Tektronix Reports Results for the Full Year and Fourth Quarter of Fiscal 2005

BEAVERTON, Ore., June 23 /PRNewswire-FirstCall/ -- Tektronix, Inc. today reported net sales of $1.035 billion and net earnings from continuing operations of $78.9 million or $0.89 per share for the fiscal year ended May 28, 2005. This compares with net sales of $920.6 million and net earnings from continuing operations of $118.2 million or $1.37 per share for the prior fiscal year. Excluding acquisition-related costs, business realignment and one-time items, net earnings from continuing operations was $126.9 million or $1.44 per share for the fiscal year ended May 28, 2005, as compared with $93.1 million or $1.08 per share for the prior fiscal year. Included in acquisition-related costs for the year ended May 28, 2005 are mostly non-cash expenses related to the acquisition of Inet Technologies, Inc., including the write-off of in-process R&D and amortization of acquisition-related items, and other acquisition-related expenses. Included in acquisition-related credits in the prior fiscal year are a non-cash gain resulting from the settlement of the historical defined benefit pension plan at the company's subsidiary in Japan and a gain on sale of the headquarters property in Japan.

"This was a great year for Tektronix. Sales exceeded $1 billion and pro forma earnings grew over 35%," said Rick Wills, Tektronix Chairman and CEO. "The Inet acquisition is yielding much stronger growth than we initially projected. We are excited about the opportunity we see in that business. In addition, the increased investments in engineering in the rest of the business over the last few years have enabled us to make great progress in new product development and contributed to our ability to take market share in several product categories. During the year, we strengthened the management team through internal promotions and external hiring and enhanced the quality and reach of our world-class distribution system."

For the fourth quarter ended May 28, 2005, Tektronix reported net sales of $261.0 million and net earnings from continuing operations of $21.6 million or $0.25 per share. This compares with net sales of $257.8 million and net earnings from continuing operations of $26.5 million or $0.31 per share for the same period last year. Excluding acquisition-related costs, business realignment and one-time items, net earnings from continuing operations were $27.4 million or $0.31 per share for the fourth quarter ended May 28, 2005, as compared with $29.1 million or $0.34 per share for the same period last year.

"A strong finish to the quarter enabled us to deliver solid orders and sales above the high end of our revised guidance, despite some mid-quarter softness in demand," said Wills.

"Although down from last year, the Americas and the Pacific regions had their best quarter of the fiscal year for orders and we continue to see growth in Japan," continued Wills. "Our two newest product categories are gaining traction with strong growth in the quarter and good progress in new product development."

For the first quarter of fiscal 2006, the company expects net sales to be approximately $230 - $240 million. Earnings per share from continuing operations are expected to be between $0.20 and $0.26 before mostly non-cash costs related to the acquisition of Inet Technologies and other one-time costs. Assuming stable markets, normal seasonality and the strength of new products in the second half, the company expects the first quarter to represent the low point for the year in terms of both sales and earnings per share.

"As we move into our new fiscal year, the strength of the markets remains a question. We see evidence of softness in some markets and strength in others. However, we remain very encouraged by the progress we are making with respect to our new products. As a result of our significant increase in engineering investments, this should be one of the strongest years for new product introductions, with new product activity expected in all of our product categories," concluded Wills.

Recent highlights include the following:

-- The TDS6000C, the world's fastest real-time oscilloscope family, received the Ultimate Product Award from the readers of EE Times and eeProductCenter.

-- The U.S. Air Force awarded Tektronix a five-year requirements contract to supply digital oscilloscopes which will be used in the installation, maintenance and support of an array of electronic equipment and systems ranging from low-end radio systems to highly sophisticated radar and EW systems.

-- The purchase by a number of leading Chinese universities over several years of more than two thousand Tektronix TDS1000 and TDS2000 oscilloscopes which will be used to upgrade the research facilities of their engineering labs.

-- Tektronix announced new oscilloscope software and logic analyzer test solutions to facilitate development and implementation of advanced serial data standards such as Fully Buffered DIMM (FB-DIMM) and PCI Express -- high speed serial data standards that require robust test and validation.

