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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 1-6462
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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
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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 21, 1997 was $2.5 billion 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 21, 1997 was 83,469,412 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's proxy statement in connection with its 1997
annual meeting of shareholders are incorporated by reference into Part III.
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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 M:
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.
Statements in this Annual Report on Form 10-K which are not historical
facts, so called "forward looking statements," are made pursuant to the safe
harbor provisions of the Private Securities Litigation Reform Act of 1995.
Investors are cautioned that all forward looking statements involve risks and
uncertainties, including those detailed in the Company s filings with the
Securities and Exchange Commission. See also "Item 7: Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Certain Factors
That May Affect Future Results."
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
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, analog, and mixed
signal integrated circuits ("semiconductor test systems"), (ii) test systems for
circuit boards and other assemblies ("circuit-board test systems"), (iii) test
systems for telephone lines and networks ("telecommunications test systems"),
and (iv) software test programs for communications networks, computerized
telecommunications systems and other software products ("software test"). 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. Semiconductor test systems accounted for 64% of
consolidated net sales in 1996, 69% in 1995, and 62% in 1994. Circuit-board test
systems accounted for 13% of consolidated net sales in 1996, 11% in 1995, and
15% in 1994. Telecommunications test systems accounted for 7% of consolidated
net sales in 1996 and 1995, and 6% in 1994. Software test accounted for 1% of
consolidated net sales in 1996.
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 and includes the manufacture of fully
integrated electronic assemblies that incorporate backplane, card cage, cabling,
and related design and production services. Backplane connection systems
accounted for 15% of consolidated net sales in 1996, 13% in 1995, and 17% in
1994.
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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. No single customer accounted for 10% or more of consolidated net
sales in 1996. In 1996, the Company's three largest customers accounted for less
than 25% of consolidated net sales.
Direct sales to United States government agencies accounted for less than
2% of consolidated net sales in 1996, 1995, and 1994. Sales are also made within
each of the Company's segments to customers who are government contractors.
Approximately 15% of backplane connection system sales and less than 10% of
electronic test systems sales fell into this category during 1996.
The Company's customers outside the United States are located primarily in
Europe, the Asia Pacific region, and Japan. The Company sells in these areas
both directly and through non U.S. sales subsidiaries. Substantially all of the
Company's manufacturing activities are conducted in the United States.
Sales to customers outside the United States accounted for 54% of
consolidated net sales in 1996, 52% in 1995, and 46% in 1994. Sales to such
customers from locations outside the United States accounted for less than 10%
of consolidated net sales in all periods presented. Identifiable assets of the
Company's non U.S. locations, consisting principally of operating assets used in
support of domestic export sales, approximated $130.3 million at December 31,
1996, $125.2 million at December 31, 1995, and $94.5 million at December 31,
1994. Of these identifiable assets at December 31, 1996, $82.3 million were in
Europe, $40.6 million were in Japan, and $7.4 million were in the Asia Pacific
region.
The Company is subject to the inherent risks involved in international
trade, such as political and economic instability, restrictive trade policies,
controls on funds transfer, currency fluctuations, difficulties in managing
distributors, potentially adverse tax consequences, and the possibility of
difficulty in accounts receivable collection. The Company attempts to reduce the
effects of currency fluctuations by hedging part of its exposed position and by
conducting some of its international transactions in U.S. dollars or dollar
equivalents.
DISTRIBUTION
The Company sells its products primarily through a direct sales force. The
Company has sales and service offices throughout North America, Europe, the Asia
Pacific region, and Japan.
COMPETITION
The Company faces substantial competition throughout the world, primarily
from electronic test systems manufacturers located in the United States, Europe,
and Japan, as well as several of the Company's customers. Some of these
competitors have substantially greater financial and other resources with which
to pursue engineering, manufacturing, marketing, and distribution of their
products. New product introductions by the Company's competitors could cause a
decline in sales or loss of market acceptance of existing products.
BACKLOG
On December 31, 1996, the Company's backlog of unfilled orders for
electronic test systems and backplane connection systems was approximately
$433.9 million and $82.5 million, respectively, compared with $607.1 million and
$52.2 million, respectively, on December 31, 1995. Of the backlog at December
31, 1996, approximately 82% of the electronic test systems backlog, and
approximately 91% of the backplane connection systems backlog are expected to be
delivered in 1997. The electronic test systems backlog at December 31, 1996
includes $36.1 million of United States government orders for M900 VXI Digital
Test subsystems for the U.S. Navy's Consolidated Automated Support System (CASS)
which are unfunded. The unfunded orders are for shipments scheduled to be
delivered in 1997 and beyond. The Company's past
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experience indicates that a portion of orders included in the backlog may be
canceled. There are no seasonal factors related to the backlog.
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. Any prolonged inability of the Company to obtain adequate
yields or deliveries, or any other circumstances that would require the Company
to seek alternative sources of supply could have a material adverse effect on
the Company's business, financial condition, and results of operations.
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. The Company relies on certain intellectual property protections to
preserve its intellectual property rights. Any invalidation of the Company's
intellectual property rights could have a material adverse effect on the
Company's business.
EMPLOYEES
As of December 31, 1996, the Company employed approximately 5,000 people.
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 $143.9 million in
1996, $123.5 million in 1995, and $86.6 million in 1994. These expenditures
amounted to approximately 12% of consolidated net sales in 1996, 10% in 1995,
and 11% in 1994.
ENVIRONMENTAL AFFAIRS
The Company's manufacturing facilities are subject to numerous laws and
regulations designed to protect the environment, particularly from manufacturing
plant wastes and emissions. These include laws such as the Comprehensive
Environmental Response, Compensation, and Liability Act of 1980, the Superfund
Amendment and Reauthorization Act of 1986, the Occupational Safety and Health
Act, the Clean Air Act, the Clean Water Act, the Resource Conservation and
Recovery Act of 1976, and the Hazardous and Solid Waste Amendments of 1984. In
the opinion of management, the costs associated with complying with these laws
and regulations has not had and is currently not expected to have a material
adverse effect upon the financial position of the Company.
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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. 69 Chairman of the Board and Chairman of the Board of the Company
d'Arbeloff............. Chief Executive Officer since 1977; Chief Executive Officer
beginning in 1996; President of the
Company from 1971 to 1996; Director
of the Company since 1960.
James A. Prestridge...... 65 Vice Chairman of the Board Vice Chairman of the Board beginning
and Executive Vice in 1996; Executive Vice President of
President the Company since 1992; Vice
President of the Company from 1971
to 1992.
Owen W. Robbins.......... 67 Vice Chairman of the Board Vice Chairman of the Board beginning
and Executive Vice in 1996; Executive Vice President of
president the Company since 1992; Vice
President of the Company from 1977
to 1992.
George W. Chamillard..... 58 President, Chief Operating President, Chief Operating Officer,
Officer, and Member of the and Director of the Company
Board beginning in 1996; Executive Vice
President of the Company from 1994
to 1996; Vice President of the
Company from 1981 to 1993.
Michael A. Bradley....... 48 Vice President Vice President of the Company since
1992; TQM Manager of the Company
from 1990 to 1992.
Ronald J. Dias........... 53 Vice President Vice President of the Company since
1988.
Donald J. Hamman......... 45 Controller Controller of the Company since
1994; Director of Corporate
Accounting from 1986 to 1994.
Jeffrey R. Hotchkiss..... 49 Vice President Vice President of the Company since
1990.
John P. McCabe........... 52 Vice President Vice President of the Company since
1994; Controller of the Company from
1975 to 1994.
Stuart M. Osattin........ 51 Vice President and Vice President of the Company since
Treasurer 1994; Treasurer of the Company since
1980.
Edward Rogas, Jr......... 56 Vice President Vice President of the Company since
1984.
David L. Sulman.......... 53 Vice President Vice President of the Company since
1994; Division General Manager since
1993; Division Engineering Manager
from 1982 to 1992.
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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 SQUARE FEET OF
LOCATION INTEREST FLOOR SPACE
- -------- -------- --------------
ELECTRONIC TEST SYSTEMS INDUSTRY SEGMENT:
Boston, Massachusetts................................................. Own 492,000
Boston, Massachusetts................................................. Lease 45,000
Agoura Hills, California.............................................. Own 360,000
Deerfield, Illinois................................................... Own 63,000
Walnut Creek, California.............................................. Lease 60,000
Kumamoto, Japan....................................................... Own 28,000
San Jose, California.................................................. Own 120,000
BACKPLANE CONNECTION SYSTEMS INDUSTRY SEGMENT:
Nashua, New Hampshire................................................. Own 399,000
Plano, Texas.......................................................... Lease 18,300
Dublin, Ireland....................................................... Lease 46,000
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.
