-----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, E9cdRgeotYG0YIFN62dZ1aXbgTmiFZXTxQrY0TJHi6z6ZURBjE+NMkAkPugL0u0J NPUYOCtUAqjPdt1BONYrfg== 0000912057-01-000440.txt : 20010122 0000912057-01-000440.hdr.sgml : 20010122 ACCESSION NUMBER: 0000912057-01-000440 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20001125 FILED AS OF DATE: 20010105 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TEKTRONIX INC CENTRAL INDEX KEY: 0000096879 STANDARD INDUSTRIAL CLASSIFICATION: INSTRUMENTS FOR MEAS & TESTING OF ELECTRICITY & ELEC SIGNALS [3825] IRS NUMBER: 930343990 STATE OF INCORPORATION: OR FISCAL YEAR END: 0531 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-04837 FILM NUMBER: 1502860 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-Q 1 a2033602z10-q.txt FORM 10-Q ========================================================================= UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-Q [X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarter ended November 25, 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 (IRS Employer incorporation or organization) Identification No.) 14200 SW KARL BRAUN DRIVE BEAVERTON, OREGON 97077 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (503) 627-7111 NOT APPLICABLE (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ___X___ No ______ AT DECEMBER 23, 2000 THERE WERE 94,587,752 COMMON SHARES OF TEKTRONIX, INC. OUTSTANDING. (Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.) TEKTRONIX, INC. AND SUBSIDIARIES - ----------------------------------------------------- INDEX - ---------
PAGE NO. -------- PART I. FINANCIAL INFORMATION Item 1. Financial Statements: Condensed Consolidated Balance Sheets - 2 November 25, 2000 and May 27, 2000 Condensed Consolidated Statements of Operations - 3 for the Quarter ended November 25, 2000 and the Quarter ended November 27, 1999 for the Two Quarters ended November 25, 2000 and the Two Quarters ended November 27, 1999 Condensed Consolidated Statements of Cash Flows - 4 for the Two Quarters ended November 25, 2000 and the Two Quarters ended November 27, 1999 Notes to Condensed Consolidated Financial Statements 6 Item 2. Management's Discussion and Analysis of Financial 15 Condition and Results of Operations PART II. OTHER INFORMATION Item 3. Quantitative and Qualitative Disclosures About Market Risk 23 Item 6. Exhibits and Reports on Form 8-K 23 SIGNATURE 24
1 TEKTRONIX, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS
Nov. 25, May 27, (In thousands) 2000 2000 - ---------------------------------------------------------------------------------------------------------- ASSETS Current assets: Cash and cash equivalents $ 317,882 $ 683,808 Short-term investments 481,290 99,897 Accounts and notes receivable, net 203,269 188,987 Inventories, net 129,124 114,001 Other current assets 12,092 25,364 ---------- ---------- Total current assets 1,143,657 1,112,057 Property, plant and equipment, net 171,928 188,544 Deferred tax assets, net 29,910 30,928 Other long-term assets 191,920 203,108 ---------- ---------- Total assets $1,537,415 $1,534,637 ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable and accrued liabilities $ 213,234 $ 221,767 Accrued compensation 87,752 95,623 Deferred revenue 13,120 12,329 Short-term debt 127 505 ---------- ---------- Total current liabilities 314,233 330,224 Long-term debt 146,584 150,369 Other long-term liabilities 70,673 76,450 Shareholders' equity: Common stock, no par value (authorized 200,000 shares; issued and outstanding 94,722 at November 25, 2000 and 95,083 at May 27, 2000) 213,373 198,868 Retained earnings 773,683 753,796 Accumulated other comprehensive income 18,869 24,930 ---------- ---------- Total shareholders' equity 1,005,925 977,594 ---------- ---------- Total liabilities and shareholders' equity $1,537,415 $1,534,637 ========== ==========
The accompanying notes are an integral part of these condensed consolidated financial statements. 2 TEKTRONIX, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Quarter ended Two quarters ended (In thousands except Nov. 25, Nov. 27, Nov. 25, Nov. 27, per share amounts) 2000 1999 2000 1999 - ---------------------------------------------------------------------------------------------------------- Net sales $ 325,143 $ 261,271 $ 603,334 $ 542,018 Cost of sales 157,617 141,274 290,846 297,729 --------------- --------------- --------------- --------------- Gross profit 167,526 119,997 312,488 244,289 Research and development expenses 39,120 32,736 72,933 70,943 Selling, general and administrative expenses 78,883 71,459 152,766 143,335 Equity in business ventures' (earnings) loss (1,226) 25 (1,094) 343 Non-recurring charges, net (567) - (252) - (Gain) loss on sale of the Video and Networking division (1,456) - (1,456) 26,100 --------------- --------------- --------------- --------------- Operating income 52,772 15,777 89,591 3,568 Interest expense (3,126) (4,710) (6,483) (9,212) Interest income 13,284 803 27,534 1,098 Other (expense) income, net (6,442) 1,899 (11,953) 2,492 --------------- --------------- --------------- --------------- Earnings (loss) before taxes 56,488 13,769 98,689 (2,054) Income tax expense (benefit) 19,771 4,828 34,541 (78) --------------- --------------- --------------- --------------- Net earnings (loss) from continuing operations 36,717 8,941 64,148 (1,976) Discontinued operations: Net earnings from operations of Color Printing and Imaging division (less applicable income tax expense of $0, 3,667, 0, and 4,762, respectively.) - 6,245 - 8,680 --------------- --------------- --------------- --------------- Net earnings $ 36,717 $ 15,186 $ 64,148 $ 6,704 ============= ============== ============= ============= Net earnings per share - basic $ 0.39 $ 0.16 $ 0.68 $ 0.07 Net earnings per share - diluted 0.38 0.16 0.66 0.07 Net earnings (loss) per share from continuing operations - basic 0.39 0.09 0.68 (0.02) Net earnings (loss) per share from continuing operations - diluted 0.38 0.09 0.66 (0.02) Net earnings per share from discontinued operations - basic and diluted - 0.07 - 0.09 Dividends per share - 0.06 - 0.12 Weighted average shares outstanding - basic 94,646 94,125 95,012 94,010 Weighted average shares outstanding - diluted 96,499 95,272 96,990 94,936
The accompanying notes are an integral part of these condensed consolidated financial statements. 3 TEKTRONIX, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Two quarters ended Nov. 25, Nov. 27, (In thousands) 2000 1999 - ---------------------------------------------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES Net earnings $ 64,148 $ 6,704 Adjustments to reconcile net earnings to net cash provided by operating activities: Earnings from discontinued operations - (8,680) Pre-tax net non-recurring charges (1,056) - (Gain) loss on sale of the Video and Networking division (1,456) 26,100 Depreciation and amortization expense 21,995 30,016 Asset impairments 5,861 - Gain on the sale of investments - (217) Loss (gain) on the disposition of fixed assets 892 (7,328) Bad debt expense 1,653 2,604 Deferred income taxes 12,519 (3,326) Equity in business ventures' (earnings) loss (1,094) 343 Changes in operating assets and liabilities: Accounts and notes receivable, net (16,229) 39,738 Inventories, net (16,853) (18,631) Other current assets (810) (10,308) Accounts payable and accrued liabilities (5,455) 4,047 Accrued compensation (4,199) (11,721) Deferred revenue 791 1,881 Other, net (9,757) (5,200) ------------ ------------ Net cash provided by operating activities 50,950 46,022 Net cash provided by discontinued operations - 5,986 CASH FLOWS FROM INVESTING ACTIVITIES Acquisition of property, plant and equipment (14,313) (22,536) Net proceeds from the sale of business - 22,600 Proceeds from the sale of fixed assets 4,298 14,848 Proceeds from the sale of investments - 397 Dividend received from business venture 8,451 - Change in short-term investments (381,393) - ------------ ------------ Net cash (used in) provided by investing activities (382,957) 15,309 CASH FLOWS FROM FINANCING ACTIVITIES Net change in short-term debt (378) (36,123) Repayment of long-term debt (3,785) (126) Issuance of common stock 18,160 12,889 Repurchase of common stock (47,916) (14,573) Dividends - (11,271) ------------ ------------ Net cash used in financing activities (33,919) (49,204) ------------ ------------ Net (decrease) increase in cash and cash equivalents (365,926) 18,113 Cash and cash equivalents at beginning of period 683,808 39,747 ------------ ------------ Cash and cash equivalents at end of period $ 317,882 $ 57,860 ============ ============
4 SUPPLEMENTAL DISCLOSURES OF CASH FLOWS Income taxes paid - net $ 15,658 $ 3,999 Interest paid 5,741 9,554 NON-CASH INVESTING ACTIVITIES Note receivable for sale of Video and Networking assets - 22,500 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 condensed consolidated financial statements. 5 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 1. BASIS OF PRESENTATION The condensed consolidated financial statements and notes thereto have been prepared by the company without audit. Certain information and footnote disclosures normally included in annual financial statements, prepared in accordance with accounting principles generally accepted in the United States of America, have been condensed or omitted. Management believes that the condensed statements include all necessary adjustments, which are of a normal and recurring nature and are adequate to fairly present financial position, results of operations and cash flows for the interim periods. The condensed information should be read in conjunction with the financial statements and notes thereto incorporated by reference in the company's annual report on Form 10-K for the year ended May 27, 2000. Where necessary, certain adjustments have been made to prior period amounts to conform to current period presentation. All share and per share amounts have been restated to reflect a two-for-one stock split effective October 31, 2000. The company's fiscal year is the 52 or 53 weeks ending the last Saturday in May. Fiscal years 2001 and 2000 consist of 52 weeks. 2. 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. 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." Summarized results of operations for the division were as follows:
Two Quarter ended quarters ended (In thousands except per share amounts) Nov. 27, 1999 Nov. 27, 1999 - ---------------------------------------------------------------------------------------------------------- Net sales $ 189,753 $ 345,157 --------------- ------------- Earnings before taxes 9,912 13,442 Income tax expense 3,667 4,762 --------------- ------------- Net earnings from discontinued operations $ 6,245 $ 8,680 =============== ============== Net earnings per share from discontinued operations - basic and diluted $ 0.07 $ 0.09 =============== ==============
6 3. 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. (GVG). During the first quarter of fiscal year 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 received, as well as asset impairments incurred as a result of the sale. The companies closed the transaction on September 24, 1999. 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 GVG, which was recorded in Other long-term assets and accounted for under the cost method. 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. On February 25, 2000, Tektronix and GVG entered into a subsequent agreement. Under this agreement, the company sold to GVG, 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%. In addition, a note receivable 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 (Gain) loss on sale of the Video and Networking division on the Condensed Consolidated Statements of Operations during the third quarter of fiscal year 2000. In addition, on May 25, 2000, Tektronix sold its 10% equity interest in GVG to the majority shareholder of that company and received $6.5 million in cash, which approximated book value. During the second quarter of fiscal year 2001, the company resolved certain outstanding contingencies related to sale of the Video and Networking division. These resolved items resulted in a net credit of $1.4 million, which is included in (Gain) loss on sale of the Video and Networking division on the Condensed Consolidated Statements of Operations. 4. REPURCHASE OF COMMON STOCK 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. During the first two quarters of fiscal year 2001, the company repurchased a total of 1.6 million shares for $47.9 million, under this program. The company has repurchased a total of 3.0 million shares at an average price of $27.99 per share totaling $83.0 million, under the program as of November 25, 2000. The share amounts above have been restated to reflect the two-for-one stock split effective October 31, 2000. 7 5. NON-RECURRING CHARGES, NET In the third quarter of fiscal year 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 fiscal year 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. Total pre-tax net non-recurring credits on the Condensed Consolidated Statements of Operations totaled $0.3 million for the two quarters ended November 25, 2000. The net credits of $0.3 million consisted of a $2.3 million loss on sale of assets and $2.5 million of adjustments to the existing restructuring plans, offset by restructuring reserve reversals of $5.1 million. An expanded discussion of restructuring reserve activity is included below. Under the 2000 plan, certain assets and related employee severance costs of Maxtek Components Corporation (Maxtek), a wholly-owned subsidiary of Tektronix, were included in the restructuring reserve as it was anticipated that they would be eliminated through closure. As the opportunity to dispose of these assets through sale subsequently arose, and was determined by management to be more beneficial to the company, the related reserves were deemed no longer necessary, resulting in reversals of accrued compensation of $1.6 million and payables and other liabilities reserve of $0.2 million. The sale of these assets resulted in a non-recurring pre-tax loss on sale of assets of $2.3 million. 8 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 - --------------------------------------------------------------------------------------------------------- 1999 plan charges $ 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 (455) 4,049 (690) 2,244 ------------- ------------ ------------- ------------ Balance May 29, 1999 $ 690 $ 16,528 $ - $ 36,080 ------------- ------------ ------------- ------------ Fiscal year 2000 activity: 2000 plan charges $ 19,142 $ 16,787 $ 15,460 $ 13,362 Adjustments to plan 361 - - (405) Reversal of excess charges - (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 ------------- ------------ ------------- ------------ Fiscal year 2001 activity: Adjustments to plan $ 2,018 $ - $ - $ 543 Reversal of excess charges - (929) - (4,178) Cash paid out - (3,195) - (2,837) Non-cash disposals or write-offs (2,018) - - - ------------- ------------ ------------- ------------ Balance November 25, 2000 $ - $ 14,826 $ - $ 4,873 ============= ============ ============= ============
