-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, CsHnvi025xvFOdtTowJ7siviQIpmp/PQzVbrjOVZ2H1M8CgZdMVDQr1kR831e8bx +ByG5A25RmxjYaqzuqF5dg== 0001145236-02-000138.txt : 20021004 0001145236-02-000138.hdr.sgml : 20021004 20021004161853 ACCESSION NUMBER: 0001145236-02-000138 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20020831 FILED AS OF DATE: 20021004 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TEKTRONIX INC CENTRAL INDEX KEY: 0000096879 STANDARD INDUSTRIAL CLASSIFICATION: INSTRUMENTS FOR MEAS & TESTING OF ELECTRICITY & ELEC SIGNALS [3825] IRS NUMBER: 930343990 STATE OF INCORPORATION: OR FISCAL YEAR END: 0531 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-04837 FILM NUMBER: 02782174 BUSINESS ADDRESS: STREET 1: 14200 SW KARL DRIVE CITY: BEAVERTON STATE: OR ZIP: 97070 BUSINESS PHONE: 5036277111 MAIL ADDRESS: STREET 1: P O BOX 100 CITY: WILSONVILLE STATE: OR ZIP: 97070-1000 10-Q 1 adptektronix-10q_v8.htm

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

[X]

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarter ended August 31, 2002, 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 Number 1-4837

TEKTRONIX, INC.

(Exact name of registrant as specified in its charter)

OREGON
(State or other jurisdiction of
incorporation or organization)

93-0343990
(IRS Employer
Identification No.)

14200 SW KARL BRAUN DRIVE
BEAVERTON, OREGON
(Address of principal executive offices)

97077
(Zip Code)

(503) 627-7111
Registrant’s telephone number, including area code

NOT APPLICABLE
(Former name, former address and former fiscal year, if changed since last report)

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 such filing requirements for the past 90 days. Yes [x] No [ ]

AT SEPTEMBER 28, 2002 THERE WERE 86,989,970 COMMON SHARES OF TEKTRONIX, INC. OUTSTANDING.
(Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.)

TEKTRONIX, INC. AND SUBSIDIARIES

INDEX

		PAGE NO.
PART I.	FINANCIAL INFORMATION

Item 1.	Financial Statements:

	Condensed Consolidated Statements of Operations (Unaudited) - for the Quarter ended August 31, 2002 and the Quarter ended August 25, 2001	2

	Condensed Consolidated Balance Sheets (Unaudited) - August 31, 2002 and May 25, 2002	3

	Condensed Consolidated Statements of Cash Flows (Unaudited) - for the Quarter ended August 31, 2002 and the Quarter ended August 25, 2001	4

	Notes to Condensed Consolidated Financial Statements (Unaudited)	5

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	11

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	21

Item 4.	Controls and Procedures	21



PART II.	OTHER INFORMATION

Item 4.	Submission of Matters to a Vote of Security Holders	22

Item 6.	Exhibits and Reports on Form 8-K	22



SIGNATURE AND CERTIFICATIONS	23

Part I

Item 1.

Financial Statements

Condensed Consolidated Statements of Operations
(Unaudited)

	Quarter ended

(In thousands, except per share amounts)	Aug. 31, 2002			Aug. 25, 2001

Net sales	$	206,304		$	216,582
Cost of sales		104,708			108,344

Gross profit		101,596			108,238
Research and development expenses		26,323			34,166
Selling, general and administrative expenses		58,057			57,251
Equity in business ventures’ loss		1,453			982
Business realignment costs		9,565			7,928
(Gain) loss on disposal of fixed assets		(15	)		390

Operating income		6,213			7,521
Interest income		7,545			10,068
Interest expense		(2,063	)		(2,690	)
Other expense, net		(497	)		(3,630	)

Income before taxes		11,198			11,269
Income tax (benefit) expense		(8,581	)		3,944

Income from continuing operations		19,779			7,325
Discontinued operations:
Gain on sale of Color Printing and Imaging (less applicable income tax expense of $504)		—			937

Net earnings	$	19,779		$	8,262

Net earnings per share – basic and diluted	$	0.22		$	0.09
Income per share from continuing operations – basic and diluted		0.22			0.08
Income per share from discontinued operations – basic and diluted		—			0.01
Weighted average shares outstanding – basic		89,474			92,040
Weighted average shares outstanding – diluted		89,808			92,815

The accompanying notes are an integral part of these condensed consolidated financial statements.

Condensed Consolidated Balance Sheets
(Unaudited)

(In thousands)	Aug. 31, 2002			May 25, 2002

ASSETS
Current assets:
Cash and cash equivalents	$	108,249		$	262,994
Short-term marketable investments		196,609			193,644
Trade accounts receivable, net of allowance for doubtful accounts of $4,949 and $5,047, respectively		98,027			100,325
Inventories		113,188			125,086
Other current assets		70,489			65,107

Total current assets		586,562			747,156
Property, plant and equipment, net		137,686			143,251
Long-term marketable investments		380,050			301,104
Deferred tax assets		60,455			64,522
Other long-term assets		117,530			128,156

Total assets	$	1,282,283		$	1,384,189

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued liabilities	$	136,955		$	155,953
Accrued compensation		50,869			57,562
Current portion of long-term debt		57,314			41,765
Deferred revenue		18,126			18,103

Total current liabilities		263,264			273,383
Long-term debt		—			57,302
Other long-term liabilities		112,301			126,348
Shareholders’ equity:
Common stock, no par value (authorized 400,000 shares; issued and outstanding 88,039 at August 31, 2002 and 90,509 at May 25, 2002)		227,333			231,035
Retained earnings		751,379			774,282
Accumulated other comprehensive loss		(71,994	)		(78,161	)

Total shareholders’ equity		906,718			927,156

Total liabilities and shareholders’ equity	$	1,282,283		$	1,384,189

The accompanying notes are an integral part of these condensed consolidated financial statements.

Condensed Consolidated Statements of Cash Flows
(Unaudited)

	Quarter ended

(In thousands)	Aug. 31, 2002			Aug. 25, 2001

CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings	$	19,779		$	8,262
Adjustments to reconcile net earnings to net cash provided by (used in) operating activities:
Pre-tax gain on the sale of Color Printing and Imaging		—			(1,441	)
Depreciation and amortization expense		9,133			10,186
Asset impairments		8,270			—
Tax benefit of option exercises		29			—
(Gain) loss on the disposition/impairment of fixed assets		(15	)		654
(Gain) loss on the disposition of marketable equity securities		(398	)		1,327
Bad debt expense		77			237
Deferred income tax benefit		(1,298	)		(4,460	)
Equity in business ventures’ loss		1,453			982
Changes in operating assets and liabilities:
Accounts receivable		2,221			46,659
Inventories		11,898			(2,566	)
Other current assets		(3,943	)		2,327
Accounts payable		(18,998	)		(51,286	)
Accrued compensation		(6,693	)		(48,792	)
Deferred revenue		24			2,476
Other long-term assets and liabilities, net		(8,934	)		2,586

Net cash provided by (used in) operating activities		12,605			(32,849	)

CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of property, plant and equipment		(2,720	)		(6,780	)
Proceeds from the disposition of fixed assets		513			235
Net (purchases) sales of short-term marketable investments		(3,390	)		103,496
Net (purchases) sales of long-term marketable investments		(73,616	)		10,296

Net cash (used in) provided by investing activities		(79,213	)		107,247

CASH FLOWS FROM FINANCING ACTIVITIES
Repayment of long-term debt		(41,753	)		(3,533	)
Proceeds from employee stock plans		3,307			4,184
Repurchase of common stock		(49,691	)		(4,801	)

Net cash used in financing activities		(88,137	)		(4,150	)

Net (decrease) increase in cash and cash equivalents		(154,745	)		70,248
Cash and cash equivalents at beginning of period		262,994			292,429

Cash and cash equivalents at end of period	$	108,249		$	362,677


SUPPLEMENTAL DISCLOSURES OF CASH FLOWS
Income taxes (refunded) paid	$	(6,479	)	$	7,933
Interest paid		3,973			4,705

The accompanying notes are an integral part of these condensed consolidated financial statements.

Notes to Condensed Consolidated Financial Statements

1. The Company

Tektronix, Inc. (“Tektronix” or the “Company”) manufactures, markets and services test, measurement and monitoring solutions to a wide variety of customers in many industries, including computing, communications, semiconductors, broadcast, education, government, military/aerospace, automotive and consumer electronics. Tektronix enables its customers to design, manufacture, deploy, monitor and service next-generation global communications networks, computing and advanced technologies. Revenue is derived principally through the development and marketing of a broad range of products including: oscilloscopes; logic analyzers; communication test equipment, including mobile test equipment and optical test equipment; video test equipment; and related components, support services and accessories. The Company maintains operations in four major geographies: the Americas, including the United States, Mexico, Canada and South America; Europe, including the Middle East and Africa; the Pacific, excluding Japan; and Japan.

2. Financial Statement Presentation

The condensed consolidated financial statements and notes thereto have been prepared by the Company without audit. Certain information and footnote disclosures normally included in annual financial statements, prepared in accordance with accounting principles generally accepted in the United States of America, have been condensed or omitted. The consolidated financial statements include the accounts of Tektronix and its majority-owned subsidiaries. Investments in joint ventures and minority-owned companies where the Company exercises significant influence are accounted for under the equity method with the Company’s percentage of earnings included in Equity in business ventures’ loss on the Condensed Consolidated Statements of Operations. Significant intercompany transactions and balances have been eliminated. Certain prior year amounts have been reclassified to conform to the current year’s presentation with no effect on previously reported earnings. The Company’s fiscal year is the 52 or 53 weeks ending the last Saturday in May. Fiscal year 2003 is 53 weeks, while fiscal year 2002 was 52 weeks. Due to this convention, the first quarter of fiscal year 2003 was 14 weeks compared to the first quarter of fiscal year 2002, which was 13 weeks.

The presentation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions. These estimates and assumptions, including those used to record the results of discontinued operations, affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the revenues and expenses reported during the period. Actual results may differ from estimated amounts. Management believes that the condensed consolidated statements include all necessary adjustments, which are of a normal and recurring nature and are adequate to fairly present the financial position, results of operations and cash flows for the interim periods. The condensed information should be read in conjunction with the financial statements and notes thereto in the Company’s annual report on Form 10-K for the year ended May 25, 2002.

3. Sale of Color Printing and Imaging

On January 1, 2000, the Company sold substantially all of the assets of the Color Printing and Imaging division (“CPID”) to Xerox. The Company accounted for CPID as a discontinued operation in accordance with Accounting Principles Board (“APB”) Opinion No. 30, “Reporting the Results of Operations – Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions.” The sales price was $925.0 million in cash, with certain liabilities of the division assumed by Xerox. During fiscal year 2000, Tektronix recorded a net gain of $340.3 million on this sale. The net gain was calculated as the excess of the proceeds received over the net book value of the assets transferred, $198.5 million in income tax expense, a $60.0 million accrual for estimated liabilities related to the sale and $14.4 million in transaction and related costs. The accrual

for estimated liabilities related to the sale was $36.0 million as of August 31, 2002 and May 25, 2002. In the first quarter of fiscal year 2002, the Company recorded $1.4 million in Gain on sale of CPID as a result of settling certain indemnities related to the original sales transaction.

4. Repurchase of Common Stock

On March 15, 2000, the Board of Directors authorized the purchase of up to $550.0 million of the Company’s common stock on the open market or through negotiated transactions. During the first quarter of fiscal year 2003, the Company repurchased a total of 2.7 million shares for $49.7 million. As of August 31, 2002, the Company has repurchased a total of 11.0 million shares at an average price of $23.53 per share totaling $257.8 million under this authorization.

