Tektronix-10Q

-----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, UQ557jqPb6jgPekcU8dsAOxyUrTbqQtnnVcJcxXXvOPWg2XP0U0iDY6Ph3hWWN1U jWbUDQRRVOKn/DC4HhCnzA== 0001206774-03-000312.txt : 20030414 0001206774-03-000312.hdr.sgml : 20030414 20030414165032 ACCESSION NUMBER: 0001206774-03-000312 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20030301 FILED AS OF DATE: 20030414 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: 03648900 BUSINESS ADDRESS: STREET 1: 14200 SW KARL DRIVE CITY: BEAVERTON STATE: OR ZIP: 97077 BUSINESS PHONE: 5036277111 MAIL ADDRESS: STREET 1: P O BOX 500 CITY: BEAVERTON STATE: OR ZIP: 97077-0001 10-Q 1 d12444.htm FORM 10-Q Tektronix-10Q_12444

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 quarterly period ended March 1, 2003 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 1-04837

______________

TEKTRONIX, INC.
(Exact name of registrant as specified in its charter)

OREGON	93-0343990
(State or other jurisdiction of	(IRS Employer
incorporation or organization)	Identification No.)

14200 SW KARL BRAUN DRIVE
BEAVERTON, OREGON	97077
(Address of principal executive offices)	(Zip Code)

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

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes |X| No |_|

AT MARCH 29, 2003 THERE WERE 84,826,761 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
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	PAGE NO. ----------------
PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements:

	Condensed Consolidated Statements of Operations (Unaudited) —	2
	for the Quarter ended March 1, 2003
	and the Quarter ended February 23, 2002
	for the Three Quarters ended March 1, 2003
	and the Three Quarters ended February 23, 2002

	Condensed Consolidated Balance Sheets (Unaudited) —	3
	as of March 1, 2003 and May 25, 2002

	Condensed Consolidated Statements of Cash Flows (Unaudited) —	4
	for the Three Quarters ended March 1, 2003
	and the Three Quarters ended February 23, 2002

	Notes to Condensed Consolidated Financial Statements (Unaudited)	5

Item 2.	Management’s Discussion and Analysis of Financial	17
	Condition and Results of Operations

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	35

Item 4.	Controls and Procedures	36

PART II. OTHER INFORMATION

Item 6.	Exhibits and Reports on Form 8-K	37

SIGNATURE AND CERTIFICATIONS		38

Part I

Item 1. Financial Statements

Condensed Consolidated Statements of Operations
(Unaudited)

	Quarter ended						Three Quarters ended
(In thousands, except per share amounts)	March 1, 2003			Feb. 23, 2002			March 1, 2003			Feb. 23, 2002

Net sales	$	188,349		$	199,328		$	593,376		$	614,590
Cost of sales		87,961			99,656			291,838			308,272

Gross profit		100,388			99,672			301,538			306,318

Research and development expenses		26,674			27,017			75,867			89,183
Selling, general and administrative expenses		63,815			53,807			182,876			167,891
Equity in business ventures’ loss		—			1,503			2,893			3,108
Business realignment costs		14,173			2,353			26,997			14,725
Acquisition related costs		795			—			2,627			—
(Gain) loss on disposition of assets		(81	)		391			(588	)		4,222

Operating (loss) income		(4,988	)		14,601			10,866			27,189
Interest income		6,782			7,713			21,647			26,311
Interest expense		(1,221	)		(2,829	)		(4,560	)		(8,143	)
Other expense, net		(417	)		(1,205	)		(2,467	)		(4,787	)

Income before taxes		156			18,280			25,486			40,570
Income tax (benefit) expense		(709	)		6,399			(4,344	)		14,200

Income from continuing operations		865			11,881			29,830			26,370
Discontinued operations:
Loss from operations of optical parametric test
business (less applicable income tax benefit of
$8,521, $0, $9,296 and $0)		(15,824	)		—			(17,264	)		—
Loss on sale of VideoTele.com (less applicable income
tax benefit of $64, $0, $275 and $0)		(118	)		—			(508	)		—
Loss from operations of VideoTele.com (less
applicable income tax benefit of $0, $780,
$1,413 and $368)		—			(1,447	)		(2,624	)		(682	)
Gain on sale of Color Printing and Imaging division
(less applicable income tax expense of $7,000,
$0, $7,000 and $505)		13,000			—			13,000			937

Net (loss) earnings	$	(2,077	)	$	10,434		$	22,434		$	26,625

Net (loss) earnings per share – basic	$	(0.02	)	$	0.11		$	0.26		$	0.29
Net (loss) earnings per share – diluted		(0.02	)		0.11			0.25			0.29
Income per share from continuing operations
– basic and diluted		0.01			0.13			0.34			0.29
(Loss) earnings per share from discontinued
operations – basic and diluted		(0.03	)		(0.02	)		(0.08	)		0.00

Weighted average shares outstanding – basic		86,750			91,316			87,826			91,629
Weighted average shares outstanding – diluted		86,945			92,428			88,071			92,419

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

Condensed Consolidated Balance Sheets
(Unaudited)

(In thousands)	March 1, 2003			May 25, 2002


ASSETS
Current assets:
Cash and cash equivalents	$	155,250		$	261,301
Short-term marketable investments		122,125			193,644
Trade accounts receivable, net of allowance for
doubtful accounts of $3,061 and $3,708, respectively		104,957			95,214
Inventories		102,936			117,324
Assets of discontinued operations		4,847			39,286
Other current assets		79,314			70,867

Total current assets		569,429			777,636

Property, plant and equipment, net		152,597			131,273
Long-term marketable investments		412,324			301,104
Deferred tax assets		89,748			64,522
Other long-term assets		114,996			109,654

Total assets	$	1,339,094		$	1,384,189


LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued liabilities	$	107,876		$	154,679
Accrued compensation		52,181			56,950
Current portion of long-term debt		57,778			41,765
Deferred revenue		19,467			16,826
Liabilities of discontinued operations		1,787			3,447

Total current liabilities		239,089			273,667

Long-term debt		56,137			57,302
Other long-term liabilities		175,014			126,027

Shareholders’ equity:
Common stock, no par value (authorized 200,000
shares; issued and outstanding 85,518 and
90,509 shares, respectively)		223,982			231,035
Retained earnings		714,137			774,282
Accumulated other comprehensive loss		(69,265	)		(78,124	)

Total shareholders’ equity		868,854			927,193

Total liabilities and shareholders’ equity	$	1,339,094		$	1,384,189

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

Condensed Consolidated Statements of Cash Flows
(Unaudited)

	Three Quarters ended
(In thousands)	March 1, 2003			Feb. 23, 2002

CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings	$	22,434		$	26,625
Adjustments to reconcile net earnings to net cash provided by
operating activities:
Gain on the sale of Color Printing and Imaging division		(13,000	)		(937	)
Loss on the sale of VideoTele.com		508			—
Loss from VideoTele.com discontinued operations		2,624			682
Loss from optical parametric test business discontinued operations		17,264			—
Depreciation and amortization expense		26,168			30,701
Loss on the disposition/impairment of assets		8,516			4,223
Loss on the disposition of marketable equity securities		—			1,327
Bad debt expense		207			991
Tax benefit of stock option exercises		312			—
Deferred income tax (benefit) expense		(8,091	)		2,059
Equity in business ventures’ loss		2,893			3,108
Changes in operating assets and liabilities:
Accounts receivable		13,383			38,292
Inventories		29,864			15,654
Other current assets		2,624			3,253
Accounts payable		(47,813	)		(76,046	)
Accrued compensation		(9,840	)		(49,322	)
Deferred revenue		2,641			2.192
Other long-term assets and liabilities, net		(7,874	)		6,933

Net cash provided by continuing operating activities		42,820			9,735
Net cash provided by (used in) discontinued operating activities		(4,214	)		4,936

Net cash provided by operating activities		38,606			14,671

CASH FLOWS FROM INVESTING ACTIVITIES
Cash acquired in Sony/Tektronix acquisition		23,915			—
Acquisition of property, plant and equipment		(11,650	)		(11,206	)
Proceeds from the disposition of fixed assets		6,590			975
Proceeds from maturities and sales of short-term and
long-term available-for-sale securities		382,255			—
Purchases of short-term and long-term available-for-sale securities		(414,063	)		—
Proceeds from maturities of short-term and long-term held-to-maturity securities		—			400,222
Purchases of short-term and long-term held-to-maturity securities		—			(386,018	)

Net cash (used in) provided by investing activities		(12,953	)		3,973

CASH FLOWS FROM FINANCING ACTIVITIES
Net change in short-term debt		—			(974	)
Repayment of long-term debt		(41,760	)		(21,987	)
Proceeds from employee stock plans		7,076			9,661
Repurchase of common stock		(97,020	)		(23,242	)

Net cash used in financing activities		(131,704	)		(36,542	)
Net decrease in cash and cash equivalents		(106,051	)		(17,898	)
Cash and cash equivalents at beginning of period		261,301			287,268

Cash and cash equivalents at end of period	$	155,250		$	269,370

SUPPLEMENTAL DISCLOSURES OF CASH FLOWS
Income taxes (refunded) paid, net	$	(2,404	)	$	7,835
Interest paid		6,291			9,303

NON-CASH INVESTING AND FINANCING ACTIVITIES
Assets acquired from Sony/Tektronix (excluding cash received)		159,308			—
Assumption of long-term debt from Sony/Tektronix acquisition		53,506			—
Assumption of other liabilities from Sony/Tektronix acquisition		89,877			—
Non-cash proceeds from the sale of VideoTele.com		7,303			—

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 protocol test equipment and radio frequency 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 second and third quarters of fiscal years 2003 and the comparative prior year quarters each include 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. Examples include the allowance for doubtful accounts; estimates of contingent liabilities; intangible asset valuation; inventory valuation; pension plan assumptions; determining when investment impairments are other-than-temporary; and the assessment of the valuation of deferred income taxes and income tax reserves. 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.	Recent Transactions
Sony/Tektronix Redemption
During the second quarter of fiscal year 2003, the Company acquired from Sony Corporation (“Sony”), its 50% interest in Sony/Tektronix Corporation (“Sony/Tektronix”) through redemption of Sony’s shares by Sony/Tektronix for 8 billion Yen (“Sony/Tektronix Aquisition”), or approximately $65.7 million at

5

September 30, 2002. This transaction closed on September 30, 2002, at which time the Company obtained 100% ownership of Sony/Tektronix. This transaction is a long-term strategic investment that will provide the Company stronger access to the Japanese market and the ability to leverage the engineering resources in Japan. The Company accounted for its investment in Sony/Tektronix under the equity method prior to this redemption. Prior to 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. Sony/Tektronix utilized $53.1 million of this credit facility to fund a portion of the redemption of shares from Sony and the remainder will provide operating capital for this Japan subsidiary. 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 were consolidated in the Company’s financial statements. Assets purchased and liabilities assumed as of the purchase date were as follows (in thousands):

Cash	$	23,915
Accounts receivable		23,333
Inventory		15,476
Deferred tax asset		3,431
Property, plant and equipment		36,752
Goodwill		35,647
Intangible assets		2,200
Other long-term assets		42,469

Total assets	$	183,223

Accounts payable and accrued liabilities	$	22,394
Accrued compensation		5,071
Long-term debt		53,506
Other long-term liabilities		62,412

Total liabilities	$	143,383

The allocation of purchase price to the pension liability assumed in the transaction was based on the best available data as of the transaction date, but has not been finalized as of March 1, 2003. The allocation of purchase price to the pension liability will be adjusted upon completion of the appropriate analysis of such liabilities. The pension liability is included in Other long-term liabilities on the Condensed Consolidated Balance Sheet as of March 1, 2003.

Pro forma summary results of operations of the Company after intercompany eliminations of the newly created Japan subsidiary as though the acquisition had been completed at the beginning of the period were as follows:

	Quarter ended					Three Quarters ended
(In thousands, except per share amounts)	March 1, 2003			Feb. 23, 2002		March 1, 2003		Feb. 23, 2002

Net sales	$	188,349		$	206,057	$	609,456	$	651,062
Net (loss) earnings		(2,077	)		8,475		20,296		21,854
(Loss) earnings per share - diluted	$	(0.02	)	$	0.09	$	0.23	$	0.24

Subsequent to closing, the Company incurred $2.6 million in costs specifically associated with integrating the operations of this subsidiary which are recorded in Acquisition related costs on the Condensed Consolidated Statements of Operations.

Sale of VideoTele.com

On November 7, 2002, the Company completed the sale of the VideoTele.com (“VT.c”) subsidiary. VT.c was sold to Tut Systems, Inc. (“Tut”), a publicly traded company, for 3,283,597 shares of Tut common stock valued at $4.2 million and a note receivable for $3.1 million due in November 2007. The common stock is classified as an available-for-sale security and represents a 19.9% interest in Tut and therefore is accounted for on the cost basis. Both the common stock and the note receivable are

included in Other long-term assets in the Condensed Consolidated Balance Sheet as of March 1, 2003. Under the terms of the sale agreement, the Company is restricted from selling the common stock for a period of 1 year. The note receivable accrues interest at an annual rate of 8%. As a result of this transaction, employees of VT.c on the transaction date became employees of the post-merger entity at the time of the closing. The sale of VT.c has been accounted for as a discontinued operation in accordance with Financial Accounting Standards Board (“FASB”) Statement of Financial Accounting Standards (“SFAS”) No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” Accordingly, the results of VT.c operations prior to the transaction date, and the loss on this sale of $0.5 million for the first three quarters of fiscal year 2003, are excluded from continuing operations and recorded as discontinued operations, net of tax, in the Condensed Consolidated Statements of Operations.

