ITEM 1. BUSINESS.
GENERAL
Michaels Stores, Inc. ("Michaels" or the "Company") is the largest nationwide specialty retailer of arts, crafts and decorative items, operating a chain of 254 stores (as of April 15, 1994) located in 32 states and one Canadian province. Michaels stores offer a wide selection of competitively priced items including general crafts, wearable art, silk and dried flowers, picture framing materials and services, art and hobby supplies, and party, seasonal and holiday merchandise. The average sale is approximately $13.75. The Company's primary customers are women aged 25 to 54 with above average median household incomes, and the Company believes repeat customers account for a substantial portion of its sales. The Company was incorporated in 1983 as the successor to a Colorado corporation which commenced operations in 1962.
MERCHANDISING
PRODUCT SELECTION
Michaels' merchandising strategy is to provide a broad selection of products in an appealing store environment with superior customer service. The commitment to customer service is evidenced through in-store "how to" demonstrations, project samples displayed throughout the store, and instructional classes for adults and children. The typical Michaels store offers an assortment of over 30,000 stock keeping units ("SKUs"). In general, each store offers products from ten departments. Nine of the departments offer essentially the same type of merchandise throughout the year, although the products may vary from season to season. The merchandise offered by these nine departments is as follows:
- General craft materials, including those for stenciling, doll making, jewelry making, woodworking, wall decor, and tole painting;
- Wearable art, including adult's and children's garments, fabric paints, embellishments, jewels and sequins, transfers and appliques;
- Silk flowers, dried flowers and artificial plants sold separately or in ready-made and custom floral arrangements, all accessories needed for floral arranging, wedding millinery and floral items, and other items for personalizing home decor, such as wreaths, containers, baskets, candles, and potpourri;
- Picture framing materials and services, including ready-made frames and custom framing, mat boards, glass, backing materials and related supplies, framed art and photo albums;
- Fine art materials, representing a number of major brand lines and including items such as pastels, water colors, oil paints, acrylics, easels, brushes, paper and canvas;
- Hobby items, including doll houses and miniature furniture, wooden and plastic model kits and related supplies, and paint-by-number kits;
- Party needs, including paper party goods, gift wrap, candy making and cake decorating supplies, invitations, greeting cards, balloons and candy;
- Needlecraft items, including stitchery supplies, knitting yarns, needles, canvas and related supplies for needlepoint, embroidery and cross stitching, knitting, crochet, and rug making, and quilts and afghans sold separately or in kits;
- Ribbon, including satins, laces, florals and other styles sold both in bolts and by the yard.
In addition to the nine departments described above, the Company regularly features seasonal merchandise. Seasonal merchandise is ordered for several holiday periods, including Valentine's Day, Easter, Mother's Day, Halloween and Thanksgiving, in addition to the Christmas season. For example,
seasonal merchandise for the Christmas season includes trees, wreaths, candles, lights and ornaments. Included in the seasonal department is promotional merchandise that is offered with the intention of generating customer traffic.
The following table shows sales by the largest departments as a percent of total sales for fiscal 1993, 1992 and 1991:
During the Christmas selling season, up to 25% of floor and shelf space in a typical store is devoted to Christmas decorating and gift making merchandise. Because of the project-oriented nature of these products, the Company's peak Christmas selling season extends from October through December. Accordingly, a fully developed seasonal merchandising program, including inventory, merchandise layout and instructional ideas, is implemented in each store beginning in July of each year. This program requires additional inventory accumulation so that each store is fully stocked during the peak season. Sales of all merchandise typically increase during the Christmas selling season because of increased customer traffic. The Company believes that merchandise centered around other traditional holidays, such as Valentine's Day, Easter and Halloween, is becoming more popular and is a growing contributor to sales.
Michaels' selling floor strategy is developed centrally and implemented at the store level through the use of "planograms" which provide store managers with detailed descriptions and illustrations with respect to store layout and merchandise presentation. Planograms are also used to cluster various products which can be combined to create individual projects.
CUSTOMER SERVICE
Michaels believes that customer service is critically important to its merchandising strategy. Many of the craft supplies sold in Michaels stores can be assembled into unique end-products. Accordingly, Michaels has hundreds of displays in every store in an effort to stimulate new project ideas, and supplies project sheets with detailed instructions on how to assemble the product. In addition, many sales associates are craft enthusiasts with the experience to help customers with ideas and instructions. The Company also offers free demonstrations and inexpensive classes in stores as a means of promoting new craft ideas. The Company creates additional shopper loyalty and enthusiasm through publication of the "Michaels Arts & Crafts" magazine, which reaches over 200,000 households six times per year, and sponsorship of the "Michaels Kids Club" for over 250,000 children nationwide. Michaels believes that the in-store "how-to" demonstrations, instructional classes, knowledgeable sales associates, and customer focus groups have allowed the Company to better understand and serve its customers. In addition, the Company measures its customer service in each store at least four times a year through a "mystery shopper" program.
PURCHASING AND DISTRIBUTION
The Company's purchasing strategy is to negotiate centrally with its vendors in order to take advantage of volume purchasing discounts and improve control over product mix and inventory. Approximately 90% of the merchandise is acquired by the stores from vendors on the Company's "approved list." Of this merchandise, approximately one-half is received from the Company's distribution centers and one-half is received directly from vendors. In addition, each store has the flexibility
to purchase approximately 10% of its merchandise directly from local vendors, which allows the store managers to tailor the products offered in their stores to local tastes and trends. All store purchases are monitored by district and regional managers.
The Company currently operates three distribution centers which supply the stores with certain merchandise, including substantially all seasonal and promotional items. The Company's distribution centers are located in Irving, Texas, Buena Park, California and Lexington, Kentucky. The Company also operates a warehouse in Phoenix, Arizona, which allows the Company to store bulk purchases of seasonal and promotional merchandise prior to distribution. Michaels stores receive deliveries from the distribution centers generally once a week through an internal distribution network using leased trucks.
Substantially all of the products sold in Michaels stores are manufactured in the United States, the Far East and Mexico. Goods manufactured in the Far East generally require long lead times and are ordered four to six months in advance of delivery. Such products are either imported directly by the Company or acquired from distributors based in the United States. In all cases, purchases are denominated in U.S. dollars (or Canadian dollars for purchases of certain items delivered directly to stores in Canada).
ADVERTISING
The Company believes that its advertising promotes craft and hobby project ideas among its customers. The Company focuses on circular and newspaper advertising. The Company has found circular advertising, primarily as an insert to newspapers but also through direct mail or on display within its stores, to be the most effective medium of advertising. Such circulars advertise numerous products in order to emphasize the wide selection of products available at Michaels stores. The Company believes that its ability to advertise through circulars and newspapers approximately once a week in each of its markets provides the Company with an advantage over its smaller competitors. In the past the Company generally limited television advertising to those major markets in which it has clusters of stores or in which it was adding new stores. In the future, the Company will conduct advertising campaigns on targeted cable television networks reaching a nationwide audience. This effort may also be complemented with network television advertising in select markets.
STORE OPERATIONS
The Company's stores average approximately 15,500 square feet of selling space, although newer stores average approximately 17,000 square feet of selling space. Net sales for fiscal 1993 averaged approximately $3,180,000 per store (for stores open the entire fiscal year) and $218 per square foot of selling space. Store sites are selected based upon meeting certain economic, demographic and traffic criteria or for clustering stores in markets where certain operating efficiencies can be achieved. The Michaels stores currently in operation are located primarily in strip shopping centers in areas with easy access and ample parking.
Typically, a Michaels store is managed by a store manager and one to three assistant store managers, depending on the sales volume of the store. The Company's vice president of store operations, four regional managers and twenty-three district managers are responsible for the supervision and operation of the stores. The Company believes this organizational structure enhances the communication among the individual stores and between the stores and corporate headquarters. In addition, the Company believes that the training and experience of its managers and assistant managers are vital to the success of its stores, and therefore has implemented extensive training programs for such personnel.
NEW STORE EXPANSION
Michaels currently anticipates adding approximately 70 to 75 stores in the United States and Canada during fiscal 1994, of which 34 have already opened or been acquired. Michaels' expansion strategy is to give priority to adding stores in existing markets in order to enhance economies of scale
associated with advertising, transportation, field supervision, and other regional expenses. Management believes that few of its existing markets are saturated. The Company also believes that many attractive new markets available to the Company exist. The anticipated development of Michaels stores in 1994 and the rate at which stores are developed thereafter will depend upon a number of factors, including the success of existing Michaels stores, the availability of suitable store sites, the availability of suitable acquisition candidates, and the ability to hire and train qualified managers.
In February 1994 the Company acquired Treasure House Stores, Inc., an arts and crafts chain of nine stores operating primarily in the Seattle market. In April 1994 the Company acquired a group of companies operating eight stores (primarily in Portland, Oregon) under the Oregon Craft and Floral Supply Co. name and eight stores (in southern California) under the H & H Craft and Floral Supply Co. name. All of these acquired stores will be operated in the future as Michaels stores. These acquisitions have created a dominant position for the Company in Oregon and Washington and further strengthened the Company's position in southern California. The Company intends to continue to review acquisition opportunities in existing and new markets.
In October 1993 the Company opened its first Michaels Craft and Floral Warehouse store ("CFW") using a newly-developed "warehouse superstore" format. It is anticipated that each store following the CFW format will occupy up to 40,000 square feet of selling space, carry a wider selection of certain categories of merchandise than the typical store, and generally offer merchandise at "everyday" discounted retail prices. In order to maintain a lower cost structure than the typical store, the CFW store utilizes new computer systems that provide full point-of-sale scanning, automated receiving of merchandise, and allow the elimination of retail price marking of individual product. The Company plans to open four or five additional CFW stores during 1994, and may accelerate the opening of such stores in the future if the format continues to be favorably received by the consumer.
Michaels has developed a standardized procedure which enables the Company to efficiently open new stores and integrate them into its information and distribution systems. The Company develops the floor plan and inventory layout, and organizes the advertising and promotions in connection with the opening of each new store. In addition, Michaels maintains an experienced store opening staff to provide new store personnel with in-store training. The Company generally opens new stores during the period from February through October because new store personnel require significant in-store training prior to the first Christmas selling season.
INVENTORY CONTROL/MANAGEMENT INFORMATION SYSTEMS
Michaels' management information systems include automated point-of-sale, merchandising, distribution and financial applications. All orders from the stores to the Company's distribution centers are processed electronically to ensure timely delivery of warehouse-sourced inventory. The Company's point-of-sale system generally captures sales information by department. Due to the large number of inexpensive items in the stores, the non-fashion nature of the merchandise, and the long lead times involved for ordering seasonal goods (up to nine months), the Company does not currently capture item-level sales information, inventory or margin electronically in all stores. Sales trend tracking combines item level point-of-sale scanning data from the CFW store with point-of-sale department-level sales from all other stores, weekly test counts of certain SKUs in 40 selected stores, and regular communication from store managers through the district and regional managers. Inventory and margins are monitored on a perpetual basis in the distribution centers and in the stores via physical inventories at least quarterly in groups of 30 to 40 stores and a year-end complete physical count in most stores. The Company believes that these procedures and automated systems, together with its other control processes, allow Michaels to manage and monitor its inventory levels and margin performance while it implements new SKU management systems.
In conjunction with the centralization of certain merchandising, financial and operational functions in 1991, the Company developed a Five-Year Information Technology Plan designed to satisfy the Company's growing management information needs. The enhancements provided for in this Plan
that have been implemented include improved ordering capabilities in the stores using radio frequency and bar-code scanning technologies, item-level scanning and automated receiving for the CFW store, the implementation of electronic data interchange with key vendors, and additional automation in the distribution centers also using radio frequency and bar-code scanning technologies. Additional near-term enhancements will include the implementation of more sophisticated warehouse replenishment, merchandise assortment planning, and "planogramming" capabilities.
COMPETITION
Michaels is the largest nationwide specialty retailer dedicated to serving the arts and crafts marketplace. The specialty retail business is highly competitive. Michaels competes primarily with other nationwide retailers of craft items and related merchandise, regional and local merchants that tend to specialize in particular aspects of arts and crafts, and mass merchandisers that typically dedicate a portion of their selling space to a limited selection of arts, crafts, picture framing and seasonal products. The Company believes that its stores compete based on price, quality and variety of merchandise assortment, and customer service, such as instructional demonstrations. Michaels believes the combination of its broad selection of products, emphasis on customer service, loyal customer base, and capacity to advertise frequently in all of its markets provides the Company with a competitive advantage.
SERVICE MARKS
The name "Michaels" and the Michaels logo are both federally registered service marks held by a trust of which a wholly-owned subsidiary of the Company is beneficiary.
FRANCHISES
The Company has granted to Dupey Management Corporation the right to open royalty-free, licensed Michaels stores in an eight-county area in north Texas which includes the Dallas-Fort Worth area. In addition, a majority-owned subsidiary of the Company has the right to operate licensed Michaels stores in Canada, in return for which such subsidiary pays royalty fees.
EMPLOYEES
As of March 27, 1994, approximately 10,040 persons were employed by the Company, approximately 5,830 of whom were employed on a part-time basis. The number of part-time employees is substantially increased during the Christmas selling season. Of the Company's full-time employees, 640 are engaged in various executive, operating, training and administrative functions in the Company's corporate office, distribution centers and bulk warehouse, and the remainder are engaged in store operations.
EXECUTIVE OFFICERS OF THE REGISTRANT
Mr. Sam Wyly became a director of the Company in July 1984 and was elected Chairman of the Board in October 1984. In 1963, Mr. Wyly founded University Computing Company, a computer software and services company, and served as President or Chairman from 1963 until February 1979. Mr. Wyly co-founded Earth Resources Company, an oil refining and silver and gold mining company,
and served as its Executive Committee chairman from 1968 to 1980. Mr. Wyly and his brother, Charles J. Wyly, Jr., bought the 20 restaurant Bonanza Steakhouse chain in 1967. It grew to approximately 600 restaurants by 1989, during which time he served as Chairman. Mr. Wyly currently serves as Chairman of Sterling Software, Inc., a computer software company which he co-founded in 1981, and as President of Maverick Capital, Ltd., an investment fund management company. Sam Wyly is the father of Evan A. Wyly, a director of the Company.
Mr. Charles J. Wyly, Jr. became a director of the Company in October 1984 and Vice Chairman of the Board of Directors in February 1985. Mr. Wyly served as an officer and director of University Computing Company from 1964 to 1975, including President from 1969 to 1973. Mr. Wyly and his brother, Sam Wyly, founded Earth Resources Company, and Charles J. Wyly, Jr. served as Chairman of the Board from 1968 to 1980. Mr. Wyly served as Vice Chairman of the Bonanza Steakhouse chain from 1967 to 1989. Mr. Wyly is a co-founder and currently serves as Vice Chairman of the Board of Directors of Sterling Software, Inc. and as Chairman of Maverick Capital, Ltd. Charles J. Wyly, Jr. is the father-in-law of Donald R. Miller, Jr., a director and Vice President -- Market Development of the Company.
Mr. Bush became a director of the Company and was elected President and Chief Operating Officer in August 1991. Prior to joining the Company, Mr. Bush was Executive Vice President -- Operations and Stores for Ames Department Stores, Inc. Before joining Ames in 1990, Mr. Bush was President, Chief Operating Officer and a director of Rose's Stores, Inc., a discount store chain. From 1980 to 1985, he served as Vice President -- Southern Zone Manager for Zayre Corporation. Previously, Mr. Bush spent 22 years with J.C. Penney Company, where he held a variety of executive positions in merchandising, operations, marketing, strategic planning, specialty businesses, discount stores and business development.
Mr. Morris became Executive Vice President and Chief Financial Officer of the Company in August 1990. From January 1990 until August 1990 he was Senior Vice President -- Finance and Chief Financial Officer. From April 1988 until January 1990, Mr. Morris was a director, President and Chief Executive Officer of Frostcollection, Inc. Prior to April 1988, Mr. Morris was Partner-In-Charge of the Accounting and Audit and the Merger and Acquisition Departments of the Dallas, Texas office of Arthur Young & Company.
Mr. Sullivan became Executive Vice President of the Company in August 1990. From March 1988 until August 1990 he was Senior Vice President -- Real Estate. Prior to his joining the Company, Mr. Sullivan had served with Family Dollar Stores, Inc. for 11 years, most recently as Vice President -- Real Estate.
Mr. Rudman became Senior Vice President -- Merchandising and Marketing of the Company in October 1991. From October 1990 until October 1991 he was Director of Merchandising for Best Products, a catalog showroom retailer. From September 1989 until October 1990 Mr. Rudman was Senior Vice President -- Merchandising/Marketing and Distribution for Silk Greenhouse, Inc., a chain of retail silk floral and accessory stores which filed a petition under federal bankruptcy laws in November 1990. From May 1988 until September 1989 he served as Vice President -- Non-Foods Merchandise for Pace Membership Club, prior to which time he was Vice President and Divisional Merchandise Manager of McCrory's, a chain of variety stores.
ITEM 2.

