentives and benefits. Accounts payable and accrued liabilities increased $50.5 million, due mainly to the recording of $60.0 million in accruals for estimated liabilities related to the sale of the Color Printing and Imaging division and the recording of $3.3 million of accruals related to assets previously sold, offset in part by the payment of Video and Networking payables not sold to Grass Valley Group Inc. Deferred revenue increased $9.9 million due mainly to the sale of unbilled revenues on Video and Networking systems contracts to Grass Valley Group Inc. LONG-TERM FINANCIAL POSITION Net property, plant and equipment decreased $95.2 million due to the disposition of assets during the year with a net book value of $70.5 million, restructuring-related asset impairment charges of $22.8 million and depreciation expense of $44.3 million, offset in part by $42.4 million in capital expenditures (other than expenditures related to business acquisitions). Assets sold during the year included $23.4 million in Video and Networking assets. 26 Other long-term assets increased $81.4 million, due mainly to an increase of $60.5 million in prepaid pension cost and the recording of the $23.9 million long-term portion of a note receivable from Grass Valley Group Inc. Prepaid pension cost increased due to a $42.5 million required funding of the pension plan in the third quarter of 2000, as well as $10.3 million of income generated by plan assets and $7.7 million of net curtailment gains realized as a result of the sales of Video and Networking and Color Printing and Imaging in 2000. The $356.0 million increase in shareholders' equity is due mainly to $349.0 million in net earnings, $58.8 million in stock issuances and $18.1 million in tax credits received as a result of options exercised, offset in part by $16.9 million in dividends paid and $65.4 million in common stock repurchases. Effective after the payment of the second quarter 2000 dividend on January 31, the company discontinued the payment of cash dividends to shareholders in order to reinvest future earnings in targeted growth opportunities. RISKS AND OUTLOOK Many risk factors could materially impact the company's results of operations, financial condition and cash flows. These risks are related to, but are not limited to, timely delivery of competitive products, competition, supplier risks, worldwide economic and market conditions, the transition to a smaller company, comparability of results, intellectual property risks, environmental risks, financial market risk and other risk factors listed here and from time-to-time in the company's filings with the Securities and Exchange Commission and press releases. TIMELY DELIVERY OF COMPETITIVE PRODUCTS Tektronix sells its products to customers that participate in rapidly changing high technology markets, which are characterized by short product life cycles. The company's ability to deliver a timely flow of competitive new products and market acceptance of those products, as well as the ability to increase production or to develop and maintain effective sales channels, is essential to growing the business. Because Tektronix sells test and measurement products that enable its customers to develop new technologies, the company must accurately predict the ever-evolving needs of those customers and deliver appropriate products and technologies at competitive prices to meet customer demands. The company's ability to deliver such products could be affected by engineering or other development program slippage as well as the availability of parts and supplies from third party providers on a timely basis and at reasonable prices. Failure to deliver competitive products in a timely manner and at a reasonable price could have an adverse effect on the results of operations, financial condition or cash flows of the company. COMPETITION Tektronix participates in the highly competitive test, measurement and monitoring industry, competing directly with Agilent Technologies, Inc., TTC/Wavetek, Wandel and Goltermann, Inc., LeCroy Corporation and others for customers. Competition in the company's business is based primarily on product performance, technology, customer service, product availability and price. Some of the company's competitors may have greater resources to apply to each of these factors and in some cases have built significant reputations with the customer base in each market in which Tektronix competes. The company faces pricing pressures that have had and may continue to have an adverse impact on the company's earnings. If the company is unable to compete effectively on these and other factors, it could have a material adverse effect on the company's results of operations, financial condition or cash flows. In the current business environment, the company must also compete with these and other companies to attract and retain talented employees who will be key to the on-going success of the company. Risks relating to this competition could include higher than anticipated compensation expense, additional stock option issuances, new product delays and other related delays in the execution of the company's strategic plan. SUPPLIER RISKS The company's manufacturing operations are dependent on the ability of suppliers to deliver quality components, subassemblies and completed products in time to meet critical manufacturing and distribution schedules. The company periodically experiences constrained supply of certain component parts in some product lines as a result of strong demand in the industry for those parts. Such constraints, if persistent, may adversely affect operating results until alternate sourcing can be developed. Volatility in the prices of these component parts, an inability to secure enough components at reasonable prices to build new products in a timely manner in the quantities and configurations demanded or, conversely, a temporary oversupply of these parts, could adversely affect the company's future operating results. WORLDWIDE ECONOMIC AND MARKET CONDITIONS Tektronix currently maintains operations in the U.S., Europe, the Pacific, the Americas and Japan. During the last fiscal year, nearly one-half of the company's revenues were from international sales. In addition, some of the company's manufacturing operations and key suppliers are located in foreign countries. As a result, the business is subject to the worldwide economic and market conditions risks generally associated with doing business abroad, such as fluctuating exchange rates, the stability of international monetary conditions, tariff and trade policies, domestic and foreign tax policies, foreign governmental regulations, political unrest, disruptions or delays in shipments and changes in other economic conditions. These factors, among others, could influence the company's ability to sell in international markets, as well as its ability to manufacture products or procure supplies. A significant downturn in the global economy could adversely affect the company's results of operations, financial position or cash flows. TRANSITION TO A SMALLER COMPANY Tektronix is in the process of transitioning from a portfolio of businesses to a company focused solely on the test, measurement and monitoring market. During fiscal year 2000, Tektronix divested itself of two of its three previously existing business divisions, Video and Networking and Color Printing and Imaging. Risks associated with these divestitures and the overall transition include the retention of some potential liabilities and other exposures related to a larger more diversified business, and the ability to successfully implement the strategic direction and restructuring actions announced in fiscal 1999 and 2000, including consolidating duplicative functions and re-sizing the existing cost structure to that of a smaller company. Failure to successfully resolve issues 27 related to this transition in a timely manner could adversely affect the company's future results of operations, financial condition or cash flows. COMPARABILITY OF RESULTS During 1999, the company was subject to the effects of the Asian economic crisis and its impact on the entire global economy, which resulted in lower-than-expected sales, orders, margins and growth for the company in that year. During 2000, the global economy has improved resulting in favorable comparisons to 1999. Although management expects continued strong growth through fiscal year 2001, it does not expect growth of the magnitude experienced in 2000 on an on-going basis. These and other factors inherent to the company's business, including the effects of estimates, assumptions and allocations used in the preparation of stand-alone Measurement financial statements on the comparability of reported figures and the reliability of ratios and trends calculated based upon these results make it difficult to predict operating results for future quarters. INTELLECTUAL PROPERTY RISKS As a technology-based company, Tektronix' success depends on developing and protecting its intellectual property. Tektronix relies generally on patent, copyright, trademark and trade secret laws in the United States and abroad. Electronic equipment as complex as most of the company's products, however, is generally not patentable in its entirety. Tektronix also licenses intellectual property from third parties and relies on those parties to maintain and protect their technology. The company cannot be certain that actions the company takes to establish and protect proprietary rights will be adequate. If the company is unable to adequately protect its technology, or if the company is unable to continue to obtain or maintain licenses for protected technology from third parties, it could have a material adverse affect on the company's results of operations and financial condition. From time to time in the usual course of business, the company receives notices from third parties regarding intellectual property infringement or takes action against others with regard to intellectual property rights. Even where the company is successful in defending or pursuing such claims, the company may incur significant costs. In the event of a successful claim against the company, Tektronix could lose its rights to needed technology or be required to pay license fees for the infringed rights, either of which could have an adverse impact on the company's business. ENVIRONMENTAL RISKS Tektronix is subject to a variety of federal, state, local and foreign environmental regulations relating to the use, storage, discharge and disposal of its hazardous chemicals used during the company's manufacturing process. The company operates a licensed hazardous waste management facility at its Beaverton campus. If Tektronix fails to comply with any present and future regulations, the company could be subject to future liabilities or the suspension of production. In addition, such regulations could restrict the company's ability to expand its facilities or could require Tektronix to acquire costly equipment, or to incur other significant expenses to comply with environmental regulations. FINANCIAL MARKET RISK The company is exposed to financial market risks, including interest rate, equity price, and foreign currency exchange rate risks. The company is exposed to interest rate risk primarily through its short-term investments and long-term borrowings, which are used to finance operations. The company does not hedge its interest rate exposure. The company invests primarily in short-term, investment grade securities of various issuers, types and maturities. These investments are held by high-quality financial institutions, government and government agencies and corporations, thereby reducing credit risk. As of May 27, 2000, and May 29, 1999, the weighted average maturity of the portfolio was less than two months. The company enters into debt obligations to support general corporate purposes, including acquisitions, working capital requirements and capital expenditures. At May 27, 2000 and May 29, 1999, the company's debt obligations had fixed interest rates. In management's opinion, a 10% change in interest rates would not be material to the company's results of operations, financial condition or cash flows. The company is exposed to equity price risk primarily through its marketable equity securities portfolio, including investments in Merix and other companies. The company has not entered into any hedging programs to mitigate equity price risk. In management's opinion, an adverse change of 20% in the value of theses securities would not be material to the company's results of operations, financial condition or cash flows. The company is exposed to foreign currency exchange rate risk primarily through transactions and commitments denominated in foreign currencies. 