SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------
FORM 10-Q
-------------
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 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 July 30, 1996 was 83,478,798 shares.
1
<PAGE>
<TABLE>
TERADYNE, INC.
INDEX
Page No.
--------
<CAPTION>
PART I. FINANCIAL INFORMATION
<S> <C>
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets -
June 30, 1996 and December 31, 1995...........................................................3
Condensed Consolidated Statements of Income -
Quarters and Six Months Ended June 30, 1996 and July 2, 1995..................................4
Condensed Consolidated Statements of Cash Flows -
Six Months Ended June 30, 1996 and July 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
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders.................................................10
</TABLE>
2
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<TABLE>
TERADYNE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
<CAPTION>
ASSETS
June 30, 1996 December 31, 1995
------------- -----------------
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents.................................................... $ 204,354 $ 182,165
Marketable securities........................................................ 98,739 93,662
Accounts receivable.......................................................... 222,594 254,820
Inventories:
Parts.................................................................. 112,820 120,011
Assemblies in process.................................................. 55,932 56,840
------------ ------------
168,752 176,851
Deferred tax assets.......................................................... 17,880 19,546
Prepayments and other current assets......................................... 17,485 13,101
------------ ------------
Total current assets................................................... 729,804 740,145
Property, plant, and equipment, at cost:........................................ 548,436 512,986
Less: Accumulated depreciation............................................ (270,264) (255,968)
------------ ------------
Net property, plant, and equipment..................................... 278,172 257,018
Marketable securities........................................................... 60,991 0
Other assets.................................................................... 23,484 26,668
------------ ------------
Total assets........................................................... $ 1,092,451 $ 1,023,831
============ ============
LIABILITIES
Current liabilities:
Notes payable - banks........................................................ $ 7,744 $ 8,141
Current portion of long-term debt............................................ 2,055 2,082
Accounts payable............................................................. 28,207 42,229
Accrued employees' compensation and withholdings............................. 56,723 66,000
Unearned service revenue and customer advances............................... 62,327 53,587
Other accrued liabilities.................................................... 53,340 41,395
Income taxes payable......................................................... 12,820 16,157
------------ ------------
Total current liabilities.............................................. 223,216 229,591
Deferred tax liabilities........................................................ 10,178 15,711
Long-term debt.................................................................. 17,538 18,679
------------ ------------
Total liabilities...................................................... 250,932 263,981
------------ ------------
SHAREHOLDERS' EQUITY
Common stock $0.125 par value, authorized 250,000 shares (125,000 in 1995),
issued and outstanding after deduction of reacquired
shares, 83,473 in 1996 and 82,634 in 1995.................................... 10,433 10,329
Additional paid-in capital...................................................... 377,478 366,970
Retained earnings............................................................... 453,608 382,551
------------ ------------
Total shareholders' equity............................................. 841,519 759,850
------------ ------------
Total liabilities and shareholders' equity............................. $ 1,092,451 $ 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>
</TABLE>
3
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<TABLE>
TERADYNE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<CAPTION>
For the Quarters Ended For the Six Months Ended
(In thousands, except per share amounts)
June 30, 1996 July 2, 1995 June 30, 1996 July 2, 1995
------------- ------------ ------------- ------------
<S> <C> <C> <C> <C>
Net sales................................... $ 319,690 $ 284,849 $ 668,657 $ 517,007
Expenses:
Cost of products sold.................. 180,618 152,683 367,255 284,308
Product line consolidation............. 34,100 0 34,100 0
---------- ---------- ----------- -----------
Cost of sales.................... 214,718 152,683 401,355 284,308
Engineering and development............ 38,426 30,795 75,166 55,781
Selling and administrative............. 42,556 42,715 89,485 81,634
---------- ---------- ----------- -----------
295,700 226,193 566,006 421,723
