-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, P2oyRa9Oj1WKA/93AuazTQKArIwgDz2M/Af1VDYK4M7Jn/2BKpPwZ2b++5LQ7Vqo eQW6dovKnmwjAQTXfJLNag== 0000097210-00-000003.txt : 20000518 0000097210-00-000003.hdr.sgml : 20000518 ACCESSION NUMBER: 0000097210-00-000003 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000402 FILED AS OF DATE: 20000517 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TERADYNE INC CENTRAL INDEX KEY: 0000097210 STANDARD INDUSTRIAL CLASSIFICATION: INSTRUMENTS FOR MEAS & TESTING OF ELECTRICITY & ELEC SIGNALS [3825] IRS NUMBER: 042272148 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-06462 FILM NUMBER: 638606 BUSINESS ADDRESS: STREET 1: 321 HARRISON AVE STREET 2: MAIL STOP H93 CITY: BOSTON STATE: MA ZIP: 02118 BUSINESS PHONE: 6174822700 MAIL ADDRESS: STREET 1: 321 HARRISON AVENUE STREET 2: H93 CITY: BOSTON STATE: MA ZIP: 02118 10-Q 1 FIRST QUARTER REPORT TERADYNE, INC. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ---------------------- FORM 10-Q --------- (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended April 2, 2000 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from __________ to ______________ Commission File No. 1-6462 TERADYNE, INC. (Exact name of registrant as specified in its charter) Massachusetts 04-2272148 (State or Other Jurisdiction (I.R.S.Employer Incorporation or Organization) Identification No.) 321 Harrison Avenue, Boston, Massachusetts 02118 (Address of principal executive offices) (Zip Code) 617-482-2700 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to the filing requirements for the past 90 days. Yes X No _ The number of shares outstanding of the registrant's only class of Common Stock as of April 30, 2000 was 173,183,173. TERADYNE, INC. INDEX Page No. --------
PART I. FINANCIAL INFORMATION Item 1. Financial Statements: Condensed Consolidated Balance Sheets as of April 2, 2000 and December 31, 1999...........................................................3 Condensed Consolidated Statements of Income for the Three Months Ended April 2, 2000 and April 4, 1999............................................4 Condensed Consolidated Statements of Cash Flows for the Three Months Ended April 2, 2000 and April 4, 1999............................................5 Notes to Condensed Consolidated Financial Statements...............................................6-9 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.................................................10-12 Item 3. Quantitative and Qualitative Disclosures about Market Risk..........................................13 PART II. OTHER INFORMATION Item 1. Legal Proceedings...................................................................................13
2 TERADYNE, INC. CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS April 2, 2000 December 31, 1999 ------------- ----------------- (Unaudited) (In thousands) Current assets: Cash and cash equivalents....................................................$ 130,195 $ 181,345 Marketable securities........................................................ 112,907 66,316 Accounts receivable.......................................................... 428,249 296,159 Inventories: Parts.................................................................. 160,248 123,300 Assemblies in process.................................................. 148,035 145,393 -------------- ------------- 308,283 268,693 Deferred tax assets.......................................................... 49,716 49,716 Prepayments and other current assets......................................... 36,372 45,458 -------------- ------------- Total current assets................................................... 1,065,722 907,687 Property, plant, and equipment, at cost:........................................ 1,027,616 981,986 Less: Accumulated depreciation............................................ (507,273) (484,247) -------------- ------------- Net property, plant, and equipment..................................... 520,343 497,739 Marketable securities........................................................... 142,671 139,752 Other assets.................................................................... 23,893 23,035 -------------- ------------- Total assets...........................................................$ 1,752,629 $ 1,568,213 ============== ============= LIABILITIES Current liabilities: Notes payable - banks........................................................$ 8,055 $ 8,221 Current portion of long-term debt............................................ 4,623 4,659 Accounts payable............................................................. 159,918 104,335 Accrued employees' compensation and withholdings............................. 83,093 117,314 Unearned service revenue and customer advances............................... 80,093 60,096 Other accrued liabilities.................................................... 77,256 66,223 Accrued income taxes......................................................... 22,908 31,478 -------------- ------------- Total current liabilities.............................................. 435,946 392,326 Deferred tax liabilities........................................................ 13,907 13,907 Long-term debt.................................................................. 8,733 8,948 -------------- ------------- Total liabilities...................................................... 458,586 415,181 -------------- ------------- SHAREHOLDERS' EQUITY Common stock, $0.125 par value, 250,000 shares authorized, 172,697 and 170,319 net shares issued and outstanding at April 2, 2000 and December 31, 1999, respectively......................... 21,587 21,290 Additional paid-in capital...................................................... 265,819 234,198 Retained earnings............................................................... 1,006,637 897,544 -------------- ------------- Total shareholders' equity............................................. 1,294,043 1,153,032 -------------- ------------- Total liabilities and shareholders' equity.............................$ 1,752,629 $ 1,568,213 ============== ============= The accompanying notes, together with the Notes to Consolidated Financial Statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 1999 are an integral part of the condensed consolidated financial statements.