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. In management's opinion, a hypothetical 10% adverse change in foreign currency exchange rates would not have a significant effect on the company's results of operations, financial position or cash flows. OTHER RISK FACTORS Other risk factors include but are not limited to changes in the mix of products sold, regulatory and tax legislation, changes in effective tax rates, inventory risks due to changes in market demand or the company's business strategies, potential litigation and claims arising in the normal course of business, credit risk of customers, the fact that a substantial portion of the company's sales are generated from orders received during each quarter and other risk factors. RECENT ACCOUNTING PRONOUNCEMENTS In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging Activities." The statement will require recognition of all derivatives as either assets or liabilities on the balance sheet at fair value. The statement is effective for the company's fiscal year 2002, as deferred by SFAS No. 137, but early adoption is permitted. Management has not yet completed an evaluation of the effects this standard will have on the company's consolidated financial statements. In December 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin (SAB) No. 101, "Revenue Recognition in Financial Statements." The effective date of the bulletin was delayed according to SAB No. 101A and SAB No. 101B and will be effective for the company's fourth quarter of fiscal year 2001. Management has not yet completed an evaluation of the effects this bulletin will have on the company's consolidated financial statements. 28 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 accounting principles generally accepted in the United States of America 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, as prescribed by its charter, is composed entirely of outside directors and 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 MERRILL A. MCPEAK Chairman, Audit Committee COLIN L. SLADE COLIN L. SLADE 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 27, 2000 and May 29, 1999, and the related consolidated statements of operations, shareholders' equity, and cash flows for the years ended May 27, 2000, May 29, 1999, and May 30, 1998. 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 auditing standards generally accepted in the United States of America. 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 27, 2000 and May 29, 1999, and the results of their operations and their cash flows for the years ended May 27, 2000, May 29, 1999, and May 30, 1998, in conformity with accounting principles generally accepted in the United States of America. DELOITTE & TOUCHE LLP Portland, Oregon June 23, 2000 29 CONSOLIDATED STATEMENTS OF OPERATIONS
IN THOUSANDS, EXCEPT PER SHARE AMOUNTS FOR THE YEARS ENDED MAY 27,2000 MAY 29,1999 MAY 30,1998 - -------------------------------------------------------------------------------------------------------------------------------- Net sales $ 1,120,555 $ 1,136,136 $ 1,357,105 Cost of sales 596,191 657,422 770,416 ------------------------------------------------ Gross profit 524,364 478,714 586,689 Research and development expenses 136,494 144,665 142,960 Selling, general and administrative expenses 316,974 329,602 358,686 Equity in business ventures' earnings (loss) 2,549 (9,230) 2,513 Non-recurring charges 37,716 84,780 40,478 Charges related to the sale of Video and Networking 31,613 - - ------------------------------------------------ Operating income (loss) 4,116 (89,563) 47,078 Interest expense 15,798 17,838 14,039 Interest income 22,978 2,126 3,963 Other income - net 8,285 10,373 18,290 ------------------------------------------------ Earnings (loss) from continuing operations before taxes 19,581 (94,902) 55,292 Income tax expense (benefit) 6,855 (30,369) 18,247 ------------------------------------------------ Net earnings (loss) from continuing operations 12,726 (64,533) 37,045 Discontinued operations: Earnings (loss) from operations of Color Printing and Imaging (less applicable income tax expense (benefit) of $(2,063), 6,293 and 22,282, respectively) (3,995) 13,372 45,240 Gain on sale of Color Printing and Imaging (less applicable income tax expense of $198,476) 340,307 - - ------------------------------------------------ Net earnings from discontinued operations 336,312 13,372 45,240 ------------------------------------------------ Net earnings (loss) $ 349,038 $ (51,161) $ 82,285 ================================================ Earnings (loss) per share - basic $ 7.38 $ (1.07) $ 1.63 Earnings (loss) per share - diluted 7.25 (1.07) 1.60 Earnings (loss) per share from continuing operations - basic 0.27 (1.35) 0.73 Earnings (loss) per share from continuing operations - diluted 0.26 (1.35) 0.72 Earnings per share from discontinued operations - basic 7.11 0.28 0.90 Earnings per share from discontinued operations - diluted 6.99 0.28 0.88 Dividends per share 0.36 0.48 0.46 Average shares outstanding - basic 47,278 47,700 50,438 Average shares outstanding - diluted 48,135 47,700 51,320
The accompanying notes are an integral part of these consolidated financial statements. 30 CONSOLIDATED BALANCE SHEETS
IN THOUSANDS MAY 27,2000 MAY 29,1999 - -------------------------------------------------------------------------------------------------------------------------------- ASSETS Current assets: Cash and cash equivalents $ 683,808 $ 39,747 Short-term investments 99,897 - Accounts and notes receivable - net 188,987 186,668 Inventories - net 114,001 158,305 Net assets of discontinued operations - 338,990 Other current assets 25,364 62,728 -------------------------------- Total current assets 1,112,057 786,438 Property, plant and equipment - net 188,544 283,769 Deferred tax assets 30,928 56,405 Other long-term assets - net 203,108 121,723 -------------------------------- Total assets $ 1,534,637 $ 1,248,335 ================================ LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Short-term debt $ 505 $ 115,687 Accounts payable and accrued liabilities 221,767 171,306 Accrued compensation 95,623 108,982 Deferred revenue 12,329 2,438 -------------------------------- Total current liabilities 330,224 398,413 Long-term debt 150,369 150,722 Other long-term liabilities 76,450 77,638 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 47,542 in 2000, and 46,909 in 1999) 198,868 143,263 Retained earnings 753,796 458,613 Accumulated other comprehensive income 24,930 19,686 -------------------------------- Total shareholders' equity 977,594 621,562 -------------------------------- Total liabilities and shareholders' equity $ 1,534,637 $ 1,248,335 ================================
The accompanying notes are an integral part of these consolidated financial statements. 31 CONSOLIDATED STATEMENTS OF CASH FLOWS
IN THOUSANDS FOR THE YEARS ENDED MAY 27,2000 MAY 29,1999 MAY 30,1998 - -------------------------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES Net earnings (loss) $ 349,038 $ (51,161) $ 82,285 Adjustments to reconcile net earnings (loss) to net cash provided by (used in) operating activities: (Earnings) loss from discontinued operations 3,995 (13,372) (45,240) Pre-tax gain on sale of Color Printing and Imaging (538,783) - - Pre-tax net non-recurring charges 37,455 94,722 40,478 Charges related to the sale of Video and Networking 31,613 - - Depreciation and amortization expense 44,124 61,287 52,442 Payment to fund pension plan (42,500) - - Inventory write-down related to restructuring 14,758 25,767 38,482 Deferred income tax expense (benefit) 21,263 (24,196) (6,336) (Gain) loss on disposition of fixed assets (15,550) (12,104) 2,422 Gain on sale of marketable equity securities (7,889) (6,455) (28,269) Equity in business ventures' (earnings) loss (2,549) 9,230 (2,513) Changes in operating assets and liabilities: Accounts receivable 163 41,864 1,388 Inventories (19,380) (5,774) (20,169) Other current assets 33,623 (32,814) 6,363 Accounts payable (19,363) (25,725) 38,576 Accrued compensation (10,037) (63,520) 5,325 Deferred revenue 13,463 3,704 (9,093) Other - net 19,816 809 (3,099) ------------------------------------------------ Net cash provided by (used in) continuing operations (86,740) 2,262 153,042 Net cash provided by (used in) discontinued operations 22,401 (46,587) (60,356) ------------------------------------------------ Net cash provided by (used in) operating activities (64,339) (44,325) 92,686 ------------------------------------------------ CASH FLOWS FROM INVESTING ACTIVITIES Acquisition of property, plant and equipment (42,253) (71,556) (80,123) Acquisition of businesses (12,975) (4,300) (46,600) Short-term investments (99,897) - - Net proceeds from sale of Color Printing and Imaging 906,135 - - Net proceeds from sale of Video and Networking 22,600 - - Net proceeds from sale of fixed assets 53,124 24,187 3,601 Net proceeds from sale of marketable equity securities 21,383 8,929 36,114 ------------------------------------------------ Net cash provided by (used in) investing activities 848,117 (42,740) (87,008) ------------------------------------------------ CASH FLOWS FROM FINANCING ACTIVITIES Net change in short-term debt (115,737) 110,069 (713) Issuance of long-term debt - - 125 Repayment of long-term debt (502) (629) (1,023) Issuance of common stock 58,826 5,260 35,358 Repurchase of common stock (65,382) (85,524) (38,422) Dividends paid (16,922) (22,905) (23,188) ------------------------------------------------ Net cash provided by (used in) financing activities (139,717) 6,271 (27,863) ------------------------------------------------ Net increase (decrease) in cash and cash equivalents 644,061 (80,794) (22,185) Cash and cash equivalents at beginning of year 39,747 120,541 142,726 ------------------------------------------------ Cash and cash equivalents at end of year $ 683,808 $ 39,747 $ 120,541 ================================================ SUPPLEMENTAL DISCLOSURES OF CASH FLOWS Income taxes paid $ 123,000 $ 10,100 $ 19,981 Interest paid 16,595 16,662 12,571 NON-CASH INVESTING ACTIVITIES Note receivable for sale of Video and Networking assets 27,920 - - Note receivable for sale of receivables to Grass Valley Group Inc. 4,556 - - Common stock of Grass Valley Group Inc. for sale of Video and Networking assets 6,300 - -
The accompanying notes are an integral part of these consolidated financial statements. 32 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
ACCUMULATED COMMON STOCK OTHER IN THOUSANDS, ------------------ RETAINED COMPREHENSIVE EXCEPT PER SHARE AMOUNTS SHARES AMOUNT EARNINGS INCOME TOTAL - ----------------------------------------------------------------------------------------------------------------------- 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 losses - 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 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 Components of comprehensive income: Net earnings 349,038 349,038 Currency adjustment (1,138) (1,138) Unrealized holding gains - net 6,382 6,382 ----------- Total comprehensive income 354,282 ----------- Shares issued to employees 2,166 84,054 84,054 Shares repurchased (1,533) (28,449) (36,933) (65,382) Dividends- $0.36 per share (16,922) (16,922) -------------------------------------------------------------------------- BALANCE MAY 27, 2000 47,542 $ 198,868 $ 753,796 $ 24,930 $ 977,594 ==========================================================================