Sale of Optical Transmission Test Products

On November 5, 2002 the Company completed the sale of certain assets related to the Company’s optical transmission test products to Digital Lightwave, Inc. (“DLI”). The assets sold include inventory, fixed assets and technology related to specific optical products. Total proceeds on this sale were $10.0 million with $9.0 million received at the time of closing with an additional $1.0 million to be held in escrow for a period of 12 months pending the resolution of certain contingencies. Of the assets sold, $3.4 million were fixed assets and the proceeds received equaled the net book value resulting in no gain or loss on the sale of fixed assets. The remaining proceeds of $6.6 million related to the sale of inventory and technology, and are included in Net Sales in the Condensed Consolidated Statement of Operations. The net book value of inventory and technology assets sold was $6.2 million at the time of the sale. In addition, DLI assumed warranty and other related liabilities of $0.6 million. The Company has also established a contingent liability for resolution of sale related contingencies of $1.0 million. The net book value of the assets sold and the contingent liability reserve have been recorded as Cost of sales in the Condensed Consolidated Statement of Operations. Liabilities assumed by DLI have been recorded as a reduction to cost of sales.

The Company had previously accrued certain liabilities related to actions intended to reduce the operating costs associated with the design, production and sale of the optical transmission test products. As a result of the sale to DLI, certain of these liabilities were expected to be mitigated and accordingly, the Company reversed $2.0 million of previously accrued expenses as a reduction to Business realignment costs in the second quarter of fiscal year 2003 in the Condensed Consolidated Statements of Operations. Due to a significant deterioration of their financial condition, it appears more likely than not that DLI will not fulfill its lease obligation, which it assumed from the Company. Accordingly, the Company accrued $1.6 million during the third quarter of fiscal 2003 for the estimated exposure associated with this lease obligation which is included in Business realignment costs in the Condensed Consolidated Statements of Operations.

Discontinued Operations – Optical Parametric Test Business

During the third quarter of fiscal year 2003, management approved and initiated an active plan for the sale of its optical parametric test business. This business has been accounted for as a discontinued operation in accordance with SFAS No. 144. Accordingly, the results of operations of the optical parametric test business have been excluded from continuing operations and recorded as discontinued operations. The net carrying value of assets, primarily goodwill and other intangible assets, have been adjusted to estimated selling price less costs to sell which resulted in a $15.3 million writedown, net of income tax benefit of $8.4 million, included in loss from discontinued operations of the optical parametric test business for the first three quarters of fiscal year 2003.

4. Sale of Color Printing and Imaging Division

On January 1, 2000, the Company sold substantially all of the assets of the Color Printing and Imaging division (“CPID”). 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 the buyer. 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 $15.4 million and $36.0 million as of March 1, 2003 and May 25, 2002, respectively. During the third quarter of fiscal year 2003, the Company recorded a gain of $13.0 million, net of income tax expense of $7 million, as a result of the resolution of certain estimated liabilities related to the sale. This gain was reported in discontinued operations on the Condensed Consolidated Statements of Operations.

5. 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 third quarter of fiscal year 2003, the Company repurchased 1.7 million shares for $27.7 million. During the first three quarters of fiscal year 2003, the Company repurchased a total of 5.5 million shares for $97.0 million. As of March 1, 2003, the Company repurchased a total of 13.8 million shares at an average price of $22.11 per share totaling $305.1 million under this authorization. The reacquired shares were immediately retired, as required under Oregon corporate law.

6. Business Realignment Costs

Business realignment costs represent actions to realign the Company’s cost structure in response to significant events. Restructuring actions taken during fiscal year 2002 and 2003 were intended to reduce the Company’s worldwide cost structure across all major functions in response to the dramatic economic decline, which severely impacted markets into which the Company sells its products. Major operations impacted include manufacturing, engineering, sales, marketing and administrative functions. The Company expects to achieve future cost savings primarily by reducing employee headcount. In addition to severance, the Company incurred other costs associated with restructuring its organization, which primarily represent facilities contracts and other exit costs associated with aligning the cost structure to appropriate levels. Management believes that the expected cost savings from restructuring actions implemented in fiscal years 2002 and 2003 have resulted in the costs savings anticipated for those actions.

During the third quarter of fiscal year 2003, the Company incurred $14.2 million of business realignment costs for employee severance and a facility lease obligation. The Company incurred $12.6 million of severance for the termination of 185 employees resulting from actions to realign the Company’s cost structure, including $11.2 million for 155 former employees of Tektronix Japan. In December 2002 the Company announced a plan to solicit voluntary retirements from employees of Tektronix Japan. Under this voluntary plan, early retirement applications were received and approved during the third quarter of fiscal year 2003. During the third quarter of fiscal year 2003, the Company also incurred $1.6 million for a facility lease obligation in the U.S as described in Note 3.

During the first three quarters of fiscal year 2003, the Company incurred $27.0 million of business realignment costs for employee severance, impairment of an intangible asset, a facility lease obligation and closure of other facilities. The Company incurred $18.4 million of severance for the termination of 365 employees resulting from actions to realign the Company’s cost structure, including $11.2 million for 155 former employees of Tektronix Japan. Severance liabilities for actions taken in fiscal 2002 and 2000 were reduced by $0.5 million largely for employees that unexpectedly left voluntarily without severance. An impairment charge of $9.1 million was recognized for an intangible asset for acquired Bluetooth technology and was impaired due to a lower than previously anticipated market potential for the Company’s products related to this technology. The impairment was determined using the present value of estimated cash flows related to the asset. The Company reversed $2.0 million for a facility lease obligation due to the sale of the Company’s optical transmission test product line in the second quarter of fiscal 2003. As the current sub-lessee may not fulfill its lease obligation, the Company accrued $1.6 million during the third quarter of fiscal 2003 as described in Note 3. Finally, $0.4 million was accrued for the closure of other facilities. These actions, other than the reduction of severance liabilities, do not relate to the previously announced 2000 Plan discussed below.

million of business realignment costs included $13.4 million of severance related costs for 413 employees and $1.4 million to cancel a service contract in India and certain office closures in Australia, Mexico, South America, Canada and Europe. These actions do not relate to the previously announced 2000 Plan discussed below

During the first three quarters of fiscal year 2003, the Company paid severance and other accrued liabilities of $14.4 million for business realignment charges recorded in fiscal 2003 and $6.4 million for business realignment charges recorded in fiscal 2002.

At March 1, 2003, the Company maintained liabilities of $4.1 million related to the severance expenses of 70 employees and $0.2 million related to the exit from certain operations for business realignment activities recorded in fiscal year 2003. At March 1, 2003, the Company maintained liabilities of $1.3 million related to the severance expenses of 23 employees and $1.9 million related to the exit from certain operations for business realignment activities recorded in fiscal year 2002.

The 2000 Plan

In the third quarter of fiscal year 2000, the Company recognized a pre-tax charge of $64.8 million for certain business realignment actions. As of March 1, 2003, the remaining accrued liabilities under this plan was $0.7 million.

7. Earnings Per Share

	Quarter ended					Three Quarters ended
	March 1,				Feb. 23,		March 1,		Feb. 23,
(In thousands except per share amounts)		2003			2002		2003		2002

Net (loss) earnings	$	(2,077	)	$	10,434	$	22,434	$	26,625

Weighted average shares used for
basic earnings per share		86,750			91,316		87,826		91,629
Effect of dilutive stock options		195			1,112		245		790

Weighted average shares used for
dilutive earnings per share		86,945			92,428		88,071		92,419

Net (loss) earnings per share - basic	$	(0.02	)	$	0.11	$	0.26	$	0.29
Net (loss) earnings per share - diluted	$	(0.02	)	$	0.11	$	0.25	$	0.29

Antidilutive options*		9,230			4,941		6,781		5,035


*	Options which are antidilutive were not included in the computation of diluted net earnings per share.

8. 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 unrealized gains and losses included, net of tax, in Accumulated other comprehensive loss on the Condensed Consolidated Balance Sheets. Realized gains and losses from sales of investments classified as available-for-sale amounted to $0.5 million and $0.8 million, respectively, in the third quarter of fiscal year 2003 and $1.5 million and $1.8 million, respectively, in the first three quarters of fiscal year 2003. During the third quarter and first three quarters of fiscal 2002, all short-term and long-term investments were classified as held-to-maturity. All short-term and long-term investments were converted to available-for-sale beginning February 23, 2002.

Short-term marketable investments held at March 1, 2003 consisted of:

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

Corporate notes and bonds	$	57,747	$	690	$	—		$	58,437
Asset backed securities	38,147		26		(44		)	38,129
Mortgage backed securities	2,631		—		(28		)	2,603
Federal agency notes and bonds	22,725		231		—			22,956

Short-term marketable investments	$	121,250	$	947	$	(72	)	$	122,125



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 March 1, 2003 consisted of:

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


Corporate notes and bonds	$	67,969	$	2,387	$	—		$	70,356
Asset backed securities		71,206		2,924		—			74,130
Mortgage backed securities		147,235		3,277		—			150,512
Federal agency notes and bonds		79,763		1,369		—			81,132
U.S. Treasuries		35,408		786		—			36,194

Long-term marketable investments	$	401,581	$	10,743	$	—		$	412,324


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)	March 1, 2003			May 25, 2002

Unamortized cost basis of corporate equity securities	$	8,427		$	4,378
Gross unrealized holding (losses) gains		(344	)		9,677

Fair value of corporate equity securities	$	8,083		$	14,055

9. 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)	March 1, 2003		May 25, 2002

Materials	$	7,124	$	3,061
Work in process		39,037		45,867
Finished goods		56,775		68,396

Inventories	$	102,936	$	117,324

10. Other Current Assets

Other current assets consisted of the following:

(In thousands)	March 1, 2003		May 25, 2002

Current deferred tax asset	$	45,505	$	37,414
Other receivables		11,234		10,927
Prepaid expenses		13,053		11,824
Other current assets		1,347		1,383
Held-for-sale assets		8,142		8,593
Notes receivable		33		726

Other current assets	$	79,314	$	70,867

11. Property, Plant and Equipment

Property, plant and equipment consisted of the following:

(In thousands)	March 1, 2003			May 25, 2002

Land	$	14,623		$	698
Buildings		180,206			130,772
Machinery and equipment		273,765			251,885
Accumulated depreciation and amortization		(315,997	)		(252,082	)

Property, plant and equipment, net	$	152,597		$	131,273

Property, plant and equipment as of March 1, 2003 includes the land, buildings and machinery, as well as the associated accumulated depreciation, acquired as part of the of Sony/Tektronix share redemption described in Note 3.

12. Other Long-Term Assets

Other long-term assets consisted of the following:

(In thousands)	March 1, 2003		May 25, 2002

Goodwill, net	$	77,032	$	35,708
Corporate equity securities		8,083		14,055
Notes, contracts and leases		9,030		4,905
Investment in Sony/Tektronix Corporation		—		40,487
Other intangible assets, net		20,851		14,499

Other long-term assets	$	114,996	$	109,654

The Company adopted 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. The increase in goodwill during the first three quarters of fiscal year 2003 was due to the $35.6 million addition from the acquisition of Sony/Tektronix Corporation on September 30, 2002 and $5.7 million effect of foreign currency translation as of March 1, 2003.

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 during the second quarter ended November 24, 2001, and found no impairment. As required by the new rules, the Company performed an impairment analysis during the second quarter ended November 30, 2002, and again found no impairment. The impairment review is based on a discounted cash flow approach that uses estimates of future market performance 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.

In the third quarter of fiscal 2003, management approved and initiated an active plan for the sale of the optical parametric test business. Accordingly, the Company classified other long-term assets of the optical parametric test business, primarily goodwill and other intangible assets, totaling $24.4 million as Assets of discontinued operations in the Condensed Consolidated Balance Sheets. The Company recognized a pre-tax writedown of $23.6 million included in loss from discontinued operations in the Condensed Consolidated Statements of Operations for the third quarter of fiscal year 2003. As of March 1, 2003, the remaining net book value of $0.8 million for other long-term assets attributable to the optical

parametric test business was included in Assets of discontinued operations in the Condensed Consolidated Balance Sheet.

13. Other Long-Term Liabilities

Other long-term liabilities consisted of the following:

(In thousands)	March 1, 2003		May 25, 2002

Pension liability	$	140,178	$	86,936
Deferred compensation		33,407		36,586
Other		1,429		2,505

Other long-term liabilities	$	175,014	$	126,027

Other long-term liabilities at March 1, 2003 includes pension and other long-term liabilities assumed as part of the Sony/Tektronix share redemption described in Note 3.

14. Long-Term Debt

Long-term debt consisted of the following:

(In thousands)	March 1, 2003			May 25, 2002

TIBOR+1.75% facility due September 29, 2006, interest at 1.8375% on March 1, 2003	$	54,982		$	—
7.5% notes due August 1, 2003		57,300			57,300
7.625% notes due August 15, 2002		—			41,765
Other long-term agreements		1,633			2
Less: current portion		(57,778	)		(41,765	)

Long-term debt	$	56,137		$	57,302

The TIBOR+1.75% debt facility agreement requires the Company to comply with certain financial covenants measured on tangible net worth and certain financial ratios. This agreement also contains a cross default clause which could trigger acceleration of outstanding debt should the Company default on other financial indebtedness, as defined in the agreement. The agreement for the 7.5% notes due August 1, 2003 also contains a cross default clause applicable to other indebtedness of more than $10 million. The Company was in compliance with its debt covenants as of March 1, 2003, and there were no events that could trigger the cross default clauses.

