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 February 26, 2005
OR
o	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 Incorporation or Organization)	(I.R.S. Employer Identification No.)
14200 SW KARL BRAUN DRIVE BEAVERTON, OREGON  (Address of Principal Executive Offices)	97077 (Zip Code)

(503) 627-7111
Registrant’s Telephone Number, Including Area Code

NOT APPLICABLE
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)

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

          Indicate by check mark whether the registrant is an accelerated filer (as defined in rule 12-b-2 of the Exchange Act).     Yes   x     No o

AT MARCH 26, 2005 THERE WERE 88,507,433 COMMON SHARES OF TEKTRONIX, INC. OUTSTANDING.
          (Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.)

TEKTRONIX, INC. AND SUBSIDIARIES

INDEX

					PAGE NO.
FORWARD-LOOKING STATEMENTS					1
PART I.		FINANCIAL INFORMATION
	Item 1.		Financial Statements.
			Condensed Consolidated Statements of Operations (Unaudited) -		2
				for the Fiscal quarter ended February 26, 2005 and the Fiscal quarter ended February 28, 2004
				for the Three fiscal quarters ended February 26, 2005 and the Three fiscal quarters ended February 28, 2004
			Condensed Consolidated Balance Sheets – (Unaudited)		3
				at February 26, 2005 and May 29, 2004
			Condensed Consolidated Statements of Cash Flows (Unaudited) -		4
				for the Three fiscal quarters ended February 26, 2005
				and the Three fiscal quarters ended February 28, 2004
			Notes to Condensed Consolidated Financial Statements (Unaudited)		5
	Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations.		24
	Item 3.		Quantitative and Qualitative Disclosures About Market Risk.		49
	Item 4.		Controls and Procedures.		49
PART II.		OTHER INFORMATION
	Item 1.		Legal Proceedings.		50
	Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds.		50
	Item 6.		Exhibits.		51
SIGNATURE					52

Forward-Looking Statements

          Statements and information included in this Quarterly Report on Form 10-Q by Tektronix, Inc. (“Tektronix”) 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 statements regarding trends, cyclicality, seasonality and growth in the markets Tektronix sells into, strategic direction, future effective tax rates, new product introductions, liquidity position, ability to generate cash from continuing operations, expected growth, the potential impact of adopting new accounting pronouncements, obligations under Tektronix’ retirement benefit plans, savings from business realignment programs, the integration of Inet Technologies, Inc., and the existence or length of an economic recovery.  These forward-looking statements involve risks and uncertainties.  Tektronix may make other forward-looking statements from time to time, including such statements 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 such 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 in the Risks and Uncertainties section of Management’s Discussion and Analysis of Financial Condition and Results of Operations.

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Part I.   FINANCIAL INFORMATION

Item 1. Financial Statements.

Condensed Consolidated Statements of Operations (Unaudited)

	Fiscal quarter ended						Three fiscal quarters ended
(In thousands, except per share amounts)	Feb. 26, 2005			Feb. 28, 2004			Feb. 26, 2005			Feb. 28, 2004
Net sales	$	256,332		$	243,506		$	773,625		$	662,865
Cost of sales		102,946			102,326			311,397			290,740
Gross profit		153,386			141,180			462,228			372,125
Research and development expenses		43,380			32,772			118,837			93,277
Selling, general and administrative expenses		78,750			69,519			220,136			200,353
Acquisition related costs (credits) and amortization, net		2,590			(18,034	)		38,318			(52,399	)
Business realignment costs		382			3,706			2,665			20,050
Loss (gain) on disposition of assets, net		754			741			(1,080	)		741
Operating income		27,530			52,476			83,352			110,103
Interest income		3,798			5,118			13,164			16,240
Interest expense		(113	)		(198	)		(531	)		(1,981	)
Other non-operating income (expense), net		1,422			7,177			(1,869	)		6,718
Earnings before taxes		32,637			64,573			94,116			131,080
Income tax expense		9,246			20,702			36,838			39,324
Net earnings from continuing operations		23,391			43,871			57,278			91,756
Gain (loss) from discontinued operations, net of income taxes		3,430			(258	)		3,117			(1,780	)
Net earnings	$	26,821		$	43,613		$	60,395		$	89,976
Earnings (loss) per share:
Continuing operations – basic	$	0.26		$	0.52		$	0.66		$	1.08
Continuing operations – diluted	$	0.26		$	0.50		$	0.65		$	1.06
Discontinued operations – basic and diluted	$	0.04		$	—		$	0.04		$	(0.02	)
Net earnings – basic	$	0.30		$	0.51		$	0.70		$	1.06
Net earnings – diluted	$	0.30		$	0.50		$	0.68		$	1.04
Weighted average shares outstanding:
Basic		89,307			84,921			86,703			84,724
Diluted		90,690			87,682			88,236			86,676
Cash dividends declared per share	$	0.06		$	0.04		$	0.16		$	0.08

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

2

Condensed Consolidated Balance Sheets (Unaudited)

(In thousands)	Feb. 26, 2005			May 29, 2004
ASSETS
Current assets:
Cash and cash equivalents	$	151,132		$	149,011
Short-term marketable investments		119,466			90,956
Trade accounts receivable, net of allowance for doubtful accounts of $3,685 and $3,013, respectively		158,476			133,150
Inventories		130,156			102,101
Other current assets		56,016			69,812
Total current assets		615,246			545,030
Property, plant and equipment, net		115,472			105,310
Long-term marketable investments		280,885			463,878
Deferred tax assets		66,672			105,886
Goodwill, net		302,076			79,774
Other long-term assets		144,154			30,825
Total assets	$	1,524,505		$	1,330,703
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued liabilities	$	131,602		$	134,048
Accrued compensation		73,177			89,212
Deferred revenue		50,123			25,247
Total current liabilities		254,902			248,507
Long-term liabilities		177,523			211,616
Shareholders’ equity:
Common stock, no par value (authorized 200,000 shares; issued and outstanding 89,028 and 84,179 shares at February 26, 2005 and May 29, 2004, respectively)		523,242			257,267
Retained earnings		694,346			748,381
Accumulated other comprehensive loss		(125,508	)		(135,068	)
Total shareholders’ equity		1,092,080			870,580
Total liabilities and shareholders’ equity	$	1,524,505		$	1,330,703

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

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Condensed Consolidated Statements of Cash Flows (Unaudited)

	Three fiscal quarters ended
(In thousands)	Feb. 26, 2005			Feb. 28, 2004
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings	$	60,395		$	89,976
Adjustments to reconcile net earnings to net cash provided by operating activities:
Write-off of in-process research and development		32,237			—
Amortization of acquisition related intangible assets		9,840			—
Loss (gain) from discontinued operations		(3,117	)		1,780
Gain on Japan pension restructuring		—			(36,741	)
Depreciation and amortization expense		21,513			20,998
Gain on disposition of assets, net		(1,367	)		(18,721	)
Tax benefit of stock option exercises		3,881			4,562
Deferred income tax benefit		(4,422	)		(815	)
Net gain on sale of corporate equity securities		(2,101	)		(7,293	)
Changes in operating assets and liabilities, net of effects of acquisition:
Trade accounts receivable, net		(6,822	)		(29,150	)
Inventories		(10,030	)		(957	)
Other current assets		2,990			15,869
Accounts payable and accrued liabilities		(5,456	)		12,901
Accrued compensation		(20,051	)		18,097
Deferred revenue		9,101			4,339
Cash funding for domestic pension plan		(46,516	)		(30,000	)
Other long-term assets and liabilities, net		10,055			15,491
Net cash provided by continuing operating activities		50,130			60,336
Net cash provided by discontinued operating activities		—			829
Net cash provided by operating activities		50,130			61,165
CASH FLOWS FROM INVESTING ACTIVITIES
Cash paid for acquisition of Inet, net of cash acquired		(93,856	)		—
Acquisition of property, plant and equipment		(21,140	)		(13,534	)
Proceeds from the disposition of property and equipment		19,750			47,402
Proceeds from sales of corporate equity securities		3,348			9,530
Proceeds from maturities and sales of marketable investments		239,684			427,974
Purchases of short-term and long-term marketable investments		(90,750	)		(443,450	)
Net cash provided by investing activities		57,036			27,922
CASH FLOWS FROM FINANCING ACTIVITIES
Repayment of long-term debt		(318	)		(108,791	)
Proceeds from employee stock plans		20,217			26,771
Repurchase of common stock		(114,788	)		(33,856	)
Dividends paid		(14,131	)		(6,780	)
Net cash used in financing activities		(109,020	)		(122,656	)
Effect of exchange rate changes on cash		3,975			5,529
Net increase (decrease) in cash and cash equivalents		2,121			(28,040	)
Cash and cash equivalents at beginning of period		149,011			190,387
Cash and cash equivalents at end of period	$	151,132		$	162,347

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

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Notes to Condensed Consolidated Financial Statements

1.  The Company

          Tektronix, Inc. (“Tektronix”) 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, research, automotive and consumer electronics.  Tektronix enables its customers to design, manufacture, deploy, monitor and service next-generation global communications networks, computing, and advanced and pervasive technologies.  Revenue is derived principally through the development, manufacturing and marketing of a broad range of products including: oscilloscopes; logic analyzers; network management and diagnostics equipment, including mobile protocol test and network monitoring solutions; video test equipment; signal sources; radio frequency test equipment, including wireless field test and spectrum analysis equipment; and related components, support services and accessories.  Tektronix maintains operations in four major geographies: the Americas, including the United States, Mexico, Canada and South America; Europe, including Europe, Russia, the Middle East and Africa; the Pacific, including China, India, Korea, and Singapore; and Japan.

2.  Financial Statement Presentation

          The condensed consolidated financial statements and notes thereto have been prepared by Tektronix 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 as permitted by Article 10 of Regulation S-X.  The condensed consolidated financial statements include the accounts of Tektronix and its majority-owned subsidiaries.  Significant intercompany transactions and balances have been eliminated.  Certain prior period amounts have been reclassified to conform to the current period’s presentation with no effect on previously reported earnings.  Tektronix’ fiscal year is the 52 or 53 week period ending on the last Saturday in May.  Fiscal years 2005 and 2004 are both 52 weeks long.  The first three quarters of fiscal years 2005 and 2004 were each 13 weeks long.

          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 revenue recognition; the allowance for doubtful accounts; product warranty accrual; estimates of contingencies; 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 contingencies.  Actual results may differ from estimated amounts.

          Management believes that the condensed consolidated financial 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 consolidated financial statements should be read in conjunction with the consolidated financial statements and accompanying notes in Tektronix’ annual report on Form 10-K for the fiscal year ended May 29, 2004.

     Revenue Recognition

          Tektronix recognizes product revenue when persuasive evidence of an arrangement exists, delivery has occurred, the sales price is fixed or determinable and collectibility is probable.  These criteria are met at the time the product is shipped under FOB shipping point shipping terms.  The majority of Tektronix’ products are sold in this manner.  Upon shipment, Tektronix also provides for estimated costs that may be incurred for product warranties and sales returns.  When other significant obligations remain after products are delivered, revenue is recognized only after such obligations are fulfilled.

          The majority of the contracts for network monitoring solution products, which were acquired in the Inet acquisition, contain multiple billing milestones, such as contract award, shipment, installation, ready for acceptance and acceptance, not all of which are associated with revenue recognition.  Except as otherwise discussed below, revenues from these products and license fees are recognized in the period

5

that Tektronix has completed all hardware manufacturing and/or software development to contractual specifications, factory testing has been completed, the product has been shipped to the customer, the fee is fixed and determinable and collection of the fee is considered probable.  Revenues from arrangements that include significant acceptance terms and/or provisions are recognized when acceptance has occurred.

          Contracts for network monitoring solution products often involve multiple deliverables.  Tektronix determines the fair value of each of the contract deliverables using vendor-specific objective evidence, or VSOE.  VSOE for each element of the contract is based on the price for which Tektronix sells the element on a stand-alone basis.  Elements of the contracts include product support services, which include the correction of software problems, hardware replacement, telephone access to Tektronix’ technical personnel and the right to receive unspecified product updates, upgrades and enhancements, when and if they become available.  Revenues from these services, including post-contract support included in initial licensing fees, are recognized ratably over the service periods.  Post-contract support included in the initial licensing fee is allocated from the total contract amount based on the fair value of these services determined using VSOE.  If Tektronix determines that it does not have VSOE on an undelivered element of an arrangement, Tektronix will not recognize revenue until all elements of the arrangement are delivered.  This occurrence could materially impact Tektronix’ financial results because of the significant dollar amount of many of its contracts and the significant portion of total revenues that a single contract may represent in any particular period.

          Revenue earned from service is recognized ratably over the contractual periods or as the services are performed.  Shipping and handling costs are recorded as Cost of sales on the Condensed Consolidated Statements of Operations.  Amounts billed or collected in advance of the period in which the related product or service qualifies for revenue recognition are recorded as Deferred revenue on the Condensed Consolidated Balance Sheets.

     Goodwill and Intangible Assets

          Goodwill and intangible assets are accounted for in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 141, “Business Combinations,” and SFAS No. 142, “Goodwill and Other Intangible Assets.”  Tektronix performed its annual goodwill impairment analysis during the second quarter of fiscal year 2005 and identified no impairment.  SFAS No. 142 requires purchased intangible assets, other than goodwill, to be amortized over their estimated useful lives, unless an asset has an indefinite life.  Purchased intangible assets with definite useful lives are carried at cost less accumulated amortization.  Amortization expense is recognized over the estimated useful lives of the intangible assets, mostly over three to five years.  For software-related intangible assets with definite useful lives, Tektronix amortizes the cost over the estimated economic life of the software product and assesses impairment in accordance with SFAS No. 86, “Accounting for the Costs of Computer Software to Be Sold, Leased, or Otherwise Marketed.”  At each balance sheet date, the unamortized cost of the software-related intangible asset is compared to its net realizable value.  The net realizable value is the estimated future gross revenues from the software product reduced by the estimated future costs of completing and disposing of that product, including the costs of performing maintenance and customer support.  The excess of the unamortized cost over the net realizable value would then be recognized as an impairment loss.  Amortization expense for intangible assets that are software-related developed technology is recorded as Cost of sales on the Condensed Consolidated Statements of Operations.

3.  Recent Accounting Pronouncements

          At the November 12–13, 2003 meeting, the Emerging Issues Task Force (“EITF”) reached a consensus on Issue 03-1, “The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments,” that certain quantitative and qualitative disclosures should be required for debt and marketable equity securities classified as available-for-sale or held-to-maturity under SFAS No. 115, “Accounting for Certain Investments in Debt and Equity Securities,” that are impaired at the balance sheet date but for which an other-than-temporary impairment has not been recognized.  Tektronix adopted the disclosure requirements in fiscal year 2004.  At the March 17-18, 2004 meeting, the EITF reached a consensus, which approved an impairment model for debt and equity securities.  However, on September 30, 2004, the Financial Accounting Standards Board (“FASB”) decided to postpone the implementation of the impairment model for debt and equity securities.  Tektronix does not expect this consensus to have a

6

significant effect on the consolidated financial statements upon adoption of the proposed impairment model for debt and equity securities.

          In December 2003, the FASB issued SFAS No. 132 (revised 2003), “Employers’ Disclosures about Pensions and Other Postretirement Benefits, an amendment of FASB Statements No. 87, 88, and 106, and a revision of FASB Statement No. 132” (“SFAS No. 132R”).  SFAS No. 132R revised employers’ disclosures about pension plans and other postretirement benefit plans.  It does not change the measurement or recognition of those plans required by SFAS No. 87, “Employers’ Accounting for Pensions,” SFAS No. 88, “Employers’ Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits,” and SFAS No. 106, “Employers’ Accounting for Postretirement Benefits Other Than Pensions.”  The new rules require additional disclosures about the assets, obligations, cash flows, and net periodic benefit cost of defined benefit pension plans and other postretirement benefit plans.  The required information has been provided separately for pension plans and for other postretirement benefit plans.  Tektronix included the new disclosures in its fiscal year 2004 consolidated financial statements and interim disclosures beginning with the first quarter of fiscal year 2005.

          In November 2004, the FASB issued SFAS No. 151, “Inventory Costs, an amendment of ARB No. 43, Chapter 4.”  SFAS No. 151 amends the guidance in ARB No. 43, Chapter 4, “Inventory Pricing,” to clarify the accounting for abnormal amounts of idle facility expense, freight, handling costs, and wasted material (spoilage).  Paragraph 5 of ARB 43, Chapter 4, previously stated that “. . . under some circumstances, items such as idle facility expense, excessive spoilage, double freight, and rehandling costs may be so abnormal as to require treatment as current period charges. . . .”  SFAS No. 151 requires that those items be recognized as current-period charges regardless of whether they meet the criterion of “so abnormal.”  In addition, SFAS No. 151 requires that allocation of fixed production overheads to the costs of conversion be based on the normal capacity of the production facilities.  The provisions of SFAS No. 151 will apply to inventory costs beginning in fiscal year 2007.  The adoption of SFAS No. 151 is not expected to have a significant effect on the consolidated financial statements of Tektronix.