ITEM 2. PROPERTIES.
The Company's stores generally are situated in strip shopping centers located near malls and on well-traveled roads. Almost all stores are in leased premises with lease terms generally ranging from five to twenty years. The base rental rates generally range from $75,000 to $175,000 per year. Rental expense for stores open during the full 12-month period of fiscal 1993 averaged $137,000. The leases are generally renewable, with increases in rental rates for renewal terms. A majority of the existing
leases contain provisions pursuant to which the lessor has provided leasehold improvements to prepare for opening. However, the Company has been paying and anticipates continuing to pay for a larger portion of future improvements directly as opposed to financing them through the lessor.
During 1993 the Company purchased a total of seven properties (consisting of six parcels of land and seven buildings) at a cost of $8.8 million, generally acquiring such properties by bidding for them in reorganization proceedings of other retail companies. Four of the properties have been or are in the process of being sold, generally in transactions pursuant to which the Company will lease the property back for a specified period of time. It is the Company's present intention to acquire land and/or buildings only in unusual circumstances where the economics of the transactions appear favorable to the Company and the locations involved fit into the Company's expansion strategy.
The following table indicates the number of the Company's stores located in each state or province:
The Company leases a 210,000 square foot building in Irving, Texas for use as a distribution center and as the Company's corporate headquarters, and leases two nearby facilities for supplemental warehouse and office space. The Company also leases a 400,000 square foot building in Buena Park,
California for use as a distribution center and leases a 350,000 square foot building in Lexington, Kentucky for the same purpose. In addition, the Company leases a 160,000 square foot building in Phoenix, Arizona for use as a bulk warehouse facility.
ITEM 3.