15. Comprehensive Income

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

	Quarter ended						Three Quarters ended
(In thousands)	March 1, 2003			Feb. 23, 2002			March 1, 2003			Feb. 23, 2002

Net (loss) earnings	$	(2,077	)	$	10,434		$	22,434		$	26,625
Other comprehensive income (loss):
Currency translation adjustment, net of
taxes of $4,769, $(2,243), $11,491
and $(2,356), respectively		7,153			(3,365	)		17,237			(3,534	)
Unrealized (loss) gain on available-for-
sale securities, net of taxes of $(281),
$1,222, $(926), and $(257),
respectively		(421	)		1,839			(1,389	)		(381	)
Additional minimum pension liability, net of
taxes of $(1,137), zero, $(3,837)
and zero, respectively		(2,117	)		—			(6,989	)		—

Total comprehensive income	$	2,538		$	8,908		$	31,293		$	22,710

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	$	5,461	$	8,154		$	(91,739	)	$	(78,124	)
First quarter activity		9,859		(1,656	)		(2,073	)		6,130
Second quarter activity		225		688			(2,799	)		(1,886	)
Third quarter activity		7,153		(421	)		(2,117	)		4,615

Balance as of March 1, 2003	$	22,698	$	6,765		$	(98,728	)	$	(69,265	)

16. 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 impracticable to report net sales by product group.

	Quarter ended				Three Quarters ended
(In thousands)	March 1, 2003		Feb. 23, 2002		March 1, 2003		Feb. 23, 2002


Consolidated net sales to external customers by region:
Americas
United States	$	70,591	$	93,657	$	257,451	$	298,100
Other Americas		5,042		7,465		15,967		23,923
Europe		45,164		46,163		131,140		141,776
Pacific		35,884		33,480		119,345		100,165
Japan		31,668		18,563		69,473		50,626

Net sales	$	188,349	$	199,328	$	593,376	$	614,590

17. Product Warranty Accrual

The Company’s product warranty accrual reflects management’s best estimate of probable liability under its product warranties. Management determines the warranty accrual based on historical experience and other currently available evidence.

Changes in the product warranty accrual for the three quarters ended March 1, 2003 were as follows (in thousands):

Balance, May 25, 2002	$	11,033
Payments made		—
Change in warranty accruals		(1,728	)

Balance, March 1, 2003	$	9,305

The decrease in the product warranty accrual resulted from a decline in related product revenues for the first three quarters of fiscal 2003.

18. 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 SFAS 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. The Company adopted the provisions of this statement for exit and disposal activities beginning January 1, 2003, which did not have a material impact on the financial results of the Company.

In October 2002, the Emerging Issues Task Force (“EITF”) issued EITF 00-21, “Accounting for Revenue Arrangements with Multiple Deliverables.” This standard addresses revenue recognition accounting by a vendor for arrangements under which it will perform multiple revenue-generating activities. This statement is to be effective for the Company’s fiscal year 2004. Management believes

the adoption of the provisions of this statement will not have a material effect on the Company’s consolidated financial statements.

In November 2002, the FASB issued Interpretation 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others.” The Interpretation elaborates on the existing disclosure requirements for most guarantees, including loan guarantees such as standby letters of credit. It also clarifies that at the time a company issues a guarantee, the company must recognize an initial liability for the fair value, or market value, of the obligations it assumes under the guarantee and must disclose that information in its interim and annual financial statements. The provisions related to recognizing a liability at inception of the guarantee for the fair value of the guarantor’s obligations does not apply to product warranties or to guarantees accounted for as derivatives. The initial recognition and initial measurement provisions apply on a prospective basis to guarantees issued or modified after December 31, 2002. The Company believes that adoption of the recognition and measurement provisions of Interpretation 45 will not have a material impact on its financial statements.

In December 2002, the FASB issued SFAS No. 148, “Accounting for Stock-Based Compensation—Transition and Disclosure—an amendment of FASB Statement No. 123.” This standard amends SFAS No. 123, “Accounting for Stock-Based Compensation,” to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, this standard amends the disclosure requirements of Statement 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. The transition provisions of SFAS No. 148 are not applicable to the Company since SFAS No. 123 has not been adopted. The disclosure provisions of SFAS No. 148 will be effective for the Company’s annual report on SEC Form 10-K for fiscal year 2003 and interim condensed consolidated financial statements on SEC Form 10-Q for the first quarter of fiscal year 2004.

In January 2003, the FASB issued Interpretation 46, “Consolidation of Variable Interest Entities.” In general, a variable interest entity could be a corporation, partnership, trust, or any other legal structure used for business purposes that (a) does not have equity investors with voting or decision-making rights; (b) has equity investors that do not provide sufficient financial resources for the entity to support its activities; (c) holds voting rights that are disproportionately low in relation to the actual economics of the investor’s relationship with the entity, and substantially all of the entity's activities involve or are conducted on behalf of that investor; (d) other parties protect the equity investors from expected losses; or (e) parties, other than the equity holders, hold the right to receive the entity’s expected residual returns, or the equity investors´ rights to expected residual returns are capped. Interpretation 46 requires a variable interest entity to be consolidated by a company if that company has a variable interest that will absorb a majority of the entity’s expected losses if they occur, receive a majority of the entity’s expected residual returns if they occur, or both. The consolidation requirements of Interpretation 46 apply immediately to variable interest entities created after January 31, 2003. The consolidation requirements apply to entities created prior to February 1, 2003 in the first fiscal year or interim period beginning after June 15, 2003. Certain of the disclosure requirements apply in all financial statements issued after January 31, 2003, regardless of when the variable interest entity was established. The Company does not expect the provisions of Interpretation 46 to have a material effect on its financial position or results of operations.

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 and realignment expenses related to the economic and technology downturn, settlement of potential claims, and expected benefits from, and restructuring related to, 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 protocol test equipment and radio frequency 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 Transactions

Sony/Tektronix Redemption

During the second quarter, the Company acquired from Sony Corporation (“Sony”), its 50% interest in Sony/Tektronix Corporation (“Sony/Tektronix”) through redemption of Sony’s shares by Sony/Tektronix for 8 billion Yen (“Sony/Tektronix Acquisition”), 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. This transaction is a long-term strategic investment that will provide the Company stronger access to the Japanese market and the ability to leverage the engineering resources in Japan. The Company accounted for its investment in Sony/Tektronix under the equity method prior to this redemption. Prior to 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. Sony/Tektronix utilized $53.1 million of this credit facility to fund a portion of the redemption of shares from Sony and the remainder will provide operating capital for this Japan subsidiary. 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 were consolidated in the Company’s financial statements

Sale of VideoTele.com

On November 7, 2002, the Company completed the sale of the VideoTele.com (“VT.c”) subsidiary. VT.c was sold to Tut Systems, Inc (“Tut”), a publicly traded company, for 3,283,597 shares of Tut common stock valued at $4.2 million and a note receivable for $3.1 million due in November 2007. The common stock is classified as an available-for-sale security and both the common stock and the note receivable are included in Other long-term assets in the Condensed Consolidated Balance Sheet as of March 1, 2003. Under the terms of the sale agreement, the Company is restricted from selling the common stock for a period of 1 year. The note receivable accrues interest at an annual rate of 8%. As a result of this transaction, employees of VT.c on the transaction date became employees of the post-merger entity at the time of the closing. The sale of VT.c has been accounted for as a discontinued operation in accordance with SFAS No. 144. Accordingly, the results of VT.c operations prior to the transaction date, and the loss on this sale, are excluded from continuing operations and recorded as discontinued operations, net of tax, in the Condensed Consolidated Statements of Operations.

Sale of Optical Transmission Test Products

On November 5, 2002 the Company completed the sale of certain assets related to the Company’s optical transmission test products to Digital Lightwave, Inc. (“DLI”). The assets sold include inventory, fixed assets and technology related to these specific optical products. Total proceeds on this sale were $10.0 million with $9 million received at the time of closing with an additional $1 million to be held in escrow pending the resolution of certain contingencies. Of the assets sold, $3.4 million were fixed assets and the proceeds received equaled the net book value resulting in no gain or loss on the sale of fixed assets. The remaining proceeds of $6.6 million related to the sale of inventory and technology, and are included in Net Sales in the Condensed Consolidated Statement of Operations. The net book value of inventory and technology assets sold was $6.2 at the time of the sale. In addition, DLI assumed warranty and other related liabilities of $0.6 million. The Company has also established a contingent liability for resolution of sale related contingencies of $1.0 million. The net book value of the assets sold and the contingent liability reserve have been recorded as Cost of sales in the Condensed Consolidated Statement of Operations. Liabilities assumed by DLI have been recorded as a reduction to cost of sales.

Discontinued Operations – Optical Parametric Test Business

During the third quarter of fiscal year 2003, management approved and initiated an active plan for the sale of its optical parametric test business. This business has been accounted for as a discontinued operation in accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” Accordingly, the results of operations of the optical parametric test business have been excluded from continuing operations and recorded as discontinued operations. The net carrying value of assets, primarily goodwill and other intangible assets, have been adjusted to estimated selling price less costs to sell which resulted in a $15.3 million writedown, net of income tax benefit of $8.4 million, included in loss from discontinued operations of the optical parametric test business for the third quarter and first three quarters of fiscal year 2003.

Business Realignment Costs

During the first three quarters of fiscal year 2003, the Company incurred $27.0 million of business realignment costs for employee severance, impairment of an intangible asset, a facility lease obligation and closure of other facilities. The Company incurred $18.4 million of severance for the termination of 365 employees resulting from actions to realign the Company’s cost structure, including $11.2 million for 155 former employees of Tektronix Japan. Severance liabilities for actions taken in fiscal 2002 and 2000 were reduced by $0.5 million largely for employees that unexpectedly left voluntarily without severance. An impairment charge of $9.1 million was recognized for an intangible asset for acquired Bluetooth technology and was impaired due to a lower than previously anticipated market potential for the Company’s products related to this technology. The impairment was determined using the present value of estimated cash flows related to the asset. The Company reversed $2.0 million for a facility lease obligation due to the sale of the Company’s optical transmission test product line in the second quarter of fiscal 2003. As the current sub-lessee may not fulfill its lease obligation, the Company accrued $1.6 million during the third quarter of fiscal 2003 as described in Note 3 to the Condensed Consolidated Financial Statements. Finally, $0.4 million was accrued for the closure of other facilities. These actions, other than the reduction of severance liabilities, do not relate to the previously announced 2000 Plan discussed below.

During the first three quarters of fiscal year 2002, the Company incurred $14.7 million of net business realignment costs including $14.8 million of expenses to better align future operating expense levels with reduced sales levels offset by $0.1 million of reserve reversals related to the 2000 Plan. The $14.8 million of business realignment costs included $13.4 million of severance related costs for 413 employees and $1.4 million to cancel a service contract in India and certain office closures in Australia, Mexico, South America, Canada and Europe. These actions do not relate to the previously announced 2000 Plan discussed below.

The 2000 Plan

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 intellectual property, 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 March 1, 2003, the Company had $25.3 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 contingencies due to contractual obligations entered into at the time of these divestitures and liabilities retained by the Company. Included in these liabilities is a reserve for contingent liabilities related to the sale of CPID on January 1, 2000. During the third quarter of fiscal year 2003, the Company reduced the estimated liability by $20 million as a result of the resolution of certain estimated liabilities related to the sale. This reversal was reported as a gain on sale of CPID in discontinued operations on the Condensed Consolidated Statements of Operations. As of March 1, 2003, the Company had $15.4 million recorded as a reserve for liabilities associated with the sale of CPID, which is included in the $25.3 million of total contingent liabilities noted above. The $15.4 million of reserves primarily relates to remaining 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 $9.9 million of contingent liabilities includes amounts related to environmental, intellectual property 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 March 1, 2003, the Company has $77.0 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 during the second quarter ended November 24, 2001, and identified no impairment. As required by the new rules, the Company performed an impairment analysis during the second quarter ended November 30, 2002, and again identified no impairment. 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.

During the third quarter of fiscal year 2003, management approved and initiated an active plan for the sale of its optical parametric test business. This business has been accounted for as a discontinued operation in accordance with SFAS No. 144. Accordingly, the results of operations of this the optical parametric test business have been excluded from continuing operations and recorded as discontinued operations. The net carrying value of assets, primarily goodwill and other intangible assets, have been adjusted to estimated selling price less costs to sell which resulted in a $15.3 million writedown, net of income tax benefit of $8.4 million, included in loss from discontinued operations of the optical parametric test business for the first three quarters of fiscal year 2003.

For intangible assets with definite useful lives, 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 March 1, 2003, the Company had $20.9 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 first three quarters of fiscal year 2003, the Company impaired an intangible asset related to acquired Bluetooth technology resulting in an expense of $9.1 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 $102.9 million as of March 1, 2003. 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 the 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, excessive amounts of the used equipment in the marketplace 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. As the rate of return on plan assets assumption is a long-term estimate, it can differ materially from the actual return realized on plan assets in any given year, especially when markets are highly volatile.

