SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________
FORM 10-Q
_____________
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 27, 1998
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 October 25, 1998 was 84,156,169 shares.
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<TABLE>
TERADYNE, INC.
INDEX
<CAPTION>
PART I. FINANCIAL INFORMATION Page No.
----------------------------- --------
<S> <C>
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets -
September 27, 1998 (Unaudited) and December 31, 1997..........................................3
Condensed Consolidated Statements of Income - (Unaudited)
Three and Nine Months Ended September 27, 1998 and September 28, 1997.........................4
Condensed Consolidated Statements of Cash Flows - (Unaudited)
Nine Months Ended September 27, 1998 and September 28, 1997...................................5
Notes to Condensed Consolidated Financial Statements (Unaudited)...................................6-7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.................................................8-10
</TABLE>
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<TABLE>
TERADYNE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<CAPTION>
ASSETS
September 27, 1998 December 31, 1997
------------------ -----------------
(Unaudited)
(In thousands)
<S> <C> <C>
Current assets:
Cash and cash equivalents....................................................$ 131,264 $ 74,668
Marketable securities........................................................ 21,478 18,693
Accounts receivable.......................................................... 281,097 300,933
Inventories:
Parts.................................................................. 188,290 168,385
Assemblies in process.................................................. 108,359 103,972
-------------- -------------
296,649 272,357
Deferred tax assets.......................................................... 40,530 40,530
Prepayments and other current assets......................................... 24,620 19,902
-------------- -------------
Total current assets................................................... 795,638 727,083
Property, plant, and equipment, at cost:........................................ 838,637 692,832
Less: Accumulated depreciation............................................ (402,390) (349,707)
-------------- -------------
Net property, plant, and equipment..................................... 436,247 343,125
Long-term marketable securities................................................. 77,307 156,574
Other assets.................................................................... 23,108 24,892
-------------- -------------
Total assets...........................................................$ 1,332,300 $ 1,251,674
============== =============
LIABILITIES
Current liabilities:
Notes payable - banks........................................................$ 6,313 $ 6,632
Current portion of long-term debt............................................ 1,636 1,807
Accounts payable............................................................. 60,476 58,685
Accrued employees' compensation and withholdings............................. 67,717 77,299
Unearned service revenue and customer advances............................... 64,274 49,122
Other accrued liabilities.................................................... 61,634 65,642
Income taxes payable......................................................... 3,407 18,786
-------------- -------------
Total current liabilities.............................................. 265,457 277,973
Deferred tax liabilities........................................................ 23,429 23,429
Long-term debt.................................................................. 12,716 13,141
-------------- -------------
Total liabilities...................................................... 301,602 314,543
-------------- -------------
SHAREHOLDERS' EQUITY
Common stock $0.125 par value; 250,000 shares authorized;
84,064 and 83,303 shares issued and outstanding after deduction of reacquired
shares in 1998 and 1997, respectively........................................ 10,507 10,413
Additional paid-in capital...................................................... 326,182 322,985
Retained earnings............................................................... 694,009 603,733
-------------- -------------
Total shareholders' equity............................................. 1,030,698 937,131
-------------- -------------
Total liabilities and shareholders' equity.............................$ 1,332,300 $ 1,251,674
============== =============
<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, 1997 are an integral part of the condensed consolidated financial statements.
</FN>
</TABLE>
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<TABLE>
TERADYNE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<CAPTION>
For the Quarters Ended For the Nine Months Ended
---------------------- -------------------------
September 27, 1998 September 28, 1997 September 27, 1998 September 28, 1997
------------------ ------------------ ------------------ ------------------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C>
Net sales................................... $ 335,227 $ 336,747 $ 1,173,032 $ 874,590
Expenses:
Cost of products sold.................. 216,131 190,651 714,535 508,234
Provision for excess inventory......... 23,000 0 23,000 0
-------------- --------------- -------------- --------------
Cost of sales.................... 239,131 190,651 737,535 508,234
-------------- --------------- -------------- --------------
Engineering and development............ 49,569 41,663 147,655 117,606
Selling and administrative............. 47,288 51,685 163,550 139,917
-------------- --------------- -------------- --------------
335,988 283,999 1,048,740 765,757
-------------- --------------- -------------- --------------
Income (loss) from operations............... (761) 52,748 124,292 108,833
Other income (expense):
Interest income......................... 2,756 5,198 9,100 16,097
Interest expense........................ (120) (553) (633) (1,659)
-------------- --------------- -------------- --------------
Income before income taxes.................. 1,875 57,393 132,759 123,271
Provision for income taxes.................. 600 18,196 42,483 41,912
-------------- --------------- -------------- --------------
Net income.................................. $ 1,275 $ 39,197 $ 90,276 $ 81,359
============== =============== ============== ==============
Net income per common share - basic......... $ 0.02 $ 0.47 $ 1.08 $ 0.98
============== =============== ============== ==============
Net income per common share - diluted....... $ 0.01 $ 0.45 $ 1.05 $ 0.94
============== =============== ============== ==============
Shares used in calculations of net income
per common share - basic................ 84,019 83,515 83,773 83,439
============== =============== ============== ==============
Shares used in calculations of net income
per common share - diluted.............. 85,626 86,944 85,729 86,346
============== =============== ============== ==============
<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, 1997 are an integral part of the condensed consolidated financial statements.
