SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

----------

FORM 10-Q

----------

(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 30, 2001

[ ] 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 25, 2001 was 175,946,343 shares.

TERADYNE, INC.

INDEX

PART I. FINANCIAL INFORMATION
PAGE NO.
--------

Item 1. FINANCIAL STATEMENTS:

Condensed Consolidated Balance Sheets as of
September 30, 2001 and December 31, 2000..............................................3

Condensed Consolidated Statements of Operations for the
Three and Nine Months Ended September 30, 2001 and October 1, 2000....................4

Condensed Consolidated Statements of Cash Flows for the
Nine Months Ended September 30, 2001 and October 1, 2000..............................5

Notes to Condensed Consolidated Financial Statements...................................6-11

Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.......................................12-18

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.............................18

PART II. OTHER INFORMATION

Item 1. LEGAL PROCEEDINGS.....................................................................18-19

Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS..............................................19

Item 6. EXHIBITS AND REPORTS ON FORM 8-K.......................................................19

TERADYNE, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

ASSETS

SEPTEMBER 30, 2001 DECEMBER 31, 2000
------------------ -----------------
(IN THOUSANDS)

Current assets:
Cash and cash equivalents .................................................. $ 112,760 $ 242,421
Marketable securities ...................................................... 49,220 60,154
Accounts receivable ........................................................ 187,917 420,040
Inventories:
Parts ...................................................................... 293,829 318,790
Assemblies in process ...................................................... 119,519 159,123
Finished goods ............................................................. -- 34,650
----------- -----------
413,348 512,563
Deferred tax assets ........................................................ 73,058 93,958
Prepayments and other current assets ....................................... 98,876 48,698
----------- -----------
Total current assets .................................................. 935,179 1,377,834
Property, plant, and equipment, at cost: ....................................... 1,422,764 1,254,957
Less: accumulated depreciation ............................................. (595,939) (521,171)
----------- -----------
Net property, plant, and equipment .................................... 826,825 733,786
Marketable securities .......................................................... 158,276 161,848
Other assets ................................................................... 85,449 82,400
----------- -----------
Total assets .......................................................... $ 2,005,729 $ 2,355,868
=========== ===========

LIABILITIES

Current liabilities:
Notes payable - banks ...................................................... $ 7,110 $ 7,389
Current portion of long-term debt .......................................... 277 169
Accounts payable ........................................................... 64,584 153,897
Accrued employees' compensation and withholdings ........................... 91,071 158,817
Deferred revenue and customer advances ..................................... 54,635 183,465
Other accrued liabilities .................................................. 77,066 86,637
Income taxes payable ....................................................... -- 28,914
----------- -----------
Total current liabilities ............................................. 294,743 619,288
Deferred tax liabilities ....................................................... 22,419 21,257
Long-term debt ................................................................. 8,010 8,352
Commitments and contingencies (Note J) ......................................... -- --
----------- -----------
Total liabilities ..................................................... 325,172 648,897
----------- -----------

SHAREHOLDERS' EQUITY

Common stock, $0.125 par value, 1,000,000 shares authorized, 175,929 and 172,559
net shares issued and outstanding at September 30, 2001 and
December 31, 2000, respectively ............................................. 21,991 21,570
Additional paid-in capital ..................................................... 394,627 334,241
Accumulated other comprehensive income ......................................... 2,405 --
Retained earnings .............................................................. 1,261,534 1,351,160
----------- -----------
Total shareholders' equity ............................................ 1,680,557 1,706,971
----------- -----------
Total liabilities and shareholders' equity ............................ $ 2,005,729 $ 2,355,868
=========== ===========

The accompanying notes, together with the Notes to Consolidated Financial
Statements included in Teradyne's Annual Report on Form 10-K for the year ended
December 31, 2000 are an integral part of the condensed consolidated financial
statements.

TERADYNE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED
---------------------------- ----------------------------
SEPTEMBER 30, OCTOBER 1, SEPTEMBER 30, OCTOBER 1,
2001 2000 2001 2000
------------ ---------- ------------- ----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

Net sales ......................................... $ 249,355 $ 859,478 $ 1,220,367 $ 2,222,294

Expenses:
Cost of sales ................................... 272,017 457,976 968,885 1,199,989
Engineering and development ..................... 56,863 78,963 189,384 221,625
Selling and administrative ...................... 90,349 95,149 230,250 266,087
----------- ----------- ----------- -----------
419,229 632,088 1,388,519 1,687,701
----------- ----------- ----------- -----------
(Loss) income from operations ..................... (169,874) 227,390 (168,152) 534,593
Interest and other income ....................... 4,553 6,641 30,675 17,838
Interest and other expense ...................... (2,200) (570) (7,081) (1,407)
----------- ----------- ----------- -----------
(Loss) income before taxes and cumulative
effect of change in accounting principle ........ (167,521) 233,461 (144,558) 551,024
(Benefit) provision for income taxes .............. (64,117) 70,038 (54,932) 165,307
----------- ----------- ----------- -----------
(Loss) income before cumulative effect of change
in accounting principle ......................... (103,404) 163,423 (89,626) 385,717
Cumulative effect of change in accounting
principle, net of applicable tax of $27,488 .... -- -- -- (64,138)
----------- ----------- ----------- -----------
Net (loss) income ................................. $ (103,404) $ 163,423 $ (89,626) $ 321,579
----------- ----------- ----------- ----------
(Loss) income per common share before cumulative
effect of change in accounting principle - basic $ (0.59) $ 0.94 $ (0.51) $ 2.23
Cumulative effect of change in accounting
principle - basic ............................... $ -- $ -- $ -- $ (0.37)
----------- ----------- ----------- -----------
Net (loss) income per common share - basic ........ $ (0.59) $ 0.94 $ (0.51) $ 1.86
=========== =========== =========== ===========

(Loss) income per common share before cumulative
effect of change in accounting principle -
diluted ......................................... $ (0.59) $ 0.90 $ (0.51) $ 2.13
Cumulative effect of change in accounting
principle - diluted ............................. $ -- $ -- $ -- $ (0.35)
----------- ----------- ----------- -----------
Net (loss) income per common share - diluted ...... $ (0.59) $ 0.90 $ (0.51) $ 1.77
=========== =========== =========== ===========
Shares used in calculations of net (loss) income
per common share - basic ...................... 175,689 174,369 174,673 173,218
=========== =========== =========== ===========
Shares used in calculations of net (loss) income
per common share - diluted .................... 175,689 181,937 174,673 181,502
=========== =========== =========== ===========

TERADYNE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

FOR THE NINE MONTHS ENDED
-----------------------------------
SEPTEMBER 30, 2001 OCTOBER 1, 2000
------------------ ---------------
(IN THOUSANDS)