None.
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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
--------------------------------------------------------------------- ---- ---
1996 First Quarter.................................................. $27 7/8 $16 3/8
Second Quarter................................................. 22 1/2 16
Third Quarter.................................................. 18 1/2 11 1/8
Fourth Quarter................................................. 26 1/4 15 1/2
1995 First Quarter.................................................. 21 1/2 16
Second Quarter................................................. 33 20
Third Quarter.................................................. 42 7/8 32 1/4
Fourth Quarter................................................. 36 5/8 20 1/8
The number of record holders of the Company's Common Stock at February 21,
1997 was 3,757.
The Company has never paid cash dividends because it has been its policy to
use earnings to finance expansion and growth. Payment of future cash 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,
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1996 1995 1994 1993 1992
---------- ---------- -------- -------- --------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Net sales................................ $1,171,615 $1,191,022 $777,731 $633,139 $595,072
========== ========== ======== ======== ========
Income from continuing operations........ $ 93,574 $ 159,284 $ 76,390 $ 41,202 $ 26,412
========== ========== ======== ======== ========
Income from continuing operations per
common share........................... $ 1.10 $ 1.89 $ 0.95 $ 0.54 $ 0.37
========== ========== ======== ======== ========
Total assets............................. $1,096,816 $1,023,831 $759,480 $621,607 $502,212
========== ========== ======== ======== ========
Long-term obligations.................... $ 15,650 $ 18,679 $ 9,111 $ 9,942 $ 25,828
========== ========== ======== ======== ========
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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,
--------------------------------------
1996 1995 1994
---------- ---------- --------
(DOLLARS IN THOUSANDS)
Net sales............................................... $1,171,615 $1,191,022 $777,731
========== ========== ========
Net income.............................................. $ 93,574 $ 159,284 $ 76,390
========== ========== ========
Increase (decrease) in net sales from preceding year:
Amount................................................ $ (19,407) $ 413,291 $144,592
========== ========== ========
Percentage............................................ (2)% 53% 23%
========== ========== ========
Increase (decrease) in net income from preceding year... $ (65,710) $ 82,894 $ 28,317
========== ========== ========
Percentage of net sales:
Net sales............................................. 100% 100% 100%
Expenses:
Cost of sales...................................... 62 54 56
Engineering and development........................ 12 10 11
Selling and administrative......................... 15 15 19
---------- ---------- --------
89 79 86
Other income (expense):
Merger expenses.................................... (1)
Net interest income................................ 1 1 1
---------- ---------- --------
Income before income taxes......................... 12 21 15
Provision for income taxes......................... 4 8 5
---------- ---------- --------
Net income.............................................. 8% 13% 10%
========== ========== ========
RESULTS OF OPERATIONS:
1996 compared to 1995
In 1996, sales declined 2% to $1,171.6 million from the record level of
$1,191.0 million reached after 53% sales growth in 1995. The decrease was
primarily in the semiconductor test systems product line, which fell 8% as a
result of a reduction in orders from semiconductor device manufacturers. Sales
of telecommunications test systems also declined by 4% with the completion of
the line-test equipment installation at Deutsche Telekom in Germany. Sales
increased in the other two major product lines of the Company: circuit-board
test systems grew by 19% driven by fulfilling government contracts and increased
sales to commercial customers and backplane connection systems grew by 15% with
strong demand from the high technology commercial customer base. Net income
decreased from $159.3 million in 1995 to $93.6 million in 1996. Excluding the
effect of pre-tax nonrecurring charges of $48.9 million ($32.0 million after
taxes) in 1996 and $5.6 million ($5.6 million after taxes) in 1995, comparative
net income decreased by $39.3 million from $164.9 million to $125.6 million.
Incoming orders decreased 27%, from $1,432.1 million in 1995 to $1,045.1
million in 1996. The most significant decline was in semiconductor test systems
orders which fell 37%. Circuit-board test systems orders, excluding the effect
of $98.0 million in multi-year government contracts received in 1995, were down
8% while backplane connection systems and telecommunications systems increased
49% and 21%, respectively. As a result of the overall decrease in orders, the
Company's backlog fell in 1996, finishing the year at $516.4 million (as
adjusted for $16.4 million in cancellations).
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Cost of sales, as a percentage of sales, increased from 54% in 1995 to 62%
in 1996. The 1996 cost of sales included $34.1 million in one time charges
resulting from the Company's decision to accelerate the consolidation of the
VLSI product lines of Megatest and Teradyne. Excluding the product line
consolidation charge, cost of sales, as a percentage of 1996 sales, was 59%. The
remaining increase in cost of sales percentage was the result of the
relationship of fixed manufacturing costs and the costs associated with new
product introductions to the lower level of sales. In addition, there was an
unfavorable change in mix as a greater percentage of total Company sales were
backplane connection systems and circuit-board test systems whose product
margins are generally lower than semiconductor test systems.
Engineering and development expenses, as a percentage of sales, increased
2% from 10% in 1995 to 12% in 1996. These expenses grew $20.4 million in 1996
primarily as a result of increased investment in new product development of
semiconductor test systems. During 1996, the Company announced major new
products in each of the three semiconductor markets in which it participates.
Selling and administrative expenses were 15% of sales in 1996 and 1995. In
1996, the Company provided $10.8 million for salary continuation payments and
enhanced pension and medical benefits associated with an early retirement
program and other workforce reductions. Excluding this provision selling and
administrative expenses were 14% of sales in 1996.
Interest income increased 36% in 1996 to $19.3 million due to an increase
in the Company's average invested balances and higher interest rates. Interest
expense decreased from $3.0 million in 1995 to $2.4 million in 1996 as an
outstanding capital equipment note was paid.
The Company's effective tax rate was 33% in 1996 compared with 36% in 1995.
The Company utilized domestic export sales corporation benefits and certain
research and development tax credits in 1996 to operate below the U. S.
statutory rate of 35%. In 1995, the effective rate was above the U. S. statutory
rate as certain merger expenses were nondeductible for income tax purposes.
1995 compared to 1994
Sales advanced 53% in 1995 to $1,191.0 million. Each of the major product
lines of the Company -- semiconductor test systems, circuit-board test systems,
telecommunications test systems, and backplane connection systems contributed to
the increase in sales. Sales of semiconductor test systems grew 70% 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. Telecommunications test
systems sales increased 84% primarily from the growing installation of line-test
equipment at Deutsche Telekom in Germany. Sales of backplane connection systems
increased 18% as a result of greater penetration into the Company's high
technology commercial customer base. Circuit-board test systems sales increased
13%. As a result of the increase in sales, net income more than doubled in 1995,
increasing $82.9 million to $159.3 million.
Incoming orders grew faster than sales in 1995, increasing 59% to $1,432.1
million. The increase in orders, like the increase in sales, was primarily due
to increases in semiconductor test systems orders, which increased 73%.
Additionally, circuit-board test systems orders increased by 110% due in large
part to multi-year U.S. government contracts, totaling $98.0 million, to supply
electronic test equipment for the B-2 Stealth Bomber and for the Navy's CASS
program. Orders for backplane connection systems and telecommunications test
systems declined 11% and 5%, respectively. As a result of the overall increase
in orders, the Company's backlog grew 58% in 1995, finishing the year at $659.3
million.
Cost of sales, as a percentage of sales, decreased from 56% in 1994 to 54%
in 1995. The improvement was primarily the result of increased utilization of
the fixed and semi-variable components of the Company's overhead structure. In
addition, there was a favorable change in mix as sales of backplane connection
systems and circuit-board test systems, whose product margins are generally
lower than those of semiconductor test systems, were lower as a percentage of
total Company sales.
Engineering and development expenses, as a percentage of sales, declined 1%
from 11% in 1994 to 10% in 1995, as these expenses did not increase at the same
rate as sales. The dollar amount of these expenses grew
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$36.9 million in 1995 as a result of increased investment in new product
development of semiconductor test systems. Selling and administrative expenses
decreased to 15% of sales in 1995 compared with 19% of sales in 1994, as the
dollar volume of these expenses grew by 19% while sales increased 53%.
Interest income increased 82% in 1995 to $14.2 million due to an increase
in the Company's average invested balances and higher interest rates. Interest
expense increased from $1.8 million in 1994 to $3.0 million in 1995 as a result
of increased borrowing at Megatest prior to the merger.
The Company's effective tax rate was 36% in 1995 compared with 33% in 1994.