During the first two quarters of fiscal year 2001 the equipment and other assets reserve was increased approximately $2.0 million and the accrued compensation reserve was increased approximately $0.5 million. The increase of $2.0 million to the equipment and other assets reserve was primarily to provide for additional estimated impairment costs related to assets previously included in the restructuring plan. The increase of $0.5 million to the accrued compensation reserve was attributable to the subsequent clarification and amendment of an employment agreement. During the first two quarters of fiscal year 2001, $0.9 million and $4.2 million of previously accrued amounts were reversed from the payables and other liabilities reserve and the accrued compensation reserve, respectively. The reversal of $0.9 million of the payables and other liabilities reserve was primarily attributable to certain obligations which were assumed by a third party, thereby relieving the company of its obligation. The reversal of $4.2 million of accrued compensation resulted from severance reversals of $2.6 million for 82 individuals who either left the company voluntarily or were re-assigned to future-benefiting operations and $1.6 million of severance related to individuals associated with the assets sold by Maxtek discussed above. 9 Including current and prior period adjustments and reversals, headcount reduction under the 1999 plan totaled 1,302 employees. As of November 25, 2000, severance of approximately $41.3 million has been paid to 1,293 of these employees, with the remaining 9 employees to be paid severance of approximately $0.2 million under contract through 2002. Under the 2000 plan, headcount reductions, net of current and prior period adjustments and reversals, totaled 218 employees. As of November 25, 2000, severance of approximately $5.3 million has been paid to 76 of these employees, with the remaining 142 employees to be paid severance of approximately $4.7 million through 2002. 6. EARNINGS PER SHARE
Quarter ended Two quarters ended (In thousands except Nov. 25, Nov. 27, Nov. 25, Nov. 27, per share amounts) 2000 1999 2000 1999 - ---------------------------------------------------------------------------------------------------------- Net earnings $ 36,717 $ 15,186 $ 64,148 $ 6,704 ============= ============== ============= ============= Weighted average shares used for basic earnings per share 94,646 94,125 95,012 94,010 Effect of dilutive stock options 1,853 1,147 1,978 926 --------------- --------------- --------------- ------------ Weighted average shares used for dilutive earnings per share 96,499 95,272 96,990 94,936 ============= ============== ============= ============= Basic net earnings per share $ 0.39 $ 0.16 $ 0.68 $ 0.07 Diluted net earnings per share $ 0.38 $ 0.16 $ 0.66 $ 0.07
All share and per share amounts have been restated to reflect a two-for-one stock split effective October 31, 2000. Options to purchase an additional 177,250 and 1,252,400 shares of common stock were outstanding at November 25, 2000 and November 27, 1999, respectively, but were not included in the computation of diluted net earnings (loss) per share because their effect would be antidilutive. 7. 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. Short-term investments held at November 25, 2000 and May 27, 2000 consisted of:
Nov. 25, May 27, (In thousands) 2000 2000 - ---------------------------------------------------------------------------------------------------------- Commercial paper $ 246,901 $ 29,353 Corporate notes and bonds 145,454 52,977 Asset backed securities 74,414 7,486 Certificates of deposit 10,441 10,081 Federal agency bonds and notes 4,080 - ------------ ------------ Short-term investments $ 481,290 $ 99,897 ============= =============
10 8. ACCOUNTS AND NOTES RECEIVABLE Accounts and notes receivable consisted of:
Nov. 25, May 27, (In thousands) 2000 2000 - ---------------------------------------------------------------------------------------------------------- Trade accounts receivable $ 180,167 $ 167,677 Notes receivable, current portion 10,909 13,865 Other receivables 16,223 12,354 Allowance for doubtful accounts (4,030) (4,909) ------------- ------------- Accounts and notes receivable, net $ 203,269 $ 188,987 ============= =============
Notes receivable, current portion at November 25, 2000 and May 27, 2000 included the current portion of notes and interest receivable due from GVG received as consideration for the sale of Video and Networking division assets. Other receivables was comprised of miscellaneous non-trade receivables. 9. 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 consisted of:
Nov. 25, May 27, (In thousands) 2000 2000 - ----------------------------------------------------------------------------------------------------------- Materials and work in process $ 66,876 $ 63,580 Finished goods 80,514 65,601 Inventory reserves (18,266) (15,180) ------------- ------------- Inventories, net $ 129,124 $ 114,001 ============= =============
10. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment consisted of:
Nov. 25, May 27, (In thousands) 2000 2000 - ---------------------------------------------------------------------------------------------------------- Land $ 1,656 $ 1,656 Buildings 152,657 154,466 Machinery and equipment 262,893 274,251 Accumulated depreciation and amortization (245,278) (241,829) ------------- ------------- Property, plant and equipment, net $ 171,928 $ 188,544 ============= =============
11 11. INVESTMENTS IN MARKETABLE EQUITY SECURITIES Investments in marketable equity securities are classified as available-for-sale and reported at fair market value on the Condensed Consolidated Balance Sheets as Other long-term assets. The related unrealized holding gains and losses are excluded from earnings and included, net of tax, in Accumulated other comprehensive income on the Condensed Consolidated Balance Sheets.
