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 April 2, 2000
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 April 30, 2000 was 173,183,173.
<PAGE>
<TABLE>
TERADYNE, INC.
INDEX
Page No.
--------
<CAPTION>
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets as of
April 2, 2000 and December 31, 1999...........................................................3
Condensed Consolidated Statements of Income for the
Three Months Ended April 2, 2000 and April 4, 1999............................................4
Condensed Consolidated Statements of Cash Flows for the
Three Months Ended April 2, 2000 and April 4, 1999............................................5
Notes to Condensed Consolidated Financial Statements...............................................6-9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.................................................10-12
Item 3. Quantitative and Qualitative Disclosures about Market Risk..........................................13
PART II. OTHER INFORMATION
Item 1. Legal Proceedings...................................................................................13
</TABLE>
2
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<TABLE>
TERADYNE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<CAPTION>
ASSETS
April 2, 2000 December 31, 1999
------------- -----------------
(Unaudited)
(In thousands)
<S> <C> <C>
Current assets:
Cash and cash equivalents....................................................$ 130,195 $ 181,345
Marketable securities........................................................ 112,907 66,316
Accounts receivable.......................................................... 428,249 296,159
Inventories:
Parts.................................................................. 160,248 123,300
Assemblies in process.................................................. 148,035 145,393
-------------- -------------
308,283 268,693
Deferred tax assets.......................................................... 49,716 49,716
Prepayments and other current assets......................................... 36,372 45,458
-------------- -------------
Total current assets................................................... 1,065,722 907,687
Property, plant, and equipment, at cost:........................................ 1,027,616 981,986
Less: Accumulated depreciation............................................ (507,273) (484,247)
-------------- -------------
Net property, plant, and equipment..................................... 520,343 497,739
Marketable securities........................................................... 142,671 139,752
Other assets.................................................................... 23,893 23,035
-------------- -------------
Total assets...........................................................$ 1,752,629 $ 1,568,213
============== =============
LIABILITIES
Current liabilities:
Notes payable - banks........................................................$ 8,055 $ 8,221
Current portion of long-term debt............................................ 4,623 4,659
Accounts payable............................................................. 159,918 104,335
Accrued employees' compensation and withholdings............................. 83,093 117,314
Unearned service revenue and customer advances............................... 80,093 60,096
Other accrued liabilities.................................................... 77,256 66,223
Accrued income taxes......................................................... 22,908 31,478
-------------- -------------
Total current liabilities.............................................. 435,946 392,326
Deferred tax liabilities........................................................ 13,907 13,907
Long-term debt.................................................................. 8,733 8,948
-------------- -------------
Total liabilities...................................................... 458,586 415,181
-------------- -------------
SHAREHOLDERS' EQUITY
Common stock, $0.125 par value, 250,000 shares authorized,
172,697 and 170,319 net shares issued and outstanding
at April 2, 2000 and December 31, 1999, respectively......................... 21,587 21,290
Additional paid-in capital...................................................... 265,819 234,198
Retained earnings............................................................... 1,006,637 897,544
-------------- -------------
Total shareholders' equity............................................. 1,294,043 1,153,032
-------------- -------------
Total liabilities and shareholders' equity.............................$ 1,752,629 $ 1,568,213
============== =============
<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, 1999 are an integral part of the condensed consolidated financial statements.
</FN>
</TABLE>
3
<PAGE>
<TABLE>
TERADYNE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<CAPTION>
For the Three Months Ended
--------------------------
April 2, 2000 April 4, 1999
-------------- -------------
(In thousands, except per share amounts)
<S> <C> <C>
Net sales..................................................... $ 648,131 $ 344,454
Expenses:
Cost of sales............................................ 348,840 219,858
Engineering and development.............................. 69,025 47,724
Selling and administrative............................... 78,956 54,481
----------- -----------
496,821 322,063
----------- -----------
Income from operations........................................ 151,310 22,391
Interest income........................................... 4,962 3,778
Interest expense.......................................... (425) (462)
----------- -----------
Income before income taxes.................................... 155,847 25,707
Provision for income taxes.................................... 46,754 7,712
----------- -----------
Net income.................................................... $ 109,093 $ 17,995
=========== ===========
Net income per common share - basic........................... $ 0.63 $ 0.11
=========== ===========
Net income per common share - diluted......................... $ 0.60 $ 0.10
=========== ===========
Shares used in calculations of net income
per common share - basic.................................. 172,127 170,032
======= =======
Shares used in calculations of net income
per common share - diluted................................ 180,873 177,994
======= =======
<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, 1999 are an integral part of the condensed consolidated financial statements.
