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 July 4, 1999
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 August 1, 1999 was 171,184,404 shares.
<PAGE>
<TABLE>
TERADYNE, INC.
INDEX
Page No.
--------
<CAPTION>
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets as of
July 4, 1999 and December 31, 1998............................................................3
Condensed Consolidated Statements of Income for the
Three and Six Months Ended July 4, 1999 and June 28, 1998.....................................4
Condensed Consolidated Statements of Cash Flows for the
Six Months Ended July 4, 1999 and June 28, 1998...............................................5
Notes to Condensed Consolidated Financial Statements...............................................6-8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.................................................9-12
Item 3. Quantitative and Qualitative Disclosures about Market Risk..........................................12
PART II. OTHER INFORMATION
Item 1. Legal Proceedings...................................................................................12
Item 4. Submission of Matters to a Vote of Security Holders................................................12
Item 6 (b). Reports on Form 8-K.............................................................................12
</TABLE>
<PAGE>
<TABLE>
TERADYNE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<CAPTION>
ASSETS
July 4, 1999 December 31, 1998
------------ -----------------
(Unaudited)
(In thousands)
<S> <C> <C>
Current assets:
Cash and cash equivalents.................................................... $ 143,285 $ 185,514
Marketable securities........................................................ 103,316 15,914
Accounts receivable.......................................................... 284,813 219,303
Inventories:
Parts.................................................................. 123,803 154,706
Assemblies in process.................................................. 133,354 111,641
------------- -------------
257,157 266,347
Deferred tax assets.......................................................... 49,262 49,262
Prepayments and other current assets......................................... 36,928 23,200
------------- -------------
Total current assets................................................... 874,761 759,540
Property, plant, and equipment, at cost:........................................ 905,884 857,551
Less: accumulated depreciation............................................ (457,418) (422,594)
------------- -------------
Net property, plant, and equipment..................................... 448,466 434,957
Marketable securities........................................................... 102,405 96,494
Other assets.................................................................... 24,872 21,823
------------- -------------
Total assets........................................................... $ 1,450,504 $ 1,312,814
============= =============
LIABILITIES
Current liabilities:
Notes payable - banks........................................................ $ 7,065 $ 7,393
Current portion of long-term debt............................................ 418 1,309
Accounts payable............................................................. 99,971 45,042
Accrued employees' compensation and withholdings............................. 82,495 68,431
Unearned service revenue and customer advances............................... 63,160 64,674
Other accrued liabilities.................................................... 67,298 54,071
Income taxes payable......................................................... 5,905 14,770
------------- -------------
Total current liabilities.............................................. 326,312 255,690
Deferred tax liabilities........................................................ 17,554 17,554
Long-term debt.................................................................. 12,978 13,200
------------- -------------
Total liabilities...................................................... 356,844 286,444
------------- -------------
SHAREHOLDERS' EQUITY
Common stock, $0.125 par value, 250,000 shares authorized,
170,649 and 83,744 net shares issued and outstanding
in 1999 and 1998, respectively............................................... 21,331 10,468
Additional paid-in capital...................................................... 312,680 310,052
Retained earnings............................................................... 759,649 705,850
------------- -------------
Total shareholders' equity............................................. 1,093,660 1,026,370
------------- -------------
Total liabilities and shareholders' equity............................. $ 1,450,504 $ 1,312,814
============= =============
<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, 1998 are an integral part of the condensed consolidated
financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
TERADYNE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<CAPTION>
For the Three Months Ended For the Six Months Ended
-------------------------- ------------------------
July 4, 1999 June 28, 1998 July 4, 1999 June 28, 1998