5. Business Realignment Costs

During the first quarter of fiscal year 2003, the Company incurred $9.6 million of business realignment costs including $8.3 million resulting from the impairment of an intangible asset and $1.5 million of severance resulting from actions to realign the Company’s cost structure. The intangible asset impairment relates to acquired Bluetooth technology and was impaired due to a lower than previously anticipated market potential. The impairment was determined using the present value of estimated cash flows related to the asset. The $1.5 million in severance related business realignment costs resulted from the termination of 37 employees. This was offset by reversals of $0.6 million relating to previously recorded business realignment costs. The Company also incurred $0.4 million in business realignment costs associated with the closure of certain facilities. These actions do not relate to the previously announced 2000 Plan or the 1999 Plan discussed below.

As of August 31, 2002, the Company maintained liabilities of $4.8 million related to the severance expenses of 104 employees and $3.7 million related to the exit from certain operations for business realignment activities recorded in fiscal years 2002 and 2003.

The 2000 Plan

In the third quarter of fiscal year 2000, the Company announced and began to implement a series of actions (the “2000 Plan”) intended to consolidate worldwide operations and transition the Company from a portfolio of businesses to a single smaller business focused on test, measurement and monitoring products, resulting in a pre-tax charge of $64.8 million. As of August 31, 2002, the remaining accrued liabilities under the 2000 Plan totaled $1.0 million.

The 1999 Plan

In the second quarter of fiscal year 1999, the Company announced and began to implement a series of actions (the “1999 Plan”) intended to align the Company’s worldwide operations with market conditions and to improve the profitability of its operations, resulting in a pre-tax charge of $125.7 million. As of August 31, 2002, all actions under this Plan had been completed.

6. Earnings Per Share

	Quarter ended

(In thousands except per share amounts)	Aug. 31, 2002		Aug. 25, 2001

Net earnings	$	19,779	$	8,262

Weighted average shares used for
basic earnings per share		89,474		92,040
Effect of dilutive stock options		334		775

Weighted average shares used for
dilutive earnings per share		89,808		92,815

Net earnings per share – basic	$	0.22	$	0.09
Net earnings per share – diluted	$	0.22	$	0.09

Options to purchase an additional 7,107,806 and 2,671,211 shares of common stock were outstanding at August 31, 2002, and August 25, 2001, respectively, but were not included in the computation of diluted net earnings per share because their effect would be antidilutive.

7. Marketable Investments

The Company records its investments as available-for-sale securities which allows the Company to maximize the investment returns by reacting to fluctuations in interest rates. This requires the investments to be recorded at market value with the resulting gains and losses included, net of tax, in Accumulated other comprehensive loss on the Condensed Consolidated Balance Sheets.

Short-term marketable investments held at August 31, 2002 consisted of:

(In thousands)	Amortized cost		Unrealized gains		Unrealized losses			Market value

Commercial paper	$	4,108	$	—	$	—		$	4,108
Certificates of deposit		8,248		17		—			8,265
Corporate notes and bonds		76,116		771		—			76,887
Asset backed securities		68,855		—		(297	)		68,558
Mortgage backed securities		2,554		—		(31	)		2,523
Federal agency notes and bonds		36,159		109		—			36,268

Short-term marketable investments	$	196,040	$	897	$	(328	)	$	196,609

Short-term marketable investments held at May 25, 2002 consisted of:

(In thousands)	Amortized cost		Unrealized gains		Unrealized losses			Market value

Commercial paper	$	10,962	$	—	$	—		$	10,962
Certificates of deposit		9,358		6		—			9,364
Corporate notes and bonds		87,056		1,099		(46	)		88,109
Asset backed securities		65,841		234		(291	)		65,784
Mortgage backed securities		4,555		—		(26	)		4,529
Federal agency notes and bonds		14,878		18		—			14,896

Short-term marketable investments	$	192,650	$	1,357	$	(363	)	$	193,644

Long-term marketable investments held at August 31, 2002 consisted of:

(In thousands)	Amortized cost		Unrealized gains		Unrealized losses		Market value

Corporate notes and bonds	$	69,251	$	1,751	$	—	$	71,002
Asset backed securities		69,260		2,282		—		71,542
Mortgage backed securities		121,529		2,046		—		123,575
Federal agency notes and bonds		91,054		1,326		—		92,380
U.S. Treasuries		20,894		657		—		21,551

Long-term marketable investments	$	371,988	$	8,062	$	—	$	380,050

Long-term marketable investments held at May 25, 2002 consisted of:

(In thousands)	Amortized cost		Unrealized gains		Unrealized losses			Market value

Corporate notes and bonds	$	52,059	$	951	$	(10	)	$	53,000
Asset backed securities		48,929		663		(3	)		49,589
Mortgage backed securities		90,510		665		(54	)		91,121
Federal agency notes and bonds		85,891		519		(11	)		86,399
U.S. Treasuries		20,984		15		(4	)		20,995

Long-term marketable investments	$	298,373	$	2,813	$	(82	)	$	301,104

Investments in corporate equity securities are classified as available-for-sale and reported at fair market value on the Condensed Consolidated Balance Sheets and are included in Other long-term assets. The related unrealized holding gains and losses are excluded from earnings and included, net of tax, in Accumulated other comprehensive loss on the Condensed Consolidated Balance Sheets. Corporate equity securities classified as available-for-sale and the related unrealized holding gains were as follows:

(In thousands)	Aug. 31, 2002		May 25, 2002

Unamortized cost basis of corporate equity securities	$	4,378	$	4,378
Gross unrealized holding gains		2,012		9,677

Fair value of corporate equity securities	$	6,390	$	14,055

8. Inventories

Inventories are stated at the lower of cost or market. Cost is determined based on a currently-adjusted standard basis, which approximates actual cost on a first-in, first-out basis. The Company periodically reviews its inventory for obsolete or slow-moving items. Inventories consisted of the following:

(In thousands)	Aug. 31, 2002		May 25, 2002

Materials	$	6,252	$	5,446
Work in process		42,398		45,867
Finished goods		64,538		73,773

Inventories	$	113,188	$	125,086

9. Property, Plant and Equipment

Property, plant and equipment consisted of the following:

	Quarter ended

(In thousands)	Aug. 31, 2002			May 25, 2002

Land	$	1,656		$	1,656
Buildings		145,882			145,801
Machinery and equipment		252,121			260,011
Accumulated depreciation		(261,973	)		(264,217	)

Property, plant and equipment, net	$	137,686		$	143,251

10. Comprehensive Income

Comprehensive income and its components, net of tax, are as follows:

	Quarter ended

(In thousands)	Aug. 31, 2002			Aug. 25, 2001

Net earnings	$	19,779		$	8,262
Other comprehensive income:
Currency translation adjustment, net of taxes of $6,597 and $1,540, respectively		9,896			2,310
Unrealized (loss) gain on available-for-sale securities, net of taxes of ($1,104) and $1,200, respectively		(1,656	)		1,532
Additional minimum pension liability, net of taxes of ($1,174) and zero, respectively		(2,073	)		—

Total comprehensive income	$	25,946		$	12,104

Accumulated other comprehensive loss consisted of the following:

(In thousands)	Foreign currency translation		Unrealized holding gains (losses) on available-for- sale securities			Additional minimum pension liability			Accumulated other comprehensive loss

Balance as of May 25, 2002	$	5,424	$	8,154		$	(91,739	)	$	(78,161	)
First quarter activity		9,896		(1,656	)		(2,073	)		6,167

Balance as of Aug. 31, 2002	$	15,320	$	6,498		$	(93,812	)	$	(71,994	)

11. Business Segments

The Company’s revenue is derived principally through the development and marketing of a range of test and measurement products in several operating segments that have similar economic characteristics as well as similar customers, production processes and distribution methods. Accordingly, the Company reports as a single Measurement segment. It is impractical to report net sales by product group.

	Quarter ended

(In thousands)	Aug. 31, 2002		Aug. 25, 2001

Consolidated net sales to external customers by region:
Americas
United States	$	95,501	$	118,950
Other Americas		5,350		9,279
Europe		42,908		42,256
Pacific		42,886		27,559
Japan		19,659		18,538

Net sales	$	206,304	$	216,582

12. Recent Accounting Pronouncements

In August 2001, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standard (“SFAS”) No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” This Statement supersedes FASB Statement No. 121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,” and the accounting and reporting provisions of APB Opinion No. 30, “Reporting the Results of Operations – Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions,” for the disposal of a segment of a business. SFAS No. 144 maintains the method for recording an impairment on assets to be held under SFAS No. 121 and establishes a single accounting model based on the framework established in SFAS No. 121 for long-lived assets to be disposed of by sale. This statement also broadens the presentation of discontinued operations to include more disposal transactions. The provisions of SFAS No. 144 are effective for financial statements issued for fiscal year 2003. The Company adopted the provisions of this statement, which did not have a material impact on the financial results of the Company, as of the beginning of the first quarter of fiscal year 2003.

In July 2002, the FASB issued SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities.” The standard requires companies to recognize costs associated with exit or disposal activities when they are incurred rather than at the date of a commitment to an exit or disposal plan. Costs covered by the standard include lease termination costs and certain employee severance costs that are associated with a restructuring, discontinued operation, plant closing, or other exit or disposal activity. This statement is to be applied prospectively to exit or disposal activities initiated after December 31, 2002. Management believes the adoption of the provisions of this statement will not have a material effect on the Company’s consolidated financial statements.

13. Subsequent Event

During the third quarter of fiscal year 2002, the Company reached an agreement with Sony Corporation (“Sony”) to acquire Sony’s 50% interest in Sony/Tektronix Corporation (“Sony/Tektronix”) through a redemption of Sony’s shares for 8 billion Yen or approximately $65.7 million at September 30, 2002. This transaction closed on September 30, 2002, at which time the Company obtained 100% ownership of Sony/Tektronix. Concurrent with the close of this transaction, the Sony/Tektronix entity entered into an agreement to borrow up to 9 billion Yen, or approximately $73.9 million at an interest rate of 1.75% above the Tokyo Inter Bank Offering Rate. This facility, which includes certain financial covenants for this Japan subsidiary and the Company, expires September 29, 2006. This credit facility was utilized, in part, to fund a portion of the redemption of shares from Sony and the remainder will provide operating capital for this Japan subsidiary. The Company accounted for its investment in Sony/Tektronix under the equity method prior to this redemption. The transaction was accounted for by the purchase method of accounting, and accordingly, beginning on the date of acquisition the results of operations, financial position and cash flows of Sony/Tektronix will be consolidated in the Company’s financial statements. Management of the Company believes it is not practicable to present a condensed balance sheet, purchased research and development assets if any, or purchase price allocation details at this time.

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Forward-Looking Statements

Statements and information included in this Quarterly Report on Form 10-Q that are not purely historical are forward-looking statements within the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements in this Quarterly Report on Form 10-Q include statements regarding Tektronix’ expectations, intentions, beliefs and strategies regarding the future, including cost reduction efforts related to the economic and technology downturn, settlement of potential claims, and the acquisition of Sony Corporation’s 50% interest in Sony/Tektronix Corporation, which prior to September 30, 2002 was equally owned by Sony Corporation and Tektronix. The Company may make other forward-looking statements from time to time, including in press releases and public conference calls and webcasts. All forward-looking statements made by Tektronix are based on information available to Tektronix at the time the statements are made, and Tektronix assumes no obligation to update any forward-looking statements. It is important to note that actual results are subject to a number of risks and uncertainties that could cause actual results to differ materially from those included in such forward-looking statements. Some of these risks and uncertainties are discussed below in the Risks and Uncertainties section at the end of this Management’s Discussion.