</FN>
</TABLE>
4
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<TABLE>
TERADYNE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<CAPTION>
For the Three Months Ended
--------------------------
April 2, 2000 April 4, 1999
------------- -------------
(In thousands)
<S> <C> <C>
Cash flows from operating activities:
Net income........................................................ $ 109,093 $ 17,995
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation................................................... 23,890 21,768
Amortization................................................... 402 277
Other non-cash items, net...................................... (120) (278)
Changes in operating assets and liabilities:
Accounts receivable....................................... (132,090) (40,760)
Inventories............................................... (39,590) 24,003
Other assets.............................................. 7,826 (3,166)
Accounts payable and accruals............................. 52,393 7,608
Accrued income taxes...................................... 27,832 8,033
-------------- -------------
Net cash provided by operating activities............. 49,636 35,480
-------------- -------------
Cash flows from investing activities:
Additions to property, plant and equipment........................ (30,791) (22,207)
Increase in equipment manufactured by the Company................. (15,965) (2,545)
Purchases of held-to-maturity marketable securitie................ (39,791)
Proceeds from sales and maturities of available-for-sale..........
marketable securities.......................................... 79,909 13,213
Purchases of available-for-sale marketable securities............. (89,628) (16,953)
-------------- -------------
Net cash used for investing activities................... (96,266) (28,492)
-------------- -------------
Cash flows from financing activities:
Payments of long term debt........................................ (36) (422)
Acquisition of treasury stock..................................... (46,293) (32,501)
Issuance of common stock under employee stock
option and stock purchase plans............................... 41,809 36,179
------------- ------------
Net cash flows (used for) provided by financing activities (4,520) 3,256
-------------- -------------
(Decrease) increase in cash and cash equivalents....................... (51,150) 10,244
Cash and cash equivalents at beginning of period....................... 181,345 185,514
------------- -------------
Cash and cash equivalents at end of period............................. $ 130,195 $ 195,758
============== =============
Supplementary disclosure of cash flow information:
Cash paid (received) during the period for:
Interest................................................ $ 413 $ 610
Income taxes............................................ 1,115 (157)
<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, 1999 are an integral part of the condensed consolidated financial statements.
</FN>
</TABLE>
5
<PAGE>
TERADYNE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
A. The Company
- --------------
Teradyne, Inc. (the "Company") designs, manufactures, markets, and services
test systems and related software, and backplanes and associated connectors. 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 web based 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.
Revenue Recognition
Product revenue is recognized upon shipment. The Company's products are
generally subject to warranty, and the Company provides for such estimated costs
when product revenue is recognized. The Company recognizes service revenue as
the services are provided or ratably over the period of the related contract, as
applicable. The Company unbundles service revenue from product sales and
maintenance services from software license fees based upon amounts charged when
such elements are separately sold. For certain contracts eligible under American
Institute of Certified Public Accountants ("AICPA") Statement of Position No.
81-1, revenue is recognized using the percentage-of-completion accounting method
based upon an efforts-expended method. In all cases, changes to total estimated
costs and anticipated losses, if any, are recognized in the period in which
determined.
Other Comprehensive Income
Comprehensive income does not materially differ from net income, for the
three months ended April 2, 2000 and April 4, 1999.
6
<PAGE>
TERADYNE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
C. Recently Issued Accounting Pronouncements
- --------------------------------------------
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 be effective for all fiscal quarters of all fiscal years beginning
after 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.
