-----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, QiHjmogcqA1s867xw1LyOGsFNu2R7QoPDjApz/uOUio6McG6ECL3qzmbjifmRJTP Guw5XIol/fYjCPXwMrMgNQ== 0000950135-97-001381.txt : 19970328 0000950135-97-001381.hdr.sgml : 19970328 ACCESSION NUMBER: 0000950135-97-001381 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970327 SROS: NYSE 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-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-06462 FILM NUMBER: 97565602 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-K 1 TERADYNE FORM 10-K 1 ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM 10-K (MARK ONE) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 COMMISSION FILE NUMBER 1-6462 ------------------------ TERADYNE, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) MASSACHUSETTS 04-2272148 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER) 321 HARRISON AVENUE, BOSTON, MASSACHUSETTS 02118 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (617) 482-2700 ------------------------ SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED COMMON STOCK, PAR VALUE $0.125 NEW YORK STOCK EXCHANGE
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 [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or in any amendment to this Form 10-K. [ ] The aggregate market value of the voting stock held by nonaffiliates of the registrant as of February 21, 1997 was $2.5 billion based upon the composite closing price of the registrant's Common Stock on the New York Stock Exchange on that date. The number of shares outstanding of the registrant's only class of Common Stock as of February 21, 1997 was 83,469,412 shares. DOCUMENTS INCORPORATED BY REFERENCE Portions of the registrant's proxy statement in connection with its 1997 annual meeting of shareholders are incorporated by reference into Part III. ================================================================================ 2 TERADYNE, INC. FORM 10-K PART I ITEM 1: BUSINESS Teradyne, Inc. is a manufacturer of electronic test systems and backplane connection systems used in the electronics and telecommunications industries. For financial information concerning these two industry segments, see "Note M: Industry Segment and Geographic Information" in Notes to Consolidated Financial Statements. Unless the context indicates otherwise, the term "Company" as used herein includes Teradyne, Inc. and all its subsidiaries. Statements in this Annual Report on Form 10-K which are not historical facts, so called "forward looking statements," are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Investors are cautioned that all forward looking statements involve risks and uncertainties, including those detailed in the Company s filings with the Securities and Exchange Commission. See also "Item 7: Management's Discussion and Analysis of Financial Condition and Results of Operations -- Certain Factors That May Affect Future Results." ELECTRONIC TEST SYSTEMS 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. Electronic test systems produced by the Company include: (i) test systems for a wide variety of semiconductors, including digital, analog, and mixed signal integrated circuits ("semiconductor test systems"), (ii) test systems for circuit boards and other assemblies ("circuit-board test systems"), (iii) test systems for telephone lines and networks ("telecommunications test systems"), and (iv) software test programs for communications networks, computerized telecommunications systems and other software products ("software test"). The Company's test systems are all controlled by computers, and programming and operating software is supplied both as an integral part of the product and as a separately priced enhancement. Semiconductor test systems accounted for 64% of consolidated net sales in 1996, 69% in 1995, and 62% in 1994. Circuit-board test systems accounted for 13% of consolidated net sales in 1996, 11% in 1995, and 15% in 1994. Telecommunications test systems accounted for 7% of consolidated net sales in 1996 and 1995, and 6% in 1994. Software test accounted for 1% of consolidated net sales in 1996. The Company's systems are extremely complex and require extensive support both by the customer and by the Company. Prices for the Company's systems range from less than $100,000 to $5 million or more. BACKPLANE CONNECTION SYSTEMS The Company also manufactures backplane connection systems, principally for the computer, telecommunications, and military/aerospace industries. A backplane is a panel that supports the circuit boards in an electronic assembly and carries the wiring that connects the boards to each other and to other elements of a system. The Company produces both printed circuit and metal backplanes, along with mating circuit-board connectors. Backplanes are custom configured to meet specific customer requirements and includes the manufacture of fully integrated electronic assemblies that incorporate backplane, card cage, cabling, and related design and production services. Backplane connection systems accounted for 15% of consolidated net sales in 1996, 13% in 1995, and 17% in 1994. 1 3 MARKETING AND SALES MARKETS The Company sells its products across most sectors of the electronics industry and to companies in other industries that use electronic devices in high volume. No single customer accounted for 10% or more of consolidated net sales in 1996. In 1996, the Company's three largest customers accounted for less than 25% of consolidated net sales. Direct sales to United States government agencies accounted for less than 2% of consolidated net sales in 1996, 1995, and 1994. Sales are also made within each of the Company's segments to customers who are government contractors. Approximately 15% of backplane connection system sales and less than 10% of electronic test systems sales fell into this category during 1996. The Company's customers outside the United States are located primarily in Europe, the Asia Pacific region, and Japan. The Company sells in these areas both directly and through non U.S. sales subsidiaries. Substantially all of the Company's manufacturing activities are conducted in the United States. Sales to customers outside the United States accounted for 54% of consolidated net sales in 1996, 52% in 1995, and 46% in 1994. Sales to such customers from locations outside the United States accounted for less than 10% of consolidated net sales in all periods presented. Identifiable assets of the Company's non U.S. locations, consisting principally of operating assets used in support of domestic export sales, approximated $130.3 million at December 31, 1996, $125.2 million at December 31, 1995, and $94.5 million at December 31, 1994. Of these identifiable assets at December 31, 1996, $82.3 million were in Europe, $40.6 million were in Japan, and $7.4 million were in the Asia Pacific region. The Company is subject to the inherent risks involved in international trade, such as political and economic instability, restrictive trade policies, controls on funds transfer, currency fluctuations, difficulties in managing distributors, potentially adverse tax consequences, and the possibility of difficulty in accounts receivable collection. The Company attempts to reduce the effects of currency fluctuations by hedging part of its exposed position and by conducting some of its international transactions in U.S. dollars or dollar equivalents. DISTRIBUTION The Company sells its products primarily through a direct sales force. The Company has sales and service offices throughout North America, Europe, the Asia Pacific region, and Japan. COMPETITION 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 several of the Company's customers. Some of these competitors have substantially greater financial and other resources with which to pursue engineering, manufacturing, marketing, and distribution of their products. New product introductions by the Company's competitors could cause a decline in sales or loss of market acceptance of existing products. BACKLOG On December 31, 1996, the Company's backlog of unfilled orders for electronic test systems and backplane connection systems was approximately $433.9 million and $82.5 million, respectively, compared with $607.1 million and $52.2 million, respectively, on December 31, 1995. Of the backlog at December 31, 1996, approximately 82% of the electronic test systems backlog, and approximately 91% of the backplane connection systems backlog are expected to be delivered in 1997. The electronic test systems backlog at December 31, 1996 includes $36.1 million of United States government orders for M900 VXI Digital Test subsystems for the U.S. Navy's Consolidated Automated Support System (CASS) which are unfunded. The unfunded orders are for shipments scheduled to be delivered in 1997 and beyond. The Company's past 2 4 experience indicates that a portion of orders included in the backlog may be canceled. There are no seasonal factors related to the backlog. RAW MATERIALS The Company's products require a wide variety of electronic and mechanical components. In the past, the Company has experienced occasional delays in obtaining timely delivery of certain items. Additionally, the Company could experience a temporary adverse impact if any of its sole source suppliers ceased to deliver products. Any prolonged inability of the Company to obtain adequate yields or deliveries, or any other circumstances that would require the Company to seek alternative sources of supply could have a material adverse effect on the Company's business, financial condition, and results of operations. PATENTS AND LICENSES The development of products by the Company, both hardware and software, is largely based on proprietary information. The Company protects its rights in proprietary information through various methods such as copyrights, trademarks, patents and patent applications, software license agreements, and employee agreements. The Company relies on certain intellectual property protections to preserve its intellectual property rights. Any invalidation of the Company's intellectual property rights could have a material adverse effect on the Company's business. EMPLOYEES As of December 31, 1996, the Company employed approximately 5,000 people. Since the inception of the Company's business, there have been no work stoppages or other labor disturbances. The Company has no collective bargaining contracts. ENGINEERING AND DEVELOPMENT ACTIVITIES The highly technical nature of the Company's products requires a large and continuing engineering and development effort. Engineering and development expenditures for new and improved products were approximately $143.9 million in 1996, $123.5 million in 1995, and $86.6 million in 1994. These expenditures amounted to approximately 12% of consolidated net sales in 1996, 10% in 1995, and 11% in 1994. ENVIRONMENTAL AFFAIRS The Company's manufacturing facilities are subject to numerous laws and regulations designed to protect the environment, particularly from manufacturing plant wastes and emissions. These include laws such as the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, the Superfund Amendment and Reauthorization Act of 1986, the Occupational Safety and Health Act, the Clean Air Act, the Clean Water Act, the Resource Conservation and Recovery Act of 1976, and the Hazardous and Solid Waste Amendments of 1984. In the opinion of management, the costs associated with complying with these laws and regulations has not had and is currently not expected to have a material adverse effect upon the financial position of the Company. 3 5 EXECUTIVE OFFICERS OF THE COMPANY The following table sets forth the names of all executive officers of the Company and certain other information relating to their positions held with the Company and other business experience. Executive officers of the Company do not have a specific term of office but rather serve at the discretion of the Board of Directors.