------------ ------------- ------------ -------------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C>
Net sales................................... $ 400,904 $ 406,236 $ 745,358 $ 837,805
Expenses:
Cost of sales.......................... 236,940 246,457 456,798 498,404
Engineering and development............ 56,829 49,164 104,553 98,086
Selling and administrative............. 59,386 57,549 113,867 116,262
------------- -------------- -------------- ---------------
353,155 353,170 675,218 712,752
------------- -------------- -------------- ---------------
Income from operations...................... 47,749 53,066 70,140 125,053
Other income (expense):
Interest income......................... 3,842 2,871 7,620 6,344
Interest expense........................ (442) (266) (904) (513)
-------------- -------------- -------------- ---------------
Income before income taxes.................. 51,149 55,671 76,856 130,884
Provision for income taxes.................. 15,345 16,311 23,057 41,883
-------------- -------------- -------------- ---------------
Net income.................................. $ 35,804 $ 39,360 $ 53,799 $ 89,001
============== ============== ============== ===============
Net income per common share - basic......... $ 0.21 $ 0.24 $ 0.32 $ 0.53
============== ============== ============== ===============
Net income per common share - diluted....... $ 0.20 $ 0.23 $ 0.30 $ 0.52
============== ============== ============== ===============
Shares used in calculations of net income
per common share - basic................ 170,245 167,299 170,138 167,300
============== ============== ============== ===============
Shares used in calculations of net income
per common share - diluted.............. 178,061 171,264 178,028 171,560
============== ============== ============== ===============
<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, 1998 are an integral part of the condensed consolidated
financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
TERADYNE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<CAPTION>
For the Six Months Ended
------------------------
July 4, 1999 June 28, 1998
------------ -------------
(In thousands)
<S> <C> <C>
Cash flows from operating activities:
Net income........................................................ $ 53,799 $ 89,001
Adjustments to reconcile net income to net cash
Provided by operating activities:
Depreciation .................................................. 43,536 35,973
Amortization................................................... 554 427
Other non-cash items, net...................................... 713 (4,382)
Changes in operating assets and liabilities:
Accounts receivable....................................... (65,510) (54,030)
Inventories............................................... 9,190 (76,146)
Other assets.............................................. (17,330) (7,441)
Accounts payable and accruals............................. 80,707 34,808
Income taxes payable...................................... 18,670
(800)
------------- -------------
Net cash provided by operating activities............. 124,329 17,410
------------- -------------
Cash flows from investing activities:
Additions to property, plant and equipment........................ (51,678) (64,938)
Increase in equipment manufactured by the Company................. (6,570) (37,198)
Purchases of available-for-sale marketable securities............. (32,437) (51,370)
Maturities of available-for-sale marketable securities............ 27,626 152,637
Purchases of held-to-maturity marketable securities............... (88,503) ( 19,697)
------------- -------------
Net cash used for investing activities.................... (151,562) (20,566)
------------- -------------
Cash flows from financing activities:
Payments of long term debt........................................ (951) (836)
Acquisition of treasury stock..................................... (65,389) (22,256)
Issuance of common stock under employee stock
option and stock purchase plans............................... 51,344 18,888
------------ -------------
Net cash flows used for financing activities.......... (14,996) (4,204)
------------- -------------
Decrease in cash and cash equivalents.................................. (42,229) (7,360)
Cash and cash equivalents at beginning of period....................... 185,514 74,668
------------ -------------
Cash and cash equivalents at end of period............................. $ 143,285 $ 67,308
============= =============
Supplementary disclosure of cash flow information:
Cash paid during the period for:
Interest................................................ $ 951 $ 590
Income taxes............................................ 4,910 43,101
<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, 1998 are an integral part of the condensed consolidated
financial statements.
</FN>
</TABLE>
<PAGE>
TERADYNE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
A. The Company
- --------------
Teradyne, Inc. (the "Company") designs, manufactures, markets, and services
test systems, and backplane connection systems. The Company has five principal
products; semiconductor test systems, backplane connection systems,
circuit-board test systems, telecommunications test systems, and software test
systems.