ITEM 3. LEGAL PROCEEDINGS.
The Company is a defendant from time to time in routine lawsuits incidental to its business. The Company believes that none of such current proceedings, individually or in the aggragate, will have a materially adverse effect on the Company.
ITEM 4.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Company did not submit any matter to a vote of security holders during the fourth quarter of the fiscal year covered by this report.
PART II
ITEM 5.

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS.
The Company's Common Stock is quoted through the NASDAQ National Market System under the symbol "MIKE." The following table sets forth the high and low sales prices of the Company's Common Stock for each quarterly period within the two most recent fiscal years.
On April 26, 1994, the last reported sale price of the Common Stock on the NASDAQ National Market System was $42.25, and as of such date there were approximately 1,044 holders of record of the Common Stock.
The Company's present plan is to retain earnings for the foreseeable future for use in the Company's business and the financing of its growth. The Company did not pay any dividends on its Common Stock during fiscal 1992 and 1993.
ITEM 6.

ITEM 6. SELECTED FINANCIAL DATA.
The selected financial information required by this item is included in the Company's 1993 Annual Report to Shareholders (the "1993 Annual Report") on page 1 under the heading "Financial Highlights." Such information is incorporated herein by reference.
ITEM 7.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
The information required by this item is included in the Company's 1993 Annual Report on pages 20 through 22 under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations." Such information is incorporated herein by reference.
ITEM 8.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The financial statements and supplementary data required by this item are included in this Annual Report on Form 10-K, or are included in the Company's 1993 Annual Report and are incorporated herein by reference, as indicated in the following Index to Financial Statements and Financial Statement Schedules:
All other schedules are omitted since the required information is not present or is not present in amounts sufficient to require submission of the schedules, or because the information required is included in the consolidated financial statements and notes thereto.
ITEM 9.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10.

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information concerning the directors of the company is set forth in the Proxy Statement to be delivered to shareholders in connection with the Company's Annual Meeting of Shareholders to be held on May 24, 1994 (the "Proxy Statement") under the heading "Proposal I -- Election of Directors," which information is incorporated herein by reference. The name, age and position of each executive officer of the Company is set forth under the heading: "Executive Officers of the Registrant" in Item 1 of this report, which information is incorporated herein by reference.
ITEM 11.