---------- ---------- ----------- -----------
Income from operations...................... 23,990 58,656 102,651 95,284
Other income (expense):
Interest income......................... 4,162 3,547 7,921 6,632
Interest expense........................ (610) (730) (1,252) (1,263)
---------- ---------- ----------- -----------
Income before income taxes.................. 27,542 61,473 109,320 100,653
Provision for income taxes.................. 9,640 22,666 38,263 37,372
---------- ---------- ----------- -----------
Net income.................................. $ 17,902 $ 38,807 $ 71,057 $ 63,281
========== ========== =========== ===========
Net income per common share................. $ 0.21 $ 0.46 $ 0.84 $ 0.76
========== ========== =========== ===========
Shares used in calculations of
net income per common share............. 85,001 84,074 84,986 83,212
========== ========== =========== ===========
<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 Six Months Ended
------------------------
June 30, 1996 July 2, 1995
------------- ------------
(In thousands)
<S> <C> <C>
Cash flows from operating activities:
Net income........................................................ $ 71,057 $ 63,281
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization.................................. 24,807 19,682
Deferred income taxes.......................................... (3,867) 952
Product line consolidation..................................... 34,100 0
Other non-cash items, net...................................... (389) 4,209
Changes in operating assets and liabilities:
Accounts receivable....................................... 30,826 (54,725)
Inventories............................................... (14,297) (17,219)
Other assets.............................................. (1,874) (8,214)
Accounts payable and accruals............................. (9,313) 30,048
Income taxes payable...................................... (1,651) 16,443
----------- -----------
Net cash provided by operating activities............. 129,399 54,457
Cash flows from investing activities:
Additions to property, plant and equipment........................ (38,658) (33,063)
Increase in equipment manufactured by the Company................. (10,430) (9,668)
Purchases of marketable securities................................ (184,204) (97,007)
Maturities of marketable securities............................... 118,136 19,766
----------- -----------
Net cash used in investing activities................. (115,156) (119,972)
----------- -----------
Cash flows from financing activities:
Net borrowings under short-term borrowing agreements.............. 0 4,400
Payments of long term debt........................................ (980) ( 131)
Issuance of common stock under employee stock
option and stock purchase plans............................... 8,926 18,859
----------- -----------
Net cash flows provided by financing activities....... 7,946 23,128
----------- -----------
Increase (decrease) in cash and cash equivalents....................... 22,189 (42,387)
Cash and cash equivalents at beginning of period....................... 182,165 191,869
----------- -----------
Cash and cash equivalents at end of period............................. $ 204,354 $ 149,482
=========== ===========
Supplementary disclosure of cash flow information:
Cash paid during the period for:
Interest................................................ $ 1,318 $ 1,269
Income taxes............................................ 44,665 18,913
<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. Accounting Policies
Basis of Presentation
The accompanying condensed consolidated financial statements include the
accounts of Teradyne, Inc. (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 as of and for the six months ended July 2, 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.
B. Product Line Consolidation
During the second quarter of 1996, the Company announced a plan to
consolidate the VLSI product lines of Megatest and Teradyne. In connection with
this plan, the Company provided $34.1 million in charges, which included a $26.0
million write-down of inventory to net realizable value and $6.7 million for the
cost of identified customer obligations on VLSI systems.
C. Acquisition of Midnight Networks, Inc.
On June 14, 1996, the Company acquired Midnight Networks, Inc.
("Midnight"), for an initial purchase price of approximately $4.0 million in
cash. In addition, the asset purchase agreement calls for the Company to make
cash payments in the form of compensation, contingent upon the operating results
of Midnight, over a period beginning January 1, 1998 and ending December 31,
2000. Midnight, founded in 1992, develops and markets software programming
solutions to test and confirm the correct operation of networking products and
systems. The acquisition was accounted for by the purchase method of accounting.
Operations of Midnight have been included in the accompanying condensed
consolidated financial statements from the date of acquisition. Pro-forma
results of operations have not been presented because the effects of the
acquisition were not significant. The Company allocated $4.0 million of the
purchase price to software products not considered to have reached technological
feasibility and therefore were immediately expensed.