The accompanying notes are an integral part of these consolidated financial statements. 33 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ACCOUNTING POLICIES THE COMPANY Tektronix, Inc. (Tektronix or the company), founded in 1946, historically operated in three major business divisions: Measurement, Color Printing and Imaging, and Video and Networking, as well as in five major geographies: the United States; Europe; the Americas, including Mexico, Canada and South America; the Pacific, excluding Japan; and Japan. During the year, the company sold the Color Printing and Imaging and Video and Networking divisions and now operates as a focused test, measurement and monitoring company, providing measurement solutions to customers in many industries, including computers, telecommunications and semiconductors. As a focused Measurement company, Tektronix enables its customers to design, build, deploy and manage next-generation global communications networks and internet technologies. Revenue is derived principally through the development and marketing of a broad range of products in several key product categories: oscilloscopes; logic analyzers; communications test equipment, including products for network monitoring and protocol test, broadband transmission test and mobile production test; video test equipment; and accessories. Revenue is also derived through providing support services for products sold worldwide. Headquartered in Beaverton, Oregon, Tektronix employs more than 4,200 people and maintains operations in 25 countries outside the United States. 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 under the equity method with the company's percentage of earnings included in Equity in business ventures' earnings (loss) on the Consolidated Statements of Operations. 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, including the net earnings, net assets and cash flows from discontinued operations of the Color Printing and Imaging Division. The company's fiscal year is the 52 or 53 weeks ending the last Saturday in May. Fiscal years 2000, 1999 and 1998 were 52 weeks. USE OF ESTIMATES The presentation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions. These estimates and assumptions, including those used to prepare discontinued operations financial statements, 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 revenues and expenses reported during the 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. 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 period upon consolidation. Gains and losses resulting from the translation of net assets are included in Accumulated other comprehensive income on the Consolidated Balance Sheets. DERIVATIVES 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. 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 company's forward exchange contracts have generally ranged from one to three months in original maturity, and no forward exchange contract has had an original maturity greater than one year. 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. In general, 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. Counterparties to derivative financial instruments expose the company to credit-related losses in the event of nonperformance. However, the company has entered into these instruments with creditworthy financial institutions and considers the risk of nonperformance to be remote. Gains and losses on foreign exchange contracts that are identified as and are effective as hedges of existing assets and liabilities are recognized in Other income - net on the Consolidated Statements of Operations for the period in 34 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. Deferred gains or losses attributable to foreign exchange contracts were not material as of May 27, 2000 or May 29, 1999. 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. SHORT-TERM INVESTMENTS Short-term investments include investments with maturities of greater than three months and less than one year from the date of purchase. As of May 29, 1999, the company held no investments of this type. Those held at May 27, 2000 included the following:
IN THOUSANDS 2000 - -------------------------------------------------------------------------------------------- Corporate notes and bonds $ 52,977 Commercial paper 29,353 Certificates of deposit 10,081 Asset backed securities 7,486 -------------- Short-term investments $ 99,897 ==============
ACCOUNTS AND NOTES RECEIVABLE
IN THOUSANDS 2000 1999 - -------------------------------------------------------------------------------------------- Trade accounts receivable $ 167,677 $ 168,682 Notes receivable - current portion 13,865 6,237 Other receivables 12,354 14,452 Allowance for doubtful accounts (4,909) (2,703) --------------------------------- Accounts and notes receivable $ 188,987 $ 186,668 =================================
Notes receivable - current portion at May 27, 2000, included $9.3 million due from Grass Valley Group Inc., received as consideration for the sale of Video and Networking assets. Other receivables was comprised of miscellaneous non-trade receivables. During 2000, 1999 and 1998, charges to the allowance for doubtful accounts were not 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 were therefore not reflected in the accounts receivable balance in the accompanying Consolidated Balance Sheet. Effective April 10, 2000, the company terminated this agreement, leaving zero receivables sold under this agreement as of May 27, 2000. 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 were therefore not reflected in the accounts receivable balance in the accompanying Consolidated Balance Sheet. This agreement was related to the receivables of the Color Printing and Imaging division and as such, it was also terminated during 2000. 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. As a result of the sale of the Video and Networking division, the company held $34.6 million in notes receivable from Grass Valley Group Inc. as of May 27, 2000. In management's opinion, these notes are fully collectible and as such, no valuation reserve has been established. At May 27, 2000 and May 29, 1999, the company had no other significant concentrations of credit risk. 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 and related reserves at fiscal year ends were as follows:
IN THOUSANDS 2000 1999 - -------------------------------------------------------------------------------------------------------------------------------- Materials and work in process $ 63,580 $ 60,200 Finished goods 65,601 111,195 Inventory reserves (15,180) (13,090) --------------------------------- Inventories - net $ 114,001 $ 158,305 =================================
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 and related accumulated depreciation and amortization at fiscal year ends were as follows:
IN THOUSANDS 2000 1999 - -------------------------------------------------------------------------------------------------------------------------------- Land $ 1,656 $ 4,642 Buildings 154,466 186,525 Machinery and equipment 274,251 409,347 Accumulated depreciation and amortization (241,829) (316,745) --------------------------------- Property, plant and equipment - net $ 188,544 $ 283,769 =================================
Property, plant and equipment activity during the year included the disposition of assets with a net book value of $70.5 million, restructuring-related asset impairment charges of $22.8 million and depreciation expense of $44.3 million, offset in part by capital expenditures of $42.4 million in 2000. Assets sold during the year included $23.4 million in Video and Networking assets. DEFERRED 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. 35 SOFTWARE DEVELOPMENT COSTS Software development costs that are incurred after technological feasibility has been established 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" and then amortized over the lesser of five years or the economic life of the related product. As of May 29, 1999 Tektronix had $7.0 million of unamortized capitalized software development costs, included in Other long-term assets on the Consolidated Balance Sheets. During fiscal year 2000, the company wrote off $3.7 million in costs determined to be non-recoverable, due mainly to the sale of the Video and Networking division. All other related balances and activity for the periods reported were insignificant. INVESTMENTS IN MARKETABLE EQUITY SECURITIES 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 related unrealized holding gains and losses are excluded from earnings and included, net of deferred income taxes, in Accumulated other comprehensive income on the Consolidated Balance Sheets.
IN THOUSANDS 2000 1999 - -------------------------------------------------------------------------------------------------------------------------------- Fair value of marketable equity securities $ 14,988 $ 3,904 Gross unrealized holding gains 9,991 - Gross unrealized holding losses (1,707) (2,328) Unamortized cost basis of marketable equity securities 6,704 6,232
The company's investment in Merix was its only significant investment in marketable equity securities at May 27, 2000, comprising $14.2 million of the above noted fair value and the entire gross unrealized holding gain. The company intends to liquidate its remaining 0.5 million shares of Merix stock through open market sales over time. INTANGIBLE ASSETS Intangible assets, primarily goodwill, patents and trademarks, are included in Other long-term assets on the Consolidated Balance Sheets and are stated at cost. Amortization is provided on a straight-line basis over periods generally not exceeding fifteen years. IMPAIRMENT OF LONG-LIVED ASSETS 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 asset is greater than the pre-tax undiscounted future cash flows expected to be provided by the asset. If impairment exists, the asset is written down to its fair value. Fair value is determined through quoted market values or through the calculation of the pre-tax present value of future cash flows expected to be provided by the asset. REVENUE RECOGNITION Revenue from product sales is generally recognized at the time the products are shipped to the customer. In certain cases where the company has not transferred the risks and rewards of ownership, revenue recognition is deferred. Upon shipment, the company also provides for estimated costs that may be incurred for product warranties, post-sales support and sales returns. Service revenue is deferred and recognized over the contract period or as services are rendered. ADVERTISING Advertising production costs are charged to operations when the advertising first takes place. Advertising placement costs are expensed when the advertisement is run. Advertising expenses were $22.3 million, $28.5 million and $30.6 million in 2000, 1999 and 1998, respectively. ENVIRONMENTAL COSTS Environmental costs are accrued, except to the extent costs can be capitalized, when environmental assessments are made or remedial efforts are probable, not later than the company's commitment to a plan of action, and when the related costs can be reasonably estimated. Environmental liability accruals are calculated as the best estimate of costs expected to be incurred. If this estimate can only be identified within a range and no specific amount within that range is determined more likely than any other amount within the range, the minimum of the range is accrued. Actual costs incurred may vary from these estimates due to the inherent uncertainties involved. Accrued environmental costs were recorded in Accounts payable and accrued liabilities on the Consolidated Balance Sheets and were not material as of May 27, 2000 or May 29, 1999. Environmental costs are capitalized if the costs improve the company's property as compared with the condition of the property when originally constructed or acquired or if the costs prevent potential environmental contamination from future operations. Costs to operate and maintain the capitalized facilities are expensed as incurred. Capitalized environmental costs were recorded in Other long-term assets on the Consolidated Balance Sheets and were not material as of May 27, 2000 or May 29, 1999. In addition, costs to operate and maintain the capitalized facilities were recorded in Other income - net in the Consolidated Statements of Operations and were not material during 2000, 1999 or 1998. RECENT ACCOUNTING PRONOUNCEMENTS In June 1998, the Financial Accounting Standards Board issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." The statement will require recognition of all derivatives as either assets or liabilities on the balance sheet at fair value. The statement is effective for the company's fiscal year 2002, as deferred by SFAS No. 137, but early adoption is permitted. Management has not yet completed an evaluation of the effects this standard will have on the company's consolidated financial statements. In December 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin (SAB) No. 101, "Revenue Recognition in Financial Statements." The effective date of the bulletin was delayed according to SAB No. 101A and SAB No. 101B and will be effective for the company's fourth quarter of fiscal year 2001. 