Cash flows from operating activities:
Net (loss) income ....................................................... $ (89,626) $ 321,579
Adjustments to reconcile net (loss) income to net cash (used for)
provided by operating activities:
Depreciation ......................................................... 96,116 73,874
Amortization ......................................................... 4,937 1,656
Gain on sale of business ............................................. (14,779) --
Impairment of fixed assets ........................................... 28,548 --
Deferred income tax provision (credit) ............................... 22,062 (33,681)
Other non-cash items, net ............................................ 4,747 (8,086)
Changes in operating assets and liabilities, net of businesses
sold and acquired:
Accounts receivable ............................................. 228,012 (219,048)
Inventories ..................................................... 94,447 (242,229)
Other assets .................................................... (63,124) 7,573
Accounts payable and accruals ................................... (298,386) 310,880
Income taxes payable ............................................ (21,817) 80,196
--------- ---------
Net cash (used for) provided by operating activities ........ (8,863) 292,714
--------- ---------
Cash flows from investing activities:
Additions to property, plant and equipment .............................. (176,016) (167,448)
Increase in equipment manufactured by Teradyne .......................... (42,210) (40,478)
Proceeds from the sale of business ...................................... 26,250 --
Purchases of available-for-sale marketable securities ................... (128,509) (276,490)
Maturities of available-for-sale marketable securities .................. 117,824 268,300
Purchases of held-to-maturity marketable securities ..................... (1,407) (118,325)
Maturities of held-to-maturity marketable securities .................... 30,477 97,892
Cash acquired in acquisition ............................................ -- 1,885
--------- ---------
Net cash used for investing activities .......................... (173,591) (234,664)
--------- ---------
Cash flows from financing activities:
Payments of long term debt .............................................. (513) (4,659)
Acquisition of treasury stock ........................................... -- (60,659)
Issuance of common stock under employee stock
option and stock purchase plans ..................................... 53,306 53,013
--------- ---------
Net cash flows provided by (used for) financing activities .. 52,793 (12,305)
--------- ---------
(Decrease) increase in cash and cash equivalents ............................. (129,661) 45,745
Cash and cash equivalents at beginning of period ............................. 242,421 181,345
--------- ---------
Cash and cash equivalents at end of period ................................... $ 112,760 $ 227,090
========= =========

Supplementary disclosure of cash flow information:
Cash paid during the period for:
Interest ................................................................. $ 718 $ 1,339
Income taxes ............................................................. $ 32,484 $ 72,498
Business acquired:
Fair value of assets acquired ............................................ $ -- $ 119,887
Liabilities assumed ...................................................... $ -- $ 15,401
Common stock issued ...................................................... $ -- $ 104,486

TERADYNE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

A. TERADYNE, INC.

We design, manufacture, market and service test and inspection systems and
related software, as well as backplanes and associated connectors. Teradyne
currently has four principal product lines:

- semiconductor test systems;
- connection systems;
- circuit-board test and inspection systems; and
- broadband test systems.

SEMICONDUCTOR TEST SYSTEMS. We produce semiconductor test systems for use
by electronic component manufacturers in the design and testing of a wide
variety of semiconductor products, including logic, memory, mixed signal, and
"system on a chip" integrated circuits. Semiconductor test systems are sold to
semiconductor manufacturers and subcontractors to the semiconductor industry.
Semiconductor manufacturers use our semiconductor test systems to:

- measure product performance;
- improve product quality;
- shorten time to market;
- enhance manufacturability;
- minimize labor costs; and
- increase production yields.

CONNECTION SYSTEMS. Our connection systems include backplane assemblies,
connectors and electro-mechanical systems integration for customers in the
telecom, data networking, storage, and server 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. Connection systems provide design and applications
engineering along with manufacturing for a total interconnect solution for our
customers. Connection systems product technology can be found in diverse
products such as Internet routers, computer servers, mass data storage, and
telecom switches.

CIRCUIT-BOARD TEST AND INSPECTION SYSTEMS. Electronic equipment
manufacturers use our circuit-board test and inspection systems for the design,
inspection and testing of circuit boards and other assemblies. We also sell
circuit-board test and inspection systems to customers across most sectors of
the electronics industry and to companies in other industries that use
electronic devices in high volume. Similar to semiconductor test systems, our
customers use their systems and related software to increase product
performance, to improve product quality, to shorten time to market, to enhance
manufacturability, to minimize labor costs, and to increase production yields.

BROADBAND TEST SYSTEMS. Broadband test systems are used by the
communications industry for Internet testing, customer care and voice network
maintenance. Broadband test systems perform qualification testing for digital
subscriber line, or DSL, services, assist customer care centers in isolating
network service problems, and perform integrated surveillance and maintenance
for voice networks.

B. RISKS AND UNCERTAINTIES

Teradyne's future results of operations involve a number of risks and
uncertainties. These factors include, but are not limited to, the slowdown in
economies worldwide, the negative effects on the economy resulting from the
terrorist attacks of September 11, 2001 and the resulting ongoing hostilities,
the current and anticipated market for electronics, risks associated with any
measures we take to address the current slowdown in the market, enforcement of
our intellectual property, failure to develop new technologies, risks associated
with acquisitions and divestitures, securities class action litigation due to
past or future stock activity, competition, risks of operating internationally,
risks associated with obligations and potential liabilities under environmental
regulations, our debt service obligations with respect to Teradyne's recent sale
of convertible senior notes, the difficulty in obtaining future financing if
needed, provisions of our charter and by-laws and Massachusetts law that make a
takeover of Teradyne more difficult, competitive pricing pressures, changes in
product mix, timing of customer orders or any deferral or cancellation of orders
previously received, market acceptance of our products, new product
introductions from our competitors, reliance on sole source suppliers, potential
retrofit costs, and the timing of investments in engineering and development. It
is reasonably possible that Teradyne may incur additional charges in the future
related to inventory or long-lived asset carrying values if demand for our
products further weakens. Further discussion of these and related topics appears
in "Certain Factors that May Affect Future Results."

TERADYNE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

C. ACCOUNTING POLICIES

BASIS OF PRESENTATION

The condensed consolidated interim financial statements include the
accounts of Teradyne 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.

The results for the three and nine months ended October 1, 2000 have been
adjusted to reflect the adoption of Staff Accounting Bulletin No. 101, "Revenue
Recognition in Financial Statements" (SAB 101).

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.

OTHER COMPREHENSIVE INCOME (LOSS)

The components of comprehensive (loss) income are as follows (in thousands):

For the Three Months Ended For the Nine Months Ended
----------------------------------- -------------------------------------
September 30, 2001 October 1, 2000 September 30, 2001 October 1, 2000
------------------ --------------- ------------------ ---------------

Net (loss) income................................... $ (103,404) $ 163,423 $(89,626) $ 321,579
Unrealized gain on marketable securities,
net of applicable tax of $434 and $1,474
for the three and nine months ended
September 30, 2001................................ 845 -- 2,405 --
---------- ---------- --------- -----------
Comprehensive (loss) income......................... $ (102,559) $ 163,423 $ (87,221) $ 321,579
========== ========== ========= ===========

D. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

In July 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 141 ("SFAS 141"), "Business
Combinations." SFAS 141 requires the purchase method of accounting for business
combinations initiated after June 30, 2001 and eliminates the
pooling-of-interest method.

In July 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 142 ("SFAS 142"), "Goodwill and
Other Intangible Assets", which is effective for Teradyne on January 1, 2002.
SFAS 142 requires, among other things, the discontinuance of goodwill
amortization and includes provisions for the reclassification of certain
existing recognized intangibles as goodwill, reassessment of the useful lives of
existing recognized intangibles, and reclassification of certain intangibles out
of previously reported goodwill. SFAS 142 also requires Teradyne to complete a
transitional goodwill impairment test six months from the date of adoption.
Teradyne is currently assessing but has not yet determined the impact of SFAS
142 on its financial position and results of operations.