          In December 2004, the FASB issued SFAS No. 123 (Revised 2004), “Share-Based Payment” (“SFAS No. 123R”).  This new pronouncement requires compensation cost relating to share-based payment transactions be recognized in financial statements.  That cost will be measured based on the fair value of the equity or liability instruments issued.  SFAS No. 123R covers a wide range of share-based compensation arrangements including stock options, restricted stock plans, performance-based awards, stock appreciation rights, and employee stock purchase plans.  SFAS No. 123R replaces SFAS No. 123, “Accounting for Stock-Based Compensation”, and supersedes APB Opinion No. 25, “Accounting for Stock Issued to Employees”.  SFAS No. 123, as originally issued in 1995, established as preferable a fair-value-based method of accounting for share-based payment transactions with employees.  However, SFAS No. 123 permitted entities the option of continuing to apply the guidance in APB Opinion No. 25, as long as the footnotes to financial statements disclosed what net income would have been had the preferable fair-value-based method been used.  Tektronix will be required to adopt the provisions of SFAS No. 123R in the second fiscal quarter of fiscal year 2006.  Management is currently evaluating the requirements of SFAS No. 123R.  The adoption of SFAS No. 123R is expected to have a significant effect on the consolidated financial statements of Tektronix.  See Note 4 for the pro forma impact on net earnings and earnings per share from calculating stock-related compensation costs under the fair value alternative of SFAS No. 123.  However, the calculation of compensation cost for share-based payment transactions after the effective date of SFAS No. 123R may be different from the calculation of compensation cost under SFAS No. 123, but such differences have not yet been quantified.

          In December 2004, the FASB issued two FASB staff positions (“FSP”): FSP FAS 109-1, “Application of FASB Statement No. 109, Accounting for Income Taxes, for the Tax Deduction Provided to U.S.-Based Manufacturers by the American Jobs Creation Act of 2004”; and FSP FAS 109-2, “Accounting and Disclosure Guidance for the Foreign Earnings Repatriation Provision within the American Jobs Creation Act of 2004.”  FSP FAS 109-1 clarifies that the tax deduction for domestic manufacturers under the American Jobs Creation Act of 2004 (the “Act”) should be accounted for as a special deduction in accordance with SFAS No. 109, “Accounting for Income Taxes.”  FSP FAS 109-2 provides enterprises more time (beyond the financial-reporting period during which the Act took effect) to evaluate the Act’s impact on the enterprise’s plan for reinvestment or repatriation of certain foreign earnings for purposes of applying SFAS No. 109.  The FSPs went into effect upon being issued and did not have a significant effect on the consolidated financial statements of Tektronix.

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4.  Earnings Per Share, Including Pro Forma Effects of Stock-Based Compensation

          Basic earnings per share is calculated based on the weighted average number of common shares outstanding during each period.  Diluted earnings per share is calculated based on these same weighted average shares outstanding plus the effect of potential shares issuable upon assumed exercise of stock options based on the treasury stock method.  Potential shares issuable upon the exercise of stock options are excluded from the calculation of diluted earnings per share to the extent their effect would be antidilutive.

          Earnings per share was calculated as follows:

	Fiscal quarter ended				Three fiscal quarters ended
(In thousands, except per share amounts)	Feb. 26, 2005		Feb. 28, 2004		Feb. 26, 2005		Feb. 28, 2004
Net earnings	$	26,821	$	43,613	$	60,395	$	89,976
Weighted average shares used for basic earnings per share		89,307		84,921		86,703		84,724
Incremental dilutive stock options		1,383		2,761		1,533		1,952
Weighted average shares used for dilutive earnings per share		90,690		87,682		88,236		86,676
Earnings per share:
Net earnings – basic	$	0.30	$	0.51	$	0.70	$	1.06
Net earnings – diluted	$	0.30	$	0.50	$	0.68	$	1.04

          Options to purchase 4,897,218 and 3,890,752 shares of common stock were outstanding at February 26, 2005 and February 28, 2004, respectively, but were not included in the calculation of diluted net earnings per share because the exercise price of the options exceeded the average market price and their effect would have been antidilutive.

          Tektronix accounts for stock options according to APB Opinion No. 25, “Accounting for Stock Issued to Employees.”  Under APB Opinion No. 25, no compensation expense is recognized in Tektronix’ consolidated financial statements upon issuance of employee stock options because the exercise price of the options equals the market price of the underlying stock on the date of grant.  Alternatively, under the fair value method of accounting provided for by SFAS No. 123, “Accounting for Stock-Based Compensation,” the measurement of compensation cost is based on the fair value of employee stock options at the grant date and requires the use of option pricing models to value the options.  The weighted average estimated fair values of options granted during the fiscal quarters ended February 26, 2005 and February 28, 2004 were $9.32 and $9.72 per share, respectively.  The weighted average estimated fair values of options granted during the first three fiscal quarters ended February 26, 2005 and February 28, 2004 were $9.49 and $9.72 per share, respectively.

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          The pro forma impact to both net earnings and earnings per share (“EPS”) from calculating stock-related compensation cost consistent with the fair value alternative of SFAS No. 123 is indicated below:

	Fiscal quarter ended						Three fiscal quarters ended
(In thousands, except per share amounts)	Feb. 26, 2005			Feb. 28, 2004			Feb. 26, 2005			Feb. 28, 2004
Net earnings as reported	$	26,821		$	43,613		$	60,395		$	89,976
Stock compensation cost included in net earnings as reported, net of income taxes		642			140			1,325			322
Stock compensation cost using the fair value alternative, net of income taxes		(4,389	)		(4,705	)		(12,266	)		(14,366	)
Pro forma net earnings	$	23,074		$	39,048		$	49,454		$	75,932
Earnings per share:
Basic EPS – as reported	$	0.30		$	0.51		$	0.70		$	1.06
Basic EPS – pro forma	$	0.26		$	0.46		$	0.57		$	0.90
Diluted EPS – as reported	$	0.30		$	0.50		$	0.68		$	1.04
Diluted EPS – pro forma	$	0.25		$	0.45		$	0.56		$	0.88

     SFAS No. 123 Assumptions

          The fair values of options were estimated as of the date of grant using a Black-Scholes option pricing model with the following weighted average assumptions:

	Fiscal quarter ended						Three fiscal quarters ended
	Feb. 26, 2005			Feb. 28, 2004			Feb. 26, 2005			Feb. 28, 2004
Expected life in years		5.1			5.1			5.1			5.0
Risk-free interest rate		3.67	%		3.00	%		3.68	%		2.97	%
Volatility		32.70	%		31.44	%		32.76	%		31.46	%
Dividend yield		0.83	%		0.51	%		0.82	%		0.48	%

5.  Acquisition of Inet Technologies, Inc.

          On September 30, 2004, Tektronix acquired Inet Technologies, Inc. (“Inet”), a leading global provider of communications software solutions that enable network operators to more strategically and profitably operate their businesses.  Inet’s products address next-generation networks, including 2.5G and 3G mobile data and voice-over-packet (also referred to as voice over Internet protocol or VoIP) technologies, and traditional networks.  Inet had approximately 500 employees worldwide and had sales of $104 million for the year ended December 31, 2003.  Through the Inet acquisition, Tektronix gains significant expansion into network monitoring, which is a market that Tektronix had previously targeted for expansion.  Inet’s established network monitoring business, as well as its established customer base, is very complementary with Tektronix’ pre-acquisition mobile protocol test business.

          Tektronix acquired all of Inet’s outstanding common stock for $12.50 per share consisting of $6.25 per share in cash and $6.25 per share in Tektronix’ common stock.  Prior to the close of the transaction on September 30, 2004, Inet had 39.6 million shares of common stock outstanding.  The final exchange ratio used to determine the number of shares of Tektronix’ common stock issued was 0.192, which resulted in the issuance of 7.6 million shares of Tektronix’ common stock in the transaction.  The 7.6 million shares were valued at $32.55 per share, based on the 5-day period ended September 29, 2004, because that was the earliest date that the final exchange ratio could be determined.  The fair values of the stock options and restricted share rights assumed were determined by using the Black-Scholes option pricing model.  The cash consideration of $247.6 million, the value of Tektronix’ common stock of $247.5 million, and the fair values of stock options and restricted share rights assumed are included in the purchase price that was allocated to the underlying assets acquired and liabilities assumed based on their estimated fair values.  Analysis supporting the purchase price allocation includes a valuation of assets and liabilities as of the closing date, including a third party valuation of intangible items and a detailed review of the opening balance sheet to determine other significant adjustments required to recognize

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assets and liabilities at fair value.  The purchase price allocation is subject to further changes, including an analysis of the deductibility of transaction costs and resolution of ongoing tax audits for pre-acquisition periods.  The purchase price and resulting allocation to the underlying assets acquired, net of deferred income taxes, were as follows:

          The following table presents the total purchase price (in thousands):

Cash paid	$	247,561
Stock issued		247,543
Stock options assumed		9,658
Restricted share rights assumed		321
Transaction costs		5,116
Unearned stock-based compensation		(3,403	)
Liabilities assumed		32,683
Total purchase price	$	539,479

          The following table presents the allocation of the purchase price to the assets acquired, net of deferred income taxes, based on their fair values (in thousands):

Cash and cash equivalents	$	158,821
Accounts receivable		17,565
Inventories		18,025
Other current assets		7,849
Property, plant, and equipment		10,662
Intangible assets		121,953
Goodwill		217,972
Other long term assets		811
In-process research and development		32,237
Deferred income taxes		(46,416	)
Total assets acquired, net of deferred income taxes	$	539,479

          The following table presents the details of the intangible assets purchased in the Inet acquisition as of February 26, 2005:

(In thousands)	(in years) Weighted Average Useful Life		Cost		Accumulated Amortization			Net
Developed technology		4.8	$	87,004	$	(7,707	)	$	79,297
Customer relationships		4.8		22,597		(2,008	)		20,589
Covenants not to compete		4.0		1,200		(125	)		1,075
				110,801		(9,840	)		100,961
Tradename		Not amortized		11,152		—			11,152
Total intangible assets purchased			$	121,953	$	(9,840	)	$	112,113

          Amortization expense for intangible assets purchased in the Inet acquisition was $5.9 million and $9.8 million for the third quarter and first three quarters of fiscal year 2005.  Amortization expense for intangible assets purchased in the Inet acquisition has been recorded on the Condensed Consolidated Statements of Operations as follows:

	Fiscal quarter ended				Three fiscal quarters ended
(In thousands)	Feb. 26, 2005		Feb. 28, 2004		Feb. 26, 2005		Feb. 28, 2004
Cost of sales	$	4,627	$	—	$	7,707	$	—
Acquisition related costs (credits) and amortization, net		1,287		—		2,133		—
Total	$	5,914	$	—	$	9,840	$	—

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          The estimated amortization expense of intangible assets purchased in the Inet acquisition for the current fiscal year, including amounts amortized to date, and in future years will be recorded in the Condensed Consolidated Statements of Operations as follows:

(In thousands)	Cost of sales		Acquisition related costs (credits) and amortization, net		Total for the fiscal year
Fiscal Year
2005	$	12,330	$	3,411	$	15,741
2006		18,495		5,117		23,612
2007		18,495		5,117		23,612
2008		16,670		4,621		21,291
2009		15,759		4,174		19,933
2010		5,255		1,357		6,612
Total	$	87,004	$	23,797	$	110,801

          The $32.2 million allocated to the in-process research and development (“IPR&D”) asset was written off at the date of the acquisition in accordance with FASB Interpretation No. 4, “Applicability of FASB Statement No. 2 to Business Combinations Accounted for by the Purchase Method”.  This write-off was included in acquisition related costs on the Condensed Consolidated Statements of Operations.  The fair value of IPR&D was based on the net present value of estimated future cash flows.  Significant assumptions used in the valuation of IPR&D included a risk adjusted discount rate of 10.2%, revenue and expense projections, development life cycle and future entry of products to the market.  As of the acquisition date, there were eight research and development projects in process that were approximately 87% complete.  The total estimated cost to complete these projects was approximately $0.8 million at the acquisition date.  As of February 26, 2005, the total estimated remaining cost for these substantially complete projects was not significant.

          The Condensed Consolidated Statements of Operations include the results of operations of Inet since September 30, 2004.  The following (unaudited) pro forma consolidated results of operations have been prepared as if the acquisition of Inet had occurred at June 1, 2003, the beginning of Tektronix’ fiscal year 2004.

	Fiscal quarter ended				Three fiscal quarters ended
(In thousands, except per share amounts)	Feb. 26, 2005		Feb. 28, 2004		Feb. 26, 2005		Feb. 28, 2004
Net sales	$	256,332	$	269,902	$	810,305	$	750,032
Net earnings from continuing operations		23,433		42,442		88,020		93,450
Earnings per share:
Continuing operations – basic	$	0.26	$	0.46	$	0.98	$	1.01
Continuing operations – diluted	$	0.26	$	0.45	$	0.96	$	0.99

          The write-off of IPR&D is excluded from the calculation of net earnings and earnings per share in the table shown above.

          The pro forma information is presented for informational purposes only and is not necessarily indicative of the results of operations that actually would have been achieved had the acquisition been consummated as of that time, nor is it intended to be a projection of future results.

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6.  Discontinued Operations

          Discontinued operations presented on the Condensed Consolidated Statements of Operations included the following:

	Fiscal quarter ended						Three fiscal quarters ended
(In thousands)	Feb. 26, 2005			Feb. 28, 2004			Feb. 26, 2005			Feb. 28, 2004
Gain on sale of Color Printing and Imaging Division (less applicable income tax expense of $1,889, $0, $1,889 and $0) (see Note 17)	$	3,508		$	—		$	3,508		$	—
Loss on sale of VideoTele.com (less applicable income tax benefit of $3, $13, $12 and $16)		(7	)		(23	)		(22	)		(28	)
Loss on sale of optical parametric test business (less applicable income tax benefit of $10, $25, $95 and $114)		(18	)		(47	)		(176	)		(213	)
Loss on sale of Gage (less applicable income tax benefit of $28, $101, $103 and $616)		(53	)		(188	)		(193	)		(1,145	)
Loss from operations of Gage (less applicable income tax benefit of $0, $0, $0 and $212)		—			—			—			(394	)
Gain (loss) from discontinued operations, net of income taxes	$	3,430		$	(258	)	$	3,117		$	(1,780	)

7.  Business Realignment Costs

          Business realignment costs represent actions to realign Tektronix’ cost structure in response to significant events and primarily include restructuring actions and impairment of assets resulting from reduced business levels.  Business realignment actions taken were intended to reduce Tektronix’ worldwide cost structure across all major functions in response to the dramatic economic decline, which severely impacted markets into which Tektronix sells its products.  Major operations impacted include manufacturing, engineering, sales, marketing and administrative functions.  In addition to severance, Tektronix incurred other costs associated with restructuring its organization, which primarily represented facilities contracts and other exit costs associated with aligning the cost structure to appropriate levels.

          Costs incurred during the current quarter primarily relate to restructuring actions Tektronix planned in prior years which were executed in the current quarter.  Many of the restructuring actions planned take significant time to execute, particularly if they are being conducted in countries outside the United States.

          Business realignment costs of $0.4 million in the third quarter of fiscal year 2005 were primarily for severance and related costs for residual activity in Europe.  For the first three quarters of fiscal year 2005, business realignment costs of $2.7 million included severance and related costs of $1.7 million for 30 employees, $0.9 million for contractual obligations, and $0.2 million for accelerated depreciation of assets, offset by a $0.1 million credit from net accumulated currency translation gains.  Business realignment costs in the first three quarters of fiscal year 2005 largely related to residual activities for actions taken in Europe.  Expected future annual salary cost savings from actions taken in the first three quarters of fiscal year 2005 to reduce employee headcount is not significant.  At February 26, 2005, the remaining liabilities for employee severance and related benefits were maintained for 21 employees.

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          Activity in the accrual for business realignment costs for the above described actions during the first three quarters of fiscal year 2005 was as follows:

(In thousands)	Balance May 29, 2004		Costs incurred and other adjustments			Cash payments			Non-cash adjustments			Balance Feb. 26, 2005
Fiscal Year 2005 Actions:
Employee severance and related benefits	$	—	$	1,934		$	(1,404	)	$	—		$	530
Asset impairments		—		289			—			(289	)		—
Contractual obligations		—		525			(577	)		217			165
Accumulated currency translation gain, net		—		(124	)		—			124			—
Total		—		2,624			(1,981	)		52			695
Fiscal Year 2004 Actions:
Employee severance and related benefits		5,335		(220	)		(4,266	)		—			849
Contractual obligations		409		379			(789	)		1			—
Asset impairments		—		(107	)		—			107			—
Total		5,744		52			(5,055	)		108			849
Fiscal Year 2003 Actions:
Employee severance and related benefits		294		(20	)		(271	)		—			3
Contractual obligations		1,240		—			(331	)		85			994
Total		1,534		(20	)		(602	)		85			997
Fiscal Year 2002 Actions:
Employee severance and related benefits		152		9			(161	)		—			—
Contractual obligations		54		—			(24	)		—			30
Total		206		9			(185	)		—			30
Total of all actions	$	7,484	$	2,665		$	(7,823	)	$	245		$	2,571

8.  Marketable Investments

          Marketable investments are recorded at fair value with the resulting unrealized gains and temporary losses included, net of tax, in Accumulated other comprehensive loss on the Condensed Consolidated Balance Sheets.  Fair values of marketable investments are based on quoted market prices.  Realized gains and losses on sales of marketable investments were insignificant and $0.2 million, respectively, during the quarter ended February 26, 2005, and $1.3 million and $1.8 million, respectively, for the three quarters ended February 26, 2005.  Realized gains and losses on sales of marketable investments were $0.7 million and $0.6 million, respectively, during the quarter ended February 28, 2004, and $2.4 million and $2.3 million, respectively, for the three quarters ended February 28, 2004.  Realized gains and losses on sales of marketable investments are included in Other non-operating income (expense), net, on the Condensed Consolidated Statements of Operations.

