SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
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(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________ to ______________
Commission File No. 1-6462
TERADYNE, INC.
(Exact name of registrant as specified in its charter)
Massachusetts 04-2272148
(State or Other Jurisdiction (I.R.S.Employer
Incorporation or Organization) Identification No.)
321 Harrison Avenue, Boston, Massachusetts 02118
(Address of principal executive offices) (Zip Code)
617-482-2700
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to the
filing requirements for the past 90 days. Yes X No _
The number of shares outstanding of the registrant's only class of Common
Stock as of May 2, 1996 was 83,403,785 shares.
1
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TERADYNE, INC.
INDEX
<TABLE>
<CAPTION>
Page No.
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PART I. FINANCIAL INFORMATION
<S> <C>
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets -
March 31, 1996 and December 31, 1995..........................................................3
Condensed Consolidated Statements of Income -
Quarters Ended March 31, 1996 and April 2, 1995...............................................4
Condensed Consolidated Statements of Cash Flows -
Quarters Ended March 31, 1996 and April 2, 1995...............................................5
Notes to Condensed Consolidated Financial Statements...............................................6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations................................................7-9
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2
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<TABLE>
TERADYNE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
<CAPTION>
ASSETS
March 31, 1996 December 31, 1995
-------------- -----------------
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents.................................................... $ 171,593 $ 182,165
Marketable securities........................................................ 137,323 93,662
Accounts receivable.......................................................... 268,566 254,820
Inventories:
Parts.................................................................. 144,512 120,011
Assemblies in process.................................................. 60,035 56,840
---------- ----------
204,547 176,851
Deferred tax assets.......................................................... 19,546 19,546
Prepayments and other current assets......................................... 19,983 13,101
---------- ----------
Total current assets................................................... 821,558 740,145
Property, plant, and equipment, at cost:........................................ 524,237 512,986
Less: Accumulated depreciation............................................ (260,246) (255,968)
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Net property, plant, and equipment..................................... 263,991 257,018
Other assets.................................................................... 25,093 26,668
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Total assets........................................................... $1,110,642 $1,023,831
========== ==========
LIABILITIES
Current liabilities:
Notes payable - banks........................................................ $ 7,940 $ 8,141
Current portion of long-term debt............................................ 2,504 2,082
Accounts payable............................................................. 51,416 42,229
Accrued employees' compensation and withholdings............................. 47,056 66,000
Unearned service revenue and customer advances............................... 60,200 53,587
Other accrued liabilities.................................................... 45,548 41,395
Income taxes payable......................................................... 39,515 16,157
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Total current liabilities.............................................. 254,179 229,591
Deferred tax liabilities........................................................ 15,711 15,711
Long-term debt.................................................................. 18,158 18,679
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Total liabilities...................................................... 288,048 263,981
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SHAREHOLDERS' EQUITY
Common stock $0.125 par value, authorized 125,000 shares, issued and outstanding
after deduction of reacquired shares, 83,384 in 1996 and 82,634 in 1995........ 10,422 10,329
Additional paid-in capital...................................................... 376,466 366,970
Retained earnings............................................................... 435,706 382,551
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Total shareholders' equity............................................. 822,594 759,850
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Total liabilities and shareholders' equity............................. $1,110,642 $1,023,831
========== ==========
<FN>
The accompanying notes, together with the Notes to Consolidated Financial
Statements included in the Company's Annual Report on Form 10-K for the year
ended December 31, 1995 are an integral part of the condensed consolidated
financial statements.
</FN>
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3
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<TABLE>
TERADYNE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<CAPTION>
For the Three Months Ended
--------------------------
(In thousands, except per share amounts)
March 31, 1996 April 2, 1995
--------------- -------------
<S> <C> <C>
Net sales............................................................ $ 348,967 $ 232,158
Expenses:
Cost of sales................................................... 186,637 131,625
Engineering and development..................................... 36,740 24,986
Selling and administrative...................................... 46,929 38,919
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270,306 195,530
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Income from operations............................................... 78,661 36,628
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Other income (expense):
Interest income.................................................. 3,759 3,085
Interest expense................................................. (642) (533)
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Income before income taxes........................................... 81,778 39,180
Provision for income taxes........................................... 28,623 14,706
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Net income........................................................... $ 53,155 $ 24,474
========== ==========
Net income per common share.......................................... $ 0.63 $ 0.30
========== ==========
Shares used in calculations of
net income per common share........................................ 84,970 82,350
========== ==========
<FN>
The accompanying notes, together with the Notes to Consolidated Financial
Statements included in the Company's Annual Report on Form 10-K for the year
ended December 31, 1995 are an integral part of the condensed consolidated
financial statements.