36 Management has not yet completed an evaluation of the effects this bulletin will have on the company's consolidated financial statements. SIGNIFICANT TRANSACTIONS SALE OF COLOR PRINTING AND IMAGING On January 1, 2000, the company sold substantially all of the assets of the Color Printing and Imaging division to Xerox Corporation (Xerox). The purchase price was $925.0 million in cash, with certain liabilities of the division assumed by Xerox. During the third quarter of fiscal year 2000, Tektronix recorded a net gain of $340.3 million on this sale. The gain was calculated as the excess of the proceeds received over the net book value of the assets transferred, $198.5 million in income tax expense, a $60.0 million accrual for estimated liabilities related to the sale and $14.4 million in transaction and related costs. On January 26, 2000, Tektronix announced a plan for the use of the net proceeds from the sale. The plan included a common stock repurchase program, the repayment of substantially all of the company's outstanding short-term debt and the retention of the remaining proceeds for other corporate purposes. The company accounted for the Color Printing and Imaging division as a discontinued operation in accordance with Accounting Principles Board (APB) Opinion No. 30, "Reporting the Results of Operations - Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions." In accordance with this accounting guidance, operating results of the division through December 31, 1999, were excluded from each applicable line of the Consolidated Statements of Operations and included in Net earnings from discontinued operations for the periods reported. Net assets of the division were excluded from each applicable line of the Consolidated Balance Sheets for all periods reported and included in Net assets of discontinued operations on those statements. The cash flows of the division were also excluded from each applicable line of the Consolidated Statements of Cash Flows and were included in Net cash provided by (used in) discontinued operations on those statements. Summarized results of operations through December 31, 1999, and the gain on sale of the Color Printing and Imaging division were as follows:
(In thousands except per share amounts) 2000 1999 1998 - ----------------------------------------------------------------------------------------------------------------------------------- Net sales $ 369,459 $ 725,354 $ 728,697 ------------ ------------ ------------ Earnings (loss) before taxes (6,058) 19,665 67,522 Income tax expense (benefit) (2,063) 6,293 22,282 ------------ ------------ ------------ Earnings (loss) from operations (3,995) 13,372 45,240 Gain on sale of Color Printing and Imaging (less applicable tax of $198,476) 340,307 - - ------------ ------------ ------------ Net earnings $ 336,312 $ 13,372 $ 45,240 ============ ============ ============ Net earnings per diluted share $ 6.99 $ 0.28 $ 0.88 ============ ============ ============
Summarized net assets for the Color Printing and Imaging division were as follows:
(In thousands) 1999 - ---------------------------------------------------------------------------------------------------------------------------------- Current assets $ 272,210 Long-term assets 177,810 Current liabilities (98,633) Long-term liabilities (12,397) ------------ Net assets of discontinued operations $ 338,990 ============
REPURCHASE OF COMMON STOCK The company's plan for the use of the net proceeds from the sale of the Color Printing and Imaging division included a $550.0 million share repurchase program. On February 23, 2000, the company purchased 0.1 million shares of its common stock for $44 per share, totaling $4.7 million, through a Dutch Auction tender offer. On March 15, 2000, the Board of Directors approved a program to purchase up to $545.0 million of the company's common stock on the open market or through negotiated transactions. As of May 27, 2000, the company had repurchased 0.7 million shares for $35.1 million under this program. SALE OF VIDEO AND NETWORKING On August 9, 1999, the company announced that it had reached an agreement to sell substantially all of the operating assets of its Video and Networking division to Grass Valley Group Inc. During the first quarter of 2000, Tektronix recorded pre-tax charges of $26.1 million for losses expected to be incurred in connection with the transaction. These charges were calculated based upon the excess of the estimated net book value of assets to be transferred over the proceeds, as well as asset impairments incurred as a result of the sale. On September 24, 1999, the companies closed the transaction. Tektronix received cash of $23.7 million, before transaction costs of $1.1 million, a note receivable of $22.5 million, and a 10% equity interest in Grass Valley Group Inc., which was recorded in Other long-term assets and accounted for under the cost method. The actual loss on the sale was $26.1 million. Management concluded that the sale of the Video and Networking division did not meet the criteria to be recorded as a discontinued operation in accordance with APB Opinion No. 30, as the VideoTele.com business, a portion of the division was retained by the company. In February 25, 2000, Tektronix and Grass Valley Group Inc. entered into a subsequent agreement. Under this agreement, the company sold unbilled revenue on systems contracts in progress that were not a part of the original transaction. As consideration for the assets sold, the note receivable was amended to increase the principal balance and decrease the stated interest rate from 8% to 7%. The note is now carried at $27.9 million with $23.9 million classified as long-term and the remaining $4.0 million classified as short-term. In addition, a $4.6 million note receivable ($3.2 million short-term and $1.4 million long-term) was recorded for the sale of certain trade receivables that were also excluded from the original transaction. Charges of $5.5 million were incurred in conjunction with the subsequent agreement and were recorded in Charges related to the sale of Video and Networking on the Consolidated Statements of Operations. In addition, on May 25, 2000, Tektronix sold its 37 10% equity interest in Grass Valley Group Inc., to the majority shareholder of that company and received $6.5 million in cash, which approximated book value. STRATEGIC ACQUISITIONS During the year, the company completed the strategic acquisition of two companies for which, the purchase prices and related goodwill were not material. On April 14, 2000, the company acquired Gage Applied Sciences, Inc. (Gage), a Montreal, Canada-based company focused on the high-performance, personal computer card-based instrumentation test market. In conjunction with that acquisition, the company expensed $1.1 million for the acquisition of in-process research and development (IPR&D), which was included in Non-recurring charges in the Consolidated Statements of Operations. On January 7, 2000, the company acquired Maxim Integrated Products Inc.'s (Maxim) 50% ownership interest in Maxtek Components Corporation (Maxtek), formerly a joint venture between Tektronix and Maxim, bringing the company's total ownership to 100%. Maxtek is focused on the design and manufacture of sophisticated multi-chip modules. The transactions were accounted for by the purchase method of accounting, and accordingly, the results of operations of Gage and Maxtek have been consolidated in the company's financial statements and included in the Measurement segment since the dates 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. FORMATION OF VIDEOTELE.COM AS A WHOLLY-OWNED SUBSIDIARY On February 26, 2000, the company formed a new subsidiary and transferred to it substantially all of the assets and liabilities relating to its VideoTele.com business. All of the outstanding stock of this subsidiary is owned by the company, and employees of the company working for the subsidiary have received options to purchase approximately 25% of the equity of the subsidiary. The company is considering alternatives which could reduce its ownership in the subsidiary. VideoTele.com recorded net sales of $24.5 million in 2000, which were included in net sales of the Measurement segment. SALE OF LAND AND BUILDINGS During 2000, the company completed the sale of several significant buildings and parcels of land in conjunction with its plan to exit from and consolidate within facilities while transitioning to a focused Measurement business. These sales resulted in total pre-tax gains of approximately $22.6 million, which were included in Other income - net in the Consolidated Statements of Operations. Included were $12.2 million in gains on the sales of land and office, warehouse and manufacturing facilities in Oregon, an $8.7 million gain on the sale of an office facility in Marlow, England and a $1.7 million gain on the sale of a multi-function building in Australia. NON-RECURRING CHARGES In the third quarter of 2000, the company announced and began to implement a series of actions (the 2000 plan) intended to further consolidate worldwide operations and transition the company from a portfolio of businesses to a single smaller business focused on test, measurement and monitoring. Major actions under the 2000 plan include the exit from and consolidation within underutilized facilities, including the write-off of assets that will be abandoned in conjunction with this action, the write-off and disposal of certain excess service and other inventories and focused headcount reductions to streamline the cost structure to that of a smaller focused Measurement business and to eliminate duplicative functions within the company's infrastructure. The company recorded pre-tax non-recurring charges of $64.8 million to account for these actions, including $19.1 million for the impairment of assets, $16.8 million for lease cancellation fees and future payments on exited leased facilities and volume-based contracts, $15.5 million for the write-off and disposal of excess inventories and $13.4 million for severance worldwide. In the second quarter of 1999, the company announced and began to implement a series of actions (the 1999 plan) intended to align Tektronix' worldwide operations with market conditions and to improve the profitability of its operations. These actions included a net reduction of approximately 15% of the company's worldwide workforce, the exit from certain facilities and the streamlining of product and service offerings. Under the 1999 plan, the company recorded pre-tax charges of $125.7 million, including restructuring charges of $115.8 million and other non-recurring charges of $9.9 million for related actions. The $115.8 million in restructuring charges included $56.9 million in severance expense, $27.1 million for the write-off and disposal of excess inventory, $17.0 million for the impairment of long-term assets and $14.8 million for lease cancellation fees. The $9.9 million for related actions included $5.1 million of expected sales returns, $0.8 million of bad debt expense and $4.0 million of costs to fulfill commitments to deliver software enhancements on previously sold product, all associated with exiting the non-linear digital editing business. Pre-tax net non-recurring charges impacted the company's results of operations as follows: Location of charge in the Consolidated Year ended Year ended (In thousands) Statements of Operations May 27, 2000 May 29, 1999 - ---------------------------------------------------------------------------------------------------------- Asset write-offs and impairments Non-recurring charges $ 22,989 $ 15,470 Lease buy-outs and abandonment of facilities Non-recurring charges 15,547 17,735 Inventory write-offs Cost of sales 14,758 25,767 Severance and benefits Non-recurring charges (1,965) 51,575 Bad debt expense related to Selling, general and discontinued products administrative expenses (238) 803 Sales returns and allowances Net sales - 5,120 Commitment for enhancements related to discontinued Research and development products expenses - 4,019 ----------- ----------- $ 51,091 $ 120,489 =========== ===========