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          Short-term marketable investments held at February 26, 2005 consisted of:

(In thousands)	Amortized cost		Unrealized gains		Unrealized losses			Fair value
Corporate notes and bonds	$	49,685	$	25	$	(321	)	$	49,389
U.S. Treasuries		26,326		—		(200	)		26,126
U.S. Agencies		26,135		—		(198	)		25,937
Asset backed securities		9,712		—		(60	)		9,652
Mortgage backed securities		8,531		—		(169	)		8,362
Short-term marketable investments	$	120,389	$	25	$	(948	)	$	119,466

          Long-term marketable investments held at February 26, 2005 consisted of:

(In thousands)	Amortized cost		Unrealized gains		Unrealized losses			Fair value
Mortgage backed securities	$	76,110	$	167	$	(1,081	)	$	75,196
Corporate notes and bonds		57,253		251		(584	)		56,920
Asset backed securities		75,047		303		(485	)		74,865
U.S. Agencies		61,234		75		(988	)		60,321
U.S. Treasuries		13,692		3		(112	)		13,583
Long-term marketable investments	$	283,336	$	799	$	(3,250	)	$	280,885

          Short-term marketable investments held at May 29, 2004 consisted of:

(In thousands)	Amortized cost		Unrealized gains		Unrealized losses			Fair value
Corporate notes and bonds	$	46,899	$	191	$	(118	)	$	46,972
U.S. Treasuries		5,313		96		—			5,409
U.S. Agencies		2,972		2		—			2,974
Asset backed securities		30,657		1		(363	)		30,295
Mortgage backed securities		5,358		—		(52	)		5,306
Short-term marketable investments	$	91,199	$	290	$	(533	)	$	90,956

          Long-term marketable investments held at May 29, 2004 consisted of:

(In thousands)	Amortized cost		Unrealized gains		Unrealized losses			Fair value
Mortgage backed securities	$	176,266	$	715	$	(2,684	)	$	174,297
Corporate notes and bonds		89,562		817		(587	)		89,792
Asset backed securities		76,052		999		(261	)		76,790
U.S. Agencies		79,878		155		(962	)		79,071
U.S. Treasuries		44,166		—		(238	)		43,928
Long-term marketable investments	$	465,924	$	2,686	$	(4,732	)	$	463,878

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          Contractual maturities of long-term marketable investments at February 26, 2005 are as follows:

(In thousands)	Amortized Cost Basis
After 1 year through 5 years	$	207,226
Mortgage backed securities		76,110
Long-term marketable investments	$	283,336

          Tektronix reviews investments in debt and equity securities for other than temporary impairment whenever the fair value of an investment is less than amortized cost and evidence indicates that an investment’s carrying amount is not recoverable within a reasonable period of time.  In the evaluation of whether an impairment is other-than-temporary, Tektronix considers the reasons for the impairment, its ability and intent to hold the investment until the market price recovers, compliance with its investment policy, the severity and duration of the impairment and expected future performance.  As Tektronix primarily invests in high quality debt securities, unrealized losses are largely driven by increased market interest rates.  These unrealized losses were not significant on an individual investment security basis.  Based on this evaluation, no impairment was considered to be other-than-temporary.  The following table presents the fair value of marketable investments with unrealized losses at February 26, 2005:

	12 months or more				Less than 12 months				Total
(In thousands)	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Corporate notes and bonds	$	7,180	$	69	$	89,826	$	836	$	97,006	$	905
Asset backed securities		897		21		50,411		524		51,308		545
Mortgage backed securities		4,620		98		67,388		1,152		72,008		1,250
U.S. Agencies		4,929		93		77,215		1,093		82,144		1,186
U.S. Treasuries		0		0		35,730		312		35,730		312
Total	$	17,626	$	281	$	320,570	$	3,917	$	338,196	$	4,198

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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.  Market is determined based on net realizable value.  Tektronix periodically reviews its inventory for obsolete or slow-moving items.  Inventories consisted of the following:

(In thousands)	Feb. 26, 2005		May 29, 2004
Materials	$	8,189	$	10,379
Work in process		54,077		40,923
Finished goods		67,890		50,799
Inventories	$	130,156	$	102,101

10.  Other Current Assets

          Other current assets consisted of the following:

(In thousands)	Feb. 26, 2005		May 29, 2004
Current deferred tax asset	$	36,049	$	37,703
Prepaid expenses		9,686		7,293
Other receivables		9,495		7,820
Held-for-sale assets		—		16,075
Income taxes receivable		—		6
Other current assets		776		911
Notes receivable		10		4
Other current assets	$	56,016	$	69,812

          At May 29, 2004, held-for-sale assets included property located in Nevada City, California and Gotemba, Japan. During the first quarter of fiscal year 2005, Tektronix completed the sale of property located in Nevada City, California.  Net proceeds of $9.9 million were received from the sale of the Nevada City assets with a carrying value of $7.7 million, resulting in a gain on sale of $2.2 million during the first quarter of fiscal year 2005. During the third quarter of fiscal year 2005, Tektronix completed the sale of properties including buildings and land located in Gotemba, Japan which were acquired in the Sony/Tektronix redemption in fiscal year 2003.  Net proceeds of $8.8 million were received from the sale of Gotemba assets with a carrying valued of $8.5 million, resulting in a gain on sale of $0.3 million during the third quarter of fiscal year 2005.

11.  Property, Plant and Equipment, Net

          Property, plant and equipment, net consisted of the following:

(In thousands)	Feb. 26, 2005			May 29, 2004
Land	$	1,086		$	698
Buildings		130,301			133,304
Machinery and equipment		275,010			255,669
Accumulated depreciation and amortization		(290,925	)		(284,361	)
Property, plant and equipment, net	$	115,472		$	105,310

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12.  Goodwill, Net

          Goodwill and intangible assets are accounted for in accordance with SFAS No. 141, “Business Combinations”, and SFAS No. 142, “Goodwill and Other Intangible Assets.”  Accordingly, Tektronix does not amortize goodwill from acquisitions, but continues to amortize other acquisition-related intangibles.

          Changes in goodwill during the three fiscal quarters ended February 26, 2005 were as follows (in thousands):

Balance at May 29, 2004	$	79,774
Acquisition of Inet (see Note 5)		217,972
Currency translation		4,330
Balance at February 26, 2005	$	302,076

13.  Other Long-Term Assets

          Other long-term assets consisted of the following:

(In thousands)	Feb. 26, 2005		May 29, 2004
Other intangibles, net	$	114,611	$	2,706
Corporate equity securities		11,692		13,996
Notes, contracts and leases		14,073		10,845
Other assets		3,778		3,278
Other long-term assets	$	144,154	$	30,825

          Intangible assets of $112.1 million as of February 26, 2005, included in Other intangibles, net, resulted from the acquisition of Inet in the second quarter of fiscal year 2005, as described in Note 5.

          Corporate equity securities are classified as available-for-sale and reported at fair value.  The related unrealized holding gains and temporary 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 at February 26, 2005 and May 29, 2004 were as follows:

(In thousands)	Feb. 26, 2005		May 29, 2004
Unamortized cost basis of corporate equity securities	$	4,743	$	6,178
Gross unrealized holding gains		6,949		7,818
Fair value of corporate equity securities	$	11,692	$	13,996

          During the third quarter of fiscal year 2005, Tektronix sold 1.0 million shares of common stock of Tut Systems, Inc.  Net proceeds from the sale were $3.3 million, which resulted in a realized gain of $2.1 million recorded in Other non-operating income (expense), net, on the Condensed Consolidated Statements of Operations.

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14.  Accounts Payable and Accrued Liabilities

          Accounts payable and accrued liabilities consisted of the following:

(In thousands)	Feb. 26, 2005		May 29, 2004
Trade accounts payable	$	39,382	$	47,442
Other accounts payable		34,611		34,560
Accounts payable		73,993		82,002
Contingent liabilities (see Note 17)		13,043		19,757
Income taxes payable		28,333		15,898
Warranty reserves		7,704		8,959
Accrued expenses and other liabilities		8,529		7,432
Accrued liabilities		57,609		52,046
Accounts payable and accrued liabilities	$	131,602	$	134,048

15.  Long-Term Liabilities

          Long-term liabilities consisted of the following:

(In thousands)	Feb. 26, 2005		May 29, 2004
Pension liability	$	135,308	$	178,026
Postretirement benefits		13,258		13,839
Deferred compensation		16,187		10,707
Other		12,770		9,044
Other long-term liabilities	$	177,523	$	211,616

          Tektronix made a voluntary contribution of $46.5 million in the first quarter of fiscal year 2005 to the U.S. Cash Balance pension plan, which represents the expected funding for the fiscal year.  This contribution directly reduced the balance of pension liability.

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16.  Pension and Other Postretirement Benefits

          Components of net periodic benefit cost (credit) for defined benefit pension plans and other postretirement benefits were as follows:

	Pension Benefits						Other Postretirement Benefits
	Fiscal quarter ended						Fiscal quarter ended
(In thousands)	Feb. 26, 2005			Feb. 28, 2004			Feb. 26, 2005		Feb. 28, 2004
Service cost	$	1,589		$	1,635		$	21	$	26
Interest cost		9,709			10,015			226		233
Expected return on plan assets		(12,619	)		(12,280	)		—		—
Amortization of transition asset		31			28			—		—
Amortization of prior service cost		(556	)		(492	)		—		(668	)
Amortization of actuarial net loss		3,343			1,670			—		—
Net periodic benefit cost (credit)	$	1,497		$	576		$	247	$	(409	)

	Pension Benefits						Other Postretirement Benefits
	Three fiscal quarters ended						Three fiscal quarters ended
(In thousands)	Feb. 26, 2005			Feb. 28, 2004			Feb. 26, 2005		Feb. 28, 2004
Service cost	$	4,700		$	6,079		$	63	$	78
Interest cost		28,908			30,241			678		699
Expected return on plan assets		(37,724	)		(37,367	)		—		—
Amortization of transition asset		88			78			—		—
Amortization of prior service cost		(1,670	)		(1,378	)		—		(2,004	)
Amortization of actuarial net loss		10,013			5,401			—		—
Net periodic benefit cost (credit)	$	4,315		$	3,054		$	741	$	(1,227	)

17.  Contingencies

          As of February 26, 2005, Tektronix had $13.0 million of contingencies recorded in Accounts payable and accrued liabilities on the Condensed Consolidated Balance Sheets, which included $5.0 million of contingencies relating to the sale of the Color Printer and Imaging Division (“CPID”) in fiscal year 2000, $3.0 million for environmental exposures and $5.0 million for other contingent liabilities.  It is reasonably possible that management’s estimates of these contingencies could change in the near term and that such changes could be material to Tektronix’ consolidated financial statements.

     Sale of Color Printing and Imaging

          On January 1, 2000, Tektronix sold substantially all of the assets of CPID.  Tektronix accounted for CPID as a discontinued operation in accordance with 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 purchaser.  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, $60.0 million of contingencies related to the sale and $14.4 million in transaction and related costs.

          In accordance with SFAS No. 5, “Accounting for Contingencies,” it is Tektronix’ policy to defer recognition of a gain where it is believed that contingencies exist that may result in that gain being recognized prior to realization.  Tektronix analyzes the amount of deferred gain in relation to outstanding

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contingencies, and recognizes additional gain when persuasive objective evidence indicates that such contingencies are believed to be resolved.  With regard to the contingencies associated with the sale of CPID, persuasive objective evidence includes: a) legal determinations resulting in the resolution of contingencies, including lapse of claim periods defined in the final sale agreement, b) the resolution of claims made by the purchaser, c) evidence that liabilities underlying current or probable future claims have been resolved and d) interactions with the purchaser on outstanding claims.  The $60.0 million of contingencies represents the deferral of a portion of the gain on sale that Tektronix’ management believed was not realizable due to certain contingencies contained in the final sale agreement and approximated the amount that management believed was the maximum exposure under the contingencies.  The specific nature of these contingencies was specified in the final sale agreement.

          The contingencies contained in the final sale agreement represented provisions designed to protect the purchaser in disputes over the net assets included in the closing balance sheet and breach of certain representations and warranties by Tektronix.  Tektronix viewed these exposures in terms of the following categories: balance sheet arbitration, liabilities subject to indemnity, 18 month indemnity for breach of certain representations and warranties and a 36 month indemnity for breach of certain representations and warranties.  Tektronix’ estimate of the maximum contingency, including anticipated costs and expenses to resolve these matters, was $60.0 million.  This estimate was based on certain limitations on purchase contingencies as defined in the final sale agreement as well as Tektronix’ estimates of other exposures not subject to these limitations.  As the maximum exposure under these categories is measured in the aggregate by Tektronix and as there are many overlapping provisions between these categories, Tektronix’ review of these contingencies considered both the individual categories as well as the aggregate remaining exposures.

          Subsequent to the close of the transaction, Tektronix and the purchaser entered into an arbitration process to determine settlement of certain disputes regarding the value of the net assets transferred at the closing date.  This arbitration process was provided to the purchaser under the terms of the final sale agreement.  This arbitration was resolved in the first quarter of fiscal year 2002, resulting in an $18.0 million payment by Tektronix to the purchaser.  This settlement directly reduced the $60.0 million previously deferred gain.

          During fiscal year 2003, Tektronix recognized $25.0 million of the previously deferred gain as a result of the resolution of certain of the purchase contingencies related to the sale, in accordance with the accounting policy described above.  The $25.0 million of pre-tax gain was recognized in Discontinued operations.  Of the total $25.0 million recognized in fiscal year 2003, $20.0 million was recorded during the third quarter of fiscal year 2003.  Persuasive objective evidence supporting the recognition of $20.0 million included: a) the expiration of the 36 month deadline for certain claims included in the final sale agreement, which passed without the receipt of claims from the purchaser, b) analysis of exposures underlying pending claims previously made by the purchaser, and c) the interactions with the purchaser regarding these pending claims, which included the fact that significant time had lapsed since the purchaser had pursued these claims.  Tektronix recognized an additional $5.0 million of pre-tax gain in Discontinued operations during the fourth quarter of fiscal year 2003 based on persuasive objective evidence that certain previously identified exposures had been resolved without consequence to Tektronix.

          During the third quarter of fiscal year 2005, Tektronix recognized an additional $5.4 million of pre-tax gain in Discontinued operations.  Persuasive objective evidence supporting the recognition of $5.4 million included: a) a sustained reduction in expense activity associated with certain exposures underlying the contingencies, b) analysis of exposures underlying pending claims previously made by the purchaser and c) the interactions with the purchaser regarding these pending claims, which included the fact that significant time had lapsed since the purchaser had pursued these claims.

          Other payments and adjustments during the period from fiscal years 2001 through the third quarter of fiscal year 2005, reduced the balance of the contingencies by $4.6 million.  As of February 26, 2005 and May 29, 2004, the balance of the contingencies related to the CPID disposition was $5.0 million and $10.4 million, respectively.  The remaining portion may take several years to resolve.  The continued deferral of this amount is associated with existing exposures for which Tektronix believes adequate evidence of resolution has not been obtained.  Tektronix continues to monitor the status of the CPID related contingencies based on information received.  If unforeseen events or circumstances arise subsequent to the balance sheet date, changes in the estimate of these contingencies would occur.  Tektronix, however, does not expect such changes to be material to the financial statements.

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     Environmental and Other

          The $3.0 million for environmental exposures is specifically associated with the closure and cleanup of a licensed hazardous waste management facility at Tektronix’ Beaverton, Oregon campus.  Tektronix established the initial liability in 1998 and bases ongoing estimates on currently available facts and presently enacted laws and regulations.  Costs for tank removal and cleanup were incurred in fiscal year 2001.  Costs currently being incurred primarily relate to ongoing monitoring and testing of the site.  Management’s best estimate of the range of remaining reasonably possible cost associated with this environmental cleanup, testing and monitoring could be as high as $10.0 million.  Management believes that the recorded liability represents the low end of the range.  These costs are estimated to be incurred over the next several years.  If events or circumstances arise that are unforeseen to Tektronix as of the balance sheet date, actual costs could differ materially from this estimate.  A preliminary risk investigation and feasibility study are expected to be completed in the second quarter of fiscal year 2006 which may have a significant impact on management’s estimate.

          The remaining $5.0 million of contingency accruals include amounts related to intellectual property and employment issues, as well as contingencies related to dispositions of assets other than CPID.  If events or circumstances arise that are unforeseen to Tektronix as of the balance sheet date, actual costs could differ materially from this estimate.

