1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------
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 JULY 2, 2000
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 28, 2000 was 173,441,376 shares.
2
TERADYNE, INC.
INDEX
PAGE NO.
--------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets as of
July 2, 2000 and December 31, 1999............................3
Condensed Consolidated Statements of Income for the
Three and Six Months Ended July 2, 2000 and July 4, 1999......4
Condensed Consolidated Statements of Cash Flows for the
Six Months Ended July 2, 2000 and July 4, 1999................5
Notes to Condensed Consolidated Financial Statements..............6-9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations...............10-13
Item 3. Quantitative and Qualitative Disclosures about Market Risk.........13
PART II. OTHER INFORMATION
Item 1. Legal Proceedings..................................................13
Item 4. Submission of Matters to a Vote of Security Holders...............13
Item 6. Exhibits and Reports on Form 8-K..................................13
Exhibit Index..............................................................15
2
3
TERADYNE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
JULY 2, 2000 DECEMBER 31, 1999
------------ -----------------
(UNAUDITED)
(IN THOUSANDS)
Current assets:
Cash and cash equivalents ................................................ $ 163,247 $ 181,345
Marketable securities .................................................... 133,764 66,316
Accounts receivable ...................................................... 485,911 296,159
Inventories:
Parts .............................................................. 223,486 123,300
Assemblies in process .............................................. 188,243 145,393
----------- -----------
411,729 268,693
Deferred tax assets ...................................................... 49,716 49,716
Prepayments and other current assets ..................................... 36,383 45,458
----------- -----------
Total current assets ............................................... 1,280,750 907,687
Property, plant, and equipment, at cost: .................................... 1,065,971 981,986
Less: accumulated depreciation ........................................ (477,677) (484,247)
----------- -----------
Net property, plant, and equipment ................................. 588,294 497,739
Marketable securities ....................................................... 136,814 139,752
Other assets ................................................................ 26,578 23,035
----------- -----------
Total assets ....................................................... $ 2,032,436 $ 1,568,213
=========== ===========
LIABILITIES
Current liabilities:
Notes payable - banks .................................................... $ 8,089 $ 8,221
Current portion of long-term debt ........................................ 4,595 4,659
Accounts payable ......................................................... 186,670 104,335
Accrued employees' compensation and withholdings ......................... 140,971 117,314
Unearned service revenue and customer advances ........................... 78,752 60,096
Other accrued liabilities ................................................ 87,965 66,223
Income taxes payable ..................................................... 11,577 31,478
----------- -----------
Total current liabilities .......................................... 518,619 392,326
Deferred tax liabilities .................................................... 13,907 13,907
Long-term debt .............................................................. 8,729 8,948
----------- -----------
Total liabilities .................................................. 541,255 415,181
----------- -----------
SHAREHOLDERS' EQUITY
Common stock, $0.125 par value, 1,000,000 and 250,000 shares authorized,
173,406 and 170,319 net shares issued and outstanding
at July 2, 2000 and December 31, 1999, respectively ...................... 21,676 21,290
Additional paid-in capital .................................................. 325,256 234,198
Retained earnings ........................................................... 1,144,249 897,544
----------- -----------
Total shareholders' equity ......................................... 1,491,181 1,153,032
----------- -----------
Total liabilities and shareholders' equity ......................... $ 2,032,436 $ 1,568,213
=========== ===========
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, 1999 are an integral part of the condensed consolidated
financial statements.