38 Pre-tax net non-recurring restructuring charges for the year ended May 27, 2000, total $51.1 million, including $64.8 million in new charges under the 2000 plan and $13.7 million in net reversals and adjustments of prior non-recurring charges. Of the net $51.1 million, $14.8 million was recorded in cost of sales, while $36.6 million was recorded in non-recurring charges and $0.3 million was reversed to selling, general and administrative expenses, for a total net charge to operating expenses of $36.3 million. For a discussion of additional non-recurring charges, including the $31.6 million of charges related to the sale of the Video and Networking division and the $1.1 million IPR&D charge related to the Gage acquisition, see the Sale of Video and Networking and Strategic Acquisitions footnotes. The pre-tax charges incurred and related actions taken under the 1999 and 2000 plans affected the company's financial position in the following manner:
Equipment Payables and other and other Accrued (In thousands) assets liabilities Inventories compensation - ------------------------------------------------------------------------------------------------------------------------ Original charges (the 1999 plan) $ 18,200 $ 19,894 $ 27,760 $ 54,680 Fiscal year 1999 activity: Cash paid out - (7,415) - (20,844) Non-cash disposals or write-offs (17,055) - (27,070) - Adjustments to plan (Q4 1999) (455) 4,049 (690) 2,244 ---------- -------------- -------------- ------------- Balance May 29, 1999 $ 690 $ 16,528 $ - $ 36,080 ---------- -------------- -------------- ------------- Fiscal year 2000 activity: New charges (the 2000 plan) $ 19,142 $ 16,787 $ 15,460 $ 13,362 Adjustments to plan 361 - - (405) Reversal of excess charges (the 1999 plan) - (600) - (14,799) Cash paid out - (13,765) - (22,893) Non-cash disposals or write-offs (20,193) - (15,460) - ---------- -------------- -------------- ------------- Balance May 27, 2000 $ - $ 18,950 $ - $ 11,345 ========== ============== ============== =============
The original charge of $18.2 million for equipment and other assets included asset impairments of $17.4 million and $0.8 million in reserves for bad debt expense. The impaired assets were primarily related to discontinued product lines in Color Printing and Imaging and Video and Networking and included manufacturing assets of $6.2 million, goodwill and other intangibles of $6.5 million and leasehold improvements and other assets of $4.7 million. Under the 2000 plan, a new charge of $19.1 million was taken to account for the write-off of assets that will be abandoned in conjunction with exited facilities, the impairment of certain assets that were appropriate to support a portfolio of businesses but are not required to support the focused Measurement business and the write-down of prepaid royalties that were impaired as a result of the decision to de-emphasize certain product lines that are not strategic to the company's business. The original $19.9 million charge for payables and other liabilities included reserves for lease buy-outs and abandonment of facilities, sales returns and allowances and commitments for enhancements related to discontinued products. This reserve was increased by $4.0 million during 1999 to provide for additional costs to exit certain sales and service offices worldwide and to fulfill certain contractual commitments, partly offset by a decrease in original sales returns allowances. Under the 2000 plan, the company recorded a new charge of $16.8 million to account for lease cancellation fees and future payments on exited leased facilities and volume-based contracts. The facilities being exited include excess administrative space and sales facilities. Many of the remaining sales personnel will work out of home offices. The $27.8 million original charge to inventories under the 1999 plan included inventories impaired as a result of the consolidation of Measurement service offerings, the discontinuation of three Color Printing and Imaging product lines and the discontinuation of non-linear digital editing products sold under the Lightworks name. Under the 2000 plan, the company recorded a charge of $15.5 million to account for the write-off and disposal of certain service inventories, impaired as a result of management's commitment to streamline Measurement's service business, and VideoTele.com inventory that was impaired due to the discontinuation of certain product lines. 39 The original charge of $54.7 million in accrued compensation reflects a planned headcount reduction of 1,371 employees worldwide. This charge was increased by a net $2.2 million during the fourth quarter of 1999. The $2.2 million consisted of an $8.6 million reserve for severance of an additional 282 employees worldwide across all responsibilities, offset in part by reversal of a $6.4 million reserve for pension settlement that was not needed. As a result of the sale of the Color Printing and Imaging division, the company evaluated the balance in the severance reserve and determined that the amounts remaining under the 1999 plan were not required, as the remaining employees to be terminated were transferred to Xerox in conjunction with the sale or voluntarily left the company without severance. As such, the excess reserves of $14.8 million for 332 employees were reversed to non-recurring charges during the third quarter of 2000. Headcount reduction under the 1999 plan of reorganization totaled 1,321 employees worldwide. Severance of $41.0 million has been paid to approximately 1,287 of these employees, while the other 34 employees will be paid severance of $1.1 million in fiscal year 2001. Under the 2000 plan, $13.4 million in accrued compensation was recorded to reflect focused headcount reductions of 339 employees, a net increase of seven employees over the 332 reversed from the 1999 plan, to streamline the company's cost structure to that of a smaller focused Measurement business and to eliminate excess and duplicative functions. The planned reductions are primarily in manufacturing with the remaining cuts in administrative and sales functions. Severance of $2.7 million has been paid to approximately 50 of these employees, while the other 289 employees will be paid severance of $10.2 million during 2001. During 1998, the company recorded pre-tax non-recurring charges of $79.0 million, consisting of $60.0 million in restructuring charges, as well as $17.0 million for the expensing of acquired IPR&D and $2.0 million of severance costs associated with the acquisition of Siemens' Communications Test Equipment GmbH. The restructuring charges represented the cost of a plan designed to return the Video and Networking division to profitable growth, including severance of $14.9 million, inventory impairments of $38.5 million, lease buy-outs and abandonment of facilities of $4.2 million and $2.4 million in asset impairments. All actions under this plan were completed or the charges were reversed before May 27, 2000, as the division was sold to Grass Valley Group Inc. during the year. BUSINESS SEGMENTS Historically, the company was organized based on the products and services that it offered. Under this organizational structure, the company operated in three main segments: Measurement, Color Printing and Imaging, and Video and Networking. The Color Printing and Imaging division was accounted for as a discontinued operation and as such the results of operations and the financial position of the division are not presented to management for decision-making purposes and are not included in the table below. The company now operates as a single segment - Measurement. Measurement revenue is derived principally through the development and marketing of a broad range of products in several key product categories: oscilloscopes; logic analyzers; communications test equipment including products for network monitoring and protocol test, broadband transmission test and mobile production test; video test equipment; and accessories. Revenue is also derived from providing support services for products sold worldwide. The information provided below was obtained from internal information that was provided to the company's Chief Financial Officer for the purpose of corporate management. Assets, liabilities and expenses attributable to corporate activity were not all allocated to the operating segments. Certain facility, information systems and other expenses were incurred by corporate and allocated to the divisions based on a percentage of sales, number of employees or payroll costs. Depreciation expense by division was not included in the internal information provided to the Chief Financial Officer and was therefore not presented below. Inter-segment sales were not material and were included in net sales to external customers below. Information presented for 1999 was restated to include results for the VideoTele.com business within Measurement and exclude them from Video and Networking for comparative purposes.
IN THOUSANDS 2000 1999 1998 - --------------------------------------------------------------------------------------------------------------- Net sales to external customers (by division): Measurement $ 1,050,671 $ 879,486 $ 988,890 Video and Networking 59,607 256,650 368,215 All other 10,277 - - ------------------------------------------------- Net sales $ 1,120,555 $ 1,136,136 $ 1,357,105 ------------------------------------------------- Net sales to external customers (by region): United States $ 591,291 $ 558,134 $ 688,053 Europe 248,063 319,255 323,203 Pacific 137,092 140,131 160,609 Japan 78,434 69,327 106,784 Americas 65,675 49,289 78,456 ------------------------------------------------ Net sales $ 1,120,555 $ 1,136,136 $ 1,357,105 ------------------------------------------------ Operating income (loss): Measurement $ 125,163 $ 76,406 $ 126,178 Video and Networking (21,269) (42,627) 112 Charges related to the sale of Video and Networking (31,613) - - Non-recurring charges (51,137) (120,489) (78,960) All other (17,028) (2,853) (252) ------------------------------------------------- Operating income (loss) $ 4,116 $ (89,563) $ 47,078 -------------------------------------------------
40 Other sales in 2000 represented circuit boards sales to Grass Valley Group Inc. under a specific sales agreement that did not exist in 1999 or 1998 and will not continue in 2001. Other operating income in 2000 included expenses incurred related to the transition of the company to a focused Measurement business which were not allocated to the divisions. In addition, for the purposes of segment reporting only, 2000 non-recurring charges excluded the $1.1 million IPR&D charge related to the Gage acquisition as it was included in the operating income from the Measurement segment.