Nov. 25, May 27, (In thousands) 2000 2000 - ---------------------------------------------------------------------------------------------------------- Unamortized cost basis of marketable equity securities $ 4,191 $ 6,704 Gross unrealized holding gains 8,978 9,991 Gross unrealized holding losses - (1,707) -------------- ------------ Fair value of marketable equity securities $ 13,169 $ 14,988 ============= ============
12. COMPREHENSIVE INCOME Comprehensive income and its components, net of tax, are as follows:
Quarter ended Two quarters ended Nov. 25, Nov. 27, Nov. 25, Nov. 27, (In thousands) 2000 1999 2000 1999 - ---------------------------------------------------------------------------------------------------------- Net earnings $ 36,717 $ 15,186 $ 64,148 $ 6,704 Other comprehensive income: Currency translation adjustment, net of taxes of $(2,775), 3,471, (4,318) and 3,438, respectively (4,163) 5,207 (6,478) 5,157 Unrealized gain (loss) on available-for- sale securities, net of taxes of $(9,600), (40), 305 and (185), respectively (14,435) (60) 417 (277) Reclassification adjustment for realized losses, net of taxes of $0, 240, 0 and 248, respectively - 360 - 371 ------------ ------------- ------------- ------------- Total comprehensive income $ 18,119 $ 20,693 $ 58,087 $ 11,955 =========== ============= ============= =============
Accumulated other comprehensive income consisted of the following:
Unrealized holding gains Accumulated Foreign (losses) on other currency available-for- comprehensive (In thousands) translation sale securities income - ---------------------------------------------------------------------------------------------------------- Balance as of May 27, 2000 $ 19,956 $ 4,974 $ 24,930 Q1 activity (2,315) 14,852 12,537 ------------ ------------- ------------- Balance as of Aug. 26, 2000 17,641 19,826 37,467 Q2 activity (4,163) (14,435) (18,598) ------------ ------------- ------------- Balance as of Nov. 25, 2000 $ 13,478 $ 5,391 $ 18,869 ============ ============ =============
12 13. 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 were 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 range of products including: 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 executive management group 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 executive management group and was therefore not presented below. Inter-segment sales were not material and were included in net sales to external customers below.
Quarter ended Two quarters ended Nov. 25, Nov. 27, Nov. 25, Nov. 27, (In thousands) 2000 1999 2000 1999 - ---------------------------------------------------------------------------------------------------------- Net sales to external customers by division: Measurement $ 325,143 $ 253,325 $ 603,334 $ 481,359 Video and Networking - 7,946 - 60,659 --------------- --------------- --------------- ------------ Net sales $ 325,143 $ 261,271 $ 603,334 $ 542,018 --------------- --------------- --------------- ------------ Consolidated net sales to external customers by region: United States $ 176,407 $ 140,484 $ 317,573 $ 287,695 Europe 61,180 65,133 119,854 137,481 Pacific 45,473 29,399 78,002 57,924 Japan 23,851 14,746 48,990 35,547 Americas 18,232 11,509 38,915 23,371 --------------- --------------- --------------- ------------ Net sales $ 325,143 $ 261,271 $ 603,334 $ 542,018 --------------- --------------- --------------- ------------ Measurement net sales to external customers by region: United States $ 176,407 $ 134,898 $ 317,573 $ 253,681 Europe 61,180 63,259 119,854 119,526 Pacific 45,473 29,197 78,002 52,853 Japan 23,851 14,587 48,990 34,014 Americas 18,232 11,384 38,915 21,285 --------------- --------------- --------------- ------------ Net sales $ 325,143 $ 253,325 $ 603,334 $ 481,359 --------------- --------------- --------------- ------------ 13 Operating income (loss): Measurement $ 49,945 $ 26,352 $ 87,079 $ 48,691 Video and Networking - (10,710) - (19,013) Gain (loss) on sale of Video and Networking division 1,456 - 1,456 (26,100) Non-recurring charges 1,371 - 1,056 - All other - 135 - (10) --------------- --------------- --------------- ------------- Operating income $ 52,772 $ 15,777 $ 89,591 $ 3,568 --------------- --------------- --------------- -------------
14. 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 is in the process of determining the impact of adoption 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 completed an evaluation of the effects of this bulletin and does not believe that it will have a material effect on the company's consolidated financial statements. 14 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 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 fiscal year 2000, 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. For additional information on these fiscal year 2000 divestitures, see the Sale of Color Printing and Imaging and the Sale of Video and Networking footnotes included in the Notes to the Condensed Consolidated Financial Statements for the quarter ended November 25, 2000. 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 range of products including: 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. NON-RECURRING CHARGES, NET Total pre-tax net non-recurring credits on the Condensed Consolidated Statements of Operations totaled $0.3 million for the two quarters ended November 25, 2000. The net credits of $0.3 million consisted of a $2.3 million loss on sale of assets and $2.5 million of adjustments to the existing restructuring plans, offset by restructuring reserve reversals of $5.1 million. An expanded discussion of restructuring reserve activity is included below. Under the 2000 plan, certain assets and related employee severance costs of Maxtek Components Corporation (Maxtek), a wholly-owned subsidiary of Tektronix, were included in the restructuring reserve as it was anticipated that they would be eliminated through closure. As the opportunity to dispose of these assets through sale subsequently arose, and was determined by management to be more beneficial to the company, the related reserves were deemed no longer necessary resulting in reversals of accrued compensation of $1.6 million and payables and other liabilities reserve of $0.2 million. The sale of these assets resulted in a non-recurring pre-tax loss on sale of assets of $2.3 million. During the first two quarters of fiscal year 2001 the equipment and other assets reserve was increased approximately $2.0 million and the accrued compensation reserve was increased approximately $0.5 million. The increase of $2.0 million to the equipment and other assets reserve was primarily to provide for additional estimated impairment costs related to assets previously included in the restructuring plan. The increase of $0.5 million to the accrued compensation reserve was attributable to the subsequent clarification and amendment of an employment agreement. 