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TERADYNE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
FOR THE THREE MONTHS ENDED FOR THE SIX MONTHS ENDED
-------------------------------- --------------------------------
JULY 2, 2000 JULY 4, 1999 JULY 2, 2000 JULY 4, 1999
------------- ------------ ------------ ------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Net sales ...................................... $ 758,955 $ 400,904 $ 1,407,086 $ 745,358
Expenses:
Cost of sales ............................. 402,570 236,940 751,410 456,798
Engineering and development ............... 73,637 56,829 142,662 104,553
Selling and administrative ................ 91,982 59,386 170,938 113,867
----------- ----------- ----------- -----------
568,189 353,155 1,065,010 675,218
----------- ----------- ----------- -----------
Income from operations ......................... 190,766 47,749 342,076 70,140
Other income (expense):
Interest income ............................ 6,235 3,842 11,197 7,620
Interest expense ........................... (412) (442) (837) (904)
----------- ----------- ----------- -----------
Income before income taxes ..................... 196,589 51,149 352,436 76,856
Provision for income taxes ..................... 58,977 15,345 105,731 23,057
----------- ----------- ----------- -----------
Net income ..................................... $ 137,612 $ 35,804 $ 246,705 $ 53,799
=========== =========== =========== ===========
Net income per common share - basic ............ $ 0.79 $ 0.21 $ 1.43 $ 0.32
=========== =========== =========== ===========
Net income per common share - diluted .......... $ 0.76 $ 0.20 $ 1.36 $ 0.30
=========== =========== =========== ===========
Shares used in calculations of net income
per common share - basic ................... 173,158 170,245 172,643 170,138
=========== =========== =========== ===========
Shares used in calculations of net income
per common share - diluted ................. 181,697 178,061 181,285 178,028
=========== =========== =========== ===========
==========================================================================================================================
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, 1999 are an integral part of the condensed consolidated
financial statements.
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TERADYNE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
FOR THE SIX MONTHS ENDED
------------------------------
JULY 2, 2000 JULY 4, 1999
------------ ------------
(IN THOUSANDS)
Cash flows from operating activities:
Net income .................................................................... $ 246,705 $ 53,799
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation ............................................................... 51,003 43,536
Amortization ............................................................... 804 554
Other non-cash items, net .................................................. 951 713
Changes in operating assets and liabilities:
Accounts receivable ................................................... (189,752) (65,510)
Inventories ........................................................... (143,036) 9,190
Other assets .......................................................... 4,728 (17,330)
Accounts payable and accruals ......................................... 146,391 80,707
Income taxes payable .................................................. 66,732 18,670
--------- ---------
Net cash provided by operating activities ......................... 184,526 124,329
--------- ---------
Cash flows from investing activities:
Additions to property, plant and equipment .................................... (116,346) (51,678)
Increase in equipment manufactured by the Company ............................. (26,488) (6,570)
Purchases of available-for-sale marketable securities ......................... (200,462) (32,437)
Maturities of available-for-sale marketable securities ........................ 194,790 27,626
Purchases of held-to-maturity marketable securities ........................... (118,325) (88,503)
Maturities of held-to-maturity marketable securities .......................... 59,487 --
--------- ---------
Net cash used for investing activities ................................ (207,344) (151,562)
--------- ---------
Cash flows from financing activities:
Payments of long term debt .................................................... (91) (951)
Acquisition of treasury stock ................................................. (46,293) (65,389)
Issuance of common stock under employee stock
option and stock purchase plans ........................................... 51,104 51,344
--------- ---------
Net cash flows provided by (used for) financing activities ........ 4,720 (14,996)
--------- ---------
Decrease in cash and cash equivalents .............................................. (18,098) (42,229)
Cash and cash equivalents at beginning of period ................................... 181,345 185,514
--------- ---------
Cash and cash equivalents at end of period ......................................... $ 163,247 $ 143,285
========= =========
Supplementary disclosure of cash flow information:
Cash paid during the period for:
Interest ............................................................ $ 809 $ 951
Income taxes ........................................................ 19,192 4,910
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, 1999 are an integral part of the condensed consolidated
financial statements.
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TERADYNE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
A. THE COMPANY
Teradyne, Inc. (the "Company") designs, manufactures, markets, and services
test systems and related software, and backplanes and associated connectors. The
Company has five principal products; semiconductor test systems, backplane
connection systems, circuit-board test systems, telecommunications test systems,
and software test systems.
Semiconductor test systems are used by electronic component manufacturers
in the design and testing of their products. Backplane connection systems are
used principally for the computer, communications, and military/aerospace
industries. A backplane is an assembly into which printed circuit boards are
inserted that provides for the interconnection of electrical signals between the
circuit boards and the other elements of the system. Circuit-board test systems
are used by electronic equipment manufacturers for the design and testing of
circuit boards and other assemblies. Telecommunication test systems are used by
telephone operating companies for the testing and maintenance of their
subscriber telephone lines and related equipment. Software test systems are used
by a number of industries to test communications networks, computerized
telecommunication systems, and web based applications.
