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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------

FORM 10-K
(MARK ONE)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1994
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
COMMISSION FILE NUMBER 1-6462
------------------------

TERADYNE, INC.
(Exact name of registrant as specified in its charter)

MASSACHUSETTS 04-2272148
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)

321 HARRISON AVENUE, BOSTON, MASSACHUSETTS 02118
(Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code: (617) 482-2700
------------------------

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

Title of each class Name of each exchange on which registered
- --------------------------------------------- ---------------------------------------------

COMMON STOCK, PAR VALUE $0.125 NEW YORK STOCK EXCHANGE

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 / /

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or in any
amendment to this Form 10-K. / /

The aggregate market value of the voting stock held by nonaffiliates of
the registrant as of February 24, 1995 was $1,335.7 million based upon the
composite closing price of the registrant's Common Stock on the New York Stock
Exchange on that date.

The number of shares outstanding of the registrant's only class of Common
Stock as of February 24, 1995 was 36,847,959 shares.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant's proxy statement in connection with its 1995
annual meeting of shareholders are incorporated by reference into Part III.
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2

TERADYNE, INC.

FORM 10-K

PART I

ITEM 1: BUSINESS

Teradyne, Inc. is a manufacturer of electronic test systems and backplane
connection systems used in the electronics and telecommunications industries.
For financial information concerning these two industry segments, see "Note L:
Industry Segment and Geographic Information" in Notes to Consolidated Financial
Statements. Unless the context indicates otherwise, the term "Company" as used
herein includes Teradyne, Inc. and all its subsidiaries.

ELECTRONIC TEST SYSTEMS

The Company designs, manufactures, markets, and services electronic test
systems and related software used by component manufacturers in the design and
testing of their products and by electronic equipment manufacturers for the
incoming inspection of components and for the design and testing of circuit
boards and other assemblies. Manufacturers use such systems and software to
increase product performance, to improve product quality, to shorten time to
market, to enhance manufacturability, to conserve labor costs, and to increase
production yields. The Company's electronic systems are also used by telephone
operating companies for the testing and maintenance of their subscriber
telephone lines and related equipment.

Electronic test systems produced by the Company include: (i) test systems
for a wide variety of semiconductors, including digital and analog integrated
circuits, (ii) test systems for circuit boards and other assemblies, and (iii)
test systems for telephone lines and networks. The Company's test systems are
all controlled by computers, and programming and operating software is supplied
both as an integral part of the product and as a separately priced enhancement.

The Company's systems are extremely complex and require extensive support
both by the customer and by the Company. Prices for the Company's systems range
from less than $100,000 to $5 million or more.

BACKPLANE CONNECTION SYSTEMS

The Company also manufactures backplane connection systems, principally for
the computer, telecommunications, and military/aerospace industries. A backplane
is a panel that supports the circuit boards in an electronic assembly and
carries the wiring that connects the boards to each other and to other elements
of a system. The Company produces both printed circuit and metal backplanes,
along with mating circuit-board connectors. Backplanes are custom-configured to
meet specific customer requirements. The Company has begun to extend the
manufacture of backplane connection systems to include the manufacture of fully
integrated electronic assemblies that incorporate backplane, card cage, cabling,
and related design and production services.

2
3

MARKETING AND SALES

MARKETS

The Company sells its products across most sectors of the electronics
industry and to companies in other industries that use electronic devices in
high volume. The Company believes that it could suffer the loss of one or even a
few major customers without serious long-term adverse effects. Sales to
Motorola, Inc. were approximately 10% of net sales in 1994. No other customer
accounted for more than 10% of net sales in 1994.

Direct sales to United States government agencies accounted for less than
1% of net sales in 1994 and about 2% of net sales in 1993 and 1992. Sales are
also made within each of the Company's segments to customers who are government
contractors. About 22% of backplane connection systems sales and less than 10%
of electronic test systems sales fell into this category during 1994.

The Company's international customers are located primarily in Europe, the
Asia Pacific region, and Japan. The Company sells in these areas both directly
and through foreign sales subsidiaries. Substantially all of the Company's
manufacturing activities are conducted in the United States.

Sales to international customers accounted for 46% of net sales in 1994,
41% in 1993, and 42% in 1992. Identifiable assets of the Company's foreign
subsidiaries, consisting principally of operating assets, approximated $86.6
million at December 31, 1994, $65.0 million at December 31, 1993, and $86.0
million at December 31, 1992. Of these identifiable assets at December 31, 1994,
$42.6 million were in Europe, $40.3 million were in Japan, and $3.4 million were
in the Asia Pacific region. Since sales to international customers have little
correlation with the location of manufacture, it is not meaningful to present
operating profit by geographic area.

The Company is subject to the inherent risks involved in international
trade, such as political instability, restrictive trade policies, controls on
funds transfer, and foreign currency fluctuations. The Company attempts to
reduce the effects of currency fluctuations by hedging part of its exposed
position and by conducting some of its foreign transactions in U.S. dollars or
dollar equivalents.

DISTRIBUTION

The Company sells its electronic systems primarily through a direct sales
force. Backplane connection systems are sold by direct sales personnel as well
as by manufacturers' representatives. The Company has sales and service offices
throughout North America, Europe, the Asia Pacific region, and Japan.

COMPETITION

Competition is intense in each of the business areas that the Company
operates. In each market there are several significant competitors. Many of
these competitors have greater resources than the Company. Competition is
principally based on technical performance, equipment and service reliability,
reputation and accessibility to the vendor, and price. While relative positions
vary from year to year, the Company believes that it operates with a significant
market share position in each of its businesses.

BACKLOG

On December 31, 1994, the Company's backlog of unfilled orders for
electronic test systems and backplane connection systems was approximately
$337.8 million and $76.2 million, respectively, compared with $238.9 million and
$49.1 million, respectively, on December 31, 1993. Of the backlog at December
31, 1994, approximately 92% of the electronic test systems backlog, and
approximately 91% of the backplane connection systems backlog are expected to be
delivered in 1995. The Company's past experience indicates that a portion of
orders included in the backlog may be canceled. There are no seasonal or unusual
factors related to the backlog.

3
4

RAW MATERIALS

The Company's products require a wide variety of electronic and mechanical
components. In the past, the Company has experienced occasional delays in
obtaining timely delivery of certain items. Additionally, the Company could
experience a temporary adverse impact if any of its sole source suppliers ceased
to deliver products. Management believes, however, that alternate sources could
be developed.

PATENTS AND LICENSES

The development of products by the Company, both hardware and software, is
largely based on proprietary information. The Company protects its rights in
proprietary information through various methods such as copyrights, trademarks,
patents and patent applications, software license agreements, and employee
agreements.

EMPLOYEES

As of December 31, 1994, the Company employed approximately 4,000 persons.
Since the inception of the Company's business, there have been no work stoppages
or other labor disturbances. The Company has no collective bargaining contracts.

ENGINEERING AND DEVELOPMENT ACTIVITIES

The highly technical nature of the Company's products requires a large and
continuing engineering and development effort. Engineering and development
expenditures for new and improved products were approximately $70.4 million in
1994, $62.4 million in 1993, and $62.0 million in 1992. These expenditures
amounted to approximately 10% of net sales in 1994, 11% in 1993, and 12% in
1992.

ENVIRONMENTAL AFFAIRS

The Company's manufacturing facilities are subject to numerous laws and
regulations designed to protect the environment, particularly from plant wastes
and emissions. These include laws such as the Comprehensive Environmental
Response, Compensation and Liability Act of 1980 ("CERCLA"), the Occupational
Safety and Health Act, the Clean Air Act, the Clean Water Act, the Hazardous and
Solid Waste Amendments of 1984 and Resource Conservation and Recovery Act of
1976. In the opinion of management, the costs associated with complying with
these laws and regulations has not had and will not have a material effect upon
the capital expenditures, earnings and competitive position of the Company.

4
5

EXECUTIVE OFFICERS OF THE COMPANY

The following table sets forth the names of all executive officers of the
Company and certain other information relating to their positions held with the
Company and other business experience. Executive officers of the Company do not
have a specific term of office but rather serve at the discretion of the Board
of Directors.

