-----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, VOJfdW/UBoEpzoUMH08rrHPD4AO/l7XcC6MUuAm68kKZettddxSNgnjpSXRI5R8R ZEKVm0bkyNpSmATw2RuEZQ== 0000097210-98-000006.txt : 19981113 0000097210-98-000006.hdr.sgml : 19981113 ACCESSION NUMBER: 0000097210-98-000006 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980927 FILED AS OF DATE: 19981112 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: 98744011 BUSINESS ADDRESS: STREET 1: 321 HARRISON AVE 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 THIRD 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 September 27, 1998 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 October 25, 1998 was 84,156,169 shares. -1- TERADYNE, INC. INDEX
PART I. FINANCIAL INFORMATION Page No. ----------------------------- -------- Item 1. Financial Statements: Condensed Consolidated Balance Sheets - September 27, 1998 (Unaudited) and December 31, 1997..........................................3 Condensed Consolidated Statements of Income - (Unaudited) Three and Nine Months Ended September 27, 1998 and September 28, 1997.........................4 Condensed Consolidated Statements of Cash Flows - (Unaudited) Nine Months Ended September 27, 1998 and September 28, 1997...................................5 Notes to Condensed Consolidated Financial Statements (Unaudited)...................................6-7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.................................................8-10
-2- TERADYNE, INC. CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS September 27, 1998 December 31, 1997 ------------------ ----------------- (Unaudited) (In thousands) Current assets: Cash and cash equivalents....................................................$ 131,264 $ 74,668 Marketable securities........................................................ 21,478 18,693 Accounts receivable.......................................................... 281,097 300,933 Inventories: Parts.................................................................. 188,290 168,385 Assemblies in process.................................................. 108,359 103,972 -------------- ------------- 296,649 272,357 Deferred tax assets.......................................................... 40,530 40,530 Prepayments and other current assets......................................... 24,620 19,902 -------------- ------------- Total current assets................................................... 795,638 727,083 Property, plant, and equipment, at cost:........................................ 838,637 692,832 Less: Accumulated depreciation............................................ (402,390) (349,707) -------------- ------------- Net property, plant, and equipment..................................... 436,247 343,125 Long-term marketable securities................................................. 77,307 156,574 Other assets.................................................................... 23,108 24,892 -------------- ------------- Total assets...........................................................$ 1,332,300 $ 1,251,674 ============== ============= LIABILITIES Current liabilities: Notes payable - banks........................................................$ 6,313 $ 6,632 Current portion of long-term debt............................................ 1,636 1,807 Accounts payable............................................................. 60,476 58,685 Accrued employees' compensation and withholdings............................. 67,717 77,299 Unearned service revenue and customer advances............................... 64,274 49,122 Other accrued liabilities.................................................... 61,634 65,642 Income taxes payable......................................................... 3,407 18,786 -------------- ------------- Total current liabilities.............................................. 265,457 277,973 Deferred tax liabilities........................................................ 23,429 23,429 Long-term debt.................................................................. 12,716 13,141 -------------- ------------- Total liabilities...................................................... 301,602 314,543 -------------- ------------- SHAREHOLDERS' EQUITY Common stock $0.125 par value; 250,000 shares authorized; 84,064 and 83,303 shares issued and outstanding after deduction of reacquired shares in 1998 and 1997, respectively........................................ 10,507 10,413 Additional paid-in capital...................................................... 326,182 322,985 Retained earnings............................................................... 694,009 603,733 -------------- ------------- Total shareholders' equity............................................. 1,030,698 937,131 -------------- ------------- Total liabilities and shareholders' equity.............................$ 1,332,300 $ 1,251,674 ============== ============= 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, 1997 are an integral part of the condensed consolidated financial statements.