ITEM 11. EXECUTIVE COMPENSATION.
The information concerning executive compensation is set forth in the Proxy Statement under the heading "Management Compensation," which information is incorporated herein by reference.
ITEM 12.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information concerning security ownership of certain beneficial owners and management is set forth in the Proxy Statement under the heading "Principal Shareholders and Management Ownership," which information is incorporated herein by reference.
ITEM 13.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information concerning certain relationships and related transactions is set forth in the Proxy Statement under the headings "Certain Transactions" and "Management Compensation -- Compensation and Stock Option Committee Interlocks and Insider Participation," which information is incorporated herein by reference.
PART IV
ITEM 14.

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K:
(a) The following documents are filed as a part of this Annual Report on Form 10-K:
(1) Financial Statements:
The financial statements filed as a part of this report are listed in the "Index to Financial Statements and Financial Statement Schedules" at Item 8.
(2) Financial Statement Schedules:
The financial statement schedules filed as a part of this report are listed in the "Index to Financial Statements and Financial Statement Schedules" at Item 8.
(3) Exhibits:
The exhibits filed as a part of this report are listed under "Exhibits" at subsection (c) of this Item 14.
(b) Reports on Form 8-K:
No report on Form 8-K was filed on behalf of the Registrant during the last quarter of the period covered by this report.
(c) Exhibits:
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.
MICHAELS STORES, INC.
Date: April 28, 1994 By: ___________/s/_SAM WYLY___________ Sam Wyly CHAIRMAN OF THE BOARD OF DIRECTORS AND CHIEF EXECUTIVE OFFICER
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.
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders Michaels Stores, Inc.
We have audited the consolidated financial statements of Michaels Stores, Inc. as of January 30, 1994 and January 31, 1993, and for each of the three years in the period ended January 30, 1994, and have issued our report thereon dated February 28, 1994. Our audits also included the financial statement schedules listed in item 14(b). These schedules are the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits.
In our opinion, the financial statement schedules referred to above, when considered in relation to the basic financial statements taken as a whole, present fairly in all material respects the information set forth therein.
ERNST & YOUNG
Dallas, Texas February 28, 1994
SCHEDULE I
MICHAELS STORES, INC. MARKETABLE SECURITIES -- OTHER INVESTMENTS JANUARY 30, 1994 (IN THOUSANDS EXCEPT SHARE OR UNIT DATA)
SCHEDULE IX
MICHAELS STORES, INC. SHORT-TERM BORROWINGS (DOLLARS IN THOUSANDS)
SCHEDULE X
MICHAELS STORES, INC. SUPPLEMENTARY INCOME STATEMENT INFORMATION (IN THOUSANDS)
APPENDIX A
A DESCRIPTION OF GRAPHIC MATERIAL CONTAINED IN THE COMPANY'S FORM OF COMMON STOCK CERTIFICATE IS CONTAINED IN EXHIBIT 4.1.
EXHIBIT INDEX