-- Tektronix introduced several new products to support next-generation video technology including the MTS400 Series Compressed Video Test System which provides the highest performance analysis engine on the market along with real-time Video over IP monitoring, the addition of the VC-1 advanced compression video codec and upgrades to the WVR7100 Rasterizer which add Dolby(R) E and Dolby(R) Digital capabilities to meet audio quality demands.

-- The introduction of several significant logic analyzer products including the TLA7012 portable mainframe and TLA7016 benchtop mainframe which work in combination with automated features and an improved user interface. Tektronix also announced that it achieved market share leadership with just over 50% of logic analyzer sales worldwide in 2004.

-- Just after the end of the quarter, Tektronix acquired TDA Systems, a maker of time domain software tools for high speed serial data customers based in Lake Oswego, Oregon. The TDA Systems business will be integrated into Tektronix' sampling oscilloscope product line.

In addition, today Tektronix declared a quarterly cash dividend of $0.06 per share on the outstanding common shares of the Company, payable on July 25, 2005 to shareholders of record as of the close of market on July 8, 2005.

Tektronix will be discussing its fourth quarter results and future guidance on a conference call today, beginning at 1:30 p.m. Pacific Daylight Time (PDT). A live Webcast of the conference call will be available at http://www.tektronix.com/ir. A replay of the Webcast will be available at the same Web site for one year.

Tektronix presents pro forma measures of net earnings and net earnings per share from continuing operations that exclude the effects of acquisition- related costs, business realignment costs and one-time items. The "Reconciliation of Pro Forma Measures to GAAP" reconciles the results of operations in accordance with generally accepted accounting principles (GAAP) to the pro forma results of operations. Tektronix presents pro forma results of operations to help readers differentiate the results of ongoing operating activity from results that include acquisition-related costs, business realignment costs and one-time items. Management of Tektronix uses these pro forma measures to evaluate the Company's results of operations and for forecasting purposes.

Statements and information in this press release that relate to future events or results (including the Company's statements and expectations regarding sales and earnings per share, market position and market growth opportunities, and the introduction of new products) are based on the Company's current expectations. They constitute forward-looking statements subject to a number of risk factors, which could cause actual results to differ materially from those currently expected or desired. Those factors include: worldwide geopolitical and economic conditions; current and future business conditions in the electronics, communications, computer and advanced technologies industries, changes in order rates and customer cancellations, including changes in seasonal buying habits; competitive factors, including pricing pressures, loss of key employees, technological developments and new products offered by competitors; changes in product and sales mix, and the related effects on gross margins; the Company's ability to deliver a timely flow of competitive new products, and market acceptance of these products; the availability of parts and supplies from third-party suppliers on a timely basis and at reasonable prices; risks associated with compliance with the "Restriction of Hazardous Substances" worldwide regulatory provisions, including the associated conversion of current and future product designs and manufacturing processes to procure and/or produce lead free products; inventory risks due to changes in market demand or the Company's business strategies; changes in effective tax rates; currency fluctuations; the ability to develop effective sales channels; and risks associated with the integration of Inet Technologies including realization of expected growth opportunities. Further information on factors that could cause actual results to differ from those anticipated is included in filings made by the Company from time to time with the Securities and Exchange Commission, including but not limited to annual reports on Form 10-K and the quarterly reports on Form 10-Q.

About Tektronix

Tektronix, Inc. is a test, measurement, and monitoring company providing measurement solutions to the communications, computer, and semiconductor industries worldwide. With more than 55 years of experience, Tektronix enables its customers to design, build, deploy, and manage next-generation global communications networks and advanced technologies. Headquartered in Beaverton, Oregon, Tektronix has operations in 20 countries worldwide. Tektronix' Web address is http://www.tektronix.com/.