The Company utilized certain tax credit and operating loss carryforward amounts
in 1994 to operate below the United States statutory rate of 35%. In 1995, the
effective rate increased as the tax credit and operating loss carryforwards were
no longer available and certain merger expenses were nondeductible for income
tax purposes.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash, cash equivalents and marketable securities balance grew
$155.7 million in 1996, to $431.5 million following an increase of $54.6 million
in 1995. Cash flow generated from operations was $250.8 million in 1996 and
$115.5 million in 1995. Cash of $13.5 million in 1996 and $24.9 million in 1995
was generated from the sale of stock to employees under the Company's stock
option and stock purchase plans.
Cash was used to fund additions to property, plant and equipment of $75.2
million in 1996 and $93.2 million in 1995. In 1996, the Company's Board of
Directors authorized the repurchase of 5.0 million shares of the Company's stock
on the open market. Cash of $29.8 million was utilized in 1996 to purchase 1.4
million shares under the buyback program.
The Company believes its cash, cash equivalents, and marketable securities
balance of $431.5 million, together with other sources of funds, including cash
flow generated from operations and the available borrowing capacity of $120.0
million under its line of credit agreement, will be sufficient to meet working
capital and capital expenditure requirements in 1997.
Inflation has not had a significant long-term impact on earnings. If there
were inflation, the Company's efforts to cover cost increases with price
increases could be frustrated in the short-term by its relatively high backlog.
CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS
From time to time, information provided by the Company, statements made by
its employees or information included in its filings with the Securities and
Exchange Commission (including this Form 10-K and the Company's Annual Report to
Shareholders) may contain statements which are not historical facts, so-called
"forward looking statements," which involve risks and uncertainties. In
particular, statements in "Item 1: Business" relating to the Company's delivery
time of unfilled orders, and in "Item 7: Management's Discussion and Analysis of
Financial Condition and Results of Operations" relating to the sufficiency of
capital to meet working capital and planned capital expenditure, and stock
repurchase requirements may be forward looking statements. The Company's actual
future results may differ significantly from those stated in any forward looking
statements. Factors that may cause such differences include, but are not limited
to, the factors discussed below. Each of these factors, and others, are
discussed from time to time in the Company's filings with the Securities and
Exchange Commission.
The Company's future results are subject to substantial risks and
uncertainties. The Company's business and results of operations depend in
significant part upon capital expenditures of manufacturers of semiconductors,
which in turn depend upon the current and anticipated market demand for
semiconductors and products incorporating semiconductors. The semiconductor
industry has been highly cyclical with recurring periods of over supply, which
often have had a severe effect on the semiconductor industry's demand for test
equipment, including systems manufactured and marketed by the Company. The
Company believes that the markets for newer generations of semiconductors will
also be subject to similar fluctuations. The most recent downturn contributed to
a 37% decline in semiconductor test system orders. There can be no assurance
that any future increase in semiconductor test systems bookings for a calendar
quarter will be sustained in subsequent
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quarters. In addition, any factor adversely affecting the semiconductor industry
or particular segments within the semiconductor industry may adversely affect
the Company's business, financial condition and operating results.
Also, the Company relies on certain intellectual property protections to
preserve its intellectual property rights. From time to time the Company is
notified that it may be in violation of patents held by others. Any invalidation
of the Company's intellectual property rights, or assertions of patent
infringement against the Company which are ultimately successful, could have a
material adverse effect on the Company. Lengthy and expensive defense of the
Company's rights to technology used in its products could adversely affect the
Company's operating results.
The development of new technologies, commercialization of those
technologies into products, and market acceptance and customer demand for those
products is critical to the Company's success. Successful product development
and introduction depends upon a number of factors, including new product
selection, development of competitive products by competitors, timely and
efficient completion of product design, timely and efficient implementation of
manufacturing and assembly processes and product performance at customer
locations.
The Company faces substantial competition throughout the world, primarily
from electronic test systems manufacturers located in the United States, Europe
and Japan, as well as several of the Company's customers. Some of these
competitors have substantially greater financial and other resources which to
pursue engineering, manufacturing, marketing and distribution of their products.
Certain of the Company's competitors have introduced or announced new products
with certain performance characteristics which may be considered equal or
superior to those currently offered by the Company. The Company expects its
competitors to continue to improve the performance of their current products and
to introduce new products or new technologies that provide improved cost of
ownership and performance characteristics. New product introductions by
competitors could cause a decline in sales or loss of market acceptance of the
Company's existing products. Moreover, increased competitive pressure could lead
to intensified price based competition, which could materially adversely affect
the Company's business, financial condition and results of operations. The
Company derives a significant portion of its total revenues from customers
outside the United States. International sales are subject to significant risks,
including unexpected changes in legal and regulatory requirements and policy
changes affecting the Company's markets, changes in tariffs, exchange rates and
other barriers, political and economic instability, difficulties in accounts
receivable collection, difficulties in managing distributors and
representatives, difficulties in staffing and managing international operations,
difficulties in protecting the Company's intellectual property and potentially
adverse tax consequences.
The Company's quarterly and annual operating results are affected by a wide
variety of factors that could materially adversely affect revenues and
profitability, including: competitive pressures on selling prices; the timing
and cancellation of customer orders; the timing and provision of pricing
protections and returns from certain distributors; changes in product mix; the
Company's ability to introduce new products and technologies on a timely basis;
introduction of products and technologies by the Company's competitors; market
acceptance of the Company's and its competitors' products; potential retrofit
costs; the level of orders received which can be shipped in a quarter; and the
timing of investments in engineering and development. As a result of the
foregoing and other factors, the Company may experience material fluctuations in
future operating results on a quarterly or annual basis which could materially
and adversely affect its business, financial condition, operating results and
stock price.
10
12
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT ACCOUNTANTS
To the Directors and Shareholders of
TERADYNE, INC.:
We have audited the consolidated balance sheets of Teradyne, Inc. as of
December 31, 1996 and 1995, and the related consolidated statements of income,
cash flows, and changes in shareholders' equity for each of the three years in
the period ended December 31, 1996. 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 did not audit the
consolidated financial statements of Megatest for the year ended August 31,
1994, which statements reflect consolidated net sales constituting 13% of the
related consolidated net sales for the year ended December 31, 1994. Those
statements were audited by other auditors whose report has been furnished to us,
and our opinion, insofar as it relates to the amounts included for Megatest, is
based solely on the report of the other auditors.
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 and the report of the other auditors provide a
reasonable basis for our opinion.
In our opinion, based on our audits and the report of the other auditors,
the financial statements referred to above present fairly, in all material
respects, the consolidated financial position of Teradyne, Inc. as of December
31, 1996 and 1995, and the consolidated results of its operations and its cash
flows for each of the three years in the period ended December 31, 1996, in
conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
January 17, 1997
11
13
TERADYNE, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
1996 1995
---------- ----------
(IN THOUSANDS)
ASSETS
Current assets:
Cash and cash equivalents......................................... $ 201,452 $ 182,165
Marketable securities............................................. 48,266 93,662
Accounts receivable, less allowance for doubtful accounts of
$1,936 in 1996 and $2,269 in 1995.............................. 178,430 254,820
Inventories:
Parts.......................................................... 91,792 120,011
Assemblies in process.......................................... 47,162 56,840
---------- ----------
138,954 176,851
Deferred tax assets............................................... 32,340 19,546
Prepayments and other current assets.............................. 17,666 13,101
---------- ----------
Total current assets...................................... 617,108 740,145
Property, plant, and equipment:
Land.............................................................. 22,823 22,755
Buildings and improvements........................................ 133,809 128,235
Machinery and equipment........................................... 393,790 351,950
Construction in progress.......................................... 13,163 10,046
---------- ----------
Total..................................................... 563,585 512,986
Less: Accumulated depreciation.................................... (290,088) (255,968)
---------- ----------
Net property, plant, and equipment........................ 273,497 257,018
Marketable securities............................................... 181,776
Other assets........................................................ 24,435 26,668
---------- ----------
Total assets.............................................. $1,096,816 $1,023,831
========== ==========
LIABILITIES
Current liabilities:
Notes payable -- banks............................................ $ 7,316 $ 8,141
Current portion of long-term debt................................. 1,778 2,082
Accounts payable.................................................. 34,482 42,229
Accrued employees' compensation and withholdings.................. 58,696 66,000
Unearned service revenue and customer advances.................... 62,771 53,587
Other accrued liabilities......................................... 53,537 41,395
Income taxes payable.............................................. 6,677 16,157
---------- ----------
Total current liabilities................................. 225,257 229,591
Deferred tax liabilities............................................ 13,898 15,711
Long-term debt...................................................... 15,650 18,679
Commitments (Note F)
---------- ----------
Total liabilities......................................... 254,805 263,981
---------- ----------
SHAREHOLDERS' EQUITY
Common stock $0.125 par value, authorized 250,000 shares (125,000 in
1995), issued and outstanding after deduction of reacquired
shares, 82,480 in 1996 and 82,634 in 1995......................... 10,310 10,329
Additional paid-in capital.......................................... 355,576 366,970
Retained earnings................................................... 476,125 382,551
---------- ----------
Total shareholders' equity................................ 842,011 759,850
---------- ----------
Total liabilities and shareholders' equity................ $1,096,816 $1,023,831
========== ==========
The accompanying notes are an integral part of the consolidated financial
statements.