Excluding the pension plan related to the newly acquired Japan subsidiary, the Company’s estimated long-term rate of return on plan assets for fiscal year 2003 is 9.1%. A one percent change in the estimated long-term rate of return on plan assets would have resulted in a change in operating income of $4.3 million for the three quarters ended March 1, 2003. Included in income for the three quarters ended March 1, 2003 is $6.5 million of income generated by the recognition of return on plan assets in excess of the associated pension expense. The assumed return on plan assets will likely differ from the actual return on plan assets. To the degree the actual return on plan assets is greater or less than the assumed return, an unrecognized gain or loss will accumulate, which may impact net income over future periods.

In connection with the Sony/Tektronix Acquisition, the Company assumed the assets and liabilities of the Japan subsidiary. Included in the liabilities assumed was a net pension liability of $61.1 million as of September 30, 2002, the acquisition date. The estimated return on plan assets assumed for this plan is 6.5%. Only five months of operations were included in the Consolidated Statement of Operations as of March 1, 2003. Through March 1, 2003, $3.6 million of net expense has been recognized associated with this Japan based pension plan. This net expense is based on estimates, in the same manner discussed for the above plans. To the degree the actual return on plan assets is greater or less than the estimated return, an unrecognized gain or loss will accumulate, which may impact net income in future years.

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.

At May 25, 2002, the most recent valuation date, the accumulated benefit obligation exceeded the fair value of plan assets for certain pension plans. In accordance with SFAS 87, "Employers' Accounting for Pensions", a minimum pension liability is recognized for the unfunded accumulated benefit obligation. Recognition of an additional minimum liability is required if an unfunded accumulated benefit obligation exists and (a) an asset has been recognized as prepaid pension cost, (b) the liability already recognized as unfunded accrued pension cost is less than the unfunded accumulated benefit obligation, or (c) no accrued or prepaid pension cost has been recognized. The Company has recognized an additional minimum liability in accordance with SFAS 87. Since the additional minimum liability exceeded unrecognized prior service cost, the excess (which would represent a net loss not yet recognized as net periodic pension cost) is reported as a component of other comprehensive income, net of applicable income tax benefit. The Company initially recorded an additional pension liability at the end of fiscal year 2002, the first measurement date where the accumulated benefit obligation exceeded the fair value of plan assets. As of March 1, 2003 the additional pension liability included in other comprehensive income was $98.7 million, net of income taxes of $53.2 million. The implication of the additional pension liability is that it may reduce net income in future years by reducing the market related value of plan assets, thereby reducing the asset base upon which the Company recognizes a return. Additionally, the Company may find it necessary to fund additional pension assets, which would increase the market related value of plan assets upon which the Company recognizes a return, but would reduce operating cash and future interest earnings on that cash.

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 maintains reserves for

estimated tax exposures in jurisdictions of operation. These tax jurisdictions include federal, state and various international tax jurisdictions. Exposures are settled primarily through the settlement of audits within these tax jurisdictions, but can also be affected by changes in applicable tax law or other factors, which could cause management of the Company to believe a revision of past estimates is appropriate. Management believes that an appropriate liability has been established for estimated exposures. The liabilities are frequently reviewed for their adequacy. As of March 1, 2003, the Company was subject to income tax audits for fiscal years 2001 and 2002. 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.

In September 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 in the first quarter of fiscal year 2003. 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 March 1, 2003, 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 or net operating loss carryforwards 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 March 1, 2003, the Company had established a valuation allowance against deferred tax assets, and had not established valuation allowances against other deferred tax assets based on tax strategies planned to mitigate the risk of impairment to these 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, including those related to Tektronix Japan. During the third quarter of fiscal 2003, the Company implemented certain operational changes that were consistent with our tax planning strategies that are expected to result in the utilization of certain deferred tax assets for which valuation allowances had previously been established.

Third Quarter Fiscal Year 2003 Compared to Third 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 three quarters of fiscal year 2003, the Company incurred business realignment costs of $27.0 million, as discussed above in Business Realignment Costs.

Management of the Company anticipates that business realignment and acquisition related costs of approximately $10 million to $12 million will be incurred in the fourth quarter of fiscal year 2003 to further reduce the Company’s cost structure in order to continue to improve its operating model at current sales levels. 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. Product orders for the third quarter of fiscal year 2003 were $179.8 million, an increase of $7.5 million from product orders of $172.3 million in the third quarter of fiscal year 2002. Order growth resulted from strong orders in our mobile protocol test and radio frequency test product lines, and the consolidation of Tektronix Japan, offset by declines in our optical products and the impact of order timing for general purpose products. Product orders for the first three quarters of fiscal year 2003 were $550.6 million, an increase of $33.3 million or 6% from product orders of $517.3 million in the first three quarters of fiscal year 2002. This increase was primarily due the incremental impact of $22.3 million from acquisition of the Japan subsidiary contributed to this increase over the prior year comparable period. To a lesser extent, the increase was also due to an extra week of operations in the Company’s first quarter of fiscal year 2003, which had 14 weeks as compared to 13 weeks in the first quarter of the prior year, as well as higher than average cancellations in the first quarter of fiscal year 2002.

In the third quarter, orders from the Americas were $71.7 million, a decrease of $12.8 million or 15% from the third quarter of the prior year. This decrease was primarily attributable to orders decline in the United States, which decreased to $66.6 million, or 14%, from $77.2 million in the prior year. The decline in the United States as compared with the prior year is primarily related to the continued decline in the economic conditions of the end markets into which the Company sells its products. See the Economic Conditions section above. Management of the Company believes that uncertainty related to geopolitical conditions has also contributed to the decrease in orders in the United States.

Orders from Japan were $32.3 million, an increase of $15.8 million or 96% from the third quarter fiscal year 2002 orders. The increase in Japan is primarily due to the incremental impact of inclusion of orders from the newly acquired Japan subsidiary. In addition, orders from the Pacific, excluding Japan, were $37.1 million, up $3.3 million or 10% from the third quarter of the prior year. Orders from Europe increased to $38.7 million, an increase of $1.2 million or 3% from the third quarter of the prior year.

For the first three quarters of fiscal year 2003, orders from the Americas were $236.6 million, a decrease of $4.5 million or 2% from the first three quarters of the prior year. This decrease was primarily due to orders from the Other Americas, which decreased to $16.0 million, or 25% from orders of $21.2 million in the prior year. Orders from the United States of $220.6 million for the first three quarters of fiscal 2003 increased slightly from $219.9 million in the prior year. The slight growth in the United States as compared with the prior year is primarily attributable to the extra week in the current fiscal year as well as higher than average cancellations in the first quarter of fiscal year 2002. Orders from Japan were $72.5 million, an increase of $28.7 million or 66% from the first three quarters of fiscal year 2002. This increase in Japan orders is primarily due to the $22.3 million incremental impact from inclusion of orders from the newly acquired Japan subsidiary in the second quarter of fiscal year 2003. In addition, orders from the Pacific, excluding Japan, were $120.4 million, up $15.4 million or 15% from the first three quarters of the prior year. Orders from Europe declined to $120.9 million, a decrease of $6.4 million or 5% from the first three quarters of fiscal year 2002 as a result of continued difficult economic conditions in the Europe region.

Net Sales

Net sales for the third quarter of fiscal year 2003 were $188.3 million, a decrease of $11.0 million from net sales of $199.3 million in the third quarter of the prior year. Net sales for the first three quarters of fiscal year 2003 were $593.4 million, a decrease of $21.2 million from net sales of $614.6 million in the same period of the prior year. The decreases in net sales are primarily attributable to continued weakness in the markets into which the Company sells it products as well as lower backlog in the current year as compared with the prior year. As backlog levels are reduced, the Company becomes more

reliant on the timing of order receipts within the quarter to convert orders to sales. The decline in sales for the third quarter of fiscal year 2003 compared to the prior year was partially offset by $14.1 million of sales in the third quarter of fiscal year 2003 resulting from the incremental impact of consolidation of the newly acquired Japan subsidiary. The decline in net sales for the first three quarters of fiscal year 2003 compared to the prior year was offset by $20.2 million of sales resulting from the incremental impact of consolidation of the newly acquired Japan subsidiary and $6.6 million of sales related to the sale of optical transmission test products in the second quarter of fiscal year 2003.

In the third quarter of fiscal year 2003, net sales from the Americas, including the United States, were $75.6 million, a decrease of $25.5 million or 25% from $101.1 million in the third quarter of the prior year. Net sales from Japan were $31.7 million, an increase of $13.1 million or 71% from the third quarter fiscal year 2002 sales, primarily due to a $14.1 million increase resulting from the incremental impact of consolidation of the newly acquired Japan subsidiary. In addition, sales from the Pacific, excluding Japan, were $35.9 million, up $2.4 million or 7% from the third quarter of the prior year. Sales from Europe declined to $45.2 million, a decrease of $1.0 million or 2% from the third quarter of fiscal year 2002. The decreases in the Americas and Europe reflect the trend of orders in these regions during these comparative time frames. The increase in the Pacific, excluding Japan was attributable to the ability to ship orders based on the timing of orders received within the quarter, as overall demand in orders for this region has increased over the prior year.

For the first three quarters of fiscal year 2003, net sales from the Americas were $273.4 million, a decrease of $48.6 million or 15% from the first three quarters of the prior year. This decrease comprised the United States, which decreased to $257.5 million, down 14%, from $298.1 million in the prior year and the Other Americas, which decreased to sales of $16.0 million, down 33% from $23.9 million in the prior year. The decrease in the Americas was primarily the result of lower backlog levels, which constrained the Company’s ability to generate sales through the reduction of backlog.

Net sales from Japan were $69.5 million, an increase of $18.8 million or 37% from sales in the first three quarters of fiscal year 2002, primarily due to a $20.2 million increase resulting from the incremental impact of consolidation of the newly acquired Japan subsidiary. In addition, sales from the Pacific, excluding Japan, were $119.3 million, up $19.2 million or 19% from the first three quarters of the prior year. This increase is the result of increased orders in this region during these comparative periods. Sales from Europe declined to $131.1 million, a decrease of $10.6 million or 8% from the first three quarters of fiscal year 2002 as a result of the decline in orders during these comparative periods.

Gross Profit and Gross Margin

Gross profit was $100.4 million for the third quarter of fiscal year 2003, nearly flat from gross profit of $99.7 million for the third quarter of fiscal year 2002. The impact of lower net sales in the current quarter was offset by relatively lower cost of sales compared to the prior year. Gross margin as a percentage of net sales was 53% in the third quarter of fiscal year 2003 compared to 50% in the third quarter of the prior year. A primary reason for this increase in gross margin is the positive impact of consolidating Tektronix Japan in the current year. Prior to September 30, 2002, sales to Japan were made through Sony/Tektronix, the Company’s 50% joint venture. Accordingly, these sales had lower gross margin under the joint venture structure as they represented sales to an unconsolidated distributor. Following the acquisition of Sony/Tektronix on September 30, 2002, the results of this entity, now known as Tektronix Japan, are consolidated into the Company’s results of operations. Therefore, revenue and gross margin associated with end-user sales in Japan are now recognized, which has the effect of increasing gross margin. An additional reason for the increase in gross margin is an increase in the sales mix of higher margin new oscilloscope and mobile protocol products in the current year quarter as compared with the prior year. Additionally, charges associated with the impairment of inventory decreased in the current year as compared with the prior year, declining $0.6 million.

For the first three quarters of fiscal year 2003, gross profit was $301.5 million, a decrease of $4.8 or 2% from gross profit in the same period last year. The decrease was attributable to lower sales volume in the current fiscal year. Gross margin as a percentage of net sales was 51% for the first three quarters of fiscal year 2003 compared to 50% for the same period last year. The slight improvement in gross margin was attributable to positive impact of consolidating Tektronix Japan since the second quarter of the

current year and increase in the sales mix of higher margin products during the third quarter of the current year. In addition, year to date charges associated with the impairment of inventory decreased as compared with the prior year comparable period by $1.6 million.

Operating Expenses

For the third quarter of fiscal year 2003, operating expenses, including business realignment and acquisition related costs, were $105.4 million, an increase of $20.3 million from $85.1 million for the third quarter of fiscal year 2002. Operating expenses for the third quarter of fiscal year 2003 include $13.5 million of incremental operating expenses resulting from the consolidation of Tektronix Japan. Business realignment costs and acquisition related costs were $15.0 million, an increase of $12.6 million from $2.4 million for the third quarter of fiscal year 2002. Offsetting decreases in operating expenses for the third quarter of fiscal year 2003 were primarily due to reduction in employee headcount resulting from cost reduction actions taken in fiscal years 2002 and 2003. This resulted in an operating loss of $5.0 million as compared with operating income of $14.6 million in the same quarter of the prior year.

For the first three quarters of fiscal year 2003, operating expenses, including business realignment and acquisition related costs, were $290.7 million, an increase of $11.6 million from $279.1 million for the first three quarters of fiscal year 2002. Operating expenses for the first three quarters of fiscal year 2003 include $23.0 million of incremental operating expenses resulting from the consolidation of Tektronix Japan. Business realignment costs and acquisition related costs were $29.6 million, an increase of $14.9 million from $14.7 million for the third quarter of fiscal year 2002. Offsetting decreases in operating expenses for the third quarter of fiscal year 2003 were primarily due to reduction in employee headcount resulting from cost reduction actions taken in fiscal years 2002 and 2003. This resulted in operating income of $10.9 million, or 2% of net sales during the first three quarters of the current year, compared with operating income of $27.2 million, or 4% of net sales in the same period of the prior year.