          In the normal course of business, Tektronix and its subsidiaries are parties to various legal claims, actions and complaints, including matters involving patent infringement and other intellectual property claims and various other risks.  It is not possible to predict with certainty whether or not Tektronix will ultimately be successful in any of these legal matters or, if not, what the impact might be.  However, Tektronix’ management does not expect that the results of these legal proceedings will have a material adverse effect on its results of operations, financial position or cash flows.

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18.  Shareholders’ Equity

          Activity in shareholders’ equity for the first three quarters of fiscal year 2005 was as follows:

	Common Stock						Retained Earnings			Accumulated Other Comprehensive Loss
(In thousands)	Shares			Amount									Total
Balance at May 29, 2004		84,179		$	257,267		$	748,381		$	(135,068	)	$	870,580
Net earnings		—			—			60,395			—			60,395
Additional minimum pension liability, net of income taxes		—			—			—			(687	)		(687	)
Foreign currency translation adjustment, net of income taxes		—			—			—			11,558			11,558
Unrealized holding gain on available-for-sale securities, net of income taxes		—			—			—			(1,311	)		(1,311	)
Dividends paid		—			—			(14,131	)		—			(14,131	)
Shares issued		8,775			268,114			—			—			268,114
Stock options and share rights assumed from Inet acquisition		—			9,979			—			—			9,979
Unearned stock-based compensation from Inet acquisition		—			(3,403	)		—			—			(3,403	)
Tax benefit of stock option exercises		—			3,881			—			—			3,881
Amortization of unearned stock-based compensation		—			1,893			—			—			1,893
Shares repurchased in open market		(3,926	)		(14,489	)		(100,299	)		—			(114,788	)
Balance at February 26, 2005		89,028		$	523,242		$	694,346		$	(125,508	)	$	1,092,080

          During the first three quarters of fiscal year 2005, the net increase in common stock was largely due to $254.1 million from the Inet acquisition discussed in Note 5.  This amount includes $247.5 million for 7.6 million shares of common stock issued and $10.0 million for stock options and restricted share rights assumed, offset by $3.4 million of unearned stock-based compensation.  The $3.4 million of unearned stock-based compensation was related to the intrinsic value of in-the-money unvested stock options, restricted stock and restricted share rights resulting from the Inet acquisition.

          In fiscal year 2000, the Board of Directors authorized the purchase of up to $550.0 million of Tektronix’ common stock on the open market or through negotiated transactions.  In September 2004, the Board of Directors authorized the repurchase of an incremental $400.0 million of Tektronix’ common stock.  During the first three quarters of fiscal year 2005, 3.9 million shares were repurchased for $114.8 million.  As of February 26, 2005, a total of 21.1 million shares have been repurchased at an average price of $23.91 per share totaling $503.6 million under this authorization.  The reacquired shares were immediately retired as required under Oregon corporate law.

          Subsequent to the third quarter of fiscal year 2005, the Board of Directors declared a quarterly cash dividend of $0.06 per share on March 17, 2005.  The dividend will be paid on April 25, 2005 to shareholders of record as of the close of market on April 8, 2005.

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

	Fiscal quarter ended						Three fiscal quarters ended
(In thousands)	Feb. 26, 2005			Feb. 28, 2004			Feb. 26, 2005			Feb. 28, 2004
Net earnings	$	26,821		$	43,613		$	60,395		$	89,976
Other comprehensive income (loss):
Net change in additional minimum pension liability, net of income taxes of ($124), ($516), ($302) and $1,356, respectively		(282	)		(1,169	)		(687	)		1,206
Foreign currency translation adjustment, net of income taxes of ($232), $3,512, $7,391 and $9,368, respectively		(364	)		5,493			11,558			14,651
Unrealized holding gain (loss) on available- for-sale securities, net of income taxes of ($2,267), ($107), ($838) and $3,120, respectively		(3,547	)		(167	)		(1,311	)		4,879
Total comprehensive income	$	22,628		$	47,770		$	69,955		$	110,712

          Accumulated other comprehensive loss consisted of the following:

(In thousands)	Foreign currency translation			Unrealized holding gains, net on available-for- sale securities			Additional minimum pension liability			Accumulated other comprehensive loss
Balance at May 29, 2004	$	35,192		$	3,488		$	(173,748	)	$	(135,068	)
First quarter activity		(931	)		(794	)		344			(1,381	)
Second quarter activity		12,853			3,030			(749	)		15,134
Third quarter activity		(364	)		(3,547	)		(282	)		(4,193	)
Balance at February 26, 2005	$	46,750		$	2,177		$	(174,435	)	$	(125,508	)

19.  Business Segments

          Tektronix’ 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.  It is impractical to report net sales by product group.  Accordingly, Tektronix reports as a single segment.  Inter-segment sales were not material and were included in net sales to external customers below.

	Fiscal quarter ended				Three fiscal quarters ended
(In thousands)	Feb. 26, 2005		Feb. 28, 2004		Feb. 26, 2005		Feb. 28, 2004
Consolidated net sales to external customers by region:
The Americas:
United States	$	86,170	$	94,142	$	296,139	$	273,595
Other Americas		6,560		7,419		22,230		19,999
Europe		72,298		60,524		176,312		140,727
Pacific		51,122		43,804		151,974		123,705
Japan		40,182		37,617		126,970		104,839
Net sales	$	256,332	$	243,506	$	773,625	$	662,865

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20.  Product Warranty Accrual

          Tektronix’ product warranty accrual, included in Accounts payable and accrued liabilities on the Condensed Consolidated Balance Sheets, 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 were as follows:

	Three fiscal quarters ended
(In thousands)	Feb. 26, 2005			Feb. 28, 2004
Balance at beginning of period	$	8,959		$	8,689
Payments made		(7,498	)		(7,849	)
Provision for warranty expense		6,243			8,172
Balance at end of period	$	7,704		$	9,012

21.  Supplemental Cash Flow Information

	Three fiscal quarters ended
(In thousands)	Feb. 26, 2005			Feb. 28, 2004
Supplemental disclosure of cash flows:
Income taxes paid, net	$	19,164		$	19,435
Interest paid		86			3,097
Non-cash transactions from acquisition of Inet:
Common stock issued	$	247,543		$	—
Stock options assumed		9,658			—
Restricted share rights assumed		321			—
Unearned stock-based compensation		(3,403	)		—
Liabilities assumed		32,683			—
Non-cash assets acquired, net of deferred income taxes		(380,658	)		—
Net cash paid	$	(93,856	)	$	—

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

          Tektronix, Inc. (“Tektronix”) 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, research, automotive and consumer electronics.  Unless otherwise indicated by the context, Tektronix refers to Tektronix as the parent company or its majority-owned subsidiaries.  This Management’s Discussion and Analysis of financial condition and results of operations is intended to provide investors with an understanding of Tektronix’ operating performance and its financial condition.  A discussion of our business, including our strategy, products and competition is included in Part I of Tektronix’ Form 10-K for the fiscal year ended May 29, 2004.  Tektronix enables its customers to design, manufacture, deploy, monitor and service next-generation global communications networks, computing, and advanced and pervasive technologies.  Revenue is derived principally through the development, manufacturing and marketing of a broad range of products including: oscilloscopes; logic analyzers; network management and diagnostics equipment, including mobile protocol test and network monitoring solutions; video test equipment; signal sources; radio frequency test equipment, including wireless field test and spectrum analysis equipment; and related components, support services and accessories.  Tektronix maintains operations in four major geographies: the Americas, including the United States, Mexico, Canada and South America; Europe, including Europe, Russia, the Middle East and Africa; the Pacific, including China, India, Korea, and Singapore; and Japan.

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          Tektronix’ results of operations and financial condition may be affected by a variety of factors.  In our opinion, the most significant of these factors include the economic strength of the technology markets into which we sell our products, our ability to develop compelling technology solutions and deliver these to the marketplace in a timely manner, and the actions of competitors.  These significant factors are discussed further below.

          The markets that we serve are very diverse and include a cross-section of the technology industries.  Accordingly, our business is cyclical and tends to correlate to the overall performance of the technology sector.  During fiscal years 2000 and 2001, we experienced considerable growth and profitability resulting from the overall growth in the technology markets and successful new product introductions.  However, we began to experience weakening demand in the latter part of fiscal year 2001 and subsequently experienced a dramatic decline in demand during fiscal year 2002.  During fiscal year 2002, product orders declined 38% from fiscal year 2001.  The technology markets continued to be depressed into fiscal year 2003.  During the latter part of fiscal year 2003, we began to experience the stabilization of certain markets.  Fiscal year 2004 saw a more broad-based recovery in the technology sector from the downturn of preceding years.  During fiscal year 2005, growth rates moderated as compared with the prior year, which management has partially attributed to excess demand in fiscal year 2004 resulting from customers deferring purchasing activity during the downturn years of 2001 to 2003, as well as the higher growth rates during fiscal year 2004 result in a higher basis for comparison to fiscal year 2005 results.

          During fiscal years 2002 and 2003, Tektronix engaged in a variety of efforts to reduce the cost structure to better align with the lower sales levels.  The related business realignment costs continued to be incurred into fiscal year 2004 and to a lesser extent into the current fiscal year as many of the actions identified took considerable time to execute.  In addition to incurring costs to realign our cost structure during fiscal year 2003 and 2004, we also incurred costs to restructure the operations of the Japan subsidiary acquired through acquisition of Sony/Tektronix Corporation and also recognized certain costs and credits directly associated with the integration of this subsidiary.  Business realignment costs incurred in the first three quarters of fiscal year 2005 largely related to previously planned actions in Europe.

          We face significant competition in many of the markets in which we sell our products.  Tektronix competes on many factors including product performance, technology, product availability and price.  To compete effectively, we must deliver compelling products to the market in a timely manner.  Accordingly, we make significant investments into the research and development of new products and the selling channels necessary to deliver products to the market.  Even during periods where economic conditions have reduced our revenues, such as those experienced in fiscal years 2002 and 2003, we continued to invest significantly in the development of new products and selling channels.  A discussion of our competitors and products is included in Item 1 of Tektronix’ Form 10-K for the fiscal year ended May 29, 2004.

          A component of our strategy includes focusing investments in certain product categories to expand our existing market positions.  Expansion in these certain product categories may come through internal growth or from acquisitions.  On September 30, 2004, we acquired Inet Technologies, Inc. (“Inet”), a company that engaged primarily in network monitoring.  The acquisition of Inet will further expand our network monitoring and diagnostics product offering.  The acquisition of Inet is described below in this Management’s Discussion and Analysis.

          For a discussion of risk factors affecting Tektronix, see the Risks and Uncertainties section below.

Acquisition of Inet Technologies, Inc.

          During the second quarter of fiscal year 2005, Tektronix acquired Inet, a leading global provider of communications software solutions that enable network operators to more strategically and profitably operate their businesses.  Inet’s products address next-generation networks, including 2.5G and 3G mobile data and voice-over-packet (also referred to as voice over Internet protocol or VoIP) technologies, and traditional networks.  Inet had approximately 500 employees worldwide and had sales of $104 million for the year ended December 31, 2003.  Through the Inet acquisition, Tektronix gains significant expansion into network monitoring, which is a market that Tektronix had previously targeted for expansion.  Inet’s established network monitoring business, as well as its established customer base, is very complementary with our pre-acquisition mobile protocol test business.  When combined with our pre-existing mobile protocol test business, Tektronix is one of the largest global providers of these solutions.  We anticipate that the acquisition will help us accelerate the delivery of products and solutions for network

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operators and equipment manufacturers seeking to implement next-generation technologies such as General Packet Radio Service (GPRS), Universal Mobile Telecommunications Systems (UMTS) and VoIP.  The product offerings of the acquired Inet business, along with our pre-existing mobile protocol test products, collectively comprise our network monitoring and diagnostics product offerings.

          Tektronix acquired all of Inet’s outstanding common stock for $12.50 per share consisting of $6.25 per share in cash and $6.25 per share in Tektronix’ common stock.  Prior to the close of the transaction on September 30, 2004, Inet had 39.6 million shares of common stock outstanding.  The final exchange ratio used to determine the number of shares of Tektronix’ common stock issued was 0.192, which resulted in the issuance of 7.6 million shares of Tektronix’ common stock in the transaction.  The 7.6 million shares were valued at $32.55 per share, based on the 5-day period ended September 29, 2004, because that was the earliest date that the final exchange ratio could be determined.  The fair values of the stock options and restricted share rights assumed were determined by using the Black-Scholes option pricing model.  The cash consideration of $247.6 million, the value of Tektronix’ common stock of $247.5 million, and the fair values of stock options and restricted share rights assumed are included in the purchase price that was allocated to the underlying assets acquired and liabilities assumed based on their estimated fair values.  Analysis supporting the purchase price allocation includes a valuation of assets and liabilities as of the closing date, including a third party valuation of intangible items and a detailed review of the opening balance sheet to determine other significant adjustments required to recognize assets and liabilities at fair value.  The purchase price allocation is subject to further changes, including an analysis of the deductibility of transaction costs and resolution of ongoing tax audits for pre-acquisition periods.  The purchase price and resulting allocation to the underlying assets acquired, net of deferred income taxes, were as follows:

          The following table presents the total purchase price (in thousands):

Cash paid	$	247,561
Stock issued		247,543
Stock options assumed		9,658
Restricted share rights assumed		321
Transaction costs		5,116
Unearned stock-based compensation		(3,403	)
Liabilities assumed		32,683
Total purchase price	$	539,479

          The following table presents the allocation of the purchase price to the assets acquired, net of deferred income taxes, based on their fair values (in thousands):

Cash and cash equivalents	$	158,821
Accounts receivable		17,565
Inventories		18,025
Other current assets		7,849
Property, plant, and equipment		10,662
Intangible assets		121,953
Goodwill		217,972
Other long term assets		811
In-process research and development		32,237
Deferred income taxes		(46,416	)
Total assets acquired, net of deferred income taxes	$	539,479

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          The following table presents the details of the intangible assets purchased in the Inet acquisition as of February 26, 2005:

(In thousands)	(in years) Weighted Average Useful Life		Cost		Accumulated Amortization			Net
Developed technology		4.8	$	87,004	$	(7,707	)	$	79,297
Customer relationships		4.8		22,597		(2,008	)		20,589
Covenants not to compete		4.0		1,200		(125	)		1,075
				110,801		(9,840	)		100,961
Tradename		Not amortized		11,152		—			11,152
Total intangible assets purchased			$	121,953	$	(9,840	)	$	112,113

          Amortization expense for intangible assets purchased in the Inet acquisition was $5.9 million and $9.8 million for the third quarter and first three quarters of fiscal year 2005.  Amortization expense for intangible assets purchased in the Inet acquisition has been recorded in the Condensed Consolidated Statements of Operations as follows:

	Fiscal quarter ended				Three fiscal quarters ended
(In thousands)	Feb. 26, 2005		Feb. 28, 2004		Feb. 26, 2005		Feb. 28, 2004
Cost of sales	$	4,627	$	—	$	7,707	$	—
Acquisition related costs (credits) and amortization, net		1,287		—		2,133		—
Total	$	5,914	$	—	$	9,840	$	—

          The estimated amortization expense of intangible assets purchased in the Inet acquisition for the current fiscal year, including amounts amortized to date, and in future years will be recorded in the Condensed Consolidated Statements of Operations as follows:

(In thousands)	Cost of sales		Acquisition related costs (credits) and amortization, net		Total for the fiscal year
Fiscal Year
2005	$	12,330	$	3,411	$	15,741
2006		18,495		5,117		23,612
2007		18,495		5,117		23,612
2008		16,670		4,621		21,291
2009		15,759		4,174		19,933
2010		5,255		1,357		6,612
Total	$	87,004	$	23,797	$	110,801

          The $32.2 million allocated to the in-process research and development (“IPR&D”) asset was written off at the date of the acquisition in accordance with FASB Interpretation No. 4, “Applicability of FASB Statement No. 2 to Business Combinations Accounted for by the Purchase Method.”  This write-off was included in acquisition related costs on the Condensed Consolidated Statements of Operations.  The fair value of IPR&D was based on the net present value of estimated future cash flows.  Significant assumptions used in the valuation of IPR&D included a risk adjusted discount rate of 10.2%, revenue and expense projections, development life cycle and future entry of products to the market.  As of the acquisition date, there were eight research and development projects in process that were approximately 87% complete.  The total estimated cost to complete these projects was approximately $0.8 million at the

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acquisition date.  As of February 26, 2005, the total estimated remaining cost for these substantially complete projects was not significant.

          The Condensed Consolidated Statements of Operations include the results of operations of Inet since September 30, 2004.  The following (unaudited) pro forma consolidated results of operations have been prepared as if the acquisition of Inet had occurred at June 1, 2003, the beginning of Tektronix’ fiscal year 2004.

	Fiscal quarter ended				Three fiscal quarters ended
(In thousands, except per share amounts)	Feb. 26, 2005		Feb. 28, 2004		Feb. 26, 2005		Feb. 28, 2004
Net sales	$	256,332	$	269,902	$	810,305	$	750,032
Net earnings from continuing operations		23,433		42,442		88,020		93,450
Earnings per share:
Continuing operations – basic	$	0.26	$	0.46	$	0.98	$	1.01
Continuing operations – diluted	$	0.26	$	0.45	$	0.96	$	0.99

          The write-off of IPR&D is excluded from the calculation of net earnings and earnings per share in the table shown above.