-3- TERADYNE, INC. CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
For the Quarters Ended For the Nine Months Ended ---------------------- ------------------------- September 27, 1998 September 28, 1997 September 27, 1998 September 28, 1997 ------------------ ------------------ ------------------ ------------------ (In thousands, except per share amounts) Net sales................................... $ 335,227 $ 336,747 $ 1,173,032 $ 874,590 Expenses: Cost of products sold.................. 216,131 190,651 714,535 508,234 Provision for excess inventory......... 23,000 0 23,000 0 -------------- --------------- -------------- -------------- Cost of sales.................... 239,131 190,651 737,535 508,234 -------------- --------------- -------------- -------------- Engineering and development............ 49,569 41,663 147,655 117,606 Selling and administrative............. 47,288 51,685 163,550 139,917 -------------- --------------- -------------- -------------- 335,988 283,999 1,048,740 765,757 -------------- --------------- -------------- -------------- Income (loss) from operations............... (761) 52,748 124,292 108,833 Other income (expense): Interest income......................... 2,756 5,198 9,100 16,097 Interest expense........................ (120) (553) (633) (1,659) -------------- --------------- -------------- -------------- Income before income taxes.................. 1,875 57,393 132,759 123,271 Provision for income taxes.................. 600 18,196 42,483 41,912 -------------- --------------- -------------- -------------- Net income.................................. $ 1,275 $ 39,197 $ 90,276 $ 81,359 ============== =============== ============== ============== Net income per common share - basic......... $ 0.02 $ 0.47 $ 1.08 $ 0.98 ============== =============== ============== ============== Net income per common share - diluted....... $ 0.01 $ 0.45 $ 1.05 $ 0.94 ============== =============== ============== ============== Shares used in calculations of net income per common share - basic................ 84,019 83,515 83,773 83,439 ============== =============== ============== ============== Shares used in calculations of net income per common share - diluted.............. 85,626 86,944 85,729 86,346 ============== =============== ============== ============== 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, 1997 are an integral part of the condensed consolidated financial statements.
-4- TERADYNE, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
For the Nine Months Ended ------------------------- September 27, 1998 September 28, 1997 ------------------ ------------------ (In thousands) Cash flows from operating activities: Net income........................................................ $ 90,276 $ 81,359 Adjustments to reconcile net income to net cash provided (used) by operating activities: Depreciation................................................... 55,070 43,083 Amortization................................................... 676 940 Provision for excess inventory................................. 23,000 Deferred income taxes.......................................... (55) Other non-cash items, net...................................... (3,335) 1,082 Changes in operating assets and liabilities: Accounts receivable....................................... 19,836 (78,792) Inventories............................................... (47,292) (82,509) Other assets.............................................. (3,610) 1,168 Accounts payable and accruals............................. 3,352 5,833 Income taxes payable...................................... (9,542) 24,642 -------------- --------------- Net cash provided (used) by operating activities...... 128,431 (3,249) Cash flows from investing activities: Additions to property, plant and equipment........................ (98,079) (62,761) Increase in equipment manufactured by the Company................. (46,469) (11,067) Purchases of available-for-sale marketable securities............. (61,333) (139,429) Maturities of available-for-sale marketable securities............ 157,512 101,405 Purchases of held-to-maturity marketable securities............... (19,697) (111,033) Maturities of held-to-maturity marketable securities... 144,721 ------------- --------------- Net cash used by investing activities................. (68,066) (78,164) Cash flows from financing activities: Payments of long term debt........................................ (1,222) (1,948) Acquisition of treasury stock..................................... (22,256) (73,603) Issuance of common stock under employee stock option and stock purchase plans............................... 19,709 41,493 ---------------- --------------- Net cash flows used by financing activities........... (3,769) (34,058) ---------------- --------------- Increase (decrease) in cash and cash equivalents....................... 56,596 (115,471) Cash and cash equivalents at beginning of period....................... 74,668 201,452 --------------- --------------- Cash and cash equivalents at end of period............................. $ 131,264 $ 85,981 ================ =============== Supplementary disclosure of cash flow information: Cash paid during the period for: Interest................................................ $ 656 $ 1,733 Income taxes............................................ 