General

Tektronix, Inc. manufactures, markets and services test, measurement and monitoring solutions to a wide variety of customers in many industries, including computing, communications, semiconductors, broadcast, education, government, military/aerospace, automotive and consumer electronics. Tektronix enables its customers to design, manufacture, deploy, monitor and service next-generation global communications networks, computing and advanced technologies. Revenue is derived principally through the development and marketing of a broad range of products including: oscilloscopes; logic analyzers; communication test equipment, including mobile test equipment and optical test equipment; video test equipment; and related components, support services and accessories. The Company maintains operations in four major geographies: the Americas, including the United States, Mexico, Canada and South America; Europe, including the Middle East and Africa; the Pacific, excluding Japan; and Japan.

Recent Transaction

During the third quarter of fiscal year 2002, the Company reached an agreement with Sony Corporation (“Sony”) to acquire Sony’s 50% interest in Sony/Tektronix Corporation (“Sony/Tektronix”) through a redemption of Sony’s shares for 8 billion Yen or approximately $ 65.7 million at September 30, 2002. This transaction closed on September 30, 2002, at which time the Company obtained 100% ownership of Sony/Tektronix. Concurrent with the close of this transaction, the Sony/Tektronix entity entered into an agreement to borrow up to 9 billion Yen, or approximately $73.9 million. This credit facility was utilized, in part, to fund the redemption of shares from Sony and the remainder will provide operating capital for this Japan subsidiary. The Company accounted for its investment in Sony/Tektronix under the equity method prior to this redemption. The transaction was accounted for by the purchase method of accounting, and accordingly, beginning on the date of acquisition the results of operations, financial position and cash flows of Sony/Tektronix will be consolidated in the Company’s financial statements.

Business Realignment Costs

business realignment costs. The Company also incurred $0.4 million in business realignment costs associated with the closure of certain facilities.

Critical Accounting Estimates

Management has identified the Company’s “critical accounting estimates” which are those that are most important to the portrayal of the financial condition and operating results of the Company and require difficult and subjective judgments, often as a result of the need to make estimates of matters that are inherently uncertain. Significant estimates underlying the accompanying consolidated financial statements and the reported amount of net sales and expenses include contingent liabilities, intangible asset valuation, inventory valuation, pension plan assumptions and the assessment of the valuation of deferred income taxes and income tax reserves.

Contingent Liabilities

The Company is subject to claims or litigation concerning patent infringement, environmental and employment issues, as well as settlement of liabilities related to prior dispositions of assets. As a result, liabilities have been established based upon management’s best estimate of the ultimate outcome of these contingent liabilities. The Company reviews the status of its litigation, indemnities and other contingencies on a regular basis and adjustments are made as information becomes available. As of August 31, 2002, the Company had $45.2 million recorded as contingent liabilities in Accounts payable and accrued liabilities on the Condensed Consolidated Balance Sheet.

As a result of divestiture activities, the Company is subject to certain indemnities and other contingencies due to contractual obligations entered into at the time of these divestitures. Included in these liabilities is a reserve for contingent liabilities related to the sale of CPID to Xerox on January 1, 2000. As of August 31, 2002, the Company had $36.0 million recorded as a reserve for liabilities associated with the sale of CPID, which is included in the $45.2 million of total contingent liabilities noted above. The $36.0 million of reserves primarily relates to liabilities retained by the Company at the time of sale and contingent contractual indemnities.

The Company continues to closely monitor the status of the CPID related contingent liabilities based on information received. The liability will be adjusted as settlements are completed or more information becomes available that will change the likely outcome. Changes to the estimate of liabilities or differences between these estimates and the ultimate amount of settlement will be recorded in Discontinued operations in the Condensed Consolidated Statement of Operations in the period such events occur.

The remaining $9.2 million of contingent liabilities includes amounts related to environmental, patent infringement and employment issues, as well as liabilities related to other prior dispositions of assets.

Intangible assets

The Company adopted the Financial Accounting Standards Board (“FASB”) Statements of Financial Accounting Standards (“SFAS”) No. 141, “Business Combinations” and SFAS No. 142, “Goodwill and Other Intangible Assets” on accounting for business combinations and goodwill as of the beginning of fiscal year 2002. Accordingly, the Company no longer amortizes goodwill from acquisitions, but continues to amortize other acquisition-related intangibles and costs. As of August 31, 2002, the Company has $55.1 million of goodwill recorded in Other long-term assets on the Condensed Consolidated Balance Sheet.

In conjunction with the implementation of the new accounting rules for goodwill, the Company completed a goodwill impairment analysis as of the beginning of fiscal year 2002 with an update at the end of the second quarter ended November 24, 2001, and found no impairment. As required by the new rules, the Company will perform a similar review annually, or earlier if indicators of potential impairment exist. The impairment review is based on a discounted cash flow approach that uses estimates of future market share and revenues and costs for the reporting units as well as appropriate discount rates. The estimates used are consistent with the plans and estimates that the Company uses to manage the underlying businesses. However, if the Company fails to deliver new products for these groups, if the products fail to gain expected market acceptance, or if market conditions in the related businesses are unfavorable, revenue and cost forecasts may not be achieved, and the Company may incur charges for impairment of goodwill.

For non-goodwill intangible assets, the Company amortizes the cost over the estimated useful life and assesses any impairment by estimating the future cash flow from the associated asset in accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”. As of August 31, 2002, the Company had $7.2 million of non-goodwill intangible assets recorded in Other long-term assets, which includes patents and licenses for certain technology. If the estimated undiscounted cash flow related to these assets decreases in the future or the useful life is shorter than originally estimated, the Company may incur charges to impair these assets. The impairment is based on the estimated discounted cash flow associated with the asset. An impairment could result if the underlying technology fails to gain market acceptance, the Company fails to deliver new products related to these technology assets, the products fail to gain expected market acceptance or if market conditions in the related businesses are unfavorable.

During the quarter ended August 31, 2002, the Company impaired an intangible asset related to acquired Bluetooth technology resulting in an expense of $8.3 million, which is included in Business realignment costs in the Condensed Consolidated Statement of Operations.

Inventories

Inventories are stated at the lower of cost or market. Cost is determined based on currently-adjusted standard costs, which approximates actual cost on a first-in, first-out basis. The Company’s inventory includes raw materials, work-in-process, finished goods and demonstration equipment of $113.2 million as of August 31, 2002. The Company reviews its recorded inventory and estimates a write-down for obsolete or slow-moving items. These write-downs reduce the inventory value of these obsolete or slow-moving items to their net realizable value. Such estimates are difficult to make under current economic conditions. The write-down is based on current and forecasted demand and therefore, if actual demand and market conditions are less favorable than those projected by management, additional write-downs may be required. In addition, saturation of the used equipment market can negatively impact the net realizable value of the Company’s demonstration equipment. If actual market conditions are different than anticipated, Cost of sales in the Condensed Consolidated Statement of Operations may be different than expected in the period in which more information becomes available.

Pension plan

Benefit plans are a significant cost of doing business and yet represent obligations that will be settled far in the future and therefore are subject to certain estimates. Pension accounting is intended to reflect the recognition of future benefit costs over the employee’s approximate service period based on the terms of the plans and the investment and funding decisions made by the Company. The accounting standards require that management make assumptions regarding such variables as the expected long-term rate of return on assets and the rate applied to determine service cost and interest cost to arrive at pension income and cost for the year. For the prior fiscal year ended May 25, 2002, the Company’s estimated long-term rate of return on plan assets was 9.6%. Management will continue to assess the expected long-term rate of return on plan assets assumption based on relevant market conditions as prescribed by accounting principles generally accepted in the United States of America, and will make adjustments to the assumption as appropriate. Pension income or expense is allocated to Cost of sales, Research and development and Selling, general and administrative expenses in the Condensed Consolidated Statements of Operations.

Income Taxes

The Company is subject to taxation from federal, state and international jurisdictions. The Company’s annual provision for income taxes and the determination of the resulting deferred tax assets and liabilities involves a significant amount of management judgment and is based on the best information available at the time. The actual income tax liabilities to the jurisdictions with respect to any fiscal year are ultimately determined long after the financial statements have been published. The Company believes that adequate liabilities have been established for any additional tax and interest that may be assessed. The liabilities are frequently reviewed for their adequacy. As of August 31, 2002, the Company was subject to income tax audits for fiscal years 1998 through 2002. Included in these years subject to audit are the sales of the Color Printing and Imaging Division

and the Video and Networking Division which were complex transactions from a tax perspective. The liabilities associated with these years will ultimately be resolved when events such as the completion of audits by the taxing jurisdictions occur. To the extent the audits or other events result in a material adjustment to the accrued estimates, the effect would be recognized in Income tax (benefit) expense in the Condensed Consolidated Statement of Operations in the period of the event.

Subsequent to August 31, 2002, the Company negotiated a settlement with the United States Internal Revenue Service (“IRS”) with respect to their audit of the fiscal years 1998 through 2000. As a result of the audits settled and the current audit activity in progress, the Company revised its estimated liability for income taxes as of August 31, 2002. The revision resulted in a $12.5 million net reduction of previously estimated liabilities. This had the effect of reducing Accounts payable and accrued liabilities on the Condensed Consolidated Balance Sheet and decreased the Income tax expense on the Condensed Consolidated Statement of Operations. With the completion of the IRS audit for fiscal years 1998 through 2000, the Company’s open years for United States federal purposes are now 2001 and 2002. As of August 31, 2002, the Company maintains estimated liabilities for open IRS and other taxing jurisdiction assessments, as discussed above. The settlement of additional open audits or changes in other circumstances could result in further material adjustment to the estimated liability and the associated tax expense in the period in which such events occur.

Judgment is also applied in determining whether deferred tax assets will be realized in full or in part. When it is more likely than not that all or some portion of specific deferred tax assets such as foreign tax credit carryovers will not be realized, a valuation allowance must be established for the amount of the deferred tax assets that are determined not to be realizable. As of August 31, 2002, the Company had established a valuation allowance against various deferred tax assets. Accordingly, if the Company’s facts or financial results were to change thereby impacting the likelihood of realizing the deferred tax assets, judgment would have to be applied to determine changes to the amount of the valuation allowance required to be in place on the financial statements in any given period. The Company continually evaluates strategies that could allow the future utilization of its deferred tax assets.

First Quarter Fiscal Year 2003 Compared to First Quarter Fiscal Year 2002

Economic Conditions

Beginning in fiscal year 2001 and continuing during fiscal year 2002, economic conditions have had a negative impact on many markets into which the Company sells products including, but not limited to, optical design and manufacturing, mobile handset manufacturing, automated test equipment, telecommunications and semiconductor design and manufacturing. Capital spending within these industries, the area that most impacts the Company, declined significantly in fiscal year 2002. The telecommunications and optical industries experienced the most substantial downturns during fiscal year 2002. These conditions adversely impacted the Company throughout fiscal year 2002, and have continued into fiscal year 2003. In response to the reduced level of orders and associated sales, the Company incurred business realignment costs of $27.0 million during fiscal year 2002. These costs were incurred in an effort to reduce fixed costs in future periods by reducing headcount and restructuring operations in certain foreign and domestic locations. During the first quarter of fiscal year 2003, the Company incurred business realignment costs of $9.6 million, as discussed above. Management of the Company is unable to predict the ultimate severity and duration of the recent economic conditions or their impact on the Company.