Item 1. Business.
Tektronix is an Oregon corporation organized in 1946. Its principal executive offices are located at 26600 S.W. Parkway Avenue, Wilsonville, Oregon 97070, approximately 18 miles south of Portland. Its telephone number is (503) 627-7111. References herein to "Tektronix" or the "Company" are to Tektronix, Inc. and its wholly-owned subsidiaries unless the context indicates otherwise.
Tektronix' products cover a wide range of electronic equipment. The Company's products may be grouped into four classes of similar products as follows: (i) measurement business products, (ii) color printing and imaging products, (iii) video systems products, and (iv) network displays products. Measurement business products include digital and analog oscilloscopes, general purpose test instruments, television waveform monitors, vectorscopes, signal generators, automated test equipment, logic analyzers, card-modular test instruments, spectrum analyzers, cable testers, optical fiber testers, cameras, probes and related products. Color printing and imaging products include color printers and related products and supplies. Video systems products include studio production equipment, signal processing and distribution equipment, transmission systems and related products. Network displays products include graphics terminals and related products.
Products ________
The table below sets forth the contribution to total net sales of the Company's product groupings for the last three fiscal years (in thousands of dollars).
Measurement Business Products _____________________________
Because of their wide range of capabilities, measurement business products are used in a variety of applications, including research, design, testing, installation, manufacturing and service in the computer, military, commercial aerospace, telecommunications, television, process control and automotive industries.
Tektronix pioneered the development of high precision oscilloscopes over 45 years ago, and the oscilloscope is the Company's primary measurement product. Oscilloscopes are used by engineers and technicians when an electrical signal needs to be viewed, measured, tested or calibrated. Oscilloscopes are used extensively in the computer, communications, aerospace and other industries for design, manufacturing and maintenance. In addition to electrical signals, oscilloscopes can be adapted to measure mechanical motion (vibration), sound, light, heat, pressure, strain and velocity.
Oscilloscopes produce graphic representations of electrical signals on a cathode ray tube or other display device. Normally, the display shows the signal as a graph of its amplitude over a certain period of time, which may range from minutes to less than a billionth of a second. Oscilloscopes provide a convenient way to visually monitor and interpret analog electrical fluctuations, mechanical motion and sound.
The development of the microprocessor and associated growth in microprocessor-based devices stimulated both the existing analog markets and new digital markets. In addition, the microprocessor made possible significant improvements in oscilloscope design and performance. Most of the oscilloscopes and other measurement products manufactured by Tektronix feature digital storage and conversion functions, programmable operations, the ability to work in conjunction with personal computers and workstations and combinations of these capabilities. In addition, trends toward smaller microelectronic devices have opened new segments for specialized measurement equipment probes and other related equipment, such as connectors, adapters and cards, and cameras and plotters to record displayed waveforms.
Recently, Tektronix redesigned a substantial portion of its oscilloscope product line to provide a consistent "architecture" across products and to enhance ease of use. Because the Company manufactures oscilloscopes in a wide range of configurations, bandwidths and other performance characteristics and in sizes ranging from hand-held to large laboratory units, this redesign provides customers with reduced learning time and higher productivity. The redesign also reduces the time required by the Company to develop new products because many essential
user interface aspects have been standardized. Some elements of this redesign also have been patented and provide the Company with certain competitive advantages.
The Company also offers modular instruments delivered on printed circuit cards that can be mixed and matched by customers and plugged directly into the backplane of industry-standard VXI-based card cages. These are controlled by personal computers or workstations to form complete instrument systems tailored to customers' particular requirements. A number of measurement products are now available in the VXI standard, which products are used primarily in manufacturing applications. Tektronix has been instrumental in the development of VXI-based hardware and software industry standards.
Measurement business products also include television test products, formerly reported as Television Systems products. Television test products include vectorscopes, waveform monitors, signal generators, automated test equipment, demodulators, aural modulation monitors and synchronizers which are used primarily by the television industry to test and display the quality of video and audio signals. The resolution of images and the fidelity of sounds, as well as the stability of the signals that carry them, are essential to program quality. Tektronix' television test products excel at the many forms of test and measurement vital to creating and maintaining signals of the highest quality.
Market changes are driving the development of new categories of products from Tektronix. The proliferation of electronic technology is requiring technicians and craftspeople to use smart electronic tools for electronic problem detection in areas such as automotive and electrical equipment repair and maintenance. TekTools(tm), Tektronix' new line of handheld, smart and rugged products, are designed specifically for these markets. Under the TekTools brand are a number of products such as a family of Digital Multimeters and a new line of products, the TekMeter(tm) family, that combine the functionality of a multimeter and oscilloscope into one product, and a number of accessories. An automotive version of the TekMeter has been developed for automotive electronic troubleshooting and repair and is being distributed to automotive service centers through third party distributors that specialize in distribution to the automotive market. Currently, the TekTools product family includes products priced from below $100 up to about $2,000.
While TekTools are battery powered portable products, the Company also markets a line of lower priced benchtop basic instruments such as frequency counters, multimeters, power supplies and oscilloscopes. Applications include education, light manufacturing, electronic trouble shooting and basic electronic design.
Other measurement business products include logic analyzers, spectrum analyzers and cable and fiber optic testers.
Logic analyzers are a principal tool for electronic designers, engineers and technicians in testing and trouble-shooting computers, computer peripheral devices and digital electronic systems and instruments. Logic analyzers capture, display and examine streams of data coded as binary digits (bits), which are transmitted simultaneously over many channels. The Company's Digital Analysis System (DAS), a broad application logic analyzer, combines logic analysis and pattern generation by using card modular plug-in units to permit a range of performance in one system. The DAS is also used by software engineers in the development and optimization of microprocessor based designs.
Spectum analyzers are used in communications and other industries to display and measure signal amplitude versus frequency rather than amplitude versus time (the latter being what an oscilloscope displays). It is an essential tool used to design, check and adjust communications transmitting and receiving equipment.
Products designed for the telecommunications industry play an increasingly important role in the Company's measurement business portfolio. Tektronix is a leading supplier of a broad range of test solutions for emerging networks, designed for ensuring integrity and optimizing performance of networks, and verifying design and assuring quality of communications equipment. Cable testers and fiber optic testers use time-domain- reflectometry techniques to locate faults in metallic and fiber optic cables. Essentially, these instruments send signals from one end of a cable and then measure the reflection time of the signals to determine the location of the fault. Cable testers and fiber optic testers are widely used in the telecommunication and cable television industries. The Company also has developed a series of products for SDH or SONET transmission testing in the telecommunications industry.
Other measurement business products include digitizers, signal sources, curve tracers and modular lines of general purpose test instruments.
Color Printing and Imaging Products ___________________________________
Tektronix' color printing and imaging products include color printers and related products and supplies.
Color printers produce full color hard copies of images produced by personal computers, workstations and terminals. Most of the Company's printers are compatible with the Postscript industry standard page description language, which specifies how an image is transferred to hard copy. By adopting the Postscript
standard, color printers can be used in conjunction with a wide range of third-party graphics software. Tektronix produces color printers using thermal wax, phase change ink jet and dye sublimation color transfer technologies. The printers are controlled by software designed and implemented by the Company. Tektronix has developed proprietary technology that uses solid sticks of ink, of the Company's own formulation, that are melted and then jetted onto the paper. This technology produces vivid and stable images, allows printing on plain rather than coated paper and can be applied to a wide range of sizes and gauges of paper.
The use of color in computing and printing has been stimulated by enhancements in the underlying microprocessor technology of personal computers and workstations, by increasingly larger system and peripheral storage capabilities, and by enhancements in computer display capability. As personal computers increasingly become capable of displaying images (instead of just characters), there has been an accompanying growth in demand for printers that can print such images in color. This demand has been especially strong in certain scientific and engineering segments and in the graphic arts segment, where color has typically been a strong element of the way information is conveyed. The Company's printers are used in a number of environments, including office, graphic arts and engineering applications.
The purchase of a printer has typically been the second largest dollar expense of a personal computer user, second only to the basic computer system. While a substantial majority of the spending on printers has been directed to black and white (monochrome) printers, color printers have been a rapidly growing segment of the total printer market. As color printer technology advances and as prices for color printers approach the costs of higher performance monochrome printers, the market for color printers can be expected to show continued growth. In the past, there have been two significant areas of application for color printers. The first type of application is characterized by high quality output and higher prices, and color printers in this application are used to produce very high quality images that approach the quality of four-color offset printing. The second type of application is characterized by color text and images approaching the resolution of monochrome ink jet and laser printers and lower user costs. Tektronix participates primarily in the second application area, with products that range in price from approximately $3,000 (suggested list price) up to approximately $15,000. Products in the first application area typically sell for three to ten times more than the prices of the products in the second application area.
While the market for color printers is currently growing rapidly, it is still much smaller than the market for
monochrome printers. Moreover, it is characterized by intense and increasing competition, resulting in a competitive pricing environment. Because the market for color hard copy is still small compared to the market for monochrome printers, distribution of products from manufacturer to end user is less efficient. The Company expects distribution channels to expand as color hard copy becomes a more prominent feature in computer applications.
Also included in color printing and imaging products are supplies for use with the Company's color printers, including inks, ribbons and paper. These supplies are a very significant source of ongoing color printing and imaging revenue.
Video Systems Products ______________________
The increasing use of television to communicate a broad array of information and entertainment has created markets for a number of products that support the development of "content" for distribution by television signals. As television distribution systems become more powerful, there is greater potential for increased usage via integration of computer applications with television. Those trends, coupled with the increasing use of cable and satellite to distribute content, are expanding the market for Tektronix' video systems products. These trends may result in increased demand for lower cost production products based on industry standard platforms and for systems that support the development and distribution of new forms of content, such as multimedia products.
Most video systems products are from The Grass Valley Group, Inc. ("Grass Valley"), a wholly-owned subsidiary of the Company based in California that manufactures products used by the television industry for program production and distribution. Grass Valley products include studio production equipment, signal processing and distribution equipment and transmission systems. Studio production equipment is used in the creative process of television program production and assembly. Production equipment products include production switchers, special effects devices and editing controllers. Production switchers allow an operator to select signals from various sources, such as cameras, video tape recorders and network or remote transmissions, and to combine these signals into the continuous program seen by the viewing audience. Grass Valley also manufactures electronic graphics systems which are used to create video titles and graphics for use in television program production. Signal processing and distribution equipment is used in the process of moving signals within a television production facility or between facilities. Such equipment includes routing switchers, amplifiers, timing systems and signal conversion devices. Transmission systems are used in the process of transporting
signals between facilities. Transmission system products include fiber optic video transmitter/receiver systems, digital video coders/decoders, cross-connect switches and interactive conferencing systems including distance learning systems. Grass Valley's customers include the television networks, local television stations, post-production houses (which assemble commercials and television programs from recorded footage), telephone and cable companies and corporate and educational users.
Other video systems products include the Company's new Profile (tm) product which is a disk-based, multi-channel video storage and playback system for use by television broadcasters in video library systems.
Network Displays Products _________________________
The Company's major network displays product line is its X terminals, which are standards-based graphics terminals that also provide multiple windowing and networking capability. The Company's X terminals connect users with a host computer and other devices, such as a printer, that make up a computing system. Many X terminal applications involve a central "server" (containing applications and data) connected to multiple terminals, thereby allowing a number of users to access those applications and data. The Company no longer manufactures its older line of proprietary graphics terminals, but it still has a service business for its installed base for such products. This service business has continually declined as the installed base of these proprietary graphics terminals declines.
X terminal products are based on standard architecture originally developed by the Massachusetts Institute of Technology. As a result, it is difficult for any manufacturer to develop a proprietary advantage in either the underlying hardware or in elements of the operating system. As a result, competition in the X terminals market is intense. The Company's graphics terminals have historically been used in technical applications such as mechanical engineering design, drafting and mapping. As a result, the Company has enjoyed a strong position in the technical and scientific segments of the market. Recently, the market has expanded and shifted to commercial applications from scientific and engineering applications. In accordance with this trend, recent additions to the Company's X terminal product line focus on new commercial and business applications, as well as engineering applications. Commercial customers now account for a major portion of the Company's X terminal revenues.
Manufacturing _____________
During 1994, the Company sold its integrated circuits operation to Maxim Integrated Products, Inc. and transferred its hybrid circuits operation to a joint venture with Maxim, and in early 1995 completed the sale of approximately 65% of the stock of its printed circuit board operation in the initial public offering of Merix Corporation. As a result of these activities and other recent component operation divestitures, the Company's manufacturing operations are no longer highly integrated. The Company has entered into supply agreements with each of the companies now operating the respective component operations and, as a result, believes that the Company will be able to acquire the required components as needed. Other companies also manufacture special components for Tektronix.
Tektronix also purchases raw materials, components, data processing equipment and computer peripheral devices for use in its products and systems. Such purchased materials and components are generally available to Tektronix as needed. Although shortages of such items have been experienced from time to time, Tektronix believes that such shortages will not have a material adverse effect on the Company.
Tektronix owns substantially all of its manufacturing facilities. Its primary manufacturing facilities are located in or near the Portland, Oregon metropolitan area. Some of Tektronix' products, components and accessories are manufactured in Heerenveen, The Netherlands and in Hong Kong. Tektronix recently announced that it plans to transform its Heerenveen plant from a manufacturing operation to a logistics center. Grass Valley's products are manufactured near Grass Valley, California. See Item 2, "Properties" for a more detailed description of the Company's manufacturing facilities.
Certain Tektronix products are assembled for the Japanese market at plants in Tokyo and Gotemba, Japan by Sony/Tektronix Corporation, a Japanese corporation equally owned by Tektronix and Sony Corporation. Sony/Tektronix also designs and manufactures small, lightweight portable oscilloscopes, benchtop semiconductor testers and digitizers in Japan for sale worldwide.
Sales and Distribution ______________________
Tektronix maintains its own worldwide sales engineering and field maintenance organization, staffed with technically trained personnel. Sales in the United States, Canada, Brazil, the United Kingdom, Germany, France, Italy, Spain, The Netherlands, Belgium, Sweden, Denmark, Norway, Finland, Switzerland, The Republic of Ireland, Australia, Austria, Hong Kong, Taiwan and Mexico are made primarily through field offices
of the Company and its subsidiaries located in principal market areas. Sales in the Peoples Republic of China are made through liaison offices of a Hong Kong subsidiary of the Company. Except for Grass Valley products, sales in Japan are made by Sony/Tektronix Corporation. Sales in India are made by Hinditron Tektronix Instruments, Ltd., an Indian company which is 40% owned by Tektronix. Many of the Company's products are sold in whole or in part through independent distributors throughout the United States and in some other countries. Certain of the Company's independent distributors also sell products manufactured by the Company's competitors. In some countries, all sales are made either directly by Tektronix or by independent representatives to whom Tektronix provides direct technical and administrative assistance. A number of the Tektronix field offices also perform major maintenance and reconditioning operations.
Tektronix' principal customers are electronic and computer equipment manufacturers, private industrial concerns engaged in commercial or governmental projects, military and nonmilitary agencies of the United States and of foreign countries, public utilities, educational institutions, radio and television stations and networks, graphics arts companies and users of sophisticated office products. Certain products are sold both to equipment users and to original equipment manufacturers.
During the last fiscal year, United States Government agencies accounted directly for approximately three percent of Tektronix' consolidated sales as compared with approximately four percent for the prior year. During the last five years, direct sales to United States Government agencies ranged from three to six percent. The balance of sales during each year was distributed among several thousand other customers, with no other single customer accounting for as much as three percent. The Company believes that sales directly related to United States Government expenditures (excluding sales to the United States Government) were approximately four percent of Tektronix' consolidated sales for the last fiscal year. Contracts involving the United States Government are subject, as is customary, to termination by the Government at its convenience.
Most Tektronix product sales are sold as standard catalog items. Tektronix attempts to fill its orders as promptly as possible. At May 28, 1994, Tektronix' unfilled product orders amounted to approximately $108 million, as compared to approximately $107 million at May 29, 1993. Tektronix expects that substantially all unfilled product orders at May 28, 1994 will be filled during its current fiscal year. Orders received by the Company are subject to cancellation by the customer.
International Sales ___________________
The following table sets forth the breakdown between U.S. and international sales, based upon purchaser location, for each of the last three fiscal years (in thousands of dollars):
See "Business Segments" in the Notes to Consolidated Financial Statements at page 20 of the Company's 1994 Annual Report to Shareholders, containing information on sales, operating income and assets by geographic area based upon the location of the seller, which is hereby incorporated by reference.
Tektronix products are sold worldwide. European sales are made principally in Germany, France, the United Kingdom, Switzerland, Italy, Spain, Sweden, The Netherlands and Austria. Other international sales are principally in Japan, Canada and Australia. International sales include both export sales from the United States and sales by foreign subsidiaries. Fluctuating 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 is unable to predict the effect of these factors on its business. The Company hedges against certain currency 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 during fiscal years ended May 30, 1992, May 29, 1993 and May 28, 1994 for research and development amounted to approximately $169,183,000, $157,068,000 and $153,148,000, respectively. Almost all of these funds were Company-generated.
Research and development activities are conducted by central 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 _______
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 Tektronix products is generally not patentable in its entirety. The Company believes that its business is not dependent to any material extent upon any particular patent or group of patents or upon any licensing arrangement.
Competition ___________
The electronics industry continues to become more competitive, both in the United States and abroad. Primary competitive factors are product performance, technology, customer service, product availability and price. Tektronix believes that its reputation in the marketplace is also a significant positive competitive factor. With respect to many of its products, the Company competes with companies that have substantially larger resources.
Tektronix is the world's largest manufacturer of oscilloscopes and no single competitor offers as complete a line. Tektronix is the leading manufacturer of test and measurement equipment for the television industry.
Tektronix has competed for a number of years in the market for logic analyzers with several companies. While a competitor has a larger market share in logic analyzers, Tektronix is the only other significant manufacturer in this relatively small segment of the instrumentation market.
Tektronix competes with a number of companies in specialized areas of other test and measurement products, and it competes with one large company that sells a broad line of test and measurement products.
A large number of manufacturers, including computer manufacturers, compete with Tektronix in the markets for color printers and X terminals. Tektronix is a leader in the market for workgroup color printers and the leader in dye sublimation, Phase-change and thermal wax color printers. Tektronix is the fastest growing major supplier of X terminals and it now ranks third in unit sales.
Tektronix competes with a number of electronics firms that manufacture specialized equipment for the television industry, both with respect to its television test and measurement products and the products of Grass Valley. Grass Valley is the leading manufacturer of high-performance production switchers, a leading manufacturer of high-performance
distribution/processing equipment and a significant factor in its other markets.
Employees _________
At May 28, 1994, Tektronix had 8,468 employees, of whom 1,390 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. Compliance with these 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:
The executive officers are elected by the board of directors of the Company at its annual meeting. 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 executive officers named have been employed by Tektronix in management positions for the last five years except: Mr. Jerome J. Meyer who joined Tektronix in 1990 and prior to that time served as President of the industrial business of Honeywell, Inc. ("Honeywell") (from 1988 to 1990), President and Chief Executive Officer of Honeywell Bull, Inc., now known as Bull HN Information Systems, Inc. (from 1987 to 1988) and a Vice President of Honeywell (from 1986 to 1987); Mr. John W. Vold who joined Tektronix in 1991 and from 1987 to 1991 was Executive Vice President of Bull HN Information Systems, Inc., and prior to that time was Vice President of the Airborne Products Division of Unisys Corporation; Mr. Timothy E. Thorsteinson who joined Tektronix in 1991 and from 1990 to 1991 was Director of Quality Performance of National Semiconductor Corporation ("National Semiconductor") and prior to that time held a number of management positions in human resources management at National
Semiconductor; Mr. John P. Karalis who joined Tektronix in 1992 and prior to that time was with the law firm of Brown and Bain (from 1989 to 1992) and Vice President and General Counsel of Apple Computer, Inc. (from 1987 to 1989); Mr. Carl W. Neun who joined Tektronix in 1993 and prior to that time served as Senior Vice President of Administration and Chief Financial Officer of Conner Peripherals, Inc., (from 1987 to 1993); Mr. Delbert W. Yocam who joined Tektronix in 1992 and prior to that was an independent consultant (from 1990 to 1992) and was President of Apple Pacific (from 1988 to 1989) and Executive Vice President and Chief Operating Officer of Apple Computer, Inc. (from 1986 to 1988); Mr. Daniel Terpack who joined Tektronix in 1992 and prior to that was General Manager of Hewlett-Packard Company's Corvallis, Oregon Division, responsible for portable computation products; and Mr. William D. Walker, who is not an employee of the Company and has been a director of the Company since 1980.
Item 2.

