SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
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(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________ to ______________
Commission File No. 1-6462
TERADYNE, INC.
(Exact name of registrant as specified in its charter)
Massachusetts 04-2272148
(State or Other Jurisdiction (I.R.S.Employer
Incorporation or Organization) Identification No.)
321 Harrison Avenue, Boston, Massachusetts 02118
(Address of principal executive offices) (Zip Code)
617-482-2700
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to the
filing requirements for the past 90 days. Yes X No _
The number of shares outstanding of the registrant's only class of Common
Stock as of April 27, 1997 was 83,338,700 shares.
1
TERADYNE, INC.
INDEX
Page No.
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets -
March 30, 1997 and December 31, 1996..........................................................3
Condensed Consolidated Statements of Income -
Quarters Ended March 30, 1997 and March 31, 1996..............................................4
Condensed Consolidated Statements of Cash Flows -
Quarters Ended March 30, 1997 and March 31, 1996..............................................5
Notes to Condensed Consolidated Financial Statements...............................................6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations................................................7-8
2
TERADYNE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
ASSETS
March 30, 1997 December 31, 1996
-------------- -----------------
(Unaudited)
Current assets:
Cash and cash equivalents.................................................... $ 91,689 $ 201,452
Marketable securities........................................................ 106,567 48,266
Accounts receivable.......................................................... 192,768 178,430
Inventories:
Parts.................................................................. 98,725 91,792
Assemblies in process.................................................. 52,937 47,162
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151,662 138,954
Deferred tax assets.......................................................... 32,340 32,340
Prepayments and other current assets......................................... 19,185 17,666
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Total current assets................................................... 594,211 617,108
Property, plant, and equipment, at cost:........................................ 577,559 563,585
Less: Accumulated depreciation............................................ (308,392) (290,088)
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Net property, plant, and equipment..................................... 269,167 273,497
Long-term marketable securities................................................. 211,514 181,776
Other assets.................................................................... 21,922 24,435
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Total assets........................................................... $ 1,096,814 $ 1,096,816
============= =============
LIABILITIES
Current liabilities:
Notes payable - banks........................................................ $ 6,916 $ 7,316
Current portion of long-term debt............................................ 1,782 1,778
Accounts payable............................................................. 34,690 34,482
Accrued employees' compensation and withholdings............................. 43,436 58,696
Unearned service revenue and customer advances............................... 56,745 62,771
Other accrued liabilities.................................................... 46,302 53,537
Income taxes payable......................................................... 6,542 6,677
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Total current liabilities.............................................. 196,413 225,257
Deferred tax liabilities........................................................ 13,898 13,898
Long-term debt.................................................................. 15,053 15,650
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Total liabilities...................................................... 225,364 254,805
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SHAREHOLDERS' EQUITY
Common stock $0.125 par value; 250,000 shares authorized;
83,509 and 82,480 shares issued and outstanding after deduction of reacquired
shares in 1997 and 1996, respectively........................................ 10,438 10,310
Additional paid-in capital...................................................... 367,727 355,576
Retained earnings............................................................... 493,285 476,125
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Total shareholders' equity............................................. 871,450 842,011
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Total liabilities and shareholders' equity............................. $ 1,096,814 $ 1,096,816
============ ============
<FN>
The accompanying notes, together with the Notes to Consolidated Financial
Statements included in the Company's Annual Report on Form 10-K for the year
ended December 31, 1996 are an integral part of the condensed consolidated
financial statements.
</FN>
3
TERADYNE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
For the Three Months Ended
(In thousands, except per share amounts)
March 30, 1997 March 31, 1996
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Net sales............................................................ $ 248,302 $ 348,967
Expenses:
Cost of sales................................................... 152,935 186,637
Engineering and development..................................... 33,308 36,740
Selling and administrative...................................... 40,783 46,929
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Total expenses.............................................. 227,026 270,306
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Income from operations............................................... 21,276 78,661
Other income (expense):
Interest income.................................................. 5,665 3,759
Interest expense................................................. (541) (642)
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Income before income taxes........................................... 26,400 81,778
Provision for income taxes........................................... 9,240 28,623
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Net income........................................................... $ 17,160 $ 53,155
========= =========
Net income per common share.......................................... $ 0.20 $ 0.63
========= =========
Shares used in calculations of
net income per common share...................................... 85,810 84,970
========= =========
<FN>
The accompanying notes, together with the Notes to Consolidated Financial
Statements included in the Company's Annual Report on Form 10-K for the year
ended December 31, 1996 are an integral part of the condensed consolidated
financial statements.