12
14
TERADYNE, INC.
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31,
--------------------------------------
1996 1995 1994
---------- ---------- --------
(IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS)
Net sales............................................... $1,171,615 $1,191,022 $777,731
Expenses:
Cost of sales......................................... 724,624 646,382 435,129
Engineering and development........................... 143,931 123,487 86,570
Selling and administrative............................ 180,265 176,797 148,004
---------- ---------- --------
1,048,820 946,666 669,703
---------- ---------- --------
Income from operations.................................. 122,795 244,356 108,028
Other income (expense):
Merger expenses....................................... (5,600)
Interest income....................................... 19,295 14,209 7,827
Interest expense...................................... (2,427) (3,040) (1,830)
---------- ---------- --------
Income before income taxes.............................. 139,663 249,925 114,025
Provision for income taxes.............................. 46,089 90,641 37,635
---------- ---------- --------
Net income.............................................. $ 93,574 $ 159,284 $ 76,390
========== ========== ========
Net income per common share............................. $ 1.10 $ 1.89 $ 0.95
========== ========== ========
Shares used in calculations of net income per common
share................................................. 85,060 84,253 80,729
========== ========== ========
The accompanying notes are an integral part of the consolidated financial
statements.
13
15
TERADYNE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31,
----------------------------------
1996 1995 1994
-------- -------- --------
(IN THOUSANDS)
Cash flows from operating activities:
Net income............................................... $ 93,574 $159,284 $ 76,390
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation.......................................... 49,577 41,807 37,701
Amortization.......................................... 1,326 1,339 741
Product line consolidation............................ 34,100
Workforce reduction provision......................... 10,810
Deferred income tax provision (credit)................ (14,607) 3,920 3,875
Other non-cash items, net............................. (260) 4,881 1,752
Changes in operating assets and liabilities:
Accounts receivable................................. 74,990 (114,708) (32,178)
Inventories......................................... 20,584 (57,111) (18,277)
Other assets........................................ (4,117) (18,567) (12,764)
Accounts payable and accruals....................... (10,638) 60,361 34,887
Income taxes payable................................ (4,515) 34,334 14,902
-------- -------- --------
Net cash provided by operating activities........ 250,824 115,540 107,029
-------- -------- --------
Cash flows from investing activities:
Additions to property, plant, and equipment.............. (59,494) (79,197) (32,568)
Increase in equipment manufactured by the Company........ (15,735) (14,004) (8,127)
Purchases of held-to-maturity marketable securities...... (250,594) (190,961) (55,400)
Maturities of held-to-maturity marketable securities..... 248,733 126,619 25,848
Purchases of available-for-sale marketable securities.... (142,600)
Maturities of available-for-sale marketable securities... 8,081
-------- -------- --------
Net cash used in investing activities............ (211,609) (157,543) (70,247)
-------- -------- --------
Cash flows from financing activities:
Net payments under short-term borrowing agreements....... (4,100)
Payments of long-term debt............................... (3,550) (1,015) (1,665)
Additions to long-term debt.............................. 12,500 145
Issuance of common stock under stock option and stock
purchase plans........................................ 13,455 24,914 17,119
Sale of common stock..................................... 13,575
Acquisition of treasury stock............................ (29,833) (24,597)
-------- -------- --------
Net cash provided (used) by financing
activities..................................... (19,928) 32,299 4,577
-------- -------- --------
Increase (decrease) in cash and cash equivalents........... 19,287 (9,704) 41,359
Adjustment to conform fiscal year of Megatest.............. (10,346)
Cash and cash equivalents at beginning of year............. 182,165 202,215 160,856
-------- -------- --------
Cash and cash equivalents at end of year................... $201,452 $182,165 $202,215
======== ======== ========
Supplementary disclosure of cash flow information:
Cash paid during the year for:
Interest.............................................. $ 2,426 $ 3,092 $ 1,722
Income taxes.......................................... 68,089 52,339 16,563
The accompanying notes are an integral part of the consolidated financial
statements.
14
16
TERADYNE, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
SHARES COMMON ADDITIONAL
--------------------- STOCK PAID-IN RETAINED
ISSUED REACQUIRED PAR VALUE CAPITAL EARNINGS
------ ---------- --------- ---------- ---------
(IN THOUSANDS)
Balance, December 31, 1993............. 39,244 768 $ 4,810 $315,657 $160,189
Issuance of stock to employees under
benefit plans..................... 1,584 17 196 16,923
Tax benefit from stock options....... 8,275
Repurchase of stock.................. 878 (110) (24,487)
Secondary offering of Megatest
Corporation, net offering costs... 447 56 13,519
Net income........................... 76,390
Pension adjustment................... 1,468
------ ----- ------- -------- --------
Balance, December 31, 1994............. 41,275 1,663 4,952 329,887 238,047
Adjustment to conform fiscal year of
Megatest Corporation.............. 3 9 (14,780)
Issuance of stock to employees under
benefit plans..................... 1,614 202 22,940
Tax benefit from stock options....... 17,549
Two-for-one stock split effected in
the form of a 100% stock
dividend.......................... 42,892 1,664 5,154 (5,154)
Issuance of stock to employees under
benefit plans after the
two-for-one stock split........... 177 21 1,751
Payment for fractional shares
resulting from merger............. (12)
Net income........................... 159,284
------ ----- ------- -------- --------
Balance, December 31, 1995............. 85,961 3,327 10,329 366,970 382,551
Issuance of stock to employees under
benefit plans..................... 1,281 160 13,295
Tax benefit from stock options....... 4,965
Repurchase of stock.................. 1,435 (179) (29,654)
Net income........................... 93,574
------ ----- ------- -------- --------
Balance, December 31, 1996............. 87,242 4,762 $10,310 $355,576 $476,125
====== ===== ======= ======== ========
The accompanying notes are an integral part of the consolidated financial
statements.
15
17
TERADYNE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. THE COMPANY
Teradyne, Inc. (the "Company") designs, manufactures, markets, and services
electronic test systems and related software used by component manufacturers in
the design and testing of their products and by electronic equipment
manufacturers for the design and testing of circuit boards and other assemblies.
Manufacturers use such systems and software to increase product performance, to
improve product quality, to shorten time to market, to enhance
manufacturability, to conserve labor costs, and to increase production yields.
The Company's electronic systems are also used by telephone operating companies
for the testing and maintenance of their subscriber telephone lines and related
equipment.
The Company also manufactures backplane connection systems, principally for
the computer, telecommunications, and military/aerospace industries. A backplane
is a panel that supports the circuit boards in an electronic assembly and
carries the wiring that connects the boards to each other and to other elements
of a system.
B. ACCOUNTING POLICIES
Basis of Presentation
The consolidated financial statements include the accounts of the Company
and its subsidiaries. All significant intercompany balances and transactions are
eliminated. Certain prior years' amounts were reclassified to conform to the
current year presentation. On December 1, 1995, the Company completed its
acquisition of Megatest Corporation ("Megatest"), by means of a merger accounted
for as a pooling of interests. As a result of the merger, Megatest became a
wholly owned subsidiary of the Company. The consolidated financial statements of
the Company for periods prior to the merger were restated to include the
financial position and results of operations of the combined companies.
Preparation of Financial Statements
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.
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 removed from the accounts and
any resulting gain or loss is reflected in operations.
The Company provides for depreciation of its assets principally on the
straight-line method with the cost of the assets being charged to expense over
their useful lives as follows: buildings and improvements - 5 to 40 years; and
machinery and equipment - 2 to 10 years.
16
18
TERADYNE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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
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 non U.S. sales and service subsidiaries.
Translation of Non U.S. Currencies
Assets and liabilities of non U.S. subsidiaries, which are denominated in
currencies other than the U.S. dollar, are remeasured into U.S. dollars at rates
of exchange in effect at the end of the fiscal year except nonmonetary assets
and liabilities which are remeasured using historical exchange rates. Revenue
and expense amounts are remeasured using an average of exchange rates in effect
during the year, except those amounts related to nonmonetary assets and
liabilities, which are remeasured at historical exchange rates. Net realized and
unrealized gains and losses resulting from currency remeasurement are included
in operations.