IN THOUSANDS 2000 1999 1998 - --------------------------------------------------------------------------------------------------------- Segment assets: Measurement $ 507,656 $ 479,546 $ 505,822 Video and Networking 3,908 218,124 259,448 All other 1,023,073 550,665 550,049 ------------------------------------------------- Segment assets $ 1,534,637 $ 1,248,335 $ 1,315,319 ------------------------------------------------- Long-lived assets: United States $ 343,600 $ 336,251 $ 334,910 International 48,052 69,241 72,070 Deferred tax assets 30,928 56,405 25,102 ------------------------------------------------- Long-lived assets $ 422,580 $ 461,897 $ 432,082 ------------------------------------------------- Capital expenditures: Measurement $ 17,129 $ 20,377 $ 24,159 Video and Networking 281 12,510 12,122 All other 26,776 38,398 58,674 ------------------------------------------------- Capital expenditures $ 44,186 $ 71,285 $ 94,955 -------------------------------------------------
OTHER LONG-TERM ASSETS
IN THOUSANDS 2000 1999 - --------------------------------------------------------------------------------------------------------- Investments in business ventures $ 62,315 $ 73,225 Prepaid pension cost 61,098 582 Goodwill and other - net 33,508 35,602 Notes, contracts and leases 31,199 8,410 Investments in marketable equity securities 14,988 3,904 --------------------------------- Other long-term assets $ 203,108 $ 121,723 =================================
Significant investments in business ventures, accounted for under the equity method, included a 50% investment in Sony/Tektronix Corporation, as well as an approximate 25% interest in Merix Corporation (Merix) through April 2000. In May 2000, the company sold 1.15 million shares of its investment in Merix in conjunction with a public offering by that company. As a result of this transaction, Tektronix accounts for its remaining investment in Merix under the cost method, with the fair value of the investment included in investments in marketable equity securities at May 27, 2000. See the Accounting Policies footnote for additional information. Summarized financial information for Sony/Tektronix, as well as the company's sales to, purchases from, and accounts receivable from Sony/Tektronix consisted of:
IN THOUSANDS 2000 1999 1998 - -------------------------------------------------------------------------------------------------------------------------------- Current assets $ 134,343 $ 110,072 $ 120,472 Non-current assets 89,110 50,921 50,228 Current liabilities 39,408 30,029 41,124 Non-current liabilities 59,453 20,314 18,323 ------------------------------------------------ Net sales $ 231,782 $ 196,342 $ 271,407 Gross profit 73,126 51,255 68,872 Income (loss) from continuing operations (83) (9,250) 2,553 ------------------------------------------------ Sales to $ 79,152 $ 77,332 $ 117,173 Purchases from 26,219 20,718 17,810 Accounts receivable from 3,383 7,506 12,354
Purchases from other related parties, Merix, Maxim, Maxtek Components Corporation and Grass Valley Group Inc. totaled $38.3 million, $37.3 million and $50.1 million for 2000, 1999 and 1998, respectively. All other transactions and resulting balances with related parties were insignificant. As of May 27, 2000, the company had a prepaid pension cost of $61.1 million. The prepaid status resulted mainly from a $42.5 million required funding of the pension plan in the third quarter of 2000, as well as $10.3 million of income generated by plan assets and $7.7 million of net curtailment gains realized as a result of the sales of Video and Networking and Color Printing and Imaging in 2000. Included in notes, contracts and leases at May 27, 2000, were $25.3 million in long-term notes receivable from Grass Valley Group Inc. In management's opinion, these notes are fully collectible and as such, no valuation reserve was established. Goodwill and other - net was reduced by accumulated amortization of $14.6 million at fiscal year-end 2000 and $18.3 million at fiscal year-end 1999. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES The company's accounts payable and accrued liabilities at year-ends consisted of:
IN THOUSANDS 2000 1999 - -------------------------------------------------------------------------------------------------------------------------------- Trade accounts payable $ 56,333 $ 58,299 Other accounts payable 16,269 19,237 --------------------------------- Accounts payable 72,602 77,536 Accrued expenses 93,591 18,122 Other current liabilities 28,071 48,837 Restructuring reserves 18,950 16,528 Warranty reserves 8,553 10,283 --------------------------------- Accrued liabilities 149,165 93,770 --------------------------------- Accounts payable and accrued liabilities $ 221,767 $ 171,306 =================================
41 Other accounts payable included amounts due to business ventures, employee benefits accruals and other miscellaneous non-trade payables. Accrued expenses included the $60.0 million accrual for estimated liabilities related to the sale of the Color Printing and Imaging division. Other current liabilities included items such as miscellaneous taxes payable and accrued gains and losses on forward foreign exchange contracts. Charges to warranty reserves in 2000, 1999 and 1998 were not material. See the Non-recurring charges footnote for a discussion of charges to the restructuring reserves. ACCRUED COMPENSATION The company's accrued compensation at year-ends consisted of:
IN THOUSANDS 2000 1999 - -------------------------------------------------------------------------------- Accrued payroll $ 55,055 $ 104,522 Accrued performance incentives 28,195 488 Other accrued benefits and incentives 12,373 3,972 ------------------------- Accrued compensation $ 95,623 $ 108,982 =========================
Accrued payroll included accrued severance related to the restructuring plans of $11.3 million and $36.1 million in 2000 and 1999, respectively. In addition, accrued payroll balances were based on 7,571 employees in 1999 and 4,276 employees in 2000. SHORT-TERM AND LONG-TERM DEBT The company's short-term debt at year-ends consisted of:
IN THOUSANDS 2000 1999 - -------------------------------------------------------------------------------- Commercial paper $ - $ 69,526 Revolving credit - 44,000 Lines of credit - 1,655 Current maturities of long-term debt 505 506 -------------------------- Short-term debt $ 505 $ 115,687 ==========================
The company is a party to a $150.0 million unsecured revolving credit agreement with Bank of America, as agent, that matures in December 2004. In addition, the company is a party to 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 the LIBOR rate. At May 27, 2000, the company maintained unsecured bank credit facilities of $272.3 million, of which $263.7 million was unused. Unused facilities included $113.7 million in lines of credit and $150.0 million under the revolving credit agreement. A $15.0 million unsecured line of credit expires in December 2000 with all remaining lines providing no specific expiration date. The company's long-term debt at year-ends consisted of:
IN THOUSANDS 2000 1999 - -------------------------------------------------------------------------------- 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 369 722 ------------------------- Long-term debt $ 150,369 $ 150,722 =========================
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 27, 2000. The company had unrestricted retained earnings of $202.4 million after meeting those requirements. Aggregate long-term debt payments on currently outstanding long-term debt will be $0.4 million in 2002, $50.0 million in 2003, $100.0 million in 2004 and zero in 2005. 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 27, 2000, and May 29, 1999, were not material. OTHER LONG-TERM LIABILITIES
IN THOUSANDS 2000 1999 - --------------------------------------------------------------------------------------- Accrued pension $ 36,217 $ 34,067 Accrued postretirement benefits 30,743 32,917 Other 9,490 10,654 ------------------------- Other long-term liabilities $ 76,450 $ 77,638 =========================
Other long-term liabilities included deferred executive compensation of $6.5 million and $7.5 million in 2000 and 1999, respectively. OTHER INCOME - NET
IN THOUSANDS 2000 1999 1998 - --------------------------------------------------------------------------------------- Gain (loss) on disposition of fixed assets $ 15,550 $ 12,104 $ (2,422) Gain on sale of marketable equity securities 7,889 6,455 28,269 Currency losses (2,044) (3,448) (278) Other expenses (13,110) (4,738) (7,279) ---------------------------------------- Other income - net $ 8,285 $ 10,373 $ 18,290 ========================================
In May 2000, the company sold 1.15 million shares of its investment in Merix in conjunction with a public offering by that company. This sale resulted in a net gain of approximately $11.4 million, which was included in the gain on sale of marketable equity securities above. The company intends to liquidate its remaining 0.5 million shares of Merix stock through open market sales over time. 42 Other expenses included charitable contributions, bank fees, losses related to the impairment of other assets, losses on liabilities related to assets previously sold and other miscellaneous non-operating expenses. 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 $24.4 million in 2000, $26.8 million in 1999, and $25.4 million in 1998. In addition, the company is a party to 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 27, 2000 were:
OPERATING IN THOUSANDS LEASES COMMITMENTS - -------------------------------------------------------------------------------- 2001 $ 14,480 $ 16,975 2002 11,699 4,207 2003 8,959 1,459 2004 6,802 7 2005 5,869 - Future years 40,798 - ------------------------------- Total $ 88,607 $ 22,648 ===============================
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 and various other risks. 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. However, the company's management does not expect that the results in any of these legal proceedings will have a material adverse effect on the company's results of operations, financial position or cash flows. SHAREHOLDERS' EQUITY STOCK OPTION AND INCENTIVE COMPENSATION PLANS The company maintains stock option plans for selected employees. There were 6,622,342 shares reserved for issuance under these plans at May 27, 2000. Under the terms of the plans, stock options are granted at an option price not less than the market value at the date of grant. Options granted prior to January 1, 1997, generally vest over four years and expire ten years from the date of grant, while options granted between January 1, 1997 and January 1, 2000, generally vest over two years and expire five years from the date of grant. Options granted after January 1, 2000, generally vest over two years and expire ten years from the date of grant. There were 788 employees holding options at May 27, 2000. 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 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 Granted 1,618 39 Exercised (2,321) 25 Canceled (549) 29 - -------------------------------------------------------------------------------------------------------------- May 27, 2000 2,587 $ 35 912 $ 28 ==============================================================================================================