Product Orders

Product orders consist of cancelable commitments to purchase currently produced products by customers with delivery scheduled generally within six months of being recorded. Consolidated product orders for the first quarter of fiscal year 2003 were $194.9 million, an increase of $30.3 million or 18% from product orders of $164.6 million in the first quarter of fiscal year 2002. These increases were primarily due to an extra week of operations in the current quarter as the Company’s first quarter of fiscal year 2003 has 14 weeks as compared to 13 weeks in the first quarter of the prior year, unusually high order cancellations in the first quarter of the prior year in response to declining economic conditions, and strong customer response to new product introductions.

The Americas and Japan experienced the largest increases in orders. Orders from the Americas were $90.2 million, an increase of $20.5 million or 29% from the first quarter of the prior year which was primarily due to the United States, which increased to $84.3 million, or 35%, from $62.6 million in the prior year. Growth in the United States as compared with the prior year is primarily attributable to abnormally high cancellations in this geography in the prior year, which have subsequently returned to levels more consistent with historical averages. Orders from Japan were $22.7 million, an increase of $8.1 million or 55% from the first quarter fiscal year 2002 orders primarily due to the timing of orders within the fiscal year and a large one-time order in the first quarter of fiscal year 2003. In addition, orders from the Pacific, excluding Japan, were $43.7 million, up $6.4 million or 17% from the first quarter of the prior year. Orders from Europe declined to $38.3 million, a decrease of $4.7 million or 11% from the first quarter of fiscal year 2002.

Net Sales

Consolidated net sales of $206.3 million for the first quarter of fiscal year 2003 decreased $10.3 million or 5% from the first quarter of fiscal year 2002 net sales of $216.6 million. This decrease is primarily due to strong sales in the first quarter of the prior year as the Company reduced backlog significantly during that period.

The Americas experienced sales declines with net sales of $100.9 million, down $27.3 million or 21% from net sales of $128.2 million in the first quarter of the prior year, which was primarily due to the United States, which declined $23.4 million or 20% to $95.5 million of net sales in the first quarter of the current year. All other geographies experienced increases in net sales. The largest increase was from the Pacific with net sales of $42.9 million, up $15.3 million or 56% from net sales of $27.6 million during the same quarter in the prior year. Net sales from Japan were $19.7 million, up $1.2 million or 6% from net sales of $18.5 million during the first quarter of fiscal year 2002. Net sales from Europe were $42.9 million, up $0.6 million or 2% from net sales of $42.3 million in the same quarter of the prior year.

Gross Profit and Gross Margin

Consolidated gross profit was $101.6 million for the first quarter of fiscal year 2003, a decrease of 6% from gross profit of $108.2 million for the first quarter of fiscal year 2002. This decrease was primarily due to the lower sales in the current quarter. In addition, gross margin for the first quarter of fiscal year 2003 was 49%, a slight decrease from 50% for the same quarter in the prior year. These decreases in gross profit and gross margin are attributable to slightly higher sales discounts in the current year and certain fixed costs being spread over a lower relative sales base.

Operating Expenses

For the first quarter of fiscal year 2003, operating expenses were $95.4 million, a decrease of $5.3 million from $100.7 million for the first quarter of fiscal year 2002. This resulted in operating income of $6.2 million, or 3% of net sales during the first quarter of the current year, compared with operating income of $7.5 million, or 3% of net sales in the same quarter of the prior year.

Research and development expenses were $26.3 million during the first quarter of fiscal year 2003, a decrease of $7.9 million from $34.2 million in the same quarter in the prior year. As a percentage of net sales, research and development expenses decreased to 13% in the first quarter of the current year from 16% a year ago. These decreases are the net result of higher spending related to new product launches in the first quarter of fiscal year 2002 partially offset by an extra week of operations in the current quarter.

Selling, general and administrative expenses were $58.1 million or 28% of net sales for the first quarter of fiscal year 2003, an increase of $0.8 million from $57.3 million, or 26% of net sales for the prior year. The increase was primarily due to higher labor related spending as a result of the extra week of operations included in the current quarter as well as a lower level of Company mandated shutdown activity as compared to shutdown activity in the prior year comparable quarter, offset by the positive impact of cost reduction actions taken during fiscal year 2002 and the first quarter of fiscal year 2003.

Equity in business ventures’ loss was $1.5 million for the first quarter of fiscal year 2003, compared with equity losses of $1.0 million in the same quarter a year ago. The loss is primarily the result of further weakening in the Japanese economy and its impact on the financial performance of Sony/Tektronix Corporation, in which the Company had a 50% equity ownership as of August 31, 2002.

Business realignment costs of $9.6 million were incurred for the first quarter of fiscal year 2003 as compared with $7.9 million in the prior year. The $9.6 million of costs in the current quarter included $8.3 million of an impairment of acquired Bluetooth technology, $1.5 million of severance related costs, offset by $0.6 million of reversals related to previously recorded business realignment costs. The Company also incurred $0.4 million in business realignment costs associated with the closure of certain facilities. The $7.9 million of costs in the prior year were primarily severance related costs intended to better align operating expense levels with lower sales levels. See the Business Realignment Costs section of the Management’s Discussion and Analysis for further information on these charges.

Non-Operating Income / Expense

Interest expense was $2.1 million for the first quarter of fiscal year 2003, as compared with $2.7 million in the same quarter of the prior year. The decrease in interest expense is due to a reduction in the average balance of outstanding debt due to the Company’s retirement of outstanding long-term debt throughout the prior year and the extinguishment of $41.8 million of long-term debt at the scheduled payment date of August 15, 2002.

Interest income was $7.5 million in the first quarter of fiscal year 2003 as compared with $10.1 million in the same quarter a year ago. The decrease in interest income can be primarily attributed to lower returns on investments in the first quarter of fiscal year 2003 as compared to investment returns in the same period of fiscal year 2002 due to decreases in interest rates and to a lesser degree, a lower average balance of cash and marketable investments during the comparative periods.

Other expense, net was $0.5 million in the first quarter of fiscal year 2003 as compared with $3.6 million in the prior year. This includes items such as foreign currency translation and other miscellaneous fees and expenses. The decrease from the prior year is primarily due to the positive impact of foreign currency translation experienced in the quarter ended August 31, 2002.

Income Taxes

Income tax (benefit) expense from continuing operations was a benefit of $8.6 million for the first quarter of fiscal year 2003 and expense of $3.9 million for the same quarter of fiscal year 2002. The benefit in fiscal year 2003 was comprised of a $12.5 million income tax benefit resulting from the settlement of the IRS audit of the Company’s fiscal years 1998, 1999 and 2000, offset in part by income tax expense on earnings of $3.9 million. The effective tax rate in both periods, excluding the IRS settlements, was 35%.

Net Earnings

The Company recognized consolidated net earnings of $19.8 million for the quarter ended August 31, 2002, up from $8.3 million for the quarter ended August 25, 2001. This increase was primarily due to the $12.5 million tax benefit discussed in the Income Taxes section above.

Earnings Per Share

For the quarter ended August 31, 2002, the Company recognized $0.22 net earnings per basic and diluted share. For the quarter ended August 25, 2001, the Company recognized basic and diluted earnings per share of $0.09. The increase in earnings per share is a result of increased net earnings discussed above and a decrease in the weighted average basic and diluted shares outstanding due to share repurchases.

Financial Condition, Liquidity and Capital Resources

Financial Condition

At August 31, 2002, the Company’s working capital was $323.3 million, a decrease of $150.5 million from the end of fiscal year 2002. Current assets decreased $160.6 million primarily due to a decrease in cash and cash equivalents as the Company converted $78.9 million of its cash and cash equivalents to long-term marketable investments. In addition, the Company extinguished $41.8 million of debt at its due date in August 2002 and repurchased $49.7 million of its common stock. These decreases were partially offset by $12.6 million in cash provided by operations. Inventories decreased $11.9 million to $113.2 million as a result of the Company’s on-going efforts to reduce levels of demonstration equipment, improve inventory turns, and to a lesser extent, inventory write-offs incurred during the first quarter. Current liabilities decreased $10.1 million in the first quarter ended August 31, 2002 as a result of decreases in accounts payable due to a reduction in the taxes payable and relatively lower operating expenses during the period. Accrued compensation decreased in the first quarter of 2003 due to the payment of incentive compensation earned in the prior year. These decreases were partially offset by a $15.5 million increase in Current portion of long-term debt, which reflects the $57.3 million August 2003 maturity of the Company’s debt reduced by the $41.8 million payment of debt on August 15, 2002.

Property, plant and equipment, net, decreased $5.6 million during the first quarter of fiscal year 2003 to $137.7 million. The decrease was due mainly to $8.3 million of depreciation expense during the quarter. This decrease was partially offset by approximately $2.7 million in capital expenditures during the same period.

The Company funded the pension plan with $15.0 million during the quarter ended August 31, 2002 based on an agreement with the Pension Benefit Guaranty Company. This funding reduced Other long-term liabilities on the Condensed Consolidated Balance Sheet.

On March 15, 2000, the Board of Directors authorized the purchase of up to $550.0 million of the Company’s common stock on the open market or through negotiated transactions. This repurchase authority allows the Company, at management’s discretion, to selectively repurchase its common stock from time to time in the open market or in privately negotiated transactions depending on market price and other factors. During the first quarter of fiscal year 2003, the Company repurchased a total of 2.7 million shares for $49.7 million. As of August 31, 2002, the Company has repurchased a total of 11.0 million shares at an average price of $23.53 per share totaling $257.8 million under this authorization. The Company will continue to repurchase shares under this authorization when deemed economically beneficial.

Liquidity and Capital Resources

As of August 31, 2002, the Company held $684.9 million in cash and cash equivalents and marketable investments excluding corporate equity securities, a decrease of $72.8 million from the balance of $757.7 million at May 25, 2002. Activity during the first quarter of fiscal year 2003 included the repurchase of common stock, the extinguishment of debt and the funding of the pension plan. These uses of cash were offset by net earnings and other positive operating cash flows.

At August 31, 2003, the Company maintained unsecured bank credit facilities totaling $72.6 million, of which $70.9 million was unused.

During the third quarter of fiscal year 2002, the Company reached an agreement with Sony to acquire Sony’s 50% interest in Sony/Tektronix through a redemption of Sony’s shares for 8 billion Yen or approximately $65.7 million at September 30, 2002. This transaction closed on September 30, 2002, at which time the Company obtained 100% ownership of Sony/Tektronix. Concurrent with the close of this transaction, the Sony/Tektronix entity entered into an agreement to borrow up to 9 billion Yen, or approximately $73.9 million at an interest rate of 1.75% above the Tokyo Inter Bank Offering Rate. This facility, which includes certain financial covenants for this Japan subsidiary and the Company, expires September 29, 2006. This credit facility was utilized, in part, to fund a portion of the

redemption of shares from Sony and the remainder will provide operating capital for this Japan subsidiary. The Company accounted for its investment in Sony/Tektronix under the equity method prior to this redemption. The transaction was accounted for by the purchase method of accounting, and accordingly, beginning on the date of acquisition the results of operations, financial position and cash flows of Sony/Tektronix will be consolidated in the Company’s financial statements.

Cash on hand, cash flows from operating activities and current borrowing capacity are expected to be sufficient to fund operations, acquisitions and potential acquisitions, capital expenditures and contractual obligations through fiscal year 2003.