</FN>
</TABLE>
4
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<TABLE>
TERADYNE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<CAPTION>
For the Three Months Ended
--------------------------
March 31, 1996 April 2, 1995
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(In thousands)
<S> <C> <C>
Cash flows from operating activities:
Net income........................................................ $ 53,155 $ 24,474
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization.................................. 12,317 9,915
Deferred income taxes.......................................... 952
Other non-cash items, net...................................... (134) 1,392
Changes in operating assets and liabilities:
Accounts receivable....................................... (13,746) (26,353)
Inventories............................................... (24,092) (3,408)
Other assets.............................................. (5,642) (6,502)
Accounts payable and accruals............................. 1,492 7,484
Income taxes payable...................................... 24,787 10,436
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Net cash provided by operating activities............. 48,137 18,390
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Cash flows from investing activities:
Additions to property, plant and equipment........................ (18,002) (14,109)
Increase in equipment manufactured by the Company................. (4,717) (3,395)
Purchases of marketable securities................................ (93,067) (77,591)
Maturities of marketable securities............................... 49,406 19,766
----------- ----------
Net cash used in investing activities................. (66,380) (75,329)
----------- ----------
Cash flows from financing activities:
Net borrowings under short-term borrowing agreements.............. 4,400
Payments of long term debt........................................ (489) ( 14)
Issuance of common stock under employee stock
option and stock purchase plans................................. 8,160 11,815
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Net cash flows provided by financing activities....... 7,671 16,201
----------- ----------
Decrease in cash and cash equivalents.................................. (10,572) (40,738)
Cash and cash equivalents at beginning of period....................... 182,165 191,869
----------- ----------
Cash and cash equivalents at end of period............................. $ 171,593 $ 151,131
=========== ==========
Supplementary disclosure of cash flow information:
Cash paid during the period for:
Interest........................................................ $ 806 $ 600
Income taxes.................................................... 3,639 2,254
<FN>
The accompanying notes, together with the Notes to Consolidated Financial
Statements included in the Company's Annual Report on Form 10-K for the year
ended December 31, 1995 are an integral part of the condensed consolidated
financial statements.
</FN>
</TABLE>
5
<PAGE>
TERADYNE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
A. The Company
Teradyne, Inc. (the "Company") designs, manufactures, markets, and services
electronic test systems and related software used by component manufacturers in
the design and testing of their products and by electronic equipment
manufacturers for the incoming inspection of components and for the design and
testing of circuit boards and other assemblies. Manufacturers use such systems
and software to increase product performance, to improve product quality, to
shorten time to market, to enhance manufacturability, to conserve labor costs,
and to increase production yields. The Company's electronic systems are also
used by telephone operating companies for the testing and maintenance of their
subscriber telephone lines and related equipment.
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 accompanying condensed consolidated financial statements include the
accounts of the Company and its subsidiaries, all of which are wholly owned. All
significant intercompany balances and transactions are eliminated. Certain prior
years' amounts have been 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 of M Merger Corp., a
wholly owned subsidiary of the Company, with and into Megatest. As a result of
the merger, Megatest became a wholly owned subsidiary of the Company. The
Megatest combination has been accounted for as a pooling of interests. The
accompanying condensed consolidated financial statements of the Company for the
first quarter of 1995 have been restated to include the financial position and
results of operations of the combined companies.
Preparation of Financial Statements
The accompanying condensed consolidated financial statements are unaudited.
However, in the opinion of management, all adjustments (consisting only of
normal recurring accrual entries) necessary for a fair presentation of such
information have been made. The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the dates of
the financial statements and the reported amounts of revenues and expenses
during the reported periods. Actual results could differ from those estimates.
6
<PAGE>
Item 2: Management's Discussion and Analysis of Financial Condition
and Results of Operations
<TABLE>
SELECTED RELATIONSHIPS WITHIN THE CONDENSED CONSOLIDATED
STATEMENTS OF INCOME
<CAPTION>
For the Three Months Ended
--------------------------
March 31, 1996 April 2, 1995
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(In thousands)
<S> <C> <C>
Net sales............................................................ $ 348,967 $ 232,158
========= ========
Net income........................................................... $ 53,155 $ 24,474
========= =========
Percentage of net sales:
Net sales....................................................... 100% 100%
Expenses:
Cost of sales.............................................. 54 56
Engineering and development................................ 11 11
Selling and administrative................................. 13 17
Interest, net.............................................. (1) (1)
--------- ---------
77 83
Income before income taxes...................................... 23 17
Provision for income taxes...................................... 8 6
--------- ---------
Net income...................................................... 15% 11%
========= =========
Provision for income taxes as a percentage
of income before income taxes................................... 35% 38%
========= =========
<FN>
Results of Operations
- ---------------------
Sales increased 50% to $349.0 million in the first quarter of 1996 compared
to the first quarter of 1995. 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.
The growth was driven by a 72% increase in demand for semiconductor test systems
as capacity expansions at semiconductor manufacturers continued.
Telecommunications test systems sales increased 43% as the Company fulfills its
deployment contract with Deutsche Telekom in Germany. Circuit-board test systems
sales increased 12%, while sales of backplane connection systems increased 2%.
As a result of the increase in sales, income before income taxes more than
doubled, increasing $42.6 million to $81.8 million.
Incoming orders were $305.6 million in the first quarter of 1996 compared
to $326.2 million in the first quarter of 1995. The decrease in orders was
primarily due to a slowing of semiconductor test systems orders. Orders for
backplane connection systems and circuit-board test systems increased while
telecommunications test systems also declined. The decrease in orders, if
continued, will impact shipment levels in future quarters. The Company's backlog
was $615.9 million at the end of the first quarter of 1996 compared with $512.3
million at the end of the first quarter of 1995 .