</FN>
4
TERADYNE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the Three Months Ended
March 30, 1997 March 31, 1996
(In thousands)
Cash flows from operating activities:
Net income........................................................ $ 17,160 $ 53,155
Adjustments to reconcile net income to net cash
provided (used) by operating activities:
Depreciation................................................... 14,344 11,999
Amortization................................................... 330 318
Other non-cash items, net...................................... (572) (134)
Changes in operating assets and liabilities:
Accounts receivable....................................... (14,338) (13,746)
Inventories............................................... (10,668) (24,092)
Other assets.............................................. 664 (5,642)
Accounts payable and accruals............................. (28,313) 1,492
Income taxes payable...................................... 6,297 24,787
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Net cash provided (used) by operating activities...... (15,096) 48,137
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Cash flows from investing activities:
Additions to property, plant and equipment........................ (11,194) (18,002)
Increase in equipment manufactured by the Company................. (860) (4,717)
Purchases of available-for-sale marketable securities............. (55,070)
Maturities of available-for-sale marketable securities............ 17,513
Purchases of held-to-maturity marketable securities............... (84,983) (93,067)
Maturities of held-to-maturity marketable securities.............. 34,501 49,406
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Net cash used in investing activities................. (100,093) (66,380)
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Cash flows from financing activities:
Payments of long term debt........................................ (420) (489)
Acquisition of treasury stock..................................... (15,415)
Issuance of common stock under employee stock
option and stock purchase plans............................... 21,261 8,160
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Net cash flows provided by financing activities....... 5,426 7,671
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Decrease in cash and cash equivalents.................................. (109,763) (10,572)
Cash and cash equivalents at beginning of period....................... 201,452 182,165
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Cash and cash equivalents at end of period............................. $ 91,689 $ 171,593
========== =========
Supplementary disclosure of cash flow information:
Cash paid during the period for:
Interest................................................ $ 732 $ 806
Income taxes............................................ 2,409 3,639
<FN>
The accompanying notes, together with the Notes to Consolidated Financial
Statements included in the Company's Annual Report on Form 10-K for the year
ended December 31, 1996 are an integral part of the condensed consolidated
financial statements.
</FN>
-5-
TERADYNE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
A. The Company
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Teradyne, Inc. (the "Company") designs, manufactures, markets, and services
electronic test systems and related software used by component manufacturers in
the design and testing of their products and by electronic equipment
manufacturers for the design and testing of circuit boards and other assemblies.
Manufacturers use such systems and software to increase product performance, to
improve product quality, to shorten time to market, to enhance
manufacturability, to conserve labor costs, and to increase production yields.
The Company's electronic systems are also used by telephone operating companies
for the testing and maintenance of their subscriber telephone lines and related
equipment.
The Company also manufactures backplane connection systems, principally for
the computer, telecommunications, and military/aerospace industries. A backplane
is a panel that supports the circuit boards in an electronic assembly and
carries the wiring that connects the boards to each other and to other elements
of a system.
B. Accounting Policies
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Basis of Presentation
---------------------
The consolidated financial statements include the accounts of the Company
and its subsidiaries. All significant intercompany balances and transactions
have been eliminated. Certain prior years' amounts were reclassified to conform
to the current year presentation. The year-end condensed balance sheet data was
derived from audited financial statements, but does not include all disclosures
required by generally accepted accounting principles.
Preparation of Financial Statements
-----------------------------------
The accompanying condensed consolidated financial statements are unaudited.
However, in the opinion of management, all adjustments (consisting only of
normal recurring accrual entries) necessary for a fair presentation of such
information have been made. The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the dates of
the financial statements and the reported amounts of revenues and expenses
during the reported periods. Actual results could differ from those estimates.
C. Recently Issued Accounting Standard
- ----------------------------------------
In February 1997, The Financial Accounting Standards Board issued
Statement on Financial Accounting Standards No. 128, Earnings per Share, which
specifies the computation, presentation, and disclosure requirements for
earnings per share. The statement is effective for periods ending after December
15, 1997, including interim periods. The adoption of this statement will not
have a material impact on reported net income per common share.
6
Item 2: Management's Discussion and Analysis of Financial Condition
and Results of Operations
SELECTED RELATIONSHIPS WITHIN THE CONDENSED CONSOLIDATED
STATEMENTS OF INCOME
For the Three Months Ended
March 30, 1997 March 31, 1996
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(In thousands)
Net sales............................................................ $ 248,302 $ 348,967
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Net income........................................................... $ 17,160 $ 53,155
============= ==============
Percentage of net sales:
Net sales....................................................... 100% 100%
Expenses:
Cost of sales.............................................. 62 54
Engineering and development................................ 13 11
Selling and administrative................................. 16 13
Interest, net.............................................. (2) (1)
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89 77
Income before income taxes...................................... 11 23
Provision for income taxes...................................... 4 8
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Net income...................................................... 7% 15%
============= ==============
Provision for income taxes as a percentage
of income before income taxes................................... 35% 35%
============= ==============
<FN>
Results of Operations
- ---------------------
Sales of $248.3 million in the first quarter of 1997 were $100.7 million or
29% below those of the first quarter of 1996. The incoming order rate weakened
in the first three quarters of 1996, due to a slowdown in the semiconductor
industry. This order weakness resulted in reductions in net sales beginning in
the second quarter of 1996 and continuing through the first quarter of 1997.
Sales for the first quarter of 1997 increased 3% over the fourth quarter of
1996. First quarter 1997 semiconductor test system sales and telecommunications
test systems sales decreased 42% and 43%, respectively, when compared to the
first quarter of 1996. Backplane connection systems increased 30% and
circuit-board test systems sales increased 8% over the corresponding period in
1996. As a result of the decrease in sales, income before income taxes decreased
$55.4 million to $26.4 million.