Semiconductor test systems are used by electronic component manufacturers
in the design and testing of their products. Backplane connection systems are
used principally for the computer, communications, 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. Circuit-board test systems
are used by electronic equipment manufacturers for the design and testing of
circuit boards and other assemblies. Telecommunication test systems are used by
telephone operating companies for the testing and maintenance of their
subscriber telephone lines and related equipment. Software test systems are used
by a number of industries to test communications networks, computerized
telecommunication systems, and client/server applications.
B. Accounting Policies
- ----------------------
Basis of Presentation
The condensed consolidated interim financial statements include the
accounts of the Company and its subsidiaries. All significant intercompany
balances and transactions have been eliminated. The year-end condensed
consolidated 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 interim financial statements are
unaudited. However, in the opinion of management, all adjustments (consisting
only of normal recurring accrual entries) necessary for a fair statement of the
results for the interim periods 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.
Other Comprehensive Income
The Company previously adopted SFAS No. 130, "Reporting Comprehensive
Income" (Statement 130), which established standards for reporting and
displaying comprehensive income and its components in a financial statement that
is displayed with the same prominence as other financial statements.
Comprehensive income is equal to net income, for the three and six month periods
ended July 4, 1999 and June 28, 1998.
C. Recently Issued Accounting Pronoucements
- -------------------------------------------
In June 1999, the Financial Accounting Standards Board issued SFAS No. 137,
"Accounting for Derivative Instruments and Hedging Activities - Deferral of the
Effective Date of FASB Statement No. 133." SFAS No. 137 amends SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities" which was issued
in June 1998 and was to be effective for all fiscal quarters of fiscal years
beginning after June 15, 1999. SFAS No. 137 defers the effective date of SFAS
No. 133 to June 15, 2000. Accordingly, the Company will adopt the provisions of
SFAS No. 133 for its 2001 fiscal year. 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 the type of hedge transaction. Management is currently
evaluating the effects of this change on its recording of derivatives and
hedging activities.
D. Common Stock Split
- ---------------------
On July 30, 1999 the Company's Board of Directors authorized a two for one
stock split effected in the form of a 100% stock dividend to be distributed on
August 31, 1999 to shareholders of record as of August 17, 1999. As a result of
the stock split, the accompanying condensed consolidated interim financial
statements reflect an increase in the number of outstanding shares of common
stock and the transfer of the par value of these additional shares from paid-in
capital. All share and per share amounts have been stated to reflect the
retroactive effect of the stock split, except for the capitalization of the
Company at December 31, 1998.
<PAGE>
TERADYNE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
<TABLE>
E. Net Income per Common Share
- ------------------------------
<CAPTION>
The following table sets forth the computation of basic and diluted net
income per common share (in thousands,except per share amounts):
For the Three Months Ended For the Six Months Ended
-------------------------- ------------------------
July 4, 1999 June 28, 1998 July 4, 1999 June 28, 1998
------------ ------------- ------------ -------------
<S> <C> <C> <C> <C>
Net Income............................................. $ 35,804 $ 39,360 $ 53,799 $ 89,001
Shares used in net income per common share - basic.... 170,245 167,299 170,138 167,300
Effect of dilutive securities:
Employee and director stock options.......... 7,431 3,425 7,629 3,900
Employee stock purchase rights............... 385 540 261 360
------- ------- ------- -------
Dilutive potential common shares................. 7,816 3,965 7,890 4,260
------- ------- ------- -------
Shares used in net income per common share - diluted.. 178,061 171,264 178,028 171,560
======= ======= ======= =======
Net income per common share - basic................... $ 0.21 $ 0.24 $ 0.32 $ 0.53
====== ====== ====== ======
Net income per common share - diluted................. $ 0.20 $ 0.23 $ 0.30 $ 0.52
====== ====== ====== ======
<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
three and six month periods then ended. Outstanding options to purchase 89,134
and 6,623,154 shares of common stock during the three months ended July 4, 1999
and June 28, 1998, respectively, were not included in the calculation of diluted
net income per common share. Outstanding options to purchase 70,394 and
3,412,406 shares of common stock during the six months ended July 4, 1999 and
June 28, 1998, respectively, were not included in the calculation of diluted net
income per common share.