In August 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 143 ("SFAS 143"), "Accounting
for Obligations Associated with the Retirement of Long-Lived Assets." SFAS 143
provides the accounting requirements for retirement obligations associated with
tangible long-lived assets. SFAS 143 is effective for financial statements for
fiscal years beginning after June 15, 2002. Teradyne is currently assessing but
has not yet determined the impact of SFAS 143 on its financial position and
results of operations.

TERADYNE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

D. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS - (CONTINUED)

In October 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 144 ("SFAS 144"), "Accounting
for the Impairment or Disposal of Long-Lived Assets." SFAS 144 requires one
method of accounting for long lived assets disposed of by sale. SFAS 144 is
effective for financial statements issued for fiscal years beginning after
December 15, 2001. Teradyne is currently assessing but has not yet determined
the impact of SFAS 144 on its financial position and results of operations.

E. DERIVATIVE FINANCIAL INSTRUMENTS

Teradyne adopted SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities" as amended by SFAS No. 137 and SFAS No. 138 in the first
fiscal quarter of 2001. SFAS 133 requires Teradyne to recognize all derivatives
on the balance sheet at fair value. Adoption of SFAS 133 did not have a material
impact on Teradyne's financial position or results of operations.

Teradyne conducts business in a number of foreign countries, with certain
transactions denominated in local currencies. The purpose of Teradyne's foreign
currency management is to minimize the effect of exchange rate fluctuations on
certain foreign denominated cash flows. The terms of currency instruments used
for hedging purposes are consistent with the timing of the transactions being
hedged. We do not use derivative financial instruments for trading or
speculative purposes.

Teradyne hedges certain forecasted foreign currency denominated sales, over
a maximum period of twelve months, using forward exchange contracts. These
derivatives are designated as cash-flow hedges, and changes in their fair value
are carried in accumulated other comprehensive income until the underlying
transaction occurs. Once the underlying forecasted transaction is realized, the
appropriate gain or loss from the derivative designated as a hedge of the
transaction is reclassified from accumulated other comprehensive income to net
sales. During the three and nine months ended September 30, 2001 the amount of
net realized gains was immaterial. As of September 30, 2001 there were no
outstanding cash-flow hedges and therefore there is no amount to be reclassed
from accumulated other comprehensive income.

In addition, we enter into foreign currency forward contracts to hedge
those currency exposures associated with certain assets and liabilities
denominated in non-functional currencies. Changes in the fair value of these
derivatives are recorded immediately in earnings to offset the changes in the
fair value of the assets or liabilities being hedged.

F. DIVESTITURES

On June 22, 2001, Teradyne sold its aerospace and defense connector and
backplane business to Amphenol Corporation of Wallingford, Connecticut for cash
proceeds of $26.3 million. This transaction resulted in a pre-tax gain of $14.8
million which has been recorded in interest and other income.

TERADYNE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

G. NET INCOME (LOSS) PER COMMON SHARE

The following table sets forth the computation of basic and diluted net
income (loss) per common share (in thousands, except per share amounts):

For the Three Months Ended For the Nine Months Ended
---------------------------- ----------------------------
September 30, October 1, September 30, October 1,
2001 2000 2001 2000
------------- ---------- ------------- ----------

(Loss) income before cumulative effect of change in accounting
principle ................................................... $ (103,404) $ 163,423 $ (89,626) $ 385,717
Cumulative effect of change in accounting principle ........... -- -- -- (64,138)
----------- --------- ----------- ---------
Net (loss) income ............................................. $ (103,404) $ 163,423 $ (89,626) $ 321,579
=========== ========= =========== =========
Shares used in net (loss) income per common share -- basic .... 175,689 174,369 174,673 173,218
Effect of dilutive securities:
Employee and director stock options .................. - 7,082 -- 8,005
Employee stock purchase rights ....................... - 486 -- 279
----------- --------- ----------- ---------
Dilutive potential common shares ......................... - 7,568 -- 8,284
----------- --------- ----------- ---------
Shares used in net (loss) income per common share
diluted ..................................................... 175,689 181,937 174,673 181,502
=========== ========= =========== =========
(Loss) income before cumulative effect of change in accounting
principle per common share - basic .......................... $ (0.59) $ 0.94 $ (0.51) $ 2.23
=========== ========= =========== =========
Cumulative effect of change in accounting principle -- basic .. $ -- $ -- $ -- $ (0.37)
=========== ========= =========== =========
Net (loss) income per common share -- basic ................... $ (0.59) $ 0.94 $ (0.51) $ 1.86
=========== ========= =========== =========
(Loss) income before cumulative effect of change in accounting
principle per common share -- diluted ....................... $ (0.59) $ 0.90 $ (0.51) $ 2.13
=========== ========= =========== =========
Cumulative effect of change in accounting principle --
diluted ..................................................... $ -- $ -- $ -- $ (0.35)
=========== ========= =========== =========
Net (loss) income per common share - diluted .................. $ (0.59) $ 0.90 $ (0.51) $ 1.77
=========== ========= =========== =========

All options outstanding during the three and nine month period ended September
30, 2001, were excluded from the calculation of diluted net income per share
because the effect would have been antidilutive. As of September 30, 2001, there
were 14.7 million options outstanding. 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 Teradyne's common stock during the three and nine month periods presented
above. Accordingly, options to purchase 656,605 shares and 251,776 shares of
common stock during the three and nine months ended October 1, 2000 were not
included in the calculation of diluted net income per share.

H. ASSET IMPAIRMENTS, WORKFORCE REDUCTION AND INVENTORY PROVISION

During the third quarter of 2001, Teradyne recorded a charge of $20.6
million in connection with a workforce reduction and early retirement program.
For the nine months ended September 30, 2001, we have recorded charges of $29.6
million in connection with workforce reductions and a early retirement program.
The provision for severance and early retirement benefits was recorded in
selling and administrative expenses. There were approximately 650 employees
terminated in the first quarter of 2001, approximately 600 employees terminated
in the second quarter, and approximately 1,000 employees terminated in the third
quarter across all functional groups. Teradyne has paid $5.1 million and $12.0
million in severance benefits during the three and nine months ended September
30, 2001. All remaining severance benefits will be paid by the fourth quarter of
2002.

During the third quarter of 2001, Teradyne recorded a charge of $60.8
million for the discontinuance of the Flash 750 memory product and the
impairment of certain connection systems assets. The Flash 750 memory product
charge included an inventory writedown of $32.2 million recorded in cost of
sales and the impairment of assets directly related to the support of the Flash
memory product line of $8.9 million recorded across all expense categories.
During the third quarter, management concluded that a significant impairment of
the long-lived assets held for disposal had occurred because the estimated fair

TERADYNE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

H. ASSET IMPAIRMENTS, WORKFORCE REDUCTION AND INVENTORY PROVISION - (CONTINUED)

value was less than the carrying value of these assets that are no longer
intended to be used in operations. The impaired connection systems assets charge
included a $12.0 million writedown for a partially completed manufacturing
facility that is now held for sale recorded in selling and administrative
expenses and a writedown of $7.7 million for certain manufacturing assets now
held for disposal and no longer being used in operations recorded in cost of
sales.

During the second quarter of 2001, Teradyne recorded a $37.9 million
provision for excess inventory principally due to the sharp decline in incoming
semiconductor test systems and connection systems orders. The inventory
provision was recorded in cost of sales.

