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 September 28, 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 October 24, 1997 was 83,424,984 shares.
1
TERADYNE, INC.
INDEX
Page No.
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets -
September 28, 1997 and December 31, 1996......................................................3
Condensed Consolidated Statements of Income -
Three and Nine Months Ended September 28, 1997 and September 29, 1996.........................4
Condensed Consolidated Statements of Cash Flows -
Nine Months Ended September 28, 1997 and September 29, 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
2
TERADYNE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
ASSETS
September 28, 1997 December 31, 1996
------------------ -----------------
(Unaudited)
Current assets:
Cash and cash equivalents.................................................... $ 85,981 $ 201,452
Marketable securities........................................................ 82,459 48,266
Accounts receivable.......................................................... 257,222 178,430
Inventories:
Parts.................................................................. 136,092 91,792
Assemblies in process.................................................. 87,323 47,162
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223,415 138,954
Deferred tax assets.......................................................... 32,340 32,340
Prepayments and other current assets......................................... 15,450 17,666
------------- ------------
Total current assets................................................... 696,867 617,108
Property, plant, and equipment, at cost:........................................ 637,280 563,585
Less: Accumulated depreciation............................................ (336,231) (290,088)
------------- ------------
Net property, plant, and equipment..................................... 301,049 273,497
Long-term marketable securities................................................. 151,919 181,776
Other assets.................................................................... 24,543 24,435
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Total assets........................................................... $ 1,174,378 $ 1,096,816
============= ============
LIABILITIES
Current liabilities:
Notes payable - banks........................................................ $ 7,057 $ 7,316
Current portion of long-term debt............................................ 1,795 1,778
Accounts payable............................................................. 45,208 34,482
Accrued employees' compensation and withholdings............................. 71,521 58,696
Unearned service revenue and customer advances............................... 46,257 62,771
Other accrued liabilities.................................................... 52,333 53,537
Income taxes payable......................................................... 6,856 6,677
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Total current liabilities.............................................. 231,027 225,257
Deferred tax liabilities........................................................ 13,843 13,898
Long-term debt.................................................................. 13,784 15,650
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Total liabilities...................................................... 258,654 254,805
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SHAREHOLDERS' EQUITY
Common stock $0.125 par value; 250,000 shares authorized;
83,793 and 82,480 shares issued and outstanding after deduction of reacquired
shares in 1997 and 1996, respectively........................................ 10,473 10,310
Additional paid-in capital...................................................... 347,767 355,576
Retained earnings............................................................... 557,484 476,125
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Total shareholders' equity............................................. 915,724 842,011
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Total liabilities and shareholders' equity............................. $ 1,174,378 $ 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 For the Nine Months Ended
-------------------------- -------------------------
(In thousands, except per share amounts)
September 28, 1997 September 29, 1996 September 28, 1997 September 29, 1996
------------------ ------------------ ------------------ ------------------
Net sales................................... $336,747 $261,671 $874,590 $930,328
Expenses:
Cost of sales.......................... 190,651 163,747 508,234 565,102
Engineering and development............ 41,663 35,022 117,606 110,188
Selling and administrative............. 51,685 41,535 139,917 131,020
------ ------ ------- -------
283,999 240,304 765,757 806,310
------- ------- ------- -------
Income from operations...................... 52,748 21,367 108,833 124,018
Other income (expense):
Interest income......................... 5,198 5,089 16,097 13,010
Interest expense........................ (553) (513) (1,659) (1,765)
---- ---- ------ ------
Income before income taxes.................. 57,393 25,943 123,271 135,263
Provision for income taxes.................. 18,196 6,374 41,912 44,637
------ ----- ------ ------
Net income.................................. $39,197 $19,569 $81,359 $90,626
======= ======= ======= =======
Net income per common share................. $0.45 $0.23 $ 0.94 $1.07
===== ===== ====== =====
Shares used in calculations of
net income per common share............. 86,944 84,948 86,346 84,973
====== ====== ====== ======
<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 Nine Months Ended
-------------------------
September 28, 1997 September 29, 1996
------------------ ------------------
(In thousands)
Cash flows from operating activities:
Net income........................................................ $81,359 $90,626
Adjustments to reconcile net income to net cash
provided (used) by operating activities:
Depreciation................................................... 43,083 36,875
Amortization................................................... 940 677
Deferred income taxes ......................................... (55) (2,453)
Product line consolidation..................................... 34,100
Other non-cash items, net...................................... 1,082 (242)
Changes in operating assets and liabilities:
Accounts receivable....................................... (78,792) 63,277
Inventories............................................... (82,509) 1,449
Other assets.............................................. 1,168 (435)
Accounts payable and accruals............................. 5,833 (13,108)
Income taxes payable...................................... 24,642 (11,622)
------ -------
Net cash provided (used) by operating activities...... (3,249) 199,144
------ -------
Cash flows from investing activities:
Additions to property, plant and equipment........................ (62,761) (48,861)
Increase in equipment manufactured by the Company................. (11,067) (10,257)