15 During the first two quarters of fiscal year 2001, $0.9 million and $4.2 million of previously accrued amounts were reversed from the payables and other liabilities reserve and the accrued compensation reserve, respectively. The reversal of $0.9 million of the payables and other liabilities reserve was primarily attributable to certain obligations which were assumed by a third party, thereby relieving the company of its obligation. The reversal of $4.2 million of accrued compensation resulted from severance reversals of $2.6 million for 82 individuals who either left the company voluntarily or were re-assigned to future-benefiting operations and $1.6 million of severance related to individuals associated with the assets sold by Maxtek discussed above. Including current and prior period adjustments and reversals, headcount reduction under the 1999 plan totaled 1,302 employees. As of November 25, 2000, severance of approximately $41.3 million has been paid to 1,293 of these employees, with the remaining 9 employees to be paid severance of approximately $0.2 million under contract through 2002. Under the 2000 plan, headcount reductions net of current and prior period adjustments and reversals, totaled 218 employees. As of November 25, 2000, severance of approximately $5.3 million has been paid to 76 of these employees, with the remaining 142 employees to be paid severance of approximately $4.7 million through 2002. RESULTS OF OPERATIONS Consolidated net earnings for the quarter and two quarters ended November 25, 2000, were $36.7 million and $64.1 million, respectively, as compared with net earnings of $15.2 million and $6.7 million, for the quarter and two quarters ended November 27, 1999, respectively. Included in consolidated net earnings for the quarter and two quarters ended November 27, 1999, were net earnings from discontinued operations related to the Color Printing and Imaging division of $6.2 million and $8.7 million, respectively. NET EARNINGS FROM CONTINUING OPERATIONS Net earnings from continuing operations were $36.7 million or $0.38 per diluted share for the second quarter of fiscal year 2001. For the same quarter ended a year ago, net earnings from continuing operations were $8.9 million or $0.09 per diluted share. Net earnings from continuing operations were $64.1 million or $0.66 per diluted share for the two quarters ended November 25, 2000, as compared with net losses of $2.0 million or $0.02 per diluted share for the same period in fiscal year 2000. Excluding the $26.1 million loss on the sale of the Video and Networking division, the company would have had net earnings from continuing operations of $15.0 million or $0.16 per diluted share for the two quarters ended November 27, 1999. NET SALES Consolidated net sales of $325.1 million for the second quarter of fiscal year 2001, increased $63.8 million from consolidated net sales of $261.3 million for the second quarter of fiscal year 2000. Consolidated net sales were $603.3 million for the first two quarters of fiscal year 2001, as compared with net sales of $542.0 million for the first two quarters of fiscal year 2000. 16 Second quarter fiscal year 2001 Measurement net sales of $325.1 million increased $71.8 million or 28% from Measurement net sales of $253.3 million for the second quarter of fiscal year 2000, with the largest increases in the United States and the Pacific. Net sales in these regions increased $41.5 million or 31% and $16.3 million or 56%, respectively. Net sales for the first two quarters of fiscal year 2001 were $603.3 million, an increase of $121.9 million or 25% from Measurement net sales of $481.4 million during the first two quarters of fiscal year 2000. The largest increases in net sales, by region, were realized in the United States and the Pacific regions with increases of $63.9 million or 25% and $25.1 million or 48%, respectively. Consolidated and Measurement net sales growth was realized in all geographies except Europe, which decreased slightly, due primarily to the unfavorable impact of the decline in the value of the Euro. Increases in all other geographies were primarily attributable to continued strength in the company's strategic markets (communications, computer, and internet enabled technologies) and positive acceptance of both previously existing and newly introduced products. Additionally, the Pacific region was favorably impacted by continuing recovery from the economic downturn which affected prior year comparative period results. ORDERS Consolidated second quarter fiscal year 2001 orders of $317.2 million increased $75.6 million or 31% from consolidated orders of $241.6 million for the second quarter of fiscal year 2000. Consolidated orders for the two quarters ended November 25, 2000 were $624.1 million, an increase of $99.8 million or 19% from consolidated orders of $524.3 million for the two quarters ended November 27, 1999. Measurement orders of $317.2 million for the second quarter of fiscal year 2001, grew $75.6 million or 31% from orders of $241.6 million in the same quarter in the prior year. Growth occurred in all geographies with the largest increases in the United States and the Pacific which grew $47.0 million