Recent Accounting Pronouncements

In August 2001, the FASB issued SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” This Statement supersedes FASB Statement No. 121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,” and the accounting and reporting provisions of APB Opinion No. 30, “Reporting the Results of Operations—Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions,” for the disposal of a segment of a business. SFAS No. 144 maintains the method for recording an impairment on assets to be held under SFAS No. 121 and establishes a single accounting model based on the framework established in SFAS No. 121 for long-lived assets to be disposed of by sale. This statement also broadens the presentation of discontinued operations to include more disposal transactions. The provisions of SFAS No. 144 are effective for financial statements issued for fiscal year 2003. The Company adopted the provisions of this statement, which did not have a material impact on the financial results of the Company, as of the beginning of the first quarter of fiscal year 2003.

Risks and Uncertainties

Described below are some of the risks and uncertainties that could cause actual results to differ materially from the results contemplated by the forward-looking statements contained in this Annual Report. See “Forward-Looking Statements” at the beginning of this Item 2.

Market Risk and Cyclical Downturns in the Markets in Which Tektronix Competes

Tektronix’ business depends on capital expenditures of manufacturers in a wide range of industries, including the telecommunications, semiconductor, and computer industries. Each of these industries has historically been very cyclical and has experienced periodic downturns, which have had a material adverse impact on the industries’ demand for equipment, including test and measurement equipment manufactured and marketed by Tektronix. In particular, the telecommunications industry, including but not limited to the optical segment, have experienced a more dramatic decline than other industries. In addition, the severity and length of the downturn may also affect overall access to capital which could adversely affect the Company’s customers across many industries. During periods of reduced and declining demand, Tektronix may need to rapidly align its cost structure with prevailing market conditions while at the same time motivating and retaining key employees. As discussed above in this Item 2, the Company’s sales and orders have been affected by the current downturn in its markets. The ultimate severity of this downturn, and how long it will last, is unknown. No assurance can be given that Tektronix’ net sales and operating results will not be further adversely impacted by the current or any future downturns or slowdowns in the rate of capital investment in these industries.

Timely Delivery of Competitive Products

Tektronix sells its products to customers that participate in rapidly changing high technology markets, which are characterized by short product life cycles. The Company’s ability to deliver a timely flow of competitive new products and market acceptance of those products, as well as the ability to increase production or to develop and maintain effective sales channels, is essential to growing the business. Because Tektronix sells test and measurement products that enable its customers to develop new technologies, the Company must accurately predict the ever-evolving needs of those customers and deliver appropriate products and technologies at competitive prices to meet customer demands. The Company’s ability to deliver such products could be affected by engineering or other development program delays as well as the availability of parts and supplies from third party providers on a timely basis and at reasonable prices. Failure to deliver competitive products in a timely manner and at a reasonable price could have an adverse effect on the results of operations, financial condition or cash flows of the Company.

Competition

In general, Tektronix competes with a number of companies in specialized areas of other test and measurement products and one large broad line measurement products supplier, Agilent Technologies. Other competitors include Acterna Corporation, Anritsu, LeCroy Corporation, Spirent, Yokogawa and many other smaller companies. Competition in the Company’s business is based primarily on product performance, technology, customer service, product availability and price. Some of the Company’s competitors may have greater resources to apply to each of these factors and in some cases have built significant reputations with the customer base in each market in which Tektronix competes. The Company may face pricing pressures that may have an adverse impact on the Company’s earnings. If the Company is unable to compete effectively on these and other factors, it could have a material adverse effect on the Company’s results of operations, financial condition or cash flows.

Supplier Risks

The Company’s manufacturing operations are dependent on the ability of suppliers to deliver quality components, subassemblies and completed products in time to meet critical manufacturing and distribution schedules. The Company periodically experiences constrained supply of certain component parts in some product lines as a result of strong demand in the industry for those parts. Such constraints, if persistent, may adversely affect operating results until alternate sourcing can be developed. Volatility in the prices of these component parts, an inability to secure enough components at reasonable prices to build new products in a timely manner in the quantities and configurations demanded or, conversely, a temporary oversupply of these parts, could adversely affect the Company’s future operating results. In addition, the Company uses certain sole sourced components which are integral to a variety of products. Disruption in key sole sourced suppliers could have a significant adverse effect on the Company’s results of operations.

Worldwide Economic and Market Conditions

The Company maintains operations in four major geographies: the Americas, including the United States, Mexico, Canada and South America; Europe, including the Middle East and Africa; the Pacific, excluding Japan; and Japan. During the last fiscal year, nearly one half of the Company’s revenues were from international sales. In addition, some of the Company’s manufacturing operations and key suppliers are located in foreign countries. As a result, the business is subject to the worldwide economic and market conditions risks generally associated with doing business globally, such as fluctuating exchange rates, the stability of international monetary conditions, tariff and trade policies, domestic and foreign tax policies, foreign governmental regulations, political unrest, wars and other acts of terrorism and changes in other economic or political conditions. These factors, among others, could influence the Company’s ability to sell in global markets, as well as its ability to manufacture products or procure supplies. A significant downturn in the global economy could adversely affect the Company’s results of operations, financial position or cash flows.

Intellectual Property Risks

As a technology-based company, Tektronix’ success depends on developing and protecting its intellectual property. Tektronix relies generally on patent, copyright, trademark and trade secret laws in the United States and abroad. Electronic equipment as complex as most of the Company’s products, however, is generally not patentable in its entirety. Tektronix also licenses intellectual property from third parties and relies on those parties to maintain and protect their technology. The Company cannot be certain that actions the Company takes to establish and protect proprietary rights will be adequate. If the Company is unable to adequately protect its technology, or if the Company is unable to continue to obtain or maintain licenses for protected technology from third parties, it could have a material adverse affect on the Company’s results of operations, financial position or cash flows. From time to time in the usual course of business, the Company receives notices from third parties regarding intellectual property infringement or takes action against others with regard to intellectual property rights. Even where the Company is successful in defending or pursuing such claims, the Company may incur significant costs. In the event of a successful claim against the Company, Tektronix could lose its rights to needed technology or be required to pay license fees for the infringed rights, either of which could have an adverse impact on the Company’s business.

Environmental Risks

Tektronix is subject to a variety of federal, state, local and foreign environmental regulations relating to the use, storage, discharge and disposal of its hazardous chemicals used during the Company’s manufacturing process. The Company has operated and is in the process of closing a licensed hazardous waste management facility at its Beaverton, Oregon campus. If Tektronix fails to comply with any present and future regulations, the Company could be subject to future liabilities or the suspension of production. In addition, such regulations could restrict the Company’s ability to expand its facilities or could require Tektronix to acquire costly equipment, or to incur other significant expenses to comply with environmental regulations.

Sony/Tektronix Corporation Acquisition

Acquisition of Sony Corporation’s 50% interest in Sony/Tektronix Corporation was completed at the end of September 2002. Upon completion of the transaction, the Company’s ownership of Sony/Tektronix increased from 50% to 100%, and the Company is now exposed to a greater financial impact from Sony/Tektronix operations. The acquisition will likely negatively impact the Company’s results of operations during fiscal year 2003. In addition, operation of Sony/Tektronix as a wholly owned business will involve additional risks, including integration risks, the risks of doing business as a foreign owner in Japan and risks related to the economic environment in Japan.

Possible Volatility of Stock Price

The price of the Company’s common stock may be subject to wide, rapid fluctuations. Such fluctuations may be due to factors specific to the Company, such as changes in operating results or changes in analysts’ estimates regarding earnings. Fluctuations in the stock price may also be due to factors relating to the telecommunications, semiconductor, and computer industries or to the securities markets in general. Fluctuations in the stock price have often been unrelated to the operating performance of the specific companies whose stocks are traded. Shareholders should be willing to incur the risk of such fluctuations.

Other Risk Factors

Other risk factors include but are not limited to changes in the mix of products sold, regulatory and tax legislation, changes in effective tax rates, inventory risks due to changes in market demand or the Company’s business strategies, potential litigation and claims arising in the normal course of business, credit risk of customers, the fact that a substantial portion of the Company’s sales are generated from orders received during each quarter and other risk factors.

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

Financial Market Risk

The Company is exposed to financial market risks, including interest rate, equity price and foreign currency exchange rate risks.

The Company maintains a short-term and long-term investment portfolio consisting of fixed rate commercial paper, corporate notes and bonds, asset backed securities and mortgage securities. The weighted average maturity of the portfolio, excluding mortgage securities, is two years or less. Mortgage securities may have a weighted average life of less than seven years and are managed consistent with the Lehman Mortgage Index. An increase in interest rates would decrease the value of certain of these investments. A 10% adverse change in interest rates would reduce the market value by $2.5 million, which would be reflected in Other comprehensive loss on the Condensed Consolidated Balance Sheets until sold.

At August 31, 2002, the Company’s debt obligation had a fixed interest rate. The fair value of this debt instrument at August 31, 2002 was $59.3 million compared to the carrying value of $57.3 million. A hypothetical 10% adverse change in interest rates would have a $0.1 million negative impact on the fair value which would not be reflected in the Company’s financial statements.

The Company is exposed to equity price risk primarily through its marketable equity securities portfolio, including investments in Merix Corporation and other companies. The Company has not entered into any hedging programs to mitigate equity price risk. In management’s opinion, an adverse change of 20% in the value of these securities would reduce the market value by $1.3 million, which would be reflected in Other comprehensive loss on the Condensed Consolidated Balance Sheets until sold.

The Company is exposed to foreign currency exchange rate risk primarily through transactions and commitments denominated in foreign currencies. The Company utilizes derivative financial instruments, primarily forward foreign currency exchange contracts, generally with maturities of one to three months, to mitigate this risk where natural hedging strategies cannot be employed. The Company’s policy is to only enter into derivative transactions when the Company has an identifiable exposure to risk, thus not creating additional foreign currency exchange rate risk. The potential loss in fair value at August 31, 2002, for such contracts resulting from a hypothetical 10% adverse change in all foreign currency exchange rates is approximately $2.6 million. This loss would be mitigated by corresponding gains on the underlying exposures.

Item 4.

Controls and Procedures

(a) Evaluation of disclosure controls and procedures. The Company’s chief executive officer and chief financial officer, after evaluating the effectiveness of the Company’s “disclosure controls and procedures” (as defined in the Securities Exchange Act of 1934 Rules 13a-14(c) and 15-d-14(c)) as of a date (the “Evaluation Date”) within 90 days before the filing date of this quarterly report, have concluded that as of the Evaluation Date, the Company’s disclosure controls and procedures were effective and designed to ensure that material information relating to the Company and the Company’s consolidated subsidiaries would be made known to them by others within those entities.

(b) Changes in internal controls. There were no significant changes in the Company’s internal controls or in other factors that could significantly affect those controls subsequent to the Evaluation Date.

Part II OTHER INFORMATION

Item 4.

Submission of Matters to a Vote of Security Holders

At the Company’s annual meeting of shareholders on September 26, 2002, the shareholders voted on the election of three directors to the Company’s board of directors. Pauline Lo Alker, A. Gary Ames, and Frank C. Gill were elected to serve three-year terms ending at the 2005 annual meeting of shareholders. The voting for each director was as follows:

	FOR		WITHHELD

Pauline Lo Alker		70,164,761		11,935,682
A. Gary Ames		67,935,899		14,164,544
Frank C. Gill		70,130,299		11,970,144

The term of office of the Company’s other directors continued after the 2002 annual meeting of shareholders, as follows: Gerry B. Cameron and Jerome J. Meyer until the 2003 annual meeting of shareholders; and David N. Campbell, Merrill A. McPeak and Richard H. Wills until the 2004 annual meeting of shareholders.