</FN>
</TABLE>
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<TABLE>
TERADYNE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<CAPTION>
For the Nine Months Ended
-------------------------
September 27, 1998 September 28, 1997
------------------ ------------------
(In thousands)
<S> <C> <C>
Cash flows from operating activities:
Net income........................................................ $ 90,276 $ 81,359
Adjustments to reconcile net income to net cash
provided (used) by operating activities:
Depreciation................................................... 55,070 43,083
Amortization................................................... 676 940
Provision for excess inventory................................. 23,000
Deferred income taxes.......................................... (55)
Other non-cash items, net...................................... (3,335) 1,082
Changes in operating assets and liabilities:
Accounts receivable....................................... 19,836 (78,792)
Inventories............................................... (47,292) (82,509)
Other assets.............................................. (3,610) 1,168
Accounts payable and accruals............................. 3,352 5,833
Income taxes payable...................................... (9,542) 24,642
-------------- ---------------
Net cash provided (used) by operating activities...... 128,431 (3,249)
Cash flows from investing activities:
Additions to property, plant and equipment........................ (98,079) (62,761)
Increase in equipment manufactured by the Company................. (46,469) (11,067)
Purchases of available-for-sale marketable securities............. (61,333) (139,429)
Maturities of available-for-sale marketable securities............ 157,512 101,405
Purchases of held-to-maturity marketable securities............... (19,697) (111,033)
Maturities of held-to-maturity marketable securities... 144,721
------------- ---------------
Net cash used by investing activities................. (68,066) (78,164)
Cash flows from financing activities:
Payments of long term debt........................................ (1,222) (1,948)
Acquisition of treasury stock..................................... (22,256) (73,603)
Issuance of common stock under employee stock
option and stock purchase plans............................... 19,709 41,493
---------------- ---------------
Net cash flows used by financing activities........... (3,769) (34,058)
---------------- ---------------
Increase (decrease) in cash and cash equivalents....................... 56,596 (115,471)
Cash and cash equivalents at beginning of period....................... 74,668 201,452
--------------- ---------------
Cash and cash equivalents at end of period............................. $ 131,264 $ 85,981
================ ===============
Supplementary disclosure of cash flow information:
Cash paid during the period for:
Interest................................................ $ 656 $ 1,733
Income taxes............................................ 49,494 20,894
<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, 1997 are an integral part of the condensed consolidated financial statements.
</FN>
</TABLE>
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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 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 an assembly, into which printed circuit boards are inserted, that provides
for the interconnection of electrical signals between the circuit boards and the
other elements of the system.
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
have been eliminated. The year-end condensed balance sheet data were derived
from audited financial statements, but do not include all disclosures required
by generally accepted accounting principles.
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.
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TERADYNE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
C. Recently Issued Accounting Standards
In June 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standard (SFAS) No. 131, "Disclosure about
Segments of an Enterprise and Related Information," which changes the manner in
which public companies report information about their operating segments. SFAS
No. 131, which is based on the management approach to segment reporting,
establishes requirements to report selected segment information quarterly and to
report entity-wide disclosures about products and services, major customers, and
the geographic locations in which the entity holds assets and reports revenue.
Management is currently evaluating the effects of this change on its reporting
of segment information. The Company will adopt SFAS No. 131 for its fiscal year
ending December 31, 1998.