I. OPERATING SEGMENT INFORMATION

Teradyne has four principal operating segments which are the design,
manufacturing and marketing of semiconductor test systems, connection systems,
circuit-board test and inspection systems, and broadband test systems. These
operating segments were determined based upon the nature of the products and
services offered. Teradyne has three reportable segments; semiconductor test
systems segment, connection systems segment, and other. The other segment is
comprised of circuit-board test and inspection systems and broadband test
systems. In 2000, the other segment included software test systems.

Teradyne 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 Teradyne's Annual Report on Form 10-K for the
year ended December 31, 2000. Intersegment sales are accounted for at fair value
as if sales were to third parties. Operating segment information for the three
and nine month periods ended September 30, 2001 and October 1, 2000 follows (in
thousands):

Semiconductor Other Test &
Test Connection Inspection Corporate
Systems Systems Systems and
Segment Segment Segment Eliminations Consolidated
------------- ---------- ------------ ------------ ------------

THREE MONTHS ENDED SEPTEMBER 30, 2001:
Sales to unaffiliated customers $ 108,643 $ 110,473 $ 30,239 -- $ 249,355
Intersegment sales -- 685 -- ($ 685) --
--------- --------- --------- --------- ---------
Net sales 108,643 111,158 30,239 (685) 249,355
Income (loss) before taxes (1) ($108,881) ($ 26,852) ($ 11,937) ($ 19,851) ($167,521)
========= ========= ========= ========= =========
THREE MONTHS ENDED OCTOBER 1, 2000:
Sales to unaffiliated customers $ 591,816 $ 195,956 $ 71,706 -- $ 859,478
Intersegment sales -- 10,586 -- ($ 10,586) --
--------- --------- --------- --------- ---------
Net sales 591,816 206,542 71,706 (10,586) 859,478
Income (loss) before taxes (1) $ 217,206 $ 43,000 $ 2,125 ($ 28,870) $ 233,461
========= ========= ========= ========= =========

TERADYNE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

I. OPERATING SEGMENT INFORMATION - (CONTINUED)

NINE MONTHS ENDED SEPTEMBER 30, 2001:
Sales to unaffiliated customers $ 634,467 $ 466,356 $119,544 -- $1,220,367
Intersegment sales -- 3,758 -- ($ 3,758) --
---------- --------- --------- --------- -----------
Net sales 634,467 470,114 119,544 (3,758) 1,220,367
Income (loss) before taxes (1) ($ 114,093) $ 20,140 ($ 19,442) ($ 31,163) ($ 144,558)
========== ========= ========= ========= ===========

NINE MONTHS ENDED OCTOBER 1, 2000:
Sales to unaffiliated customers $1,538,414 $ 498,266 $185,614 -- $2,222,294
Intersegment sales -- 24,252 -- ($ 24,252) --
----------- --------- --------- --------- -----------
Net sales 1,538,414 522,518 185,614 (24,252) 2,222,294
Income (loss) before taxes (1) $ 527,470 $ 107,977 $ 35 ($ 84,458) $ 551,024
=========== ========= ========= ========= ===========

(1) Income (loss) before taxes of the principal businesses exclude the effects
of employee profit sharing, management incentive compensation, severance
and early retirement benefits, other unallocated expenses, and net interest
and other income.

J. COMMITMENTS AND CONTINGENCIES

On or about September 5, 2001, a complaint was filed in the Superior Court
in San Diego County, California, naming as defendants Teradyne and two of its
executive officers. On October 9, 2001, defendants removed the state court
complaint to the U.S. District Court for the District of Southern California. On
October 12, 2001, plaintiffs filed an amended complaint with the federal court.
The amended complaint alleges, among other things, that the sale of Teradyne
common stock in connection with Teradyne's acquisition of each of Herco
Technology Corp., a California company, and Perception Laminates, Inc., a
California company, violated certain California securities statutes and common
law, and that Teradyne breached certain contractual obligations in the
agreements relating to the acquisitions. The amended complaint seeks unspecified
damages, including compensatory, consequential and punitive damages, and
recovery of reasonable attorneys' fees and costs.

On or about October 16, 2001, October 19, 2001, and November 7, 2001, three
purported class action complaints were filed in the United States District Court
for the District of Massachusetts, Boston, Massachusetts, naming as defendants
Teradyne and two of its executive officers. The complaints allege, among other
things, that the defendants violated Sections 10(b) and 20(a) of the Securities
Exchange Act of 1934, by making, during the period from July 14, 2000 and
October 17, 2000, material misrepresentations and omissions to the investing
public regarding Teradyne's business operations and future prospects. The
complaints seek unspecified damages, including compensatory damages and recovery
of reasonable attorneys' fees and costs.

Teradyne disputes all of the claims above and believes they are without
merit, and intends to defend vigorously against the lawsuits. However, an
adverse resolution of any of the lawsuits could have a material adverse effect
on Teradyne's financial position and results of operations. Teradyne is not
presently able to reasonably estimate potential losses, if any, related to any
of the lawsuits.

K. SUBSEQUENT EVENTS

On October 24, 2001, we sold to two qualified institutional buyers,
Goldman, Sachs & Co. and Banc of America Securities LLC, $400 million principal
amount of 3.75% Convertible Senior Notes due 2006 (the "Notes") in a private
placement pursuant to Rule 506 of Regulation D of the Securities Act of 1933, as
amended. The Notes were resold by the initial purchasers to "qualified
institutional buyers" pursuant to Rule 144A of the Securities Act and were not,
when issued, of the same class as securities listed on a national securities
exchange or quoted on Nasdaq. The Notes are convertible at the option of the
holders at a rate which is equivalent to a conversion price of approximately
$26.00 per share, which is equal to a conversion rate of approximately 38.4615
shares of common stock per $1,000 principal amount of Notes. The Notes are
redeemable by us at any time after October 18, 2004 at specified prices.

On October 26, 2001 Teradyne completed, pending final regulatory approval
in two countries, its acquisition of GenRad, Inc. of Westford, MA, a leading
manufacturer of electronic automatic test equipment and related software. The
acquisition will be part of the circuit-board test and inspection systems
operating segment. Under the terms of the acquisition, each outstanding share of
GenRad common stock was converted into 0.1733 shares of Teradyne common stock.
The total number of Teradyne shares to be exchanged for the shares of GenRad
outstanding as of the closing will be approximately 4.9 million. For accounting
purposes, the value of the share consideration is approximately $173.0 million
which excludes the fair value of common stock options. Under the terms of the
acquisition, Teradyne assumed approximately $89.5 million of debt which Teradyne
repaid on October 26, 2001.

ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

SELECTED RELATIONSHIPS WITHIN THE CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS

FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED
---------------------------- ------------------------------
SEPTEMBER 30, OCTOBER 1, SEPTEMBER 30, OCTOBER 1,
2001 2000 2001 2000
------------- ---------- ------------- ----------
(IN THOUSANDS) (IN THOUSANDS)

Net sales .......................................... $ 249,355 $ 859,478 $ 1,220,367 $ 2,222,294
========== ========== ============ ============
Net (loss) income .................................. $ (103,404) $ 163,423 $ (89,626) $ 321,579
========== ========== ============ ============
Percentage of net sales:
Net sales ..................................... 100.0% 100.0% 100.0% 100.0%
Expenses:
Cost of sales ............................. 109.1 53.3 79.4 54.0
Engineering and development ............... 22.8 9.2 15.5 10.0
Selling and administrative ................ 36.2 11.0 18.8 11.9
Other and interest, net ................... (0.9) (0.7) (1.9) (0.7)
---------- ---------- ------------ ------------
167.2 72.8 111.8 75.2
(Loss) income before taxes and cumulative
effect of change in accounting principle .... (67.2) 27.2 (11.8) 24.8
Provision (benefit) for income taxes .......... (25.7) 8.2 (4.5) 7.4
---------- ---------- ------------ ------------
(Loss) income before cumulative effect of
change in accounting principle .............. (41.5) 19.0 (7.3) 17.4
Cumulative effect of change in accounting
principle ................................... -- -- -- (2.9)
---------- ---------- ------------ ------------
Net (loss) income ............................. (41.5)% 19.0% (7.3)% 14.5%
========== ========== ============ ============
Provision (benefit) for income taxes as a percentage
of income before taxes ........................ (38.3)% 30.0% (38.0)% 30.0%
========== ========== ============ ============

RESULTS OF OPERATIONS

Teradyne recorded sales of $249.4 million in the third quarter of 2001, a
decrease of $610.1 million or 71% from the third quarter of 2000. Semiconductor
test systems sales and connection systems sales to unaffiliated customers
decreased 82% and 44%, respectively from the third quarter of 2000 which
reflects current industry conditions as described below. Other test and
inspection systems sales decreased 58% from the third quarter of 2000 due to
industry conditions described below and the divestiture of software test systems
in December 2000. Within the remaining other test and inspection systems
segment, circuit-board test and inspection systems and broadband test systems
sales decreased by 37% and 44% respectively. Teradyne recorded sales of $1,220.4
million in the first nine months of 2001, a decrease of $1,001.9 million or 45%
over the first nine months of 2000. Semiconductor test systems sales decreased
59% when compared to the first nine months of 2000 which reflects current
industry conditions as described below. Connection systems sales to unaffiliated
customers decreased 6% when compared to the first nine months of 2000. Other
test and inspection systems sales for the first nine months of 2001 decreased
36% over the corresponding period in 2000. Included in the first nine months of
2001 sales of $1,220.4 million was a non-recurring adjustment of $98.7 million
which resulted in $48.8 million of income (net of tax of $20.9 million) related
to shipments in 2000 where title was retained until payment. Teradyne no longer
retains title until payment. Income before taxes and cumulative effect of change
in accounting principle in the third quarter of 2001 decreased $401.0 million
from the third quarter of 2000 to a loss of $167.5 million. For the first nine
months of 2001, income before taxes and cumulative effect of change in
accounting principle decreased $695.6 million to a loss of $144.6 million when
compared to the first nine months of 2000.

Our business has been impacted by the slowdown in economies worldwide. This
slowdown was exacerbated by the terrorist attacks of September 11, 2001 and
continues to be adversely effected by the resulting ongoing hostilities. We have
been further affected by the cyclical nature of the electronics and
semiconductor industry with recurring periods of oversupply. These factors have
resulted in a downturn in the demand for our products. We currently do not have
visibility as to the length or severity of the downturn. During the first nine
months of 2001, Teradyne experienced a significant slowdown in new orders as
market conditions weakened across all of our product groups. New orders declined
by approximately $1,616.1 million compared to the last three quarters of 2000.
We do expect new orders to improve once customers adjust to the period of
oversupply and historical levels of capital expenditures resume. There has been
no current evidence, however, that customer buying patterns will increase in the

near term. There is a risk that the slowdown may be prolonged. If the factors
discussed above result in a continued further decline in the amount of new
orders received, the amount of inventory and certain long-lived assets
considered realizable could be reduced.

Incoming orders were $113.5 million, net of cancellations of $98.3 million,
in the third quarter of 2001 compared to $818.7 million in the third quarter of
2000. The decrease in incoming orders impacted all of Teradyne segments and was
led by an 87% decrease in semiconductor test systems orders and a 86% decrease
in connection system orders. For the nine month periods ended September 30, 2001
and October 1, 2000, incoming orders were $680.7 million and $2,669.3 million,
respectively. The decrease in incoming orders was led by a 86% decrease in
semiconductor system test orders and a 51% decrease in connection systems
orders. Teradyne's backlog was $826.3 million at the end of the third quarter of
2001 compared with $1,565.3 million at the end of the third quarter of 2000.
Teradyne's experience indicates that a portion of orders included in the backlog
may be canceled or rescheduled. We have recently experienced an increase in the
volume of the rescheduling of delivery dates by some of our customers, and thus
the timing of the delivery of a significant portion of the backlog is uncertain.
In the first nine months of 2001, Teradyne has experienced cancellations of
$200.9 million. Cancellations may increase materially in the future.

Cost of sales increased from 53% of sales in the third quarter of 2000 to
109% of sales in the third quarter of 2001 and from 54% in the first nine months
of 2000 to 79% in the first nine months of 2001. The percentage increase in the
third quarter of 2001 was primarily attributable to an inventory writedown due
to discontinuance of the Flash memory product line of $32.2 million and certain
impaired connection systems manufacturing assets of $7.7 million. The percentage
increase in the first nine months of 2001 was primarily attributable to an
inventory writedown due to the discontinuance of the Flash memory product line
of $32.2 million, certain impaired connection systems manufacturing assets of
$7.7 million and an inventory provision in the first nine months of 2001 of
$60.6 million, which excludes the aforementioned Flash product line inventory
writedown of $32.2 million, due to the sharp decline in incoming semiconductor
test systems and connection systems orders compared to an inventory provision of
$17.3 million in the first nine months of 2000. Other factors that caused an
increase in percentages in the third quarter and nine months of 2001 was the
decreased utilization of Teradyne's manufacturing capacity, as sales volume
decreased while certain components of cost of sales remained fixed and the mix
change between the semiconductor test systems to connection systems business
segments.

Engineering and development expenses, as a percentage of sales, increased
from 9% in the third quarter and 10% in the first nine months of 2000 to 23% and
16%, respectively in the third quarter and first nine months of 2001, with
spending decreasing by $22.1 million and $32.2 million, respectively. This
spending decrease was primarily due to lower material costs and the impact of
workforce reductions and furloughs.

Selling and administrative expenses increased from 11% of sales in the
third quarter of 2000 to 36% of sales in the third quarter of 2001 with spending
decreasing by $4.8 million. The decrease in spending was primarily due to
workforce reductions and furloughs which offset a workforce reduction and early
retirement provision of $20.6 million and charges for impaired assets for
certain connection system assets of $12.0 million. Selling and administrative
expense as a percentage of sales was 19% for the first nine months of 2001 and
12% for the first nine months of 2000, with spending decreasing by $35.8
million. The decrease in spending was again due to workforce reductions and
furloughs which offset a workforce reduction and early retirement provision of
$29.6 million and the charge for connection system impaired fixed assets of
$12.0 million. There were approximately 650 employees terminated in the first
quarter of 2001, approximately 600 employees terminated in the second quarter,
and approximately 1,000 employees terminated in the third quarter across all
functional groups. Teradyne has paid $5.1 million and $12.0 million in severance
benefits during the three and nine months ended September 30, 2001. All
remaining severance benefits will be paid by the fourth quarter of 2002.

Included in interest and other expense for the three and nine month periods
of 2001 is our share of a loss related to an equity investment. Interest income
decreased by $2.1 million to $4.6 million in the third quarter of 2001 compared
to the third quarter of 2000 and decreased by $1.9 million to $15.9 million in
the first nine months of 2001 compared to the first nine months of 2000. The
decrease in the three and nine months was attributable to decreases in the
average invested balances and lower interest rates. Included in interest and
other income in the first nine months of 2001 is a gain from sale of connections
systems aerospace and defense business of $14.8 million.