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 Quarters Ended For the Six Months Ended
---------------------- ------------------------
June 30, 1996 July 2, 1995 June 30, 1996 July 2, 1995
------------- ------------ ------------- ------------
(In thousands)
<S> <C> <C> <C> <C>
Net sales...................................... $319,690 $284,849 $668,657 $517,007
============= ============= ============== =============
Net income..................................... $17,902 $38,807 $71,057 $63,281
============= ============= ============== =============
Percentage of net sales:
Net sales................................. 100% 100% 100% 100%
Expenses:
Cost of products sold................ 56 54 55 55
Product line consolidation........... 11 0 5 0
------------- ------------- -------------- -------------
Cost of sales................... 67 54 60 55
------------- ------------- -------------- -------------
Engineering and development.......... 12 11 11 11
Selling and administrative........... 13 15 14 16
Interest, net........................ (1) (1) (1) (1)
------------- -------------
-------------- -------------
91 79 84 81
Income before income taxes................ 9 21 16 19
Provision for income taxes................ 3 7 5 7
------------- -------------
-------------- -------------
Net income................................ 6% 14% 11% 12%
============= ============= -------------- -------------
Provision for income taxes as a percentage
of income before income taxes............. 35% 37% 35% 37%
============= ============= ============== =============
<FN>
Results of Operations
- ---------------------
Sales increased 12% to $319.7 million in the second quarter of 1996
compared to the second quarter of 1995. Semiconductor test systems sales
increased 13%, circuit-board test systems sales increased 22%, and sales of
backplane connection systems increased 6%. Telecommunications test systems sales
decreased by 2%. In the first six months of 1996, sales increased 29% to $668.7
million. Net income before income taxes declined to $17.9 million in the second
quarter compared to $38.8 million in the same period last year. The decrease in
net income was the result of pre-tax nonrecurring charges of $34.1 million for
product line consolidation and $4.0 million for the purchase of in-process
technology. For the six months of 1996, net income increased $7.8 million
compared to the first six months of 1995.
7
<PAGE>
Incoming orders were $220.8 million in the second quarter of 1996 compared
to $464.0 million (which included $98.0 million in multi-year government
contracts) in the second quarter of 1995. The decrease in orders was primarily
driven by a slowing of semiconductor test systems orders which reflects the
current industry conditions. Circuit-board test systems and telecommunications
test systems also declined. Orders for backplane connection systems rose with
strong demand from their increasing base of commercial customers. The Company
expects shipments and net income to decline in the third quarter as a result of
the reduction in semiconductor test systems orders. As a result of the current
business environment, the Company has implemented a number of programs aimed at
reducing expense and capital expenditures. The Company's backlog was $517.0
million at the end of the second quarter of 1996 compared with $690.0 million at
the end of the second quarter of 1995.
Cost of products sold as a percentage of sales (excluding product line
consolidation charges), increased from 54% in the second quarter of 1995 to 56%
in the second quarter of 1996 due to increasing shipments of lower margin
government contracts and increased costs in support of semiconductor test
systems products. Cost of products sold in both the first six months of 1995 and
the first six months of 1996 (excluding product line consolidation charges) were
55%.
As a result of the slowing of semiconductor test systems orders, the
Company in the second quarter of 1996, decided to accelerate the consolidation
of the VLSI product lines of Megatest and Teradyne. In connection with this
consolidation, the Company provided $34.1 million in charges, which included a
$26.0 million write-down of inventory to net realizable value and $6.7 million
for the cost of identified customer obligations on VLSI systems.
Engineering and development spending grew to $38.4 million in the second
quarter of 1996 from $30.8 million in the second quarter of 1995. Included in
the two periods were nonrecurring charges of $4.0 million and $3.0 million,
respectively for the purchase of in-process technology to be used in product
development. The in-process technology had not reached technological feasibility
and was accordingly immediately expensed. The $4.0 million charge in the second
quarter of 1996 relates to the purchase of Midnight Networks Inc., which
develops and markets software used to test computer networks (also see Note C.
to the condensed consolidated financial statements). The expenses before
nonrecurring charges grew $6.6 million primarily as a result of increased
investment in new product development of semiconductor test systems. As a
percentage of sales, engineering and development expenses were 11% in both the
first six months of 1995 and the first six months of 1996.
Selling and administrative expenses decreased to 13% of sales in the second
quarter and 14% of sales in the first six months of 1996 compared with 15% of
sales in the second quarter and 16% of sales in the first six months of 1995.
The Company has been able to hold level the dollar amount of these expenses as
the sales volume has increased.