On March 24, 2000 the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin ("SAB") No. 101A which amended Question 2 of Section B
of Topic 13 of the Staff Accounting Bulletin Series. SAB No. 101A delays the
implementation date of SAB 101 "Revenue Recognition in Financial Statements"
until the Company's second quarter of the fiscal year 2000. SAB 101 summarizes
the SEC's view in applying generally accepted accounting principles to selected
revenue recognition issues. The Company has not completed its evaluation of SAB
101 and is therefore unable to determine its impact.
In March 2000, the Financial Accounting Standard Board issued FASB
Interpretation No. 44, "Accounting for Certain Transactions Involving Stock
Compensation - an interpretation of APB Opinion No. 25" ("FIN 44"). FIN 44
clarifies the application of APB Opinion No. 25 and among other issues clarifies
the following: the definition of an employee for purposes of applying APB
Opinion No. 25; the criteria for determining whether a plan qualifies as a
noncompensatory plan; the accounting consequence of various modifications to the
terms of previously fixed stock options or awards; and the accounting for an
exchange of stock compensation awards in a business combination. FIN 44 is
effective July 1, 2000, but certain conclusions in FIN 44 cover specific events
that occurred after either December 15, 1998 or January 12, 2000. The Company
does not expect the application of FIN 44 to have a material impact on the
Company's financial position or results of operations.
7
<PAGE>
TERADYNE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
<TABLE>
D. 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
--------------------------
April 2, 2000 April 4, 1999
------------- -------------
<S> <C> <C>
Net Income............................................ $ 109,093 $ 17,995
========= =========
Shares used in net income per common share - basic.... 172,127 170,032
Effect of dilutive securities:
Employee and director stock options.......... 8,671 7,826
Employee stock purchase rights............... 75 136
--------- --------
Dilutive potential common shares................. 8,746 7,962
--------- --------
Shares used in net income per common share - diluted.. 180,873 177,994
========= ========
Net income per common share - basic................... $ 0.63 $ 0.11
========= ========
Net income per common share - diluted................. $ 0.60 $ 0.10
========= ========
<FN>
Options to purchase 30,424 shares of common stock during the three months ended April 2, 2000 and 51,652 shares of
common stock during the three months ended April 4, 1999 were outstanding during the periods then ended, but were not included
in the calculation of diluted net income per common share because the options' exercise price was greater than the average
market price of the common shares during those periods.
</FN>
</TABLE>
8
<PAGE>
TERADYNE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Concluded)
(Unaudited)
<TABLE>
E. Operating Segment Information
- --------------------------------
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, 1999. Intersegment sales are accounted for
at fair value as if sales were to third parties. Operating segment information for the three months ended April 2, 2000 and
April 4, 1999 follows (in thousands):
<CAPTION>
Semiconductor Backplane Other
Test Connection Test Corporate
Systems Systems Systems and
Segment Segment Segment Eliminations Consolidated
-----------------------------------------------------------------
Three months ended April 2, 2000:
- ---------------------------------
<S> <C> <C> <C> <C> <C>
Sales to unaffiliated customers $456,503 $132,642 $58,986 $648,131
Intersegment sales - 5,417 - ($5,417) -
-------- -------- ------- ------- --------
Net sales 456,503 138,059 58,986 (5,417) 648,131
Income before taxes (1) $151,695 $ 26,664 $ 1,925 ($24,437) $155,847
======== ======== ======= ======== ========
Three months ended April 4, 1999:
- ---------------------------------
Sales to unaffiliated customers $198,166 $89,561 $56,727 - $344,454
Intersegment sales - 1,238 - ($1,238) -
-------- ------- ------- ------- --------
Net sales 198,166 90,799 56,727 (1,238) 344,454
Income before taxes (1) $ 19,022 $14,486 $ 1,193 ($8,994) $ 25,707
======== ======= ======= ======= ========
<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>
9
<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
--------------------------
April 2, 2000 April 4, 1999
------------- -------------
(In thousands)
<S> <C> <C>
Net sales.................................................. $ 648,131 $ 344,454
========= =========
Net income................................................. $ 109,093 $ 17,995
========= =========
Percentage of net sales:
Net sales............................................. 100% 100%
Expenses:
Cost of sales..................................... 54 64
Engineering and development....................... 11 14
Selling and administrative........................ 12 16
Interest, net..................................... (1) (1)
-------- --------
76 93
Income before income taxes............................ 24 7
Provision for income taxes............................ 7 2
-------- --------
Net income............................................ 17% 5%
======== ========
Provision for income taxes as a percentage of income
before taxes.......................................... 30% 30%
======== ========
<FN>
Results of Operations
- ---------------------
Sales increased 88% in the first quarter of 2000 to a record $648.1 million
from $344.5 million in the first quarter of 1999. Semiconductor test systems
shipments increased 130% due to increased orders resulting from continued
capacity expansion at semiconductor manufacturers and subcontractors. Sales of
backplane connection systems to unaffiliated customers grew 48% as a result of
continued growth in demand from networking, data storage, and other high
technology customers. Other test systems sales increased 4% from the first
quarter of 1999.