Purchases of available-for-sale marketable securities............. (139,429)
Maturities of available-for-sale marketable securities............ 101,405
Purchases of held-to-maturity marketable securities............... (111,033) (215,198)
Maturities of held-to-maturity marketable securities.............. 144,721 187,619
------- -------
Net cash used in investing activities................. (78,164) (86,697)
------- -------
Cash flows from financing activities:
Payments of long term debt........................................ (1,948) (2,997)
Acquisition of treasury stock..................................... (73,603) (9,766)
Issuance of common stock under employee stock
option and stock purchase plans............................... 41,493 9,710
------ -----
Net cash flows used in financing activities........... (34,058) (3,053)
------- ------
Increase (decrease) in cash and cash equivalents....................... (115,471) 109,394
Cash and cash equivalents at beginning of period....................... 201,452 182,165
------- -------
Cash and cash equivalents at end of period............................. $85,981 $291,559
Supplementary disclosure of cash flow information: Cash paid during the period
for:
Interest................................................ $1,733 $1,832
Income taxes............................................ 20,894 59,395
<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 Three Months Ended For the Nine Months Ended
-------------------------- -------------------------
September 28, 1997 September 29, 1996 September 28, 1997 September 29, 1996
------------------ ------------------ ------------------ ------------------
(In thousands)
Net sales...................................... $336,747 $261,671 $874,590 $930,328
======== ======== ======== ========
Net income..................................... $39,197 $19,569 $81,359 $90,626
======= ======= ======= =======
Percentage of net sales:
Net sales................................. 100% 100% 100% 100%
Expenses:
Cost of products sold 57 63 58 57
Product line consolidation 0 0 0 3
- - - -
Cost of sales................... 57 63 58 60
-- -- -- --
Engineering and development.......... 12 13 14 12
Selling and administrative........... 15 16 16 14
Interest, net........................ (1) (2) (2) (1)
-- -- -- --
83 90 86 85
-- -- -- --
Income before income taxes................ 17 10 14 15
Provision for income taxes................ 5 2 5 5
- - - -
Net income................................ 12% 8% 9% 10%
== = = ==
Provision for income taxes as a percentage
of income before income taxes............. 32% 25% 34% 33%
== == == ==
<FN>
Results of Operations
- ---------------------
Sales of $336.7 million in the third quarter of 1997 were $75.0 million or
29% above those of the third quarter of 1996. The period to period increase in
sales was primarily due to an increase in shipments of semiconductor test
systems. Sales increased 16% in the third quarter of 1997 over the second
quarter of 1997 as incoming orders of semiconductor test systems increased for
the fourth consecutive quarter. As a result of the increase in sales in the
third quarter of 1997 compared to 1996, income before income taxes increased
$31.5 million to $57.4 million. For the first nine months of 1997, 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 $46.1 million to $123.3 million.
7
Incoming orders were $461.0 million in the third quarter of 1997 compared
to $215.2 million in the third quarter of 1996. The increase in incoming orders
was led by a 286% increase in semiconductor test systems orders. The Company's
backlog was $796.1 million at the end of the third quarter of 1997 compared with
$454.3 million at the end of third quarter of 1996.
Cost of products sold as a percentage of sales decreased from 63% of sales
in the third quarter of 1996 to 57% of sales in the third quarter of 1997 as
sales volume increased and certain overhead components of cost of products sold
remained fixed. Cost of products sold as a percentage of sales (excluding the
product line consolidation charge), increased from 57% in the first nine months
of 1996 to 58% in the first nine months of 1997. Included in cost of sales in
the first nine months 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 expenses, as a percentage of sales, decreased
from 13% in the third quarter of 1996 to 12% in the third quarter of 1997.
Selling and administrative expenses, as a percentage of sales, decreased from
16% in the third quarter of 1996 to 15% in the third quarter of 1997.
Engineering and development and selling and administrative spending increased
$6.7 million and $10.2 million, respectively, in the third quarter of 1997 over
the same period in 1996. These spending increases were at rates of increase
below the third quarter year over year sales increase and were primarily related
to the development and introduction of new semiconductor test systems products.
Engineering and development expenses, as a percentage of sales, increased
from 12% for the first nine months of 1996 to 14% for the first nine months of
1997. Selling and administrative expenses, as a percentage of sales, increased
from 14% for the first nine months of 1996 to 16% for the first nine months of
1997. These percentage of sales increases in the first nine months of 1997 over
the year earlier period resulted from increased spending on development and
introduction of new semiconductor test systems products coupled with a sales
decrease.
Interest income in the third quarter of 1997 was flat compared to the third
quarter of 1996. Interest income for the nine months of 1997 increased $3.1
million to $16.1 million over the year-earlier period due to an increase in the
Company's average invested balances and interest yields.
The Company's effective income tax rate was 34% in the first nine months of
1997 (which is the current estimate for the fiscal year) compared to 33% for
fiscal 1996. The increase in the 1997 fiscal rate is due to an in-process
technology charge related to the acquisition of Softbridge, Inc., taken in the
second quarter of 1997, which is non-deductible for income tax purposes.
Liquidity and Capital Resources
- -------------------------------
The Company's cash, cash equivalents, and marketable securities balance
decreased $111.1 million in the first nine months of 1997. Contributing to the
decrease in cash, cash equivalents, and marketable securities was cash flow used
in operations of $3.2 million, the expenditure of $73.9 million to fund
additions to property, plant and equipment, the use of $73.6 million to acquire
2.0 million shares of the Company's common stock, and the use of $1.9 million
for principal debt payments. The Company generated cash of $41.5 million from
the sale of stock to employees under the Company's stock option and stock
purchase plans in the first nine months of 1997.
Inventories as a percentage of annualized quarterly revenues increased from
14.4% at December 31, 1996, to 16.6% at September 28, 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 $320.4 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>
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
November 12, 1997
10