3 TERADYNE, INC. CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
For the Three Months Ended -------------------------- April 2, 2000 April 4, 1999 -------------- ------------- (In thousands, except per share amounts) Net sales..................................................... $ 648,131 $ 344,454 Expenses: Cost of sales............................................ 348,840 219,858 Engineering and development.............................. 69,025 47,724 Selling and administrative............................... 78,956 54,481 ----------- ----------- 496,821 322,063 ----------- ----------- Income from operations........................................ 151,310 22,391 Interest income........................................... 4,962 3,778 Interest expense.......................................... (425) (462) ----------- ----------- Income before income taxes.................................... 155,847 25,707 Provision for income taxes.................................... 46,754 7,712 ----------- ----------- Net income.................................................... $ 109,093 $ 17,995 =========== =========== Net income per common share - basic........................... $ 0.63 $ 0.11 =========== =========== Net income per common share - diluted......................... $ 0.60 $ 0.10 =========== =========== Shares used in calculations of net income per common share - basic.................................. 172,127 170,032 ======= ======= Shares used in calculations of net income per common share - diluted................................ 180,873 177,994 ======= ======= The accompanying notes, together with the Notes to Consolidated Financial Statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 1999 are an integral part of the condensed consolidated financial statements.
4 TERADYNE, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
For the Three Months Ended -------------------------- April 2, 2000 April 4, 1999 ------------- ------------- (In thousands) Cash flows from operating activities: Net income........................................................ $ 109,093 $ 17,995 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation................................................... 23,890 21,768 Amortization................................................... 402 277 Other non-cash items, net...................................... (120) (278) Changes in operating assets and liabilities: Accounts receivable....................................... (132,090) (40,760) Inventories............................................... (39,590) 24,003 Other assets.............................................. 7,826 (3,166) Accounts payable and accruals............................. 52,393 7,608 Accrued income taxes...................................... 27,832 8,033 -------------- ------------- Net cash provided by operating activities............. 49,636 35,480 -------------- ------------- Cash flows from investing activities: Additions to property, plant and equipment........................ (30,791) (22,207) Increase in equipment manufactured by the Company................. (15,965) (2,545) Purchases of held-to-maturity marketable securitie................ (39,791) Proceeds from sales and maturities of available-for-sale.......... marketable securities.......................................... 79,909 13,213 Purchases of available-for-sale marketable securities............. (89,628) (16,953) -------------- ------------- Net cash used for investing activities................... (96,266) (28,492) -------------- ------------- Cash flows from financing activities: Payments of long term debt........................................ (36) (422) Acquisition of treasury stock..................................... (46,293) (32,501) Issuance of common stock under employee stock option and stock purchase plans............................... 41,809 36,179 ------------- ------------ Net cash flows (used for) provided by financing activities (4,520) 3,256 -------------- ------------- (Decrease) increase in cash and cash equivalents....................... (51,150) 10,244 Cash and cash equivalents at beginning of period....................... 181,345 185,514 ------------- ------------- Cash and cash equivalents at end of period............................. $ 130,195 $ 195,758 ============== ============= Supplementary disclosure of cash flow information: Cash paid (received) during the period for: Interest................................................ $ 413 $ 610 Income taxes............................................ 1,115 (157) The accompanying notes, together with the Notes to Consolidated Financial Statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 1999 are an integral part of the condensed consolidated financial statements.