B. ACCOUNTING POLICIES
Basis of Presentation
The condensed consolidated interim financial statements include the
accounts of the Company and its subsidiaries. All significant intercompany
balances and transactions have been eliminated. The year-end condensed
consolidated 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 interim financial statements are
unaudited. However, in the opinion of management, all adjustments (consisting
only of normal recurring accrual entries) necessary for a fair statement of the
results for the interim periods 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.
Revenue Recognition
Product revenue is recognized upon shipment. The Company's products are
generally subject to warranty, and the Company provides for such estimated costs
when product revenue is recognized. The Company recognizes service revenue as
the services are provided or ratably over the period of the related contract, as
applicable. The Company unbundles service revenue from product sales and
maintenance services from software license fees based upon amounts charged when
such elements are separately sold. For certain contracts eligible under American
Institute of Certified Public Accountants ("AICPA") Statement of Position No.
81-1, revenue is recognized using the percentage-of-completion accounting method
based upon an efforts-expended method. In all cases, changes to total estimated
costs and anticipated losses, if any, are recognized in the period in which
determined.
Other Comprehensive Income
Comprehensive income does not materially differ from net income for the
three and six month periods ended July 2, 2000 and July 4, 1999.
6
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TERADYNE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
C. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1999, the Financial Accounting Standards Board issued SFAS No. 137,
"Accounting for Derivative Instruments and Hedging Activities - Deferral of the
Effective Date of FASB Statement No. 133." SFAS No. 137 amends SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities" which was issued
in June 1998 and was to be effective for all fiscal quarters of fiscal years
beginning after June 15, 1999. SFAS No. 137 defers the effective date of SFAS
No. 133 to the first quarter of all fiscal years beginning after June 15, 2000.
Accordingly, the Company will adopt the provisions of SFAS No. 133 for its 2001
fiscal year. SFAS No. 133 requires that all derivative instruments be recorded
on the balance sheet at their fair value. Changes in the fair value of
derivatives are recorded each period in current earnings or other comprehensive
income, depending on whether a derivative is designated as part of a hedge
transaction and the type of hedge transaction. In June 2000, the Financial
Accounting Standards Board ("FASB") issued Statement of Financial Accounting
Standards ("SFAS") No.138 "Accounting for Certain Derivative Instruments and
Hedging Activities - an amendment of FASB Statement No.133." SFAS No.138 amends
the accounting and reporting standards of SFAS No.133 for certain derivative
instruments and certain hedging activities. SFAS No.138 will be adopted
concurrently with SFAS No.133. Management is currently evaluating the effects of
this change on its recording of derivatives and hedging activities.
On June 26, 2000, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin ("SAB") No. 101B which amended Question 2 of Section B
of Topic 13 of the Staff Accounting Bulletin Series. SAB No. 101B delays the
implementation date of SAB No. 101 "Revenue Recognition in Financial Statements"
until the Company's fourth quarter of the fiscal year 2000. SAB No. 101
summarizes the SEC's view in applying generally accepted accounting principles
to selected revenue recognition issues. The effects of applying the guidance in
SAB No. 101, if any, will be reported as the cumulative effect adjustment
resulting from a change in accounting principle. The Company has not completed
its evaluation of SAB 101 and is therefore unable to determine the impact the
SAB will have on its financial statements.
7
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TERADYNE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(UNAUDITED)
D. NET INCOME PER COMMON SHARE
The following table sets forth the computation of basic and diluted net
income per common share (in thousands, except per share amounts):
For the Three Months Ended For the Six Months Ended
----------------------------- ---------------------------
July 2, 2000 July 4, 1999 July 2, 2000 July 4, 1999
------------ ------------ ------------ ------------
Net Income ................................................ $137,612 $ 35,804 $246,705 $ 53,799
======== ======== ======== ========
Shares used in net income per common share - basic ........ 173,158 170,245 172,643 170,138
Effect of dilutive securities:
Employee and director stock options .............. 8,265 7,431 8,468 7,629
Employee stock purchase rights ................... 274 385 174 261
-------- -------- -------- --------
Dilutive potential common shares ..................... 8,539 7,816 8,642 7,890
-------- -------- -------- --------
Shares used in net income per common share - diluted ...... 181,697 178,061 181,285 178,028
======== ======== ======== ========
Net income per common share - basic ....................... $ 0.79 $ 0.21 $ 1.43 $ 0.32
======== ======== ======== ========
Net income per common share - diluted ..................... $ 0.76 $ 0.20 $ 1.36 $ 0.30
======== ======== ======== ========
For purposes of computing diluted earnings per share, weighted average common
share equivalents do not include stock options with an exercise price that
exceeds the average fair market value of the Company's common stock during the
three and six month periods presented above. Options to purchase 68,300 and
89,134 shares of common stock during the three months ended July 2, 2000 and
July 4,1999 and 49,362 and 70,394 shares during the six months ended July 2,
2000 and July 4, 1999 were outstanding during the periods then ended. These
options were not included in the calculation of diluted net income per common
share because the options' exercise price was greater than the average market
price of the common shares during those periods.