          The pro forma information is presented for informational purposes only and is not necessarily indicative of the results of operations that actually would have been achieved had the acquisition been consummated as of that time, nor is it intended to be a projection of future results.

Business Realignment Costs

          Business realignment costs represent actions to realign our cost structure in response to significant events and primarily include restructuring actions and impairment of assets resulting from reduced business levels.  Business realignment actions taken were intended to reduce our worldwide cost structure across all major functions in response to the dramatic economic decline, which severely impacted markets into which we sell our products.  Major operations impacted include manufacturing, engineering, sales, marketing and administrative functions.  In addition to severance, we incurred other costs associated with restructuring our organization, which primarily represented facilities contracts and other exit costs associated with aligning the cost structure to appropriate levels.  Actions taken have or are expected to result in reduced operating costs in periods following the period in which the costs were incurred, primarily through reductions in labor costs.  Management believes that the restructuring actions implemented in recent fiscal years have resulted in the costs savings anticipated for those actions.

          Costs incurred during the current quarter primarily related to restructuring actions we planned in prior years which were executed in the current quarter.  Many of the restructuring actions planned take significant time to execute, particularly if they are being conducted in countries outside the United States.

          Business realignment costs of $0.4 million in the third quarter of fiscal year 2005 were primarily for severance and related costs for residual activity in Europe.  For the first three quarters of fiscal year 2005, business realignment costs of $2.7 million included severance and related costs of $1.7 million for 30 employees, $0.9 million for contractual obligations, and $0.2 million for accelerated depreciation of assets, offset by a $0.1 million credit from net accumulated currency translation gains.  Business realignment costs in the first three quarters of fiscal year 2005 largely related to residual activities for actions taken in Europe.  Expected future annual salary cost savings from actions taken in the first three quarters of fiscal year 2005 to reduce employee headcount is not significant.  At February 26, 2005, the remaining liabilities for employee severance and related benefits were maintained for 21 employees.

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          Activity in the accrual for business realignment costs for the above described actions during the first three quarters of fiscal year 2005 was as follows:

(In thousands)	Balance May 29, 2004		Costs incurred and other adjustments			Cash payments			Non-cash adjustments			Balance Feb. 26, 2005
Fiscal Year 2005 Actions:
Employee severance and related benefits	$	—	$	1,934		$	(1,404	)	$	—		$	530
Asset impairments		—		289			—			(289	)		—
Contractual obligations		—		525			(577	)		217			165
Accumulated currency translation gain, net		—		(124	)		—			124			—
Total		—		2,624			(1,981	)		52			695
Fiscal Year 2004 Actions:
Employee severance and related benefits		5,335		(220	)		(4,266	)		—			849
Contractual obligations		409		379			(789	)		1			—
Asset impairments		—		(107	)		—			107			—
Total		5,744		52			(5,055	)		108			849
Fiscal Year 2003 Actions:
Employee severance and related benefits		294		(20	)		(271	)		—			3
Contractual obligations		1,240		—			(331	)		85			994
Total		1,534		(20	)		(602	)		85			997
Fiscal Year 2002 Actions:
Employee severance and related benefits		152		9			(161	)		—			—
Contractual obligations		54		—			(24	)		—			30
Total		206		9			(185	)		—			30
Total of all actions	$	7,484	$	2,665		$	(7,823	)	$	245		$	2,571

Critical Accounting Estimates

          Management has identified the “critical accounting estimates,” which are those that are most important to our portrayal of the financial condition and operating results 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 revenue recognition, contingencies, intangible asset valuation, pension plan assumptions and the assessment of the valuation of deferred income taxes and income tax contingencies.

     Revenue Recognition

          Tektronix recognizes product revenue when persuasive evidence of an arrangement exists, delivery has occurred, the sales price is fixed or determinable and collectibility is probable.  The majority of our products are sold in this manner.  These criteria are met at the time the product is shipped under FOB shipping point shipping terms.  Upon shipment, Tektronix also provides for estimated costs that may be incurred for product warranties and sales returns.  When other significant obligations remain after products are delivered, revenue is recognized only after such obligations are fulfilled.

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          The majority of the contracts for our network monitoring solution products, which were acquired in the Inet acquisition, contain multiple billing milestones, such as contract award, shipment, installation, ready for acceptance and acceptance, not all of which are associated with revenue recognition.  Except as otherwise discussed below, revenues from these products and license fees are recognized in the period that we have completed all hardware manufacturing and/or software development to contractual specifications, factory testing has been completed, the product has been shipped to the customer, the fee is fixed and determinable and collection of the fee is considered probable.  Revenues from arrangements that include significant acceptance terms and/or provisions are recognized when acceptance has occurred.

          Contracts for our network monitoring solution products often involve multiple deliverables.  We determine the fair value of each of the contract deliverables using vendor-specific objective evidence, or VSOE.  VSOE for each element of the contract is based on the price for which we sell the element on a stand-alone basis.  Elements of the contracts include product support services, which include the correction of software problems, hardware replacement, telephone access to our technical personnel and the right to receive unspecified product updates, upgrades and enhancements, when and if they become available.  Revenues from these services, including post-contract support included in initial licensing fees, are recognized ratably over the service periods.  Post-contract support included in the initial licensing fee is allocated from the total contract amount based on the fair value of these services determined using VSOE.  If we determine that we do not have VSOE on an undelivered element of an arrangement, we will not recognize revenue until all elements of the arrangement are delivered.  This occurrence could materially impact our financial results because of the significant dollar amount of many of our contracts and the significant portion of total revenues that a single contract may represent in any particular period.

          Revenue earned from service is recognized ratably over the contractual periods or as the services are performed.  Shipping and handling costs are recorded as Cost of sales on the Condensed Consolidated Statements of Operations.  Amounts billed or collected in advance of the period in which the related product or service qualifies for revenue recognition are recorded as Deferred revenue on the Condensed Consolidated Balance Sheets.

     Contingencies

          Tektronix is subject to claims and litigation concerning intellectual property, environmental and employment issues, and settlement of contingencies related to prior dispositions of assets.  Accruals have been established based upon management’s best estimate of the ultimate outcome of these matters.  We review the status of any claims, litigation and other contingencies on a regular basis, and adjustments are made as additional information becomes available.  As of February 26, 2005, $13.0 million of contingencies were recorded in Accounts payable and accrued liabilities on the Condensed Consolidated Balance Sheets, which included $5.0 million of contingencies relating to the sale of the Color Printing and Imaging Division (“CPID”) described below, $3.0 million for environmental exposures and $5.0 million for other contingent liabilities.  It is reasonably possible that our estimates of contingencies could change in the near term and that such changes could be material to the consolidated financial statements.

          At the time of the sale of CPID on January 1, 2000, we deferred the recognition of $60.0 million of gain on the sale and recorded contingencies of $60.0 million.  In accordance with Statement of Financial Accounting Standards (“SFAS”) No. 5, “Accounting for Contingencies,” our policy is to defer recognition of a gain where we believe contingencies exist which may result in that gain being recognized prior to realization.  We analyze the amount of deferred gain in relation to outstanding contingencies and recognize additional gain when objective evidence indicates that such contingencies are believed to be resolved.  The $60.0 million of contingencies represents the deferral of a portion of the gain on sale that we believed was not realizable due to certain contingencies contained in the final sale agreement.  Of the original $60.0 million of contingencies, $22.6 million has been utilized to settle claims and $32.4 million was recognized in subsequent periods, including $5.4 million in the third quarter of fiscal year 2005.

          As of February 26, 2005 and May 29, 2004, the balance of the contingencies related to the CPID disposition was $5.0 million and $10.4 million, respectively.  The remaining portion may take several years to resolve.  We continue to monitor the status of the CPID related contingencies based on information received. 

          Included in contingent liabilities is $3.0 million specifically associated with the closure and cleanup of a licensed hazardous waste management facility at our Beaverton, Oregon, campus.  The initial liability

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was established in 1998, and we base ongoing estimates on currently available facts and presently enacted laws and regulations.  Costs for tank removal and cleanup were incurred in fiscal year 2001.  Costs currently being incurred primarily relate to ongoing monitoring and testing of the site.  Our best estimate of the range of remaining reasonably possible cost associated with this environmental cleanup, testing and monitoring could be as high as $10.0 million.  We believe that the recorded liability represents the low end of the range.  These costs are expected to be incurred over the next several years.  If events or circumstances arise that are unforeseen to us as of the balance sheet date, actual costs could differ materially from this estimate.  A preliminary risk investigation and feasibility study are expected to be completed in the second quarter of fiscal year 2006 which may have a significant impact on management’s estimate.

          The remaining $5.0 million of contingency accruals include amounts related to intellectual property and employment issues, as well as contingencies related to dispositions of assets other than CPID.  If events or circumstances arise that we did not foresee as of the balance sheet date, actual costs could differ materially from the above described estimates of contingencies.

     Goodwill and Intangible Assets

          Goodwill and intangible assets are accounted for in accordance with SFAS No. 141, “Business Combinations,” and SFAS No. 142, “Goodwill and Other Intangible Assets.”  Accordingly, we do not amortize goodwill and intangible assets with indefinite useful lives from acquisitions, but we amortize other acquisition-related intangibles with definite useful lives.  As of February 26, 2005, the balance of goodwill, net was $302.1 million, which is recorded on the Condensed Consolidated Balance Sheets.

          We performed our annual goodwill impairment analysis during the second quarter of fiscal year 2005 and identified no impairment.  The impairment analysis 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 we use to manage the underlying businesses.  However, if we fail to deliver new products for these reporting units, 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 we may incur charges for impairment of goodwill.

          As of February 26, 2005, we had $114.6 million of non-goodwill intangible assets recorded in Other long-term assets on the Condensed Consolidated Balance Sheets, which includes intangible assets from the acquisition of Inet, patents and licenses for certain technology.  For intangible assets with definite useful lives that are not software-related, we amortize the cost over the estimated useful lives and assess 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.”  If the estimated undiscounted cash flow related to these assets decreases in the future or the useful life is shorter than originally estimated, we may incur charges to impair these assets.  The impairment would be based on the estimated discounted cash flow associated with each asset.  Impairment could result if the underlying technology fails to gain market acceptance, we fail 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.  For software-related intangible assets with definite useful lives, we amortize the cost over the estimated economic life of the software product and assess impairment in accordance with SFAS No. 86, “Accounting for the Costs of Computer Software to Be Sold, Leased, or Otherwise Marketed.”  At each balance sheet date, the unamortized cost of the software-related intangible asset is compared to its net realizable value.  The net realizable value is the estimated future gross revenues from the software product reduced by the estimated future costs of completing and disposing of that product, including the costs of performing maintenance and customer support.  The excess of the unamortized cost over the net realizable value would then be recognized as an impairment loss.   For intangible assets with indefinite useful lives, we review these annually for impairment and more frequently if events or circumstances indicate that the asset may be impaired in accordance with SFAS No. 142.  The impairment test for these assets is a comparison of the fair value of the intangible asset with its carrying value.  Any excess of carrying value over fair value will be recognized as an impairment loss.

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     Pension Plans

          Tektronix offers defined benefit pension plan benefits to employees in certain countries.  The Cash Balance plan in the United States is our largest defined benefit pension plan.  Employees hired after July 31, 2004 do not participate in the U.S. Cash Balance pension plan.  We maintain less significant defined benefit plans in other countries including the United Kingdom, Germany, Holland and Taiwan.

          Pension plans are a significant cost of doing business and the related obligations are expected to be settled far in the future.  Accounting for defined benefit pension plans results in the current recognition of liabilities and net periodic pension cost over employees’ expected service periods based on the terms of the plans and the impact of our investment and funding decisions.  The measurement of pension obligations and recognition of liabilities and costs require significant assumptions, such as the discount rate and the expected long-term rate of return on the assets of the plan.

          Discount rate assumptions are used to measure pension obligations for the recognition of a net pension liability on the balance sheet and the service cost and interest cost components of net periodic pension cost.  We estimate discount rates to reflect the rates at which the pension benefits could be effectively settled.  In making those estimates, we evaluate rates of return on high-quality fixed-income investments currently available and expected to be available during the settlement of future pension benefits.  The weighted average of discount rates used in determining our pension obligation as of May 29, 2004, our most recent fiscal year end, was 6.1%.

          The long-term rate of return on plan assets assumption is applied to the market related value of plan assets to estimate income from return on plan assets.  This income from return on plan assets offsets the various cost components of net periodic pension cost.  The various cost components of net periodic pension cost primarily include interest cost on accumulated benefits, service cost for benefits earned during the period, and amortization of unrecognized gains and losses.  The amount of net pension expense recognized has increased from prior periods due primarily to our beginning to amortize previously unrecognized losses on the decline in value of plan assets, decline in the return on plan assets assumption, and reduction in the market related value of plan assets.  Cumulative income recognized from the long-term rate of return on plan assets assumption has differed materially from the actual returns on plan assets.  This has resulted in a net unrecognized loss on plan assets that contributed a significant portion of the additional minimum pension liability described below.  To the extent this unrecognized loss is not offset by future unrecognized gains, there will continue to be a negative impact to net earnings as this amount is amortized as a cost component of net periodic pension cost.

          Our estimated weighted average long-term rate of return on plan assets for fiscal year 2005 is approximately 8.4%.  A one percent change in the estimated long-term rate of return on plan assets would result in a change in operating income of $5.9 million for fiscal year 2005.

          We will continue to assess assumptions for the expected long-term rate of return on plan assets and discount rate based on relevant market conditions as prescribed by accounting principles generally accepted in the United States of America and will make adjustments to the assumptions as appropriate.  Net pension expense was $1.5 million and $4.3 million, respectively, in the third quarter and first three quarters of fiscal year 2005, which included the effect of the recognition of service cost, interest cost, the assumed return on plan assets and amortization of a portion of the unrecognized loss noted above.  Net pension expense was allocated to Cost of sales, Research and development and Selling, general and administrative expenses in the Condensed Consolidated Statements of Operations.

          We measure pension obligations, fair value of plan assets, and the impact of significant assumptions at the end of each fiscal year.  At May 29, 2004, the accumulated benefit obligation exceeded the fair value of plan assets for certain pension plans, resulting in an unfunded accumulated benefit obligation for those plans.  In accordance with SFAS No. 87, “Employers’ Accounting for Pensions,” we recognized an additional minimum pension liability due to the unfunded accumulated benefit obligation.  Recognition of an additional minimum liability was required since an unfunded accumulated benefit obligation exists and an asset has been recognized as prepaid pension cost.  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) has been reported as a component of Accumulated other comprehensive loss, net of applicable income tax benefit.  As of May 29, 2004, the cumulative additional minimum pension charge included in Accumulated other comprehensive loss was $173.7 million, net of income tax benefit of $107.9 million.  The implication of the additional minimum 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 we recognize a return.  We may find it necessary to fund additional pension assets, which would increase the market related value of plan assets upon which we recognize a return but would

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reduce operating cash and future interest earnings on that cash.  In the first quarter of fiscal year 2005, we made a voluntary contribution of $46.5 million to the U.S. Cash Balance pension plan, which represents the expected funding for the fiscal year.

     Income Taxes

          We are subject to taxation from federal, state and international jurisdictions.  Our annual provision for income taxes and the determination of the resulting deferred tax assets and liabilities involve a significant amount of management judgment and are 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.  We maintain reserves for estimated tax exposures in jurisdictions of operation.  These tax jurisdictions include federal, state and various international tax jurisdictions.  Significant income tax exposures include potential challenges of research and experimentation credits, export-related tax benefits, disposition transactions and intercompany pricing.  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 our management to believe a revision of past estimates is appropriate.  Management believes that an appropriate liability has been established for estimated exposures; however, actual results may differ materially from these estimates.  The liabilities are frequently reviewed for their adequacy and appropriateness.  As of February 26, 2005, we were subject to income tax audits for fiscal years 2001, 2002 and 2003.  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 expense in the Consolidated Statements of Operations in the period of the event.

          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 February 26, 2005, we maintained a valuation allowance against certain deferred tax assets, primarily foreign tax credit carryforwards.  We have 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 our 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.  We continually evaluate strategies that could allow the future utilization of our deferred tax assets. 