At the meeting, the shareholders also voted to approve the Company’s 2002 Stock Incentive Plan. The number of shares voted for approval of the 2002 Stock Incentive Plan was 48,113,033, the number voted against approval was 25,092,287, the number abstaining was 1,299,776 and there were 7,595,347 broker non-votes. A copy of the 2002 Stock Incentive Plan is filed herewith as an exhibit.

Item 6.

Exhibits and Reports on Form 8-K

(a) Exhibits

(10) 2002 Stock Incentive Plan, as amended (Compensatory Plan or Arrangement)

(99.1) Certification of Richard H. Wills

(99.2) Certification of Colin L. Slade

(b) Reports on Form 8-K

Tektronix filed a report on Form 8-K on August 12, 2002 with respect to the Statement under Oath of the Principal Executive Officer and Principal Financial Officer Regarding Facts and Circumstances Relating to Exchange Act Filings (reported under Item 9 of Form 8-K).

SIGNATURE

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.

October 4, 2002	TEKTRONIX, INC.
	By:	/s/ COLIN SLADE

		Colin Slade
		Senior Vice President and Chief Financial Officer

I, Richard H. Wills, President and Chief Executive Officer of the Company, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Tektronix, Inc.;

2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

b) evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and

c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

6. The registrant’s other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: October 4, 2002
			/s/ RICHARD H. WILLS

			Richard H. Wills
			President and Chief Executive Officer

I, Colin L. Slade, Senior Vice President and Chief Financial Officer, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Tektronix, Inc.;

b) evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and

c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

Date: October 4, 2002
			/s/ COLIN L. SLADE

			Colin L. Slade
			Senior Vice President and Chief Financial Officer

EXHIBIT INDEX

	Exhibit No		Description

	(10)		2002 Stock Incentive Plan, as amended (Compensatory Plan or Arrangement)