Item 2. Properties.
A brief description of the location and general characteristics of the significant properties occupied by Tektronix in August of 1994 is set forth below. Tektronix believes that its operations are in compliance in all material respects with requirements relating to environmental quality and energy conservation.
Tektronix owns a 265-acre industrial park (the "Howard Vollum Park") near Beaverton, Oregon. The Howard Vollum Park includes 23 buildings arranged in a campus-like setting and containing an aggregate of approximately 2.6 million gross square feet of enclosed floorspace. Most of the Company's central research and development and a substantial portion of its product manufacturing and administrative activities are located at Howard Vollum Park. The Company's measurement business products and television test equipment products are manufactured primarily at Howard Vollum Park. The Company leases certain excess space at the Howard Vollum Park to other corporations.
Measurement business operations are also conducted at three buildings, containing approximately 414,000 square feet, at the Company's 48-acre site near Aloha, Oregon, approximately five miles west of Howard Vollum Park. The Company intends to consolidate these operations with operations at Howard Vollum Park and the property is currently offered for sale as surplus.
The Company's Color Printing and Imaging Division, Network Displays Division and corporate headquarters occupy three buildings containing approximately 592,000 square feet on a 167-acre tract owned by the Company in Wilsonville, Oregon, approximately 16 miles south of Howard Vollum Park. An additional 192,000 square foot building on the Company's Wilsonville property is leased to another corporation.
All of the buildings described above were constructed after 1957 and are maintained in good condition. Warehouses, production facilities and other critical operations are protected by fire sprinkler installations. Most manufacturing, office and engineering areas are air-conditioned. The Company believes that its facilities described above are adequate for their intended uses. Capacity utilization within the Company varies between product area but, in general, the Company has the capacity to increase production substantially without adding significant plant capacity.
Tektronix owns a 240-acre site six miles east of Vancouver, Washington (Vancouver is across the Columbia River from Portland, Oregon.). The Company has leased the 488,000-square foot manufacturing facility that is situated on the site to another corporation. The property is surplus and the Company is attempting to sell it.
Tektronix owns 61 acres within an industrial park in Redmond, Oregon, about 150 miles east of Portland; 136 acres in Fairview, Oregon, about 15 miles east of Portland; and 75 acres adjacent to and west of Howard Vollum Park. At the present time, the Company is attempting to sell these parcels of undeveloped land.
Grass Valley's operating facilities are primarily housed in ten buildings containing a total of approximately 190,000 square feet of floorspace on a 320-acre site owned by Grass Valley near Grass Valley, California, and three buildings containing a total of approximately 149,000 square feet on Grass Valley's 116-acre tract of land in the neighboring town of Nevada City.
A 109,000-square-foot plant owned by Tektronix is located on 23 acres of land in Heerenveen, The Netherlands.
Tektronix also owns a seven-acre site in Hoddesdon, England, with manufacturing buildings containing about 47,000 square feet which is leased to another corporation. Tektronix is attempting to sell this facility.
Domestic field offices in Santa Clara and Irvine, California; Chicago, Illinois; and Philadelphia, Pennsylvania are owned by Tektronix. Together they comprise approximately 214,000 square feet. All other Tektronix U.S. field offices, aggregating approximately 190,000 square feet, are leased.
Field offices near Cologne (101,000 square feet), London (83,000 square feet), and Sydney, Australia (23,000 square feet) are located in buildings owned by the Company. Field offices in other foreign countries occupy leased premises.
Item 3.