5 TERADYNE, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) A. The Company - -------------- Teradyne, Inc. (the "Company") designs, manufactures, markets, and services test systems and related software, and backplanes and associated connectors. The Company has five principal products; semiconductor test systems, backplane connection systems, circuit-board test systems, telecommunications test systems, and software test systems. Semiconductor test systems are used by electronic component manufacturers in the design and testing of their products. Backplane connection systems are used principally for the computer, communications, and military/aerospace industries. A backplane is an assembly into which printed circuit boards are inserted that provides for the interconnection of electrical signals between the circuit boards and the other elements of the system. Circuit-board test systems are used by electronic equipment manufacturers for the design and testing of circuit boards and other assemblies. Telecommunication test systems are used by telephone operating companies for the testing and maintenance of their subscriber telephone lines and related equipment. Software test systems are used by a number of industries to test communications networks, computerized telecommunication systems, and web based applications. B. Accounting Policies - ---------------------- Basis of Presentation The condensed consolidated interim financial statements include the accounts of the Company and its subsidiaries. All significant intercompany balances and transactions have been eliminated. The year-end condensed consolidated balance sheet data were derived from audited financial statements, but do not include all disclosures required by generally accepted accounting principles. Preparation of Financial Statements The accompanying condensed consolidated interim financial statements are unaudited. However, in the opinion of management, all adjustments (consisting only of normal recurring accrual entries) necessary for a fair statement of the results for the interim periods have been made. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenues and expenses during the reported periods. Actual results could differ from those estimates. Revenue Recognition Product revenue is recognized upon shipment. The Company's products are generally subject to warranty, and the Company provides for such estimated costs when product revenue is recognized. The Company recognizes service revenue as the services are provided or ratably over the period of the related contract, as applicable. The Company unbundles service revenue from product sales and maintenance services from software license fees based upon amounts charged when such elements are separately sold. For certain contracts eligible under American Institute of Certified Public Accountants ("AICPA") Statement of Position No. 81-1, revenue is recognized using the percentage-of-completion accounting method based upon an efforts-expended method. In all cases, changes to total estimated costs and anticipated losses, if any, are recognized in the period in which determined. Other Comprehensive Income Comprehensive income does not materially differ from net income, for the three months ended April 2, 2000 and April 4, 1999. 6 TERADYNE, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (Unaudited) C. Recently Issued Accounting Pronouncements - -------------------------------------------- In June 1999, the Financial Accounting Standards Board issued SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities -- Deferral of the Effective Date of FASB Statement No. 133." SFAS No. 137 amends SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities" which was issued in June 1998 and was to be effective for all fiscal quarters of fiscal years beginning after June 15, 1999. SFAS No. 137 defers the effective date of SFAS No. 133 to be effective for all fiscal quarters of all fiscal years beginning after June 15, 2000. Accordingly, the Company will adopt the provisions of SFAS No. 133 for its 2001 fiscal year. SFAS No. 133 requires that all derivative instruments be recorded on the balance sheet at their fair value. Changes in the fair value of derivatives are recorded each period in current earnings or other comprehensive income, depending on whether a derivative is designated as part of a hedge transaction and the type of hedge transaction. Management is currently evaluating the effects of this change on its recording of derivatives and hedging activities. On March 24, 2000 the Securities and Exchange Commission ("SEC") issued Staff Accounting Bulletin ("SAB") No. 101A which amended Question 2 of Section B of Topic 13 of the Staff Accounting Bulletin Series. SAB No. 101A delays the implementation date of SAB 101 "Revenue Recognition in Financial Statements" until the Company's second quarter of the fiscal year 2000. SAB 101 summarizes the SEC's view in applying generally accepted accounting principles to selected revenue recognition