8
9
TERADYNE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONCLUDED
(UNAUDITED)
E. OPERATING SEGMENT INFORMATION
The Company has five principal operating segments which are the design,
manufacturing and marketing of semiconductor test systems, backplane connection
systems, circuit-board test systems, telecommunication test systems, and
software test systems. These operating segments were determined based upon the
nature of the products and services offered. The Company has three reportable
segments; semiconductor test systems segment, backplane connection systems
segment, and other. The other segment is comprised of circuit-board test
systems, telecommunication test systems, and software test systems.
The Company evaluates performance based on several factors, of which the
primary financial measure is business segment income before taxes. The
accounting policies of the business segments are the same as those described in
"Note B: Accounting Policies" in the Company's Annual Report on Form 10-K for
the year ended December 31, 1999. Intersegment sales are accounted for at fair
value as if sales were to third parties. Operating segment information for the
three and six month periods ended July 2, 2000 and July 4, 1999 follows (in
thousands):
Sales to Sales to
Unaffiliated Intersegment Net Income (Loss) Unaffiliated Intersegment Net Income (Loss)
Reportable Segments Customers Sales Sales Before Taxes Customers Sales Sales Before Taxes
- ------------------- --------- ------------ ----- ------------ ------------ ------------ ----- ------------
Three months ended July 2, 2000: Three months ended July 4, 1999:
-------------------------------- --------------------------------
Semiconductor Test Systems $ 534,350 $ -- $ 534,350 $ 193,427 $ 263,263 $ -- $ 263,263 $ 51,962
Backplane Connection Systems 169,668 8,249 177,917 38,313 86,530 4,766 91,296 14,716
Other 54,937 -- 54,937 (4,000) 51,111 -- 51,111 (4,806)
Corporate and Eliminations -- (8,249) (8,249) (31,151) -- (4,766) (4,766) (10,723)
--------------------------------------------------- -----------------------------------------------
Consolidated $ 758,955 $ -- $ 758,955 $ 196,589 $ 400,904 $ -- $ 400,904 $ 51,149
=================================================== ===============================================
Six months ended July 2, 2000: Six months ended July 4, 1999:
------------------------------ ------------------------------
Semiconductor Test Systems $ 990,853 $ -- $ 990,853 $ 345,122 $ 461,429 $ -- $ 461,429 $ 70,984
Backplane Connection Systems 302,310 13,666 315,976 64,977 176,091 6,004 182,095 29,202
Other 113,923 -- 113,923 (2,075) 107,838 -- 107,838 (3,613)
Corporate and Eliminations -- (13,666) (13,666) (55,588) -- (6,004) (6,004) (19,717)
-------------------------------------------------- -----------------------------------------------
Consolidated $1,407,086 $ -- $1,407,086 $ 352,436 $ 745,358 $ -- $ 745,358 $ 76,856
=================================================== ===============================================
(1) Income before taxes of the principal businesses exclude the effects of
employee profit sharing, management incentive compensation, other
unallocated expenses, and net interest income.