</FN>
</TABLE>
<PAGE>
TERADYNE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Concluded
(Unaudited)
<TABLE>
F. Operating Segment Information
- --------------------------------
<CAPTION>
The Company has five principal operating segments which are the design,
manufacturing and marketing of semiconductor test systems, backplane connection
systems, circuit-board test systems, telecommunication test systems, and
software test systems. These operating segments were determined based upon the
nature of the products and services offered. The Company has three reportable
segments; semiconductor test systems segment, backplane connection systems
segment, and other test systems segment. The other test systems segment is
comprised of circuit-board test systems, telecommunication test systems, and
software test systems.
The Company evaluates performance based on several factors, of which the
primary financial measure is business segment income before taxes. The
accounting policies of the business segments are the same as those described in
"Note B: Accounting Policies" in the Company's Annual Report on Form 10-K for
the year ended December 31, 1998. Intersegment sales are accounted for at fair
value as if sales were to third parties. Operating segment information for the
three and six month periods ended July 4, 1999 and June 28, 1998 follows (in
thousands):
Sales to Sales to
Unafilliated Intersegment Net Income Unafilliated Intersegment Net Income
Reportable Segments Customers Sales Sales Before Taxes(1) Customers Sales Sales Before Taxes(1)
- ------------------- --------- ----- ----- ------------ --------- ----- ----- --------------
Three months ended July 4, 1999: Three months ended June 28, 1998:
-------------------------------- ---------------------------------
<S> <C> <C> <C> <C> <C> <C>
Semiconductor Test Systems $263,263 $263,263 $51,962 $275,000 $275,000 $41,922
Backplane Connection Systems 86,530 $4,766 91,296 14,716 61,197 $2,761 63,958 7,280
Other Test Systems 51,111 51,111 (4,806) 70,039 70,039 13,750
Corporate and Eliminations (4,766) (4,766)(10,723) (2,761 (2,761) (7,281)
-------- ------- -------- -------- -------- ------- -------- -------
Consolidated $400,904 $ - $400,904 $51,149 $406,236 $ - $406,236 $55,671
======== ======= ======== ======== ======== ======= ======== =======
Six months ended July 4, 1999: Six months ended June 28, 1998:
-------------------------------- ---------------------------------
Semiconductor Test Systems $461,429 $461,429 $70,984 $594,014 $594,014 $119,412
Backplane Connection Systems 176,091 $6,004 182,095 29,202 117,950 $10,115 128,065 13,105
Other Test Systems 107,838 107,838 (3,613) 125,841 125,841 17,247
Corporate and Eliminations (6,004) (6,004)(19,717) (10,115) (10,115) (18,880)
-------- ------- -------- -------- -------- -------- -------- --------
Consolidated $745,358 $ - $745,358 $76,856 $837,805 $ - $837,805 $130,884
======== ======= ======== ======== ======== ======== ======== ========
<FN>
(1) Income before taxes of the principal businesses exclude the effects of
employee profit sharing, management incentive compensation, other unallocated
expenses, and net interest income.