Net Income per Common Share
Net income per common share is based upon the weighted average number of
common and common equivalent shares outstanding (when dilutive) 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 using the treasury stock method. Primary and fully
diluted earnings per share are equal for all periods presented.
C. MERGER -- POOLING OF INTERESTS
On December 1, 1995, the Company acquired through a merger all of the
authorized and outstanding common stock of Megatest in exchange for
approximately 6.8 million shares of the Company's common stock using an exchange
ratio of 0.9091 of one share of the Company's common stock for each Megatest
share. In addition, all outstanding Megatest stock options were converted, at
the common stock exchange ratio, into options to purchase the Company's common
stock. Megatest manufactures electronic test systems for the integrated circuit
industry. Prior to the merger, Megatest prepared its financial statements on an
August 31 fiscal year end. Megatest's fiscal year has been changed to December
31 to conform to the Company's year end. The restated financial statements for
1994 include Megatest's amounts as of and for the year ended August 31, 1994. As
a result, Megatest's corresponding results of operations and cash flows as of
and for the four month period ended December 31, 1994 are not reflected in the
Company's consolidated statements of
17
19
TERADYNE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
income and cash flows. Megatest's loss for this period of $14.8 million has been
charged to retained earnings effective January 1, 1995. Megatest's results of
operations for the four months ended December 31, 1994 are summarized as follows
(in thousands):
Revenue................................................... $ 14,111
Net Loss.................................................. $(14,780)
Separate results of the Company and Megatest that have been combined in the
Company's consolidated results for the years ended December 31, 1995 and 1994
are as follows (in thousands):
1995 1994
---------- --------
Net sales:
Teradyne..................................................... $1,059,409 $677,440
Megatest..................................................... 131,613 100,291
---------- --------
$1,191,022 $777,731
========== ========
Net income:
Teradyne..................................................... $ 157,204 $ 70,941
Megatest..................................................... 2,297 10,799
Adjustments.................................................. (217) (5,350)
---------- --------
$ 159,284 $ 76,390
========== ========
The combined financial results reflect the restatement of Megatest's
provision for income taxes in accordance with Statement of Financial Accounting
Standards No. 109 Accounting for Income Taxes. Due to the merger, Megatest's
previously unrecognized tax benefits of deductible temporary differences and
operating loss carryforwards were recognized by the combined company in the
restated periods. The restatement of the provision for income taxes decreased
net income in 1994 by $5.1 million. The combined financial results also include
adjustments, which were immaterial to the combined financial statements, to
conform accounting policies of the two companies. Adjustments made to conform
the accounting policies of the two companies decreased net income by $0.2
million in 1995 and 1994. All other adjustments consist of reclassifications to
conform financial statement presentation. There were no intercompany
transactions between the two companies for the periods presented. In connection
with the merger, the Company recorded a $5.6 million nonrecurring charge for
transaction costs consisting primarily of professional fees.
D. FINANCIAL INSTRUMENTS
Cash Equivalents
The Company considers all highly liquid investments with original
maturities of three months or less at date of acquisition to be cash
equivalents.
Marketable Securities
The Company classifies investments in marketable securities as trading,
available-for-sale or held-to-maturity at the time of purchase and periodically
re-evaluates such classification. There were no securities classified as trading
as of December 31, 1996 or 1995. Securities are classified as held-to-maturity
when the Company has the positive intent and ability to hold the securities to
maturity. Held-to-maturity securities are stated at cost with corresponding
premiums or discounts amortized over the life of the investment to interest
income. Securities not classified as held-to-maturity are classified as
available-for-sale and reported at fair market value. Unrealized gains or losses
on available-for-sale securities, if material, are included, net of tax, in
shareholders equity until disposition. Realized gains and losses and declines in
value judged to be other-than-
18
20
TERADYNE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
temporary on available-for-sale securities are included in interest income. The
cost of securities sold is based on the specific identification method.
The fair market value of cash equivalents and short-term and long-term
investments in marketable securities is substantially equal to the carrying
value and represents the quoted market prices at the balance sheet dates. The
short-term investments mature in less than one year. Long-term investments have
maturities of one to five years. At December 31, 1996 and 1995 these investments
are reported as follows (in thousands):
1996 1995
----------------------- -----------------------
AVAILABLE- HELD-TO- AVAILABLE- HELD-TO-
FOR-SALE MATURITY FOR-SALE MATURITY
---------- --------- ---------- ---------
Short-term marketable securities:
U.S. Treasury and government agency securities...... $ 8,575 $34,476 $93,662
Corporate debt securities........................... 5,215
-------- ------- --------- -------
$ 13,790 $34,476 $93,662
======== ======= ========= =======
Long-term marketable securities:
U.S. Treasury and government agency securities...... $ 74,675 $61,047
Corporate debt securities........................... 46,054
-------- ------- --------- -------
$120,729 $61,047
======== ======= ========= =======
Other
For all other balance sheet financial instruments the carrying amount
approximates fair value.
Off-Balance Sheet Risk
The Company regularly enters into forward contracts in European and
Japanese currencies to hedge its overseas net monetary position and firm
commitments. 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 exchange losses and gains on underlying exposures. The
Company does not engage in currency speculation. Forward currency contracts have
maturities of less than one year, unless they relate to long term sales
contracts denominated in a non U.S. currency; these maturities are from one to
three years.
At December 31, 1996, the Company had the following forward currency
contracts to buy U.S. dollars for non U.S. currencies with notional amounts
totaling $48.8 million: $15.8 million Japanese yen, $14.0 million German
deutschemark, $8.7 million British pound sterling, and $10.3 million various
other European currencies. In addition, the Company had forward currency
contracts to sell U.S. dollars for German deutschemarks with notional amounts of
$11.2 million. At December 31, 1995 the face amount of outstanding forward
currency contracts to buy and sell U.S. dollars for non U.S. currencies was
$66.3 million and $22.9 million, respectively.
The fair value of these contracts as of December 31, 1996 and 1995,
determined by applying year end currency exchange rates to the notional contract
amounts, represented a net unrealized gain (loss) of $0.1 million and $(4.4)
million, respectively. 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. At December 31, 1995, a net $1.0 million loss was included
in other current assets. The entire net loss was recognized during 1996 to
offset currency transaction gains on hedged items.
Concentration of Credit Risk
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of cash investments, forward
currency contracts, and accounts receivable. The Company maintains
19
21
TERADYNE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
cash investments primarily in U.S. Treasury and government agency securities and
corporate debt securities, rated A1 or higher, which have minimal credit risk.
The Company places forward currency contracts with high credit-quality financial
institutions, in order to minimize credit risk exposure. Concentrations of
credit risk with respect to accounts receivable are limited due to the large
number of diverse and geographically dispersed customers.
E. DEBT
Long-term debt at December 31, 1996 and 1995 consisted of the following (in
thousands):
1996 1995
------- -------
Mortgage notes payable........................................... $10,294 $10,452
Capital equipment notes payable.................................. 3,701 6,534
Other long-term debt............................................. 3,433 3,775
------- -------
Total.................................................. 17,428 20,761
Less current maturities.......................................... 1,778 2,082
------- -------
$15,650 $18,679
======= =======
The total maturities of long-term debt for the succeeding five years and
thereafter are: 1997 -- $1.8 million; 1998 -- $2.4 million; 1999 -- $1.5
million; 2000 -- $0.5 million; 2001 -- $0.5 million and $10.7 million
thereafter.
Revolving Credit Agreement
On January 31, 1996, the Company increased its available revolving credit
line to $120.0 million from $80.0 million. The revolving credit agreement is in
effect through January 31, 1999. At expiration of the revolver, any amounts
outstanding are converted into a two year term note. As of December 31, 1996, 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,
based upon Eurocurrency, or certificate of deposit interest rates. Pursuant to
the terms of the credit agreement, the Company may incur additional borrowings
indebtedness of 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 Notes 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 principal amount of $5.0 million. Since September 30, 1987,
the Company has been making semi-annual interest payments.
In conjunction with the purchase of operating facilities in San Jose, the
Company received a $5.5 million mortgage loan which matures on August 31, 2000.
The loan is collateralized by a mortgage on the San Jose operating facilities.
The loan bears interest at 8.1% per annum and is payable in 59 consecutive
monthly installments of $0.05 million with a $4.6 million balloon payment due at
maturity. The terms of this mortgage note payable require compliance with
certain restrictive financial covenants and principal prepayment clauses.