Research and development expenses were $26.7 million during the third quarter of fiscal year 2003, which decreased slightly from $27.0 million in the same quarter in the prior year. The decrease in research and development expenses, largely from lower materials spending due to timing of large projects and headcount reductions, was offset by incremental expenses of $2.4 million resulting from the consolidation of Tektronix Japan. As a percentage of net sales, research and development expenses remained flat at 14%. During the first three quarters of fiscal year 2003, Research and development expenses were $75.9 million or 13% of net sales, as compared with $89.2 million or 15% of net sales in the same period of the prior year. These decreases are the net result of higher spending associated with the timing of new product launches in fiscal year 2002 partially offset by an extra week of operations in fiscal year 2003 and the incremental impact of consolidation of research and development expenses of $4.2 million from Tektronix Japan.

Selling, general and administrative expenses were $63.8 million or 34% of net sales for the third quarter of fiscal year 2003, an increase of $10.0 million from $53.8 million, or 27% of net sales for the prior year. The increase in selling, general and administrative expenses for the third quarter of fiscal year 2003 includes incremental expenses of $11.1 million resulting from the consolidation of Tektronix Japan. During the first three quarters of fiscal year 2003, Selling, general and administrative expenses were $182.9 million or 31% of net sales, an increase of $15.0 million, as compared with $167.9 million or 27% in the same period in the prior year. The increase in selling, general and administrative expenses for the first three quarters of fiscal year 2003 reflects the incremental impact of the consolidation of Tektronix Japan of $18.9 million and an extra week of operations in fiscal year 2003, partially offset by the impact of headcount reductions and other cost restructuring actions enacted by the Company.

Equity in business ventures’ loss represents the Company’s 50% share of net loss from Sony/Tektronix. During the second quarter of fiscal year 2003, the Company completed the acquisition of Sony/Tektronix. Results prior to the date of acquisition are included in Equity in business ventures’ loss at Tektronix’ ownership percentage. Results subsequent to the acquisition date have been consolidated in the operating results of the Company. See the discussion in Recent Transactions section of the Management’s Discussion and Analysis for further information on this acquisition. Equity in business ventures’ loss was $2.9 million for the first three quarters of fiscal year 2003, compared with equity losses of $3.1 million during the same period a year ago.

During the first three quarters of fiscal year 2003, the Company incurred $27.0 million of business realignment costs for employee severance, impairment of an intangible asset, a facility lease obligation and closure of other facilities. The Company incurred $18.4 million of severance for the termination of 365 employees resulting from actions to realign the Company’s cost structure, including $11.2 million for 155 former employees of Tektronix Japan. Severance liabilities for actions taken in fiscal 2002 and 2000 were reduced by $0.5 million largely for employees that unexpectedly left voluntarily without severance. An impairment charge of $9.1 million was recognized to writedown an intangible asset for acquired Bluetooth technology that was impaired due to a lower than previously anticipated market potential for the Company’s products related to this technology. The impairment was determined using the present value of estimated cash flows related to the asset. The Company reversed $2.0 million for a facility lease obligation due to the sale of the Company’s optical transmission test product line in the second quarter of fiscal 2003. As the current sub-lessee may not fulfill its lease obligation, the Company accrued $1.6 million during the third quarter of fiscal 2003 as described in Note 3 to the Condensed Consolidated Financial Statements. Finally, $0.4 million was accrued for the closure of other facilities. These actions, other than the reduction of severance liabilities, do not relate to the previously announced 2000 Plan discussed below.

During the third quarter and first three quarters of fiscal year 2003, the Company incurred acquisition related costs of $0.8 million and $2.6 million, respectively. These costs relate to the Sony/Tektronix Acquisition completed during the second quarter of fiscal year 2003. See the discussion in Recent Transactions section of the Management’s Discussion and Analysis for further information on this acquisition.

During the third quarter and the first three quarters of fiscal year 2003, the Company recognized a gain on disposal of fixed assets of $0.1 million and $0.6 million, respectively. This compares with a loss on sale of fixed assets of $0.4 million for the third quarter of the prior year and $4.2 million for the first three quarters of the prior fiscal year. The change from these prior year comparative periods is largely due to the $3.2 million impairment of a building in the second quarter of the prior fiscal year.

Non-Operating Income/Expense

Interest expense was $1.2 million for the third quarter of fiscal year 2003, as compared with $2.8 million in the same quarter of the prior year. For the first three quarters of fiscal year 2003, interest expense was $4.6 million as compared with $8.1 million in the same period of the prior year. The overall 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 and the extinguishment of $41.8 million of long-term debt on the scheduled payment date of August 15, 2002.

Interest income was $6.8 million in the third quarter of fiscal year 2003 as compared with $7.7 million in the same quarter of the prior year. For the first three quarters of fiscal year 2003, interest income was $21.6 million as compared with $26.3 million in the same period of the prior year. The decrease in interest income can be primarily attributed to lower returns on investments in the first three quarters 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 $0.4 million in the third quarter of fiscal year 2003 as compared with $1.2 million in the same quarter of the prior year. For the first three quarters of fiscal year 2003, other expense

was $2.5 million as compared with $4.8 million in the same period of the prior year. This includes items such as foreign currency exchange and other miscellaneous fees and expenses.

Income Taxes

Income tax (benefit) expense from continuing operations was a net benefit of $0.7 million in the third quarter of fiscal year 2003 as compared with an expense of $6.4 million in the same quarter of the prior year. During the third quarter of fiscal year 2003, management of the Company reduced the effective tax rate for continuing operations from 35% to 32% for the year. This decrease in the effective tax rate resulted from the implementation of certain operational changes that were consistent with our tax planning strategies. Since the provision for income tax expense in the first two quarters of fiscal year 2003 was based on an effective tax rate of 35%, a benefit of $0.8 million was recognized in the third quarter of fiscal year 2003 to reflect this change in estimate. For the first three quarters of fiscal year 2003, the income tax benefit was $4.3 million as compared with expense of $14.2 million in the first three quarters of the prior year. The benefit for the first three quarters of fiscal year 2003 includes a $12.5 million income tax benefit resulting from the favorable settlement of the IRS audit of the Company’s fiscal years 1998, 1999 and 2000. The effective tax rate, excluding the effect of the IRS settlements, was 32% and 35% for fiscal years 2003 and 2002, respectively.

Income from Continuing Operations

For the third quarter of fiscal year 2003, income from continuing operations was $0.9 million, compared to $11.9 million for the third quarter of fiscal year 2002. Income from continuing operations for the third quarter of fiscal year 2003 includes a net loss of $10.3 million from the incremental impact of consolidating Tektronix Japan. For the first three quarters of fiscal year 2003, income from continuing operations was $29.8 million, compared to $26.4 million for the first three quarters of fiscal year 2002. Income from continuing operations for the first three quarters of fiscal year 2003 includes a net loss of $13.4 million from the incremental impact of consolidating Tektronix Japan.

Discontinued Operations

In the third quarter of fiscal year 2003, management approved and initiated an active plan for the sale of the optical parametric test business. For the third quarter of fiscal year 2003 and first three quarters of fiscal year 2003, the loss from discontinued operations of the optical parametric test business of $15.8 million and $17.3 million, respectively, includes a $15.3 million writedown, net of income tax benefit of $8.4 million, of the carrying value of net assets which were adjusted to estimated selling price less costs to sell.

During the third quarter of fiscal year 2003, the Company reversed accrued liabilities totaling $13 million, net of tax, in the third quarter of fiscal year 2003, which were originally recorded in connection with the sale of the Color Printing and Imaging Division in January 2000. These amounts were reversed as the result of the resolution of certain estimated liabilities.

In the first quarter of fiscal year 2002, the Company reached settlement on certain outstanding contingencies related to the sale of the Color Printing and Imaging division. The settlement of these contingencies resulted in an additional gain on the sale of $0.9 million, net of tax, for the first three quarters of fiscal year 2002.

In the third quarter of fiscal year 2003, the Company paid additional transaction-related fees of $0.1 million, net of tax, related to the sale of the VT.c subsidiary, which was sold on November 7, 2002 as described in the Recent Transactions section above. In the third quarter of fiscal year 2002, VT.c had a net loss from operations of $1.4 million, which was classified as discontinued operations.

For the first three quarters of fiscal year 2003, the Company recognized loss from discontinued operations of $3.1 million related to the VT.c subsidiary, which comprised a loss of $2.6 million from operations of VT.c during the year prior to the sale and a loss of $0.5 million from the sale of the operations.

For the first three quarters of fiscal year 2002, VT.c had a net loss of $0.7 million, which were classified as discontinued operations.

Net Earnings/Loss

The Company recognized a net loss of $2.1 million for the third quarter of fiscal year 2003, down from net earnings of $10.4 million for the third quarter of fiscal year 2002. This decrease was primarily due to the $15.0 million of pre-tax business realignment and acquisition related costs and $15.8 million net loss from discontinued operations of the optical parametric test business, offset by the $13.0 million reversal of liabilities, net of tax, related to the sale of the Color Printing and Imaging division in the third quarter of fiscal year 2003.

For the first three quarters of fiscal year 2003, the Company recognized net earnings of $22.4 million, down from $26.6 million recorded for the same period in the prior year. This decrease was due to a number of factors, which include a $14.9 million pre-tax increase in business realignment costs and acquisition related costs over the prior year period and $17.3 net loss from discontinued operations of the optical parametric test business. These charges were partially offset by $13.0 million reversal of liabilities, net of tax, related to the sale of the Color Printing and Imaging division discussed above; and the $12.5 million income tax benefit from favorable settlement of the IRS audit recorded in the first three quarters of fiscal year 2003.

Earnings Per Share

For the third quarter of fiscal year 2003, the Company recognized a $0.02 net loss per share on a basic and diluted basis. For the third quarter of fiscal year 2002, the Company recognized basic and diluted earnings per share of $0.11. The decrease in earnings per share is a result of decreased net earnings discussed above partially offset by a decrease in the weighted average basic and diluted shares outstanding due to shares repurchased by the Company during fiscal year 2002 and the first three quarters of fiscal year 2003.

For the first three quarters of fiscal year 2003, the Company recognized basic and diluted earnings per share of $0.26 and $0.25, respectively. For the first three quarters of fiscal year 2002, the Company recognized basic and diluted earnings per share of $0.29. The decrease in earnings per share is a result of decreased net earnings discussed above and a decrease in the weighted average basic and diluted shares outstanding due to shares repurchased by the Company during fiscal year 2002 and the first three quarters of fiscal year 2003.

Financial Condition, Liquidity and Capital Resources

Financial Condition

At March 1, 2003, the Company’s net working capital was $330.3 million, a decrease of $173.6 million from May 25, 2002. Current assets decreased $208.2 million primarily due to a decrease in cash and cash equivalents and short-term investments as the Company converted $111.2 million of its cash and cash equivalents and short-term investments to long-term marketable investments. In addition, the Company extinguished $41.8 million of debt at its due date in August 2002 and repurchased $97.0 million of its common stock. The Company also had $14.4 million of assets related to the VT.c subsidiary as of May 25, 2002, which were sold during the second quarter of fiscal year 2003 and $24.9 million of assets related to the optical parametric test business, which were written down to estimated selling price less costs to sell during the third quarter of fiscal year 2003. These decreases were partially offset by $38.3 million in cash provided by operations and $66.2 million of current assets consolidated as a result of the Sony/Tektronix Acquisition. Other notable changes in current assets include inventories, which decreased $14.4 million to $102.9 million as a result of reduction of inventory related to the sale of the optical transmission test products described above in Recent Transactions, the Company's ongoing efforts to reduce levels of demonstration equipment, improve inventory turns, and to a lesser extent, inventory write-offs incurred during the first three quarters of fiscal year 2003. This was partially offset by the addition of $17.3 million of inventory consolidated as a result of the Sony/Tektronix Acquisition. Current liabilities decreased $34.6 million to $239.1 million as of March 1, 2003 from $273.7 million at May 25, 2002. This decrease was primarily due to a reduction in accounts payable of $46.8 million due to the reversal of contingent liabilities related to the sale of CPID; reversal of income tax reserves resulting from the favorable IRS audit; and lower operating expenses in fiscal year 2003. This was offset by the assumption of $22.4 million in accounts payable and accrued liabilities consolidated as a result of the Sony/Tektronix Acquisition. The Current portion of long-term debt increased $16.0 million, which is primarily due to the reclassification from long-term to short-term of the $57.3 million due August 2003, reduced by the $41.8 million payment of debt on August 15, 2002.

Property, plant and equipment, net, increased $21.3 million during the first three quarters of fiscal year 2003 to $152.6 million. The increase was due mainly to $36.8 million of fixed assets acquired in the Sony/Tektronix Acquisition and approximately $11.7 million in capital expenditures during the same period. This increase was partially offset by $24.4 million of depreciation expense and $3.4 million disposed of in the sale of the optical transmission test product line.