9
10
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 SIX MONTHS ENDED
--------------------------------- ----------------------------------
JULY 2, 2000 JULY 4, 1999 JULY 2, 2000 JULY 4, 1999
------------ ------------ ------------ ------------
(IN THOUSANDS) (IN THOUSANDS)
Net sales ............................................. $ 758,955 $ 400,904 $ 1,407,086 $ 745,358
=========== =========== =========== ===========
Net income ............................................ $ 137,612 $ 35,804 $ 246,705 $ 53,799
=========== =========== =========== ===========
Percentage of net sales:
Net sales ........................................ 100% 100% 100% 100%
Expenses:
Cost of sales ................................ 53 59 54 62
Engineering and development .................. 10 14 10 14
Selling and administrative ................... 12 15 12 15
Interest, net ................................ (1) (1) (1) (1)
----------- ----------- ----------- -----------
74 87 75 90
Income before income taxes ....................... 26 13 25 10
Provision for income taxes ....................... 8 4 7 3
----------- ----------- ----------- -----------
Net income ....................................... 18% 9% 18% 7%
=========== =========== =========== ===========
Provision for income taxes as a percentage of income
before taxes ..................................... 30% 30% 30% 30%
=========== =========== =========== ===========
RESULTS OF OPERATIONS
The Company recorded record sales of $759.0 million in the second quarter
of 2000, an increase of $358.1 million or 89% from the second quarter of 1999.
Semiconductor test systems sales increased 103% from the second quarter of 1999
due to increased orders resulting from capacity expansion by semiconductor
manufacturers and subcontractors. Sales of backplane connection systems to
unaffiliated customers increased 96% from the second quarter of 1999 as a result
of continued growth in demand from networking, data storage, and other high
technology customers. Other test systems sales increased 7% from the second
quarter of 1999. The Company recorded sales of $1.41 billion in the first six
months of 2000, an increase of $661.7 million or 89% over the first six months
of 1999. Semiconductor test systems sales and backplane connection systems sales
to unaffiliated customers increased 115% and 72%, respectively, when compared to
the first six months of 1999. Other test systems sales for the first 6 months of
2000 increased 6% over the corresponding period in 1999. Income before taxes in
the second quarter of 2000 increased $145.4 million from the second quarter of
1999 to $196.6 million. For the first six months of 2000, income before taxes
increased $275.6 million to $352.4 million when compared to the first six months
of 1999.
Incoming orders were $826.4 million in the second quarter of 2000 compared
to $571.0 million in the second quarter of 1999. The increase in incoming orders
was led by a 168% increase in backplane connection systems orders and a 20%
increase in semiconductor test systems orders. For the six month periods ended
July 2, 2000 and July 4, 1999, incoming orders were $1,850.6 million and
$1,015.1 million, respectively. The increase in incoming orders was led by a
143% increase in backplane connection systems orders and a 73% increase in
semiconductor test systems orders. The Company's backlog was $1,423.0 million at
the end of the second quarter of 2000 compared with $849.5 million at the end of
the second quarter of 1999.
Cost of sales decreased from 59% of sales in the second quarter of 1999 to
53% of sales in the second quarter of 2000 and from 62% in the first six months
of 1999 to 54% in the first six months of 2000. These percentage decreases were
primarily attributable to increased utilization of the Company's manufacturing
overhead, as sales volume increased while certain components of cost of sales
remained fixed.
Engineering and development expenses, as a percentage of sales, decreased
from 14% in the second quarter and first six months of 1999 to 10% in the second
quarter and first six months of 2000, while increasing by $16.8 million and
$38.1 million, respectively. This spending growth was primarily due to increased
investments in new products in each operating segment.
10
11
Selling and administrative expenses, as a percentage of sales, decreased
from 15% in the second quarter and first six months of 1999 to 12% in the second
quarter and first six months of 2000, while increasing by $32.6 million and
$57.1 million, respectively. This spending growth was due to higher compensation
related expenses and spending in support of increased semiconductor test
systems, software test systems, and backplane connection systems sales.
Interest income increased by $2.4 million to $6.2 million in the second
quarter of 2000 compared to the second quarter of 1999 and by $3.6 million to
$11.2 million in the first six months of 2000 compared to the first six months
of 1999. These increases are attributable to increases in the Company's average
invested balances.
The Company's overall effective tax rate was 30% in the second quarter of
2000 and the first six months of 2000. The overall effective tax rate for the
year ended 1999 was also 30%. The Company utilized export sales corporation
benefits and certain research and development tax credits to operate below the
U.S. statutory rate of 35%.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash, cash equivalents and marketable securities balance
increased $46.4 million in the first six months of 2000, to $433.8 million. The
Company generated cash from operating activities of $184.5 million in the first
six months of 2000 and $124.3 million in the six months of 1999. Cash generated
from net income, excluding the effects of non-cash items, was $299.5 million and
$98.6 million for the first six months of 2000 and 1999, respectively. Changes
in operating assets and liabilities used cash of $115.0 million in the first six
months of 2000 as a result of increases in working capital to support increased
sales. In the first six months of 1999, changes in operating assets and
liabilities provided cash of $25.7 million.