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RESULTS OF OPERATIONS

	Fiscal quarter ended									Three fiscal quarters ended
(In millions, except per share amounts)	Feb. 26, 2005			Feb. 28, 2004			% Change			Feb. 26, 2005			Feb. 28, 2004			% Change
Product orders	$	241.1		$	213.2			13	%	$	680.3		$	647.0			5	%
Net sales		256.3			243.5			5	%		773.6			662.9			17	%
Cost of sales		102.9			102.3			1	%		311.4			290.8			7	%
Gross profit		153.4			141.2			9	%		462.2			372.1			24	%
Gross margin		59.8	%		58.0	%					59.7	%		56.1	%
Research and development expenses		43.4			32.8			32	%		118.8			93.3			27	%
Selling, general and administrative  expenses		78.7			69.5			13	%		220.1			200.4			10	%
Acquisition related costs (credits) and amortization, net		2.6			(18.0	)		>(100	)%		38.3			(52.4	)		>(100	)%
Business realignment costs		0.4			3.7			(90	)%		2.7			20.0			(87	)%
Loss (gain) on disposition of assets, net		0.8			0.7			2	%		(1.1	)		0.7			>(100	)%
Operating income		27.5			52.5			(48	)%		83.4			110.1			(24	)%
Interest income		3.8			5.1			(26	)%		13.1			16.2			(19	)%
Interest expense		(0.1	)		(0.2	)		(43	)%		(0.5	)		(1.9	)		(73	)%
Other non-operating income (expense), net		1.4			7.2			(80	)%		(1.9	)		6.7			>(100	)%
Earnings before taxes		32.6			64.6			(49	)%		94.1			131.1			(28	)%
Income tax expense		9.2			20.7			(55	)%		36.8			39.3			(6	)%
Net earnings from continuing  operations		23.4			43.9			(47	)%		57.3			91.8			(38	)%
Gain (loss) from discontinued operations, net of income taxes		3.4			(0.3	)		>(100	)%		3.1			(1.8	)		>(100	)%
Net earnings	$	26.8		$	43.6			(39	)%	$	60.4		$	90.0			(33	)%
Earnings (loss) per share:
Continuing operations – basic	$	0.26		$	0.52			(50	)%	$	0.66		$	1.08			(39	)%
Continuing operations – diluted	$	0.26		$	0.50			(48	)%	$	0.65		$	1.06			(39	)%
Discontinued operations – basic and diluted	$	0.04		$	—			—		$	0.04		$	(0.02	)		>(100	)%
Net earnings – basic	$	0.30		$	0.51			(41	)%	$	0.70		$	1.06			(34	)%
Net earnings – diluted	$	0.30		$	0.50			(40	)%	$	0.68		$	1.04			(35	)%

Third Quarter and First Three Quarters of Fiscal Year 2005 Compared to the Third Quarter and First Three Quarters of Fiscal Year 2004

     Economic Conditions

          As discussed in our most recent Annual Report on Form-10K, we experienced a severe economic downturn that negatively affected our results in fiscal years 2002 and 2003.  We began to experience the stabilization of certain markets that began at the end of fiscal year 2003, which continued into fiscal year 2004.  During fiscal year 2004, we continued to experience a phased recovery of our end markets, with growth across all regions and most product lines throughout the fiscal year.  We continued to see growth in demand broadly across the business during the first three quarters of fiscal year 2005.  From a regional standpoint, we saw the strongest demand for our products in Japan and the Pacific.  There can be no

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assurance that our underlying end markets will continue to improve or that the increased levels of business activity will continue as a trend into the future.

          In response to the reduced level of orders and associated sales in fiscal year 2002 and 2003, we incurred significant business realignment costs.  We continued to incur business realignment costs during fiscal year 2004 to further reduce Tektronix’ cost structure in order to provide an amount of operating income that we believed was appropriate at the current sales levels.  In addition to incurring costs to realign Tektronix’ cost structure during fiscal year 2003 and 2004, we also incurred costs to restructure the operations of the Japan subsidiary acquired through the acquisition of Sony/Tektronix Corporation and also recognized certain costs and credits directly associated with the integration of this subsidiary.  Many of the costs incurred during fiscal year 2004 and the first three quarters of fiscal year 2005 were associated with actions that were identified during prior fiscal years, but for which sufficient action had not yet been taken to support the recognition of the associated expense.  Many of the business realignment actions that we identified take significant time to execute, particularly if they are being conducted in countries outside the United States.

     Acquisition of Inet Technologies, Inc.

          We completed the acquisition of Inet on September 30, 2004.  Accordingly, the results of operations for the first three quarters of fiscal year 2005 include five months of activity from this business.  As there was no Inet related activity in the prior year comparative periods, an understanding of the impact from the acquisition of Inet is an important component to understand the current year results of operations.  In our description of the results of operations that follow, we have quantified the impact of the Inet acquisition where meaningful.

     Discontinuation of Rohde and Schwarz Distribution Agreement

          On March 18, 2004, we announced the discontinuation of an existing distribution agreement with Rohde and Schwarz (“R&S”), under which Tektronix served as the exclusive distributor for R&S’ communication test products in the United States and Canada.  The discontinuation of this distribution agreement was effective June 1, 2004.  Tektronix had served in this distribution role for R&S since October 1993.  As we had anticipated, substantially all product backlog related to R&S distributed product at the end of fiscal year 2004 was shipped and recognized as revenue during the first quarter of fiscal year 2005.  Accordingly, we have not derived significant revenue from the shipment of R&S products in quarters after the first quarter of fiscal year 2005.  During the third quarter of fiscal years 2005 and 2004, we generated net sales of $0.1 million and $25.0 million, respectively, from R&S distributed products.  During the first three quarters of fiscal years 2005 and 2004, we generated net sales of $23.0 million and $58.5 million, respectively, from R&S distributed products.  As Tektronix was a distributor of these products, the corresponding sales generated lower gross margins compared to sales of products manufactured by Tektronix.  During the third quarter of fiscal year 2005, gross margins on these distribution sales were not significant due to nominal net sales compared to 21.2% in the same quarter last year.  During the first three quarters of fiscal year 2005 and 2004, gross margins on these distribution sales were 27.3% and 22.3%, respectively.

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     Product Orders

          The following table is presented to quantify the impact on product orders from the acquisition of Inet and the discontinuation of the R&S distribution agreement.

	Fiscal quarter ended							Three fiscal quarters ended
(In millions)	Feb. 26, 2005		Feb. 28, 2004		% Change			Feb. 26, 2005		Feb. 28, 2004		% Change
Consolidated product orders:
Tektronix products	$	207.9	$	191.7		8	%	$	626.1	$	586.7		7	%
Inet products		33.1		—		>100	%		54.0		—		>100	%
R&S distributed products		0.1		21.5		(100	)%		0.2		60.3		(100	)%
Total product orders	$	241.1	$	213.2		13	%	$	680.3	$	647.0		5	%

          Product orders consist of cancelable commitments to sell currently produced products to customers with deliveries scheduled generally within six months of being recorded.  During the third quarter of fiscal year 2005, product orders increased by $27.9 million, or 13%, from the same quarter last year.  Product orders during the first three quarters of fiscal year 2005 increased by $33.3 million, or 5%, from the same period last year.

          During the third quarter of fiscal year 2005, the increase in product orders was attributable to the net effect of additional orders of $33.1 million from the acquisition of Inet, offset by a decrease in orders from the discontinuation of the R&S distribution agreement, and growth in our other product categories, primarily driven by growth in our general purpose instruments products.  Growth in general purpose instruments products was primarily attributable to good acceptance of new products, particularly our oscilloscope and logic analyzer products, and growth in the underlying markets.  In addition, product orders were favorably impacted by the weaker US Dollar, which resulted in approximately $5.0 million of product order growth over the prior year comparable period.

          The $33.3 million increase in product orders during the first three quarters of fiscal year 2005 as compared with the first three quarters of fiscal year 2004 was the net effect of $54.0 million of orders resulting from the Inet acquisition and $39.4 million increase in our other Tektronix products, partially offset by a $60.1 million decrease resulting from the discontinuation of the R&S distribution agreement.  The 7% growth in Tektronix produced products before considering Inet was primarily attributable to growth in our general instruments products, primarily oscilloscopes and logic analyzers, and growth in the underlying markets.  The weaker US Dollar favorably impacted product orders for the first three quarters of fiscal year 2005 by $14.8 million as compared with the prior year comparable period.

          As noted above, growth in the underlying technology markets contributed to our product order growth during the current quarter and also fiscal year-to-date.  This growth in underlying technology markets is attributable to a variety of factors including regional economic growth.  Regional growth in product orders is discussed below.  Our product order growth rates have declined from prior year periods, primarily due to excess demand in the prior year associated with economic recovery from the downturn in fiscal years 2002 and 2003.

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          The following table presents product orders by region and product orders excluding the impact of the acquisition of Inet and the discontinuation of the R&S distribution agreement.

	Fiscal quarter ended							Three fiscal quarters ended
(In millions)	Feb. 26, 2005		Feb. 28, 2004		% Change			Feb. 26, 2005		Feb. 28, 2004		% Change
The Americas:
United States	$	74.2	$	73.0		2	%	$	223.5	$	255.9		(13	)%
Other Americas		11.0		8.4		31	%		22.4		21.9		2	%
Europe		66.6		51.0		31	%		166.3		138.5		20	%
Pacific		43.8		37.8		16	%		137.7		119.3		15	%
Japan		45.5		43.0		6	%		130.4		111.4		17	%
Total product orders	$	241.1	$	213.2		13	%	$	680.3	$	647.0		5	%
Product orders, excluding Inet and R&S	$	207.9	$	191.7		8	%	$	626.1	$	586.7		7	%

          Geographically, product orders increased by 19% internationally, and increased by 2% in the United States for the third quarter of fiscal year 2005 as compared with the same quarter last year.  During the first three quarters of fiscal year 2005, product orders increased by 17% internationally, but decreased by 13% in the United States.  As discussed below, the primary factor creating this large difference in the United States versus international growth was the discontinuation of the R&S distribution agreement, under which we distributed the R&S products in North America, primarily in the United States.

          We experienced growth in all regions including the Americas, Europe, Pacific and Japan during the third quarter and in Europe, Pacific, Japan and Other Americas for the first three quarters of fiscal year 2005.  Growth in Europe was primarily attributable to the acquisition of Inet, which has significant large customers in that region.  In addition, Europe was favorably impacted by fluctuations in the foreign exchange rate of the Euro against the US Dollar.  Growth in Japan was favorably impacted by the continued economic recovery in that region as well as strong acceptance of new products.  Japan was also favorably impacted by fluctuations in the foreign exchange rate of the Japanese Yen against the US Dollar.  Growth in the Pacific region was primarily associated with the continued economic recovery in certain countries and the continued economic expansion in China.

          The increase in product orders in the United States for the current quarter was primarily attributable to the acquisition of Inet.  The decline in R&S orders was almost entirely in the United States.  Excluding the impact associated with discontinuing the R&S distribution agreement and the Inet acquisition, product orders in  the United States increased 27% and 3%, for the third quarter and first three quarters of fiscal year 2005, respectively.  The increase in the United States during the third quarter was attributable to growth in the underlying technology markets and good acceptance of new products.  The lower growth rate for the first three quarters of the current fiscal year was attributable to the high order growth level in the prior year that was associated with economic recovery in the United States that resulted in some excess demand from some customers deferring capital purchases during the extreme downturn of 2002 and 2003.  In addition, we experienced certain large order activity in the first half of the prior year which did not, and was not expected to, repeat in the current year.

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     Net Sales

          The following table is presented to quantify the impact on net sales from the acquisition of Inet and the discontinuation of the R&S distribution agreement.

	Fiscal quarter ended							Three fiscal quarters ended
(In millions)	Feb. 26, 2005		Feb. 28, 2004		% Change			Feb. 26, 2005		Feb. 28, 2004		% Change
Consolidated net sales:
Tektronix other sales	$	228.3	$	218.5		4	%	$	702.0	$	604.4		16	%
Inet sales		27.9		—		>100	%		48.6		—		>100	%
R&S distributed products sales		0.1		25.0		(100	)%		23.0		58.5		(61	)%
Total net sales	$	256.3	$	243.5		5	%	$	773.6	$	662.9		17	%

          Net sales during the third quarter of fiscal year 2005 increased by $12.8 million, or 5%, over the same period last year.  Net sales for the first three quarters of fiscal year 2005 increased $110.7 million, or 17%, over the same period last year.  The overall increase in net sales for both the third quarter and first three quarters of fiscal year 2005 reflects a combination of factors including the addition of Inet sales of $27.9 million during the current quarter and backlog reductions in the third quarter and first three quarters of the current fiscal year.  As we increase or decrease the level of product backlog within any given fiscal period, the direct correlation between product orders and product sales may vary.  These factors that increased net sales were partially offset by a reduction in sales due to the discontinuation of the R&S distribution agreement.

          Tektronix other sales, which exclude net sales associated with Inet or R&S distributed products, for the current quarter increased $9.8 million, or 4%, from the prior year comparable period.  This increase in net sales was primarily attributable to the increase in the related product orders discussed above.  The relationship between product orders and net sales was affected by the change in product backlog during the reporting period.  Excluding backlog associated with Inet or R&S distributed products, in the current quarter, we reduced product backlog by $2.8 million.  In the prior year third quarter, product backlog, excluding backlog associated with R&S distributed products, was reduced by $14.7 million.  As the reduction in backlog was lower in the current year third quarter as compared with the prior year third quarter, the year over year growth in the net sales was lower than the related growth in the product orders.

          Tektronix other sales, which exclude net sales associated with Inet or R&S distributed products, during the first three quarters of fiscal year 2005 increased $97.6 million, or 16% from the prior year comparable period.  This increase in the net sales was attributable to the increase in product orders discussed above and reduction in product backlog during the relevant period.  As noted above, the related product orders increased 7% from the prior year.  The increase in net sales of 16% was greater than the increase in related product orders due to the fact that we reduced our product backlog in the first three quarters of the current fiscal year, where in the prior year product backlog increased during this time period.  Excluding backlog associated with Inet or R&S distributed products, backlog was reduced by $20.9 million in the first three quarters of the current fiscal year as compared with an increase of $23.5 million in the prior year comparable period.

          In addition to product sales, net sales also include service revenues and sales from Maxtek, our wholly-owned components manufacturing subsidiary that produces components for third party customers as well as for Tektronix.  As we increase or decrease the level of product backlog within any given fiscal period, the direct correlation between product orders and product sales may vary.

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          The following table presents net sales by region and net sales excluding the impact of the acquisition of Inet and the discontinuation of the R&S distribution agreement.

	Fiscal quarter ended							Three fiscal quarters ended
(In millions)	Feb. 26, 2005		Feb. 28, 2004		% Change			Feb. 26, 2005		Feb. 28, 2004		% Change
The Americas:
United States	$	86.2	$	94.2		(8	)%	$	296.1	$	273.6		8	%
Other Americas		6.5		7.4		(12	)%		22.2		20.0		11	%
Europe		72.3		60.5		19	%		176.3		140.7		25	%
Pacific		51.1		43.8		17	%		152.0		123.7		23	%
Japan		40.2		37.6		7	%		127.0		104.9		21	%
Total net sales	$	256.3	$	243.5		5	%	$	773.6	$	662.9		17	%
Net sales, excluding Inet and R&S	$	228.3	$	218.5		4	%	$	702.0	$	604.4		16	%

          Net sales in the United States decreased by 8% in the third quarter of fiscal year 2005 as compared with the comparable prior year period, while international net sales increased by 14%.  During the first three quarters of fiscal year 2005, net sales in the United States increased by 8% as compared with the first three quarters of the prior year, while international net sales increased by 23%.  The decline in net sales in the United States in the third quarter of fiscal year 2005 was primarily attributable to the discontinuation of the R&S distribution agreement.  For the first three quarters of fiscal year 2005, net sales in the United States included the shipment of substantially all backlog related to R&S distributed product.  The increase in international net sales was generally associated with the geographical mix of orders received, reflecting the increased order demand in Japan and the Pacific region, discontinuation of the R&S distribution agreement, and international sales from the Inet acquisition beginning in the second quarter of fiscal year 2005.

     Gross Profit and Gross Margin

          Gross profit for the third quarter of fiscal year 2005 was $153.4 million, an increase of $12.2 million or 9%, from gross profit of $141.2 million for the same quarter last year.  For the first three quarters of fiscal year 2005, gross profit was $462.2 million, an increase of $90.1 million, or 24%, from gross profit of $372.1 million for the same period last year.  The increase in gross profit was attributable to the increase in sales volume described above during the current fiscal year as well as the increase in gross margin on those sales.

          Gross margin is the measure of gross profit as a percentage of net sales.  Gross margin for the third quarter of fiscal year 2005 was 59.8%, an increase of 1.8 points over gross margin of 58.0% in the same quarter last year.  Gross margin for the first three quarters of fiscal year 2005 was 59.7%, an increase of 3.6 points over gross margin of 56.1% in the same period last year.  Gross margin is typically affected by a variety of factors including, among other items, sales volumes, mix of product shipments, product pricing, inventory impairments and other costs such as warranty repair and sustaining engineering.

          The improvement in gross margin during both the third quarter of the current year and the first three quarters of the current fiscal year was primarily attributable to favorable mix resulting from the shipment of higher margin products.  Our favorable mix has primarily resulted from two factors.  First, the discontinuation of the R&S distribution agreement has favorably impacted gross margin.  As we were the distributor of those products, the associated gross margin was lower than margins we typically experience for Tektronix manufactured product.  Second, we continue to introduce new products that have been well received in the market.  Typically, new products tend to yield higher gross margins, and we have experienced this on our recently introduced new oscilloscope products.  In addition to sales volumes and favorable mix, the positive impact of our explicit program to increase gross margin, whereby we reviewed all cost drivers within gross margin and created a focused effort on reducing these costs where appropriate also contributed to the year over year increase.