BUSINESS EXPERIENCE FOR THE EXECUTIVE OFFICER AGE POSITION PAST 5 YEARS ----------------- --- -------- ---------------------------- Alexander V. 69 Chairman of the Board and Chairman of the Board of the Company d'Arbeloff............. Chief Executive Officer since 1977; Chief Executive Officer beginning in 1996; President of the Company from 1971 to 1996; Director of the Company since 1960. James A. Prestridge...... 65 Vice Chairman of the Board Vice Chairman of the Board beginning and Executive Vice in 1996; Executive Vice President of President the Company since 1992; Vice President of the Company from 1971 to 1992. Owen W. Robbins.......... 67 Vice Chairman of the Board Vice Chairman of the Board beginning and Executive Vice in 1996; Executive Vice President of president the Company since 1992; Vice President of the Company from 1977 to 1992. George W. Chamillard..... 58 President, Chief Operating President, Chief Operating Officer, Officer, and Member of the and Director of the Company Board beginning in 1996; Executive Vice President of the Company from 1994 to 1996; Vice President of the Company from 1981 to 1993. Michael A. Bradley....... 48 Vice President Vice President of the Company since 1992; TQM Manager of the Company from 1990 to 1992. Ronald J. Dias........... 53 Vice President Vice President of the Company since 1988. Donald J. Hamman......... 45 Controller Controller of the Company since 1994; Director of Corporate Accounting from 1986 to 1994. Jeffrey R. Hotchkiss..... 49 Vice President Vice President of the Company since 1990. John P. McCabe........... 52 Vice President Vice President of the Company since 1994; Controller of the Company from 1975 to 1994. Stuart M. Osattin........ 51 Vice President and Vice President of the Company since Treasurer 1994; Treasurer of the Company since 1980. Edward Rogas, Jr......... 56 Vice President Vice President of the Company since 1984. David L. Sulman.......... 53 Vice President Vice President of the Company since 1994; Division General Manager since 1993; Division Engineering Manager from 1982 to 1992.
4 6 ITEM 2: PROPERTIES The Company's executive offices are in Boston, Massachusetts. Manufacturing and other operations are carried on in several locations. The following table provides certain information as to the Company's principal general offices and manufacturing facilities.
APPROXIMATE PROPERTY SQUARE FEET OF LOCATION INTEREST FLOOR SPACE - -------- -------- -------------- ELECTRONIC TEST SYSTEMS INDUSTRY SEGMENT: Boston, Massachusetts................................................. Own 492,000 Boston, Massachusetts................................................. Lease 45,000 Agoura Hills, California.............................................. Own 360,000 Deerfield, Illinois................................................... Own 63,000 Walnut Creek, California.............................................. Lease 60,000 Kumamoto, Japan....................................................... Own 28,000 San Jose, California.................................................. Own 120,000 BACKPLANE CONNECTION SYSTEMS INDUSTRY SEGMENT: Nashua, New Hampshire................................................. Own 399,000 Plano, Texas.......................................................... Lease 18,300 Dublin, Ireland....................................................... Lease 46,000
ITEM 3: LEGAL PROCEEDINGS The Company is not a party to any litigation that, in the opinion of management, could reasonably be expected to have a material adverse impact on the Company's financial position. ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. None. 5 7 PART II ITEM 5: MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS The following table shows the market range for the Company's Common Stock based on reported sales prices on the New York Stock Exchange.
PERIOD HIGH LOW --------------------------------------------------------------------- ---- --- 1996 First Quarter.................................................. $27 7/8 $16 3/8 Second Quarter................................................. 22 1/2 16 Third Quarter.................................................. 18 1/2 11 1/8 Fourth Quarter................................................. 26 1/4 15 1/2 1995 First Quarter.................................................. 21 1/2 16 Second Quarter................................................. 33 20 Third Quarter.................................................. 42 7/8 32 1/4 Fourth Quarter................................................. 36 5/8 20 1/8
The number of record holders of the Company's Common Stock at February 21, 1997 was 3,757. The Company has never paid cash dividends because it has been its policy to use earnings to finance expansion and growth. Payment of future cash dividends will rest within the discretion of the Board of Directors and will depend, among other things, upon the Company's earnings, capital requirements, and financial condition. The Company presently expects to retain all of its earnings for use in the business. ITEM 6: SELECTED FINANCIAL DATA
YEARS ENDED DECEMBER 31, -------------------------------------------------------- 1996 1995 1994 1993 1992 ---------- ---------- -------- -------- -------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Net sales................................ $1,171,615 $1,191,022 $777,731 $633,139 $595,072 ========== ========== ======== ======== ======== Income from continuing operations........ $ 93,574 $ 159,284 $ 76,390 $ 41,202 $ 26,412 ========== ========== ======== ======== ======== Income from continuing operations per common share........................... $ 1.10 $ 1.89 $ 0.95 $ 0.54 $ 0.37 ========== ========== ======== ======== ======== Total assets............................. $1,096,816 $1,023,831 $759,480 $621,607 $502,212 ========== ========== ======== ======== ======== Long-term obligations.................... $ 15,650 $ 18,679 $ 9,111 $ 9,942 $ 25,828 ========== ========== ======== ======== ========
6 8 ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS SELECTED RELATIONSHIPS WITHIN THE CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, -------------------------------------- 1996 1995 1994 ---------- ---------- -------- (DOLLARS IN THOUSANDS) Net sales............................................... $1,171,615 $1,191,022 $777,731 ========== ========== ======== Net income.............................................. $ 93,574 $ 159,284 $ 76,390 ========== ========== ======== Increase (decrease) in net sales from preceding year: Amount................................................ $ (19,407) $ 413,291 $144,592 ========== ========== ======== Percentage............................................ (2)% 53% 23% ========== ========== ======== Increase (decrease) in net income from preceding year... $ (65,710) $ 82,894 $ 28,317 ========== ========== ======== Percentage of net sales: Net sales............................................. 100% 100% 100% Expenses: Cost of sales...................................... 62 54 56 Engineering and development........................ 12 10 11 Selling and administrative......................... 15 15 19 ---------- ---------- -------- 89 79 86 Other income (expense): Merger expenses.................................... (1) Net interest income................................ 1 1 1 ---------- ---------- -------- Income before income taxes......................... 12 21 15 Provision for income taxes......................... 4 8 5 ---------- ---------- -------- Net income.............................................. 8% 13% 10% ========== ========== ========
RESULTS OF OPERATIONS: 1996 compared to 1995 In 1996, sales declined 2% to $1,171.6 million from the record level of $1,191.0 million reached after 53% sales growth in 1995. The decrease was primarily in the semiconductor test systems product line, which fell 8% as a result of a reduction in orders from semiconductor device manufacturers. Sales of telecommunications test systems also declined by 4% with the completion of the line-test equipment installation at Deutsche Telekom in Germany. Sales increased in the other two major product lines of the Company: circuit-board test systems grew by 19% driven by fulfilling government contracts and increased sales to commercial customers and backplane connection systems grew by 15% with strong demand from the high technology commercial customer base. Net income decreased from $159.3 million in 1995 to $93.6 million in 1996. Excluding the effect of pre-tax nonrecurring charges of $48.9 million ($32.0 million after taxes) in 1996 and $5.6 million ($5.6 million after taxes) in 1995, comparative net income decreased by $39.3 million from $164.9 million to $125.6 million. Incoming orders decreased 27%, from $1,432.1 million in 1995 to $1,045.1 million in 1996. The most significant decline was in semiconductor test systems orders which fell 37%. Circuit-board test systems orders, excluding the effect of $98.0 million in multi-year government contracts received in 1995, were down 8% while backplane connection systems and telecommunications systems increased 49% and 21%, respectively. As a result of the overall decrease in orders, the Company's backlog fell in 1996, finishing the year at $516.4 million (as adjusted for $16.4 million in cancellations). 