issues. The Company has not completed its evaluation of SAB 101 and is therefore unable to determine its impact. In March 2000, the Financial Accounting Standard Board issued FASB Interpretation No. 44, "Accounting for Certain Transactions Involving Stock Compensation - an interpretation of APB Opinion No. 25" ("FIN 44"). FIN 44 clarifies the application of APB Opinion No. 25 and among other issues clarifies the following: the definition of an employee for purposes of applying APB Opinion No. 25; the criteria for determining whether a plan qualifies as a noncompensatory plan; the accounting consequence of various modifications to the terms of previously fixed stock options or awards; and the accounting for an exchange of stock compensation awards in a business combination. FIN 44 is effective July 1, 2000, but certain conclusions in FIN 44 cover specific events that occurred after either December 15, 1998 or January 12, 2000. The Company does not expect the application of FIN 44 to have a material impact on the Company's financial position or results of operations. 7 TERADYNE, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (Unaudited) D. Net Income per Common Share - ------------------------------
The following table sets forth the computation of basic and diluted net income per common share (in thousands, except per share amounts): For the Three Months Ended -------------------------- April 2, 2000 April 4, 1999 ------------- ------------- Net Income............................................ $ 109,093 $ 17,995 ========= ========= Shares used in net income per common share - basic.... 172,127 170,032 Effect of dilutive securities: Employee and director stock options.......... 8,671 7,826 Employee stock purchase rights............... 75 136 --------- -------- Dilutive potential common shares................. 8,746 7,962 --------- -------- Shares used in net income per common share - diluted.. 180,873 177,994 ========= ======== Net income per common share - basic................... $ 0.63 $ 0.11 ========= ======== Net income per common share - diluted................. $ 0.60 $ 0.10 ========= ======== Options to purchase 30,424 shares of common stock during the three months ended April 2, 2000 and 51,652 shares of common stock during the three months ended April 4, 1999 were outstanding during the periods then ended, but were not included in the calculation of diluted net income per common share because the options' exercise price was greater than the average market price of the common shares during those periods.
8 TERADYNE, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Concluded) (Unaudited) E. Operating Segment Information - -------------------------------- The Company has five principal operating segments which are the design, manufacturing and marketing of semiconductor test systems, backplane connection systems, circuit-board test systems, telecommunication test systems, and software test systems. These operating segments were determined based upon the nature of the products and services offered. The Company has three reportable segments; semiconductor test systems segment, backplane connection systems segment, and other test systems segment. The other test systems segment is comprised of circuit-board test systems, telecommunication test systems, and software test systems. The Company evaluates performance based on several factors, of which the primary financial measure is business segment income before taxes. The accounting policies of the business segments are the same as those described in "Note B: Accounting Policies" in the Company's Annual Report on Form 10-K for the year ended December 31, 1999. Intersegment sales are accounted for at fair value as if sales were to third parties. Operating segment information for the three months ended April 2, 2000 and April 4, 1999 follows (in thousands):
Semiconductor Backplane Other Test Connection Test Corporate Systems Systems Systems and Segment Segment Segment Eliminations Consolidated ----------------------------------------------------------------- Three months ended April 2, 2000: - --------------------------------- Sales to unaffiliated customers $456,503 $132,642 $58,986 $648,131 Intersegment sales - 5,417 - ($5,417) - -------- -------- ------- ------- -------- Net sales 456,503 138,059 58,986 (5,417) 648,131 Income before taxes (1) $151,695 $ 26,664 $ 1,925 ($24,437) $155,847 ======== ======== ======= ======== ======== Three months ended April 4, 1999: - --------------------------------- Sales to unaffiliated customers $198,166 $89,561 $56,727 - $344,454 Intersegment sales - 1,238 - ($1,238) - -------- ------- ------- ------- -------- Net sales 198,166 90,799 56,727 (1,238) 344,454 Income before taxes (1) $ 19,022 $14,486 $ 1,193 ($8,994) $ 25,707 ======== ======= ======= ======= ======== (1) Income before taxes of the principal businesses exclude the effects of employee profit sharing, management incentive compensation, other unallocated expenses, and net interest income.