BUSINESS EXPERIENCE FOR THE
EXECUTIVE OFFICER AGE POSITION PAST 5 YEARS
- ------------------------ ---- ------------------------- -------------------------------

Alexander V.
d'Arbeloff............ 67 President and Chairman of Chairman of the Board of the
the Board Company since 1977; President
of the Company since 1971;
Director of the Company since
1960.

James A. Prestridge..... 63 Executive Vice President Executive Vice President of the
and Member of the Board Company since 1992; Vice
President of the Company from
1971 to 1992.

Owen W. Robbins......... 65 Executive Vice President Executive Vice President of the
and Member of the Board Company since 1992; Vice
President of the Company from
1977 to 1992.

George W. Chamillard.... 56 Executive Vice President Executive Vice President of the
Company beginning in 1994; Vice
President of the Company from
1981 to 1993.

George V. d'Arbeloff.... 50 Vice President Vice President of the Company
since 1980.

Ronald J. Dias.......... 51 Vice President Vice President of the Company
since 1988.

John P. McCabe.......... 50 Vice President Vice President of the Company
beginning in 1994; Controller
of the Company from 1975 to
1994.

Stuart M. Osattin....... 49 Vice President and Vice President of the Company
Treasurer beginning in 1994; Treasurer of
the Company since 1980.

Edward Rogas, Jr........ 54 Vice President Vice President of the Company
since 1984.

David L. Sulman......... 51 Vice President Vice President of the Company
beginning in 1994; Division
General Manager since 1993;
Division Engineering Manager
from 1982 to 1992.

Frederick T. Van Veen... 64 Vice President Vice President of the Company
since 1980.

Donald J. Hamman........ 43 Controller Controller of the Company
beginning in 1994; Director of
Corporate Accounting from 1986
to 1994.

5
6

ITEM 2: PROPERTIES

The Company's executive offices are in Boston, Massachusetts. Manufacturing
and other operations are carried on in several locations. The following table
provides certain information as to the Company's principal general offices and
manufacturing facilities:

APPROXIMATE
PROPERTY SQ. FT. OF
LOCATION INTEREST FLOOR SPACE
--------------------------------------------------------- -------- ------------

ELECTRONIC TEST SYSTEMS INDUSTRY SEGMENT:
Boston, Massachusetts
321 Harrison Avenue............................ Own 245,000
179 Lincoln Street............................. Own 245,000
Agoura Hills, California............................ Own 360,000
Deerfield, Illinois................................. Own 65,000
Deerfield, Illinois................................. Lease 20,000
Walnut Creek, California............................ Lease 60,000

BACKPLANE CONNECTION SYSTEMS INDUSTRY SEGMENT:
Nashua, New Hampshire............................... Own 300,000
Dublin, Ireland..................................... Lease 46,000

The Company owns most of its manufacturing and office facilities. In 1994,
construction began on 28,000 square feet of Electronic Test System manufacturing
space in Kumamoto, Japan. The Company intends to utilize this space beginning in
1995. Approximately 120,000 square feet of the Agoura Hills property listed
above was unoccupied through 1994. The Company plans to occupy this facility in
1995. The Company is subleasing an additional 85,000 square feet of space to a
third party in Walnut Creek through the expiration of the lease in June 1996.

ITEM 3: LEGAL PROCEEDINGS

The Company is not a party to any litigation that, in the opinion of
management, could reasonably be expected to have a material adverse impact on
the Company's financial position.

ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

Not Applicable.

6
7

PART II

ITEM 5: MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER
MATTERS

The following table shows the market range for the Company's Common Stock
based on reported sales prices on the New York Stock Exchange.

PERIOD HIGH LOW
------------------------------------------------- ----- -----

1993 First Quarter.................................... $18 1/8 $13 1/4
Second Quarter................................... 21 1/2 13
Third Quarter.................................... 29 5/8 20 1/2
Fourth Quarter................................... 28 1/4 20

1994 First Quarter.................................... 31 1/8 23 1/2
Second Quarter................................... 26 3/4 20 3/8
Third Quarter.................................... 32 23 1/2
Fourth Quarter................................... 34 1/4 25 5/8

The number of record holders of the Company's Common Stock at February 24,
1995 was 3,056.

The Company has never paid cash dividends because it has been its policy to
use earnings to finance expansion and growth. While payment of future dividends
will rest within the discretion of the Board of Directors and will depend, among
other things, upon the Company's earnings, capital requirements and financial
condition, the Company presently expects to retain all of its earnings for use
in the business.

ITEM 6: SELECTED FINANCIAL DATA

YEARS ENDED DECEMBER 31,
--------------------------------------------------------
1994 1993 1992 1991 1990
-------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

Net sales................................ $677,440 $554,734 $529,581 $508,923 $458,877
======== ======== ======== ======== ========
Income (loss) before extraordinary
item................................... $ 70,941 $ 35,923 $ 22,548 $ 18,253 $(21,332)
======== ======== ======== ======== ========
Income (loss) before extraordinary item
per common share....................... $ 1.91 $ 1.00 $ 0.67 $ 0.58 $ (0.71)
======== ======== ======== ======== ========
Total assets............................. $655,942 $544,443 $461,055 $420,533 $388,931
======== ======== ======== ======== ========
Long-term obligations.................... $ 8,806 $ 9,138 $ 23,647 $ 24,344 $ 25,045
======== ======== ======== ======== ========

7
8

ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

SELECTED RELATIONSHIPS WITHIN THE CONSOLIDATED
STATEMENTS OF INCOME

YEARS ENDED DECEMBER 31,
--------------------------------
1994 1993 1992
-------- -------- --------
(DOLLARS IN THOUSANDS)

Net sales................................................. $677,440 $554,734 $529,581
======== ======== ========
Income before extraordinary item.......................... $ 70,941 $ 35,923 $ 22,548
======== ======== ========
Increase in net sales from preceding year:
Amount.................................................. $122,706 $ 25,153 $ 20,658
======== ======== ========
Percentage.............................................. 22% 5% 4%
======== ======== ========
Increase in income before extraordinary item from
preceding year.......................................... $ 35,018 $ 13,375 $ 4,295
======== ======== ========
Percentage of net sales:
Net sales............................................... 100% 100% 100%
Expenses:
Cost of sales........................................ 56 57 59
Engineering and development.......................... 10 11 12
Selling and administrative........................... 20 23 24
--- --- ---
86 91 95
Net interest income..................................... 1
--- --- ---
Income before income taxes and extraordinary item....... 15 9 5
Provision for income taxes.............................. 5 3 1
--- --- ---
Income before extraordinary item........................ 10% 6% 4%
=== === ===

RESULTS OF OPERATIONS:

1994 compared to 1993

Sales increased 22% in 1994 to $677.4 million. Sales increased in each of
the major product lines of the Company -- semiconductor test systems,
circuit-board test systems, telecommunications systems and backplane connection
systems. The largest increases in sales occurred in semiconductor test systems,
which increased 22%, and backplane connection systems, which increased 48%.
Sales of semiconductor test systems grew as semiconductor manufacturers
continued to add capacity in response to rising demand for their products. This
capacity expansion was evidenced by a number of new semiconductor manufacturing
plants coming on line. Sales of backplane connection systems increased in
response to the rising demand for the high technology products in the Company's
commercial customer base. As a result of the increase in sales, income before
extraordinary item almost doubled in 1994, increasing $35.0 million to $70.9
million.

Incoming orders grew faster than sales in 1994, increasing 28% to $803.4
million. The increase in orders, like the increase in sales, was primarily due
to increases in semiconductor test system orders, which increased 49%, and in
backplane connection systems, which increased 55%. As a result of the increase
in orders, the Company's backlog grew 44% in 1994, finishing the year at $414.0
million.