Consolidated Statements of Operations Quarter Ended Fiscal Year Ended (In thousands, except per share May 28, May 29, May 28, May 29, amounts) 2005 2004 2005 2004 Net sales $261,029 $257,755 $1,034,654 $920,620 Cost of sales 104,481 106,837 415,878 397,577 Gross profit 156,548 150,918 618,776 523,043 Research and development expenses 44,637 37,109 163,474 130,386 Selling, general and administrative expenses 80,789 77,640 300,925 277,993 Business realignment costs 435 2,715 3,100 22,765 Acquisition related costs (credits), net 3,235 1,374 41,553 (51,025) Loss (gain) on disposition of assets, net (620) 393 (1,700) 1,134 Operating income 28,072 31,687 111,424 141,790 Interest income 3,980 5,325 17,144 21,565 Interest expense (289) (227) (820) (2,208) Other non-operating income (expense), net (1,695) (553) (3,564) 6,165 Earnings before taxes 30,068 36,232 124,184 167,312 Income tax expense 8,495 9,763 45,333 49,087 Net earnings from continuing operations 21,573 26,469 78,851 118,225 Gain (loss) from discontinued operations, net of income taxes (372) (350) 2,745 (2,130) Net earnings $21,201 $26,119 $81,596 $116,095 Earnings (loss) per share: Continuing operations - basic $0.25 $0.31 $0.91 $1.40 Continuing operations - diluted $0.25 $0.31 $0.89 $1.37 Discontinued operations - basic $-- $-- $0.03 $(0.03) Discontinued operations - diluted $-- $-- $0.03 $(0.02) Net earnings - basic $0.24 $0.31 $0.94 $1.37 Net earnings - diluted $0.24 $0.30 $0.93 $1.35 Weighted average shares outstanding: Basic 87,103 84,707 86,803 84,720 Diluted 87,840 86,277 88,151 86,038 Cash dividend declared per share $0.06 $0.04 $0.22 $0.12 Consolidated Balance Sheets (In thousands) May 28, 2005 May 29, 2004 ASSETS Current assets: Cash and cash equivalents $131,640 $149,011 Short-term marketable investments 120,881 90,956 Trade accounts receivable, net 155,332 133,150 Inventories 131,096 102,101 Other current assets 65,832 69,812 Total current assets 604,781 545,030 Property, plant and equipment, net 120,546 105,310 Long-term marketable investments 226,892 463,878 Deferred tax assets 56,821 105,886 Goodwill, net 301,673 79,774 Other long-term assets 135,285 30,825 Total assets $1,445,998 $1,330,703 LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable and accrued liabilities $100,713 $134,048 Accrued compensation 78,938 89,212 Deferred revenue 57,509 25,247 Total current liabilities 237,160 248,507 Long-term liabilities 223,015 211,616 Shareholders' equity: Common stock 501,886 257,267 Retained earnings 639,720 748,381 Accumulated other comprehensive loss (155,783) (135,068) Total shareholders' equity 985,823 870,580 Total liabilities and shareholders' equity $1,445,998 $1,330,703 Shares outstanding 85,144 84,179 Selected Additional Financial Data (Dollars in Quarter Ended Fiscal Year Ended thousands, % May 28, May 29, % May 28, May 29, except per share Growth 2005 2004 Growth 2005 2004 amounts) Product Orders and Sales Data: Orders (8%) $240,784 $260,802 1% $921,077 $907,757 U.S. (25%) 89,199 118,158 (16%) 312,661 374,094 International 6% 151,585 142,644 14% 608,416 533,663 Total - excluding Rohde and Schwarz & Inet (5%) 214,326 224,885 4% 840,432 811,581 Net Sales 1% $261,029 $257,755 12% $1,034,654 $920,620 U.S. (14%) 96,616 112,774 2% 392,755 386,369 International 13% 164,413 144,981 20% 641,899 534,251 Total - excluding Rohde and Schwarz & Inet (2%) 225,020 229,005 11% 926,975 833,333 Book to Bill Ratio Calculation: Product Orders $240,784 $260,802 $921,077 $907,757 Product Sales $239,557 $238,855 $951,945 $853,287 Book to Bill ratio 1.01 1.09 0.97 1.06 Reconciliation of Pro Forma Measures to GAAP: Net