7 9 Cost of sales, as a percentage of sales, increased from 54% in 1995 to 62% in 1996. The 1996 cost of sales included $34.1 million in one time charges resulting from the Company's decision to accelerate the consolidation of the VLSI product lines of Megatest and Teradyne. Excluding the product line consolidation charge, cost of sales, as a percentage of 1996 sales, was 59%. The remaining increase in cost of sales percentage was the result of the relationship of fixed manufacturing costs and the costs associated with new product introductions to the lower level of sales. In addition, there was an unfavorable change in mix as a greater percentage of total Company sales were backplane connection systems and circuit-board test systems whose product margins are generally lower than semiconductor test systems. Engineering and development expenses, as a percentage of sales, increased 2% from 10% in 1995 to 12% in 1996. These expenses grew $20.4 million in 1996 primarily as a result of increased investment in new product development of semiconductor test systems. During 1996, the Company announced major new products in each of the three semiconductor markets in which it participates. Selling and administrative expenses were 15% of sales in 1996 and 1995. In 1996, the Company provided $10.8 million for salary continuation payments and enhanced pension and medical benefits associated with an early retirement program and other workforce reductions. Excluding this provision selling and administrative expenses were 14% of sales in 1996. Interest income increased 36% in 1996 to $19.3 million due to an increase in the Company's average invested balances and higher interest rates. Interest expense decreased from $3.0 million in 1995 to $2.4 million in 1996 as an outstanding capital equipment note was paid. The Company's effective tax rate was 33% in 1996 compared with 36% in 1995. The Company utilized domestic export sales corporation benefits and certain research and development tax credits in 1996 to operate below the U. S. statutory rate of 35%. In 1995, the effective rate was above the U. S. statutory rate as certain merger expenses were nondeductible for income tax purposes. 1995 compared to 1994 Sales advanced 53% in 1995 to $1,191.0 million. Each of the major product lines of the Company -- semiconductor test systems, circuit-board test systems, telecommunications test systems, and backplane connection systems contributed to the increase in sales. Sales of semiconductor test systems grew 70% as semiconductor manufacturers continued to add capacity in response to rising demand for their products. This capacity expansion was evidenced by a number of new semiconductor manufacturing plants coming on line. Telecommunications test systems sales increased 84% primarily from the growing installation of line-test equipment at Deutsche Telekom in Germany. Sales of backplane connection systems increased 18% as a result of greater penetration into the Company's high technology commercial customer base. Circuit-board test systems sales increased 13%. As a result of the increase in sales, net income more than doubled in 1995, increasing $82.9 million to $159.3 million. Incoming orders grew faster than sales in 1995, increasing 59% to $1,432.1 million. The increase in orders, like the increase in sales, was primarily due to increases in semiconductor test systems orders, which increased 73%. Additionally, circuit-board test systems orders increased by 110% due in large part to multi-year U.S. government contracts, totaling $98.0 million, to supply electronic test equipment for the B-2 Stealth Bomber and for the Navy's CASS program. Orders for backplane connection systems and telecommunications test systems declined 11% and 5%, respectively. As a result of the overall increase in orders, the Company's backlog grew 58% in 1995, finishing the year at $659.3 million. Cost of sales, as a percentage of sales, decreased from 56% in 1994 to 54% in 1995. The improvement was primarily the result of increased utilization of the fixed and semi-variable components of the Company's overhead structure. In addition, there was a favorable change in mix as sales of backplane connection systems and circuit-board test systems, whose product margins are generally lower than those of semiconductor test systems, were lower as a percentage of total Company sales. Engineering and development expenses, as a percentage of sales, declined 1% from 11% in 1994 to 10% in 1995, as these expenses did not increase at the same rate as sales. The dollar amount of these expenses grew 8 10 $36.9 million in 1995 as a result of increased investment in new product development of semiconductor test systems. Selling and administrative expenses decreased to 15% of sales in 1995 compared with 19% of sales in 1994, as the dollar volume of these expenses grew by 19% while sales increased 53%. Interest income increased 82% in 1995 to $14.2 million due to an increase in the Company's average invested balances and higher interest rates. Interest expense increased from $1.8 million in 1994 to $3.0 million in 1995 as a result of increased borrowing at Megatest prior to the merger. The Company's effective tax rate was 36% in 1995 compared with 33% in 1994. The Company utilized certain tax credit and operating loss carryforward amounts in 1994 to operate below the United States statutory rate of 35%. In 1995, the effective rate increased as the tax credit and operating loss carryforwards were no longer available and certain merger expenses were nondeductible for income tax purposes. LIQUIDITY AND CAPITAL RESOURCES The Company's cash, cash equivalents and marketable securities balance grew $155.7 million in 1996, to $431.5 million following an increase of $54.6 million in 1995. Cash flow generated from operations was $250.8 million in 1996 and $115.5 million in 1995. Cash of $13.5 million in 1996 and $24.9 million in 1995 was generated from the sale of stock to employees under the Company's stock option and stock purchase plans. Cash was used to fund additions to property, plant and equipment of $75.2 million in 1996 and $93.2 million in 1995. In 1996, the Company's Board of Directors authorized the repurchase of 5.0 million shares of the Company's stock on the open market. Cash of $29.8 million was utilized in 1996 to purchase 1.4 million shares under the buyback program. The Company believes its cash, cash equivalents, and marketable securities balance of $431.5 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 in 1997. Inflation has not had a significant long-term impact on earnings. If there were inflation, the Company's efforts to cover cost increases with price increases could be frustrated in the short-term by its relatively high backlog. 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-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 1: Business" relating to the Company's delivery time of unfilled orders, and in "Item 7: 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, and stock repurchase requirements 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. The most recent downturn contributed to a 37% decline in semiconductor test system orders. There can be no assurance that any future increase in semiconductor test systems bookings for a calendar quarter will be sustained in subsequent 9 11 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. Also, the Company relies on certain intellectual property protections to preserve its intellectual property rights. From time to time the Company is notified that it may be in violation of patents held by others. Any invalidation of the Company's intellectual property rights, or assertions of patent infringement against the Company which are ultimately successful, could have a material adverse effect on the Company. Lengthy and expensive defense of the Company's rights to technology used in its products 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 several of the Company's customers. Some of these competitors have substantially greater financial and other resources which 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 revenues 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 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; the timing and provision of pricing protections and returns from certain distributors; 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; 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. 10 12 ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA REPORT OF INDEPENDENT ACCOUNTANTS To the Directors and Shareholders of TERADYNE, INC.: We have audited the consolidated balance sheets of Teradyne, Inc. as of December 31, 1996 and 1995, and the related consolidated statements of income, cash flows, and changes in shareholders' equity for each of the three years in the period ended December 31, 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We did not audit the consolidated financial statements of Megatest for the year ended August 31, 1994, which statements reflect consolidated net sales constituting 13% of the related consolidated net sales for the year ended December 31, 1994. Those statements were audited by other auditors whose report has been furnished to us, and our opinion, insofar as it relates to the amounts included for Megatest, is based solely on the report of the other auditors. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits and the report of the other auditors provide a reasonable basis for our opinion. In our opinion, based on our audits and the report of the other auditors, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Teradyne, Inc. as of December 31, 1996 and 1995, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 1996, in conformity with generally accepted accounting principles. COOPERS & LYBRAND L.L.P. Boston, Massachusetts January 17, 1997 11 13 TERADYNE, INC. CONSOLIDATED BALANCE SHEETS DECEMBER 31, 1996 AND 1995