Cost of sales as a percentage of sales decreased from 57% in 1993 to 56% in
1994. The improvement was the result of the following two factors. First, the
increase in sales volume permitted increased utilization of certain fixed and
semi-variable components of the Company's overhead structure. Second, there was
an unfavorable change in mix as sales of backplane connection systems, whose
product margins are generally lower than those of electronic test systems, were
higher as a percentage of total Company sales.

8
9

Engineering and development expenses declined as a percentage of sales from
11% in 1993 to 10% in 1994, as these expenses did not increase at the same rate
as sales. The dollar amount of these expenses grew $8.1 million in 1994 as a
result of increased investment in new product development of semiconductor test
systems. Selling and administrative expenses decreased to 20% of sales in 1994
compared with 23% of sales in 1993, as the dollar volume of these expenses grew
less than 3% while sales increased 22%.

Interest income increased 75% in 1994 to $6.4 million due to an increase in
the Company's average cash balance and higher interest rates during the year.
Interest expense decreased from $3.6 million in 1993 to $1.7 million in 1994 as
a result of the Company's retirement of its 9.25% convertible subordinated
debentures in the fourth quarter of 1993.

The Company's effective tax rate was 31% in 1994 compared with 30% in 1993.
The Company was able to operate with an effective tax rate below the federal
statutory rate of 35% in both years through the utilization of tax credit
carryforward and foreign loss carryforward amounts. The Company expects its tax
rate to approximate the statutory rate of 35% in 1995.

1993 Compared to 1992

Sales increased 5% in 1993, to $554.7 million. The increase in sales was
primarily due to a 13% increase in sales of semiconductor test systems and, to a
lesser extent, a 7% increase in sales of backplane connection systems. Sales of
semiconductor test systems increased as semiconductor manufacturers added
capacity in response to rising demand for their products. Sales of circuit-board
test systems and telecommunications systems declined 7% and 18%, respectively,
in 1993 compared to 1992. Incoming orders increased 19% in 1993 to $625.0
million over 1992 with increased orders occurring in each of the Company's major
groups. The Company's backlog grew during 1993 to $288.0 million.

Income before taxes increased by $25.3 million from 1992 to 1993 on a sales
increase of $25.2 million as the Company continued to control the growth in its
operating expenses. In addition, costs in 1993 were lower in the Company's
circuit-board test operations following actions taken by the Company in 1992 to
reduce the size of operations. These lower costs helped to offset the impact of
the reduced sales of circuit-board test systems.

Cost of sales decreased from 59% of sales in 1992 to 57% in 1993. While
sales increased in 1993, the fixed and semi-variable components of cost of sales
decreased as a result of the Company's cost reduction programs. The changes in
engineering and development expenses and selling and administrative expenses
were each less than 1% in 1993, compared with 1992. These expenses were
essentially flat for the period 1991 through 1993 as the Company controlled the
growth of its fixed costs.

Interest income increased 44% in 1993 as a result of a $76.2 million
increase in the Company's cash and cash equivalents balance during the year.
Interest expense decreased 12% in 1993 primarily as a result of the Company's
retirement of its 9.25% outstanding convertible subordinated debentures in the
fourth quarter.

The Company's effective tax rate increased from 13.5% in 1992 to 30% in
1993. The Company was able to utilize net operating loss carryforwards to lower
its United States taxable income for financial reporting purposes in 1992, while
in 1993 the U.S. carryforwards were no longer available. However, the Company's
tax rate in 1993 was below the United States statutory rate of 35%, as a result
of the utilization of tax credit carryforwards and foreign net operating loss
carryforwards. The Company adopted Statement of Financial Accounting Standards
No. 109 "Accounting for Income Taxes" at the beginning of 1993. The effect of
this change in accounting principle was not material to the Company's
consolidated financial position. See "Note K: Income Taxes" in Notes to
Consolidated Financial Statements.

In connection with the retirement of the Company's outstanding 9.25%
convertible subordinated debentures, the Company incurred, in the fourth quarter
of 1993, an extraordinary charge of $0.7 million, net of income taxes, for the
costs of the redemption premium of 3.7% and the writeoff of unamortized debt
issuance costs.

9
10

LIQUIDITY AND CAPITAL RESOURCES

The Company's cash balance grew $39.2 million in 1994 following an increase
of $76.2 million in 1993. Cash flow generated from operations was $89.4 million
in 1994 and $91.8 million in 1993. Additional cash of $25.3 million in 1994 and
$33.6 million in 1993 was generated from the sale of stock to employees,
including the related tax benefit, under the Company's stock option and stock
purchase plans.

Cash was used to fund additions to property, plant and equipment of $29.6
million in 1994 and $32.2 million in 1993. The total capital spending over the
two years of $61.8 million was less than depreciation expense, creating a
decrease in the Company's net investment in property plant and equipment.
Property, plant and equipment declined from $185.1 million at the beginning of
1993 to $183.6 million at the end of 1994. The Company also invested $19.8
million in a U.S. Treasury Bill. In 1993 the Company's Board of Directors
authorized the repurchase of 1,000,000 shares of the Company's stock on the open
market. Cash of $24.6 million in 1994 and $2.3 million in 1993 was utilized for
this buyback of the Company's stock. Cash was also used to retire debt of $1.6
million in 1994 and $14.7 million in 1993. The debt retirement in 1993 included
$10.8 million for the repurchase of the Company's outstanding convertible
debentures.

The Company believes its cash and cash equivalents balance of $182.8
million, together with other sources of funds, including marketable securities
of $19.8 million, cash flow generated from operations, and the available
borrowing capacity of $80.0 million under its line of credit agreement, will be
sufficient to meet working capital and capital expenditure requirements in 1995.

Inflation has not had a significant long-term impact on earnings. If there
was inflation, the Company's efforts to cover cost increases with price
increases could be frustrated in the short-term by its relatively high backlog.

10
11

ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

REPORT OF INDEPENDENT ACCOUNTANTS

To the Directors and Shareholders of
TERADYNE, INC.:

We have audited the consolidated financial statements of Teradyne, Inc. and
Subsidiaries listed below. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Teradyne, Inc.
and Subsidiaries as of December 31, 1994 and 1993, and the consolidated results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1994, in conformity with generally accepted accounting
principles.

COOPERS & LYBRAND L.L.P.

Boston, Massachusetts
January 20, 1995

11
12

CONSOLIDATED FINANCIAL STATEMENTS COVERED BY THE
REPORT OF INDEPENDENT ACCOUNTANTS

Consolidated Financial Statements filed in Item 8:

Balance Sheets as of December 31, 1994 and 1993

Statements of Income for the years ended December 31, 1994, 1993 and 1992

Statements of Cash Flows for the years ended December 31, 1994, 1993
and 1992

Statements of Changes in Shareholders' Equity for the years ended
December 31, 1994, 1993 and 1992

12
13

TERADYNE, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1994 AND 1993

ASSETS

1994 1993
-------- --------
(DOLLARS IN
THOUSANDS)

Current assets:
Cash and cash equivalents.................................................. $182,811 $143,578
Marketable securities (Note B)............................................. 19,766
Accounts receivable - trade - less allowance for doubtful accounts
of $1,957 in 1994 and $1,990 in 1993..................................... 129,074 101,669
Inventories:
Parts................................................................. 49,216 43,452
Assemblies in process................................................. 42,667 34,258
-------- --------
91,883 77,710
Refundable income taxes.................................................... 1,064 2,049
Deferred tax assets (Note K)............................................... 14,767 10,973
Prepayments and other current assets....................................... 7,294 4,596
-------- --------
Total current assets.................................................. 446,659 340,575
Property (Note C):
Land....................................................................... 19,482 19,482
Buildings and improvements................................................. 113,660 112,290
Machinery and equipment.................................................... 255,039 245,151
Construction in progress................................................... 7,067 3,259
-------- --------
Total................................................................. 395,248 380,182
Less: Accumulated depreciation............................................. (211,606) (194,103)
-------- --------
Net property.......................................................... 183,642 186,079
Deferred charges and other assets.............................................. 25,641 17,789
-------- --------
Total assets.......................................................... $655,942 $544,443
========= =========