or 38% and $11.5 million or 34%, respectively, over the prior year comparable period. Measurement orders of $624.1 million for the first two quarters of fiscal year 2001, grew $138.8 million or 29% from Measurement orders of $485.3 million for the first two quarters of fiscal year 2000. Growth was realized in all geographies, with the largest increases in the United States and the Pacific, which grew $81.7 million or 33% and $27.3 million or 44%, respectively, over the prior year comparable period. Consolidated and Measurement orders growth was realized in all geographies and was the result of continued strong demand for existing products and customer acceptance of new products. Management of the company expects orders growth to moderate during the second half of the fiscal year. GROSS PROFIT Consolidated gross profit was $167.5 million for the second quarter of fiscal year 2001, an increase of $47.5 million from $120.0 million for the comparable period in fiscal year 2000. Gross margins for the same periods increased to 51.5% from 45.9%, respectively. Consolidated gross profit was $312.5 million for the first two quarters of fiscal year 2001, an increase of $68.2 million from $244.3 million for the comparable period in fiscal year 2000. Gross margins for the same periods increased to 51.8% from 45.1%, respectively. The increase in consolidated gross profit is partly attributable to increased volume as consolidated sales increased to $603.3 million for the first two quarters of fiscal year 2001 from $542.0 million during the first two quarters of fiscal year 2000. The remaining increase in gross profit was attributable to higher gross margin as the prior year comparable period included sales of the Video and Networking division, which had substantially lower average gross margins. 17 Measurement gross profit was $167.5 million for the second quarter of fiscal year 2001, an increase of $44.7 million from $122.8 million for the prior year comparable period. Gross margins increased to 51.5% from 48.5% for the same periods. Measurement gross profit was $312.5 million for the first two quarters of fiscal year 2001, an increase of $79.7 million from $232.8 million for the first two quarters of fiscal year 2000. Gross margin increased to 51.8% for the first two quarters of fiscal year 2001 from 48.4% for the prior year comparable period. Growth in Measurement gross profit primarily resulted from a $121.9 million increase in Measurement sales in the first two quarters of fiscal year 2001 as compared with the first two quarters of fiscal year 2000. The increase in Measurement gross margin over the time period was primarily attributable to a strong mix of Measurement products, many of which were introduced in fiscal year 2000. Management of the company does not currently anticipate that these increased margin levels will be fully sustainable for the remainder of fiscal year 2001. OPERATING EXPENSES Consolidated operating expenses were $114.8 million and $222.9 million, for the quarter and two quarters ended November 25, 2000, respectively, as compared with $104.2 million and $240.7 million for the quarter and two quarters ended November 27, 1999, respectively. Operating expenses for the two quarters ended November 27, 1999, included the $26.1 million loss on the sale of the Video and Networking division as well as the general operating expenses for that division. Measurement operating expenses were $114.8 million and $222.9 million for the quarter and two quarters ended November 25, 2000, respectively, increases of $18.4 million and $38.8 million, respectively, from Measurement operating expenses of $96.4 million and $184.1 million for the quarter and two quarters ended November 27, 1999, respectively. Measurement research and development expenses were $39.1 million for the second quarter of fiscal year 2001 and $72.9 million for the first two quarters of the current year, increases of $8.6 million and $15.1 million, respectively, from research and development expenses of $30.5 million and $57.8 million for the same periods in the prior year. As a percentage of sales, measurement research and development expenses have remained relatively constant at 12% in all periods. Measurement selling, general and administrative expenses were $78.9 million or 24% of net sales for the second quarter of fiscal year 2001 and $152.8 million or 25% of net sales for the first two quarters of fiscal year 2001, as compared with $65.9 million or 26% of net sales for the second quarter of the prior year and $125.9 million or 26% of net sales for the first two quarters of that year. The increase in expenses is primarily attributable to the support of higher sales volume in the current fiscal year and increased infrastructure associated with operating a standalone test, measurement and monitoring company. The decrease in Measurement selling, general and administrative expenses as a percentage of sales from 26% for the second quarter of fiscal year 2000 to 24% for the second quarter of fiscal year 2001 was attributable to the strong sales performance experienced during the current quarter. 18 NON-OPERATING INCOME AND EXPENSE Interest income was $13.3 million for the second quarter of fiscal year 2001 as compared with $0.8 million in the same quarter ended a year ago. Year-to-date second quarter fiscal year 2001 interest income was $27.5 million as compared with $1.1 million for the same period in the prior year. The increase in interest income is primarily the result of interest earned on a portion of the proceeds from the sale of the Color Printing and Imaging division held as cash and cash equivalents and short-term investments. The company held cash and cash equivalents and short-term investments of $317.9 million and $481.3 million, respectively, at November 25, 2000. The balance of cash and cash equivalents was $57.9 million and the company held no short-term investments at November 27, 1999. Interest expense was $3.1 million and $6.5 million for the quarter and two quarters ended November 25, 