The Company used $207.3 million of cash for investing activities in the
first six months of 2000 and $151.6 million in the first six months of 1999.
Investing activities consist of purchases, sales, and maturities of marketable
securities and purchases of capital assets to support long-term growth. Capital
expenditures were $142.8 million in the first six months of 2000 and $58.2
million in the first six months of 1999.
Financing activities provided $4.7 million of cash during the first six
months of 2000. The Company used $15.0 million of cash for financing activities
in the first six months of 1999. Financing activities include issuance of the
Company's common stock through employee stock option and stock purchase plans,
repurchase of common stock through a stock buyback program and repayments of
debt. During the first six months of 2000, net common stock activity provided
cash of $4.8 million. During the first six months of 1999, net common stock
activity used cash of $14.0 million. Since 1996, the Company has used $439.6
million of cash to repurchase 16.9 million shares of its common stock on the
open market.
The Company believes its cash, cash equivalents, and marketable securities
balance of $433.8 million, together with other sources of funds, including cash
flow generated from operations and 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 for the foreseeable future.
Inflation has not had a significant long-term impact on earnings.
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 and the Company's Annual Report to
Shareholders) contains statements that are not purely historical, so-called
"forward looking statements," which involve risks and uncertainties. In
particular, forward looking statements may include projections, plans, and
objectives for the Company's business, financial condition, operating results,
future operations, future economic performance or statements relating to the
sufficiency of capital to meet working capital and planned capital expenditures.
The Company's actual future results may differ materially from those stated in
any forward looking statements. Factors that may cause such differences include,
but are not limited to, the factors discussed below. These factors, and others,
are discussed from time to time in the Company's filings with the Securities and
Exchange Commission, including in the Company's Annual Report on Form 10-K for
the year ended December 31, 1999.
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 also
will be subject to similar fluctuations. There can be no assurance that any
increase in semiconductor test systems bookings for a particular calendar
quarter will be sustained in subsequent quarters. 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. In addition, the Company believes many of its semiconductor
test systems customers place orders in anticipation of manufacturing their
products. If these customers manufacture fewer products than expected,
11
12
they may attempt to cancel their semiconductor test systems orders with the
Company. These cancellations could have a material adverse effect on the
Company's financial condition in future quarters. Finally, the Company has made
substantial investments in fixed-cost infrastructure. If the semiconductor
industry experiences a downturn, the Company may have difficulty reducing
expenses in a timely manner, which could have a material adverse effect on its
profitability.
The Company recently has experienced record order backlog. If the Company is
unable to timely manufacture products to fill these orders and meet customer
expectations, customers may cancel existing orders or fail to place new orders
in the future, which would have an adverse effect on the Company's revenues and
results of operations. Factors that affect the Company's ability to timely fill
customer orders include: the availability of expanded manufacturing facilities;
the Company's ability to attract and retain qualified manufacturing personnel to
meet anticipated manufacturing levels; the difficulties inherent in
manufacturing highly complex products that have only recently been introduced;
and the availability of components, including semiconductor chips, which may be
in short supply from time to time. In addition, the Company relies upon
third-party contract manufacturers for certain subsystems used in its products,
and the Company's ability to meet customer orders for those products depends
upon the timeliness and quality of the work performed by these subcontractors,
over whom the Company does not exercise any control.
The Company relies on certain intellectual property protections to preserve
its intellectual property rights, including patents, copyrights, and trade
secrets. While the Company believes that its patents, copyrights, and trade
secrets have value, in general no single one is in itself essential. The Company
believes that its technological position depends primarily on the technical
competence and creative ability of its research and development personnel. From
time to time the Company is notified that it may be in violation of patents held
by others. An assertion of patent infringement against the Company, if
successful, could have a material adverse effect on the Company or could require
a lengthy and expensive defense which could adversely affect the Company's
operating results.