LIABILITIES

Current liabilities:
Notes payable - banks...................................................... $ 8,431 $ 7,574
Current portion of long-term debt (Note C)................................. 250 521
Accounts payable - trade................................................... 13,305 10,972
Accrued employees' compensation and withholdings........................... 38,263 34,856
Unearned service revenue and customer advances............................. 46,386 22,665
Other accrued liabilities.................................................. 27,088 28,942
Income taxes payable....................................................... 5,437 1,024
-------- --------
Total current liabilities............................................. 139,160 106,554
Deferred tax liabilities (Note K).............................................. 14,722 8,643
Long-term debt (Note C)........................................................ 8,806 9,138
Commitments (Notes E and F)....................................................
-------- --------
Total liabilities..................................................... 162,688 124,335
-------- --------

SHAREHOLDERS' EQUITY

Common stock $0.125 par value, authorized 75,000,000 shares, issued and
outstanding after deduction of reacquired shares, 36,351,527 in 1994
and 35,687,256 in 1993 (Notes D, G, H, I, and J)............................. 4,544 4,461
Additional paid-in capital..................................................... 248,497 247,843
Retained earnings.............................................................. 240,213 167,804
-------- --------
Total shareholders' equity............................................ 493,254 420,108
-------- --------
Total liabilities and shareholders' equity............................ $655,942 $544,443
========= =========

The accompanying notes are an integral part of the consolidated financial
statements.

13
14

TERADYNE, INC.
CONSOLIDATED STATEMENTS OF INCOME

YEARS ENDED DECEMBER 31,
------------------------------------------
1994 1993 1992
-------- -------- --------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS)

Net sales........................................ $677,440 $554,734 $529,581
Expenses:
Cost of sales............................... 378,933 314,596 312,478
Engineering and development................. 70,442 62,356 62,023
Selling and administrative.................. 129,935 126,508 127,427
-------- -------- --------
579,310 503,460 501,928
-------- -------- --------
Income from operations........................... 98,130 51,274 27,653
Other income (expense):
Interest income............................. 6,394 3,649 2,529
Interest expense............................ (1,712) (3,604) (4,114)
-------- -------- --------
Income before income taxes and extraordinary
item........................................... 102,812 51,319 26,068
Provision for income taxes (Note K).............. 31,871 15,396 3,520
-------- -------- --------
Income before extraordinary item................. 70,941 35,923 22,548
Extraordinary item, less applicable income taxes
of $313 (Note D)............................... (729)
-------- -------- --------
Net income....................................... $ 70,941 $ 35,194 $ 22,548
======== ======== ========
Income per common share:
Income before extraordinary item............ $ 1.91 $ 1.00 $ 0.67
Extraordinary item, net of income taxes..... (0.02)
-------- -------- --------
Net income per common share................. $ 1.91 $ 0.98 $ 0.67
======== ======== ========
Shares used in calculations of income per common
share (000's).................................. 37,095 35,832 33,850
======== ======== ========

The accompanying notes are an integral part of the consolidated financial
statements.

14
15

TERADYNE, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

YEARS ENDED DECEMBER 31,
----------------------------------
1994 1993 1992
-------- -------- --------
(DOLLARS IN THOUSANDS)

Cash flows from operating activities:
Net income............................................... $ 70,941 $ 35,194 $ 22,548
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation.......................................... 31,544 30,767 31,066
Amortization.......................................... 3,756 3,775 4,270
Deferred income taxes................................. 1,494 3,828 (162)
Extraordinary loss on retirement of debt.............. 1,042
Other non-cash items, net............................. 1,752 1,544 282
Changes in operating assets and liabilities:
Accounts receivable................................. (27,405) 18,487 (8,237)
Inventories......................................... (14,173) (12,114) (3,773)
Refundable income taxes............................. 985 1 (1,140)
Other assets........................................ (13,547) (5,705) (4,145)
Accounts payable and accruals....................... 29,645 14,423 1,323
Income taxes payable................................ 4,413 556 (1,342)
-------- -------- --------
Net cash provided by operating activities........ 89,405 91,798 40,690
-------- -------- --------
Cash flows from investing activities:
Additions to property.................................... (24,556) (20,568) (19,471)
Increase in equipment manufactured by the Company........ (5,003) (11,633) (8,759)
Purchase of marketable securities........................ (19,766)
Proceeds from sale of investment in joint venture........ 1,395
-------- -------- --------
Net cash used in investing activities............ (49,325) (32,201) (26,835)
-------- -------- --------
Cash flows from financing activities:
Proceeds from long-term debt............................. 3,205
Payments of long-term debt............................... (1,584) (3,940) (741)
Payment to retire convertible subordinated debentures.... (10,780)
Issuance of common stock under stock option and stock
purchase plans........................................ 17,059 24,652 13,269
Tax benefit from stock options........................... 8,275 8,943 2,383
Acquisition of treasury stock............................ (24,597) (2,277)
-------- -------- --------
Net cash (used in) provided by financing
activities..................................... (847) 16,598 18,116
-------- -------- --------
Increase in cash and cash equivalents...................... 39,233 76,195 31,971
Cash and cash equivalents at beginning of year............. 143,578 67,383 35,412
-------- -------- --------
Cash and cash equivalents at end of year................... $182,811 $143,578 $ 67,383
======== ======== ========
Supplementary disclosure of cash flow information:
Cash paid during the year for:
Interest.............................................. $ 1,643 $ 4,434 $ 4,230
Income taxes.......................................... 15,716 1,755 3,781

The accompanying notes are an integral part of the consolidated financial
statements.

15
16

TERADYNE, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992

SHARES COMMON ADDITIONAL
---------------------- STOCK PAID-IN RETAINED
ISSUED REACQUIRED PAR VALUE CAPITAL EARNINGS
---------- --------- --------- -------- --------
(DOLLARS IN THOUSANDS)

Balance, December 31, 1991................ 31,793,201 468,600 $ 3,916 $191,002 $111,530
Issuance of stock to:
Employees under Stock Option Plans
(Note G)............................. 1,025,104 86,318 117 8,096
Trustees of Savings Plan (Note H)....... 200,000 25 1,875
Employees under Stock Purchase Plan
(Note I)............................. 582,273 73 3,083
Tax benefit from stock options............ 2,383
Net income................................ 22,548
---------- --------- --------- -------- --------
Balance, December 31, 1992................ 33,600,578 554,918 4,131 206,439 134,078
Tax benefit from stock options upon
adoption of SFAS 109 (Note K)........... 5,734
Issuance of stock to:
Employees under Stock Option Plans
(Note G)............................. 2,012,778 87,054 241 17,361
Trustees of Savings Plan (Note H)....... 335,000 42 3,141
Employees under Stock Purchase Plan
(Note I)............................. 295,867 37 3,830
Issuance of stock upon conversion of
convertible subordinated debentures
(Note D)................................ 210,585 26 4,656
Repurchase of stock....................... 125,580 (16) (2,261)
Tax benefit from stock options............ 8,943
Net income................................ 35,194
Pension adjustment (Note F)............... (1,468)
---------- --------- --------- -------- --------
Balance, December 31, 1993................ 36,454,808 767,552 4,461 247,843 167,804
Issuance of stock to:
Employees under Stock Option Plans
(Note G)............................. 919,850 17,303 113 9,620
Trustees of Savings Plan (Note H)....... 265,000 33 2,484
Employees under Stock Purchase Plan
(Note I)............................. 375,124 47 4,762
Repurchase of stock....................... 878,400 (110) (24,487)
Tax benefit from stock options............ 8,275
Net income................................ 70,941
Pension adjustment (Note F)............... 1,468
---------- --------- --------- -------- --------
Balance, December 31, 1994................ 38,014,782 1,663,255 $ 4,544 $248,497 $240,213
========== ========= ======= ======== ========

The accompanying notes are an integral part of the consolidated financial
statements.