</FN>
</TABLE>
<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 For the Six Months Ended
-------------------------- ------------------------
July 4, 1999 June 28, 1998 July 4, 1999 June 28, 1998
------------ ------------- ------------ -------------
(In thousands) (In thousands)
<S> <C> <C> <C> <C>
Net sales.................................... $ 400,904 $ 406,236 $ 745,358 $ 837,805
=========== ============ =========== ===========
Net income................................... $ 35,804 $ 39,360 $ 53,799 $ 89,001
=========== ============ =========== ===========
Percentage of net sales:
Net sales............................... 100% 100% 100% 100%
Expenses:
Cost of sales....................... 59 61 62 59
Engineering and development......... 14 12 14 12
Selling and administrative.......... 15 14 15 14
Interest, net....................... (1) (1) (1) (1)
--------- --------- --------- ----------
87 86 90 84
Income before income taxes.............. 13 14 10 16
Provision for income taxes.............. 4 4 3 5
--------- --------- --------- ----------
Net income.............................. 9% 10% 7% 11%
========= ========= ========= ==========
Provision for income taxes as a percentage of income
before taxes............................ 30% 29% 30% 32%
========= ========= ========= ==========
<FN>
Results of Operations
- ---------------------
Sales of $400.9 million in the second quarter of 1999 decreased $5.3
million or 1% from the second quarter of 1998. Second quarter 1999 semiconductor
test systems sales and other test systems sales decreased 4% and 27%,
respectively, when compared to the second quarter of 1998. Second quarter 1999
backplane connection systems sales to unaffiliated customers increased 41% over
the corresponding period in 1998. Sales increased 16% in the second quarter of
1999 over the first quarter of 1999 due to an increase in incoming orders of
semiconductor test systems during the fourth quarter of 1998 and the first half
of 1999. Income before income taxes in the second quarter of 1999 decreased $4.5
million from the second quarter of 1998 to $51.1 million. For the first six
months of 1999, income before income taxes decreased $54.0 million to $76.9
million.
Incoming orders were a record $571.0 million in the second quarter of 1999
compared to $249.8 million in the second quarter of 1998. The increase in
incoming orders was led by a 242% increase in semiconductor test systems orders.
The Company's backlog was $849.5 million at the end of the second quarter of
1999 compared with $615.1 million at the end of the second quarter of 1998.
Cost of sales decreased from 61% of sales in the second quarter of 1998 to
59% in the second quarter of 1999. The margin improvement was due to lower
average costs on semiconductor test systems sales. For the first six months of
1999 cost of sales, as a percentage of sales, increased to 62% from 59% in the
first six months of 1998. The increase in the first six months of 1999 was the
result of the relationship of fixed manufacturing costs to the lower level of
sales. In addition, there was an unfavorable change in mix as a greater
percentage of total Company sales were for backplane connection systems whose
product margins are generally lower than semiconductor test systems.
Engineering and development expenses, as a percentage of sales, increased
from 12% in the second quarter and first six months of 1998 to 14% in the second
quarter and first six months of 1999. These increases were due to increased
engineering and development spending to support new product development efforts.
<PAGE>
Selling and administrative expenses, as a percentage of sales, increased to
15% in the second quarter and first six months of 1999 compared with 14% in the
second quarter and first six months of 1998. These percentage increases were
primarily due to the decrease in sales in the second quarter and first six
months of 1999 compared with 1998. The dollar amount of selling and
administrative expenses for the second quarter and first six months of 1999 did
not materially fluctuate from those of the second quarter and first six months
of 1998.
The Company's overall effective tax rate was 30% in the second quarter of
1999 and the first six months of 1999. The overall effective tax rate for the
year ended 1998 was also 30%. The Company utilized export sales corporation
benefits and certain research and development tax credits to operate below the
U.S. statutory rate of 35%.
Liquidity and Capital Resources
- -------------------------------
The Company's cash, cash equivalents and marketable securities balance
increased $51.1 million in the first six months of 1999, to $349.0 million. Cash
generated from operations was $124.3 million in the first six months of 1999.
Cash generated from operations was principally due to net income of $53.8
million plus non-cash charges for depreciation and amortization of $44.1
million. Accounts receivable increased $65.5 million in the first six months of
1999 as a result of an increase in sales volume from the fourth quarter of 1998.
Inventories decreased $9.2 million in the first six months of 1999 as the
Company utilized inventory on hand at the beginning of the year in support of
increased shipments. Cash was used to fund additions to property, plant and
equipment of $58.2 million in the first six months of 1999. Property, plant and
equipment expenditures relate primarily to the expansion of production capacity
in semiconductor test and backplane connection systems.