1996 1995 ---------- ---------- (IN THOUSANDS) ASSETS Current assets: Cash and cash equivalents......................................... $ 201,452 $ 182,165 Marketable securities............................................. 48,266 93,662 Accounts receivable, less allowance for doubtful accounts of $1,936 in 1996 and $2,269 in 1995.............................. 178,430 254,820 Inventories: Parts.......................................................... 91,792 120,011 Assemblies in process.......................................... 47,162 56,840 ---------- ---------- 138,954 176,851 Deferred tax assets............................................... 32,340 19,546 Prepayments and other current assets.............................. 17,666 13,101 ---------- ---------- Total current assets...................................... 617,108 740,145 Property, plant, and equipment: Land.............................................................. 22,823 22,755 Buildings and improvements........................................ 133,809 128,235 Machinery and equipment........................................... 393,790 351,950 Construction in progress.......................................... 13,163 10,046 ---------- ---------- Total..................................................... 563,585 512,986 Less: Accumulated depreciation.................................... (290,088) (255,968) ---------- ---------- Net property, plant, and equipment........................ 273,497 257,018 Marketable securities............................................... 181,776 Other assets........................................................ 24,435 26,668 ---------- ---------- Total assets.............................................. $1,096,816 $1,023,831 ========== ========== LIABILITIES Current liabilities: Notes payable -- banks............................................ $ 7,316 $ 8,141 Current portion of long-term debt................................. 1,778 2,082 Accounts payable.................................................. 34,482 42,229 Accrued employees' compensation and withholdings.................. 58,696 66,000 Unearned service revenue and customer advances.................... 62,771 53,587 Other accrued liabilities......................................... 53,537 41,395 Income taxes payable.............................................. 6,677 16,157 ---------- ---------- Total current liabilities................................. 225,257 229,591 Deferred tax liabilities............................................ 13,898 15,711 Long-term debt...................................................... 15,650 18,679 Commitments (Note F) ---------- ---------- Total liabilities......................................... 254,805 263,981 ---------- ---------- SHAREHOLDERS' EQUITY Common stock $0.125 par value, authorized 250,000 shares (125,000 in 1995), issued and outstanding after deduction of reacquired shares, 82,480 in 1996 and 82,634 in 1995......................... 10,310 10,329 Additional paid-in capital.......................................... 355,576 366,970 Retained earnings................................................... 476,125 382,551 ---------- ---------- Total shareholders' equity................................ 842,011 759,850 ---------- ---------- Total liabilities and shareholders' equity................ $1,096,816 $1,023,831 ========== ==========
The accompanying notes are an integral part of the consolidated financial statements. 12 14 TERADYNE, INC. CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, -------------------------------------- 1996 1995 1994 ---------- ---------- -------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Net sales............................................... $1,171,615 $1,191,022 $777,731 Expenses: Cost of sales......................................... 724,624 646,382 435,129 Engineering and development........................... 143,931 123,487 86,570 Selling and administrative............................ 180,265 176,797 148,004 ---------- ---------- -------- 1,048,820 946,666 669,703 ---------- ---------- -------- Income from operations.................................. 122,795 244,356 108,028 Other income (expense): Merger expenses....................................... (5,600) Interest income....................................... 19,295 14,209 7,827 Interest expense...................................... (2,427) (3,040) (1,830) ---------- ---------- -------- Income before income taxes.............................. 139,663 249,925 114,025 Provision for income taxes.............................. 46,089 90,641 37,635 ---------- ---------- -------- Net income.............................................. $ 93,574 $ 159,284 $ 76,390 ========== ========== ======== Net income per common share............................. $ 1.10 $ 1.89 $ 0.95 ========== ========== ======== Shares used in calculations of net income per common share................................................. 85,060 84,253 80,729 ========== ========== ========
The accompanying notes are an integral part of the consolidated financial statements. 13 15 TERADYNE, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, ---------------------------------- 1996 1995 1994 -------- -------- -------- (IN THOUSANDS) Cash flows from operating activities: Net income............................................... $ 93,574 $159,284 $ 76,390 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation.......................................... 49,577 41,807 37,701 Amortization.......................................... 1,326 1,339 741 Product line consolidation............................ 34,100 Workforce reduction provision......................... 10,810 Deferred income tax provision (credit)................ (14,607) 3,920 3,875 Other non-cash items, net............................. (260) 4,881 1,752 Changes in operating assets and liabilities: Accounts receivable................................. 74,990 (114,708) (32,178) Inventories......................................... 20,584 (57,111) (18,277) Other assets........................................ (4,117) (18,567) (12,764) Accounts payable and accruals....................... (10,638) 60,361 34,887 Income taxes payable................................ (4,515) 34,334 14,902 -------- -------- -------- Net cash provided by operating activities........ 250,824 115,540 107,029 -------- -------- -------- Cash flows from investing activities: Additions to property, plant, and equipment.............. (59,494) (79,197) (32,568) Increase in equipment manufactured by the Company........ (15,735) (14,004) (8,127) Purchases of held-to-maturity marketable securities...... (250,594) (190,961) (55,400) Maturities of held-to-maturity marketable securities..... 248,733 126,619 25,848 Purchases of available-for-sale marketable securities.... (142,600) Maturities of available-for-sale marketable securities... 8,081 -------- -------- -------- Net cash used in investing activities............ (211,609) (157,543) (70,247) -------- -------- -------- Cash flows from financing activities: Net payments under short-term borrowing agreements....... (4,100) Payments of long-term debt............................... (3,550) (1,015) (1,665) Additions to long-term debt.............................. 12,500 145 Issuance of common stock under stock option and stock purchase plans........................................ 13,455 24,914 17,119 Sale of common stock..................................... 13,575 Acquisition of treasury stock............................ (29,833) (24,597) -------- -------- -------- Net cash provided (used) by financing activities..................................... (19,928) 32,299 4,577 -------- -------- -------- Increase (decrease) in cash and cash equivalents........... 19,287 (9,704) 41,359 Adjustment to conform fiscal year of Megatest.............. (10,346) Cash and cash equivalents at beginning of year............. 182,165 202,215 160,856 -------- -------- -------- Cash and cash equivalents at end of year................... $201,452 $182,165 $202,215 ======== ======== ======== Supplementary disclosure of cash flow information: Cash paid during the year for: Interest.............................................. $ 2,426 $ 3,092 $ 1,722 Income taxes.......................................... 68,089 52,339 16,563
The accompanying notes are an integral part of the consolidated financial statements. 14 16 TERADYNE, INC. CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
SHARES COMMON ADDITIONAL --------------------- STOCK PAID-IN RETAINED ISSUED REACQUIRED PAR VALUE CAPITAL EARNINGS ------ ---------- --------- ---------- --------- (IN THOUSANDS) Balance, December 31, 1993............. 39,244 768 $ 4,810 $315,657 $160,189 Issuance of stock to employees under benefit plans..................... 1,584 17 196 16,923 Tax benefit from stock options....... 8,275 Repurchase of stock.................. 878 (110) (24,487) Secondary offering of Megatest Corporation, net offering costs... 447 56 13,519 Net income........................... 76,390 Pension adjustment................... 1,468 ------ ----- ------- -------- -------- Balance, December 31, 1994............. 41,275 1,663 4,952 329,887 238,047 Adjustment to conform fiscal year of Megatest Corporation.............. 3 9 (14,780) Issuance of stock to employees under benefit plans..................... 1,614 202 22,940 Tax benefit from stock options....... 17,549 Two-for-one stock split effected in the form of a 100% stock dividend.......................... 42,892 1,664 5,154 (5,154) Issuance of stock to employees under benefit plans after the two-for-one stock split........... 177 21 1,751 Payment for fractional shares resulting from merger............. (12) Net income........................... 159,284 ------ ----- ------- -------- -------- Balance, December 31, 1995............. 85,961 3,327 10,329 366,970 382,551 Issuance of stock to employees under benefit plans..................... 1,281 160 13,295 Tax benefit from stock options....... 4,965 Repurchase of stock.................. 1,435 (179) (29,654) Net income........................... 93,574 ------ ----- ------- -------- -------- Balance, December 31, 1996............. 87,242 4,762 $10,310 $355,576 $476,125 ====== ===== ======= ======== ========