Teradyne's overall effective tax rate was 38.3% in the third quarter of
2001 and 38% for the first nine months of 2001. The overall effective tax rate
for the year ended 2000 was 30%. The change in the tax rate is a result of an
anticipated loss for the full year which causes our favorable tax attributes
from the foreign sales corporation and Ireland manufacturing operations to lower
our tax burden, and accordingly increases our tax rate in periods of losses.

In response to an adverse World Trade Organization (WTO) finding that the
U.S. Foreign Sales Credit (FSC) tax provisions were a prohibitive export
subsidy, the U.S. repealed FSC and enacted replacement legislation
(Extraterritorial Income Exclusion Act of 2000). The European Union filed a WTO
challenge to the new law and the WTO has upheld the European Union's challenge.
The U.S. has decided to appeal and the appellate process and final resolution of
this matter could extend into 2002. The U.S. government and industry groups are
evaluating options. It is not possible to predict what impact, if any, this
issue will have on future earnings pending final resolution of the challenge.

LIQUIDITY AND CAPITAL RESOURCES

Teradyne's cash, cash equivalents and marketable securities balance
decreased $144.2 million in the first nine months of 2001, to $320.3 million.
Teradyne used cash from operating activities of $8.9 million in the first nine
months of 2001 and generated cash of $292.7 million in the corresponding nine
months of 2000. Cash generated from operations, excluding the effects of
non-cash items, was $52.0 million and $355.3 million for the first nine months
of 2001 and 2000, respectively. Changes in operating assets and liabilities net
of businesses sold and acquired used cash of $60.9 million in the first nine
months of 2001 as accounts payable and accruals balances decreased as purchases
slowed. The use of cash by accounts payable and accruals was partially offset by
lower accounts receivable and inventory balances. In the first nine months of
2000, changes in operating assets and liabilities used cash of $62.6 million.

Teradyne used $173.6 million of cash for investing activities in the first
nine months of 2001 and $234.7 million in the first nine months of 2000.
Investing activities consist of purchases, sales, and maturities of marketable
securities, proceeds from the sale of business, cash acquired in acquisition,
and purchases of capital assets to support long-term growth. Capital
expenditures were $218.2 million in the first nine months of 2001 and $207.9
million in the first nine months of 2000. The increase in capital expenditures
was due to continued capacity expansion on specific buildings and improvement,
machinery and equipment, and information technology projects that were started
in 2000.

Financing activities provided $52.8 million and used $12.3 million of cash
during the first nine months of 2001 and 2000. Financing activities include
issuance of Teradyne'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 nine months of 2001, common stock activity
provided cash of $53.3 million. During the first nine months of 2000, net common
stock activity used cash of $7.6 million.

Teradyne is currently in the process of obtaining financing on certain of
its owned buildings and currently intends to finance upwards of $200 million.
However, there can be no assurances that this financing will be completed.

On October 26, 2001, Teradyne completed, pending final regulatory approval
in two countries, its acquisition of GenRad, Inc. of Westford, MA, a leading
manufacturer of electronic automatic test equipment and related software. The
acquisition will be part of the circuit-board test and inspection systems
operating segment. Under the terms of the acquisition, each outstanding share of
GenRad common stock was converted into 0.1733 shares of Teradyne common stock.
The total number of Teradyne shares to be exchanged for the shares of GenRad
outstanding as of the closing will be approximately 4.9 million. Under the terms
of the acquisition, Teradyne assumed approximately $89.5 million of debt which
Teradyne repaid on October 26, 2001.

On October 3, 2001, Teradyne received a break-up fee and related expenses
totaling approximately $3.4 million from E-M Solutions when Teradyne's
previously announced, proposed acquisition of a substantial majority of the
domestic assets of E-M Solutions along with the stock of E-M Solutions' foreign
subsidiaries was terminated.

Teradyne believes its cash, cash equivalents, and marketable securities
balance of $320.3 million, together with other sources of funds, including the
Notes issued on October 24, 2001, will be sufficient to meet working capital,
capital expenditure, and acquisition related requirements for the foreseeable
future. Teradyne may, as mentioned above, depending on market conditions and
funding requirements, seek additional external financing.

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 Teradyne, statements made by its
employees or information included in its filings with the Securities and
Exchange Commission (including this Form 10-Q) contains statements that are not
purely historical, but are forward looking statements, made under the Safe
Harbor provisions of the Private Securities Litigation Act of 1995, which
involve risks and uncertainties. In particular, forward looking statements
include projections, plans, and objectives for Teradyne's business, financial
condition, operating results, future operations, future economic performance or
statements relating to the sufficiency of capital to meet working capital,
planned capital expenditures, and expectations as to customer orders. Teradyne's
actual future results may differ materially from those stated in any forward
looking statements. Factors that may cause such differences, such as the risk
factor that our business could be adversely affected by acquisitions, include,
but are not limited to, the factors discussed below. These factors, and others,
are discussed from time to time in Teradyne's filings with the Securities and
Exchange Commission, including in Teradyne's Annual Report on Form 10-K for the
year ended December 31, 2000.
14

OUR BUSINESS IS IMPACTED BY THE SLOWDOWN IN ECONOMIES WORLDWIDE.

Our business is dependent on current and anticipated market demand for
electronics, which has been negatively impacted by the slowdown in the economies
of the United States, Asia, and elsewhere that began in second half of 2000. The
uncertainty regarding the growth rate of the worldwide economies has caused
companies to reduce capital investment. These cutbacks have been particularly
severe in the electronics and semiconductor industry which we serve. We cannot
predict if or when the growth rate of worldwide economies will rebound or
whether the growth rate of our business will rebound when the worldwide
economies begin to grow. While our diverse businesses may allow us to perform
better than some companies in periods of economic decline, the effects of the
economic decline are being felt across all of our business segments and have
significantly slowed customer orders.

OUR BUSINESS IS DEPENDENT ON THE CURRENT AND ANTICIPATED MARKET FOR ELECTRONICS.

Our business and results of operations depend in significant part upon
capital expenditures of manufacturers of semiconductors and other electronics,
which in turn depend upon the current and anticipated market demand for those
products. The current and anticipated market demand for electronics has been
impacted by the economic slowdown that began in the latter portions of 2000 and
by the terrorist attacks of September 11, 2001. Historically, the electronics
and semiconductor industry has been highly cyclical with recurring periods of
over supply, which often have had a severe negative effect on demand for test
equipment, including systems manufactured and marketed by us. We believe that
the markets for newer generations of electronic products such as those we
manufacture and market will also be subject to similar fluctuations. We are
dependent on the timing of customer orders and the deferral or cancellation of
previous customer orders could adversely impact our results of operations. We
cannot assure that any future increase in sales or bookings for a calendar
quarter will be sustained in subsequent quarters. In addition, any factor
adversely affecting the electronics industry or particular segments within the
electronics industry may adversely affect our business, financial condition and
operating results.

WE HAVE TAKEN AND EXPECT TO CONTINUE TO TAKE MEASURES TO ADDRESS THE RECENT
SLOWDOWN IN THE MARKET FOR OUR PRODUCTS WHICH COULD HAVE LONG-TERM EFFECTS ON
OUR BUSINESS.