Item 3. Legal Proceedings.
Mr. Jerome J. Lemelson has advised the Company that he believes Tektronix is infringing certain of his patents which allegedly cover such equipment or processes as bar code systems, machine vision, beam processing and IC manufacturing techniques. Mr. Lemelson's claims of infringement are primarily based on general allegations that all manufacturers, including Tektronix, which operate in certain industries must by the nature of their activities be infringing Mr. Lemelson's patents. Tektronix has had ongoing communications with Mr. Lemelson's representatives in an effort to obtain more specific information regarding the activities Mr. Lemelson believes are infringing. The Company is still investigating Mr. Lemelson's claims to determine if they may relate to any of the Company's equipment, products or processes. The Company believes that ultimate resolution of these claims will not have a material adverse effect on its financial position or results of operation.
There are no other material pending legal proceedings.
Item 4.

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.

Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters.
The information required by this item is included on page 26 of the Company's 1994 Annual Report to Shareholders and is incorporated herein by reference.
Item 6.

Item 6. Selected Financial Data.
The information required by this item is included on page 27 of the Company's 1994 Annual Report to Shareholders and is incorporated herein by reference.
Item 7.

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.
The information required by this item is included on pages 10 through 13 of the Company's 1994 Annual Report to Shareholders and is incorporated herein by reference.
Item 8.