Net income grew $91.1 million to $109.1 million in the first quarter of
2000 from $18.0 million in the first quarter of 1999. Income before income taxes
increased $130.1 million from $25.7 million in the first quarter of 1999 to
$155.8 million in the first quarter of 2000. Semiconductor test systems and
backplane connection systems income before income taxes increased $132.7 million
and $12.2 million, respectively in the first quarter of 2000 due to increased
sales.
Incoming orders increased 131% from $444.1 million in the first quarter of
1999 to a record $1,024.2 million in the first quarter of 2000. Orders increased
in all operating segments and were led by a 147% increase in semiconductor test
systems orders. Backplane connection systems and software test systems orders
from unaffiliated customers both increased 123% and 86%, respectively while
circuit-board test systems and telecommunication test systems orders increased
by 17% and 5%, respectively. The Company's backlog was a record $1,355.6 million
at the end of the first quarter of 2000 compared with $679.4 million at the end
of the first quarter of 1999.
Costs of sales as a percentage of sales decreased from 64% of sales in the
first quarter of 1999 to 54% of sales in the first quarter of 2000. The decrease
in cost of sales was due to the increased utilization of the Company's
manufacturing overhead as sales volume increased while certain components of
cost of sales remained fixed. In addition, there was a favorable change in the
mix as sales of semiconductor test systems, whose margins are generally higher
than those of backplane connection systems, were a greater percentage of total
Company sales.
10
<PAGE>
Engineering and development expenses decreased to 11% of sales in the first
quarter of 2000 from 14% of sales in the first quarter of 1999 while increasing
$21.3 million. This spending growth was primarily due to increased investments
in new products in each operating segment.
Selling and administrative expenses decreased to 12% of sales in the first
quarter of 2000 from 16% of sales in the first quarter of 1999 while increasing
$24.5 million. This spending growth was due to higher compensation related
expenses and spending in support of increased semiconductor test systems,
software test systems, and backplane connections system sales.
Interest income increased $1.2 million to $5.0 million in the first quarter
of 2000 compared to the first quarter of 1999 due to an increase in the
Company's average invested balances.
The Company's effective tax rate was 30% in the first quarter 2000. The
overall effective rate for the year ended 1999 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
decreased $1.6 million in the first quarter of 2000, to $385.8 million. The
Company generated cash from operating activities of $49.6 million in the first
quarter of 2000 and $35.5 million in the first quarter of 1999. Cash generated
from net income, excluding the effects of non-cash items, was $133.3 million and
$39.8 million for the first quarters of 2000 and 1999, respectively. Changes in
operating assets and liabilities used cash of $83.6 million in the first quarter
of 2000 as a result of increases in working capital to support increased sales.
In 1999, changes in assets and liabilities used cash of $4.3 million.
The Company used $96.3 million of cash for investing activities in the
first quarter of 2000 and $28.5 million in the first quarter of 1999. Investing
activities consist of purchases, sales, and maturities of marketable securities
and purchases of capital assets to support long-term growth. Capital
expenditures were $46.8 million in the first quarter of 2000 and $24.8 million
in the first quarter of 1999.
The Company used $4.5 million of cash for financing activities in the first
quarter of 2000 and provided $3.3 million in the first quarter of 1999.