The Company funded the U.S. pension plan with $15.0 million during the first quarter of fiscal year 2003 based on an agreement with the Pension Benefit Guaranty Company. This funding reduced Other long-term liabilities on the Condensed Consolidated Balance Sheet. The Company consolidated additional pension liability of $61.1 million from the Sony/Tektronix Acquisition, which is included in Other long-term liabilities in 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. During the third quarter of fiscal year 2003, the Company repurchased 1.7 million shares for $27.7 million. During the first three quarters of fiscal year 2003, the Company repurchased a total of 5.5 million shares for $97.0 million. As of March 1, 2003, the Company repurchased a total of 13.8 million shares at an average price of $22.11 per share totaling $305.1 million under this authorization. Reacquired shares are immediately retired under Oregon corporate law. The Company will continue to repurchase shares under this authorization when deemed economically beneficial.

Liquidity and Capital Resources

As of March 1, 2003, the Company held $689.7 million in cash and cash equivalents and marketable investments excluding corporate equity securities, a decrease of $66.4 million from the balance of $756.1 million at May 25, 2002. Activity during the first three quarters 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.

The Company consolidated $53.1 million of long-term debt through the Sony/Tektronix Acquisition, which is due on September 29, 2006. At March 1, 2003, the Company maintained unsecured bank credit facilities totaling $146.9 million, of which $90.7 million was unused.

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 for the next 12 months.

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 SFAS 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 Acquisitions,” 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 activities. 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.

SEC Form 10-K for fiscal year 2003 and interim condensed consolidated financial statements on SEC Form 10-Q for the first quarter of fiscal year 2004.

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 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 first three quarters of fiscal 2003, 57% 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 or a particular region 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 intellectual property 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 acquisition, 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 located in Japan. The acquisition could 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 $2.4 million, which would be reflected in Other comprehensive loss on the Condensed Consolidated Balance Sheets until sold.

At March 1, 2003, the Company’s bond debt obligation had a fixed interest rate. The fair value of the bond debt instrument at March 1, 2003 was $58.2 million compared to the carrying value of $57.3 million. The Company’s bank loan obligation has a variable interest rate. The fair value of the bank loan approximates the carrying value of $55.0 million. A hypothetical 10% adverse change in interest rates would have a $0.1 million negative impact on the combined 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, Tut Systems, Inc., 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 $2.7 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 acquisitions 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 acquisitions when the Company has an identifiable exposure to risk, thus not creating additional foreign currency exchange rate risk. At March 1, 2003, we held forward foreign currency exchange contracts with a notional amount totaling $18.3 million. The potential loss in fair value at March 1, 2003, for such contracts resulting from a hypothetical 10% adverse change in applicable foreign currency exchange rates would be approximately $1.9 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 6.	Exhibits and Reports on Form 8-K

	(a) Exhibits

	+ (10)(xv	)	Stock Deferral Plan, as amended March 5, 2003.

	(99.1	)	Certification of Richard H. Wills

	(99.2	)	Certification of Colin L. Slade


+ Compensatory Plan or Arrangement

	(b) No reports on Form 8-K have been filed during the quarter for which this report is filed.

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.

April 14, 2003	TEKTRONIX, INC.

	By	/s/ COLIN SLADE

		Colin Slade Senior Vice President and Chief Financial Officer

CERTIFICATIONS

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: April 14, 2003
	/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: April 14, 2003
	/s/ COLIN L. SLADE

	Colin L. Slade Senior Vice President and Chief Financial Officer


                                  EXHIBIT INDEX

Exhibits No.  Exhibit Description

   +(10)(xv)  Stock Deferral Plan, as amended March 5, 2003.

      (99.1)  Certification of Richard H. Wills, Principal Executive
              Officer of Tektronix, Inc. Pursuant to 18 U.S.C. Section
              1350 As Adopted Pursuant to Section 906 of the
              Sarbanes-Oxley Act of 2002.

      (99.2)  Certification of Colin L. Slade, Principal Financial
              Officer of Tektronix, Inc. Pursuant to 18 U.S.C. Section
              1350 As Adopted Pursuant to Section 906 of the
              Sarbanes-Oxley Act of 2002.