Incoming orders were $335.6 million in the first quarter of 1997 compared
to $305.6 million in the first quarter of 1996. The increase in orders was
primarily due to an 11% increase in semiconductor test systems orders. Orders
for backplane connection systems and telecommunications test systems also
increased while circuit-board test systems declined. The Company's backlog was
$603.7 million at the end of the first quarter of 1997 compared with $615.9
million at the end of the first quarter of 1996.
Cost of sales, as a percentage of sales, increased from 54% in the first
quarter of 1996 to 62% in the first quarter of 1997. The increase was the result
of the relationship of fixed manufacturing costs and the costs associated with
new product introductions to the lower level of sales. In addition, there was an
unfavorable change in mix as a greater percentage of total Company sales were
for backplane connection systems and circuit-board test systems, whose product
margins are generally lower than semiconductor test systems.
7
Engineering and development expenses, as a percentage of sales, increased
from 11% in the first quarter of 1996 to 13% in the first quarter of 1997.
Selling and administrative expenses increased to 16% of sales in the first
quarter of 1997 compared with 13% of sales in the first quarter of 1996. While
the dollar amount of these expenses declined in 1997, the decrease was not
proportionate with the decrease in net sales.
Interest income increased in the first quarter of 1997 to $5.7 million from
$3.8 million in the first quarter of 1996 due to an increase in the Company's
average invested balances and interest yields.
The Company's effective income tax rate was 35% in the first quarter of
1997 and 1996. The first quarter of 1996 effective tax rate was adjusted
downward in subsequent quarters to 33% due to the increased utilization of
domestic export sales corporation benefits and certain research and development
tax credits.
Liquidity and Capital Resources
- -------------------------------
The Company's cash, cash equivalents, and marketable securities balance
decreased $21.7 million in the first three months of 1997. Contributing to the
decrease in cash, cash equivalents, and marketable securities was cash flow used
in operations of $15.1 million and the expenditure of $12.1 million to fund
additions to property, plant and equipment in the first quarter of 1997. The
Company generated $21.3 million from the sale of stock to employees under the
Company's stock option and stock purchase plans in the first quarter of 1997.
Cash of $15.4 million was used to purchase 0.6 million shares under the
Company's buyback program.
The Company believes its cash, cash equivalents and marketable securities
balance of $409.8 million, together with other sources of funds, including the
available borrowing capacity of $120.0 million under its line of credit
agreement, will be sufficient to meet working capital and capital expenditure
requirements in 1997.
Certain Factors That May Affect Future Results
- ----------------------------------------------
From time to time, information provided by the Company, statements made by
its employees or information included in its filings with the Securities and
Exchange Commission (including this Form 10-Q, the Company's Annual Report on
Form 10-K, and the Company's Annual Report to Shareholders) may contain
statements which are not historical facts, so-called "forward looking
statements," which involve risks and uncertainties. In particular, statements in
"Item 2: Management's Discussion and Analysis of Financial Condition and Results
of Operations" relating to the sufficiency of capital to meet working capital
and planned capital expenditure requirements may be forward looking statements.
The Company's actual future results may differ significantly from those stated
in any forward looking statements. Factors that may cause such differences
include, but are not limited to, the factors discussed below. Each of these
factors, and others, are discussed from time to time in the Company's filings
with the Securities and Exchange Commission.
The Company's future results are subject to substantial risks and
uncertainties. The Company's business and results of operations depend in
significant part upon capital expenditures of manufacturers of semiconductors,
which in turn depend upon the current and anticipated market demand for
semiconductors and products incorporating semiconductors. The semiconductor
industry has been highly cyclical with recurring periods of over supply, which
often have had a severe effect on the semiconductor industry's demand for test
equipment, including systems manufactured and marketed by the Company. The
Company believes that the markets for newer generations of semiconductors will
also be subject to similar fluctuations. The most recent downturn experienced
during 1996 contributed to a 37% decline in semiconductor test systems orders.
There can be no assurance that any increase in semiconductor test systems
bookings for a calendar quarter will be sustained in subsequent quarters. In
addition, any factor adversely affecting the semiconductor industry or
particular segments within the semiconductor industry may adversely affect the
Company's business, financial condition and operating results.
The Company's quarterly and annual operating results are affected by a wide
variety of factors that could materially adversely affect revenues and
profitability, including: competitive pressures on selling prices; the timing
and cancellation of customer orders; changes in product mix; the Company's
ability to introduce new products and technologies on a timely basis;
introduction of products and technologies by the Company's competitors; market
acceptance of the Company's and its competitors' products; potential retrofit
costs; the level of orders received which can be shipped in a quarter; and the
timing of investments in engineering and development. As a result of the
foregoing and other factors, the Company may experience material fluctuations in
future operating results on a quarterly or annual basis which could materially
and adversely affect its business, financial condition, operating results and
stock price.
</FN>
8
SIGNATURES
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Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
TERADYNE, INC.
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Registrant
OWEN W.ROBBINS
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Owen W. Robbins
Executive Vice President
May 14, 1997
9