16
17

TERADYNE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

A. ACCOUNTING POLICIES

Basis of Presentation

The consolidated financial statements include the accounts of Teradyne,
Inc. and its subsidiaries, all of which are wholly owned (referred to
collectively in these notes as the "Company"). All significant intercompany
balances and transactions are eliminated. Certain prior years' amounts have been
reclassified to conform to the current year presentation.

Inventories

Inventories are stated at the lower of cost (first-in, first-out basis) or
market (net realizable value).

Property, Plant and Equipment

Property, plant and equipment are stated at cost. Leasehold improvements
and major renewals are capitalized and included in property, plant and equipment
accounts while expenditures for maintenance and repairs and minor renewals are
charged to expense. When assets are retired, the assets and related allowances
for depreciation and amortization are eliminated from the accounts and any
resulting gain or loss is reflected in operations.

The Company provides for depreciation of its property principally on the
straight-line method by charges to expense which are sufficient to write-off the
cost of the assets over their estimated useful lives.

Revenue Recognition

Revenue is recorded when products are shipped or, in instances where
products are configured to customer requirements, upon the successful completion
of test procedures. Service revenue is recognized ratably over applicable
contract periods or as services are performed. In certain situations, revenue is
recorded using the percentage of completion method based upon the completion of
measurable milestones, with changes to total estimated costs and anticipated
losses, if any, recognized in the period in which determined.

Engineering and Development Costs

The Company's products are highly technical in nature and require a large
and continuing engineering and development effort. All engineering and
development costs are expensed as incurred.

Income Taxes

Effective January 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109 (SFAS 109), "Accounting for Income Taxes." Under
SFAS 109, deferred tax assets and liabilities are determined based on
differences between financial reporting and tax bases of assets and liabilities
and are measured using the enacted tax rates and laws that will be in effect
when the differences are expected to reverse. The measurement of deferred tax
assets is reduced by a valuation allowance if, based upon weighted available
evidence, it is more likely than not that some or all of the deferred tax assets
will not be realized.

The Company's practice is to provide U.S. federal taxes on undistributed
earnings of the Company's foreign sales and service subsidiaries.

Translation of Foreign Currencies

Assets and liabilities of foreign subsidiaries which are denominated in
foreign currencies are remeasured into U.S. dollars at rates of exchange in
effect at the end of the fiscal year except fixed assets which are remeasured
using historical exchange rates. Revenue and expense accounts are remeasured
using an average of exchange rates in effect during the year. Net realized and
unrealized gains and losses resulting from foreign currency remeasurement are
included in operations.

17
18

TERADYNE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

A. ACCOUNTING POLICIES - (CONTINUED)
Net Income Per Common Share

Net income per common share is based upon the weighted average number of
common and common equivalent shares (when dilutive) outstanding each year.
Common equivalent shares result from the assumed exercise of outstanding stock
options. The proceeds of which are then assumed to have been used to repurchase
outstanding common stock at the average market price during the year.

B. FINANCIAL INSTRUMENTS

Fair Value

The Company considers all highly liquid temporary cash investments with
maturities of three months or less at date of acquisition to be cash
equivalents. At December 31, 1994 marketable securities consist of a short-term
investment in a U.S. Treasury Bill with an original maturity of greater than
three months. Marketable securities and cash equivalents are carried at
amortized cost plus accrued interest, which approximates fair value. The
Company's debt consists of subsidized loans whose fair value is not practicable
to estimate. For all other balance sheet financial instruments, the carrying
amount approximates fair value.

Off-Balance Sheet Risk

The Company regularly enters into forward foreign exchange contracts in
European and Japanese currencies to hedge assets, liabilities, and transactions
denominated in foreign currencies, for periods consistent with its committed
exposures. These contracts are used to reduce the Company's risk associated with
exchange rate movements, as gains and losses on these contracts are intended to
offset foreign exchange losses and gains on the assets, liabilities, and
transactions being hedged. Forward foreign exchange contracts have maturities of
less than one year, unless they relate to long term sales contracts denominated
in foreign currency; these maturities are from one to three years.

At December 31, 1994 and 1993, the face amount of forward foreign exchange
contracts outstanding was $67.9 million and $51.9 million, respectively. The
fair value of such contracts at December 31, 1994, determined by applying the
year end foreign currency exchange rates to the contract amounts, was
immaterial.

The Company's policy is to defer gains and losses on these contracts until
the corresponding losses and gains are recognized on the items being hedged.
During 1994, the Company recorded in other current assets a $2.9 million loss on
a deferred forward foreign exchange contract relating to a long term sales
contract denominated in foreign currency. This loss will serve to offset foreign
exchange transaction gains to be recognized on the contract revenue.

Concentration of Credit Risk

Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of cash investments and trade
accounts receivable. Concentrations of credit risk with respect to trade
accounts receivable are limited due to the large number of diverse and
geographically dispersed customers. The Company maintains cash investments
primarily in U.S. government obligations which essentially have no credit risk.

18
19

TERADYNE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

C. DEBT

Long-term debt at December 31, 1994 and 1993 consisted of the following (in
thousands):

1994 1993
------ ------

Mortgage note payable................................ $5,040 $4,500
Industrial revenue bonds............................. 1,333
Other long-term debt................................. 4,016 3,826
------ ------
Total...................................... 9,056 9,659
Less current maturities.............................. 250 521
------ ------
$8,806 $9,138
====== ======

The total maturities of long-term debt for each of the next five years are
$0.3 million.

Revolving Credit Agreement

The Company has $80.0 million of revolving credit available through January
31, 1996 under a domestic line of credit agreement with its banks. Under the
terms of the agreement, any amounts outstanding at January 31, 1996 are
converted into a one year term note. As of December 31, 1994, no amounts were
outstanding under this agreement. The terms of this line of credit include
restrictive covenants regarding working capital, tangible net worth and
leverage. Interest rates on borrowings are either at the stated prime rate or
based upon Eurocurrency or certificate of deposit interest rates. Additional
borrowings up to $30.0 million are permitted outside the agreement provided that
the liabilities of the Company, exclusive of deferred income taxes and
subordinated debt, shall not exceed 100% of the Company's tangible net worth.

Mortgage Note Payable

The Company received a loan of $4.5 million from the Boston Redevelopment
Authority in the form of a 3% mortgage loan maturing March 31, 2013. This loan
is collateralized by a mortgage on the Company's property at 321 Harrison Avenue
which may, at the Company's option, become subordinated to another mortgage up
to a maximum of $5.0 million. Interest for the first 4 1/2 years of the note was
capitalized up to a principle amount of $5.0 million. Since September 30, 1987,
the Company has been making semi-annual interest payments.

Other Long-term Debt

At December 31, 1994, other long-term debt consists of a Japanese
yen-denominated note with an interest rate of 4.8%, secured by land in Kumamoto,
Japan, with interest only payable until March 31, 1995, and principal and
interest payable in monthly installments from April 28, 1995 to March 30, 2007.

Short-term Borrowings

The weighted average interest rate on short-term borrowings outstanding as
of December 31, 1994 and 1993 was 3.2% and 3.4%, respectively.

19
20

TERADYNE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

D. CONVERTIBLE SUBORDINATED DEBENTURES

During 1993, $5.0 million principle amount of debentures was converted into
210,585 shares of common stock resulting in an increase of $4.7 million of
shareholders' equity (net of the related $0.3 million unamortized debt issue
costs). On November 19, 1993, the Company exercised its option to repurchase the
remaining $10.4 million outstanding debentures. The Company used $10.8 million
of available cash from operations to repurchase the debentures at a premium of
103.7% of the principal amount. The premium amount and the write-off of the
remaining unamortized debt issue cost resulted in a charge of $1.0 million. This
charge, net of the related taxes of $0.3 million, is reflected as an
extraordinary loss in the Consolidated Statements of Income.

E. COMMITMENTS

Rental expense for the years ended December 31, 1994, 1993, and 1992 was
$10.2 million, $11.2 million, and $12.6 million, respectively. Minimum annual
rentals under all noncancellable leases are: 1995 - $6.5 million; 1996 - $3.2
million; 1997 - $1.7 million; 1998 - $1.4 million; 1999 - $1.1 million; and $5.7
million thereafter, totaling $19.6 million. Offsetting the future lease
payments, the Company's income from noncancellable subleases totals $0.7
million.