The accompanying notes are an integral part of the consolidated financial statements. 15 17 TERADYNE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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 a panel that supports the circuit boards in an electronic assembly and carries the wiring that connects the boards to each other and to other elements of a 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 are eliminated. Certain prior years' amounts were reclassified to conform to the current year presentation. On December 1, 1995, the Company completed its acquisition of Megatest Corporation ("Megatest"), by means of a merger accounted for as a pooling of interests. As a result of the merger, Megatest became a wholly owned subsidiary of the Company. The consolidated financial statements of the Company for periods prior to the merger were restated to include the financial position and results of operations of the combined companies. Preparation of Financial Statements 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. Inventories Inventories are stated at the lower of cost (first-in, first-out basis) or market (net realizable value). Property, Plant, and Equipment Property, plant, and equipment are stated at cost. Leasehold improvements and major renewals are capitalized and included in property, plant, and equipment accounts while expenditures for maintenance and repairs and minor renewals are charged to expense. When assets are retired, the assets and related allowances for depreciation and amortization are removed from the accounts and any resulting gain or loss is reflected in operations. The Company provides for depreciation of its assets principally on the straight-line method with the cost of the assets being charged to expense over their useful lives as follows: buildings and improvements - 5 to 40 years; and machinery and equipment - 2 to 10 years. 16 18 TERADYNE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Revenue Recognition Revenue is recorded when products are shipped or, in instances where products are configured to customer requirements, upon the successful completion of test procedures. Service revenue is recognized ratably over applicable contract periods or as services are performed. In certain situations, revenue is recorded using the percentage of completion method based upon the completion of measurable milestones, with changes to total estimated costs and anticipated losses, if any, recognized in the period in which determined. Engineering and Development Costs The Company's products are highly technical in nature and require a large and continuing engineering and development effort. All engineering and development costs are expensed as incurred. Income Taxes Deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. The measurement of deferred tax assets is reduced by a valuation allowance if, based upon weighted available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. The Company's practice is to provide U.S. Federal taxes on undistributed earnings of the Company's non U.S. sales and service subsidiaries. Translation of Non U.S. Currencies Assets and liabilities of non U.S. subsidiaries, which are denominated in currencies other than the U.S. dollar, are remeasured into U.S. dollars at rates of exchange in effect at the end of the fiscal year except nonmonetary assets and liabilities which are remeasured using historical exchange rates. Revenue and expense amounts are remeasured using an average of exchange rates in effect during the year, except those amounts related to nonmonetary assets and liabilities, which are remeasured at historical exchange rates. Net realized and unrealized gains and losses resulting from currency remeasurement are included in operations. Net Income per Common Share Net income per common share is based upon the weighted average number of common and common equivalent shares outstanding (when dilutive) each year. Common equivalent shares result from the assumed exercise of outstanding stock options, the proceeds of which are then assumed to have been used to repurchase outstanding common stock using the treasury stock method. Primary and fully diluted earnings per share are equal for all periods presented. C. MERGER -- POOLING OF INTERESTS On December 1, 1995, the Company acquired through a merger all of the authorized and outstanding common stock of Megatest in exchange for approximately 6.8 million shares of the Company's common stock using an exchange ratio of 0.9091 of one share of the Company's common stock for each Megatest share. In addition, all outstanding Megatest stock options were converted, at the common stock exchange ratio, into options to purchase the Company's common stock. Megatest manufactures electronic test systems for the integrated circuit industry. Prior to the merger, Megatest prepared its financial statements on an August 31 fiscal year end. Megatest's fiscal year has been changed to December 31 to conform to the Company's year end. The restated financial statements for 1994 include Megatest's amounts as of and for the year ended August 31, 1994. As a result, Megatest's corresponding results of operations and cash flows as of and for the four month period ended December 31, 1994 are not reflected in the Company's consolidated statements of 17 19 TERADYNE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) income and cash flows. Megatest's loss for this period of $14.8 million has been charged to retained earnings effective January 1, 1995. Megatest's results of operations for the four months ended December 31, 1994 are summarized as follows (in thousands): Revenue................................................... $ 14,111 Net Loss.................................................. $(14,780)
Separate results of the Company and Megatest that have been combined in the Company's consolidated results for the years ended December 31, 1995 and 1994 are as follows (in thousands):
1995 1994 ---------- -------- Net sales: Teradyne..................................................... $1,059,409 $677,440 Megatest..................................................... 131,613 100,291 ---------- -------- $1,191,022 $777,731 ========== ======== Net income: Teradyne..................................................... $ 157,204 $ 70,941 Megatest..................................................... 2,297 10,799 Adjustments.................................................. (217) (5,350) ---------- -------- $ 159,284 $ 76,390 ========== ========
The combined financial results reflect the restatement of Megatest's provision for income taxes in accordance with Statement of Financial Accounting Standards No. 109 Accounting for Income Taxes. Due to the merger, Megatest's previously unrecognized tax benefits of deductible temporary differences and operating loss carryforwards were recognized by the combined company in the restated periods. The restatement of the provision for income taxes decreased net income in 1994 by $5.1 million. The combined financial results also include adjustments, which were immaterial to the combined financial statements, to conform accounting policies of the two companies. Adjustments made to conform the accounting policies of the two companies decreased net income by $0.2 million in 1995 and 1994. All other adjustments consist of reclassifications to conform financial statement presentation. There were no intercompany transactions between the two companies for the periods presented. In connection with the merger, the Company recorded a $5.6 million nonrecurring charge for transaction costs consisting primarily of professional fees. D. FINANCIAL INSTRUMENTS Cash Equivalents The Company considers all highly liquid investments with original maturities of three months or less at date of acquisition to be cash equivalents. Marketable Securities The Company classifies investments in marketable securities as trading, available-for-sale or held-to-maturity at the time of purchase and periodically re-evaluates such classification. There were no securities classified as trading as of December 31, 1996 or 1995. Securities are classified as held-to-maturity when the Company has the positive intent and ability to hold the securities to maturity. Held-to-maturity securities are stated at cost with corresponding premiums or discounts amortized over the life of the investment to interest income. Securities not classified as held-to-maturity are classified as available-for-sale and reported at fair market value. Unrealized gains or losses on available-for-sale securities, if material, are included, net of tax, in shareholders equity until disposition. Realized gains and losses and declines in value judged to be other-than- 18 20 TERADYNE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) temporary on available-for-sale securities are included in interest income. The cost of securities sold is based on the specific identification method. The fair market value of cash equivalents and short-term and long-term investments in marketable securities is substantially equal to the carrying value and represents the quoted market prices at the balance sheet dates. The short-term investments mature in less than one year. Long-term investments have maturities of one to five years. At December 31, 1996 and 1995 these investments are reported as follows (in thousands):
1996 1995 ----------------------- ----------------------- AVAILABLE- HELD-TO- AVAILABLE- HELD-TO- FOR-SALE MATURITY FOR-SALE MATURITY ---------- --------- ---------- --------- Short-term marketable securities: U.S. Treasury and government agency securities...... $ 8,575 $34,476 $93,662 Corporate debt securities........................... 5,215 -------- ------- --------- ------- $ 13,790 $34,476 $93,662 ======== ======= ========= ======= Long-term marketable securities: U.S. Treasury and government agency securities...... $ 74,675 $61,047 Corporate debt securities........................... 46,054 -------- ------- --------- ------- $120,729 $61,047 ======== ======= ========= =======
Other For all other balance sheet financial instruments the carrying amount approximates fair value. Off-Balance Sheet Risk The Company regularly enters into forward contracts in European and Japanese currencies to hedge its overseas net monetary position and firm commitments. These contracts are used to reduce the Company's risk associated with exchange rate movements, as gains and losses on these contracts are intended to offset exchange losses and gains on underlying exposures. The Company does not engage in currency speculation. Forward currency contracts have maturities of less than one year, unless they relate to long term sales contracts denominated in a non U.S. currency; these maturities are from one to three years. At December 31, 1996, the Company had the following forward currency contracts to buy U.S. dollars for non U.S. currencies with notional amounts totaling $48.8 million: $15.8 million Japanese yen, $14.0 million German deutschemark, $8.7 million British pound sterling, and $10.3 million various other European currencies. In addition, the Company had forward currency contracts to sell U.S. dollars for German deutschemarks with notional amounts of $11.2 million. At December 31, 1995 the face amount of outstanding forward currency contracts to buy and sell U.S. dollars for non U.S. currencies was $66.3 million and $22.9 million, respectively. The fair value of these contracts as of December 31, 1996 and 1995, determined by applying year end currency exchange rates to the notional contract amounts, represented a net unrealized gain (loss) of $0.1 million and $(4.4) million, respectively. The Company's policy is to defer gains and losses on these contracts until the corresponding losses and gains are recognized on the items being hedged. At December 31, 1995, a net $1.0 million loss was included in other current assets. The entire net loss was recognized during 1996 to offset currency transaction gains on hedged items. Concentration of Credit Risk Financial instruments which potentially subject the Company to concentrations of credit risk consist principally of cash investments, forward currency contracts, and accounts receivable. The Company maintains 19 21 TERADYNE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) cash investments primarily in U.S. Treasury and government agency securities and corporate debt securities, rated A1 or higher, which have minimal credit risk. The Company places forward currency contracts with high credit-quality financial institutions, in order to minimize credit risk exposure. Concentrations of credit risk with respect to accounts receivable are limited due to the large number of diverse and geographically dispersed customers. E. DEBT Long-term debt at December 31, 1996 and 1995 consisted of the following (in thousands):