Cost of sales, as a percentage of sales, decreased from 56% in the first
quarter of 1995 to 54% in the first quarter of 1996. The improvement was
primarily the result of increased utilization of the Company's manufacturing
overhead. In addition, there was a favorable change in product portfolio as
sales of backplane connection systems, whose product margins are generally lower
than those of electronic test systems, were lower as a percentage of total
Company sales.
7
<PAGE>
Engineering and development spending grew to $36.7 million in the first
quarter of 1996 from $25.0 million in the first quarter of 1995, a consistent
11% of sales. The expenses grew $11.7 million primarily as a result of increased
investment in new product development of semiconductor test systems. Selling and
administrative expenses decreased to 13% of sales in the first quarter of 1996
compared with 17% of sales in the first quarter of 1995, as the dollar volume of
these expenses grew by 21% while sales advanced 50%.
Interest income increased in the first quarter of 1996 to $3.8 million from
$3.1 million in the first quarter of 1995 due to an increase in the Company's
average invested balances and higher interest rates. Interest expense increased
slightly from $.5 million in the first quarter of 1995 to $.6 million in the
first quarter of 1996.
The Company's effective income tax rate was 35.0% in the first quarter
which is the current estimate for fiscal year 1996. That compares with 36.3% for
fiscal year 1995. The 1995 effective tax rate was driven above the statutory
rate of 35% due primarily to non-deductible merger expenses incurred in
connection with the Megatest acquisition.
Liquidity and Capital Resources
- -------------------------------
The Company's cash, cash equivalents and marketable securities balance grew
$33.1 million in the first three months of 1996. Cash flow generated from
operations was $48.1 million and $8.2 million 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 $22.7
million in the first quarter of 1996.
The Company believes its cash and cash equivalents balance of $171.6
million, together with other sources of funds, including marketable securities
of $137.3 million, 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 1996.
Certain Factors That May Affect Future Results
- ----------------------------------------------
From time to time, information provided by the Company, statements made by
its employees or information included in its filings with the Securities and
Exchange Commission (including this Form 10-Q, the Company's Annual Report on
Form 10-K, and the Company's Annual Report to Shareholders) may contain
statements which are not historical facts, so-called "forward looking
statements," which involve risks and uncertainties. In particular, statements in
"Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations" relating to the Company's shipment levels in future quarters and
the sufficiency of capital to meet working capital and capital expenditure
requirements may be forward looking statements. The Company's actual future
results may differ significantly from those stated in any forward looking
statements. Factors that may cause such differences include, but are not limited
to, the factors discussed below. Each of these factors, and others, are
discussed from time to time in the Company's filings with the Securities and
Exchange Commission.
The Company's future results are subject to substantial risks and
uncertainties. The Company's business and results of operations depend in
significant part upon capital expenditures of manufacturers of semiconductors,
which in turn depend upon the current and anticipated market demand for
semiconductors and products incorporating semiconductors. Historically, 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. In addition, any
factor adversely affecting the semiconductor industry or particular segments
within the semiconductor industry may adversely affect the Company's business,
financial condition and operating results.
The Company's quarterly and annual operating results are affected by a wide
variety of factors that could materially adversely affect revenues and
profitability, including: competitive pressures on selling prices; the timing
and cancellation of customer orders; changes in product mix; the Company's
ability to introduce new products and technologies on a timely basis;
introduction of products and technologies by the Company's competitors; market
acceptance of the Company's and its competitors' products; 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.
</FN>
8
<PAGE>
SIGNATURES
----------
<S> <C>
Pursuant to the requirements of the Securities
Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
TERADYNE, INC.
------------------------
Registrant
OWEN W. ROBBINS
------------------------
Owen W. Robbins
Executive Vice President
May 15, 1996
9
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<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEET AT MARCH 31, 1996 AND THE CONDENSED
CONSOLIDATED STATEMENT OF INCOME FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000097210
<NAME> TERADYNE, INC.
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<EXCHANGE-RATE> 1.00
<CASH> 171,593
<SECURITIES> 137,323
<RECEIVABLES> 270,598
<ALLOWANCES> 2,032
<INVENTORY> 204,547
<CURRENT-ASSETS> 821,558
<PP&E> 524,237
<DEPRECIATION> 260,246
<TOTAL-ASSETS> 1,110,642
<CURRENT-LIABILITIES> 254,179
<BONDS> 18,158
<COMMON> 10,422
0
0
<OTHER-SE> 812,172
<TOTAL-LIABILITY-AND-EQUITY> 1,110,642
<SALES> 348,967
<TOTAL-REVENUES> 348,967
<CGS> 186,637
<TOTAL-COSTS> 270,306
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 642
<INCOME-PRETAX> 81,778
<INCOME-TAX> 28,623
<INCOME-CONTINUING> 53,155
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 53,155
<EPS-PRIMARY> 0.63
<EPS-DILUTED> 0.63
</TABLE>