20
22
TERADYNE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Equipment Notes Payable
Prior to its merger with the Company, Megatest entered into two capital
equipment notes payable. The first note with an original amount of $5.0 million
is payable in 48 consecutive monthly installments of principal and interest at
9.5% per annum. The second note with an original amount of $1.9 million was paid
in full in 1996. The terms of the outstanding equipment note payable require
compliance with certain restrictive financial covenants and principal prepayment
clauses.
Other Long-term Debt
At December 31, 1996, other long-term debt includes a Japanese
yen-denominated note with an interest rate of 2.5% (4.8% at December 31, 1995),
secured by land in Kumamoto, Japan. Interest only payments were made through
March 31, 1995. Monthly principal and interest payments began April 28, 1995 and
continue until March 30, 2007.
Short-term Borrowings
The weighted average interest rate on short-term borrowings outstanding as
of December 31, 1996 and 1995 was 2.0% and 4.2%, respectively.
F. COMMITMENTS
Rental expense for the years ended December 31, 1996, 1995, and 1994 was
$14.6 million, $13.1 million, and $11.1 million, respectively. Minimum annual
rentals under all noncancellable leases are: 1997 -- $7.1 million; 1998 -- $5.0
million; 1999 -- $3.5 million; 2000 -- $1.8 million; 2001 -- $1.2 million; and
$10.8 million thereafter, totaling $29.4 million.
G. RETIREMENT BENEFITS
The Company has defined benefit pension plans covering substantially all
domestic employees and employees of certain non U.S. subsidiaries. Benefits
under these plans are based on the employees' 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 periodic pension cost were (in thousands):
1996 1995 1994
------- ------- -------
Service cost.......................................... $ 4,398 $ 3,211 $ 3,627
Interest cost......................................... 4,894 4,012 3,708
Actual return on plan assets.......................... (6,676) (9,514) 1,537
Net amortization and deferral......................... 3,002 5,853 (4,371)
------- ------- -------
$ 5,618 $ 3,562 $ 4,501
======= ======= =======
21
23
TERADYNE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table sets forth the plans' funded status at December 31 (in
thousands):
1996 1995
-------------------------- --------------------------
U.S. PLAN NON U.S. PLANS U.S. PLAN NON U.S. PLANS
--------- -------------- --------- --------------
Actuarial present value of projected benefit
obligation:
Vested benefits........................... $ (50,676) $ (6,627) $ (45,273) $ (5,981)
Non-vested benefits....................... (2,933) (952) (2,634) (695)
-------- -------- -------- -------
Accumulated benefit obligation............ (53,609) (7,579) (47,907) (6,676)
Effect of projected future compensation
levels................................. (10,997) (2,606) (9,306) (2,742)
-------- -------- -------- -------
Total projected benefit obligation........ (64,606) (10,185) (57,213) (9,418)
Plan assets at fair market value............ 55,926 5,850 48,773 5,081
-------- -------- -------- -------
Projected benefit obligation in excess of
plan assets............................... (8,680) (4,335) (8,440) (4,337)
Unrecognized prior service cost............. 2,697 3,076
Unrecognized net loss (gain)................ 8,673 (622) 13,587 (821)
Unrecognized net (asset) liability at
transition................................ 973 (242) 1,308
Minimum pension liability adjustment........ (99) (214)
-------- -------- -------- -------
Net pension asset (liability)............... $ 2,690 $ (4,083) $ 7,981 $ (4,064)
======== ======== ======== =======
Actuarial assumptions:
Discount rate............................. 7.25% 4.50%-7.75% 7.25% 4.50%-8.00%
Average increase in compensation levels... 5.00% 3.50%-5.25% 5.00% 3.60%-5.50%
Expected long-term return on assets....... 9.00% 4.50%-9.25% 9.00% 4.50%-9.50%
In addition to the above plans, the Company has 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 $2.7
million and $1.9 million at December 31, 1996 and 1995, respectively. Net
pension expense was $0.7 million, $0.5 million, and $0.4 million in 1996, 1995,
and 1994, respectively.
In 1996, the Company announced a voluntary early retirement incentive
program to certain employees. The special termination benefits include enhanced
pension benefits to the employees and medical and dental benefits to the
employees and their spouses. Pension benefits of $2.6 million to be paid from
the Company's existing pension plans were accrued at December 31, 1996 relating
to this program. In addition, the Company accrued $2.5 million for
postretirement medical and dental benefits.
H. STOCK REPURCHASE PROGRAM
During August 1996, the Company's Board of Directors authorized the
purchase in the open market of up to 5.0 million shares of its common stock to
offset shares issued under the Company's stock based compensation plans. During
1996, the Company repurchased 1.4 million shares at a cost of $29.8 million.
I. STOCK BASED COMPENSATION
At December 31, 1996, the Company had both stock option plans and Stock
Purchase Plans. The Company applies APB Opinion 25 and related interpretations
in accounting for its plans. Under APB Opinion 25, no compensation cost has been
recognized. Statement of Financial Accounting Standards (SFAS) No. 123 requires
companies to disclose pro forma net income and earnings per share amounts under
the new fair value method. The effects of applying SFAS No. 123 in this pro
forma disclosure are not indicative of future amounts. SFAS No. 123 does not
apply to awards made prior to 1995. Additional awards
22
24
TERADYNE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
in future years are anticipated. Had compensation cost for the Company's stock
based compensation plans been determined based on the fair value at the grant
dates for awards under those plans consistent with SFAS No. 123, the Company's
net income and earnings per share would have been reduced to the pro forma
amounts indicated below (in thousands, except per share amounts):
1996 1995
------- --------
Net income
As reported................................................. $93,574 $159,284
Pro forma................................................... 86,421 154,433
Earnings per share
As reported................................................. $ 1.10 $ 1.89
Pro forma................................................... 1.02 1.83
Stock Option Plans
Under its stock option plans, all of which are fixed, 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. Stock options granted
generally have a maximum term of five years and vest over four years.
Stock option plan activity for the years 1996, 1995, and 1994 follows (in
thousands):
1996 1995 1994
----- ------ ------
Outstanding at January 1.................................. 7,230 7,637 7,516
Options granted......................................... 2,401 2,717 2,244
Options exercised....................................... (795) (2,790) (1,888)
Options canceled........................................ (333) (334) (235)
----- ------ ------
Outstanding at December 31................................ 8,503 7,230 7,637
----- ------ ------
Exercisable at December 31................................ 3,995 2,606 3,171
----- ------ ------
Available for grant at December 31........................ 5,042 4,912 6,388
----- ------ ------
Weighted average option exercise price information for the years 1996 and
1995 follows:
1996 1995
------ ------
Outstanding at January 1........................................... $13.63 $ 8.92
Options granted.................................................. $12.13 $19.80
Options exercised................................................ $ 8.11 $ 6.92
Options canceled................................................. $18.61 $11.10
Outstanding at December 31......................................... $13.53 $13.63
Exercisable at December 31......................................... $12.46 $11.00
23
25
TERADYNE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Significant option groups outstanding at December 31, 1996 and related
weighted average price and life information follows (options in thousands):
OPTIONS OUTSTANDING
------------------------------------------
WEIGHTED- OPTIONS EXERCISABLE
AVERAGE -------------------------
REMAINING WEIGHTED- WEIGHTED-
RANGE OF CONTRACTUAL AVERAGE AVERAGE
EXERCISE PRICES LIFE (YEARS) SHARES EXERCISE PRICE SHARES EXERCISE PRICE
- ---------------- ------------ ------ -------------- ------ --------------
$ 1.10 - $11.23 1.25 2,308 $ 8.73 1,812 $ 8.71
$11.83 - $19.63 2.90 1,927 $13.27 1,032 $13.20
$20.69 - $32.80 3.43 2,128 $20.90 760 $20.80
$11.63 4.56 2,140 $11.63 391 $11.63
----- -----
Total 3.00 8,503 $13.53 3,995 $12.46
===== =====
The weighted average fair value at date of grant for options granted during
1996 and 1995 was $4.79 and $8.69 per option, respectively. The fair value of
options at date of grant was estimated using the Black-Scholes model with the
following weighted average assumptions:
1996 1995
---- ----
Expected life (years).................................................. 3.9 4.2
Interest rate.......................................................... 6.7% 7.3%
Volatility............................................................. 41.8% 39.9%
Dividend yield......................................................... 0.0% 0.0%
Employee Stock Purchase Plans
Under the Company's 1979 Stock Purchase Plan, employees were entitled to
purchase shares of common stock through payroll deductions of up to 10% of their
compensation. The price paid for the common stock was 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 1997, the Company issued 506,820
shares of common stock to employees who participated in the Plan during 1996 at
a price of $20.82 per share. No future shares will be issued under this plan.