20
21

TERADYNE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

F. PENSION PLANS

The Company has defined benefit pension plans covering substantially all
domestic employees and employees of certain international subsidiaries. Benefits
under these plans are based on the employee's years of service and compensation.
The Company's funding policy is to make contributions to the plans in accordance
with local laws and to the extent that such contributions are tax deductible.
The assets of the plans consist primarily of equity and fixed income securities.

The components of net pension expense are summarized as follows (in
thousands):

1994 1993 1992
------ ------ ------

Service cost (benefits earned during the period)........ $3,627 $2,876 $2,474
Interest cost on projected benefit obligation........... 3,708 3,065 2,408
Actual return on plan assets............................ 1,537 (3,802) (1,688)
Net amortization and deferral........................... (4,371) 863 (484)
------ ------ ------
Net pension expense..................................... $4,501 $3,002 $2,710
====== ====== ======

The following table sets forth the plans' funded status at December 31 (in
thousands):

1994 1993
-------------------- --------------------
DOMESTIC FOREIGN DOMESTIC FOREIGN
-------- -------- -------- --------

Actuarial present value of projected benefit
obligation:
Vested benefits............................ $(32,673) $(5,134) $(33,874) $(4,051)
Non-vested benefits........................ (2,254) (603) (2,348) (522)
-------- -------- -------- --------
Accumulated benefit obligation.................. (34,927) (5,737) (36,222) (4,573)
Effect of projected future compensation
levels........................................ (5,483) (2,818) (7,731) (2,314)
-------- -------- -------- --------
Total projected benefit obligation.............. (40,410) (8,555) (43,953) (6,887)
Plan assets at fair market value................ 35,532 4,312 35,633 3,963
Projected benefit obligation in excess of plan
assets........................................ (4,878) (4,243) (8,320) (2,924)
Unrecognized prior service cost................. 3,613 2,000 4,585 1,930
Unrecognized net loss (gain).................... 7,133 (465) 10,718 (1,389)
Unrecognized net (asset) liability at
transition.................................... (485) (501) (727) (546)
Minimum pension liability adjustment............ (219) (6,844)
-------- -------- -------- --------
Net pension asset (liability)................... $ 5,383 $(3,428) $ (588) $(2,929)
======== ======== ======== ========
Actuarial assumptions:
Discount rate................................. 8.5% 5.5- 9.0% 7.5% 5.5- 9.0%
Average increase in compensation levels....... 5% 4.6- 7.0% 5% 4.6- 7.0%
Expected long-term return on assets........... 9% 5.5-10.5% 10% 5.5-10.5%

In accordance with the provisions of Financial Accounting Standards No. 87,
the Company recorded a minimum pension liability adjustment of $6.8 million at
December 31, 1993, representing the excess of accumulated benefit obligations
over the fair value of plan assets and accrued pension liabilities. The
additional liability was offset by an intangible asset to the extent of
previously unrecognized prior service cost of $4.6 million. The amount in excess
of previously unrecognized prior service cost was recorded as a reduction of
shareholder's equity in the amount of $1.5 million, net of applicable deferred
income taxes of $0.7 million. In 1994, this adjustment was reversed as the plan
assets exceeded the accumulated benefit obligation.

In addition to the above plans, the Company in 1993 established an unfunded
supplemental defined benefit pension plan in the United States to provide
retirement benefits in excess of levels allowed by the Employee Retirement
Income Security Act (ERISA). The actuarial present value of accumulated plan
benefits totaled $1.3 million and $1.1 million at December 31, 1994 and 1993,
respectively. Net pension expense was $0.4 million in 1994 and 1993.

21
22

TERADYNE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

G. STOCK OPTION PLANS

Under its stock option plans, the Company granted options to certain
directors, officers and employees entitling them to purchase common stock at
100% of market value at the date of grant.

Information with respect to options granted, forfeited, and exercised is
set forth below:

OUTSTANDING OPTIONS
SHARES AVAILABLE -----------------------------
FOR GRANT NUMBER OF SHARES PRICE RANGE
---------------- ---------------- ---------------

Balance -- December 31, 1991.................. 3,470,698 4,605,867 $ 4.25- $ 26.25
Options granted.......................... (1,157,450) 1,157,450 $ 16.63- $ 17.38
Options exercised........................ (1,025,104) $ 5.12- $ 12.25
Options canceled......................... 206,490 (206,490) $ 6.63- $ 26.25
Options terminated....................... (383,938) -- --
---------------- ----------------
Balance -- December 31, 1992.................. 2,135,800 4,531,723 $ 4.25- $ 17.38
Options authorized....................... 3,000,000 -- --
Options granted.......................... (1,214,350) 1,214,350 $ 14.13- $ 24.88
Options exercised........................ (2,012,778) $ 4.25- $ 17.75
Options canceled......................... 102,655 (102,655) $ 6.63- $ 17.38
Options terminated....................... (25,790) -- --
---------------- ----------------
Balance -- December 31, 1993.................. 3,998,315 3,630,640 $ 4.25- $ 24.88
Options granted.......................... (962,370) 962,370 $ 25.75- $ 29.63
Options exercised........................ (919,850) $ 6.63- $ 9.50
Options canceled......................... 99,760 (99,760) $ 4.25- $ 25.75
Options terminated....................... (16,640) -- --
---------------- ----------------
Balance -- December 31, 1994.................. 3,119,065 3,573,400 $ 6.63- $ 29.63
============ =============
Options exercisable on December 31, 1994...... 1,492,161 $ 6.63- $ 25.75
=============

There were no charges to income in connection with these options other than
incidental expenses related to the issuance of shares.

H. SAVINGS PLAN

The Company sponsors a Savings Plan covering substantially all domestic
employees. Under this plan, employees may contribute up to 12% of their
compensation (subject to Internal Revenue Service limitations). The Company
annually matches employee contributions up to 6% of such compensation at rates
ranging from 50% to 100%. The Company's contributions vest after two years,
although contributions for those employees with five years of service vest
immediately.

The trustees of the Savings Plan were granted an option to purchase 900,000
shares of the Company's common stock, exercisable at $9.50 per share (the fair
market value of the Company's common stock at the date of the grant) in five
cumulative annual installments beginning in 1990. In 1994, the trustees
exercised the remaining 265,000 shares. Under the terms of the Plan, any gains
realized from the sale of option shares are first allocated to participants'
accounts to fund up to one-half of the minimum Company contribution. Any excess
is applied to additional funding.

In 1994, the Company established a Supplemental Savings Plan to provide
savings benefits in excess of those allowed by ERISA. The provisions of which
are the same as the Savings Plan.

Under these plans, the amount charged to operations was $2.0 million in
1994, 1993 and 1992.

22
23

TERADYNE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

I. EMPLOYEE STOCK PURCHASE PLAN

Under the 1979 Stock Purchase Plan, employees are entitled to purchase
shares of common stock through payroll deductions of up to 10% of their
compensation. The price paid for the common stock is equal to 85% of the lower
of the fair market value of the Company's common stock on either the first or
last business day of the year. In January 1995, the Company issued 245,229
shares of common stock to employees who participated in the Plan during 1994 at
a price of $22.74 per share. During 1994, the Company amended the Plan to
increase the number of shares authorized thereunder by 400,000 shares. Currently
there are 560,640 shares reserved for issuance.

J. STOCKHOLDER RIGHTS PLAN

The Company's Board of Directors adopted a Stockholder Rights Plan on March
14, 1990, under which a dividend of one Common Stock Purchase Right was
distributed for each outstanding share of Common Stock. The Plan entitles Stock
Purchase Right holders to purchase shares of Company Common Stock for $40 per
share in certain events, such as a tender offer to acquire 30% or more of the
Company's outstanding shares. Under some circumstances, such as a determination
by Continuing Directors that an acquiring party's interests are adverse to those
of the Company, the Plan entitles such holders (other than an acquiring party or
adverse party) to purchase $80 worth of Common Stock (or other securities or
consideration owned by the Company) for $40. The Plan will expire March 26, 2000
unless earlier redeemed by the Company.