Item 8. Financial Statements and Supplementary Data.
The information required by this item is included on pages 14 through 26 of the Company's 1994 Annual Report to Shareholders and is incorporated herein by reference.
Item 9.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
None.
PART III
Item 10.

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 to 7 of the Company's Proxy Statement dated August 3, 1994.
The information required by this item regarding 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 "Compliance with Section 16(a) of the Exchange Act" on page 26 of the Company's Proxy Statement dated August 3, 1994.
Item 11.

Item 11. Executive Compensation.
The information required by this item is included under "Directors' Compensation" and "Executive Compensation" on pages 7 to 13 of the Company's Proxy Statement dated August 3, 1994.
Item 12.

Item 12. Security Ownership of Certain Beneficial Owners and Management.
The information required by this item is included under "Ownership of Shares" and "Election of Directors" on page 2 and 4 to 7 of the Company's Proxy Statement dated August 3, 1994.
Item 13.

Item 13. Certain Relationships and Related Transactions.
None
PART IV
Item 14.

Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a) (1) Financial Statements. ____________________
The following documents are included in the Company's 1994 Annual Report to Shareholders at the pages indicated and are incorporated herein by reference:
(2) Financial Statement Schedules. _____________________________
The following schedules and independent auditors' consent and report are filed herewith:
Schedule II -- Amounts Receivable from Related Parties Schedule V -- Property, Plant and Equipment Schedule VI -- Accumulated Depreciation and Amortization of Property, Plant and Equipment Schedule IX -- Short-Term Borrowings Schedule X -- Supplementary Income Statement Information Independent Auditors' Consent and Report on Schedules All other schedules are omitted as the required information is inapplicable or is presented in the financial statements or related notes thereto.
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 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 September 28, 1990, SEC File No. 1-4837.
(ii) Bylaws, as amended.
(4)(i) Indenture dated as of November 16, 1987, as amended by First Supplemental Indenture dated as of July 13, 1993, covering the registrant's 7-1/2% notes due August 1, 2003. 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.
(10)(i) Restated Operating Performance Incentive Plan, as amended. Incorporated by reference to Exhibit (10)(i) of Form 10-Q dated April 15, 1988, SEC File No. 1-4837.
(ii) 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.
(iii) 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.
(iv) 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.
(v) Restated Deferred Compensation Plan. Incorporated by reference to Exhibit 10(i) of Form 10-Q dated December 20, 1984, SEC File No. 1-4837.
(vi) Retirement Equalization Plan, as amended. Incorporated by reference to Exhibit 10(vii) of Form 10-K dated August 18, 1993, SEC File No. 1-4837.
(vii) Severance Agreement entered into between the Company and its named officers. Incorporated by reference to Exhibit 10(viii)of Form 10-K dated August 18, 1993, SEC File No. 1-4837.
(viii) 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, 1993, SEC File No. 1-4837.
(ix) Executive Severance Agreement.
(x) Retention Incentive Agreement.
(xi) Executive Compensation and Benefits Agreement 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.
(xii) Executive Compensation and Benefits Agreement dated as of October 1, 1992. Incorporated by reference to Exhibit (10)(iii) of Form 10-Q dated January 8, 1993, SEC File No. 1-4837.
(xiii) Employment Letter Agreement dated September 1, 1992.
(xiv) Executive Compensation and Benefits Agreement dated as of March 29, 1993.
(xv) 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.
(xvi) Non-Employee Directors' Deferred Compensation Plan.
(13) Portions of the 1994 Annual Report to Shareholders that are incorporated herein by reference.
(21) Subsidiaries of the registrant.
(24) Powers of Attorney.
(b) No reports on Form 8-K have been filed during the last quarter of the period covered by this Report.
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/ Carl W. Neun _______________________________ Carl W. Neun Vice President and Chief Financial Officer
Dated: August 11, 1994
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.
INDEPENDENT AUDITORS' CONSENT AND REPORT ON SCHEDULES
We consent to the incorporation by reference in Registration Statements No. 33-33496 and 33-30648 of Tektronix, Inc. on Form S-8 and Registration Statements No. 33-18658 and 33-59648 of Tektronix, Inc. on Form S-3 of our reports dated June 23, 1994 (which expresses an unqualified opinion and includes an explanatory paragraph relating to a change in method of accounting for other postretirement benefits and income taxes in the year ended May 29, 1993), incorporated by reference in this Annual Report on Form 10-K of Tektronix, Inc. for the year ended May 28, 1994.
Our audits of the financial statements referred to in our aforementioned report also included the financial statement schedules of Tektronix, Inc. listed in Item 14. These financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, such financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly in all material respects the information set forth therein.
DELOITTE & TOUCHE
Portland, Oregon June 23, 1994
SCHEDULE II
The balance at the beginning of 1992 included two promissory notes guaranteed by Stephen H. Vollum. The notes were paid in full in the fiscal year ended May 30, 1992.
SCHEDULE V
SCHEDULE VI
SCHEDULE IX
The average borrowings were determined based on the amounts outstanding at each accounting period-end. Average interest rates were computed using interest rates and amounts outstanding at accounting period-ends.
SCHEDULE X
EXHIBIT LIST
(3)(i) Restated Articles of Incorporation, as amended. Incorporated by reference to Exhibit (3) of Form 10-Q dated September 28, 1990, SEC File No. 1-4837.
(ii) Bylaws, as amended.
(4)(i) Indenture dated as of November 16, 1987, as amended by First Supplemental Indenture dated as of July 13, 1993, covering the registrant's 7-1/2% notes due August 1, 2003. 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.
(10)(i) Restated Operating Performance Incentive Plan, as amended. Incorporated by reference to Exhibit (10)(i) of Form 10-Q dated April 15, 1988, SEC File No. 1-4837.
(ii) 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.
(iii) 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.
(iv) 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.
(v) Restated Deferred Compensation Plan. Incorporated by reference to Exhibit 10(i) of Form 10-Q dated December 20, 1984, SEC File No. 1-4837.
(vi) Retirement Equalization Plan, as amended. Incorporated by reference to Exhibit 10(vii) of Form 10-K dated August 18, 1993, SEC File No. 1-4837.
(vii) Severance Agreement entered into between the Company and its named officers. Incorporated by reference to Exhibit 10(viii)of Form 10-K dated August 18, 1993, SEC File No. 1-4837.
(viii) 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, 1993, SEC File No. 1-4837.
(ix) Executive Severance Agreement.
(x) Retention Incentive Agreement.
(xi) Executive Compensation and Benefits Agreement 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.
(xii) Executive Compensation and Benefits Agreement dated as of October 1, 1992. Incorporated by reference to Exhibit (10)(iii) of Form 10-Q dated January 8, 1993, SEC File No. 1-4837.
(xiii) Employment Letter Agreement dated September 1, 1992.
(xiv) Executive Compensation and Benefits Agreement dated as of March 29, 1993.
(xv) 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.
(xvi) Non-Employee Directors' Deferred Compensation Plan.
(13) Portions of the 1994 Annual Report to Shareholders that are incorporated herein by reference.
(21) Subsidiaries of the registrant.
(24) Powers of Attorney.