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 June 29, 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 July 25, 1997 was 83,223,773 shares.
1
TERADYNE, INC.
INDEX
Page No.
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets -
June 29, 1997 and December 31, 1996...........................................................3
Condensed Consolidated Statements of Income -
Quarters and Six Months Ended June 29, 1997 and June 30, 1996.................................4
Condensed Consolidated Statements of Cash Flows -
Six Months Ended June 29, 1997 and June 30, 1996..............................................5
Notes to Condensed Consolidated Financial Statements...............................................6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations................................................7-9
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders.................................................10
2
TERADYNE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
ASSETS
June 29, 1997 December 31, 1996
------------- -----------------
(Unaudited)
Current assets:
Cash and cash equivalents.................................................... $ 46,479 $ 201,452
Marketable securities........................................................ 140,050 48,266
Accounts receivable.......................................................... 250,887 178,430
Inventories:
Parts.................................................................. 116,317 91,792
Assemblies in process.................................................. 68,759 47,162
------------- -------------
185,076 138,954
Deferred tax assets.......................................................... 32,340 32,340
Prepayments and other current assets......................................... 18,386 17,666
------------- -------------
Total current assets................................................... 673,218 617,108
Property, plant, and equipment, at cost:........................................ 607,176 563,585
Less: Accumulated depreciation............................................ (323,524) (290,088)
------------- -------------
Net property, plant, and equipment..................................... 283,652 273,497
Long-term marketable securities................................................. 151,602 181,776
Other assets.................................................................... 23,665 24,435
------------- -------------
Total assets........................................................... $1,132,137 $1,096,816
============= =============
LIABILITIES
Current liabilities:
Notes payable - banks........................................................ $ 7,454 $ 7,316
Current portion of long-term debt............................................ 1,882 1,778
Accounts payable............................................................. 40,274 34,482
Accrued employees' compensation and withholdings............................. 57,237 58,696
Unearned service revenue and customer advances............................... 50,813 62,771
Other accrued liabilities.................................................... 48,564 53,537
Income taxes payable......................................................... 14,889 6,677
------------ ------------
Total current liabilities.............................................. 221,113 225,257
Deferred tax liabilities........................................................ 13,843 13,898
Long-term debt.................................................................. 14,502 15,650
------------ ------------
Total liabilities...................................................... 249,458 254,805
------------ ------------
SHAREHOLDERS' EQUITY
Common stock $0.125 par value; 250,000 shares authorized;
83,487 and 82,480 shares issued and outstanding after deduction of reacquired
shares in 1997 and 1996, respectively........................................ 10,435 10,310
Additional paid-in capital...................................................... 353,957 355,576
Retained earnings............................................................... 518,287 476,125
------------ ------------
Total shareholders' equity............................................. 882,679 842,011
------------ ------------
Total liabilities and shareholders' equity............................. $1,132,137 $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 Quarters Ended For the Six Months Ended
---------------------- ------------------------
(In thousands, except per share amounts)
June 29, 1997 June 30, 1996 June 29, 1997 June 30, 1996
------------- ------------- ------------- -------------
Net sales................................... $289,541 $319,690 $537,843 $668,657
Expenses:
Cost of sales.......................... 164,648 214,718 317,583 401,355
Engineering and development............ 42,635 38,426 75,943 75,166
Selling and administrative............. 47,449 42,556 88,232 89,485
------ ------ ------ ------
254,732 295,700 481,758 566,006
------- ------- ------- -------
Income from operations...................... 34,809 23,990 56,085 102,651
Other income (expense):
Interest income......................... 5,234 4,162 10,899 7,921
Interest expense........................ (565) (610) (1,106) (1,252)
---- ---- ------ ------
Income before income taxes.................. 39,478 27,542 65,878 109,320
Provision for income taxes.................. 14,476 9,640 23,716 38,263
------ ----- ------ ------
Net income.................................. $25,002 $17,902 $42,162 $71,057
======= ======= ======= =======
Net income per common share................. $0.29 $0.21 $0.49 $0.84
===== ===== ===== =====
Shares used in calculations of
net income per common share............. 86,283 85,001 86,047 84,986
====== ====== ====== ======
<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 Six Months Ended
------------------------
June 29, 1997 June 30, 1996
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(In thousands)
Cash flows from operating activities:
Net income........................................................ $42,162 $71,057
Adjustments to reconcile net income to net cash
provided (used) by operating activities:
Depreciation................................................... 28,669 24,150
Amortization................................................... 664 657
Deferred income taxes ......................................... (55) (3,867)
Product line consolidation..................................... 34,100
Other non-cash items, net...................................... 355 (389)
Changes in operating assets and liabilities:
Accounts receivable....................................... (72,457) 30,826
Inventories............................................... (44,596) (14,297)
Other assets.............................................. (614) (1,874)
Accounts payable and accruals............................. (12,598) (9,313)
Income taxes payable...................................... 21,639 (1,651)
------ ------
Net cash provided (used) by operating activities...... (36,831) 129,399
-------- -------
Cash flows from investing activities:
Additions to property, plant and equipment........................ (34,801) (38,658)
Increase in equipment manufactured by the Company................. (5,500) (10,430)
Purchases of available-for-sale marketable securities............. (88,420)
Maturities of available-for-sale marketable securities............ 46,927
Purchases of held-to-maturity marketable securities............... (111,033) (184,204)
Maturities of held-to-maturity marketable securities.............. 90,916 118,136
------ -------
Net cash used in investing activities................. (101,911) (115,156)
--------- ---------
Cash flows from financing activities:
Payments of long term debt........................................ (1,309) (980)
Acquisition of treasury stock..................................... (45,692)
Issuance of common stock under employee stock
option and stock purchase plans............................... 30,770 8,926
------ -----
Net cash flows provided (used) by financing activities (16,231) 7,946
------- -----
Increase (decrease) in cash and cash equivalents....................... (154,973) 22,189
Cash and cash equivalents at beginning of period....................... 201,452 182,165
------- -------
Cash and cash equivalents at end of period............................. $46,479 $204,354
======= ========
Supplementary disclosure of cash flow information:
Cash paid during the period for:
Interest................................................ $1,203 $1,318
Income taxes............................................ 7,683 44,665
<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
- --------------
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
- ----------------------
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 were
derived from audited financial statements, but do 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 Quarters Ended For the Six Months Ended
---------------------- ------------------------
June 29, 1997 June 30, 1996 June 29, 1997 June 30, 1996
------------- ------------- ------------- -------------
(In thousands)
Net sales...................................... $289,541 $319,690 $537,843 $668,657
======== ======== ======== ========
Net income..................................... $25,002 $17,902 $42,162 $71,057
======= ======= ======= =======
Percentage of net sales:
Net sales................................. 100% 100% 100% 100%
Expenses:
Cost of products sold 57 56 59 55
Product line consolidation 11 5
-- -- -- --
Cost of sales................... 57 67 59 60
-- -- -- --
Engineering and development.......... 15 12 14 11
Selling and administrative........... 16 13 16 13
Interest, net........................ (2) (1) (2) (1)
-- -- -- --
86 91 87 83
-- -- -- --
Income before income taxes................ 14 9 13 17
Provision for income taxes................ 5 3 5 6
- - - -
Net income................................ 9% 6% 8% 11%
= = = ==
Provision for income taxes as a percentage
of income before income taxes............. 37% 35% 36% 35%
== == == ==
<FN>
Results of Operations
- ---------------------
Sales of $289.5 million in the second quarter of 1997 were $30.1 million or
9% below those of the second quarter of 1996. The year to year decline in sales
was primarily due to a decrease in incoming orders of semiconductor test systems
during the second and third quarters of 1996. Sales increased 17% in the second
quarter of 1997 over the first quarter of 1997 due to an increase in incoming
orders of semiconductor test systems during the fourth quarter of 1996 and the
first quarter of 1997. As a result of lower sales in the second quarter of 1997
compared to 1996, income before income taxes (excluding the effect of a pre-tax
nonrecurring product line consolidation charge of $34.1 million taken in the
second quarter of 1996) decreased $22.2 million to $39.5 million. For the first
six months of 1997, income before income taxes (excluding the product line
consolidation charge) decreased $77.5 million to $65.9 million.
7
Incoming orders were $357.6 million in the second quarter of 1997 compared
to $220.8 million in the second quarter of 1996. All product lines contributed
to the significant increase in incoming orders, led by an 85% increase in
semiconductor test systems orders. The Company's backlog was $671.8 million at
the end of the second quarter of 1997 compared with $517.0 million at the end of
the second quarter of 1996.
Cost of products sold as a percentage of sales (excluding the product line
consolidation charge), increased from 55% in the first six months of 1996 to 59%
in the first six months of 1997. The increase was due to the relationship of
fixed costs of manufacturing to a lower sales volume and the higher costs
associated with new product introductions. In addition, there was an unfavorable
change in mix as a greater percentage of total Company sales were for backplane
connection systems whose product margins are generally lower than semiconductor
test systems. Cost of products sold as a percentage of sales (excluding the
product line consolidation charge), was comparable in the second quarter of 1997
and the second quarter of 1996. Included in cost of sales in the second quarter
of 1996 is a $34.1 million charge in connection with the consolidation of the
VLSI product lines of Megatest and Teradyne.