During 1996, the Company adopted the 1996 Employee Stock Purchase Plan and
authorized 700,000 shares for future issuance. Under this plan, eligible
employees may 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 the
first business day in January (July for new hires) or the last business day of
December. In January 1997, the Company issued 15,557 shares of common stock to
employees who participated in the plan during 1996 at a price of $15.09 per
share. Currently, there are 684,443 shares reserved for issuance.
The weighted-average fair value of purchase rights granted in 1996 and 1995
was $5.22 and $3.07, respectively. The fair value of the employees' purchase
rights was estimated using the Black-Scholes model with the following
assumptions for 1996 and 1995, respectively; dividend yield of 0.0% for both
years; an expected life of 1 year for both years; expected volatility of 44.7%
and 38.8%; and risk-free interest rates of 5.2% and 7.1%.
J. SAVINGS PLANS
The Company sponsors a Savings Plan covering substantially all U.S.
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
24
26
TERADYNE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 0.9
million 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 shares. Under the terms of the Plan, any gains realized
from the sale of option shares were first allocated to participants' accounts to
fund up to one-half of the minimum Company contribution. Any excess was 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 amounts charged to operations were $6.3 million in
1996, $8.3 million in 1995, and $2.0 million in 1994.
K. 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 the Company's common stock for $20
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 $40 worth of Common Stock (or
other securities or consideration owned by the Company) for $20. The Rights will
expire March 26, 2000 unless earlier redeemed by the Company.
L. INCOME TAXES
The components of income before income taxes and the provision for income
taxes as shown in the consolidated statements of income are as follows (in
thousands):
1996 1995 1994
-------- -------- --------
Income before income taxes:
United States........................................ $106,708 $212,551 $ 96,406
Non U.S.............................................. 32,955 37,374 17,619
-------- -------- --------
$139,663 $249,925 $114,025
======== ======== ========
Provision (credit) for income taxes:
Current:
U.S. Federal...................................... $ 40,033 $ 66,228 $ 26,395
Non U.S........................................... 14,802 12,604 2,924
State............................................. 5,861 7,889 4,441
-------- -------- --------
60,696 86,721 33,760
-------- -------- --------
Deferred:
U.S. Federal...................................... (13,667) (241) 3,834
Non U.S........................................... (632) 3,654 492
State............................................. (308) 507 (451)
-------- -------- --------
(14,607) 3,920 3,875
-------- -------- --------
$ 46,089 $ 90,641 $ 37,635
======== ======== ========
25
27
TERADYNE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Significant components of the Company's deferred tax assets (liabilities)
as of December 31, 1996 and 1995 are as follows (in thousands):
1996 1995
-------- --------
Deferred tax assets:
Inventory valuations......................................... $ 19,148 $ 4,863
Accruals..................................................... 2,680 1,470
Vacation..................................................... 4,200 4,324
In process research and development.......................... 2,726 3,374
Deferred revenue............................................. 1,488 5,748
U.S. federal operating loss carryforwards.................... 341 1,050
Tax credits.................................................. 8,457 4,097
Other........................................................ 2,732 1,260
-------- --------
Total deferred tax assets...................................... 41,772 26,186
-------- --------
Deferred tax liabilities:
Excess of tax over book depreciation......................... (14,919) (14,871)
Amortization................................................. (2,531) (2,853)
Pension...................................................... (1,349) (1,332)
Other........................................................ (4,531) (3,295)
-------- --------
Total deferred tax liabilities................................. (23,330) (22,351)
-------- --------
Net deferred asset............................................. $ 18,442 $ 3,835
======== ========
A reconciliation of the effective tax rate for the years 1996, 1995, and
1994 follows:
1996 1995 1994
---- ---- ----
U.S. statutory federal tax rate............................ 35.0% 35.0% 35.0%
State income taxes, net of federal tax benefit............. 2.6 2.0 2.7
Utilization of operating loss carryforwards................ 0.3
Tax credits................................................ (1.0) (0.6) (2.6)
Domestic export sales corporation.......................... (2.9) (2.3) (2.6)
Non-deductible merger costs................................ 0.8
Change in valuation allowance.............................. (0.8) (1.7)
Other, net................................................. (0.7) 1.9 2.2
---- ---- ----
33.0% 36.3% 33.0%
==== ==== ====
At December 31, 1996 the Company had U.S. Federal operating loss
carryforwards of approximately $1.0 million. These operating loss carryforwards
expire in the years 2000 through 2002. The Company has approximately $4.1
million of U.S. business tax credit carryforwards. Approximately $2.6 million of
these credits expire in the years 1997 through 1999, and $1.5 million expire in
the years 2003 through 2007. All of these losses and credits are limited in
their use by "change in ownership" rules as defined in the Internal Revenue Code
of 1986.
M. INDUSTRY SEGMENT AND GEOGRAPHIC INFORMATION
The Company operates in two industry segments, which are the design,
manufacturing and marketing of electronic test systems and backplane connection
systems. Corporate assets consist of cash and cash equivalents, marketable
securities, and certain other assets.
26
28
TERADYNE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
ELECTRONIC BACKPLANE
TEST CONNECTION
SYSTEMS SYSTEMS CORPORATE
INDUSTRY INDUSTRY AND
SEGMENT SEGMENT ELIMINATIONS CONSOLIDATED
---------- ---------- ------------ ------------
(IN THOUSANDS)
1996 Sales to unaffiliated customers............ $ 993,721 $177,894 $1,171,615
Intersegment sales........................ 9,065 $ (9,065)
---------- -------- -------- ----------
Net sales................................. 993,721 186,959 (9,065) 1,171,615
Operating income.......................... 112,036 29,561 (18,802) 122,795
Identifiable assets....................... 490,105 113,436 493,275 1,096,816
Property additions........................ 54,694 16,666 3,869 75,229
Depreciation and amortization expense..... 42,039 7,448 1,416 50,903
1995 Sales to unaffiliated customers............ $1,035,721 $155,301 $1,191,022
Intersegment sales........................ 12,325 $(12,325)
---------- -------- -------- ----------
Net sales................................. 1,035,721 167,626 (12,325) 1,191,022
Operating income.......................... 237,101 22,778 (15,523) 244,356
Identifiable assets....................... 640,597 91,205 292,029 1,023,831
Property additions........................ 77,552 12,038 3,611 93,201
Depreciation and amortization expense..... 37,274 4,670 1,202 43,146
1994 Sales to unaffiliated customers............ $ 645,929 $131,802 $ 777,731
Intersegment sales........................ 5,050 $ (5,050)
---------- -------- -------- ----------
Net sales................................. 645,929 136,852 (5,050) 777,731
Operating income.......................... 102,884 18,449 (13,305) 108,028
Identifiable assets....................... 440,117 82,820 236,543 759,480
Property additions........................ 30,835 9,005 855 40,695
Depreciation and amortization expense..... 31,847 5,754 841 38,442
The Company's sales, including domestic export and non U.S. jurisdictional
sales (which amounted to less than 10% of total net sales in all periods
presented) to unaffiliated customers for the three years ended December 31 were
made in the following geographic areas:
1996 1995 1994
---------- ---------- --------
(IN THOUSANDS)
Sales to unaffiliated customers:
United States................................. $ 536,826 $ 566,337 $416,199
Asia Pacific region........................... 209,429 256,901 138,458
Europe........................................ 241,244 222,194 133,127
Japan......................................... 139,095 94,706 68,019
Other......................................... 45,021 50,884 21,928
---------- ---------- --------
$1,171,615 $1,191,022 $777,731
========== ========== ========
See "Item 1: Business -- Marketing and Sales" elsewhere in this report for
information on the Company's export and non U.S. jurisdictional activities,
identifiable assets of non U.S. subsidiaries, and major customers.
27
29
SUPPLEMENTARY INFORMATION
(UNAUDITED)
The following sets forth certain unaudited consolidated quarterly
statements of operations data for each of the Company's last eight quarters. In
management's opinion, this quarterly information reflects all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
presentation for the periods presented. Such quarterly results are not
necessarily indicative of future results of operations and should be read in
conjunction with the audited consolidated financial statements of the Company
and the notes thereto included elsewhere herein.