The development of new technologies, commercialization of those
technologies into products, and market acceptance and customer demand for those
products is critical to the Company's success. Successful product development
and introduction depends upon a number of factors, including the ability of the
Company to hire and retain qualified engineers, new product design, development
of competitive products by competitors, timely and efficient completion of
product design, timely and efficient implementation of manufacturing and
assembly processes and product performance at customer locations. The Company's
failure to successfully develop, introduce and produce in commercial volume new
or enhanced products, or failure of the market to accept these new or enhanced
products could materially affect the Company's financial condition.
The Company faces substantial competition, throughout the world, in each
operating segment. Some of these competitors have substantially greater
financial and other resources to pursue engineering, manufacturing, marketing
and distribution of their products. The Company also faces competition from
internal suppliers at several of its customers. Certain of the Company's
competitors have introduced or announced new products with certain performance
characteristics which may be considered equal or superior to those currently
offered by the Company. The Company expects its competitors to continue to
improve the performance of their current products and to introduce new products
or new technologies that provide improved cost of ownership and performance
characteristics. New product introductions by competitors could cause a decline
in sales or loss of market acceptance of the Company's existing products.
Moreover, increased competitive pressure could lead to intensified price based
competition, which could materially adversely affect the Company's business,
financial condition and results of operations.
The Company derives a significant portion of its total revenue from
customers outside the United States. International sales are subject to
significant risks, including unexpected changes in legal and regulatory
requirements and policy changes affecting the Company's markets, changes in
tariffs, exchange rates and other barriers, political and economic instability,
difficulties in accounts receivable collection, difficulties in managing
distributors and representatives, difficulties in staffing and managing
international operations, difficulties in protecting the Company's intellectual
property and potentially adverse tax consequences.
The Company's semiconductor test systems operating segment generates a
significant portion of its revenue from customers operating in South Asian
countries and Taiwan. Although the economies of South Asian countries and Taiwan
have stabilized to some degree since mid fiscal 1998, if these economies
deteriorate the negative economic developments would increase the likelihood of
either a direct or indirect adverse impact on the Company's future 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; fulfilling backlog on
a timely basis; reliance on sole source suppliers; 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.
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ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There were no material changes in the Company's exposure to market risk from
December 31, 1999.
PART II. OTHER INFORMATION
ITEM 1: LEGAL PROCEEDINGS
The Company is subject to legal proceedings and claims that arise in the
ordinary course of business. Management does not believe these actions will have
a material adverse affect on the financial position or results of operations of
the Company.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The annual meeting of security holders of the Company was held May 25, 2000. The
following were elected as Directors:
Total Vote Total Vote Withheld
Nominee For Each Nominee For Each Nominee
- ------- ---------------- ----------------
Albert Carnesale 149,756,501 851,007
George W. Chamillard 149,765,484 842,024
Dwight H. Hibbard 149,735,702 871,806
Roy A. Vallee 149,741,675 865,833
The term of office for the following directors continued after the meeting:
Alexander V. d'Arbeloff, James W. Bagley, Daniel S. Gregory, John P. Mulroney,
Vincent M. O'Reilly, Owen W. Robbins, Richard J. Testa, and Patricia S. Wolpert.
Effective May 31, 2000, Alexander V. d'Arbeloff and Owen W. Robbins resigned as
directors of the Company.
The security holders ratified the selection of the firm
PricewaterhouseCoopers LLP as auditors for the fiscal year ending December 31,
2000, with 149,995,037 shares voting in favor, 224,806 shares voting against,
and 387,665 shares abstaining.
In addition, the security holders approved an amendment to the Company's
Restated Articles of Organization, as amended, increasing from 250,000,000 to
1,000,000,000 the number of authorized shares of common stock, par value $.125
per share, with 99,225,914 shares voting in favor, 51,015,882 shares voting
against, and 365,712 shares abstaining.
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
(a): Exhibits
Exhibit Number Description
- -------------- -----------
3.01 Amendment to Articles of Incorporation
27.3 Financial Data Schedule
(b): Reports on Form 8-K
There were no Form 8-K filings by the Company during the quarter ended July 2,
2000.
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SIGNATURES
----------
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
/s/ MICHAEL A. BRADLEY
-------------------------------------
Michael A. Bradley
Vice President and
Chief Financial Officer
August 16, 2000
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EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
- ----------- -----------
3.01 Amendment to Articles of Incorporation
27.3 Financial Data Schedule
15