1996 1995 ------- ------- Mortgage notes payable........................................... $10,294 $10,452 Capital equipment notes payable.................................. 3,701 6,534 Other long-term debt............................................. 3,433 3,775 ------- ------- Total.................................................. 17,428 20,761 Less current maturities.......................................... 1,778 2,082 ------- ------- $15,650 $18,679 ======= =======
The total maturities of long-term debt for the succeeding five years and thereafter are: 1997 -- $1.8 million; 1998 -- $2.4 million; 1999 -- $1.5 million; 2000 -- $0.5 million; 2001 -- $0.5 million and $10.7 million thereafter. Revolving Credit Agreement On January 31, 1996, the Company increased its available revolving credit line to $120.0 million from $80.0 million. The revolving credit agreement is in effect through January 31, 1999. At expiration of the revolver, any amounts outstanding are converted into a two year term note. As of December 31, 1996, no amounts were outstanding under this agreement. The terms of this line of credit include restrictive covenants regarding working capital, tangible net worth, and leverage. Interest rates on borrowings are either at the stated prime rate, based upon Eurocurrency, or certificate of deposit interest rates. Pursuant to the terms of the credit agreement, the Company may incur additional borrowings indebtedness of up to $30.0 million are permitted outside the agreement provided that the liabilities of the Company, exclusive of deferred income taxes and subordinated debt, shall not exceed 100% of the Company's tangible net worth. Mortgage Notes Payable The Company received a loan of $4.5 million from the Boston Redevelopment Authority in the form of a 3% mortgage loan maturing March 31, 2013. This loan is collateralized by a mortgage on the Company's property at 321 Harrison Avenue which may, at the Company's option, become subordinated to another mortgage up to a maximum of $5.0 million. Interest for the first 4 1/2 years of the note was capitalized up to a principal amount of $5.0 million. Since September 30, 1987, the Company has been making semi-annual interest payments. In conjunction with the purchase of operating facilities in San Jose, the Company received a $5.5 million mortgage loan which matures on August 31, 2000. The loan is collateralized by a mortgage on the San Jose operating facilities. The loan bears interest at 8.1% per annum and is payable in 59 consecutive monthly installments of $0.05 million with a $4.6 million balloon payment due at maturity. The terms of this mortgage note payable require compliance with certain restrictive financial covenants and principal prepayment clauses. 20 22 TERADYNE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Equipment Notes Payable Prior to its merger with the Company, Megatest entered into two capital equipment notes payable. The first note with an original amount of $5.0 million is payable in 48 consecutive monthly installments of principal and interest at 9.5% per annum. The second note with an original amount of $1.9 million was paid in full in 1996. The terms of the outstanding equipment note payable require compliance with certain restrictive financial covenants and principal prepayment clauses. Other Long-term Debt At December 31, 1996, other long-term debt includes a Japanese yen-denominated note with an interest rate of 2.5% (4.8% at December 31, 1995), secured by land in Kumamoto, Japan. Interest only payments were made through March 31, 1995. Monthly principal and interest payments began April 28, 1995 and continue until March 30, 2007. Short-term Borrowings The weighted average interest rate on short-term borrowings outstanding as of December 31, 1996 and 1995 was 2.0% and 4.2%, respectively. F. COMMITMENTS Rental expense for the years ended December 31, 1996, 1995, and 1994 was $14.6 million, $13.1 million, and $11.1 million, respectively. Minimum annual rentals under all noncancellable leases are: 1997 -- $7.1 million; 1998 -- $5.0 million; 1999 -- $3.5 million; 2000 -- $1.8 million; 2001 -- $1.2 million; and $10.8 million thereafter, totaling $29.4 million. G. RETIREMENT BENEFITS The Company has defined benefit pension plans covering substantially all domestic employees and employees of certain non U.S. subsidiaries. Benefits under these plans are based on the employees' years of service and compensation. The Company's funding policy is to make contributions to the plans in accordance with local laws and to the extent that such contributions are tax deductible. The assets of the plans consist primarily of equity and fixed income securities. The components of net periodic pension cost were (in thousands):
1996 1995 1994 ------- ------- ------- Service cost.......................................... $ 4,398 $ 3,211 $ 3,627 Interest cost......................................... 4,894 4,012 3,708 Actual return on plan assets.......................... (6,676) (9,514) 1,537 Net amortization and deferral......................... 3,002 5,853 (4,371) ------- ------- ------- $ 5,618 $ 3,562 $ 4,501 ======= ======= =======
21 23 TERADYNE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The following table sets forth the plans' funded status at December 31 (in thousands):
1996 1995 -------------------------- -------------------------- U.S. PLAN NON U.S. PLANS U.S. PLAN NON U.S. PLANS --------- -------------- --------- -------------- Actuarial present value of projected benefit obligation: Vested benefits........................... $ (50,676) $ (6,627) $ (45,273) $ (5,981) Non-vested benefits....................... (2,933) (952) (2,634) (695) -------- -------- -------- ------- Accumulated benefit obligation............ (53,609) (7,579) (47,907) (6,676) Effect of projected future compensation levels................................. (10,997) (2,606) (9,306) (2,742) -------- -------- -------- ------- Total projected benefit obligation........ (64,606) (10,185) (57,213) (9,418) Plan assets at fair market value............ 55,926 5,850 48,773 5,081 -------- -------- -------- ------- Projected benefit obligation in excess of plan assets............................... (8,680) (4,335) (8,440) (4,337) Unrecognized prior service cost............. 2,697 3,076 Unrecognized net loss (gain)................ 8,673 (622) 13,587 (821) Unrecognized net (asset) liability at transition................................ 973 (242) 1,308 Minimum pension liability adjustment........ (99) (214) -------- -------- -------- ------- Net pension asset (liability)............... $ 2,690 $ (4,083) $ 7,981 $ (4,064) ======== ======== ======== ======= Actuarial assumptions: Discount rate............................. 7.25% 4.50%-7.75% 7.25% 4.50%-8.00% Average increase in compensation levels... 5.00% 3.50%-5.25% 5.00% 3.60%-5.50% Expected long-term return on assets....... 9.00% 4.50%-9.25% 9.00% 4.50%-9.50%
In addition to the above plans, the Company has an unfunded supplemental defined benefit pension plan in the United States to provide retirement benefits in excess of levels allowed by the Employee Retirement Income Security Act (ERISA). The actuarial present value of accumulated plan benefits totaled $2.7 million and $1.9 million at December 31, 1996 and 1995, respectively. Net pension expense was $0.7 million, $0.5 million, and $0.4 million in 1996, 1995, and 1994, respectively. In 1996, the Company announced a voluntary early retirement incentive program to certain employees. The special termination benefits include enhanced pension benefits to the employees and medical and dental benefits to the employees and their spouses. Pension benefits of $2.6 million to be paid from the Company's existing pension plans were accrued at December 31, 1996 relating to this program. In addition, the Company accrued $2.5 million for postretirement medical and dental benefits. H. STOCK REPURCHASE PROGRAM During August 1996, the Company's Board of Directors authorized the purchase in the open market of up to 5.0 million shares of its common stock to offset shares issued under the Company's stock based compensation plans. During 1996, the Company repurchased 1.4 million shares at a cost of $29.8 million. I. STOCK BASED COMPENSATION At December 31, 1996, the Company had both stock option plans and Stock Purchase Plans. The Company applies APB Opinion 25 and related interpretations in accounting for its plans. Under APB Opinion 25, no compensation cost has been recognized. Statement of Financial Accounting Standards (SFAS) No. 123 requires companies to disclose pro forma net income and earnings per share amounts under the new fair value method. The effects of applying SFAS No. 123 in this pro forma disclosure are not indicative of future amounts. SFAS No. 123 does not apply to awards made prior to 1995. Additional awards 22 24 TERADYNE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) in future years are anticipated. Had compensation cost for the Company's stock based compensation plans been determined based on the fair value at the grant dates for awards under those plans consistent with SFAS No. 123, the Company's net income and earnings per share would have been reduced to the pro forma amounts indicated below (in thousands, except per share amounts):