          The improvements in gross margin in the third quarter of fiscal year 2005 were partially offset by $4.6 million from amortization of acquisition related intangible assets resulting from the acquisition of Inet.  During the first three quarters of fiscal year 2005, the improvements in gross margin were partially offset

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by the amortization of acquisition related intangible assets of $7.7 million resulting from the Inet acquisition.  For additional information on the amortization of acquisition related intangible assets see the Acquisition of Inet Technologies, Inc. section above in this Management’s Discussion and Analysis.

          During the third quarter of fiscal year 2005, gross margin on R&S distribution sales was not significant due to nominal net sales as compared with gross margin of 21.2% on these products in the prior year third quarter.  During the first three quarters of fiscal year 2005 and 2004, gross margins on R&S distribution sales were 27.3% and 22.3%, respectively.

     Operating Expenses

          In the current fiscal period, operating expenses included research and development expenses, selling, general and administrative expenses, business realignment costs, acquisition related costs, amortization of acquisition related items and gains and losses from the sale of fixed assets.  Each of these categories of operating expenses is discussed further below.  It should be noted that although a portion of operating expenses is variable and therefore will fluctuate with operating levels, many costs are fixed in nature and are therefore subject to increase due to inflation and annual labor cost increases.  Additionally, we must continue to invest in the development of new products and the infrastructure to market and sell those products even during periods where operating results reflect only nominal growth, are flat or declining.  Accordingly, as we make cost reductions in response to changes in business levels or other specific business events, these reductions can be partially or wholly offset by these other increases to our fixed cost structure.

          Research and development (“R&D”) expenses are incurred for the design and testing of new products, technologies and processes, including pre-production prototypes, models and tools.  Such costs include labor and employee benefits, contract services, materials, equipment and facilities.  R&D expenses increased $10.6 million, or 32%, during the third quarter of fiscal year 2005 as compared with the same quarter last year, and increased by $25.5 million, or 27% during the first three quarters of fiscal year 2005 as compared with the same period last year.  Approximately $8.0 million of the increase in the current quarter was due to the inclusion of R&D expenses from the Inet acquisition.  The remaining increase in the current quarter and first three quarters of the current fiscal year was primarily attributable to increased spending on new product development.  We continuously invest in the development of new products and technologies, and the timing of these costs varies depending on the stage of the development process.  During the current quarter and first three quarters of the current fiscal year we incurred higher expenses associated with engineering materials as a result of the current projects’ stages of development.  As Tektronix was a distributor of R&S products, there was no R&D expense associated with the sale of those products.

          Selling, general and administrative (“SG&A”) expenses increased $9.2 million, or 13% in the current quarter as compared with the same quarter last year, and increased by $19.7 million, or 10% during the first three quarters of fiscal year 2005 as compared with the same period last year.   The increase in SG&A expense associated with the acquisition of Inet was $7.7 million and $12.0 million for the current quarter and first three quarters of the current fiscal year, respectively.

          The increase in SG&A not resulting from the Inet acquisition during the current quarter of $1.5 million was largely attributable to increased spending on our project to comply with the provisions of Section 404 of the Sarbanes-Oxley Act of 2002 and less significant increases in other general spending categories including travel.  During the current quarter, labor related expense was approximately consistent with the prior year comparable period, the net effect of annual salary increases offset by lower variable incentive expense in the current quarter.

          The increase in SG&A not resulting from the Inet acquisition of $7.7 million during the first three quarters of the current fiscal year as compared with the prior year comparable period is primarily due to higher labor related spending in the first half of the current fiscal year and expenses in the current quarter associated with our project to comply with the provisions of Section 404 of the Sarbanes-Oxley Act of 2002.  In addition, the timing of program execution has an impact on the ultimate level of SG&A expense. 

          Acquisition related costs (credits) and amortization, net are incurred as a direct result of the integration of significant acquisitions.  The acquisition related costs of $2.6 million for the third quarter of fiscal year 2005 primarily relate to the acquisition of Inet.  These costs included $1.3 million for amortization of intangible assets and $0.3 million for amortization of unearned stock-based compensation, which represent amortization of items in the purchase price and the allocation of the purchase price discussed in the Acquisition of Inet Technologies, Inc. section above in this Management’s

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Discussion and Analysis.  Also included in the current quarter are transition expenses of $0.5 million, which represent incremental expenses to integrate the operations of Inet, and $0.5 million related to our acquisition of Sony/Tektronix in fiscal year 2003 mostly to accrue for voluntary retention bonuses to certain employees in Gotemba, Japan as an incentive to remain with Tektronix through August 2005 while we complete our plan to transition manufacturing operations to other locations.  Accordingly, Tektronix will recognize a liability for retention bonuses for 48 employees totaling $3.7 million that is being accrued ratably over 18 months through August 2005.  In the third quarter of the prior fiscal year, the net acquisition related credit of $18.0 million was largely attributable to a net gain of $19.3 million on properties in Japan, primarily from the sale of the Japan headquarters building.

          During the first three quarters of fiscal year 2005, acquisition related costs of $38.3 million primarily related to the acquisition of Inet.  The largest item of these costs was the $32.2 million write-off of IPR&D in the second quarter.  Other significant costs included $2.1 million for amortization of intangible assets and transition expenses of $1.5 million, which represented incremental expenses to integrate the operations of Inet, and $1.9 million related to our acquisition of Sony/Tektronix in fiscal year 2003 mostly to accrue for voluntary retention bonuses to certain employees in Gotemba, Japan.  During the first three quarters of the prior fiscal year, the net acquisition related credit of $52.3 million was largely attributable to a $36.7 million gain on pension restructuring which resulted from the substantial settlement of the defined benefit pension plans in Japan and a net gain of $19.3 million for properties held in Japan, primarily from the sale of the Japan headquarters building.

          Business realignments costs represent actions to realign our cost structure in response to dramatic changes in operating levels or a significant acquisition or divestiture.  These costs primarily comprise severance costs for reductions in employee headcount and costs associated with the closure of facilities and subsidiaries.  In recent years, business realignment costs have primarily been associated with the realignment of our cost structure in response to the dramatic economic decline experienced in the technology sector beginning during fiscal years 2001, and continuing into fiscal year 2003, as well as restructuring costs associated with the acquisition of Sony/Tektronix.  In many cases, and especially in foreign countries, these actions may take significant time to execute.  Accordingly, we have continued to experience business realignment costs in fiscal year 2005 for actions planned in response to the reductions in operating levels experienced in previous fiscal years.  During the third quarter of fiscal year 2005 we incurred business realignment costs of $0.4 million, a reduction from expense of $3.7 million in the same quarter last year.  During the first three quarters of fiscal year 2005 we incurred business realignment costs of $2.7 million, a reduction from expense of $20.0 million in the same period last year.  The reduction from the prior year is the result of the previously planned actions being executed and recognized with fewer additional actions needing to be planned as business levels stabilized.  For a full description of the components of business realignment costs please refer to the Business Realignment Costs section above in this Management’s Discussion and Analysis.

          The net gain on disposition of assets for the first three quarters of fiscal year 2005 was primarily due to the sale of property located in Nevada City, California in the first quarter.  Net proceeds of $9.9 million were received from the sale of the Nevada City assets with a carrying value of $7.7 million, resulting in a gain on sale of $2.2 million.  This gain was partially offset by losses and impairments incurred in the ordinary course of business.

     Non-Operating Income / Expense

          Interest income during the third quarter and first three quarters of fiscal year 2005 decreased $1.3 million and $3.1 million, respectively, as compared with the same period last year.  The decrease in interest income was due to a lower average balance of invested cash as well as lower yields on invested cash.  For a discussion of the sources and uses of cash, please see the “Financial Condition, Liquidity and Capital Resources” section below in this Management’s Discussion and Analysis.

          Interest expense during the third quarter and first three quarters of fiscal year 2005 decreased $0.1 million and $1.4 million, respectively, as compared with the prior year comparable period.  The decrease in interest expense for the first three quarters of fiscal year 2005 was largely due to the retirement of $56.3 million of outstanding bond debt in the first quarter of fiscal year 2004 and repayment of the outstanding principal balance in full on the TIBOR+1.75% debt facility during the third and fourth quarters of fiscal year 2004.

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          Other non-operating income, net, of $1.4 million during the third quarter of fiscal year 2005, was largely attributable to a gain on sale of certain equity securities and the resolution of non-operating contingencies, partially offset by foreign currency losses.  Other non-operating income, net, of $7.2 million in the same quarter last year was largely due to a gain of $7.3 million from the sale of Merix Corporation common stock.  Other non-operating expense, net, of $1.9 million for the first three quarters of fiscal year 2005, was largely due to legal expenses for litigation not related to our current operations and the impairment of a non-operating asset during the first half of the fiscal year, partially offset by the net credits in the third quarter describe above.  Other non-operating income, net, of $6.7 million in the same period last year was largely due to the gain from sale of Merix Corporation common stock.

     Income Taxes

          Income tax expense for the third quarter and first three quarters of fiscal year 2005 was $9.2 million and $36.8 million, respectively.  Income tax expense for the first three quarters of fiscal year 2005 does not include a tax benefit from the $32.2 million write-off of IPR&D from the Inet acquisition.  In addition, the impact of purchase accounting adjustments from the Inet acquisition, such as the amortization of acquisition related items and non-cash expense for the inventory step up to fair value, were tax effected at the statutory rate.  The effective tax rates on earnings before taxes from continuing operations for the third quarter and the first three quarters of fiscal year 2005 were 28% and 39%, respectively.  Excluding the impact of the write-off of IPR&D and purchase accounting adjustments, the effective tax rate for the current quarter and first three quarters of the current fiscal year was 30%, which was also the effective tax rate for the prior fiscal year.  The third quarter of the prior fiscal year included a catch-up adjustment to increase the year-to-date effective tax rate from 28% to 30%.

          The effective tax rate is impacted by a variety of estimates, including the amount of income during the remainder of fiscal year 2005, the mix of that income between foreign and domestic sources and expected utilization of tax credits which have a full valuation allowance.  In addition, current IRS audits of fiscal years 2001, 2002 and 2003 may be completed in the near future.  To the extent our estimates and other amounts or circumstances change, the effective tax rate may change accordingly.

     Discontinued Operations

          The net gain from discontinued operations during the third quarter and the first three quarters of fiscal year 2005 primarily resulted from the resolution of certain contingencies associated with sale of our Color Printing and Imaging Division which is described under “Contingencies” in the Critical Accounting Estimates section.

          During the first quarter of fiscal year 2004, we sold the operations of Gage Applied Sciences (“Gage”) to a third party.  We recorded an after-tax loss of $0.8 million during the first quarter of fiscal year 2004 to reflect adjustments to the previously estimated after-tax loss of $2.2 million on the disposition of this discontinued operation which was initially recorded during the fourth quarter of fiscal year 2003 to write-down the net assets of Gage, primarily for goodwill, to net realizable value less estimated selling costs.  Losses in the third quarter of fiscal year 2005 and 2004 included additional settlement expenses arising after the sale of the business.

          Discontinued operations in the third quarter and first three quarters of the current fiscal year also included additional losses from the sale of the optical parametric test business and VideoTele.com due to settlement of additional costs arising after the sale of these businesses in fiscal year 2003.

     Net Earnings

          For the third quarter of fiscal year 2005, we recognized consolidated net earnings of $26.8 million, a decrease of $16.8 million from net earnings of $43.6 million for the prior year third quarter.  For the first three quarters of fiscal year 2005, we recognized consolidated net earnings of $60.4 million, a decrease of $29.6 million from net earnings of $90.0 million for the first three quarters of the prior year.  These decreases were largely due to the impact of the Inet acquisition, which included the write-off of IPR&D and amortization of acquisition related items.  In addition, the impacts of the significant increases in sales and gross profit in the current quarter and first three quarters of the current fiscal year were significantly offset by the prior year net gain from the Japan pension settlement in the second quarter and the net gain from the sale of Japan properties recognized in the third quarter.

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     Earnings Per Share

          The decrease in earnings per share is a result of the decreased net earnings discussed above, and to a lesser extent, increased weighted average shares outstanding in the current year as a result of shares issued in the Inet acquisition, which was partially offset by shares repurchased by Tektronix in the open market.

Financial Condition, Liquidity and Capital Resources

Sources and Uses of Cash

Cash Flows.  The following table is a summary of our Condensed Consolidated Statements of Cash Flows:

	Three fiscal quarters ended
(In thousands)	Feb. 26, 2005			Feb. 28, 2004
Cash provided by (used in):
Operating activities	$	50,130		$	60,336
Investing activities		57,036			27,922
Financing activities		(109,020	)		(122,656	)

Operating Activities.  Cash provided by operating activities of $50.1 million for the first three quarters of fiscal year 2005 decreased by $10.2 million as compared with the same period last year.  The impact of higher net sales and gross profit in the first three quarters of fiscal year 2005 were offset by higher cash payments in the first quarter of $46.5 million for a cash contribution to the U.S. Cash Balance pension plan and $29.8 million for annual incentive compensation payments accrued during fiscal year 2004, as compared with payments in the first quarter last year of $30.0 million for a cash contribution to the U.S. Cash Balance pension plan and $5.8 million for annual incentive compensation payments accrued during fiscal year 2003.  Other adjustments to reconcile net earnings to net cash provided by operating activities in the current year such as the write-off of IPR&D and amortization of acquisition related items are presented in the Condensed Consolidated Statements of Cash Flows.

          As noted above, we made a cash contribution of $46.5 million to the U.S. Cash Balance pension plan in the first quarter of fiscal year 2005.  This funding reduced Other long-term liabilities on the Condensed Consolidated Balance Sheets.  Depending on the future market performance of the pension plan assets, we may make additional large cash contributions to the plan in the future.

Investing Activities.  Cash provided by investing activities of $57.0 million for the first three quarters of fiscal year 2005 increased by $29.1 million as compared with the same period last year.  The increase in net cash inflow provided by investing activities was largely attributable to net sales of marketable investments.  The reduced investment in these securities was a result of cash needed to fund the $93.9 million net cash portion of the Inet acquisition in the third quarter of fiscal year 2005 and the contribution to the U.S. Cash Balance pension plan in the first quarter as discussed above.  We spent $21.1 million for capital expenditures and realized $19.8 million of proceeds on sales of fixed assets in the first three quarters of the current fiscal year.  Sales of fixed assets in the first three quarters of fiscal year 2005 included proceeds of $9.9 million from the sale of the Nevada City, California property in the first quarter, and proceeds of $8.8 million from the sale of property in Gotemba, Japan in the third quarter.  During the third quarter of fiscal year 2005, Tektronix sold 1.0 million shares of common stock of Tut System, Inc.  Net proceeds from the sale were $3.3 million, which resulted in a net realized gain of $2.1 million.

Financing Activities.  Cash used in financing activities of $109.0 million for the first three quarters of fiscal year 2005 decreased by $13.6 million as compared with the same period last year.  During the first three quarters of fiscal year 2005, we paid $114.8 million to repurchase 3.9 million shares of Tektronix’ common stock at an average price of $29.24 per share, compared with $33.9 million in the same period last year.  We paid dividends of $14.1 million to shareholders in the first three quarters of fiscal year 2005, compared with $6.8 million in the same period last year.  Beginning with the second quarter of fiscal year 2005 we increased the cash dividend per share by 50% to $0.06 from $0.04 in the first quarter.  We began paying cash dividends of $0.04 per share in the third quarter of last year.  Financing activities in the first three quarters of fiscal year 2004 included the August 1, 2003 scheduled 7.5% notes repayment

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of $56.3 million and a partial repayment of $51.8 million on the outstanding balance of the TIBOR+1.75% debt facility.  These cash outflows were partially offset by proceeds from employee stock plans of $20.2 million in the first three quarters of fiscal year 2005, a decrease from proceeds of $26.8 million in the same period last year.  The decrease in proceeds from employee stock plans was largely due to decreased option exercise activity in the first three quarters of fiscal year 2005 compared with the same period last year.

          The above noted repurchases of common stock were made under an authorization approved by the Board of Directors.  In fiscal year 2000, the Board of Directors authorized the purchase of up to $550.0 million of Tektronix’ common stock on the open market or through negotiated transactions.  In September 2004, the Board of Directors authorized an incremental $400.0 million to repurchase shares of Tektronix’ common stock.  As of February 26, 2005, we had repurchased a total of 21.1 million shares at an average price of $23.91 per share totaling $503.6 million under these authorizations.  The reacquired shares were immediately retired, in accordance with Oregon corporate law.

          Subsequent to the third quarter of fiscal year 2005, on March 17, 2005, Tektronix declared a quarterly cash dividend of $0.06 per share.  The dividend is payable on April 25, 2005 to shareholders of record as of the close of market on April 8, 2005.

          At February 26, 2005, we maintained unsecured bank credit facilities totaling $33.8 million, of which $29.8 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 twelve months.