earnings from continuing operations - GAAP $21,573 $26,469 $78,851 $118,225 Effect of: Acquisition related items reported in cost of sales 5,557 -- 14,774 -- Acquisition related items reported in operating expenses 3,235 1,374 41,553 (51,025) Business realignment costs 435 2,715 3,100 22,765 Loss (gain) on sale of corporate equity securities -- 3 -- (7,290) Gain on sale of Nevada City property -- -- (2,161) -- Tax effect of above items (3,430) (1,463) (9,217) 10,430 Net earnings from continuing operations - Pro Forma $27,370 $29,098 $126,900 $93,105 Diluted earnings per share - Pro Forma $0.31 $0.34 $1.44 $1.08 Income Statement Items as a Percentage of Net Sales: Cost of sales 40% 41% 40% 43% Research and development expenses 17% 14% 16% 14% Selling, general and administrative expenses 31% 30% 29% 30% Business realignment costs 0% 1% 0% 2% Acquisition related costs (credits), net 1% 1% 4% (6%) Loss (gain) on disposition of assets, net 0% 0% 0% 0% Operating income 11% 12% 11% 15% Capital Expenditures and Depreciation: Capital expenditures $11,323 $5,099 $32,464 $19,940 Depreciation and amortization expense $7,644 $8,799 $29,157 $29,751 Quarter Ended Year Ended May 28, 2005 May 29, 2004 Balance Sheet: Cash and Marketable Investments: Cash and cash equivalents $131,640 $149,011 Short-term marketable investments 120,881 90,956 Long-term marketable investments 226,892 463,878 Cash and Marketable Investments $479,413 $703,845 Accounts receivable as a percentage of net sales 15.0% 12.7% Days sales outstanding 54.2 52.6 Average days sales outstanding 54.7 46.2 Inventory as a percentage of net sales 12.5% 10.6% Inventory turns 3.2 4.1 Discontinued Operations Quarter Ended Fiscal Year Ended May 28, May 29, May 28, May 29, (In thousands) 2005 2004 2005 2004 Loss on sale of VideoTele.com (less applicable income tax benefit of $1, $32, $13 and $48) $(1) $(61) $(23) $(89) Loss on sale of optical parametric test business (less applicable income tax benefit of $18, $81, $113 and $195) (36) (150) (212) (363) Loss on sale of Gage (less applicable income tax benefit of $79, $76, $182 and $692) (144) (139) (337) (1,284) Loss from operations of Gage (less applicable income tax benefit of $0, $0, $0 and $212) -- -- -- (394) Gain (loss) on sale of Color Printing and Imaging (less applicable income tax expense (benefit) of $(103), $0, $1,786 and $0) (191) -- 3,317 -- Gain (loss) from discontinued operations, net of income taxes $(372) $(350) $2,745 $(2,130) Reconciliation of Pro Forma Measures to GAAP (In thousands, except per share Quarter Ended amounts) May 28, 2005 Adjustments GAAP Inet Other Pro Forma Net sales $261,029 -- -- $261,029 Cost of sales 104,481 (5,557) -- (A) 98,924 Gross profit 156,548 5,557 -- 162,105 Gross margin 60.0% 62.1% Research and development expenses 44,637 -- -- 44,637 Selling, general and administrative expenses 80,789 -- -- 80,789 Business realignment costs 435 (328) (107) -- Acquisition related costs: Write-off of IPR&D -- -- -- -- Amortization of acquired intangible assets 1,280 (1,280) -- -- Amortization of stock option compensation 274 (274) -- -- Transition expenses 1,681 (685) (996) -- Net loss on assets held for sale -- -- -- -- Total acquisition related costs 3,235 (2,239) (996) -- Loss (gain) on disposition of assets (620) -- -- (620) Operating income 28,072 8,124 1,103 37,299 Operating margin 10.8% 14.3% Other income, net 1,996 -- -- 1,996 Earnings before taxes 30,068 8,124 1,103 39,295 Income tax expense 8,495 3,099 331 11,925 Net earnings from continuing operations $21,573 5,025 772 $27,370 Earnings per share - diluted $0.25 $0.31 Weighted average shares