9 Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations SELECTED RELATIONSHIPS WITHIN THE CONDENSED CONSOLIDATED STATEMENTS OF INCOME
For the Three Months Ended -------------------------- April 2, 2000 April 4, 1999 ------------- ------------- (In thousands) Net sales.................................................. $ 648,131 $ 344,454 ========= ========= Net income................................................. $ 109,093 $ 17,995 ========= ========= Percentage of net sales: Net sales............................................. 100% 100% Expenses: Cost of sales..................................... 54 64 Engineering and development....................... 11 14 Selling and administrative........................ 12 16 Interest, net..................................... (1) (1) -------- -------- 76 93 Income before income taxes............................ 24 7 Provision for income taxes............................ 7 2 -------- -------- Net income............................................ 17% 5% ======== ======== Provision for income taxes as a percentage of income before taxes.......................................... 30% 30% ======== ======== Results of Operations - --------------------- Sales increased 88% in the first quarter of 2000 to a record $648.1 million from $344.5 million in the first quarter of 1999. Semiconductor test systems shipments increased 130% due to increased orders resulting from continued capacity expansion at semiconductor manufacturers and subcontractors. Sales of backplane connection systems to unaffiliated customers grew 48% as a result of continued growth in demand from networking, data storage, and other high technology customers. Other test systems sales increased 4% from the first quarter of 1999. Net income grew $91.1 million to $109.1 million in the first quarter of 2000 from $18.0 million in the first quarter of 1999. Income before income taxes increased $130.1 million from $25.7 million in the first quarter of 1999 to $155.8 million in the first quarter of 2000. Semiconductor test systems and backplane connection systems income before income taxes increased $132.7 million and $12.2 million, respectively in the first quarter of 2000 due to increased sales. Incoming orders increased 131% from $444.1 million in the first quarter of 1999 to a record $1,024.2 million in the first quarter of 2000. Orders increased in all operating segments and were led by a 147% increase in semiconductor test systems orders. Backplane connection systems and software test systems orders from unaffiliated customers both increased 123% and 86%, respectively while circuit-board test systems and telecommunication test systems orders increased by 17% and 5%, respectively. The Company's backlog was a record $1,355.6 million at the end of the first quarter of 2000 compared with $679.4 million at the end of the first quarter of 1999. Costs of sales as a percentage of sales decreased from 64% of sales in the first quarter of 1999 to 54% of sales in the first quarter of 2000. The decrease in cost of sales was due to the increased utilization of the Company's manufacturing overhead as sales volume increased while certain components of cost of sales remained fixed. In addition, there was a favorable change in the mix as sales of semiconductor test systems, whose margins are generally higher than those of backplane connection systems, were a greater percentage of total Company sales. 10 Engineering and development expenses decreased to 11% of sales in the first quarter of 2000 from 14% of sales in the first quarter of 1999 while increasing $21.3 million. This spending growth was primarily due to increased investments in new products in each operating segment. Selling and administrative expenses decreased to 12% of sales in the first quarter of 2000 from 16% of sales in the first quarter of 1999 while increasing $24.5 million. This spending growth was due to higher compensation related expenses and spending in support of increased semiconductor test systems, software test systems, and backplane connections system sales. Interest income increased $1.2 million to $5.0 million in the first quarter of 2000 compared to the first quarter of 1999 due to an increase in the Company's average invested balances. The Company's effective tax rate was 30% in the first quarter 2000. The overall effective rate for the year ended 1999 was also 30%. The Company utilized export sales corporation benefits and certain research and development tax credits to operate below the U.S. statutory rate of 35%. Liquidity and Capital Resources - ------------------------------- The Company's cash, cash equivalents and marketable securities balance decreased $1.6 million in the first quarter of 2000, to $385.8 million. The Company generated cash from operating activities of $49.6 million in the first quarter of 2000 and $35.5 million in the first quarter of 1999. Cash generated from net income, excluding the effects of non-cash items, was $133.3 million and $39.8 million for the first quarters of 2000 and 1999, respectively. Changes in operating assets and liabilities used cash of $83.6 million in the first quarter of 2000 as a result of increases in working capital to support increased sales. In 1999, changes in assets and liabilities used cash of $4.3 million. The Company used $96.3 million of cash for investing activities in the first quarter of 2000 and $28.5 million in the first quarter of 1999. Investing activities consist of purchases, sales, and maturities of marketable securities and purchases of capital assets to support long-term growth. Capital expenditures were $46.8 million in the first quarter of 2000 and $24.8 million in the first quarter of 1999. The Company used $4.5 million of cash for financing activities in the first quarter of 2000 and provided $3.3 million in the first quarter of 1999. Financing activities include issuance of the Company's common stock through employee stock option and stock purchase plans, repurchase of common stock through a stock buyback program and repayments of debt. During the first quarter of 2000 net common stock activity used $4.5 million. The first quarter of 1999 net common stock activity provided $3.7 million. Since 1996, the Company has used $439.6 million of cash to repurchase 16.9 million shares of its common stock on the open market. The Company believes its cash, cash equivalents, and marketable securities balance of $385.8 million, together with other sources of funds, including cash flow generated from operations and the available borrowing capacity of $120.0 million under its line of credit agreement, will be sufficient to meet working capital and capital expenditure requirements for the foreseeable future. Inflation has not had a significant long-term impact on earnings. Certain Factors That May Affect Future Results - ---------------------------------------------- From time to time, information provided by the Company, statements made by its employees or information included in its filings with the Securities and Exchange Commission (including this Form 10-Q and the Company's Annual Report to Shareholders) contains statements that are not purely historical, so-called "forward looking statements," which involve risks and uncertainties. In particular, forward looking statements may include projections, plans, and objectives for the Company's business, financial condition, operating results, future operations, future economic performance or statements relating to the sufficiency of capital to meet working capital and planned capital expenditures. The Company's actual future results may differ materially from those stated in any forward looking statements. Factors that may cause such differences include, but are not limited to, the factors discussed below. These factors, and others, are discussed from time to time in the Company's filings with the Securities and Exchange Commission, including in the Company's Annual Report on Form 10-K for the year ended December 31, 1999. The Company's future results are subject to substantial risks and uncertainties. The Company's business and results of operations depend in significant part upon capital expenditures of manufacturers of semiconductors, which in turn depend upon the current and anticipated market demand for semiconductors and products incorporating semiconductors. The semiconductor industry has been highly cyclical with recurring periods of over supply, which often have had a severe effect on the semiconductor industry's demand for test equipment, including systems manufactured and marketed by the Company. The Company believes that the markets for newer generations of semiconductors also will be subject to similar fluctuations. There can be no assurance that any increase in semiconductor test systems bookings for a particular calendar quarter will be sustained in subsequent quarters. Any factor adversely affecting the semiconductor industry or particular segments within the semiconductor industry may adversely affect the Company's business, financial condition and 11 operating results. In addition, the Company believes many of its semiconductor test systems customers place orders in anticipation of manufacturing their products. If these customers manufacture fewer products than expected, they may attempt to cancel their semiconductor test systems orders with the Company. These cancellations could have a material adverse effect on the Company's financial condition in future quarters. Finally, the Company has made substantial investments in fixed-cost infrastructure. If the semiconductor industry experiences a downturn, the Company may have difficulty reducing expenses in a timely manner, which could have a material adverse effect on its profitability. The Company recently has experienced record order backlog. If the Company is unable to timely manufacture products to fill these orders and meet customer expectations, customers may cancel existing orders or fail to place new orders in the future, which would have an adverse effect on the Company's revenues and results of operations. Factors that affect the Company's ability to timely fill customer orders include: the availability of expanded manufacturing facilities; the Company's ability to attract and retain qualified manufacturing personnel to meet anticipated manufacturing levels; the difficulties inherent in manufacturing highly complex products that have only recently been introduced; and the availability of components, including semiconductor chips, which may be in short supply from time to time. In addition, the Company relies upon third-party contract manufacturers for certain subsystems used in its products, and the Company's ability to meet customer orders for those products depends upon the timeliness and quality of the work performed by these subcontractors, over whom the Company does not exercise any control. The Company relies on certain intellectual property protections to preserve its intellectual property rights, including patents, copyrights, and trade secrets. While the Company believes that its patents, copyrights, and trade secrets have value, in general no single one is in itself essential. The Company believes that its technological position depends primarily on the technical competence and creative ability of its research and development personnel. From time to time the Company is notified that it may be in violation of patents held by others. An