We have taken and expect to continue to take measures to address the recent
slowdown in the market for our products. In particular, we have reduced our
workforce, frozen hiring, delayed salary increases, reduced pay of all
employees, implemented furloughs, discontinued our flash memory product line,
recorded asset impairment charges and reduced our planned capital expenditures
and expense budgets. These measures will reduce our expenses in the face of
decreased revenues due to decreased or cancelled customer orders. However, each
of these measures and any additional measures taken in the future to contain
expenditures could have long-term effects on our business by reducing our pool
of technical talent, decreasing or slowing improvements in our products, and
making it more difficult for us to respond to customers.

OUR BUSINESS MAY BE ADVERSELY IMPACTED BY ACQUISITIONS WHICH MAY AFFECT OUR
ABILITY TO MANAGE AND MAINTAIN OUR BUSINESS.

Since our inception, we have acquired a number of businesses. In the
future, we may undertake additional acquisitions of businesses that complement
our existing operations. Such past or future acquisitions could involve a number
of risks, including:

- the possibility that one or more such acquisitions may not close due
to closing conditions in the acquisition agreements, the inability to
obtain regulatory approval, or the inability to meet conditions
imposed for government or court approvals for the transaction;
- the diversion of the attention of management and other key personnel;
- the inability to effectively integrate an acquired business into our
culture, product and service delivery methodology and other standards,
controls, procedures and policies;
- the inability to retain the management, key personnel and other
employees of an acquired business;
- the inability to retain the customers of an acquired business;
- the possibility that our reputation will be affected by customer
satisfaction problems of an acquired business;
- potential known or unknown liabilities associated with an acquired
business, including but not limited to regulatory, environmental and
tax liabilities;
- the amortization of acquired identifiable intangibles, which may
adversely affect our reported results of operations; and
- litigation which has or which may arise in the future in connection with
such acquisitions.

For example, we recently completed our acquisition of GenRad, Inc., a
Massachusetts corporation. GenRad is attempting to sell its Diagnostic Solutions
line of business. We may be required to spend significant management time
operating this non-core business unit and managing a potential divestiture.
Further, there can be no guarantee that the Diagnostic Solutions line of
business will break-even or operate at a profit in the near future, if at all.
Any losses from the Diagnostic Solutions line of business will have a negative
impact on our operating results.

For further example, in connection with the August 2000 acquisition of each
of Herco Technology Corp., a California company, and Perception Laminates, Inc.,
a California company, a complaint was filed by the former owners of those
companies on or about September 5, 2001 naming as defendants Teradyne and two of
its executive officers. The case was originally filed in the Superior Court in
San Diego County, California, and was subsequently removed by the defendants to
federal court. An amended complaint was filed in the federal court on October
12, 2001. The amended complaint alleges, among other things, that the sale of
our common stock to the former owners violated certain California securities
statutes and common law, and that we breached certain contractual obligations in
the agreements relating to the acquisitions. The amended complaint seeks
unspecified damages, including compensatory, consequential and punitive damages,
and recovery of reasonable attorney fees and costs. We strongly believe that the
lawsuit lacks merit and we intend to defend against the claims vigorously.
However, we could incur substantial costs defending the lawsuit. The lawsuit
could also divert the time and attention of our management. We cannot predict
the outcome of the lawsuit at this time, and can give no assurance that it will
not materially adversely affect our financial condition or results of
operations.

In addition to the foregoing, any acquired business could significantly
underperform relative to our expectations.

WE CURRENTLY FACE, AND IN THE FUTURE MAY BE THE SUBJECT OF, SECURITIES CLASS
ACTION LITIGATION DUE TO PAST OR FUTURE STOCK PRICE VOLATILITY.

When the market price of a stock has been volatile, holders of that stock
sometimes institute securities class action litigation against the company that
issued the stock. Currently, Teradyne and two if its executive officers are
named as defendants in three purported class action complaints that were filed
in the United States District Court for the District of Massachusetts, Boston,
Massachusetts, on or about October 16, 2001, October 19, 2001, and November 7,
2001. The complaints allege, among other things, that the defendants violated
Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, by making,
during the period from July 14, 2000 and October 17, 2000, material
misrepresentations and omissions to the investing public regarding our business
operations and future prospects. The complaints seek unspecified damages,
including compensatory damages and recovery of reasonable attorney fees and
costs. We strongly believe that the purported class action complaints lack merit
and we intend to defend against the claims vigorously. However, we could incur
substantial costs defending the lawsuits. The lawsuits could also divert the
time and attention of our management. We cannot predict the outcome of the
lawsuits at this time, and can give no assurance that they will not materially
adversely affect our financial condition or results of operations.

OUR BUSINESS MAY BE ADVERSELY IMPACTED BY DIVESTITURES OF LINES OF BUSINESS
WHICH MAY AFFECT OUR ABILITY TO MANAGE AND MAINTAIN OUR BUSINESS.

Since our inception, we have divested ourselves of certain lines of our
business. In the future, we may undertake additional such divestitures. Such
past or future divestitures could involve a number of risks, including:

- the diversion of the attention of management and other key personnel;
- disruptions and other effects caused by the divestiture of a line of
business on our culture, product and service delivery methodology and
other standards, controls, procedures and policies;
- customer satisfaction problems caused by the loss of a divested line of
business; and
- the decreased diversification of our product lines caused by the
divestiture of a line of business may make our operating results subject
to increased market fluctuations.

In addition, any divested line of business could significantly outperform
relative to our expectations.

IF WE ARE UNABLE TO PROTECT OUR INTELLECTUAL PROPERTY, WE MAY LOSE A VALUABLE
ASSET OR MAY INCUR COSTLY LITIGATION TO PROTECT OUR RIGHTS.

Our products incorporate technology that we protect in several ways,
including patents, copyrights, and trade secrets. While we believe that our
patents, copyrights, and trade secrets have value, in general no single one is
in itself essential. At times, we have been notified that we may be in violation
of patents held by others. An assertion of patent infringement against us, if
successful, could have a material adverse effect on our ability to sell our
products, or could require a lengthy and expensive defense which could adversely
affect our operating results.

IF WE FAIL TO DEVELOP NEW TECHNOLOGIES TO ADAPT TO OUR CUSTOMERS' NEEDS AND IF
OUR CUSTOMERS FAIL TO ACCEPT OUR NEW PRODUCTS, IT WILL ADVERSELY AFFECT OUR
REVENUES.

We believe that our technological position depends primarily on the
technical competence and creative ability of our engineers. Our development of
new technologies, commercialization of those technologies into products, and
market acceptance and customer demand for those products is critical to our
success. Successful product development and introduction depends upon a number
of factors, including:

- new product selection;
- development of competitive products by competitors;
- timely and efficient completion of product design; and

- timely and efficient implementation of manufacturing and assembly
processes and product performance at customer locations.

INTENSE COMPETITION IN OUR INDUSTRY MAY AFFECT OUR REVENUES.

We face substantial competition, throughout the world, in each of our
operating segments. Some of these competitors also have substantial financial
and other resources to pursue engineering, manufacturing, marketing and
distribution of their products. We also face competition from internal suppliers
at several of our customers. Some of our competitors have introduced or
announced new products with certain performance characteristics which may be
considered equal or superior to those we currently offer. We expect our
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 our
products. Moreover, increased competitive pressure could lead to intensified
price based competition, which could materially adversely affect our business,
financial condition and results of operations.