2000, respectively, as compared with $4.7 million and $9.2 million for the same periods a year ago. The decrease can be attributed to the reduction in the balance of short-term debt. Other income (expense), net was $6.4 million and $12.0 million of expense for the quarter and two quarters ended November 25, 2000, respectively, as compared with $1.9 million and $2.5 million of income for the comparable periods in the prior year. The change was primarily attributable to the other than temporary impairment of certain investments and other assets. FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES At November 25, 2000, the company's working capital was $829.4 million, an increase of $47.6 million from the end of fiscal year 2000 due mainly to $51.0 million cash provided by operations. Current assets increased $31.6 million during the first two quarters of fiscal year 2001, while current liabilities decreased $16.0 million over the same period. At November 25, 2000, the company held $799.2 million in cash and cash equivalents and short-term investments, as well as bank credit facilities totaling $272.3 million, of which $267.4 million was unused. Unused facilities included $117.4 million in miscellaneous lines of credit and $150.0 million under revolving credit agreements with United States and foreign banks. Cash and cash equivalents decreased $365.9 million from year-end due mainly to the investment of an additional $381.4 million in short-term instruments over year-end and the repurchase of approximately 1.6 million shares of the company's common stock for $47.9 million during the first two quarters of fiscal year 2001, offset by approximately $51.0 million of cash provided by operations. The share amount above has been restated to reflect the two-for-one stock split effective October 31, 2000. Net property, plant and equipment decreased $16.6 million to $171.9 million at the end of the second quarter of fiscal year 2001. The decrease was due mainly to $9.7 million of net disposals and $19.9 million in depreciation expense for the first two quarters of fiscal year 2001. These decreases were offset by approximately $14.3 million in capital expenditures during the same period. Cash flows from operating activities and borrowing capacity are expected to be sufficient to fund operations and capital expenditures through May 2002. 19 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 is in the process of determining the impact of adoption 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 completed an evaluation of the effects of this bulletin and does not believe that it will have a material effect on the company's consolidated financial statements. 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 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, balance sheet or cash flows of the company. COMPETITION Tektronix participates in the highly competitive test, measurement and monitoring industry, competing directly with Agilent Technologies, Inc., Acterna Corporation, 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, balance sheet or cash flows. 20 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. 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 or in the communications, internet, semiconductor, computer and electronic markets into which the company's customers sell their products could affect customer buying decisions. This could adversely affect the company's results of operations, balance sheet or cash flows. As a portion of the company's costs are fixed in nature, a future reduction in revenue could disproportionately affect operating results in a quarter. 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, balance sheet 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 improved resulting in favorable comparisons to 1999. Although management expects continued strong growth through fiscal year 2001, it does not expect growth rates 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. 21 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 effect 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. 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. The company may make other forward-looking statements from time to time. Forward-looking statements speak only as of the date made. The company undertakes no obligation to publicly release the result of any revisions to forward-looking statements which may be made to reflect subsequent events or circumstances or to reflect the occurrence of unanticipated events. 22 PART II. OTHER INFORMATION ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The company is exposed to financial market risks, including interest rate, equity price, and foreign currency exchange rate risks. The company maintains a short-term investment portfolio consisting primarily of fixed rate commercial paper, corporate notes and bonds, and asset backed securities with maturities less than one year. An increase in interest rates would decrease the value of certain of these investments. However, a 10% increase in interest rates would not have a material impact on the company's results of operations, balance sheet or cash flows as the company has the ability to hold these fixed rate investments until maturity. At November 25, 2000, 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, balance sheet 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 these securities would not be material to the company's results of operations, balance sheet 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 10% adverse change in foreign currency exchange rates would not have a significant effect on the company's results of operations, balance sheet or cash flows. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits: None (b) No reports on Form 8-K have been filed during the quarter for which this report is filed. 23 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. January 5, 2001 TEKTRONIX, INC. By COLIN L. SLADE --------------------------- Colin L. Slade Vice President and Chief Financial Officer 24 -----END PRIVACY-ENHANCED MESSAGE-----