Financing activities include issuance of the Company's common stock through
employee stock option and stock purchase plans, repurchase of common stock
through a stock buyback program and repayments of debt. During the first quarter
of 2000 net common stock activity used $4.5 million. The first quarter of 1999
net common stock activity provided $3.7 million. Since 1996, the Company has
used $439.6 million of cash to repurchase 16.9 million shares of its common
stock on the open market.
The Company believes its cash, cash equivalents, and marketable securities
balance of $385.8 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.
Inflation has not had a significant long-term impact on earnings.
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) contains statements that are not purely historical, so-called
"forward looking statements," which involve risks and uncertainties. In
particular, forward looking statements may include projections, plans, and
objectives for the Company's business, financial condition, operating results,
future operations, future economic performance or statements relating to the
sufficiency of capital to meet working capital and planned capital expenditures.
The Company's actual future results may differ materially from those stated in
any forward looking statements. Factors that may cause such differences include,
but are not limited to, the factors discussed below. These factors, and others,
are discussed from time to time in the Company's filings with the Securities and
Exchange Commission, including in the Company's Annual Report on Form 10-K for
the year ended December 31, 1999.
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 also
will be subject to similar fluctuations. There can be no assurance that any
increase in semiconductor test systems bookings for a particular calendar
quarter will be sustained in subsequent quarters. Any factor adversely affecting
the semiconductor industry or particular segments within the semiconductor
industry may adversely affect the Company's business, financial condition and
11
<PAGE>
operating results. In addition, the Company believes many of its semiconductor
test systems customers place orders in anticipation of manufacturing their
products. If these customers manufacture fewer products than expected, they may
attempt to cancel their semiconductor test systems orders with the Company.
These cancellations could have a material adverse effect on the Company's
financial condition in future quarters. Finally, the Company has made
substantial investments in fixed-cost infrastructure. If the semiconductor
industry experiences a downturn, the Company may have difficulty reducing
expenses in a timely manner, which could have a material adverse effect on its
profitability.
The Company recently has experienced record order backlog. If the Company
is unable to timely manufacture products to fill these orders and meet customer
expectations, customers may cancel existing orders or fail to place new orders
in the future, which would have an adverse effect on the Company's revenues and
results of operations. Factors that affect the Company's ability to timely fill
customer orders include: the availability of expanded manufacturing facilities;
the Company's ability to attract and retain qualified manufacturing personnel to
meet anticipated manufacturing levels; the difficulties inherent in
manufacturing highly complex products that have only recently been introduced;
and the availability of components, including semiconductor chips, which may be
in short supply from time to time. In addition, the Company relies upon
third-party contract manufacturers for certain subsystems used in its products,
and the Company's ability to meet customer orders for those products depends
upon the timeliness and quality of the work performed by these subcontractors,
over whom the Company does not exercise any control.
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 the ability of the
Company to hire and retain qualified engineers, new product design, 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's
failure to successfully develop, introduce and produce in commercial volume new
or enhanced products, or failure of the market to accept these new or enhanced
products could materially affect the Company's financial condition.
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, 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.
The Company's semiconductor test systems operating segment generates a
significant portion of its revenue from customers operating in South Asian
countries and Taiwan. Although the economies of South Asian countries and Taiwan
have stabilized to some degree since mid fiscal 1998, if these economies
deteriorate the negative economic developments would increase the likelihood of
either a direct or indirect adverse impact on the Company's future 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; 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 stock
price.
</FN>
</TABLE>
12
<PAGE>
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, 1999.
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.
13
<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/ Michael A. BRADLEY
------------------------
Michael A. Bradley
Vice President and
Chief Financial Officer
May 17, 2000
</TABLE>
<PAGE>
14
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
condensed consolidated balance sheet at April 2, 2000 and the condensed
consolidated statement of income for the three months ended April 2, 2000 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> 3-Mos
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> APR-02-2000
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0
0
<COMMON> 21,587
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<TOTAL-LIABILITY-AND-EQUITY> 1,294,043
<SALES> 648,131
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</TABLE>