1996
------------------------------------------------------------
1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER
----------- ------------ ----------- -----------
Net sales.................................... $348,967 $319,690 $261,671 $241,287
Expenses:
Cost of sales.............................. 186,637 214,718 163,747 159,522
Engineering and development................ 36,740 38,426 35,022 33,743
Selling and administrative................. 46,929 42,556 41,535 49,245
-------- -------- -------- --------
270,306 295,700 240,304 242,510
-------- -------- -------- --------
Income (loss) from operations................ 78,661 23,990 21,367 (1,223)
Other income (expense):
Interest income............................ 3,759 4,162 5,089 6,285
Interest expense........................... (642) (610) (513) (662)
-------- -------- -------- --------
Income before income taxes................... 81,778 27,542 25,943 4,400
Provision for income taxes................... 28,623 9,640 6,374 1,452
-------- -------- -------- --------
Net income................................... $ 53,155 $ 17,902 $ 19,569 $ 2,948
-------- -------- -------- --------
Net income per common share.................. $ 0.63 $ 0.21 $ 0.23 $ 0.03
======== ======== ======== ========
1995
------------------------------------------------------------
1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER
----------- ------------ ----------- -----------
Net sales.................................... $232,158 $284,849 $322,658 $351,357
Expenses:
Cost of sales.............................. 131,625 152,683 172,316 189,758
Engineering and development................ 24,986 30,795 32,966 34,740
Selling and administrative................. 38,919 42,715 45,353 49,810
-------- -------- -------- --------
195,530 226,193 250,635 274,308
-------- -------- -------- --------
Income from operations....................... 36,628 58,656 72,023 77,049
Other income (expense):
Merger expenses............................ (5,600)
Interest income............................ 3,085 3,547 3,670 3,907
Interest expense........................... (533) (730) (715) (1,062)
-------- -------- -------- --------
Income before income taxes................... 39,180 61,473 74,978 74,294
Provision for income taxes................... 14,706 22,666 26,756 26,513
-------- -------- -------- --------
Net income................................... $ 24,474 $ 38,807 $ 48,222 $ 47,781
-------- -------- -------- --------
Net income per common share.................. $ 0.30 $ 0.46 $ 0.57 $ 0.56
======== ======== ======== ========
28
30
REPORT OF INDEPENDENT ACCOUNTANTS
In our opinion, the consolidated balance sheet and related consolidated
statements of operations, of stockholders' equity and of cash flows of Megatest
Corporation (not presented separately herein) present fairly, in all material
respects, the financial position of Megatest Corporation and its subsidiaries at
August 31, 1994, and the results of their operations and their cash flows for
the year ended August 31, 1994, in conformity with generally accepted accounting
principles. 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 audit. We conducted our audit of these statements in
accordance with generally accepted auditing standards which 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, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for the opinion expressed
above.
As discussed in Note 1 to the consolidated financial statements referred to
above (and not included herein), Megatest Corporation changed its method of
accounting for income taxes effective September 1, 1993.
PRICE WATERHOUSE LLP
San Jose, California
September 20, 1995
29
31
ITEM 9: CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE.
None.
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 15,
1997, 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.
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 15,
1997, 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.
ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
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 15,
1997, 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.
ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
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 15,
1997, 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.
30
32
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, 1996 and 1995
Statements of Income for the years ended December 31, 1996, 1995, and
1994
Statements of Cash Flows for the years ended December 31, 1996, 1995,
and 1994
Statements of Changes in Shareholders' Equity for the years ended
December 31, 1996, 1995, and 1994
(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.
(b) Report on Form 8-K
There have been no Form 8-K filings during the three months ended December
31, 1996.
31
33
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 26th day of March,
1997.
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 Chairman of the Board March 26, 1997
- ------------------------------------------ and Chief Executive Officer
Alexander V. d'Arbeloff
JAMES A. PRESTRIDGE Vice Chairman of the Board and March 26, 1997
- ------------------------------------------ Executive Vice President
James A. Prestridge
OWEN W. ROBBINS Vice Chairman of the Board and March 26, 1997
- ------------------------------------------ Executive Vice President
Owen W. Robbins (Principal Financial Officer)
GEORGE W. CHAMILLARD President, Chief Operating March 26, 1997
- ------------------------------------------ Officer, and Member of the Board
George W. Chamillard
DONALD J. HAMMAN Controller March 26, 1997
- ------------------------------------------ (Principal Accounting Officer)
Donald J. Hamman
EDWIN L. ARTZT Director March 26, 1997
- ------------------------------------------
Edwin L. Artzt
JAMES W. BAGLEY Director March 26, 1997
- ------------------------------------------
James W. Bagley
ALBERT CARNESALE Director March 26, 1997
- ------------------------------------------
Albert Carnesale
DANIEL S. GREGORY Director March 26, 1997
- ------------------------------------------
Daniel S. Gregory
DWIGHT H. HIBBARD Director March 26, 1997
- ------------------------------------------
Dwight H. Hibbard
32
34
SIGNATURE TITLE DATE
--------- ----- ----
JOHN P. MULRONEY Director March 26, 1997
- ------------------------------------------
John P. Mulroney
RICHARD J. TESTA Director March 26, 1997
- ------------------------------------------
Richard J. Testa
PATRICIA S. WOLPERT Director March 26, 1997
- ------------------------------------------
Patricia S. Wolpert
33
35
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
----------- ----------- ----------------------
2.0 Agreement and Plan of Merger and Exhibit 2.0 to the Company's
Reorganization, as amended, dated Registration Statement on Form S-4
September 5, 1995, by and among the (Registration Statement No.
Company, M Merger Corp., and Megatest 33-63781).
Corporation
3.1 Restated Articles of Organization of Exhibit 4.1 to the Company's Form S-3
the Company, as amended Registration Statement No. 33-44347,
effective December 12, 1991.
3.2 Amendment, dated May 23, 1996, to
Restated Articles of Organization of
the Company, as amended
3.3 Amended and Restated Bylaws of the
Company
4.1 Rights Agreement between the Company Exhibit 4.1 to the Company's Current
and The First National Bank of Boston Report on Form 8-K dated March 15,
dated as of March 14, 1990 1990.
10.1 Multicurrency Revolving Credit Exhibit to the Company's Quarterly
Agreement dated April 29, 1991 Report on Form 10-Q for the quarterly
period ended March 30, 1991.
10.2 First Amendment to Multicurrency Exhibit 3.10 (ii) to the Company's
Revolving Credit Agreement dated as Annual Report on Form 10-K for the
of March 5, 1993 fiscal year ended December 31, 1992.
10.3 Second Amendment to Multicurrency Exhibit 10.3 to the Company's Annual
Revolving Credit Agreement dated as Report on Form 10-K for the fiscal
of January 31, 1996 year ended December 31, 1995.
10.4 1987 Non-Employee Director Stock Exhibit 3.10 (iii) to the Company's
Option Plan Annual Report on Form 10-K for the
fiscal year ended December 31, 1992.
10.5 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.
10.6 1991 Employee Stock Option Plan, as Exhibit 4.2 to the Company's
amended Registration Statement on Form S-8
(Registration Statement No.
33-07177).
10.7 1979 Stock Purchase Plan, as amended Exhibit 10.6 to the Company's Annual
Report on Form 10-K for the fiscal
year ended December 31, 1994.
10.8 1990 Megatest Stock Option Plan Exhibit 4.1 to the Company's
Registration Statement on Form S-8
(Registration Statement No.
33-64683).
10.9 Megatest Corporation Director Stock Exhibit 4.2 to the Company's
Option Plan Registration Statement on Form S-8
(Registration Statement No.
33-64683).
10.10 1996 Stock Purchase Plan Exhibit 4.1 to the Company's
Registration Statement on Form S-8
(Registration Statement No.
33-07177).
10.11 Master Lease Agreement between Exhibit 10.10 to the Company's Annual
Megatest and General Electric Capital Report on Form 10-K for the fiscal
Corporation dated August 10, 1995 year ended December 31, 1995.
34
36
EXHIBIT NO. DESCRIPTION SEC DOCUMENT REFERENCE
----------- ------------------------------------- -------------------------------------
10.12 Loan and Security Agreement between Exhibit 10.11 to the Company's Annual
Megatest and the CIT Group/Equipment Report on Form 10-K for the fiscal
Financing, Inc. dated August 14, 1995 year ended December 31, 1995.
10.13 Deed of Trust, Financing Statement, Exhibit 10.12 to the Company's Annual
Security Agreement and Fixture Filing Report on Form 10-K for the fiscal
between Megatest and the Sun Life year ended December 31, 1995.
Assurance Company of Canada (U.S.)
dated August 25, 1995
10.14 1997 Employee Stock Option Plan
10.15 Letter Agreement dated January 24,
1997 between the Company and
Executive Officer.
22.1 Subsidiaries of the Company
23.1 Consent of Coopers & Lybrand L.L.P.
23.2 Consent of Price Waterhouse L.L.P.
27.0 Financial Data Schedule
35