49,494 20,894 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, 1997 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 electronic test systems and related software used by component manufacturers in the design and testing of their products and by electronic equipment manufacturers for the design and testing of circuit boards and other assemblies. Manufacturers use such systems and software to increase product performance, to improve product quality, to shorten time to market, to enhance manufacturability, to conserve labor costs, and to increase production yields. The Company's electronic systems are also used by telephone operating companies for the testing and maintenance of their subscriber telephone lines and related equipment. The Company also manufactures backplane connection systems, principally for the computer, telecommunications, 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. B. Accounting Policies Basis of Presentation The consolidated financial statements include the accounts of the Company and its subsidiaries. All significant intercompany balances and transactions have been eliminated. The year-end condensed 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 financial statements are unaudited. However, in the opinion of management, all adjustments (consisting only of normal recurring accrual entries) necessary for a fair presentation of such information 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. -6- TERADYNE, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (Unaudited) C. Recently Issued Accounting Standards In June 1997, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standard (SFAS) No. 131, "Disclosure about Segments of an Enterprise and Related Information," which changes the manner in which public companies report information about their operating segments. SFAS No. 131, which is based on the management approach to segment reporting, establishes requirements to report selected segment information quarterly and to report entity-wide disclosures about products and services, major customers, and the geographic locations in which the entity holds assets and reports revenue. Management is currently evaluating the effects of this change on its reporting of segment information. The Company will adopt SFAS No. 131 for its fiscal year ending December 31, 1998. In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures about Pensions and Other Postretirement Benefits," which sets forth increased disclosure requirements for public entities. SFAS No. 132 only affects disclosure issues and does not change any existing measurement or recognition provisions previously required. The statement is effective for fiscal years beginning after December 15, 1997. Reclassification for earlier periods is required for comparative purposes. Management is currently evaluating the effects of this change on its reporting of pensions and other postretirement benefits. The Company will adopt SFAS No. 132 for its fiscal year ending December 31, 1998. In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." 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, if it is, the type of hedge transaction. The statement is effective for fiscal years beginning after June 15, 1999. Management is currently evaluating the effects of this change on its recording of derivatives and hedging activities. The Company will adopt SFAS No. 133 for its fiscal year ending December 31, 2000. In March 1998, the American Institute of Certified Public Accountants issued Statement of Position (SOP) 98-1, "Internal Use Software," which provides guidance on the accounting for the costs of software developed or obtained for internal use. SOP 98-1 is effective for fiscal years beginning after December 15, 1998. Management does not expect the statement to have a material impact on its financial position or results of operations. 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 Quarters Ended For the Nine Months Ended ---------------------- ------------------------- September 27, September 28, September 27, September 28, 1998 1997 1998 1997 ---- ---- ---- ---- Net Income.............................................. $ 1,275 $ 39,197 $ 90,276 $ 81,359 ======= ======== ======== ======== Shares used in net income per common share - basic...... 84,019 83,515 83,773 83,439 Effect of dilutive securities:..................... Employee and director stock options............ 1,045 3,073 1,649 2,696 Employee stock purchase rights................. 562 356 307 211 ------ ------ ------ ------ Dilutive potential common shares................... 1,607 3,429 1,956 2,907 ------ ------ ------ ------ Shares used in net income per common share - diluted.... 85,626 86,944 85,729 86,346 ====== ====== ====== ====== Net income per common share - basic..................... $ 0.02 $ 0.47 $ 1.08 $ 0.98 ========== ========== ========== ========== Net income per common share - diluted................... $ 0.01 $ 0.45 $ 1.05 $ 0.94 ========== ========== ========== ========== For purposes of computing diluted earnings per share, weighted average common share equivalents do not include stock options with an exercise price that exceeds the average fair market value of the Company's common stock for the period. Options to purchase 3,989,608 and 0 shares of common stock were outstanding during the three months ended September 27, 1998 and September 28, 1997, respectively, but were not included in the calculation of diluted net income per common share. Options to purchase 2,467,338 and 515,517 shares of common stock were outstanding during the nine months ended September 27, 1998 and September 28, 1997, respectively, but were not included in the calculation of diluted net income per common share.