Interest income increased in the second quarter of 1996 to $4.2 million
from $3.5 million in the second quarter of 1995 due to an increase in the
Company's average invested balances. Interest expense decreased slightly from
$.7 million in the second quarter of 1995 to $.6 million in the second quarter
of 1996.
The Company's effective income tax rate was 35.0% in the first six months
of 1996 which is the current estimate for the fiscal year. 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
$88.3 million in the first six months of 1996. Cash flow generated from
operations was $129.4 million and $8.9 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 $49.1
million in the first six months of 1996, an increase of $6.4 million compared to
$42.7 million in additions in the first six months of 1995.
The Company believes its cash and cash equivalents balance of $204.4
million, together with other sources of funds, including marketable securities
of $159.7 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 over the
next twelve months.
8
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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 level and profitability in
the third quarter of 1996 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>
</TABLE>
9
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<TABLE>
Item 4. Submission of Matters to a Vote of Security Holders
The annual meeting of security holders of the Company was held May 23, 1996 The
following were elected as Directors:
<CAPTION>
Total Vote Total Vote Withheld
Nominee For Each Nominee For Each Nominee
- ------- ---------------- ----------------
<S> <C> <C>
Alex V. d'Arbeloff 70,271,389 1,181,429
Edwin L. Artzt 70,275,133 1,177,685
James W. Bagley 70,282,936 1,169,882
Daniel S. Gregory 70,282,306 1,170,512
<FN>
The Term of office for the following directors continued after the meeting: Albert Carnesale, Dwight H. Hibbard, John P. Mulroney,
James A. Prestridge, Owen W. Robbins, and Richard J. Testa.
</FN>
</TABLE>
In addition, the following proposals were approved:
(A) an amendment to the Registrant's Restated Articles of Organization, to
increase the amount of the Registrant's authorized Common Stock, par value
$0.125 per share, from 125,000,000 to 250,000,000, was approved, with 63,652,370
shares voting in favor, 7,683,480 shares voting against, and 116,968 shares
abstaining.
(B) to amend the 1991 Employee Stock Option Plan (the Plan):
(i) to increase the aggregate number of shares of Common Stock which may
be issued pursuant to the Plan by 3,000,000 shares and
(ii)to permit grants threunder to comply with Section 162(m) of the
Internal Revenue Code.
With 45,116,006 shares voting in favor; 26,182,543 shares voting against; and
154,269 shares abstaining.
(C) to approve the adoption of the 1996 Employee Stock Purchase Plan, with
69,678,484 shares voting in favor, 1,644,147 shares voting against, and 130,187
shares abstaining.
(D) to ratify the selection of the firm Coopers & Lybrand L.L.P. as auditors for
the fiscal year ending December 31, 1996, with 71,250,722 shares voting in
favor, 116,003 shares voting against, and 86,093 shares abstaining.
10
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities
Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
TERADYNE, INC.
------------------------
Registrant
OWEN W. ROBBINS
------------------------
Owen W. Robbins
Executive Vice President
August 15, 1996
11
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEET AT JUNE 30, 1996 AND THE CONDENSED
CONSOLIDATED STATEMENT OF INCOME FOR THE SIX MONTHS ENDED JUNE 30, 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> 6-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<EXCHANGE-RATE> 1.00
<CASH> 204,354
<SECURITIES> 98,739
<RECEIVABLES> 225,984
<ALLOWANCES> 3,390
<INVENTORY> 168,752
<CURRENT-ASSETS> 729,804
<PP&E> 548,436
<DEPRECIATION> 270,264
<TOTAL-ASSETS> 1,092,451
<CURRENT-LIABILITIES> 223,216
<BONDS> 17,538
<COMMON> 10,433
0
0
<OTHER-SE> 831,086
<TOTAL-LIABILITY-AND-EQUITY> 1,092,451
<SALES> 668,657
<TOTAL-REVENUES> 668,657
<CGS> 401,355
<TOTAL-COSTS> 566,006
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,252
<INCOME-PRETAX> 109,320
<INCOME-TAX> 38,263
<INCOME-CONTINUING> 71,057
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 71,057
<EPS-PRIMARY> 0.84
<EPS-DILUTED> 0.84
</TABLE>