K. INCOME TAXES

The components of income before income taxes and extraordinary item and the
provision for income taxes as shown in the Consolidated Statement of Income are
as follows (in thousands):

1994 1993 1992
-------- ------- -------

Income (loss) before income taxes and extraordinary
item:
Domestic........................................... $ 85,403 $51,142 $27,795
Foreign............................................ 17,409 177 (1,727)
-------- ------- -------
$102,812 $51,319 $26,068
======== ======= =======
Provision (credit) for income taxes:
Current:
Federal............................................ $ 23,795 $ 8,308 $ 2,676
Foreign............................................ 2,840 1,194 (19)
State.............................................. 3,742 1,753 1,025
-------- ------- -------
30,377 11,255 3,682
-------- ------- -------
Deferred:
Federal............................................ 1,386 3,590 96
Foreign............................................ 492 259 (58)
State.............................................. (384) 292 (200)
-------- ------- -------
1,494 4,141 (162)
-------- ------- -------
Total provision for income taxes........................ $ 31,871 $15,396 $ 3,520
======== ======= =======

23
24

TERADYNE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Under SFAS 109, deferred income taxes reflect the net tax effects of
temporary differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax purposes.
Significant components of the Company's deferred tax assets (liabilities) as of
December 31, 1994 and 1993 are as follows (in thousands):

1994 1993
-------- --------

Deferred tax assets:
Inventory valuations............................ $ 1,104 $ 808
Accruals........................................ 2,249 2,703
Vacation........................................ 3,121 2,751
Deferred revenue................................ 7,262 777
Federal net operating loss carryforwards........ 2,939
Foreign net operating loss carryforwards........ 1,041 3,417
Tax credits..................................... 2,698 4,075
Other........................................... 2,044 1,786
-------- --------
Total deferred tax assets............................ 19,519 19,256
-------- --------
Deferred tax liabilities:
Excess of tax over book depreciation............ (11,613) (11,399)
Amortization.................................... (3,306)
Pension......................................... (1,948) (1,207)
Other........................................... (563) (969)
-------- --------
Total deferred tax liabilities....................... (17,430) (13,575)
-------- --------
Valuation allowance.................................. (2,044) (3,351)
-------- --------
Net deferred asset .................................. $ 45 $ 2,330
======== ========

As of December 31, 1994, the valuation allowance principally applies to
U.S. foreign tax credit carryforwards that may not be fully utilized by the
Company. For foreign tax return purposes, the Company has approximately $3.0
million of net operating loss carryforwards which may be carried forward
indefinitely.

Below is a reconciliation of the effective tax rates for the three years
indicated:

1994 1993 1992
---- ---- -----

U.S. statutory federal tax rate........................... 35.0% 35.0% 34.0%
State income taxes, net of federal tax benefit............ 2.4 2.6 1.3
Utilization of operating loss carryforwards............... (0.8) (23.0)
Foreign losses not tax benefited.......................... 1.2 4.9
Tax credits............................................... (0.4) (3.5)
Foreign sales corporation................................. (2.9) (2.4) (2.3)
Change in valuation allowance............................. (1.3)
Other, net................................................ (1.8) (2.1) (1.4)
---- ---- -----
Effective tax rate........................................ 31.0% 30.0% 13.5%
==== ==== =====

Effective January 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109 (SFAS 109), "Accounting for Income Taxes." As
permitted by SFAS 109, the Company has elected not to restate its financial
statements for any periods prior to 1993. The effect on operations for 1993 was
immaterial. However, upon adoption of SFAS 109 the Company increased Additional
Paid-in Capital by $5.7 million relating to the tax benefits to be derived from
the utilization of U.S. net operating loss carryforward amounts resulting from
tax deductions pertaining to the issuance of the Company's stock to employees
under its benefit plans.

24
25

TERADYNE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

L. INDUSTRY SEGMENT AND GEOGRAPHIC INFORMATION

The Company operates principally in two industry segments, which are the
design, manufacturing and marketing of electronic test systems and backplane
connection systems. Corporate assets consist principally of cash and cash
equivalents, marketable securities, accounts receivable and certain other
assets.

ELECTRONIC BACKPLANE
TEST CONNECTION
SYSTEMS SYSTEMS CORPORATE
INDUSTRY INDUSTRY AND
SEGMENT SEGMENT ELIMINATIONS CONSOLIDATED
----------- ----------- ------------- -------------
(IN THOUSANDS)

1994 Sales to unaffiliated customers........ $ 545,638 $ 131,802 $ 677,440
Intersegment sales..................... 5,050 $ (5,050)
--------- --------- ---------- ----------
Net sales.............................. 545,638 136,852 (5,050) 677,440
Operating income....................... 92,986 18,449 (13,305) 98,130
Identifiable assets.................... 343,467 82,820 229,655 655,942
Property additions..................... 19,699 9,005 855 29,559
Depreciation and amortization expense.. 28,706 5,754 840 35,300

1993 Sales to unaffiliated customers........ $ 466,305 $ 88,429 $ 554,734
Intersegment sales..................... 4,185 $ (4,185)
--------- --------- ---------- ----------
Net sales.............................. 466,305 92,614 (4,185) 554,734
Operating income....................... 57,493 7,652 (13,871) 51,274
Identifiable assets.................... 322,437 64,705 157,301 544,443
Property additions..................... 26,374 5,526 301 32,201
Depreciation and amortization expense.. 27,944 5,545 1,053 34,542

1992 Sales to unaffiliated customers........ $ 446,885 $ 82,696 $ 529,581
Intersegment sales..................... 4,061 $ (4,061)
--------- --------- ---------- ----------
Net sales.............................. 446,885 86,757 (4,061) 529,581
Operating income....................... 32,436 6,075 (10,858) 27,653
Identifiable assets.................... 304,471 60,005 96,579 461,055
Property additions..................... 20,780 6,525 925 28,230
Depreciation and amortization expense.. 28,414 5,792 1,130 35,336

The Company's sales to unaffiliated customers for the three years ended
December 31 were made to customers in the following geographic areas:

1994 1993 1992
-------- -------- --------
(IN THOUSANDS)

Sales to unaffiliated customers:
United States.................................... $366,302 $329,729 $308,635
Europe........................................... 127,895 95,877 97,681
Asia Pacific region.............................. 94,999 64,963 49,452
Japan............................................ 66,316 49,146 62,680
Other............................................ 21,928 15,019 11,133
-------- -------- --------
Total sales........................................... $677,440 $554,734 $529,581
======== ======== ========

See "Item 1: Business - Marketing and Sales" elsewhere in this report for
information on the Company's export activities, identifiable assets of foreign
subsidiaries, and major customers.