assertion of patent infringement against the Company, if successful, could have a material adverse effect on the Company or could require a lengthy and expensive defense which could adversely affect the Company's operating results. The development of new technologies, commercialization of those technologies into products, and market acceptance and customer demand for those products is critical to the Company's success. Successful product development and introduction depends upon a number of factors, including the ability of the Company to hire and retain qualified engineers, new product design, development of competitive products by competitors, timely and efficient completion of product design, timely and efficient implementation of manufacturing and assembly processes and product performance at customer locations. The Company's failure to successfully develop, introduce and produce in commercial volume new or enhanced products, or failure of the market to accept these new or enhanced products could materially affect the Company's financial condition. The Company faces substantial competition, throughout the world, in each operating segment. Some of these competitors have substantially greater financial and other resources to pursue engineering, manufacturing, marketing and distribution of their products. The Company also faces competition from internal suppliers at several of its customers. Certain of the Company's competitors have introduced or announced new products with certain performance characteristics which may be considered equal or superior to those currently offered by the Company. The Company expects its competitors to continue to improve the performance of their current products and to introduce new products or new technologies that provide improved cost of ownership and performance characteristics. New product introductions by competitors could cause a decline in sales or loss of market acceptance of the Company's existing products. Moreover, increased competitive pressure could lead to intensified price based competition, which could materially adversely affect the Company's business, financial condition and results of operations. The Company derives a significant portion of its total revenue from customers outside the United States. International sales are subject to significant risks, including unexpected changes in legal and regulatory requirements and policy changes affecting the Company's markets, changes in tariffs, exchange rates and other barriers, political and economic instability, difficulties in accounts receivable collection, difficulties in managing distributors and representatives, difficulties in staffing and managing international operations, difficulties in protecting the Company's intellectual property and potentially adverse tax consequences. The Company's semiconductor test systems operating segment generates a significant portion of its revenue from customers operating in South Asian countries and Taiwan. Although the economies of South Asian countries and Taiwan have stabilized to some degree since mid fiscal 1998, if these economies deteriorate the negative economic developments would increase the likelihood of either a direct or indirect adverse impact on the Company's future operating results. The Company's quarterly and annual operating results are affected by a wide variety of factors that could materially adversely affect revenues and profitability, including: competitive pressures on selling prices; the timing and cancellation of customer orders; changes in product mix; the Company's ability to introduce new products and technologies on a timely basis; introduction of products and technologies by the Company's competitors; market acceptance of the Company's and its competitors' products; fulfilling backlog on a timely basis; reliance on sole source suppliers; potential retrofit costs; the level of orders received which can be shipped in a quarter; and the timing of investments in engineering and development. As a result of the foregoing and other factors, the Company may experience material fluctuations in future operating results on a quarterly or annual basis which could materially and adversely affect its business, financial condition, operating results and stock price.
12 Item 3: - Quantitative and Qualitative Disclosures about Market Risk - -------------------------------------------------------------------- There were no material changes in the Company's exposure to market risk from December 31, 1999. PART II. OTHER INFORMATION Item 1: Legal Proceedings - ------------------------- The Company is subject to legal proceedings and claims which arise in the ordinary course of business. Management does not believe these actions will have a material adverse affect on the financial position or results of operations of the Company. 13
SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. TERADYNE, INC. Registrant /s/ Michael A. BRADLEY ------------------------ Michael A. Bradley Vice President and Chief Financial Officer May 17, 2000
14 EX-27 2 FDS TERADYNE, INC. 04/02/00 10-Q
5 This schedule contains summary financial information extracted from the condensed consolidated balance sheet at April 2, 2000 and the condensed consolidated statement of income for the three months ended April 2, 2000 and is qualified in its entirety by reference to such financial staements. 0000097210 Teradyne, Inc. 1,000 U.S. Dollars 3-Mos DEC-31-2000 JAN-01-2000 APR-02-2000 1.00 130,195 112,907 433,785 5,536 308,283 1,065,722 1,027,616 507,273 1,752,629 435,946 0 0 0 21,587 1,272,456 1,294,043 648,131 648,131 348,840 496,821 0 0 425 155,847 46,754 109,093 0 0 0 109,093 0.63 0.60
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