	(99.1)		Certification of Richard H. Wills

	(99.2)		Certification of Colin L. Slade

26 EX-10 3 ex10_v8.txt TEKTRONIX, INC. 2002 STOCK INCENTIVE PLAN 1. Purpose. The purpose of this 2002 Stock Incentive Plan (the "Plan") is to enable Tektronix, Inc. (the "Company") to attract and retain the services of selected employees, officers and directors of the Company or any parent or subsidiary of the Company. For purposes of this Plan, a person is considered to be employed by or in the service of the Company if the person is employed by or in the service of any entity (the "Employer") that is either the Company or a parent or subsidiary of the Company. 2. Shares Subject to the Plan. Subject to adjustment as provided below and in Section 10, the shares to be offered under the Plan shall consist of Common Shares of the Company ("Common Stock"), and the total number of shares of Common Stock that may be issued under the Plan shall be 5,500,000 shares, plus up to 2,500,000 shares of Common Stock that at the time the Plan is approved by shareholders are available for grant under the Company's Stock Incentive Plan or 1998 Stock Option Plan previously approved by shareholders of the Company (together, the "Prior Plans"). If an option or Performance-Based Award granted under the Plan, or an option previously granted under the Prior Plans and outstanding at the time the Plan is approved by shareholders, expires, terminates or is canceled, the unissued shares subject to that option or Performance-Based Award shall again be available under the Plan. If shares awarded as a bonus pursuant to Section 7 or sold pursuant to Section 8 under the Plan are forfeited to or repurchased by the Company, the number of shares forfeited or repurchased shall again be available under the Plan. 3. Effective Date and Duration of Plan. 3.1 Effective Date. The Plan shall become effective as of June 20, 2002. No awards shall be made under the Plan until the Plan is approved by shareholders of the Company in accordance with rules of the New York Stock Exchange. 3.2 Duration. The Plan shall continue in effect until all shares available for issuance under the Plan have been issued and all restrictions on the shares have lapsed. The Board of Directors may suspend or terminate the Plan at any time except with respect to options, Performance-Based Awards and shares subject to restrictions then outstanding under the Plan. Termination shall not affect any outstanding options, any outstanding Performance-Based Awards or any right of the Company to repurchase shares or the forfeitability of shares issued under the Plan. 4. Administration. 4.1 Board of Directors. The Plan shall be administered by the Board of Directors of the Company, which shall determine and designate the individuals to whom awards shall be made, the amount of the awards and the other terms and conditions of the awards. Subject to the provisions of the Plan, the Board of Directors may adopt and amend rules and regulations relating to administration of the Plan, advance the lapse of any waiting period, accelerate any exercise date, waive or modify any restriction applicable to shares (except those 1 restrictions imposed by law and minimum restriction periods required by Section 8) and make all other determinations in the judgment of the Board of Directors necessary or desirable for the administration of the Plan. The interpretation and construction of the provisions of the Plan and related agreements by the Board of Directors shall be final and conclusive. The Board of Directors may correct any defect or supply any omission or reconcile any inconsistency in the Plan or in any related agreement in the manner and to the extent it deems expedient to carry the Plan into effect, and the Board of Directors shall be the sole and final judge of such expediency. 4.2 Committee. The Board of Directors may delegate to any committee of the Board of Directors (the "Committee") any or all authority for administration of the Plan. If authority is delegated to the Committee, all references to the Board of Directors in the Plan shall mean and relate to the Committee, except (i) as otherwise provided by the Board of Directors and (ii) that only the Board of Directors may amend or terminate the Plan as provided in Sections 3 and 12 or delegate all authority to officers pursuant to Section 4.3. 4.3 Officers. The Board of Directors may delegate to any officer or officers of the Company authority to grant awards under the Plan, subject to any restrictions imposed by the Board of Directors. 5. Types of Awards, Eligibility, Limitations. 5.1 Types of Awards, Eligibility. The Board of Directors may, from time to time, take the following actions, separately or in combination, under the Plan: (i) grant Incentive Stock Options, as defined in Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), as provided in Sections 6.1 and 6.2; (ii) grant options other than Incentive Stock Options ("Non-Statutory Stock Options") as provided in Sections 6.1 and 6.3; (iii) award stock bonuses as provided in Section 7; (iv) sell shares subject to restrictions as provided in Section 8; and (v) award Performance-Based Awards as provided in Section 9. Awards may be made to employees, including employees who are officers or directors, and to non-employee directors; provided, however, that only employees of the Company or any parent or subsidiary of the Company (as defined in subsections 424(e) and 424(f) of the Code) are eligible to receive Incentive Stock Options under the Plan. The Board of Directors shall select the individuals to whom awards shall be made and shall specify the action taken with respect to each individual to whom an award is made. 5.2 Per Employee Share Limitations. No employee may be granted options for more than an aggregate of 500,000 shares of Common Stock in the calendar year in which the employee is hired or 200,000 shares of Common Stock in any other calendar year. 5.3 Aggregate Share Limitations for Certain Awards. Notwithstanding any provision in the Plan, not more than an aggregate of 1,000,000 shares (of the total shares reserved for the Plan pursuant to Section 2) may be issued under the Plan as (a) Performance-Based Awards, (b) stock bonuses, (c) restricted stock or (d) stock options granted with an exercise price less than fair market value at the time of grant. Of these 1,000,000 shares, not more than an aggregate of 400,000 shares can be issued as (a) stock bonuses not issued in lieu of cash compensation, (b) restricted stock awards issued with restriction periods less than those set forth in Section 8, and (c) stock options granted at less than fair market value. 2 5.4 Prohibition on Option Repricing. Except as provided in Section 10, without the prior approval of the Company's shareholders, an option issued under the Plan may not be repriced by lowering the option exercise price or by cancellation of an outstanding option with a subsequent replacement or regrant of an option with a lower exercise price. 6. Option Grants. 6.1 General Rules Relating to Options. 6.1-1 Terms of Grant. The Board of Directors may grant options under the Plan. With respect to each option grant, the Board of Directors shall determine the number of shares subject to the option, the exercise price, the period of the option, the time or times at which the option may be exercised and whether the option is an Incentive Stock Option or a Non-Statutory Stock Option. At the time of the grant of an option or at any time thereafter, the Board of Directors may provide that an optionee who exercised an option with Common Stock of the Company shall automatically receive a new option to purchase additional shares equal to the number of shares surrendered and may specify the terms and conditions of such new options. 6.1-2 Exercise of Options. Except as provided in Section 6.1-4 or as determined by the Board of Directors, no option granted under the Plan may be exercised unless at the time of exercise the optionee is employed by or in the service of the Company and shall have been so employed or provided such service continuously since the date the option was granted. Except as provided in Sections 6.1-4 and 10, options granted under the Plan may be exercised from time to time over the period stated in each option in amounts and at times prescribed by the Board of Directors, provided that options may not be exercised for fractional shares. Unless otherwise determined by the Board of Directors, if an optionee does not exercise an option in any one year for the full number of shares to which the optionee is entitled in that year, the optionee's rights shall be cumulative and the optionee may purchase those shares in any subsequent year during the term of the option. 6.1-3 Nontransferability. Each Incentive Stock Option and, unless otherwise determined by the Board of Directors, each other option granted under the Plan by its terms (i) shall be nonassignable and nontransferable by the optionee, either voluntarily or by operation of law, except by will or by the laws of descent and distribution of the state or country of the optionee's domicile at the time of death, and (ii) during the optionee's lifetime, shall be exercisable only by the optionee. 6.1-4 Termination of Employment or Service. 6.1-4(a) General Rule. Unless otherwise determined by the Board of Directors, if an optionee's employment or service with the Company terminates for any reason other than because of total disability as provided in Section 6.1-4(c), or death as provided in Sections 6.1-4(d), his or her option may be exercised at any time before the expiration date of the option or the expiration of three months after the date of termination, whichever is the shorter period, but only if and to the extent the optionee was entitled to exercise the option at the date of termination. 3 6.1-4(b) Termination When Eligible for Retirement On or After Age 55. Unless otherwise determined by the Board of Directors, in the event of the termination of an optionee's employment when eligible for retirement on or after age 55 under the Tektronix Pension Plan (other than because of death as provided in Section 6.1-4(d) or because of disability as provided in Section 6.1-4(c), the option may be exercised at any time prior to the expiration date of the option or the expiration of one year after the date of such termination, whichever is the shortest period, but only if and to the extent the optionee was entitled to exercise the option on the date of termination. The Board of Directors may, in its sole discretion, cancel any such options at any time prior to the exercise thereof unless the following conditions are met: (i) The optionee shall not render services for any organization or engage directly or indirectly in any business which, in the judgment of the Chief Executive Officer of the Company, is or becomes competitive with the Company, or which is or becomes otherwise prejudicial to or in conflict with the interests of the Company. The judgment of the Chief Executive Officer shall be based on the optionee's positions and responsibilities while employed by the Company, the optionee's post-employment responsibilities and position with the other organization or business, the extent of past, current and potential competition or conflict between the Company and the other organization or business, the effect on the Company's customers, suppliers and competitors of the optionee's assuming the post-employment position, and such other considerations as are deemed relevant given the applicable facts and circumstances. The optionee shall be free, however, to purchase as an investment or otherwise, stock or other securities of such organization or business so long as they are listed upon a recognized securities exchange or traded over-the-counter, and such investment does not represent a substantial investment to the optionee or a greater than 10 percent equity interest in the organization or business. (ii) The optionee shall not, without prior written authorization from the Company, disclose to anyone outside the Company, or use in other than the Company's business, any confidential information or material, as defined in the Company's employee confidentiality agreement, relating to the business of the Company, acquired by the optionee either during or after employment with the Company. (iii) The optionee, pursuant to the Company's employee confidentiality agreement, shall disclose promptly and assign to the Company all right, title, and interest in any invention or idea, patentable or not, made or conceived by the optionee during employment by the Company, relating in any manner to the actual or anticipated business, research or development work of the Company and shall do anything reasonably necessary as requested by the Company to enable the Company to secure a patent where appropriate in the United States and in foreign countries. 6.1-4(c) Termination Because of Disability. Unless otherwise determined by the Board of Directors, if an optionee's employment or service with the Company terminates because of disability as defined in the applicable option agreement, his or her option shall become exercisable in full and may be exercised at any time before the expiration date of the option or before the date one year after the date of termination, whichever is the shorter period. 4 6.1-4(d) Termination Because of Death. Unless otherwise determined by the Board of Directors, if an optionee dies while employed by or providing service to the Company, his or her option shall become exercisable in full and may be exercised at any time before the expiration date of the option or before the date one year after the date of death, whichever is the shorter period, but only by the person or persons to whom the optionee's rights under the option shall pass by the optionee's will or by the laws of descent and distribution of the state or country of domicile at the time of death. 6.1-4(e) Amendment of Exercise Period Applicable to Termination. The Board of Directors may at any time extend the three months and one year exercise periods any length of time not longer than the original expiration date of the option. The Board of Directors may at any time increase the portion of an option that is exercisable, subject to terms and conditions determined by the Board of Directors. 6.1-4(f) Failure to Exercise Option. To the extent that the option of any deceased optionee or any optionee whose employment or service terminates is not exercised within the applicable period, all further rights to purchase shares pursuant to the option shall cease and terminate. 6.1-4(g) Leave of Absence. Absence on leave approved by the Employer or on account of illness or disability shall not be deemed a termination or interruption of employment or service. Unless otherwise determined by the Board of Directors, vesting of options shall continue during a medical, family or military leave of absence, whether paid or unpaid, and vesting of options shall be suspended during any other unpaid leave of absence. 6.1-5 Purchase of Shares. 6.1-5(a) Notice of Exercise. Unless the Board of Directors determines otherwise, shares may be acquired pursuant to an option granted under the Plan only upon the Company's receipt of written notice from the optionee of the optionee's binding commitment to purchase shares, specifying the number of shares the optionee desires to purchase under the option and the date on which the optionee agrees to complete the transaction, and, if required to comply with the Securities Act of 1933, containing a representation that it is the optionee's intention to acquire the shares for investment and not with a view to distribution. 6.1-5(b) Payment. Unless the Board of Directors determines otherwise, on or before the date specified for completion of the purchase of shares pursuant to an option exercise, the optionee must pay the Company the full purchase price of those shares in cash or by check or, with the consent of the Board of Directors, in whole or in part, in Common Stock of the Company valued at fair market value, restricted stock or other contingent awards denominated in either stock or cash, promissory notes and other forms of consideration. Unless otherwise determined by the Board of Directors, any Common Stock provided in payment of the purchase price must have been previously acquired and held by the optionee for at least six months. The fair market value of Common Stock provided in payment of the purchase price shall be the closing price of the Common Stock last reported before the time payment in Common Stock is made or, if earlier, committed to be made, if the Common Stock is publicly traded, or another value of the Common Stock as specified by the Board of Directors. No shares shall be 5 issued until full payment for the shares has been made, including all amounts owed for tax withholding. 6.1-5(c) Tax Withholding. Each optionee who has exercised an option shall, immediately upon notification of the amount due, if any, pay to the Company in cash or by check amounts necessary to satisfy any applicable federal, state and local tax withholding requirements. If additional withholding is or becomes required (as a result of exercise of an option or as a result of disposition of shares acquired pursuant to exercise of an option) beyond any amount deposited before delivery of the certificates, the optionee shall pay such amount, in cash or by check, to the Company on demand. If the optionee fails to pay the amount demanded, the Company or the Employer may withhold that amount from other amounts payable to the optionee, including salary, subject to applicable law. With the consent of the Board of Directors, an optionee may satisfy this obligation, in whole or in part, by instructing the Company to withhold from the shares to be issued upon exercise or by delivering to the Company other shares of Common Stock; provided, however, that the number of shares so withheld or delivered shall not exceed the minimum amount necessary to satisfy the required withholding obligation. 6.1-5(d) Reduction of Reserved Shares. Upon the exercise of an option, the number of shares reserved for issuance under the Plan shall be reduced by the number of shares issued upon exercise of the option (less the number of any shares surrendered in payment for the exercise price or withheld to satisfy withholding requirements). 6.1-6 Limitations on Grants to Non-Exempt Employees. Unless otherwise determined by the Board of Directors, if an employee of the Company or any parent or subsidiary of the Company is a non-exempt employee subject to the overtime compensation provisions of Section 7 of the Fair Labor Standards Act (the "FLSA"), any option granted to that employee shall be subject to the following restrictions: (i) the option price shall be at least 85 percent of the fair market value, as described in Section 6.2-4, of the Common Stock subject to the option on the date it is granted; and (ii) the option shall not be exercisable until at least six months after the date it is granted; subject to exceptions in the FLSA. 6.2 Incentive Stock Options. Incentive Stock Options shall be subject to the following additional terms and conditions: 6.2-1 Limitation on Amount of Grants. If the aggregate fair market value of stock (determined as of the date the option is granted) for which Incentive Stock Options granted under this Plan (and any other stock incentive plan of the Company or its parent or subsidiary corporations, as defined in subsections 424(e) and 424(f) of the Code) are exercisable for the first time by an employee during any calendar year exceeds $100,000, the portion of the option or options not exceeding $100,000, to the extent of whole shares, will be treated as an Incentive Stock Option and the remaining portion of the option or options will be treated as a Non-Statutory Stock Option. The preceding sentence will be applied by taking options into account in the order in which they were granted. If, under the $100,000 limitation, a portion of an option is treated as an Incentive Stock Option and the remaining portion of the option is treated as a Non-Statutory Stock Option, unless the optionee designates otherwise at the time of exercise, the optionee's exercise of all or a portion of the option will be treated as the exercise of 6 the Incentive Stock Option portion of the option to the full extent permitted under the $100,000 limitation. If an optionee exercises an option that is treated as in part an Incentive Stock Option and in part a Non-Statutory Stock Option, the Company will designate the portion of the stock acquired pursuant to the exercise of the Incentive Stock Option portion as Incentive Stock Option stock by issuing a separate certificate for that portion of the stock and identifying the certificate as Incentive Stock Option stock in its stock records. 6.2-2 Limitations on Grants to 10 percent Shareholders. An Incentive Stock Option may be granted under the Plan to an employee possessing more than 10 percent of the total combined voting power of all classes of stock of the Company or any parent or subsidiary (as defined in subsections 424(e) and 424(f) of the Code) only if the option price is at least 110 percent of the fair market value, as described in Section 6.2-4, of the Common Stock subject to the option on the date it is granted and the option by its terms is not exercisable after the expiration of five years from the date it is granted. 