In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures
about Pensions and Other Postretirement Benefits," which sets forth increased
disclosure requirements for public entities. SFAS No. 132 only affects
disclosure issues and does not change any existing measurement or recognition
provisions previously required. The statement is effective for fiscal years
beginning after December 15, 1997. Reclassification for earlier periods is
required for comparative purposes. Management is currently evaluating the
effects of this change on its reporting of pensions and other postretirement
benefits. The Company will adopt SFAS No. 132 for its fiscal year ending
December 31, 1998.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 requires that all derivative
instruments be recorded on the balance sheet at their fair value. Changes in the
fair value of derivatives are recorded each period in current earnings or other
comprehensive income, depending on whether a derivative is designated as part of
a hedge transaction and, if it is, the type of hedge transaction. The statement
is effective for fiscal years beginning after June 15, 1999. Management is
currently evaluating the effects of this change on its recording of derivatives
and hedging activities. The Company will adopt SFAS No. 133 for its fiscal year
ending December 31, 2000.
In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position (SOP) 98-1, "Internal Use Software," which provides
guidance on the accounting for the costs of software developed or obtained for
internal use. SOP 98-1 is effective for fiscal years beginning after December
15, 1998. Management does not expect the statement to have a material impact on
its financial position or results of operations.
<TABLE>
D. Net Income per Common Share
The following table sets forth the computation of basic and diluted net
income per common share (in thousands, except per share amounts):
<CAPTION>
For the Quarters Ended For the Nine Months Ended
---------------------- -------------------------
September 27, September 28, September 27, September 28,
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Income.............................................. $ 1,275 $ 39,197 $ 90,276 $ 81,359
======= ======== ======== ========
Shares used in net income per common share - basic...... 84,019 83,515 83,773 83,439
Effect of dilutive securities:.....................
Employee and director stock options............ 1,045 3,073 1,649 2,696
Employee stock purchase rights................. 562 356 307 211
------ ------ ------ ------
Dilutive potential common shares................... 1,607 3,429 1,956 2,907
------ ------ ------ ------
Shares used in net income per common share - diluted.... 85,626 86,944 85,729 86,346
====== ====== ====== ======
Net income per common share - basic..................... $ 0.02 $ 0.47 $ 1.08 $ 0.98
========== ========== ========== ==========
Net income per common share - diluted................... $ 0.01 $ 0.45 $ 1.05 $ 0.94
========== ========== ========== ==========
<FN>
For purposes of computing diluted earnings per share, weighted average
common share equivalents do not include stock options with an exercise price
that exceeds the average fair market value of the Company's common stock for the
period. Options to purchase 3,989,608 and 0 shares of common stock were
outstanding during the three months ended September 27, 1998 and September 28,
1997, respectively, but were not included in the calculation of diluted net
income per common share. Options to purchase 2,467,338 and 515,517 shares of
common stock were outstanding during the nine months ended September 27, 1998
and September 28, 1997, respectively, but were not included in the calculation
of diluted net income per common share.
</FN>
</TABLE>
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<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 Nine Months Ended
---------------------- -------------------------
September 27, 1998 September 28, 1997 September 27, 1998 September 28, 1997
------------------ ------------------ ------------------ ------------------
(In thousands) (In thousands)
<S> <C> <C> <C> <C>
Net sales.............................. $ 335,227 $ 336,747 $ 1,173,032 $ 874,590
================= ================ ================ ================
Net income............................. $ 1,275 $ 39,197 $ 90,276 $ 81,359
================= ================ ================ ================
Percentage of net sales:
Net sales......................... 100% 100% 100% 100%
Expenses:
Cost of products sold.......... 64 57 61 58
Provision for excess inventory. 7 0 2 0
---------------- ---------------- ---------------- ---------------
Cost of sales............ 71 57 63 58
Engineering and development... 15 12 13 14
Selling and administrative.... 14 15 14 16
Interest, net................. (1) (1) (1) (2)
---------------- ---------------- ---------------- ---------------
99 83 89 86
Income before income taxes........ 1 17 11 14
Provision for income taxes........ 1 5 3 5
---------------- ---------------- ---------------- ---------------
Net income........................ 0% 12% 8% 9%
================ ================ ================ ===============
Provision for income taxes as a
percentage of income before taxes. 32% 32% 32% 34%
================ ================ ================ ===============
</TABLE>
Results of Operations
- ---------------------
Sales of $335.2 million in the third quarter of 1998 decreased $1.5 million
from the third quarter of 1997. The overall decrease in sales was due to a 15%
decrease in shipments of semiconductor test systems offset by a 46% increase in
sales of circuit board test systems and a 30% increase in sales of backplane
connection systems. Third quarter of 1998 income before income taxes decreased
$55.5 million from the third quarter of 1997 to $1.9 million. The third quarter
of 1998 results included a pre-tax provision for excess inventory of $23.0
million. For the first nine months of 1998, income before income taxes increased
$9.5 million to $132.8 million.