-7- 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 Quarters Ended For the Nine Months Ended ---------------------- ------------------------- September 27, 1998 September 28, 1997 September 27, 1998 September 28, 1997 ------------------ ------------------ ------------------ ------------------ (In thousands) (In thousands) Net sales.............................. $ 335,227 $ 336,747 $ 1,173,032 $ 874,590 ================= ================ ================ ================ Net income............................. $ 1,275 $ 39,197 $ 90,276 $ 81,359 ================= ================ ================ ================ Percentage of net sales: Net sales......................... 100% 100% 100% 100% Expenses: Cost of products sold.......... 64 57 61 58 Provision for excess inventory. 7 0 2 0 ---------------- ---------------- ---------------- --------------- Cost of sales............ 71 57 63 58 Engineering and development... 15 12 13 14 Selling and administrative.... 14 15 14 16 Interest, net................. (1) (1) (1) (2) ---------------- ---------------- ---------------- --------------- 99 83 89 86 Income before income taxes........ 1 17 11 14 Provision for income taxes........ 1 5 3 5 ---------------- ---------------- ---------------- --------------- Net income........................ 0% 12% 8% 9% ================ ================ ================ =============== Provision for income taxes as a percentage of income before taxes. 32% 32% 32% 34% ================ ================ ================ ===============
Results of Operations - --------------------- Sales of $335.2 million in the third quarter of 1998 decreased $1.5 million from the third quarter of 1997. The overall decrease in sales was due to a 15% decrease in shipments of semiconductor test systems offset by a 46% increase in sales of circuit board test systems and a 30% increase in sales of backplane connection systems. Third quarter of 1998 income before income taxes decreased $55.5 million from the third quarter of 1997 to $1.9 million. The third quarter of 1998 results included a pre-tax provision for excess inventory of $23.0 million. For the first nine months of 1998, income before income taxes increased $9.5 million to $132.8 million. Incoming orders were $244.8 million in the third quarter of 1998 compared to $461.0 million in the third quarter of 1997. The decrease in orders was primarily driven by a decrease in semiconductor test systems orders which reflects the current industry conditions. Telecommunications test systems orders also declined. Orders for backplane connection systems and software test increased, while circuit board test systems orders remained flat. Due to the decline in semiconductor test systems orders, the Company expects fourth quarter of 1998 shipments and operating income to decrease from the third quarter of 1998. The Company's backlog was $524.7 million at the end of the third quarter of 1998 compared with $796.1 million at the end of the third quarter of 1997. Costs of products sold as a percentage of sales (excluding the provision for excess inventory) increased from 57% of sales in the third quarter of 1997 to 64% of sales in the third quarter of 1998 and from 58% of sales for the first nine months of 1997 to 61% of sales for the first nine months of 1998. The increase in cost of sales was due to the following factors. First, the relationship of fixed manufacturing costs to the lower level of semiconductor test sales. Secondly, the higher costs of sales related to the increased shipment of new semiconductor test systems products. Lastly, an unfavorable change in mix as sales of semiconductor test systems declined and sales of lower margin backplane connection systems increased. -8- During the third quarter of 1998, the Company incurred a $23.0 million pre-tax provision for excess inventory as inventory quantities on-hand exceeded current demand due to the sharp decline in incoming semiconductor test systems orders coupled with the Company's transition to new semiconductor test systems products. Engineering and development expenses, as a percentage of sales, increased from 12% of sales in the third quarter of 1997 to 15% of sales in the third quarter of 1998. Engineering and development spending increased $7.9 million in the third quarter of 1998 over the same period in 1997 due primarily to increased investment in new product development of semiconductor test systems. As a percentage of sales, engineering and development expenses were 13% and 14% in the first nine months of 1998 and 1997, respectively. Selling and administrative expenses were 14% of sales in the third quarter and first nine months of 1998 compared with 15% and 16% of sales in the third quarter and first nine months of 1997, respectively. Selling and administrative expenses decreased $4.4 million in the third quarter of 1998 over the same period in 1997 due to lower compensation expenses that vary with operating results. The Company's effective tax rate for the first nine months of 1998 decreased to 32% from a 34% effective rate for the first nine months of 1997. The Company's effective tax rate is below the statutory rate of 35% due to increased utilization of export sales corporation benefits and certain research and development tax credits. Liquidity and Capital Resources - ------------------------------- The Company's cash, cash equivalents, and marketable securities balance decreased $19.9 million in the first nine months of 1998. The Company generated $128.4 million of cash from operations in the first nine months of 1998. The primary source of cash from operations was net income (plus non-cash charges for depreciation and the provision for excess inventory) of $168.3 million. Cash was used to fund additions to property, plant and equipment of $144.5 million in the first nine months of 1998. Property, plant and equipment expenditures relate primarily to construction of new and expanded facilities and for Company manufactured equipment to support the deployment of new semiconductor test systems products. The Company purchased 0.6 million shares of the Company's common stock for $22.3 million in the first nine months of 1998 under the Company's stock buyback plan. Cash of $19.7 million was generated in the first nine months of 1998 from the sale of stock to employees under the Company's stock option and stock purchase plans. The Company believes its cash, cash equivalents and marketable securities balance of $230.0 million, together with other sources of funds, including 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 over the next twelve months. 