6.2-3 Duration of Options. Subject to Sections 6.1-2, 6.1-4 and 6.2-2, Incentive Stock Options granted under the Plan shall continue in effect for the period fixed by the Board of Directors, except that by its terms no Incentive Stock Option shall be exercisable after the expiration of 10 years from the date it is granted. 6.2-4 Option Price. The option price per share shall be determined by the Board of Directors at the time of grant. Except as provided in Section 6.2-2, the option price shall not be less than 100 percent of the fair market value of the Common Stock covered by the Incentive Stock Option at the date the option is granted. The option price shall not be less than 100 percent of the fair market value of the Common Stock covered by the Non-Statutory Stock Option at the date the option is granted, except that the Board of Directors may grant options with an exercise price determined by the Board of Directors that is less than fair market value to the extent permitted by Section 5.3. The fair market value shall be the closing price of the Common Stock last reported before the time the option is granted, if the stock is publicly traded, or another value of the Common Stock as specified by the Board of Directors. 6.2-5 Limitation on Time of Grant. No Incentive Stock Option shall be granted on or after the tenth anniversary of the last action by the Board of Directors adopting the Plan or approving an increase in the number of shares available for issuance under the Plan, which action was subsequently approved within 12 months by the shareholders. 6.2-6 Early Dispositions. If within two years after an Incentive Stock Option is granted or within 12 months after an Incentive Stock Option is exercised, the optionee sells or otherwise disposes of Common Stock acquired on exercise of the Option, the optionee shall within 30 days of the sale or disposition notify the Company in writing of (i) the date of the sale or disposition, (ii) the amount realized on the sale or disposition and (iii) the nature of the disposition (e.g., sale, gift, etc.). 6.3 Non-Statutory Stock Options. Non-Statutory Stock Options shall be subject to the following terms and conditions, in addition to those set forth in Section 6.1 above: 7 6.3-1 Option Price. The option price for Non-Statutory Stock Options shall be determined by the Board of Directors at the time of grant. All options shall be granted at an option price not less than 100 percent of the fair market value of the Common Stock covered by the Non-Statutory Stock Option at the date the option is granted, except that the Board of Directors may grant a limited number of options with an exercise price determined by the Board of Directors that is less than fair market value to the extent permitted by Section 5.3. 6.3-2 Duration of Options. Non-Statutory Stock Options granted under the Plan shall continue in effect for the period fixed by the Board of Directors, except that no Non-statutory Option shall be exercisable after the expiration of 10 years from the date it is granted. 7. Stock Bonuses. Subject to the share limitation in Section 5.3, the Board of Directors may award shares under the Plan as stock bonuses. Shares awarded as a bonus shall be subject to the terms, conditions and restrictions determined by the Board of Directors. The restrictions may include restrictions concerning transferability and forfeiture of the shares awarded, together with any other restrictions determined by the Board of Directors. Except to the extent permitted by the last sentence of Section 5.3, stock bonuses that are not subject to any restrictions concerning transferability or forfeitability to the Company shall be issued only in lieu of cash compensation (including salary or any bonus) where the Company would otherwise have paid a determinable amount of cash to the grantee. The Board of Directors may require the recipient to sign an agreement as a condition of the award, but may not require the recipient to pay any monetary consideration other than amounts necessary to satisfy tax withholding requirements. The agreement may contain any terms, conditions, restrictions, representations and warranties required by the Board of Directors. The certificates representing the shares awarded shall bear any legends required by the Board of Directors. The Company may require any recipient of a stock bonus to pay to the Company in cash or by check upon demand amounts necessary to satisfy any applicable federal, state or local tax withholding requirements. If the recipient fails to pay the amount demanded, the Company or the Employer may withhold that amount from other amounts payable to the recipient, including salary, subject to applicable law. With the consent of the Board of Directors, a recipient may satisfy this obligation, in whole or in part, by instructing the Company to withhold from any shares to be issued or by delivering to the Company other shares of Common Stock; provided, however, that the number of shares so withheld or delivered shall not exceed the minimum amount necessary to satisfy the required withholding obligation. Upon the issuance of a stock bonus, the number of shares reserved for issuance under the Plan shall be reduced by the number of shares issued, less the number of shares withheld or delivered to satisfy withholding obligations. 8. Restricted Stock. Subject to the share limitation in Section 5.3, the Board of Directors may issue shares under the Plan for any consideration (including promissory notes and services) determined by the Board of Directors. Shares issued under the Plan shall be subject to the terms, conditions and restrictions determined by the Board of Directors. Subject to the last sentence of this Section 8, the restrictions may include restrictions concerning transferability, repurchase by the Company and forfeiture of the shares issued, together with any other restrictions determined by the Board of Directors. All Common Stock issued pursuant to this Section 8 shall be subject to a purchase agreement, which shall be executed by the Company and the prospective purchaser of the shares before the delivery of certificates representing the shares 8 to the purchaser. The purchase agreement may contain any terms, conditions, restrictions, representations and warranties required by the Board of Directors. The certificates representing the shares shall bear any legends required by the Board of Directors. The Company may require any purchaser of restricted stock to pay to the Company in cash or by check upon demand amounts necessary to satisfy any applicable federal, state or local tax withholding requirements. If the purchaser fails to pay the amount demanded, the Company or the Employer may withhold that amount from other amounts payable to the purchaser, including salary, subject to applicable law. With the consent of the Board of Directors, a purchaser may satisfy this obligation, in whole or in part, by instructing the Company to withhold from any shares to be issued or by delivering to the Company other shares of Common Stock; provided, however, that the number of shares so withheld or delivered shall not exceed the minimum amount necessary to satisfy the required withholding obligation. Upon the issuance of restricted stock, the number of shares reserved for issuance under the Plan shall be reduced by the number of shares issued, less the number of shares withheld or delivered to satisfy withholding obligations. Except to the extent permitted by the last sentence of Section 5.3, restricted stock shall be nontransferable and subject to repurchase by or forfeiture to the Company during a restriction period specified by the Board of Directors at the time of grant and (a) with respect to restricted stock that becomes unrestricted based on performance of the Company under criteria determined by the Board of Directors at the time of grant, the minimum restriction period shall be one year from the award date of the restricted stock, (b) with respect to shares that become unrestricted based upon the grantee's continued employment with the Company, the minimum restriction period shall be the three years from the date of grant (except that the restrictions can lapse as to shares in installments during the three year period as determined by the Board of Directors) and (c) at the discretion of the Board of Directors, these minimum restriction periods shall not apply in the event of the grantee's death, disability or termination of employment or in connection with certain transactions that may involve a change of control of the Company as determined by the Board of Directors. 9. Performance-Based Awards. Subject to the share limitation in Section 5.3, the Board of Directors may grant awards intended to qualify as qualified performance-based compensation under Section 162(m) of the Code and the regulations thereunder ("Performance-Based Awards"). Performance-Based Awards shall be denominated at the time of grant either in Common Stock ("Stock Performance Awards") or in dollar amounts ("Dollar Performance Awards"). Payment under a Stock Performance Award or a Dollar Performance Award shall be made, at the discretion of the Board of Directors, in Common Stock ("Performance Shares"), or in cash or in any combination thereof. Performance-Based Awards shall be subject to the following terms and conditions: 9.1 Award Period. The Board of Directors shall determine the period of time for which a Performance-Based Award is made (the "Award Period"). 9.2 Performance Goals and Payment. The Board of Directors shall establish in writing objectives ("Performance Goals") that must be met by the Company or any subsidiary, division or other unit of the Company ("Business Unit") during the Award Period as a condition to payment being made under the Performance-Based Award. The Performance Goals for each award shall be one or more targeted levels of performance with respect to one or more of the following objective measures with respect to the Company or any Business Unit: earnings, 9 earnings per share, stock price increase, total shareholder return (stock price increase plus dividends), return on equity, return on assets, return on capital, economic value added, revenues, operating income, inventories, inventory turns, cash flows, specific business objectives in alignment with the Company's business plan or any of the foregoing before the effect of acquisitions, divestitures, accounting changes, and restructuring and special charges (determined according to criteria established by the Board of Directors). The Board of Directors shall also establish the number of Performance Shares or the amount of cash payment to be made under a Performance-Based Award if the Performance Goals are met or exceeded, including the fixing of a maximum payment (subject to Section 9.4). The Board of Directors may establish other restrictions to payment under a Performance-Based Award, such as a continued employment requirement, in addition to satisfaction of the Performance Goals. Some or all of the Performance Shares may be issued at the time of the award as restricted shares subject to forfeiture in whole or in part if Performance Goals or, if applicable, other restrictions are not satisfied. 9.3 Computation of Payment. During or after an Award Period, the performance of the Company or Business Unit, as applicable, during the period shall be measured against the Performance Goals. If the Performance Goals are not met, no payment shall be made under a Performance-Based Award. If the Performance Goals are met or exceeded, the Board of Directors shall certify that fact in writing and certify the number of Performance Shares earned or the amount of cash payment to be made under the terms of the Performance-Based Award. 9.4 Maximum Awards. No participant may receive in any fiscal year Stock Performance Awards under which the aggregate amount payable under the Awards exceeds the equivalent of 200,000 shares of Common Stock or Dollar Performance Awards under which the aggregate amount payable under the Awards exceeds $4,000,000. 9.5 Tax Withholding. Each participant who has received Performance Shares shall, upon notification of the amount due, pay to the Company in cash or by check amounts necessary to satisfy any applicable federal, state and local tax withholding requirements. If the participant fails to pay the amount demanded, the Company or the Employer may withhold that amount from other amounts payable to the participant, including salary, subject to applicable law. With the consent of the Board of Directors, a participant may satisfy this obligation, in whole or in part, by instructing the Company to withhold from any shares to be issued or by delivering to the Company other shares of Common Stock; provided, however, that the number of shares so delivered or withheld shall not exceed the minimum amount necessary to satisfy the required withholding obligation. 9.6 Effect on Shares Available. The payment of a Performance-Based Award in cash shall not reduce the number of shares of Common Stock reserved for issuance under the Plan. The number of shares of Common Stock reserved for issuance under the Plan shall be reduced by the number of shares issued upon payment of an award, less the number of shares delivered or withheld to satisfy withholding obligations. 10 10. Changes in Capital Structure. 10.1 Stock Splits, Stock Dividends. If the outstanding Common Stock of the Company is hereafter increased or decreased or changed into or exchanged for a different number or kind of shares or other securities of the Company by reason of any stock split, combination of shares, dividend payable in shares, recapitalization or reclassification, appropriate adjustment shall be made by the Board of Directors in the number and kind of shares available for grants under the Plan and in all other share amounts set forth in the Plan. In addition, the Board of Directors shall make appropriate adjustment in the number and kind of shares as to which outstanding options, or portions thereof then unexercised, shall be exercisable, so that the optionee's proportionate interest before and after the occurrence of the event is maintained. Notwithstanding the foregoing, the Board of Directors shall have no obligation to effect any adjustment that would or might result in the issuance of fractional shares, and any fractional shares resulting from any adjustment may be disregarded or provided for in any manner determined by the Board of Directors. Any such adjustments made by the Board of Directors shall be conclusive. 10.2 Mergers, Reorganizations, Etc. In the event of a merger, consolidation, plan of exchange, acquisition of property or stock, split-up, split-off, spin-off, reorganization or liquidation to which the Company is a party or any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all, or substantially all, of the assets of the Company (each, a "Transaction"), the Board of Directors shall, in its sole discretion and to the extent possible under the structure of the Transaction, select one of the following alternatives for treating outstanding options under the Plan: 10.2-1 Outstanding options shall remain in effect in accordance with their terms. 10.2-2 Outstanding options shall be converted into options to purchase stock in one or more of the corporations, including the Company, that are the surviving or acquiring corporations in the Transaction. The amount, type of securities subject thereto and exercise price of the converted options shall be determined by the Board of Directors of the Company, taking into account the relative values of the companies involved in the Transaction and the exchange rate, if any, used in determining shares of the surviving corporation(s) to be held by holders of shares of the Company following the Transaction. Unless otherwise determined by the Board of Directors, the converted options shall be vested only to the extent that the vesting requirements relating to options granted hereunder have been satisfied. 10.2-3 The Board of Directors shall provide a period of 30 days or less before the completion of the Transaction during which outstanding options may be exercised to the extent then exercisable, and upon the expiration of that period, all unexercised options shall immediately terminate. The Board of Directors may, in its sole discretion accelerate the exercisability of options so that they are exercisable in full during that period. 10.3 Dissolution of the Company. In the event of the dissolution of the Company, options shall be treated in accordance with Section 10.2-3. 11 10.4 Rights Issued by Another Corporation. The Board of Directors may also grant options and stock bonuses and Performance-Based Awards and issue restricted stock under the Plan with terms, conditions and provisions that vary from those specified in the Plan, provided that any such awards are granted in substitution for, or in connection with the assumption of, existing options, stock bonuses, Performance-Based Awards and restricted stock granted, awarded or issued by another corporation and assumed or otherwise agreed to be provided for by the Company pursuant to or by reason of a Transaction. 11. Foreign Qualified Grants. Awards under the Plan may be granted to such employees of the Company and its subsidiaries who are residing in foreign jurisdictions as the Board of Directors may determine from time to time. The Board of Directors may adopt such supplements to the Plan as may be necessary to comply with the applicable laws of such foreign jurisdictions and to afford participants favorable treatment under such laws; provided, however, that no award shall be granted under any such supplement with terms which are more beneficial to the participants than the terms permitted by the Plan. 12. Amendment of the Plan. The Board of Directors may at any time modify or amend the Plan in any respect, except that, other than as provided in Section 10, shareholder approval shall be required for (a) any increase in the number of shares reserved for the Plan, (b) any increase in the number of shares referred to in the last sentence of Section 5.3 to a number that exceeds 5% of the total shares reserved for the Plan, (c) any amendment to Section 5.4, (d) any amendment to Section 6.3-1 and (e) any amendment to this Section 12. No change in an award already granted shall be made without the written consent of the holder of the award if the change would adversely affect the holder. 13. Approvals. The Company's obligations under the Plan are subject to the approval of state and federal authorities or agencies with jurisdiction in the matter. The Company will use its best efforts to take steps required by state or federal law or applicable regulations, including rules and regulations of the Securities and Exchange Commission and any stock exchange on which the Company's shares may then be listed, in connection with the grants under the Plan. The foregoing notwithstanding, the Company shall not be obligated to issue or deliver Common Stock under the Plan if such issuance or delivery would violate state or federal securities laws. 14. Employment and Service Rights. Nothing in the Plan or any award pursuant to the Plan shall (i) confer upon any employee any right to be continued in the employment of an Employer or interfere in any way with the Employer's right to terminate the employee's employment at will at any time, for any reason, with or without cause, or to decrease the employee's compensation or benefits, or (ii) confer upon any person engaged by an Employer any right to be retained or employed by the Employer or to the continuation, extension, renewal or modification of any compensation, contract or arrangement with or by the Employer. 15. Rights as a Shareholder. The recipient of any award under the Plan shall have no rights as a shareholder with respect to any shares of Common Stock until the date the recipient becomes the holder of record of those shares. Except as otherwise expressly provided in the Plan, no adjustment shall be made for dividends or other rights for which the record date occurs before the date the recipient becomes the holder of record. 12 EX-99 4 ex99-1_v8.txt Exhibit 99.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Tektronix, Inc. (the "Company") on Form 10-Q for the fiscal quarter ended August 31, 2002 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Richard H. Wills, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge: (1) The Report fully complies with the requirements of section 13(a) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Dated: October 4, 2002 /s/ RICHARD H. WILLS - ------------------------------------- Richard H. Wills President and Chief Executive Officer EX-99 5 ex99-2_v8.txt Exhibit 99.2 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Tektronix, Inc. (the "Company") on Form 10-Q for the fiscal quarter ended August 31, 2002 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Colin L. Slade, Senior Vice President and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge: (1) The Report fully complies with the requirements of section 13(a) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Dated: October 4, 2002 /s/ COLIN L. SLADE - ------------------------------------------------- Colin L. Slade Senior Vice President and Chief Financial Officer -----END PRIVACY-ENHANCED MESSAGE-----