The following table summarizes information about options outstanding and exercisable at May 27, 2000:
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 - -------------------------------------------------------------------------------------------------------------- $11.33-28.67 558 4.04 years $ 23 443 $ 23 29.38-32.88 517 3.72 years 30 248 30 33.73-39.92 173 3.21 years 36 148 36 40.13-40.13 1,233 9.65 years 40 50 40 40.19-67.44 106 7.44 years 51 23 42 --------------------------------------------------------------------------------------- 2,587 6.74 years $ 35 912 $ 28 =======================================================================================
The company accounts for stock options according to APB Opinion No. 25, "Accounting for Stock Issued to Employees." Under APB Opinion No. 25, no compensation expense is recognized in the company's consolidated financial statements upon issuance of 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 2000, 1999 and 1998 was $17, $10 and $12 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 2000, 1999 and 1998 was $38, $32 and $41 per share, respectively. Compensation cost recognized in income related to shares granted under these plans was not material. 43 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:
2000 1999 1998 - -------------------------------------------------------------------------------------------------------------------------------- Pro forma net earnings (loss) (in thousands) $ 344,421 $ (61,029) $ 74,520 Pro forma earnings (loss) per share: Basic $ 7.29 $ (1.28) $ 1.48 Diluted 7.16 (1.28) 1.45
The fair value of options were estimated as of the date of grant using a Black-Scholes option pricing model with the following weighted average assumptions:
2000 1999 1998 - -------------------------------------------------------------------------------------------------------------------------------- Expected life (in years) 3.0 3.0 3.0 Risk-free interest rate 6.3% 5.6% 5.8% Volatility 57.1% 57.8% 40.0% Dividend yield 0.1% 2.1% 1.2%
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 On June 21, 2000, the Board of Directors (the Board) adopted a new shareholder rights agreement to replace the 1990 agreement when it expires by its terms in September 2000. To implement the new plan, the Board of Directors declared a dividend of one right for each outstanding common share payable to shareholders of record on September 7, 2000. Each right entitles the holder to purchase one one-thousandth of a share of Series B preferred shares at a purchase price of $375, subject to adjustment. The rights become exercisable ten days after a person or group acquires, or commences a tender offer that would result in, beneficial ownership of 15% or more of the outstanding common shares. Upon the occurrence of certain events described in the rights agreement, each right entitles its holder to purchase common shares of the company, or in certain circumstances common shares of the acquiring company, or other property having a value of twice the right's exercise price. However, rights that are beneficially owned by an acquiring person become null and void. The rights may be redeemed at a price of $0.001 per right at any time before a person becomes an acquiring person, and any time after a person becomes an acquiring person, the company may exchange each right at a ratio of one common share, or one one-thousandth of a preferred share per right. The rights expire on September 7, 2010. In August 1990, 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 2000 and 1999, the cash balance plan experienced declines in the number of active participants. On two separate occasions, October 1, 1999 and January 31, 1999 the number of employees affected were deemed significant. Interim measurements were performed and curtailment accounting was implemented. A net $7.7 million curtailment gain was recognized in 2000, and a $3.3 million gain was recognized in 1999, both reducing pension expense. At the 2000 re-measurement date, the discount rate was increased from 7.3% to 7.8%. At the 1999 re-measurement 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 44 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 2000 1999 2000 1999 - ----------------------------------------------------------------------------------------------------------------------- CHANGE IN BENEFIT OBLIGATION Beginning balance $ 577,536 $ 553,729 $ 16,463 $ 15,944 Service cost 10,984 15,001 180 201 Interest cost 39,423 38,082 1,129 1,102 Actuarial loss (gain) (18,976) 9,455 (218) 1,169 Curtailment/settlement (6,909) 367 (1,263) - Plan amendments - 825 - - Acquisition 563 - - - Benefit payments (54,453) (36,643) (2,047) (1,953) Exchange rate changes (7,931) (3,906) - - Participant contributions 658 626 - - Special termination benefits 4,887 - - - ---------- ----------- ---------- --------- Ending balance $ 545,782 $ 577,536 $ 14,244 $ 16,463 ========== =========== ========== ========= CHANGE IN FAIR VALUE OF PLAN ASSETS Beginning balance $ 548,625 $ 538,728 $ - $ - Actual return 87,374 49,559 - - Employer contributions 48,411 3,505 - - Benefit payments (54,453) (36,643) - - Other adjustments (8,988) (6,524) - - ---------- ----------- ---------- --------- Ending balance $ 620,969 $ 548,625 $ - $ - ========== =========== ========== ========= Net unfunded (funded) status of the plan $ (75,188) $ 28,911 $ 14,245 $ 16,463 Unrecognized initial net obligation (678) (1,887) - - Unrecognized prior service cost 20,741 38,047 10,684 13,355 Unrecognized net gain (loss) 15,661 (40,410) 6,965 7,300 ---------- ----------- ---------- --------- Net (prepaid) liability recognized $ (39,464) $ 24,661 $ 31,894 $ 37,118 ========== =========== ========== =========
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 $20.6 million, $18.5 million and zero, respectively, for 2000, and $22.9 million, $20.2 million and zero, respectively, for 1999. Assumptions used in the accounting for the Tektronix pension and postretirement benefit plans were:
ASSUMPTIONS ON A WEIGHTED AVERAGE BASIS 2000 1999 1998 - --------------------------------------------------------------------------------------------------------------------------------- PENSION BENEFITS Discount rate 7.2% 7.0% 7.0% Rate of compensation increase 3.7% 3.8% 3.7% Expected return on plan assets 11.0% 10.9% 10.9% POSTRETIREMENT BENEFITS Discount rate 7.8% 7.3% 7.3% Rate of compensation increase 3.8% 3.4% 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 13.4% for participants under the age of 65 and 15.6% for participants age 65 and over in the fiscal year 2001. 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 to be 9.3% for 2001, 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 27, 2000 or the benefit credit reported for 2000. The components of net pension benefit cost and postretirement benefit credit recognized in income were:
IN THOUSANDS 2000 1999 1998 - ------------------------------------------------------------------------------------------------------------------------- PENSION BENEFITS Service cost $ 10,984 $ 15,001 $ 14,161 Interest cost 39,423 38,082 37,829 Expected return on plan assets (55,751) (50,890) (48,634) Amortization of transition asset (68) (1,839) (2,059) Amortization of prior service cost (2,707) (4,039) (2,209) Curtailment/settlement gain (15,158) (3,311) - Cost of special or contractual termination benefits 4,887 - - Recognized actuarial net loss 792 3,722 1,792 Other benefit plans 5,087 2,294 1,992 --------------------------------------------------- Net benefit cost (credit) $ (12,511) $ (980) $ 2,872 =================================================== POSTRETIREMENT BENEFITS Service cost $ 180 $ 201 $ 188 Interest cost 1,129 1,102 1,145 Amortization of prior service cost (2,671) (2,671) (2,671) Recognized net gain (553) (644) (747) Curtailment gain (1,263) - - --------------------------------------------------- Net benefit credit $ (3,178) $ (2,012) $ (2,085) ====================================================
45 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 $9.1 million in 2000, $11.4 million in 1999, and $16.4 million in 1998. COMPREHENSIVE INCOME (LOSS) Comprehensive income (loss) and its components were as follows:
IN THOUSANDS 2000 1999 1998 - -------------------------------------------------------------------------------------------------------------------------------- Net earnings (loss) (net of tax of $203,268, [24,067] and 40,529, respectively) $ 349,038 $ (51,161) $ 82,285 Other comprehensive income (loss): Currency translation adjustment (net of tax of $[759], 188 and [9,089], respectively) (1,138) 281 (13,634) Unrealized gain (loss) on available-for-sale securities (net of tax of $5,926, [878] and [2,708], respectively) 9,709 (4,688) (11,795) Reclassification adjustment for realized gains included in net income (net of tax of $[2,218], [3,095] and [11,298], respectively) (3,327) (4,642) (16,946) ------------------------------------------------- Total comprehensive income (loss) $ 354,282 $ (60,210) $ 39,910 =================================================
INCOME TAXES The provision (benefit) for income taxes consisted of:
IN THOUSANDS 2000 1999 1998 - -------------------------------------------------------------------------------------------------------------------------------- Current: Federal $ 1,533 $ (25,231) $ 13,948 State 1,187 (1,300) 2,278 Non-U.S. 2,675 26,683 4,874 ------------------------------------------------- 5,395 152 21,100 Deferred: Federal 767 (36,805) (81) State 396 (1,639) (207) Non-U.S. 297 7,923 (2,565) ------------------------------------------------- 1,460 (30,521) (2,853) ------------------------------------------------- Total provision (benefit) $ 6,855 $ (30,369) $ 18,247 =================================================
The provisions (benefits) 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 2000 1999 1998 - -------------------------------------------------------------------------------------------------------------------------------- Income taxes based on U.S. statutory rate $ 6,853 $ (33,216) $ 19,352 State income taxes, net of U.S. tax 1,029 (1,910) 1,346 Foreign sales corporation (2,739) - (2,877) Change in beginning of year valuation allowance - - (227) Other - net 1,712 4,757 653 ------------------------------------------------ Total provision (benefit) $ 6,855 $ (30,369) $ 18,247 ================================================
Tax benefits of $18.1 million, $0.3 million and $7.8 million associated with the exercise of employee stock options were allocated to common stock in 2000, 1999 and 1998, respectively. Net deferred tax assets and liabilities are included in the following Consolidated Balance Sheet line items:
IN THOUSANDS 2000 1999 - ---------------------------------------------------------------------------------------------------------------------------------- Other current assets $ 55,170 $ 59,325 Deferred tax assets 30,928 56,405 ---------------------------------- Net deferred tax assets $ 86,098 $ 115,730 ==================================
The temporary differences and carryforwards that gave rise to deferred tax assets and liabilities were as follows:
IN THOUSANDS 2000 1999 - -------------------------------------------------------------------------------------------------------------------------------- Deferred tax assets: Reserves and other liabilities $ 63,247 $ 45,988 AMT and foreign tax credit carryforwards 20,673 20,412 Restructuring costs and separation programs 16,190 20,904 Accrued postretirement benefits 13,033 14,949 Intangibles 3,045 4,909 Accumulated depreciation 2,883 12,348 Net operating losses 2,813 20,786 Accrued pension obligation - 3,382 -------------------------------- Gross deferred tax assets 121,884 143,678 Less valuation allowance (2,600) (2,600) -------------------------------- Deferred tax assets 119,284 141,078 -------------------------------- Deferred tax liabilities: Accrued pension obligation (19,412) - Software development costs (10,461) (26,280) Unrealized gains on marketable equity securities (3,313) 932 --------------------------------- Deferred tax liabilities (33,186) (25,348) --------------------------------- Net deferred tax assets $ 86,098 $ 115,730 =================================
At May 27, 2000, there were $20.7 million of unused foreign tax credit carryovers which, if not used, will expire between 2004 and 2005. U.S. taxes have not been provided on $162.0 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. 46 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. 28, NOV. 27, FEB. 26, MAY 27, QUARTER ENDED 1999 1999 2000 2000 - -------------------------------------------------------------------------------------------------------------------------------- Net sales $ 280,747 $ 261,271 $ 277,044 $ 301,493 Gross profit 124,292 119,997 123,443 156,632 Operating income (loss) (12,209) 15,777 (31,393) 31,941 Earnings (loss) before taxes from continuing operations (15,823) 13,769 (25,906) 47,541 Net earnings (loss) from continuing operations (10,917) 8,941 (16,839) 31,541 Net earnings from discontinued operations 2,435 6,245 327,632 - Net earnings (loss) (8,482) 15,186 310,793 31,541 Earnings (loss) per share - basic (0.18) 0.32 6.57 0.66 Earnings (loss) per share - diluted (0.18) 0.32 6.46 0.64 Earnings (loss) per share from continuing operations - basic (0.23) 0.19 (0.36) 0.66 Earnings (loss) per share from continuing operations - diluted (0.23) 0.19 (0.36) 0.64 Earnings per share from discontinued operations - basic 0.05 0.13 6.93 0.00 Earnings per share from discontinued operations - diluted 0.05 0.13 6.81 0.00 Average shares outstanding: Basic 46,991 47,062 47,297 47,710 Diluted 46,991 47,636 48,080 48,944 Dividends per share $ 0.12 $ 0.12 $ 0.12 $ 0.00 Common stock prices: High 35.56 39.38 54.88 71.75 Low 22.13 28.38 30.75 46.75
AUG. 29, NOV. 28, FEB. 27, MAY 29, QUARTER ENDED 1998 1998 1999 1999 - -------------------------------------------------------------------------------------------------------------------------------- Net sales $ 263,601 $ 272,910 $ 273,009 $ 326,616 Gross profit 117,664 87,331 127,280 146,439 Operating income (loss) (14,540) (121,107) 25,439 20,646 Earnings (loss) before taxes from continuing operations (13,943) (123,706) 18,002 24,745 Net earnings (loss) from continuing operations (9,481) (84,121) 12,241 16,828 Net earnings (loss) from discontinued operations 4,818 (1,750) 2,261 8,043 Net earnings (loss) (4,663) (85,871) 14,502 24,871 Earnings (loss) per share - basic and diluted (0.09) (1.82) 0.31 0.53 Earnings (loss) per share from continuing operations - basic and diluted (0.19) (1.79) 0.26 0.36 Earnings (loss) per share from discontinued operations - basic and diluted 0.10 (0.04) 0.05 0.17 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
The company's common stock is traded on the New York and Pacific Stock Exchanges. There were 3,249 shareholders of record at June 24, 2000. The market prices quoted above are the composite daily high and low prices reported by The Wall Street Journal rounded to full cents per share. 47 SELECTED FINANCIAL DATA CONSOLIDATED FINANCIAL PERFORMANCE
AMOUNTS ARE IN MILLIONS, EXCEPT PER SHARE AMOUNTS. 2000 1999 1998 1997 1996 - -------------------------------------------------------------------------------------------------------------------------------- Net sales $ 1,120.6 $ 1,136.1 $ 1,357.1 $ 1,301.6 $ 1,207.2 Gross margin 46.8% 42.1% 43.2% 44.4% 44.4% Excluding non-recurring charges(1) 48.1% 44.7% 46.1% 44.4% 44.4% Net earnings (loss) from from continuing operations $ 12.7 $ (64.5) $ 37.0 $ 56.2 $ 55.0 Excluding non-recurring charges(1) $ 67.2 $ 17.4 $ 89.9 $ 56.2 $ 55.0 Basic earnings (loss) per share from continuing operations $ 0.27 $ (1.35) $ 0.73 $ 1.13 $ 1.10 Excluding non-recurring charges(1) $ 1.42 $ 0.36 $ 1.78 $ 1.13 $ 1.10 Diluted earnings (loss) per share from continuing operations $ 0.26 $ (1.35) $ 0.72 $ 1.12 $ 1.08 Excluding non-recurring charges(1) $ 1.40 $ 0.36 $ 1.75 $ 1.12 $ 1.08 Weighted average shares Outstanding: Basic 47.3 47.7 50.4 49.5 49.8 Diluted 48.1 47.7 51.3 50.2 51.0 Dividends per share $ 0.36 $ 0.48 $ 0.46 $ 0.40 $ 0.40 Total assets $ 1,534.6 $ 1,248.3 $ 984.4 $ 987.2 $ 996.0 Long-term debt $ 150.4 $ 150.7 $ 150.7 $ 151.6 $ 202.0
(1) Amounts for 2000 do not include non-recurring charges of $83.8 million pre-tax, $54.5 million net of tax. Amounts for 1999 do not include non-recurring charges of $120.5 million pre-tax, $81.9 million net of tax. Amounts for 1998 do not include non-recurring charges of $79.0 million pre-tax, $52.9 million net of tax. See also the Management Review and the Non-recurring Charges Note to the Consolidated Financial Statements. 48 EX-21 6 ex-21.txt EXHIBIT 21 EXHIBIT 21 SUBSIDIARIES OF TEKTRONIX, INC.
Percentage of Voting Name of Subsidiary and Securities Owned by Jurisdiction in Which Organized Immediate Parent Tektronix Australia Pty. Limited (Australia) 100% Tektronix Ges.m.b.H. (Austria) 100 Tektronix N.V. (Belgium) 100 Tektronix Industria e Comercio Ltda. (Brazil) 100 Gage Applied Inc. (Canada) 100 Tektronix Canada Inc. (Canada) 100 Tektronix Electronics (China) Co., Ltd. (China) 100 Tektronix (Yangzhong) Co., Ltd. (China) 100 Tektronix A/S (Denmark) 100 Tektronix Oy (Finland) 100 Tektronix S.A.(France) 100 Tektronix Berlin GmbH & Co., KG (Germany) 100 Tektronix Berlin Verwaltungs GmbH (Germany) 100 Tektronix GmbH (Germany) 100 Tektronix Foreign Sales Corporation (Guam) 100 Tektronix Hong Kong Limited (Hong Kong) 100 Tektronix Engineering Development (India) Limited (India) 100 Tektronix Padova S.p.A. (Italy) 100 Tektronix S.p.A. (Italy) 100 Tektronix Korea, Ltd. (Korea) 100 Tektronix, S.A. de C.V. (Mexico) 100 Tektronix Holland N.V. (The Netherlands) 100 Tektronix Norge A/S (Norway) 100 Maxtek Components Corporation (Oregon) 100 Tektronix Asia, Ltd. (Oregon) 100 Tektronix Development Company (Oregon) 100 Tektronix Export, Inc. (Oregon) 100 Tektronix Federal Systems, Inc. (Oregon) 100 Tektronix International, Inc. (Oregon) 100 VideoTele.com, Inc. (Oregon) 100 Tektronix Polska Sp. z o.o. (Poland) 100 Tektronix Southeast Asia Pte Ltd (Singapore) 100 Tektronix Espanola, S.A. (Spain) 100 Tektronix AB (Sweden) 100 Tektronix International A.G. (Switzerland) 100 Tektronix Taiwan, Ltd. (Taiwan) 100 Tektronix Europe Ltd. (United Kingdom) 100 Tektronix U.K. Limited (United Kingdom) 100 Tektronix U.K. Holdings Limited (United Kingdom) 100 . . . . . . . . . . . . . . . . . . . . . . . Subsidiaries - Less than 100% Ownership (Parent Company/Oregon Corp. listed above): Tektronix (India) Limited (India) 95 Sony/Tektronix Corporation (Japan) 50
EX-23 7 ex-23.txt EXHIBIT 23 EXHIBIT 23 INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in Registration Statement Nos. 33-59171, 33-58511, 333-42413, and 333-68607 of Tektronix, Inc. on Form S-8 and Registration Statement Nos. 33-58635, 33-58513, 333-94347, and 33-59648 of Tektronix, Inc. on Form S-3 of our report dated June 23, 2000, incorporated by reference in this Annual Report on Form 10-K of Tektronix, Inc. for the year ended May 27, 2000. DELOITTE & TOUCHE LLP DELOITTE & TOUCHE LLP Portland, Oregon August 15, 2000 EX-24 8 ex-24.txt EXHIBIT 24 POWER OF ATTORNEY The undersigned constitutes and appoints RICHARD H. WILLS, COLIN L. SLADE 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 27, 2000 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 4, 2000 /s/ RICHARD H. WILLS ---------------------- Richard H. Wills POWER OF ATTORNEY The undersigned constitutes and appoints RICHARD H. WILLS, COLIN L. SLADE 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 27, 2000 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 3, 2000 /s/ J. J. MEYER -------------------- Jerome J. Meyer POWER OF ATTORNEY The undersigned constitutes and appoints RICHARD H. WILLS, COLIN L. SLADE 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 27, 2000 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 4, 2000 /s/ PAULINE LO ALKER --------------------- Pauline Lo Alker POWER OF ATTORNEY The undersigned constitutes and appoints RICHARD H. WILLS, COLIN L. SLADE 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 27, 2000 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 4, 2000 /s/ A. GARY AMES ----------------- A. Gary Ames POWER OF ATTORNEY The undersigned constitutes and appoints RICHARD H. WILLS, COLIN L. SLADE 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 27, 2000 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 4, 2000 /s/ GERRY B. CAMERON ---------------------- Gerry B. Cameron POWER OF ATTORNEY The undersigned constitutes and appoints RICHARD H. WILLS, COLIN L. SLADE 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 27, 2000 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 4, 2000 /s/ D. CAMPBELL ---------------------- David N. Campbell POWER OF ATTORNEY The undersigned constitutes and appoints RICHARD H. WILLS, COLIN L. SLADE 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 27, 2000 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 1, 2000 /s/ PAUL C. ELY, JR. -------------------- Paul C. Ely, Jr. POWER OF ATTORNEY The undersigned constitutes and appoints RICHARD H. WILLS, COLIN L. SLADE 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 27, 2000 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 4, 2000 /s/ FRANK C. GILL ---------------------- Frank C. Gill POWER OF ATTORNEY The undersigned constitutes and appoints RICHARD H. WILLS, COLIN L. SLADE 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 27, 2000 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 4, 2000 /s/ WILLIAM D. WALKER ---------------------- William D. Walker POWER OF ATTORNEY The undersigned constitutes and appoints RICHARD H. WILLS, COLIN L. SLADE 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 27, 2000 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 7, 2000 /s/ RALPH V. WHITWORTH ---------------------- Ralph V. Whitworth EX-27 9 ex-27.txt EXHIBIT 27
5 THIS 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-27-2000 MAY-27-2000 783,705 14,988 193,896 (4,909) 114,001 1,112,057 430,373 (241,829) 1,534,637 330,224 150,369 0 0 198,868 778,726 1,534,637 1,120,555 1,120,555 596,191 596,191 0 0 15,798 19,581 6,855 12,726 336,312 0 0 349,038 7.38 7.25 Amount includes $99,897 of short-term investments Amount represents net inventories Amount includes retained earnings and other comprehensive income Amount includes earnings per common share from discontinued operations of $7.11 Amount includes earnings per common share from discontinued operations of $6.99
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