- ----------
+     Compensatory Plan or Arrangement

EX-10.(XV) 3 d12444_ex10xv.txt STOCK DEFERRAL PLAN TEKTRONIX, INC. STOCK DEFERRAL PLAN As Amended by the Administrative Committee March 5, 2003 Restated June 1, 2001 TABLE OF CONTENTS PAGE ------ Article I--Purpose and Effective Date.......................................1 Article II--Definitions.....................................................1 2.1 Account..........................................................1 2.2 Administrative Committee.........................................1 2.3 Beneficiary......................................................1 2.4 Board............................................................1 2.5 Bonus............................................................1 2.6 Change in Control................................................2 2.7 Company..........................................................2 2.8 Compensation.....................................................2 2.9 Deferral Commitment..............................................2 2.10 Deferral Period..................................................3 2.11 Determination Date...............................................3 2.12 Director.........................................................3 2.13 Director Fees....................................................3 2.14 Disability.......................................................3 2.15 Earnings Index...................................................3 2.16 Elective Deferred Compensation...................................3 2.17 Eligible Stock Option............................................3 2.18 Employer.........................................................3 2.19 Option Gain......................................................4 2.20 Participant......................................................4 2.21 Participation Agreement..........................................4 2.22 Plan.............................................................4 2.23 Rate of Return...................................................4 2.24 Retirement.......................................................4 2.25 Salary...........................................................4 2.26 Stock............................................................4 2.27 Stock Option Deferral............................................4 2.28 Stock Option Deferral Amount.....................................5 2.29 Unforeseen Emergency.............................................5 Article III--Participation and Deferral Commitments.........................5 3.1 Eligibility and Participation....................................5 3.2 Form of Deferral.................................................5 3.3 Limitations on Deferral Commitments..............................6 3.4 Commitment Limited by Termination................................6 3.5 Modification of Deferral Commitment..............................6 3.6 Beginning Account Balances.......................................6 (i) TABLE OF CONTENTS PAGE ------ Article IV--Deferred Compensation Accounts...................................7 4.1 Accounts..........................................................7 4.2 Elective Deferred Compensation....................................7 4.3 Matching Contribution.............................................7 4.4 Pension Makeup....................................................7 4.5 Determination of Accounts.........................................8 4.6 Vesting of Accounts...............................................8 4.7 Statement of Accounts.............................................8 Article V--Plan Benefits.....................................................8 5.1 Distributions Prior to Termination of Employment..................8 5.2 Distributions Following Termination of Service....................9 5.3 Benefit Commencement..............................................9 5.4 Accelerated Distribution.........................................10 5.5 Deferred Payment of Benefit......................................10 5.6 Withholding for Taxes............................................10 5.7 Valuation and Settlement.........................................10 5.8 Payment to Guardian..............................................10 Article VI--Beneficiary Designation.........................................10 6.1 Beneficiary Designation..........................................10 6.2 Changing Beneficiary.............................................11 6.3 No Beneficiary Designation.......................................11 6.4 Effect of Payment................................................11 Article VII--Administration.................................................11 7.1 Committee; Duties................................................11 7.2 Agents...........................................................11 7.3 Binding Effect of Decisions......................................11 7.4 Indemnity of Committee...........................................12 Article VIII--Claims Procedure..............................................12 8.1 Claim............................................................12 8.2 Denial of Claim..................................................12 8.3 Review of Claim..................................................12 8.4 Final Decision...................................................12 (ii) TABLE OF CONTENTS PAGE ------ Article IX--Amendment and Termination of Plan...............................13 9.1 Amendment........................................................13 9.2 Employer's Right to Terminate....................................14 Article X--Miscellaneous....................................................14 10.1 Unfunded Plan....................................................14 10.2 Unsecured General Creditor.......................................14 10.3 Trust Fund.......................................................14 10.4 Nonassignability.................................................15 10.5 Not a Contract of Employment.....................................15 10.6 Protective Provisions............................................15 10.7 Governing Law....................................................15 10.8 Validity.........................................................15 10.9 Notice...........................................................15 10.10 Successors.......................................................15 (iii) TEKTRONIX, INC. STOCK DEFERRAL PLAN Article I--Purpose and Effective Date The purpose of this Stock Deferral Plan is to provide current tax planning opportunities as well as supplemental funds upon the retirement or death of certain Directors and employees of Employer. It is intended that the Plan will aid in attracting and retaining Directors and employees of exceptional ability by providing them with these benefits. The Plan shall be effective as of May 27, 2001. The Plan is restated as of June 1, 2001 to include Directors as eligible Plan Participants. Article II--Definitions For the purposes of this Plan, the following terms shall have the meanings indicated, unless the context clearly indicates otherwise: 2.1 Account "Account" means the device used by Employer to measure and determine the amounts to be paid to a Participant under the Plan. Separate subaccounts may be maintained to properly reflect the Participant's balance and earnings thereon. A Participant's Account shall not constitute or be treated as a trust fund of any kind. 2.2 Administrative Committee "Administrative Committee" means the committee appointed to administer the Plan pursuant to Article VII. 2.3 Beneficiary "Beneficiary" means the person, persons or entity entitled under Article VI to receive any Plan benefits payable after a Participant's death. 2.4 Board "Board" means the Board of Directors of the Company. 2.5 Bonus "Bonus" means any incentive compensation that is payable to a Participant in addition to the Participant's Salary. PAGE 1 - STOCK DEFERRAL PLAN 2.6 Change in Control A "Change in Control" shall occur when: (a) The shareholders of the Company approve one (1) of the following ("Approved Transactions") and either (x) such Approved Transaction is consummated or (y) the Board determines that consummation of such Approved Transaction is likely: (i) Any consolidation, merger or plan of exchange involving the Company ("Merger") in which the Company is not the continuing or surviving corporation or pursuant to which Stock would be converted into cash, securities or other property, other than a Merger involving the Company in which the holders of Stock immediately prior to the Merger have the same proportionate ownership of Stock of the surviving corporation after the Merger; or (ii) Any sale, lease, exchange, or other transfer (in one (1) transaction or a series of related transactions) of all or substantially all of the assets of the Company or the adoption of any plan or proposal for the liquidation or dissolution of the Company; or (b) A tender or exchange offer, other than one made by the Company, is made for Stock (or securities convertible into Stock) and such offer results in a portion of those securities being purchased and the offeror after the consummation of the offer is the beneficial owner (as determined pursuant to Section 13(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")), directly or indirectly, of at least twenty percent (20%) of the outstanding Stock (an "Offer"); or (c) During any period of twelve (12) months or less, individuals who at the beginning of such period constituted a majority of the Board cease for any reason to constitute a majority thereof unless the nomination or election of such new directors was approved by a vote of at least two-thirds (2/3) of the directors then still in office who were directors at the beginning of such period. The terms used in this 2.6 and not defined elsewhere in the Plan shall have the same meanings as such terms have in the Exchange Act and the rules and regulations adopted thereunder. 2.7 Company "Company" means Tektronix, Inc., an Oregon corporation, or any successor to the business thereof. 2.8 Compensation "Compensation" means the Salary, Bonus, Directors' Fees, and Option Gain that the Participant earns for services rendered to the Company. 2.9 Deferral Commitment "Deferral Commitment" means an election to defer Compensation made by a Participant pursuant to Article III and for which a separate Participation Agreement has been submitted by the Participant to the Administrative Committee. PAGE 2 - STOCK DEFERRAL PLAN 2.10 Deferral Period For Directors, "Deferral Period" means a twelve (12)-month period beginning September 1 and ending August 31. For employees, it means a calendar year, except the initial Deferral Period shall begin May 27, 2001 and end December 31, 2001. 2.11 Determination Date "Determination Date" means the last day of each calendar month. 2.12 Director "Director" means a member of the Company's Board of Directors. 2.13 Director Fees "Director Fees" means all Board retainer and committee meeting fees earned and payable in cash or stock payable to a Participant plus Eligible Stock Option gains (before reduction for amounts deferred under this Plan or under the Deferred Compensation Plan). Director Fees do not include expenses, reimbursements, or benefits. 2.14 Disability "Disability" means a physical or mental condition which, in the opinion of the Administrative Committee, prevents the Participant from satisfactorily performing the Participant's usual duties for the Company. The Administrative Committee's decision as to Disability will be based upon medical reports and/or other evidence satisfactory to the Administrative Committee. 2.15 Earnings Index "Earnings Index" means the Tektronix Common Shares to be used as an index in calculating Rate of Return. 2.16 Elective Deferred Compensation "Elective Deferred Compensation" means the amount of Compensation that a Participant elects to defer pursuant to a Deferral Commitment. 2.17 Eligible Stock Option "Eligible Stock Option" means one (1) or more nonqualified stock option(s) under a Company stock option plan that is determined by the Committee to be eligible for gain deferral pursuant to this Plan. 2.18 Employer "Employer" means the Company or any successor to the business thereof, and any affiliated or subsidiary corporations designated by the Administrative Committee. PAGE 3 - STOCK DEFERRAL PLAN 2.19 Option Gain "Option Gain" means the amount by which the fair market value of exercised Tektronix Common Share options exceeds the exercise price. 2.20 Participant "Participant" means any eligible individual who has elected to defer Compensation under this Plan. 2.21 Participation Agreement "Participation Agreement" means the agreement submitted by a Participant (including the Benefit Payment Election Form) to the Administrative Committee prior to the beginning of the Deferral Period, with respect to a Deferral Commitment made for such Deferral Period. 2.22 Plan "Plan" means this Tektronix, Inc. Stock Deferral Plan, as amended from time to time. 2.23 Rate of Return "Rate of Return" means the rate used to determine the amount credited monthly to a Participant's Account under Article IV. Such rate shall be determined by the Administrative Committee based upon the net performance of the Earnings Index of the Tektronix Common Shares. 2.24 Retirement "Retirement" means an employee's termination of employment with Employer on or after the employee's attainment of age fifty-five (55) or after five (5) years of service, or a Board member's termination after age fifty-five (55). 2.25 Salary "Salary" means the Employee's base salary for the Plan Year. Salary excludes any other form of compensation such as restricted stock, proceeds from stock options or stock appreciation rights, severance payments, moving expenses, car or other special allowance, or any other amounts included in an Eligible Employee's taxable income that is not compensation for services. Deferral elections shall be computed before taking into account any reduction in taxable income by Salary reduction under Code Sections 125 or 401(k), or under this Plan. 2.26 Stock "Stock" means Tektronix, Inc. Common Shares. 2.27 Stock Option Deferral "Stock Option Deferral" means a stock-for-stock exercise of an Eligible Stock Option having an aggregate fair market value in excess of the total stock purchase price necessary to exercise such options. PAGE 4 - STOCK DEFERRAL PLAN 2.28 Stock Option Deferral Amount "Stock Option Deferral Amount" means the amount of a Participant's Option Gains deferred in connection with an Eligible Stock Option exercise and Stock Option Deferral in accordance with Section 4.2(c) of this Plan. 2.29 Unforeseen Emergency "Unforeseen Emergency" means a severe financial hardship to the Participant resulting from a sudden and unexpected illness or accident of the Participant or of a dependent (as defined in Section 152(a) of the Internal Revenue Code) of the Participant, loss of the Participant's property due to casualty, or other similar extraordinary and unforeseeable circumstances arising as a result of events beyond the control of the Participant. The circumstances that will constitute an unforeseeable emergency will depend upon the facts of each case, but in any case, payment may not be made to the extent that such hardship is or may be relieved: (a) Through reimbursement or compensation by insurance or otherwise, (b) By liquidation of the Participant's assets, to the extent the liquidation of such assets would not itself cause severe financial hardship, or (c) By cessation of deferrals under the Plan. Article III--Participation and Deferral Commitments 3.1 Eligibility and Participation (a) Eligibility. Eligibility to participate in the Plan is limited to Board Directors and Vice Presidents and above and any other highly compensated employee selected by the Administrative Committee. (b) Participation. Eligible employees and Board members may elect to participate in the Plan with respect to any Deferral Period by submitting a Participation Agreement to the Administrative Committee by the December 31 immediately preceding the Deferral Period, except an election to participate in the Plan with respect to the initial Deferral Period shall be timely if made by May 18, 2001. Eligible Directors may elect to participate in the Plan with respect to any Deferral Period by submitting a Participation Agreement to the Administrative Committee by the August 31 immediately preceding the Deferral Period. (c) Part-Year Participation. When a Director or an employee first becomes eligible to defer Compensation during a Deferral Period, a Participation Agreement must be submitted to the Administrative Committee no later than thirty (30) days following notification to the Participant of eligibility to defer, and such Participation Agreement shall be effective only with regard to Compensation earned or payable following the submission of the Participation Agreement to the Administrative Committee. 3.2 Form of Deferral A Participant may elect Deferral Commitments in the Participation Agreement as follows: (a) Salary Deferral Commitment. A Salary Deferral Commitment shall be related to the Salary payable by Employer to a Participant during the Deferral Period. The amount to be deferred into the Participant's Stock subaccount shall be stated as a flat percentage or dollar amount. PAGE 5 - STOCK DEFERRAL PLAN (b) Bonus Deferral Commitment. A Bonus Deferral Commitment shall be related to any Bonus payable to the Participant during the Deferral Period. The amount to be deferred into the Participant's Stock subaccount shall be stated as a flat percentage or dollar amount. (c) Stock Option Deferral Commitment. To the extent permitted by the Committee, a Participant may elect to defer into his or her Stock subaccount all or a portion of his or her Option Gain, subject to such terms and conditions as the Committee may establish. (d) Director Fees Deferral Commitment. A Director Fees Commitment shall relate to the payment of stock for Board services, Eligible Stock Option gains and Board fee payable in cash earned by a Participant during the Deferral Period. The amount to be deferred into the Participant's Stock subaccount shall be stated as a flat percentage or dollar amount. 3.3 Limitations on Deferral Commitments The following limitations shall apply to Deferral Commitments: (a) Minimum. The minimum deferral amount shall be five thousand dollars ($5,000) per year. This minimum may be met by participation in this Plan or in the Tektronix Deferred Compensation Plan, or in a combination thereof. (b) Maximum. The maximum deferral amount shall be ninety percent (90%) of Salary and one hundred percent (100%) of Bonus or Director Fees. However, when combined, deferrals into the Stock Deferral Plan and the Deferred Compensation Plan may not exceed ninety percent (90%) of Salary and one hundred percent (100%) of Bonus, or Director Fees. (c) Changes in Minimum or Maximum. The Administrative Committee may change the minimum or maximum deferral amounts from time to time by giving written notice to all Participants. No such change may affect a Deferral Commitment made prior to the Administrative Committee's action. 3.4 Commitment Limited by Termination If a Participant terminates employment or Board service with Employer prior to the end of the Deferral Period, the Deferral Period and the Deferral Commitment shall end at the date of termination. 3.5 Modification of Deferral Commitment Participants may reduce or suspend their Deferral Commitments based on an Unforeseen Emergency in accordance with rules established by the Administrative Committee, provided that the modification applies only to a Director's Fee, Salary, Bonus or Stock Option Deferral payment that is not yet payable. 3.6 Beginning Account Balances Any Director who becomes eligible to participate in this Plan shall have a Beginning Account Balance equal to any existing stock account balance(s) as of September 1, 2001 under the former Tektronix Non-Employee Directors' Stock Compensation Plan. Any executive who becomes eligible to participate in this Plan shall have a beginning Account balance equal to any existing account balance(s) under the former Tektronix Deferred Compensation Plan, 1992 Restate- PAGE 6 - STOCK DEFERRAL PLAN ment, as of the date the executive is eligible to defer under this Plan. However, any amount converted into this plan, and/or into the Tektronix Deferred Compensation Plan, will be converted in the proportions you elect, but no more than one hundred percent (100%) of the total balance available for conversion. Article IV--Deferred Compensation Accounts 4.1 Accounts For record keeping purposes only, an Account shall be maintained for each Participant. Separate subaccounts shall be maintained to the extent necessary to properly reflect the Participants' Tektronix Common Share total vested or nonvested Account balances. The Account shall be a bookkeeping device utilized for the sole purpose of determining the benefits payable under the Plan and shall not constitute a separate fund of assets. 4.2 Elective Deferred Compensation (a) A Participant's Elective Deferred Compensation shall be credited to the Participant's Account with shares of phantom stock with a value equal to the corresponding Compensation deferred as of the last day of the calendar quarter in which the Compensation would have been payable. The number of shares credited to the account shall be based on the average of the closing price of the Company's stock for the last trading day of each month in the quarter. Any withholding of taxes or other amounts with respect to deferred Compensation which is required by state, federal or local law shall be withheld from the Participant's nondeferred Compensation to the maximum extent possible with any excess reducing the amount to be credited to the Participant's Account. (b) As soon as practicable after Stock would have otherwise been issued to the Participant in connection with the exercise of an Eligible Stock Option, the Committee shall credit a Stock subaccount of the Participant's Account with shares of phantom stock with a value equivalent to the Option Gain which has been deferred by the Participant in accordance with the Participant's election; that is, the portion of the Participant's Option Gain that the Participant has elected to defer shall be credited to the Stock subaccount of the Participant's Account. 4.3 Matching Contribution The Employer shall credit a matching contribution to the Participant's Account equal to any matching contribution which would have been credited to the Participant's 401(k) Savings Plan but for the Participant's participation in this Plan. However, when combined with any credit to the Participant's subaccount in the Tektronix Deferred Compensation Plan, the total amount credited shall be no more than one hundred percent (100%) of the eligible matching contribution. 4.4 Pension Makeup The Employer shall restore an amount equal to any reduction in a Participant's Qualified Pension Plan benefits resulting from deferrals under this Plan to the extent that the Qualified Pension Plan benefits are not restored by any other plan or agreement provided by the Employer. Such restoration shall be made by crediting to the Participant's Account the amount by which the Participant's cash balance credit under the Qualified Pension Plan is lower than the amount that would have been credited in the absence of deferrals under this Plan. Such amount shall be credited to the Account within ninety (90) days after the corresponding cash balance credit would have been made under the Qualified Pension Plan. However, when combined with any credit to the Participant's subaccount in PAGE 7 - STOCK DEFERRAL PLAN the Tektronix Deferred Compensation Plan, the total amount credited shall be no more than one hundred percent (100%) of the Qualified Pension Plan makeup. 