Engineering and development spending grew to $42.6 million in the second
quarter of 1997 from $38.4 million in the second quarter of 1996. Included in
the two periods were pre-tax nonrecurring charges of $5.0 million and $4.0
million, respectively for the purchase of in-process technology related to the
acquisitions of Softbridge, Inc. and Midnight Networks, Inc.. The expenses
before nonrecurring charges grew $3.2 million primarily as a result of increased
investment in new product development of semiconductor and software test
systems. As a percentage of sales, engineering and development expenses
increased from 11% in the first six months of 1996 to 14% in the first six
months of 1997. Excluding pre-tax nonrecurring charges engineering and
development spending over the first six months of 1997 and 1996 was flat.
Selling and administrative expenses were 16% of sales in the second quarter
and the first six months of 1997 compared with 13% of sales in the second
quarter and the first six months of 1996. The dollar amount of selling and
administrative expenses increased $4.9 million in the second quarter of 1997
over the same period in 1996. This increase is attributed to increased marketing
costs associated with new semiconductor test systems, and the selling and
administrative expenses of acquired software test companies.
Interest income increased in the second quarter of 1997 to $5.2 million
from $4.2 million in the second quarter of 1996 due to an increase in the
Company's average invested balances and interest yields.
The Company's effective income tax rate for the first six months of 1997
increased to 36% as the charge for in-process technology is non-deductible for
income tax purposes. The Company's effective income tax rate was 35% through the
first six months of 1996. The 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 $93.4 million in the first six months of 1997. Contributing to the
decrease in cash, cash equivalents, and marketable securities was cash flow used
in operations of $36.8 million, the expenditure of $40.3 million to fund
additions to property, plant and equipment, the use of $45.7 million to acquire
1.4 million shares of the Company's common stock, and the use of $1.3 million
for principal debt payments. The Company generated cash of $30.8 million from
the sale of stock to employees under the Company's stock option and stock
purchase plans in the first six months of 1997.
Accounts receivable as a percentage of annualized quarterly revenues
increased from 18.5% at December 31, 1996, to 21.7% at June 29, 1997, due to
unusually high shipments in the last month of the second quarter of 1997.
Inventories as a percentage of annualized quarterly revenues increased from
14.4% at December 31, 1996, to 16.0% at June 29, 1997, as the Company expanded
material purchases to support the shipment of new products. Property, plant and
equipment expenditures relate primarily to the expansion of production capacity
to accommodate higher volumes and the introduction of new products.
The Company believes its cash, cash equivalents and marketable securities
balance of $338.1 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 over the next twelve months.
8
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. In particular, the Company
has introduced a significant number of new, complex test systems in 1996 and
1997, and there can be no assurance that the Company will not experience delays
in shipment of such products or that such products will achieve customer
acceptance. 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>
9
Item 4. Submission of Matters to a Vote of Security Holders
The annual meeting of security holders of the Company was held May 15, 1997 The
following were elected as Directors:
Total Vote Total Vote Withheld
Nominee For Each Nominee For Each Nominee
- ------- ---------------- ----------------
Albert Carnesale 72,637,180 254,199
George W. Chamillard 72,635,861 255,518
Dwight H. Hibbard 72,609,481 281,898
James A. Prestridge 72,625,795 265,584
<FN>
The Term of office for the following directors continued after the meeting: Alexander V. d'Arbeloff, Owen W. Robbins, James W.
Bagley, Daniel S. Gregory, John P. Mulroney, Richard J. Testa, and Patricia S. Wolpert. Edwin L. Artzt resigned from the Board of
Directors effective May 15, 1997.
</FN>
In addition, the following proposals were approved:
(A) an amendment to the Registrant's Restated Articles of Organization, to
increase the amount of the Registrant's authorized Common Stock, par value
$0.125 per share, from 125,000,000 to 250,000,000, was approved, with 63,652,370
shares voting in favor, 7,683,480 shares voting against, and 116,968 shares
abstaining.
(B) to approve the adoption of the 1996 Non-Employee Director Stock Option Plan,
with 50,945,233 shares voting in favor, 21,757,731 shares voting against, and
188,415 shares abstaining.
(C) to ratify the selection of the firm Coopers & Lybrand L.L.P. as auditors for
the fiscal year ending December 31, 1997, with 72,739,039 shares voting in
favor, 69,913 shares voting against, and 82,427 shares abstaining.
10
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.
------------------------
Registrant
JEFFREY R. HOTCHKISS
------------------------
Jeffrey R. Hotchkiss
Vice President and
Chief Financial Officer
August 13, 1997
11