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, the Company's Annual Report of Form 10-K, and the Company's Annual Report to Shareholders) may contain statements which are not historical facts, so-called "forward looking statements," which involve risks and uncertainties. In particular, statements in "Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations" relating to the sufficiency of capital to meet working capital and planned capital expenditure, may be forward looking statements. The Company's actual future results may differ significantly from those stated in any forward looking statements. Factors that may cause such differences include, but are not limited to, the factors discussed below. Each of these factors, and others, are discussed from time to time in the Company's filings with the Securities and Exchange Commission. 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 will also be subject to similar fluctuations. There can be no assurance that any future increase in semiconductor test systems bookings for a calendar quarter will be sustained in subsequent quarters. In addition, any factor adversely affecting the semiconductor industry or particular segments within the semiconductor industry may adversely affect the Company's business, financial condition and operating results. -9- Also, 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 new product selection, 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 faces substantial competition throughout the world, primarily from electronic test systems manufacturers located in the United States, Europe and Japan, as well as internal test equipment groups at several of the Company's customers. Some of these competitors have substantially greater financial and other resources to pursue engineering, manufacturing, marketing and distribution of their products. 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. In the recent past there has been significant economic instability in several countries in Asia. Continued economic instability would increase the likelihood of either a direct or indirect adverse impact on the Company's future 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. In particular, the Company has introduced a significant number of new, complex test systems in 1996 and 1997, and there can be no assurance that the Company will not experience delays in shipment of such products or that such products will achieve customer acceptance. 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. Year 2000 Readiness - ------------------- The "Year 2000 problem" arose because many existing computer programs use only the last two digits to refer to a year. Therefore, these computer programs do not properly recognize a year that begins with "20" instead of "19". If not corrected, many computer applications could fail or create erroneous results. The company is employing a combination of internal resources and outside consultants to coordinate and implement its program for Year 2000 readiness. The Company has committed to having all current products Year 2000 ready in advance of the year 2000. All of the Company's current products have been assessed, using industry accepted test procedures, and most have been determined to be Year 2000 ready. The Company has also evaluated which of its former products, still in use but no longer sold, will be made Year 2000 ready. The schedule of Company products which will or will not be made Year 2000 ready is published and updated regularly by the Company on its web site. The Company has completed an inventory and assessment of internal business systems that use date-sensitive software. The Company is actively working with suppliers and using consultants and applying internal engineering resources to modify or replace internal business systems depending on the level of criticality for the Company's ongoing operations. The Company is also at risk of disruption to its business if Year 2000 problems are experienced by its key suppliers. To mitigate this risk, the Company has contacted all of its suppliers to assess their Year 2000 readiness and continually monitors the progress of its key suppliers. Most of the Company's effort toward Year 2000 readiness is funded as ongoing operating expenses, as a part of ongoing software support operations. The Company is not able to estimate the amount of accelerated upgrade costs which have been or will be incurred for third party software or systems. Expenditures directly related to the Year 2000 readiness program, consisting primarily of dedicated staff and consulting services, and is estimated at less than $5.0 million through 1999. The Company believes that its Year 2000 readiness project will be completed on a timely basis, in advance of the Year 2000 date transition, and will not have a material adverse effect on the Company's financial condition or overall trends in its operating results. However, there can be no assurance that unexpected delays or problems, including failure of Year 2000 readiness programs by its product and service suppliers, will not occur and have an adverse effect on the Company's financial condition or performance, or its competitive position. The Company has not yet adopted any formal contingency plans, and will determine the need for such plans as part of its ongoing assessment of suppliers, products, and internal business systems. -10-
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 JEFFREY R. HOTCHKISS ------------------------ Jeffrey R. Hotchkiss Vice President and Chief Financial Officer November 11, 1998
-11- EX-27.0 2 FDS TERADYNE, INC 09/27/98 10-Q
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONDENSED CONSOLIDATED BALANCE SHEET AT SEPTEMBER 27, 1998 AND THE CONDENSED CONSOLIDATED STATEMENT OF INCOME FOR THE NINE MONTHS ENDED SEPTEMBER 27, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STAEMENTS. 0000097210 TERADYNE, INC. 1,000 U.S. DOLLARS 9-MOS DEC-31-1998 JAN-01-1998 SEP-27-1998 1.00 131,264 21,478 283,843 2,746 296,649 795,638 838,637 402,390 1,332,300 265,457 12,716 10,507 0 0 1,020,191 1,332,300 1,173,032 1,173,032 737,535 1,048,740 0 0 633 132,759 42,483 90,276 0 0 0 90,276 1.08 1.05
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