25
26

SUPPLEMENTARY INFORMATION
(UNAUDITED)

Quarterly financial information for 1994 and 1993 (in thousands of dollars,
except per share amounts):

1994
--------------------------------------------------------
1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER
----------- ----------- ----------- -----------

Net sales........................................ $ 152,012 $ 156,497 $ 178,840 $ 190,091
Expenses:
Cost of sales............................... 85,662 87,342 99,964 105,965
Engineering and development................. 15,857 17,305 17,934 19,346
Selling and administrative.................. 31,871 31,764 32,148 34,152
----------- ----------- ----------- -----------
133,390 136,411 150,046 159,463
----------- ----------- ----------- -----------
Income from operations........................... 18,622 20,086 28,794 30,628
Other income (expense):
Interest income............................. 1,088 1,237 1,708 2,361
Interest expense............................ (470) (399) (413) (430)
----------- ----------- ----------- -----------
Income before income taxes....................... 19,240 20,924 30,089 32,559
Provision for income taxes....................... 5,772 6,277 9,729 10,093
----------- ----------- ----------- -----------
Net income....................................... $ 13,468 $ 14,647 $ 20,360 $ 22,466
======== ========= ======== ========
Net income per common share...................... $ 0.36 $ 0.40 $ 0.55 $ 0.60
======== ========= ======== ========

1993
--------------------------------------------------------
1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER
----------- ----------- ----------- -----------

Net sales........................................ $ 127,779 $ 139,336 $ 140,279 $ 147,340
Expenses:
Cost of sales............................... 73,476 80,666 78,213 82,241
Engineering and development................. 15,154 15,035 15,684 16,483
Selling and administrative.................. 31,141 32,557 32,073 30,737
----------- ----------- ----------- -----------
119,771 128,258 125,970 129,461
----------- ----------- ----------- -----------
Income from operations........................... 8,008 11,078 14,309 17,879
Other income (expense):
Interest income............................. 714 843 1,064 1,028
Interest expense............................ (1,028) (982) (937) (657)
----------- ----------- ----------- -----------
Income before income taxes and extraordinary
item........................................... 7,694 10,939 14,436 18,250
Provision for income taxes....................... 2,308 3,282 4,331 5,475
----------- ----------- ----------- -----------
Income before extraordinary item................. 5,386 7,657 10,105 12,775
Extraordinary item (net of income taxes)......... 0 0 0 (729)
----------- ----------- ----------- -----------
Net income....................................... $ 5,386 $ 7,657 $ 10,105 $ 12,046
======== ========= ======== ========
Income per common share:
Income before extraordinary item............ $ 0.16 $ 0.21 $ 0.28 $ 0.35
Extraordinary item.......................... (0.02)
----------- ----------- ----------- -----------
Net income.................................. $ 0.16 $ 0.21 $ 0.28 $ 0.33
======== ========= ======== ========

ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

None.

26
27

PART III

ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Certain information relating to directors and executive officers of the
Company, executive compensation, security ownership of certain beneficial owners
and management, and certain relationships and related transactions is
incorporated by reference herein from the Company's definitive proxy statement
in connection with its Annual Meeting of Shareholders to be held on May 24,
1995, which proxy statement will be filed with the Securities and Exchange
Commission not later than 120 days after the close of the fiscal year. For this
purpose, the Management Compensation and Development Committee Report and
Performance Graph included in such proxy statement are specifically not
incorporated herein. (Also see "Item 1 - Executive Officers of the Company"
elsewhere in this report.)

ITEM 11: EXECUTIVE COMPENSATION

ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

27
28

PART IV

ITEM 14: EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(A) 1. FINANCIAL STATEMENTS

The following consolidated financial statements are included in Item 8:

Balance Sheets as of December 31, 1994 and 1993
Statements of Income for the years ended December 31, 1994, 1993
and 1992
Statements of Cash Flows for the years ended December 31, 1994, 1993
and 1992
Statements of Changes in Shareholders' Equity for the years ended
December 31, 1994, 1993 and 1992

(A) 2. FINANCIAL STATEMENT SCHEDULES

Financial statement schedules have been omitted since either they are not
required or the information is otherwise included.

(A) 3. LISTING OF EXHIBITS

The Exhibits which are filed with this report or which are incorporated by
reference herein are set forth in the Exhibit Index.

Executive Compensation Plans and Arrangements:

1. 1987 Non-Employee Director Stock Option Plan (filed as Exhibit
3.10(iii) to the Company's Annual Report on Form 10-K for the year
ended December 31, 1992).

2. Teradyne, Inc. Supplemental Executive Retirement Plan (filed as
Exhibit 3.10(iv) to the Company's Annual Report on Form 10-K for the
year ended December 31, 1992).

28
29

SIGNATURES

PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(d) 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 THIS 23RD DAY OF MARCH,
1995.

TERADYNE, INC.

By: OWEN W. ROBBINS

------------------------------------
Owen W. Robbins,
Executive Vice President

PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED.

SIGNATURE TITLE DATE
- ---------------------------------------- ------------------------------------ ---------------

ALEXANDER V. d'ARBELOFF President and Chairman of the Board March 23, 1995
- ---------------------------------------- (Principal Executive Officer)
Alexander V. d'Arbeloff

OWEN W. ROBBINS Executive Vice President March 23, 1995
- ---------------------------------------- and Director
Owen W. Robbins (Principal Financial Officer)

DONALD J. HAMMAN Controller March 23, 1995
- ----------------------------------------
Donald J. Hamman

Director March , 1995
- ----------------------------------------
Edwin L. Artzt

ALBERT CARNESALE Director March 23, 1995
- ----------------------------------------
Albert Carnesale

DANIEL S. GREGORY Director March 23, 1995
- ----------------------------------------
Daniel S. Gregory

Director March , 1995
- ----------------------------------------
Dwight H. Hibbard

Director March , 1995
- ----------------------------------------
Franklin P. Johnson, Jr.

JOHN P. MULRONEY Director March 23, 1995
- ----------------------------------------
John P. Mulroney

JAMES A. PRESTRIDGE Executive Vice President March 23, 1995
- ---------------------------------------- and Director
James A. Prestridge

RICHARD J. TESTA Director March 23, 1995
- ----------------------------------------
Richard J. Testa

29
30

EXHIBIT INDEX

The following designated exhibits are, as indicated below, either filed
herewith or have heretofore been filed with the Securities and Exchange
Commission and are referred to and incorporated by reference to such filings.

EXHIBIT NO. DESCRIPTION SEC DOCUMENT REFERENCE
- ------------ ------------------------------------------ ------------------------------------

3.1 Restated Articles of Organization of the Exhibit 4.1 to the Company's Form
Company, as amended S-3 Registration Statement No.
33-44347, effective December 12,
1991.

3.2 Amended and Restated Bylaws of the Company Exhibit 3.3(iii) to the Company's
Annual Report on Form 10-K for the
fiscal year ended December 31, 1990.

4.1 Indenture dated as of March 15, 1987 Exhibit 2.3 to the Company's
between Zehntel, Inc. and the Bank of Registration Statement on Form 8-A
California, National Association, Trustees No. 0-16446, effective February 17,
1988.

4.2 First Supplemental Indenture between the Exhibit 2.4 to the Company's
Company, Zehntel, Inc. and the Bank of Registration Statement on Form 8-A
California, National Association, Trustee, No. 0-16446, effective February 17,
dated as of December 1, 1987 1988.

4.3 Second Supplemental Indenture by and among Exhibit 3.4(iii) to the Company's
the Company, Zehntel, Inc. and Bankers Annual Report on Form 10-K for the
Trust Company of California, N.A. fiscal year ended December 31, 1989.

4.4 Instrument of Acknowledgment of Exhibit 3.4(iv) to the Company's
Satisfaction and Discharge of Indenture Annual Report on Form 10-K for the
and Securities executed by First Trust of fiscal year ended December 31, 1994.
California, National Association,
successor trustee

4.5 Rights Agreement between the Company and Exhibit 4.1 to the Company's Current
The First National Bank of Boston dated as Report on Form 8-K dated March 15,
of March 14, 1990 1990.

10.1 Multicurrency Revolving Credit Agreement Exhibit to the Company's Quarterly
dated April 29, 1991 Report on Form 10-Q for the
quarterly period ended March 30,
1991.

10.2 First Amendment to Multicurrency Revolving Exhibit 3.10 (ii) to the Company's
Credit Agreement dated as of March 5, 1993 Annual Report on Form 10-K for the
fiscal year ended December 31, 1992.

10.3 1987 Non-Employee Director Stock Option Exhibit 3.10(iii) to the Company's
Plan Annual Report on Form 10-K for the
fiscal year ended December 31, 1992.

10.4 Teradyne, Inc. Supplemental Executive Exhibit 3.10(iv) to the Company's
Retirement Plan Annual Report on Form 10-K for the
fiscal year ended December 31, 1992.

10.5 1991 Employee Stock Option Plan, as
amended

10.6 1979 Stock Purchase Plan, as amended

22.1 Subsidiaries of the Company

23.1 Consent of Coopers & Lybrand L.L.P.