Incoming orders were $244.8 million in the third quarter of 1998 compared
to $461.0 million in the third quarter of 1997. The decrease in orders was
primarily driven by a decrease in semiconductor test systems orders which
reflects the current industry conditions. Telecommunications test systems orders
also declined. Orders for backplane connection systems and software test
increased, while circuit board test systems orders remained flat. Due to the
decline in semiconductor test systems orders, the Company expects fourth quarter
of 1998 shipments and operating income to decrease from the third quarter of
1998. The Company's backlog was $524.7 million at the end of the third quarter
of 1998 compared with $796.1 million at the end of the third quarter of 1997.
Costs of products sold as a percentage of sales (excluding the provision
for excess inventory) increased from 57% of sales in the third quarter of 1997
to 64% of sales in the third quarter of 1998 and from 58% of sales for the first
nine months of 1997 to 61% of sales for the first nine months of 1998. The
increase in cost of sales was due to the following factors. First, the
relationship of fixed manufacturing costs to the lower level of semiconductor
test sales. Secondly, the higher costs of sales related to the increased
shipment of new semiconductor test systems products. Lastly, an unfavorable
change in mix as sales of semiconductor test systems declined and sales of lower
margin backplane connection systems increased.
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<PAGE>
During the third quarter of 1998, the Company incurred a $23.0 million
pre-tax provision for excess inventory as inventory quantities on-hand exceeded
current demand due to the sharp decline in incoming semiconductor test systems
orders coupled with the Company's transition to new semiconductor test systems
products.
Engineering and development expenses, as a percentage of sales, increased
from 12% of sales in the third quarter of 1997 to 15% of sales in the third
quarter of 1998. Engineering and development spending increased $7.9 million in
the third quarter of 1998 over the same period in 1997 due primarily to
increased investment in new product development of semiconductor test systems.
As a percentage of sales, engineering and development expenses were 13% and 14%
in the first nine months of 1998 and 1997, respectively.
Selling and administrative expenses were 14% of sales in the third quarter
and first nine months of 1998 compared with 15% and 16% of sales in the third
quarter and first nine months of 1997, respectively. Selling and administrative
expenses decreased $4.4 million in the third quarter of 1998 over the same
period in 1997 due to lower compensation expenses that vary with operating
results.
The Company's effective tax rate for the first nine months of 1998
decreased to 32% from a 34% effective rate for the first nine months of 1997.
The Company's effective tax rate is below the statutory rate of 35% due to
increased utilization of export sales corporation benefits and certain research
and development tax credits.
Liquidity and Capital Resources
- -------------------------------
The Company's cash, cash equivalents, and marketable securities balance
decreased $19.9 million in the first nine months of 1998. The Company generated
$128.4 million of cash from operations in the first nine months of 1998. The
primary source of cash from operations was net income (plus non-cash charges for
depreciation and the provision for excess inventory) of $168.3 million.
Cash was used to fund additions to property, plant and equipment of $144.5
million in the first nine months of 1998. Property, plant and equipment
expenditures relate primarily to construction of new and expanded facilities and
for Company manufactured equipment to support the deployment of new
semiconductor test systems products. The Company purchased 0.6 million shares of
the Company's common stock for $22.3 million in the first nine months of 1998
under the Company's stock buyback plan. Cash of $19.7 million was generated in
the first nine months of 1998 from the sale of stock to employees under the
Company's stock option and stock purchase plans.
The Company believes its cash, cash equivalents and marketable securities
balance of $230.0 million, together with other sources of funds, including 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.
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 of
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 sufficiency of capital to meet working capital
and planned capital expenditure, 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. There can be no assurance that any
future increase in semiconductor test systems bookings for a calendar quarter
will be sustained in subsequent 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.
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<PAGE>
Also, the Company relies on certain intellectual property protections to
preserve its intellectual property rights, including patents, copyrights and
trade secrets. While the Company believes that its patents, copyrights and trade
secrets have value, in general no single one is in itself essential. The Company
believes that its technological position depends primarily on the technical
competence and creative ability of its research and development personnel. From
time to time the Company is notified that it may be in violation of patents held
by others. An assertion of patent infringement against the Company, if
successful, could have a material adverse effect on the Company or could require
a lengthy and expensive defense which 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 internal test equipment groups at several of the Company's
customers. Some of these competitors have substantially greater financial and
other resources 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 revenue 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.