WE ARE SUBJECT TO RISKS OF OPERATING INTERNATIONALLY.

We derive a significant portion of our total revenue from customers outside
the United States. Our international sales are subject to significant risks and
difficulties, including:

- unexpected changes in legal and regulatory requirements and in policy
changes affecting our markets;
- changes in tariffs and exchange rates;
- political and economic instability and acts of terrorism;
- difficulties in accounts receivable collection;
- difficulties in staffing and managing international operations; and
- potentially adverse tax consequences, such as the World Trade
Organization's dispute against the U.S. Foreign Sales Credit.

WE MAY INCUR SIGNIFICANT LIABILITIES IF WE FAIL TO COMPLY WITH ENVIRONMENTAL
REGULATIONS.

We are subject to environmental regulations relating to the use, storage,
discharge, site cleanup, and disposal of hazardous chemicals used in our
manufacturing processes. If we fail to comply with present and future
regulations, or are required to perform site remediation, we could be subject to
future liabilities or the suspension of production. Present and future
regulations may also:

- restrict our ability to expand our facilities;
- require us to acquire costly equipment; or
- require us to incur other significant costs and expenses.

WE HAVE SUBSTANTIALLY INCREASED OUR INDEBTEDNESS.

On October 24, 2001, we completed a private placement of $400 million of
3.75% Convertible Senior Notes due 2006. As a result, we incurred $400 million
principal amount of additional indebtedness, substantially increasing our ratio
of debt to total capitalization. We may incur substantial additional
indebtedness in the future. The level of our indebtedness, among other things,
could:

- make it difficult for us to make payments on the Notes;
- make it difficult for us to obtain any necessary future financing for
working capital, capital expenditures, debt service requirements or
other purposes;
- require the dedication of a substantial portion of any cash flow from
operations to service for indebtedness, thereby reducing the amount of
cash flow available for other purposes, including capital
expenditures;
- limit our flexibility in planning for, or reacting to changes in, our
business and the industries in which we complete;
- place us at a possible competitive disadvantage with respect to less
leveraged competitors and competitors that have better access to
capital resources; and
- make us more vulnerable in the event of a further downturn in our
business.

There can be no assurance that we will be able to meet our debt service
obligations, including our obligations under the notes.

WE MAY NOT BE ABLE TO SATISFY A CHANGE IN CONTROL OFFER.

The indenture governing the Notes contains provisions that apply to a
change in our control. If someone triggers a change in control as defined in the
indenture, we may be required to offer to purchase the Notes with cash. If we
have to make that offer, we cannot be sure that we will have enough funds to pay
for all the Notes that the holders could tender.

WE MAY NOT BE ABLE TO PAY OUR DEBT AND OTHER OBLIGATIONS.

If our cash flow is inadequate to meet our obligations, we could face
substantial liquidity problems. If we are unable to generate sufficient cash
flow or otherwise obtain funds necessary to make required payments on the Notes
or our other obligations, we would be in default under the terms thereof, which
would permit the holders of the Notes to accelerate the maturity of the Notes
and also could cause defaults under future indebtedness we may incur. Any such
default could have a material adverse effect on our business, prospects,
financial condition and operating results. In addition, we cannot assure you

that we would be able to repay amounts due in respect of the Notes if payment of
the Notes were to be accelerated following the occurrence of any other event of
default as defined in the indenture governing the Notes. Moreover, we cannot
assure that we will have sufficient funds or will be able to arrange for
financing to pay the principal amount due on the Notes at maturity.

WE MAY NEED ADDITIONAL FINANCING, WHICH COULD BE DIFFICULT TO OBTAIN.

We expect that our existing cash and investment balances, cash generated
from operations and the proceeds from sale of the Notes on October 24, 2001,
will be sufficient to meet our cash requirements to fund operations and expected
capital expenditures for at least twelve months. In the event we may need to
raise additional funds, we cannot be certain that we will be able to obtain
additional financing on favorable terms, if at all. Further, if we issue
additional equity securities, stockholders may experience additional dilution or
the new equity securities may have rights, preferences or privileges senior to
those of existing holders of common stock. Future financings may place
restrictions on how we operate our business. If we cannot raise funds on
acceptable terms, if and when needed, we may not be able to develop or enhance
our products and services, take advantage of future opportunities, grow our
business or respond to competitive pressures or unanticipated requirements,
which could seriously harm our business.

PROVISIONS OF OUR CHARTER AND BY-LAWS AND MASSACHUSETTS LAW MAKE A TAKEOVER OF
OUR COMPANY MORE DIFFICULT.

Our basic corporate documents, our stockholder rights plan and
Massachusetts law contain provisions that could discourage, delay or prevent a
change in the control of our company, even if a change of control would be
beneficial to our stockholders.

OUR OPERATING RESULTS ARE LIKELY TO FLUCTUATE SIGNIFICANTLY.

Our 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 of customer orders and the deferral or cancellation of
orders previously received;
- write-offs of excess and obsolete inventory;
- changes in product mix;
- our ability to introduce new products and technologies on a timely
basis;
- the introduction of products and technologies by our competitors;
- market acceptance of our and our 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.

In particular, due to the introduction of a number of new, complex test systems
in 2001, there can be no assurance that we will not experience delays in
shipment of such new products or that such products will achieve customer
acceptance.

As a result of the foregoing and other factors, we have and may continue to
experience material fluctuations in future operating results on a quarterly or
annual basis which could materially and adversely affect our business, financial
condition, operating results and stock price.

ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There were no material changes in Teradyne's exposure to market risk from
December 31, 2000.

PART II. OTHER INFORMATION

ITEM 1: LEGAL PROCEEDINGS

damages, including compensatory, consequential and punitive damages, and
recovery of reasonable attorneys' fees and costs. Teradyne disputes the claims
and believes they are without merit, and intends to defend vigorously against
the lawsuit.

In addition, Teradyne 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 effect on the financial position or results of
operations of Teradyne.

ITEM 2: CHANGES IN SECURITIES AND USE OF PROCEEDS

On October 24, 2001, we sold to two qualified institutional buyers,
Goldman, Sachs & Co. and Banc of America Securities LLC, $400 million principal
amount of 3.75% Convertible Senior Notes due 2006 (the "Notes") in a private
placement pursuant to Rule 506 of Regulation D of the Securities Act of 1933, as
amended. These initial purchasers received a commission from the sale of the
Notes of $11 million. The Notes were resold by the initial purchasers to
"qualified institutional buyers" pursuant to Rule 144A of the Securities Act and
were not, when issued, of the same class as securities listed on a national
securities exchange or quoted on Nasdaq. The Notes are convertible at the option
of the holders at a rate which is equivalent to a conversion price of
approximately $26.00 per share, which is equal to a conversion rate of
approximately 38.4615 shares of common stock per $1,000 principal amount of
Notes. The Notes are redeemable by us at any time after October 18, 2004 at
specified prices. We expect to use the net proceeds of the offering for research
and development activities, possible acquisitions of complementary businesses or
technologies, working capital and other general corporate purposes.

ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K

(A): EXHIBITS

None

(B): REPORTS ON FORM 8-K

There were no Form 8-K filings by Teradyne during the quarter ended
September 30, 2001, as none were required.

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/ Gregory R. Beecher
---------------------------------------
Gregory R. Beecher
Vice President and
Chief Financial Officer
(Principal Financial Officer)

November 9, 2001