Working Capital

          The following table summarizes working capital as of February 26, 2005 and May 29, 2004:

(In thousands)	Feb. 26, 2005		May 29, 2004
Current assets:
Cash and cash equivalents	$	151,132	$	149,011
Short-term marketable investments		119,466		90,956
Trade accounts receivable, net of allowance for doubtful accounts of $3,685 and $3,013, respectively		158,476		133,150
Inventories		130,156		102,101
Other current assets		56,016		69,812
Total current assets		615,246		545,030
Current liabilities:
Accounts payable and accrued liabilities		131,602		134,048
Accrued compensation		73,177		89,212
Deferred revenue		50,123		25,247
Total current liabilities		254,902		248,507
Working capital	$	360,344	$	296,523

          Working capital increased in the current year by $63.8 million.  Current assets increased in the current year by $70.2 million, largely as a result of $43.4 million of non-cash current assets received in the Inet acquisition in the second quarter of fiscal year 2005 and a $28.5 million increase in short-term marketable investments resulting from strategic repositioning of our marketable investment portfolio from long-term to short-term due to the current market interest rate environment.  Current liabilities increased in the current fiscal year by $6.4 million, largely as a result of deferred revenue from products related to the Inet acquisition and accrual of current year annual incentive compensation.  Offsetting these increases were reductions for cash payments of annual incentive compensation in the first quarter of fiscal year 2005 that was accrued in fiscal year 2004 as described in the Sources and Uses of Cash

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section above.  Significant changes in cash and cash equivalents and marketable investments are discussed in the Sources and Uses of Cash section above.

Recent Accounting Pronouncements

          At the November 12–13, 2003 meeting, the Emerging Issues Task Force (“EITF”) reached a consensus on Issue 03-1, “The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments,” that certain quantitative and qualitative disclosures should be required for debt and marketable equity securities classified as available-for-sale or held-to-maturity under Statement of Financial Accounting Standards (“SFAS”) No. 115, “Accounting for Certain Investments in Debt and Equity Securities,” that are impaired at the balance sheet date but for which an other-than-temporary impairment has not been recognized.  Tektronix adopted the disclosure requirements in fiscal year 2004.  At the March 17-18, 2004 meeting, the EITF reached a consensus, which approved an impairment model for debt and equity securities.  However, on September 30, 2004, the Financial Accounting Standards Board (“FASB”) decided to postpone the implementation of the impairment model for debt and equity securities.  Tektronix does not expect this consensus to have a material effect on the consolidated financial statements upon adoption of the proposed impairment model for debt and equity securities.

          In December 2003, the FASB issued SFAS No. 132 (revised 2003), “Employers’ Disclosures about Pensions and Other Postretirement Benefits, an amendment of FASB Statements No. 87, 88, and 106, and a revision of FASB Statement No. 132” (“SFAS No. 132R”).  SFAS No. 132R revised employers’ disclosures about pension plans and other postretirement benefit plans.  It does not change the measurement or recognition of those plans required by SFAS No. 87, “Employers’ Accounting for Pensions,” SFAS No. 88, “Employers’ Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits,” and SFAS No. 106, “Employers’ Accounting for Postretirement Benefits Other Than Pensions.”  The new rules require additional disclosures about the assets, obligations, cash flows, and net periodic benefit cost of defined benefit pension plans and other postretirement benefit plans.  The required information has been provided separately for pension plans and for other postretirement benefit plans.  Tektronix included the new disclosures in its fiscal year 2004 consolidated financial statements and interim disclosures beginning with the first quarter of fiscal year 2005.

          In November 2004, the FASB issued SFAS No. 151, “Inventory Costs, an amendment of ARB No. 43, Chapter 4.”  SFAS No. 151 amends the guidance in ARB No. 43, Chapter 4, “Inventory Pricing,” to clarify the accounting for abnormal amounts of idle facility expense, freight, handling costs, and wasted material (spoilage).  Paragraph 5 of ARB 43, Chapter 4, previously stated that “. . . under some circumstances, items such as idle facility expense, excessive spoilage, double freight, and rehandling costs may be so abnormal as to require treatment as current period charges. . . .”  SFAS No. 151 requires that those items be recognized as current period charges regardless of whether they meet the criterion of “so abnormal.”  In addition, SFAS No. 151 requires that allocation of fixed production overheads to the costs of conversion be based on the normal capacity of the production facilities.  The provisions of SFAS No. 151 will apply to inventory costs beginning in fiscal year 2007.  The adoption of SFAS No. 151 is not expected to have a significant effect on the consolidated financial statements of Tektronix.

          In December 2004, the FASB issued SFAS No. 123 (Revised 2004), “Share-Based Payment” (“SFAS No. 123R”).  This new pronouncement requires compensation cost relating to share-based payment transactions be recognized in financial statements.  That cost will be measured based on the fair value of the equity or liability instruments issued.  SFAS No. 123R covers a wide range of share-based compensation arrangements including stock options, restricted stock plans, performance-based awards, stock appreciation rights, and employee stock purchase plans.  SFAS No. 123R replaces SFAS No. 123, “Accounting for Stock-Based Compensation,” and supersedes APB Opinion No. 25, “Accounting for Stock Issued to Employees.”  SFAS No. 123, as originally issued in 1995, established as preferable a fair-value-based method of accounting for share-based payment transactions with employees.  However, SFAS No. 123 permitted entities the option of continuing to apply the guidance in APB Opinion No. 25, as long as the footnotes to financial statements disclosed what net income would have been had the preferable fair-value-based method been used.  Tektronix will be required to adopt the provisions of SFAS No. 123R in the second fiscal quarter of fiscal year 2006.  Management is currently evaluating the requirements of SFAS No. 123R.  The adoption of SFAS No. 123R is expected to have a significant effect on the consolidated financial statements of Tektronix.  See Note 4 to the Condensed Consolidated Financial Statements for the pro forma impact on net earnings and earnings per share from calculating stock-related compensation cost under the fair value alternative of SFAS No. 123.  However, the

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calculation of compensation cost for share-based payment transactions after the effective date of SFAS No. 123R may be different from the calculation of compensation cost under SFAS No. 123, but such differences have not yet been quantified.

          In December 2004, the FASB issued two FASB staff positions (FSP): FSP FAS 109-1, “Application of FASB Statement No. 109, Accounting for Income Taxes, for the Tax Deduction Provided to U.S.-Based Manufacturers by the American Jobs Creation Act of 2004”; and FSP FAS 109-2, “Accounting and Disclosure Guidance for the Foreign Earnings Repatriation Provision within the American Jobs Creation Act of 2004.”  FSP FAS 109-1 clarifies that the tax deduction for domestic manufacturers under the American Jobs Creation Act of 2004 (the “Act”) should be accounted for as a special deduction in accordance with SFAS No. 109, “Accounting for Income Taxes.” FSP FAS 109-2 provides enterprises more time (beyond the financial-reporting period during which the Act took effect) to evaluate the Act’s impact on the enterprise’s plan for reinvestment or repatriation of certain foreign earnings for purposes of applying SFAS No. 109.  The FSPs went into effect upon being issued and did not have a significant effect on the consolidated financial statements of Tektronix.

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 Quarterly Report.  See “Forward-Looking Statements” which precedes Part I of this Form 10-Q.

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

          Our 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 us.  During periods of reduced and declining demand, we may need to rapidly align our cost structure with prevailing market conditions while at the same time motivating and retaining key employees.  Our pension plan obligations are affected by changes in market interest rates and the majority of plan assets are invested in publicly traded debt and equity securities which are affected by market risks.  Our net sales and operating results could be adversely impacted by the reversal of any current trends or any future downturns or slowdowns in the rate of capital investment in these industries.  In addition, the telecommunications industry has been going through a period of consolidation in which several major telecommunications operators have either merged with each other or been acquired.  This consolidation activity may affect the overall level of capital expenditures made by these operators on test and measurement equipment, and may also affect the relative competitive position between Tektronix and its competitors in this market.

     Timely Delivery of Competitive Products

          We sell our products to customers that participate in rapidly changing high technology markets, which are characterized by short product life cycles.  Our 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 we sell test and measurement products that enable our customers to develop new technologies, we must accurately anticipate the ever-evolving needs of those customers and deliver appropriate products and new technologies at competitive prices to meet customer demands.  Our 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.  In addition, we face risks associated with bringing products into compliance with the “Restriction of Hazardous Substances” worldwide regulatory provisions, which include removing lead from current and future product designs.  Failure to deliver compliant competitive products in a timely manner and at reasonable prices, as well as the costs associated with bringing existing products into compliance, could have an adverse effect on our results of operations, financial condition or cash flows.

          There are additional product risks associated with sales of the network monitoring products, which were acquired in the Inet acquisition.  Sales of these products are typically recognized upon the completion of system installation or customer acceptance.  Changes or delays in the implementation or customer acceptance of our products could harm our financial results.  Sales of our network monitoring

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products are made predominantly to a small number of large communications carriers and involve significant capital expenditures as well as lengthy sales cycles and implementation processes, which could harm our financial results.  We rely upon software licensed from third parties such as Oracle Corporation, Cognos Incorporated and others.  If we are unable to maintain these software licenses on commercially reasonable terms, our business, financial condition and results of operations could be harmed.

          In addition, we expect third party carrier spending for traditional networks to continue to decrease, which requires that we continue to develop products and applications for networks based on emerging next-generation wireless and packet-based technologies and standards.  We may not successfully develop or acquire additional competitive products for these emerging technologies and standards.

          Further, we have included security features in some of the network monitoring products that are intended to protect the privacy and integrity of customer data.  Despite the existence of these security features, these products may be vulnerable to breaches in security due to unknown defects in the security mechanisms, as well as vulnerabilities inherent in the operating system or hardware platform on which the product runs and/or the networks linked to that platform.  Security vulnerabilities, regardless of origin, could jeopardize the security of information stored in and transmitted through the computer systems of our customers.  Any security problem may require significant capital expenditures to solve and could materially harm our reputation and product acceptance.

     Competition

          We compete 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 Corporation, Catapult Communications, LeCroy Corporation, Rohde & Schwarz, Yokogawa Electric Corporation and many other smaller companies.  In general, the test and measurement industry is a highly competitive market based primarily on product performance, technology, customer service, product availability and price.  Some of our 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 we compete.  We face pricing pressures that may have an adverse impact on our earnings.  If we are unable to compete effectively on these and other factors, it could have a material adverse affect on our results of operations, financial condition or cash flows.  In addition, we enjoy a leadership position in certain core product categories, and continually develop and introduce new products designed to maintain that leadership, as well as to penetrate new markets.  Failure to develop and introduce new products that maintain a leadership position or which fail to penetrate new markets may adversely affect operating results.

     Supplier Risks

          Our 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.  We periodically experience 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.  There is increased risk of supplier constraints in periods where we are increasing production volume to meet customer demands.  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 our future operating results.  In addition, we use 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 our results of operations.

     Operating in a Global Environment

          We maintain operations in four major geographies: the Americas, including the United States, Mexico, Canada and South America; Europe, including Europe, Russia, the Middle East and Africa; the Pacific, including China, India, Korea and Singapore; and Japan.  During the last fiscal year, more than half of our revenues were from international sales.  In addition, some of our manufacturing operations and key suppliers are located in foreign countries, including China, where we expect to further expand our operations.  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

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international monetary conditions; tariff and trade policies; export license requirements and restrictions on the export of technology; import regulations; domestic and foreign tax policies; foreign governmental regulations; political unrest, wars and acts of terrorism; epidemic disease or other health concerns; and changes in other economic or political conditions.  These factors, among others, could restrict or adversely impact our ability to sell in global markets, as well as our ability to manufacture products or procure supplies and could subject us to additional costs.  In addition, a significant downturn in the global economy or a particular region could adversely affect our results of operations, financial position or cash flows.

     Intellectual Property Risks

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

     Environmental Risks

          We are subject to a variety of federal, state, local and foreign environmental regulations relating to the use, storage, discharge and disposal of our hazardous chemicals used during our manufacturing process.  We have closed a licensed hazardous waste management facility at our Beaverton, Oregon, campus and have entered into a consent order with the Oregon Department of Environmental Quality requiring certain remediation actions (see Part I, Item 1, “Environment” of Form 10-K).  If we fail to comply with the consent order or any present or future regulations, we could be subject to future liabilities or the suspension of production.  In addition, such regulations could restrict our ability to expand our facilities or could require us to acquire costly equipment, or to incur other significant expenses to comply with environmental regulations.

     Possible Volatility of Stock Price

          The price of our common stock may be subject to wide, rapid fluctuations.  Such fluctuations may be due to factors specific to us, 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 stock prices 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.

     Integration of Inet, Technologies, Inc.

          On September 30, 2004, we acquired all of the outstanding common stock of Inet.  We are continuing to integrate the operations of Inet into Tektronix.  The successful integration of the Inet business is subject to a number of risk factors which could materially adversely affect our consolidated results of operations, financial condition and cash flows.  These risks include the necessity of coordinating geographically separated organizations, integrating personnel with diverse business backgrounds, integrating Inet’s technology and products, combining different corporate cultures, retaining key employees, maintaining customer satisfaction and current bid processes, maintaining product development schedules, coordinating sales and marketing activities and preserving important distribution relationships; diversion of management’s attention with consequent negative impact upon our execution of our overall strategy; and failure to realize upon expected cost savings and other synergies from the merger.

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     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 our business strategies, potential litigation and claims arising in the normal course of business, credit risk of customers, the fact that a substantial portion of our sales are generated from orders received during each quarter, and significant modifications to existing information systems.

Item 3. Quantitative and Qualitative Disclosures about Market Risk.

     Financial Market Risk

          We are exposed to financial market risks, including interest rate, equity price and foreign currency exchange rate risks.

          We maintain a short-term and long-term investment portfolio consisting of fixed rate commercial paper, corporate notes and bonds, U.S. Treasury and agency notes, asset backed securities and mortgage securities.  The weighted average maturity of the portfolio, excluding mortgage securities, was 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 of similar instruments would decrease the value of certain of these investments.  A 10% rise in interest rates as of February 26, 2005 would reduce the market value by $2.3 million, which would be reflected in Accumulated other comprehensive loss on the Consolidated Balance Sheets until sold at which time it would then be recognized in Other non-operating income (expense), net, on the Condensed Consolidated Statement of Operations.

          At February 26, 2004, we had no bond indebtedness.  The bonds were retired on August 1, 2003.

          We are exposed to equity price risk primarily through our marketable equity securities portfolio, including investments in Merix Corporation, Tut Systems, Inc., and other companies.  We have not entered into any hedging programs to mitigate equity price risk.  An adverse change of 20% in the value of these securities would reduce the market value by $2.3 million, which would likely be reflected in Accumulated other comprehensive loss on the Consolidated Balance Sheets until sold.  If the adverse change results in an impairment that is considered to be other-than-temporary, the loss on impairment would be charged to net earnings on the Consolidated Statements of Operations.

          We are exposed to foreign currency exchange rate risk primarily through commitments denominated in foreign currencies.  We utilize 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.  Our policy is to only enter into derivative transactions when we have an identifiable exposure to risk, thus not creating additional foreign currency exchange rate risk.  At February 26, 2005, a 10% adverse movement in exchange rates would result in a $2.0 million loss on Euro and Japanese Yen forward contracts with a notional amount of $19.9 million.

Item 4. Controls and Procedures.

(a)  Our management has evaluated, under the supervision and with the participation of, the chief executive officer and chief financial officer, the effectiveness of the our disclosure controls and procedures as of the end of the period covered by this report pursuant to Rule 13a-15(b) under the Securities Exchange Act of 1934.  Based on that evaluation, the chief executive officer and chief financial officer have concluded that our disclosure controls and procedures are effective in ensuring that information required to be disclosed is recorded, processed, summarized and reported in a timely manner, and that information was accumulated and communicated to our management, including the chief executive officer and chief financial officer, to allow timely decisions regarding required disclosure.

(b) There has been no change in our internal control over financial reporting that occurred during the last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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Part II.  OTHER INFORMATION

Item 1. Legal Proceedings.

          Tektronix is involved in various litigation matters, claims and investigations that occur in the normal course of business, including but not limited to patent, commercial, personnel and environmental matters.  While the results of such matters cannot be predicted with certainty, management believes that their final outcome will not have a material adverse impact on our business, results of operations, financial condition or cash flows.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

          Purchases of Tektronix common stock during the third quarter ended February 26, 2005 were as follows:

Fiscal Period	Total Number of Shares		Average Price Paid Per Share		Total Amount Paid		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs		Maximum Dollar Value of Shares that May Yet Be Purchased
November 28, 2004 to December 25, 2004		—	$	—	$	—		20,381,979	$	465,874,155
December 26, 2004 to January 22, 2005		192,900		28.83		5,561,774		20,574,879		460,312,381
January 23, 2005 to February 26, 2005		485,100		28.67		13,907,832		21,059,979		446,404,549
Total		678,000	$	28.72	$	19,469,606

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Item 6.	Exhibits.
(a)	Exhibit No.	Exhibit Description
	(31.1)	302 Certification, Chief Executive Officer.
	(31.2)	302 Certification, Chief Financial Officer.
	(32.1)	906 Certification, Chief Executive Officer.
	(32.2)	906 Certification, Chief Financial Officer.

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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 6, 2005	TEKTRONIX, INC.
	By	/s/ COLIN L. SLADE
		Colin L. Slade Senior Vice President and Chief Financial Officer

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EXHIBIT INDEX

Exhibit No.	Exhibit Description
(31.1)	302 Certification, Chief Executive Officer.
(31.2)	302 Certification, Chief Financial Officer.
(32.1)	906 Certification, Chief Executive Officer.
(32.2)	906 Certification, Chief Financial Officer.