In the recent past there has been significant economic instability in
several countries in Asia. Continued economic instability would increase the
likelihood of either a direct or indirect adverse impact on the Company's future
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; fulfilling backlog on
a timely basis; reliance on sole source suppliers; potential retrofit costs; the
level of orders received which can be shipped in a quarter; and the timing of
investments in engineering and development. In particular, the Company has
introduced a significant number of new, complex test systems in 1996 and 1997,
and there can be no assurance that the Company will not experience delays in
shipment of such products or that such products will achieve customer
acceptance. 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.
Year 2000 Readiness
- -------------------
The "Year 2000 problem" arose because many existing computer programs use
only the last two digits to refer to a year. Therefore, these computer programs
do not properly recognize a year that begins with "20" instead of "19". If not
corrected, many computer applications could fail or create erroneous results.
The company is employing a combination of internal resources and outside
consultants to coordinate and implement its program for Year 2000 readiness.
The Company has committed to having all current products Year 2000 ready in
advance of the year 2000. All of the Company's current products have been
assessed, using industry accepted test procedures, and most have been determined
to be Year 2000 ready. The Company has also evaluated which of its former
products, still in use but no longer sold, will be made Year 2000 ready. The
schedule of Company products which will or will not be made Year 2000 ready is
published and updated regularly by the Company on its web site.
The Company has completed an inventory and assessment of internal business
systems that use date-sensitive software. The Company is actively working with
suppliers and using consultants and applying internal engineering resources to
modify or replace internal business systems depending on the level of
criticality for the Company's ongoing operations.
The Company is also at risk of disruption to its business if Year 2000
problems are experienced by its key suppliers. To mitigate this risk, the
Company has contacted all of its suppliers to assess their Year 2000 readiness
and continually monitors the progress of its key suppliers.
Most of the Company's effort toward Year 2000 readiness is funded as
ongoing operating expenses, as a part of ongoing software support operations.
The Company is not able to estimate the amount of accelerated upgrade costs
which have been or will be incurred for third party software or systems.
Expenditures directly related to the Year 2000 readiness program, consisting
primarily of dedicated staff and consulting services, and is estimated at less
than $5.0 million through 1999.
The Company believes that its Year 2000 readiness project will be completed
on a timely basis, in advance of the Year 2000 date transition, and will not
have a material adverse effect on the Company's financial condition or overall
trends in its operating results. However, there can be no assurance that
unexpected delays or problems, including failure of Year 2000 readiness programs
by its product and service suppliers, will not occur and have an adverse effect
on the Company's financial condition or performance, or its competitive
position.
The Company has not yet adopted any formal contingency plans, and will
determine the need for such plans as part of its ongoing assessment of
suppliers, products, and internal business systems.
-10-
<PAGE>
<TABLE>
<CAPTION>
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
JEFFREY R. HOTCHKISS
------------------------
Jeffrey R. Hotchkiss
Vice President and
Chief Financial Officer
November 11, 1998
</TABLE>
-11-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEET AT SEPTEMBER 27, 1998 AND THE CONDENSED
CONSOLIDATED STATEMENT OF INCOME FOR THE NINE MONTHS ENDED SEPTEMBER 27, 1998
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STAEMENTS.
</LEGEND>
<CIK> 0000097210
<NAME> TERADYNE, INC.
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-27-1998
<EXCHANGE-RATE> 1.00
<CASH> 131,264
<SECURITIES> 21,478
<RECEIVABLES> 283,843
<ALLOWANCES> 2,746
<INVENTORY> 296,649
<CURRENT-ASSETS> 795,638
<PP&E> 838,637
<DEPRECIATION> 402,390
<TOTAL-ASSETS> 1,332,300
<CURRENT-LIABILITIES> 265,457
<BONDS> 12,716
<COMMON> 10,507
0
0
<OTHER-SE> 1,020,191
<TOTAL-LIABILITY-AND-EQUITY> 1,332,300
<SALES> 1,173,032
<TOTAL-REVENUES> 1,173,032
<CGS> 737,535
<TOTAL-COSTS> 1,048,740
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 633
<INCOME-PRETAX> 132,759
<INCOME-TAX> 42,483
<INCOME-CONTINUING> 90,276
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 90,276
<EPS-PRIMARY> 1.08
<EPS-DILUTED> 1.05
</TABLE>