4.5 Determination of Accounts Each Participant's Account as of each Determination Date shall consist of the balance of the Participant's Account as of the immediately preceding Determination Date, plus the Participant's Elective Deferred Compensation credited during the period, plus earnings calculated using the Rate of Return, minus the amount of any distributions made since the immediately preceding Determination Date. 4.6 Vesting of Accounts Each Participant shall be one hundred percent (100%) vested at all times in the Participant's Elective Deferred Compensation and any earnings thereon. Any matching contributions under Section 4.3 or Qualified Pension Plan makeup under 4.4 shall vest pursuant to the vesting schedule of the underlying qualified plan. 4.7 Statement of Accounts The Administrative Committee shall give to each Participant a statement setting forth the balances in the Participant's Account on a quarterly basis and at such other times as may be determined by the Administrative Committee. Article V--Plan Benefits 5.1 Distributions Prior to Termination of Employment A Participant's Account may be distributed to the Participant prior to termination of employment as follows: (a) Scheduled Early Withdrawals. A Participant may elect in a Participation Agreement to withdraw all or any portion of the amount deferred (and earnings thereon) pursuant to that Participation Agreement in a single lump sum or from two (2) to five (5) substantially equal annual installments commencing the first January and on each subsequent January following the date specified in the election. Such date shall not be sooner than three (3) years after the date the Deferral Period commences in which the scheduled early withdrawal was initially elected. Upon a Participant's termination, any balance subject to a Scheduled Early Withdrawal election shall be distributed in a lump sum within sixty (60) days. (b) Hardship Withdrawals. Upon a finding that a Participant has suffered an Unforeseen Emergency, the Administrative Committee may, in its sole discretion, make distributions from the Participant's Account. The amount of such a withdrawal shall be limited to the amount the Administrative Committee determines to be reasonably necessary to meet the Participant's needs resulting from the Unforeseen Emergency. If any payment is made due to Unforeseen Emergency, any existing Deferral Commitment shall be null and void and the Participant shall not be permitted to make any Deferral Commitment for twelve (12) months. Any such hardship withdrawal distribution shall be payable in a single lump sum within thirty (30) days after the Administrative Committee approves such payment. PAGE 8 - STOCK DEFERRAL PLAN 5.2 Distributions Following Termination of Service (a) Retirement or Disability Benefit. (i) Benefit Amount. If a Participant terminates service with Employer due to Retirement or Disability, Employer shall pay to the Participant a benefit equal to the balance in the Participant's Account. (ii) Form of Benefit. Subject to Section 5.2(a)(iii), benefits under this Section 5.2(a) shall be paid in the form or forms selected by the Participant in the Participation Agreement. Optional forms of payment include a lump-sum payment or substantially equal annual installments of the Account amortized over a period of up to fifteen (15) years. The initial payment shall be as elected by the Participant, either within sixty (60) days of termination or in January following termination, and all subsequent payments, if any, shall be in subsequent Januarys. In order to provide substantially equal installments, the Committee shall assume a rate of return during the period of payment and may, at its discretion, adjust the assumed rate and the size of future installments based on the actual experience of Earnings Index of the Tektronix Common Shares. (iii) Mandatory Lump-Sum Payments. Notwithstanding Section 5.2(a)(ii), if an employee terminates employment before age fifty-five (55), or with less than five (5) years of service, or if a Director terminates Board service before age fifty-five (55), or if a Participant's Account is less than fifty thousand dollars ($50,000) on the Retirement date, a lump-sum benefit will be made regardless of the distribution method the Participant elected. (iv) Change in Form of Payment. Notwithstanding the above, a Participant may elect to change the form or forms of payment designation which shall supersede the form of payment designations in all prior Participation Agreements and prior elected changes. If the Participant's most recent change of payment designation has not been filed thirteen (13) calendar months prior to the date of employment termination, the prior election shall be used to determine the form of payment. (v) Termination Benefit. If a Participant terminates employment or Board service with Employer for any reason other than Retirement, Disability, or death, Employer shall pay to the Participant a lump-sum benefit equal to the balance in the Participant's Account. (b) Death Benefit. (i) Preretirement. If a Participant terminates employment or Board service with Employer due to death, Employer shall pay to the Participant's Beneficiary a lump-sum benefit equal to the vested balance in the Participant's Account. (ii) Postretirement. If a Participant dies following the Participant's Retirement, Employer shall continue to pay any remaining benefit payments to the Participant's Beneficiary in the form previously elected by the Participant for Retirement benefits. (c) All balances in a Participant's Stock subaccount shall be paid in Stock. 5.3 Benefit Commencement Benefits shall commence as soon as practical after termination but in no case more than sixty (60) days after termination. PAGE 9 - STOCK DEFERRAL PLAN 5.4 Accelerated Distribution Notwithstanding any other provision of the Plan, at any time a Participant shall be entitled to receive, upon written request to the Administrative Committee, a lump-sum distribution equal to ninety percent (90%) of the Account balance as of the Determination Date immediately preceding the date on which the Administrative Committee receives the written request. The remaining balance shall be forfeited by the Participant. The amount payable under this section shall be paid in a lump-sum benefit within thirty (30) days following the receipt of the notice by the Administrative Committee from the Participant. Such Participant shall not be eligible to participate in the Plan for a period of one (1) year from the date of distribution. 5.5 Deferred Payment of Benefit If part of a Participant's compensation is not deductible under IRC Section 162(m), then Tektronix may require the Participant to defer payment of benefits under this Article to avoid the limitation set forth in Section 162(m). Any deferred benefits under this Section shall be distributed to the Participant in the first calendar year such amounts would not exceed the limitation as set out in IRC Section 162(m). 5.6 Withholding for Taxes To the extent required by the law in effect at the time payments are made, Employer shall withhold from payments made hereunder any taxes required to be withheld by the federal or any state or local government, including any amounts which the Employer determines are reasonably necessary to pay any generation-skipping transfer tax which is or may become due. A beneficiary, however, may elect not to have withholding of federal income tax pursuant to Section 3405 of the Internal Revenue Code, or any successor provision thereto. 5.7 Valuation and Settlement The amount of a lump-sum payment and the initial installment payment shall be based on the value of the Participant's Account on the Determination Date immediately preceding the lump-sum payment or commencement of installment payments. 5.8 Payment to Guardian The Administrative Committee may direct payment to the duly appointed guardian, conservator, or other similar legal representative of a Participant or Beneficiary to whom payment is due. In the absence of such a legal representative, the Administrative Committee may, in it sole and absolute discretion, make payment to a person having the care and custody of a minor, incompetent or person incapable of handling the disposition of property upon proof satisfactory to the Administrative Committee of incompetency, minority, or incapacity. Such distribution shall completely discharge the Administrative Committee from all liability with respect to such benefit. Article VI--Beneficiary Designation 6.1 Beneficiary Designation Each Participant shall have the right, at any time, to designate a Beneficiary (both primary as well as contingent) to whom benefits under this Plan shall be paid if a Participant dies prior to complete distribution to the Participant of the benefits due under the Plan. Each Beneficiary designation shall be in a written form prescribed by the PAGE 10 - STOCK DEFERRAL PLAN Administrative Committee, and will be effective only when filed with the Administrative Committee during the Participant's lifetime. 6.2 Changing Beneficiary Any Beneficiary designation may be changed by a Participant without the consent of the previously named Beneficiary by the filing of a new Beneficiary designation with the Administrative Committee. The filing of a new Beneficiary designation shall cancel all Beneficiary designations previously filed. If a Participant's Compensation is community property, any Beneficiary Designation shall be valid or effective only as permitted under applicable law. 6.3 No Beneficiary Designation In the absence of an effective Beneficiary Designation, or if all designated Beneficiaries predecease the Participant or die prior to complete distribution of the Participant's benefits, the Participant's designated Beneficiary shall be deemed to be the Participant's estate. 6.4 Effect of Payment Payment to the Beneficiary shall completely discharge Employer's obligations under this Plan. Article VII--Administration 7.1 Committee; Duties The Plan shall be administered by an Administrative Committee consisting of three (3) members as may be appointed from time to time by the Board. The Administrative Committee shall have the authority to interpret and enforce all appropriate rules and regulations for the administration of the Plan and decide or resolve any and all questions, including determination of eligibility and interpretations of the Plan, as may arise in such administration. A majority vote of the Administrative Committee members in office at the time of the vote shall control any decision. The required majority action may be taken either by a vote at a meeting or without a meeting by a signed memorandum. Meetings may be conducted by telephone conference call. The Administrative Committee may, by majority action, delegate to one or more of its members the authority to execute and deliver in the name of the Administrative Committee all communications and documents which the Administrative Committee is required or authorized to provide under this Plan. Any party shall accept and rely upon any document executed in the name of the Administrative Committee. Members of the Administrative Committee may be Participants under this Plan. 7.2 Agents The Administrative Committee may, from time to time, employ agents and delegate to them such administrative duties as it sees fit, and may from time to time consult with counsel who may be counsel to the Company. 7.3 Binding Effect of Decisions The decision or action of the Administrative Committee with respect to any question arising out of or in connection with the administration, interpretation and application of the Plan and the rules and regulations promulgated hereunder shall be final, conclusive and binding upon all persons having any interest in the Plan. PAGE 11 - STOCK DEFERRAL PLAN 7.4 Indemnity of Committee The Company shall indemnify and hold harmless the members of the Administrative Committee against any and all claims, loss, damage, expense or liability arising from any action or failure to act with respect to this Plan on account of such person's service on the Administrative Committee, except in the case of gross negligence or willful misconduct. Article VIII--Claims Procedure 8.1 Claim Any person claiming a benefit, requesting an interpretation or ruling under the Plan, or requesting information under the Plan shall present the request in writing to the Administrative Committee which shall respond in writing within thirty (30) days. 8.2 Denial of Claim If the claim or request is denied, the written notice of denial shall state: (a) The reason for denial, with specific reference to the Plan provisions on which the denial is based. (b) A description of any additional material or information required and an explanation of why it is necessary. (c) An explanation of the Plan's claim review procedure. 8.3 Review of Claim (a) Any person whose claim or request is denied or who has not received a response within thirty (30) days may request review by notice given in writing to the Administrative Committee. The claim or request shall be reviewed by the Administrative Committee who may, but shall not be required to, grant the claimant a hearing. On review, the claimant may have representation, examine pertinent documents, and submit issues and comments in writing. (b) Such notice shall be made within the lesser of ninety (90) days of notice of denial or one hundred twenty (120) days of the original written claim. 8.4 Final Decision The decision on review shall normally be made within sixty (60) days. If an extension of time is required for a hearing or other special circumstances, the claimant shall be notified and the time limit shall be one hundred twenty (120) days. The decision shall be in writing and shall state the reason and the relevant plan provisions. All decisions on review shall be final and bind all parties concerned. PAGE 12 - STOCK DEFERRAL PLAN Article IX--Amendment and Termination of Plan 9.1 Amendment (a) The Company may amend the Plan at any time and from time to time by written instrument. Except as provided in (b) below, the power to amend may be executed only by the Board. (b) The Administrative Committee may adopt any technical, clerical, conforming or clarifying amendment or other change, provided: (i) The Administrative Committee deems it necessary or advisable to: (A) Correct any defect, supply any omission or reconcile any inconsistency in order to carry out the intent and purposes of the Plan; (B) Maintain the Plan's status as a "top-hat" plan for purposes of ERISA; or (C) Facilitate the administration of the Plan; (ii) The amendment or change does not, without the consent of the Board, materially increase the cost to the Employer of maintaining the Plan; and (iii) Any amendment adopted by the Administrative Committee shall be in writing, signed by a member of the Committee and promptly reported to the Board. (c) To the extent permitted under subsection (e) below, amendments may have an immediate, prospective or retroactive effective date. (d) Amendments do not require the consent of any Participant or Beneficiary. (e) Amendments are subject to the following limitations: (i) Preservation of Account Balance. No amendment shall reduce the amount credited or to be credited to any Account as of the date notice of the amendment is given to Participants. (ii) Changes in Earnings Rate. If the Plan is amended so that the Earnings Index is not used to calculate the Rate of Return, the rate of earnings to be credited to the Participant's Account shall not be less than the monthly equivalent of the average nominal annual yield on three (3) month Treasury bills for the applicable Determination Period. (iii) After a Change in Control. No amendment shall change the methodology used to calculate the Rate of Return in any way which will lower the Participant's returns on any amounts deferred under Deferral Commitments filed prior to the Change in Control. All amounts deferred under Deferral Commitments filed prior to a Change in Control shall be paid as originally elected by the Participant unless the Participant voluntarily changes such distribution elections in accordance with 5.2(a)(iv). PAGE 13 - STOCK DEFERRAL PLAN 9.2 Employer's Right to Terminate The Board may at any time partially or completely terminate the Plan if, in its judgment, the tax, accounting or other effects of the continuance of the Plan, or potential payments thereunder would not be in the best interests of Employer. (a) Partial Termination. The Board may partially terminate the Plan by instructing the Administrative Committee not to accept any additional Deferral Commitments. If such a partial termination occurs, the Plan shall continue to operate and be effective with regard to Deferral Commitments entered into prior to the effective date of such partial termination. (b) Complete Termination. The Board may completely terminate the Plan by instructing the Administrative Committee not to accept any additional Deferral Commitments, and by terminating all ongoing Deferral Commitments. If such a complete termination occurs, the Plan shall cease to operate and Employer shall pay out each Account. Payment shall be made in a lump sum or in the installment schedule elected by the Participant for payment upon Retirement, as decided by the Company, except as follows. If a Change in Control has occurred prior to the termination of the Plan, payment shall be made in the installment schedule elected by the Participant for payment upon Retirement. Payments shall commence within sixty (60) days after the Board terminates the Plan and earnings shall continue to be credited on the unpaid Account balance. Article X--Miscellaneous 10.1 Unfunded Plan As to employees, this Plan is an unfunded plan maintained primarily to provide deferred compensation benefits for a select group of "management or highly compensated employees" within the meaning of Sections 201, 301 and 401 of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), and therefore is exempt from the provisions of Parts 2, 3 and 4 of Title I of ERISA. As to Directors, this Plan is not subject to ERISA because it does not provide benefits for employees. 10.2 Unsecured General Creditor Participants and Beneficiaries shall be unsecured general creditors, with no secured or preferential right to any assets of Employer or any other party for payment of benefits under this Plan. Any life insurance policies, annuity contracts or other property purchased by Employer in connection with this Plan shall remain its general, unpledged and unrestricted assets. Employer's obligation under the Plan shall be an unfunded and unsecured promise to pay money in the future. 10.3 Trust Fund At its discretion, the Employer may establish one (1) or more trusts, with such trustees as the Employer may approve, for the purpose of providing for the payment of benefits owed under the Plan. Although such a trust shall be irrevocable, its assets shall be held for payment of all the Company's general creditors in the event of insolvency or bankruptcy. To the extent any benefits provided under the Plan are paid from any such trust, Employer shall have no further obligation to pay them. If not paid from the trust, such benefits shall remain the obligation of Employer. PAGE 14 - STOCK DEFERRAL PLAN 10.4 Nonassignability Neither a Participant nor any other person shall have any right to commute, sell, assign, transfer, pledge, anticipate, mortgage or otherwise encumber, transfer, hypothecate or convey in advance of actual receipt the amounts, if any, payable hereunder, or any part thereof, which are, and all rights to which are, expressly declared to be unassignable and nontransferable. No part of the amounts payable shall, prior to actual payment, be subject to seizure or sequestration for the payment of any debts, judgments, alimony or separate maintenance owed by a Participant or any other person, nor be transferable by operation of law in the event of a Participant's or any other person's bankruptcy or insolvency. 10.5 Not a Contract of Employment This Plan shall not constitute a contract of employment between Employer and the Participant. Nothing in this Plan shall give a Participant the right to be retained in the service of Employer or to interfere with the right of Employer to discipline or discharge a Participant at any time. 10.6 Protective Provisions A Participant will cooperate with Employer by furnishing any and all information requested by Employer in order to facilitate the payment of benefits hereunder, and by taking such physical examinations as Employer may deem necessary and taking such other action as may be requested by Employer. 10.7 Governing Law The provisions of this Plan shall be construed and interpreted according to the laws of the State of Oregon, except as preempted by federal law. 10.8 Validity In case any provision of this Plan shall be held illegal or invalid for any reason, said illegality or invalidity shall not affect the remaining parts hereof, but this Plan shall be construed and enforced as if such illegal and invalid provision had never been inserted herein. 10.9 Notice Any notice required or permitted under the Plan shall be sufficient if in writing and hand delivered or sent by registered or certified mail. Such notice shall be deemed as given as of the date of delivery or, if delivery is made by mail, as of the date shown on the postmark on the receipt for registration or certification. Mailed notice to the Administrative Committee shall be directed to the Company's address. Mailed notice to a Participant or Beneficiary shall be directed to the individual's last known address in Employer's records. 10.10 Successors The provisions of this Plan shall bind and inure to the benefit of Employer and its successors and assigns. The term successors as used herein shall include any corporate or other business entity which shall, whether by PAGE 15 - STOCK DEFERRAL PLAN merger, consolidation, purchase or otherwise acquire all or substantially all of the business and assets of Employer, and successors of any such corporation or other business entity. TEKTRONIX, INC. By: /s/ JAMES F. DALTON ------------------------------------- Its: Vice President Dated: March 5, 2003 ---------------------------------- PAGE 16 - STOCK DEFERRAL PLAN EX-99.1 4 d12444_ex-991.txt CERTIFICATION 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 March 1, 2003 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. ss. 1350, as adopted pursuant to ss. 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: April 14, 2003 /s/ RICHARD H. WILLS - ------------------------------------- Richard H. Wills President and Chief Executive Officer EX-99.2 5 d12444_ex-992.txt CERTIFICATION 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 March 1, 2003 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. ss. 1350, as adopted pursuant to ss. 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: April 14, 2003 /s/ COLIN L. SLADE - ------------------------------------------------- Colin L. Slade Senior Vice President and Chief Financial Officer -----END PRIVACY-ENHANCED MESSAGE-----