The Company repurchased 1.1 million shares of common stock for $65.4
million in the first six months of 1999. Cash of $51.3 million in the first six
months of 1999 was generated from the sale of stock to employees and the
exercise of stock options by employees and certain directors under the Company's
stock purchase and stock option plans.
The Company believes its cash, cash equivalents, and marketable securities
balance of $349.0 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 for the foreseeable future.
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 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 expenditures, 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
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.
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,
copyrights and trade secrets held by others. An assertion of patent copyright,
and/or trade secret infringement against the Company, if successful, could have
a material adverse effect on the Company's business or could require a lengthy
and expensive defense which could adversely affect the Company's financial
condition and/or operating results.
<PAGE>
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, in each
operating segment. Some of these competitors have substantially greater
financial and other resources to pursue engineering, manufacturing, marketing
and distribution of their products. The Company also faces competition from
internal suppliers at several of its customers. 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 and lower gross margins, which could materially adversely affect the
Company's business, financial condition and/or 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.
Competition for employees with skills required by the Company for its
primary business segments is intense. The Company's success will depend on its
ability to attract and retain key technical employees in these business
segments.
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 and
transition customers from existing to new products; 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. 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/or 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 its 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. As of July 30, 1999, all
enterprise-wide business systems have been tested and modified as necessary to
be Year 2000 ready. Most other internal business and operating systems are now
Year 2000 ready, with the remaining systems scheduled to be ready on or before
September 30, 1999.
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 surveyed and done follow-up investigations with a large number of
its suppliers to determine their readiness for the year 2000. Telephone audits
and on-site visits to evaluate key suppliers were substantially completed by
July 30, 1999.
<PAGE>
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, are 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. The Company believes that the year 2000 transition 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 formal contingency plans, but such plans
are under active development at this time.
</FN>
</TABLE>
Item 3: Quantitative and Qualitative Disclosures about Market Risk
There were no material changes in the Company's exposure to market risk
from December 31, 1998.
PART II. OTHER INFORMATION
Item 1: Legal Proceedings
The Company is subject to legal proceedings and claims which arise in the
ordinary course of business. Management does not believe these actions will have
a material adverse affect on the financial position or results of operations of
the Company.
Item 4: Submission of Matters to a Vote of Security Holders
<TABLE>
The annual meeting of security holders of the Company was held May 27,
1999. The following were elected as Directors:
<CAPTION>
Total Vote Total Vote Withheld
Nominee For Each Nominee For Each Nominee
<S> <C> <C>
Alexander V. d'Arbeloff 63,999,440 7,536,930
James W. Bagley 64,050,735 7,485,635
Daniel S. Gregory 64,013,375 7,522,995
Vincent M. O'Reilly 64,046,884 7,489,486
<FN>
The term of office for the following directors continued after the meeting:
Albert Carnesale, George W. Chamillard, Dwight H. Hibbard, John P. Mulroney,
James A. Prestridge, Owen W. Robbins, Richard J. Testa, and Patricia S. Wolpert.
In addition, the security holders ratified the selection of the firm
PricewaterhouseCoopers LLP as auditors for the fiscal year ending December 31,
1999, with 71,475,107 shares voting in favor, 23,862 shares voting against, and
37,401 shares abstaining.
</FN>
</TABLE>
Item 6(b): Reports on Form 8-K
There had been no Form 8-K filings during the quarter ended July 4, 1999,
as none were required.
<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
/s/ JEFFREY R. HOTCHKISS
------------------------
Jeffrey R. Hotchkiss
Vice President and
Chief Financial Officer
August 18, 1999
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
condensed consolidated balance sheet at July 4, 1999 and the condensed
consolidated statement of income for the six months ended July 4, 1999 and is
qualified in its entirety by reference to such financial staements.
</LEGEND>
<CIK> 0000097210
<NAME> Teradyne, Inc.
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<S> <C>
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<FISCAL-YEAR-END> DEC-31-1999
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</TABLE>