outstanding - diluted 87,840 87,840 Quarter Ended May 29, 2004 GAAP Adjustments Pro Forma Net sales $257,755 -- $257,755 Cost of sales 106,837 -- 106,837 Gross profit 150,918 -- 150,918 Gross margin 58.6% 58.6% Research and development expenses 37,109 -- 37,109 Selling, general and administrative expenses 77,640 -- 77,640 Business realignment costs 2,715 (2,715) -- Acquisition related costs: Write-off of IPR&D -- -- -- Amortization of acquired intangible assets -- -- -- Amortization of stock option compensation -- -- -- Transition expenses 1,358 (1,358) -- Net loss on assets held for sale 16 (16) -- Total acquisition related costs 1,374 (1,374) -- Loss (gain) on disposition of assets 393 -- 393 Operating income 31,687 4,089 35,776 Operating margin 12.3% 13.9% Other income, net 4,545 3 4,548 Earnings before taxes 36,232 4,092 40,324 Income tax expense 9,763 1,463 11,226 Net earnings from continuing operations $26,469 2,629 $29,098 Earnings per share - diluted $0.31 $0.34 Weighted average shares outstanding - diluted 86,277 86,277 Fiscal Year Ended May 28, 2005 Adjustments GAAP Inet Other Pro Forma Net sales $1,034,654 -- -- $1,034,654 Cost of sales 415,878 (14,774) -- (A) 401,104 Gross profit 618,776 14,774 -- 633,550 Gross margin 59.8% 61.2% Research and development expenses 163,474 -- -- 163,474 Selling, general and administrative expenses 300,925 -- -- 300,925 Business realignment costs 3,100 (328) (2,772) -- Acquisition related costs (credits): Write-off of IPR&D 32,237 (32,237) -- -- Amortization of acquired intangible assets 3,414 (3,414) -- -- Amortization of stock option compensation 785 (785) -- -- Transition expenses 5,117 (2,224) (2,893) -- Net gain on assets held for sale -- -- -- -- Japan pension gain -- -- -- -- Total acquisition related costs (credits) 41,553 (38,660) (2,893) -- Loss (gain) on disposition of assets (1,700) -- 2,161 (B) 461 Operating income 111,424 53,762 3,504 168,690 Operating margin 10.8% 16.3% Other income, net 12,760 -- -- 12,760 Earnings before taxes 124,184 53,762 3,504 181,450 Income tax expense 45,333 8,165 1,052 54,550 Net earnings from continuing operations $78,851 45,597 2,452 $126,900 Earnings per share - diluted $0.89 $1.44 Weighted average shares outstanding - diluted 88,151 88,151 Fiscal Year Ended May 29, 2004 Adjustments GAAP Pro Forma Net sales $920,620 -- $920,620 Cost of sales 397,577 -- 397,577 Gross profit 523,043 -- 523,043 Gross margin 56.8% 56.8% Research and development expenses 130,386 -- 130,386 Selling, general and administrative expenses 277,993 -- 277,993 Business realignment costs 22,765 (22,765) -- Acquisition related costs (credits): Write-off of IPR&D -- -- -- Amortization of acquired intangible assets -- -- -- Amortization of stock option compensation -- -- -- Transition expenses 4,962 (4,962) -- Net gain on assets held for sale (19,246) 19,246 (C) -- Japan pension gain (36,741) 36,741 -- Total acquisition related costs (credits) (51,025) 51,025 -- Loss (gain) on disposition of assets 1,134 -- 1,134 Operating income 141,790 (28,260) 113,530 Operating margin 15.4% 12.3% Other income, net 25,522 (7,290)(D) 18,232 Earnings before taxes 167,312 (35,550) 131,762 Income tax expense 49,087 (10,430) 38,657 Net earnings from continuing operations $118,225 (25,120) $93,105 Earnings per share - diluted $1.37 $1.08 Weighted average shares outstanding - diluted 86,038 86,038 (A) Amortization of acquired intangible assets and non-cash expense for Inet inventory step up adjustment to fair value (B) Gain on sale of Nevada City property (C) Gain on sale of Japan headquarters building (D) Gain on sale of Merix Corporation common stock