1996 1995 ------- -------- Net income As reported................................................. $93,574 $159,284 Pro forma................................................... 86,421 154,433 Earnings per share As reported................................................. $ 1.10 $ 1.89 Pro forma................................................... 1.02 1.83
Stock Option Plans Under its stock option plans, all of which are fixed, the Company granted options to certain directors, officers and employees entitling them to purchase common stock at 100% of market value at the date of grant. Stock options granted generally have a maximum term of five years and vest over four years. Stock option plan activity for the years 1996, 1995, and 1994 follows (in thousands):
1996 1995 1994 ----- ------ ------ Outstanding at January 1.................................. 7,230 7,637 7,516 Options granted......................................... 2,401 2,717 2,244 Options exercised....................................... (795) (2,790) (1,888) Options canceled........................................ (333) (334) (235) ----- ------ ------ Outstanding at December 31................................ 8,503 7,230 7,637 ----- ------ ------ Exercisable at December 31................................ 3,995 2,606 3,171 ----- ------ ------ Available for grant at December 31........................ 5,042 4,912 6,388 ----- ------ ------
Weighted average option exercise price information for the years 1996 and 1995 follows:
1996 1995 ------ ------ Outstanding at January 1........................................... $13.63 $ 8.92 Options granted.................................................. $12.13 $19.80 Options exercised................................................ $ 8.11 $ 6.92 Options canceled................................................. $18.61 $11.10 Outstanding at December 31......................................... $13.53 $13.63 Exercisable at December 31......................................... $12.46 $11.00
23 25 TERADYNE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Significant option groups outstanding at December 31, 1996 and related weighted average price and life information follows (options in thousands):
OPTIONS OUTSTANDING ------------------------------------------ WEIGHTED- OPTIONS EXERCISABLE AVERAGE ------------------------- REMAINING WEIGHTED- WEIGHTED- RANGE OF CONTRACTUAL AVERAGE AVERAGE EXERCISE PRICES LIFE (YEARS) SHARES EXERCISE PRICE SHARES EXERCISE PRICE - ---------------- ------------ ------ -------------- ------ -------------- $ 1.10 - $11.23 1.25 2,308 $ 8.73 1,812 $ 8.71 $11.83 - $19.63 2.90 1,927 $13.27 1,032 $13.20 $20.69 - $32.80 3.43 2,128 $20.90 760 $20.80 $11.63 4.56 2,140 $11.63 391 $11.63 ----- ----- Total 3.00 8,503 $13.53 3,995 $12.46 ===== =====
The weighted average fair value at date of grant for options granted during 1996 and 1995 was $4.79 and $8.69 per option, respectively. The fair value of options at date of grant was estimated using the Black-Scholes model with the following weighted average assumptions:
1996 1995 ---- ---- Expected life (years).................................................. 3.9 4.2 Interest rate.......................................................... 6.7% 7.3% Volatility............................................................. 41.8% 39.9% Dividend yield......................................................... 0.0% 0.0%
Employee Stock Purchase Plans Under the Company's 1979 Stock Purchase Plan, employees were entitled to purchase shares of common stock through payroll deductions of up to 10% of their compensation. The price paid for the common stock was equal to 85% of the lower of the fair market value of the Company's common stock on either the first or last business day of the year. In January 1997, the Company issued 506,820 shares of common stock to employees who participated in the Plan during 1996 at a price of $20.82 per share. No future shares will be issued under this plan. During 1996, the Company adopted the 1996 Employee Stock Purchase Plan and authorized 700,000 shares for future issuance. Under this plan, eligible employees may purchase shares of common stock through payroll deductions of up to 10% of their compensation. The price paid for the common stock is equal to 85% of the lower of the fair market value of the Company's common stock on the first business day in January (July for new hires) or the last business day of December. In January 1997, the Company issued 15,557 shares of common stock to employees who participated in the plan during 1996 at a price of $15.09 per share. Currently, there are 684,443 shares reserved for issuance. The weighted-average fair value of purchase rights granted in 1996 and 1995 was $5.22 and $3.07, respectively. The fair value of the employees' purchase rights was estimated using the Black-Scholes model with the following assumptions for 1996 and 1995, respectively; dividend yield of 0.0% for both years; an expected life of 1 year for both years; expected volatility of 44.7% and 38.8%; and risk-free interest rates of 5.2% and 7.1%. J. SAVINGS PLANS The Company sponsors a Savings Plan covering substantially all U.S. employees. Under this plan, employees may contribute up to 12% of their compensation (subject to Internal Revenue Service limitations). The Company annually matches employee contributions up to 6% of such compensation at rates ranging from 24 26 TERADYNE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 50% to 100%. The Company's contributions vest after two years, although contributions for those employees with five years of service vest immediately. The trustees of the Savings Plan were granted an option to purchase 0.9 million shares of the Company's common stock, exercisable at $9.50 per share (the fair market value of the Company's common stock at the date of the grant) in five cumulative annual installments beginning in 1990. In 1994, the trustees exercised the remaining shares. Under the terms of the Plan, any gains realized from the sale of option shares were first allocated to participants' accounts to fund up to one-half of the minimum Company contribution. Any excess was applied to additional funding. In 1994, the Company established a Supplemental Savings Plan to provide savings benefits in excess of those allowed by ERISA. The provisions of which are the same as the Savings Plan. Under these plans, the amounts charged to operations were $6.3 million in 1996, $8.3 million in 1995, and $2.0 million in 1994. K. STOCKHOLDER RIGHTS PLAN The Company's Board of Directors adopted a Stockholder Rights Plan on March 14, 1990, under which a dividend of one Common Stock Purchase Right was distributed for each outstanding share of Common Stock. The Plan entitles Stock Purchase Right holders to purchase shares of the Company's common stock for $20 per share in certain events, such as a tender offer to acquire 30% or more of the Company's outstanding shares. Under some circumstances, such as a determination by continuing Directors, that an acquiring party's interests are adverse to those of the Company, the Plan entitles such holders (other than an acquiring party or adverse party) to purchase $40 worth of Common Stock (or other securities or consideration owned by the Company) for $20. The Rights will expire March 26, 2000 unless earlier redeemed by the Company. L. INCOME TAXES The components of income before income taxes and the provision for income taxes as shown in the consolidated statements of income are as follows (in thousands):
1996 1995 1994 -------- -------- -------- Income before income taxes: United States........................................ $106,708 $212,551 $ 96,406 Non U.S.............................................. 32,955 37,374 17,619 -------- -------- -------- $139,663 $249,925 $114,025 ======== ======== ======== Provision (credit) for income taxes: Current: U.S. Federal...................................... $ 40,033 $ 66,228 $ 26,395 Non U.S........................................... 14,802 12,604 2,924 State............................................. 5,861 7,889 4,441 -------- -------- -------- 60,696 86,721 33,760 -------- -------- -------- Deferred: U.S. Federal...................................... (13,667) (241) 3,834 Non U.S........................................... (632) 3,654 492 State............................................. (308) 507 (451) -------- -------- -------- (14,607) 3,920 3,875 -------- -------- -------- $ 46,089 $ 90,641 $ 37,635 ======== ======== ========
25 27 TERADYNE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Significant components of the Company's deferred tax assets (liabilities) as of December 31, 1996 and 1995 are as follows (in thousands):
1996 1995 -------- -------- Deferred tax assets: Inventory valuations......................................... $ 19,148 $ 4,863 Accruals..................................................... 2,680 1,470 Vacation..................................................... 4,200 4,324 In process research and development.......................... 2,726 3,374 Deferred revenue............................................. 1,488 5,748 U.S. federal operating loss carryforwards.................... 341 1,050 Tax credits.................................................. 8,457 4,097 Other........................................................ 2,732 1,260 -------- -------- Total deferred tax assets...................................... 41,772 26,186 -------- -------- Deferred tax liabilities: Excess of tax over book depreciation......................... (14,919) (14,871) Amortization................................................. (2,531) (2,853) Pension...................................................... (1,349) (1,332) Other........................................................ (4,531) (3,295) -------- -------- Total deferred tax liabilities................................. (23,330) (22,351) -------- -------- Net deferred asset............................................. $ 18,442 $ 3,835 ======== ========
A reconciliation of the effective tax rate for the years 1996, 1995, and 1994 follows:
1996 1995 1994 ---- ---- ---- U.S. statutory federal tax rate............................ 35.0% 35.0% 35.0% State income taxes, net of federal tax benefit............. 2.6 2.0 2.7 Utilization of operating loss carryforwards................ 0.3 Tax credits................................................ (1.0) (0.6) (2.6) Domestic export sales corporation.......................... (2.9) (2.3) (2.6) Non-deductible merger costs................................ 0.8 Change in valuation allowance.............................. (0.8) (1.7) Other, net................................................. (0.7) 1.9 2.2 ---- ---- ---- 33.0% 36.3% 33.0% ==== ==== ====
At December 31, 1996 the Company had U.S. Federal operating loss carryforwards of approximately $1.0 million. These operating loss carryforwards expire in the years 2000 through 2002. The Company has approximately $4.1 million of U.S. business tax credit carryforwards. Approximately $2.6 million of these credits expire in the years 1997 through 1999, and $1.5 million expire in the years 2003 through 2007. All of these losses and credits are limited in their use by "change in ownership" rules as defined in the Internal Revenue Code of 1986. M. INDUSTRY SEGMENT AND GEOGRAPHIC INFORMATION The Company operates in two industry segments, which are the design, manufacturing and marketing of electronic test systems and backplane connection systems. Corporate assets consist of cash and cash equivalents, marketable securities, and certain other assets. 26 28 TERADYNE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
ELECTRONIC BACKPLANE TEST CONNECTION SYSTEMS SYSTEMS CORPORATE INDUSTRY INDUSTRY AND SEGMENT SEGMENT ELIMINATIONS CONSOLIDATED ---------- ---------- ------------ ------------ (IN THOUSANDS) 1996 Sales to unaffiliated customers............ $ 993,721 $177,894 $1,171,615 Intersegment sales........................ 9,065 $ (9,065) ---------- -------- -------- ---------- Net sales................................. 993,721 186,959 (9,065) 1,171,615 Operating income.......................... 112,036 29,561 (18,802) 122,795 Identifiable assets....................... 490,105 113,436 493,275 1,096,816 Property additions........................ 54,694 16,666 3,869 75,229 Depreciation and amortization expense..... 42,039 7,448 1,416 50,903 1995 Sales to unaffiliated customers............ $1,035,721 $155,301 $1,191,022 Intersegment sales........................ 12,325 $(12,325) ---------- -------- -------- ---------- Net sales................................. 1,035,721 167,626 (12,325) 1,191,022 Operating income.......................... 237,101 22,778 (15,523) 244,356 Identifiable assets....................... 640,597 91,205 292,029 1,023,831 Property additions........................ 77,552 12,038 3,611 93,201 Depreciation and amortization expense..... 37,274 4,670 1,202 43,146 1994 Sales to unaffiliated customers............ $ 645,929 $131,802 $ 777,731 Intersegment sales........................ 5,050 $ (5,050) ---------- -------- -------- ---------- Net sales................................. 645,929 136,852 (5,050) 777,731 Operating income.......................... 102,884 18,449 (13,305) 108,028 Identifiable assets....................... 440,117 82,820 236,543 759,480 Property additions........................ 30,835 9,005 855 40,695 Depreciation and amortization expense..... 31,847 5,754 841 38,442
The Company's sales, including domestic export and non U.S. jurisdictional sales (which amounted to less than 10% of total net sales in all periods presented) to unaffiliated customers for the three years ended December 31 were made in the following geographic areas:
1996 1995 1994 ---------- ---------- -------- (IN THOUSANDS) Sales to unaffiliated customers: United States................................. $ 536,826 $ 566,337 $416,199 Asia Pacific region........................... 209,429 256,901 138,458 Europe........................................ 241,244 222,194 133,127 Japan......................................... 139,095 94,706 68,019 Other......................................... 45,021 50,884 21,928 ---------- ---------- -------- $1,171,615 $1,191,022 $777,731 ========== ========== ========
See "Item 1: Business -- Marketing and Sales" elsewhere in this report for information on the Company's export and non U.S. jurisdictional activities, identifiable assets of non U.S. subsidiaries, and major customers. 27 29 SUPPLEMENTARY INFORMATION (UNAUDITED) The following sets forth certain unaudited consolidated quarterly statements of operations data for each of the Company's last eight quarters. In management's opinion, this quarterly information reflects all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation for the periods presented. Such quarterly results are not necessarily indicative of future results of operations and should be read in conjunction with the audited consolidated financial statements of the Company and the notes thereto included elsewhere herein.
1996 ------------------------------------------------------------ 1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER ----------- ------------ ----------- ----------- Net sales.................................... $348,967 $319,690 $261,671 $241,287 Expenses: Cost of sales.............................. 186,637 214,718 163,747 159,522 Engineering and development................ 36,740 38,426 35,022 33,743 Selling and administrative................. 46,929 42,556 41,535 49,245 -------- -------- -------- -------- 270,306 295,700 240,304 242,510 -------- -------- -------- -------- Income (loss) from operations................ 78,661 23,990 21,367 (1,223) Other income (expense): Interest income............................ 3,759 4,162 5,089 6,285 Interest expense........................... (642) (610) (513) (662) -------- -------- -------- -------- Income before income taxes................... 81,778 27,542 25,943 4,400 Provision for income taxes................... 28,623 9,640 6,374 1,452 -------- -------- -------- -------- Net income................................... $ 53,155 $ 17,902 $ 19,569 $ 2,948 -------- -------- -------- -------- Net income per common share.................. $ 0.63 $ 0.21 $ 0.23 $ 0.03 ======== ======== ======== ========
1995 ------------------------------------------------------------ 1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER ----------- ------------ ----------- ----------- Net sales.................................... $232,158 $284,849 $322,658 $351,357 Expenses: Cost of sales.............................. 131,625 152,683 172,316 189,758 Engineering and development................ 24,986 30,795 32,966 34,740 Selling and administrative................. 38,919 42,715 45,353 49,810 -------- -------- -------- -------- 195,530 226,193 250,635 274,308 -------- -------- -------- -------- Income from operations....................... 36,628 58,656 72,023 77,049 Other income (expense): Merger expenses............................ (5,600) Interest income............................ 3,085 3,547 3,670 3,907 Interest expense........................... (533) (730) (715) (1,062) -------- -------- -------- -------- Income before income taxes................... 39,180 61,473 74,978 74,294 Provision for income taxes................... 14,706 22,666 26,756 26,513 -------- -------- -------- -------- Net income................................... $ 24,474 $ 38,807 $ 48,222 $ 47,781 -------- -------- -------- -------- Net income per common share.................. $ 0.30 $ 0.46 $ 0.57 $ 0.56 ======== ======== ======== ========
28 30 REPORT OF INDEPENDENT ACCOUNTANTS In our opinion, the consolidated balance sheet and related consolidated statements of operations, of stockholders' equity and of cash flows of Megatest Corporation (not presented separately herein) present fairly, in all material respects, the financial position of Megatest Corporation and its subsidiaries at August 31, 1994, and the results of their operations and their cash flows for the year ended August 31, 1994, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for the opinion expressed above. As discussed in Note 1 to the consolidated financial statements referred to above (and not included herein), Megatest Corporation changed its method of accounting for income taxes effective September 1, 1993. PRICE WATERHOUSE LLP San Jose, California September 20, 1995 29 31 ITEM 9: CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None. PART III ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. Certain information relating to directors and executive officers of the Company, executive compensation, security ownership of certain beneficial owners and management, and certain relationships and related transactions is incorporated by reference herein from the Company's definitive proxy statement in connection with its Annual Meeting of Shareholders to be held on May 15, 1997, which proxy statement will be filed with the Securities and Exchange Commission not later than 120 days after the close of the fiscal year. For this purpose, the Management Compensation and Development Committee Report and Performance Graph included in such proxy statement are specifically not incorporated herein. (Also see "Item 1 -- Executive Officers of the Company" elsewhere in this report.) ITEM 11: EXECUTIVE COMPENSATION. Certain information relating to directors and executive officers of the Company, executive compensation, security ownership of certain beneficial owners and management, and certain relationships and related transactions is incorporated by reference herein from the Company's definitive proxy statement in connection with its Annual Meeting of Shareholders to be held on May 15, 1997, which proxy statement will be filed with the Securities and Exchange Commission not later than 120 days after the close of the fiscal year. For this purpose, the Management Compensation and Development Committee Report and Performance Graph included in such proxy statement are specifically not incorporated herein. ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. Certain information relating to directors and executive officers of the Company, executive compensation, security ownership of certain beneficial owners and management, and certain relationships and related transactions is incorporated by reference herein from the Company's definitive proxy statement in connection with its Annual Meeting of Shareholders to be held on May 15, 1997, which proxy statement will be filed with the Securities and Exchange Commission not later than 120 days after the close of the fiscal year. For this purpose, the Management Compensation and Development Committee Report and Performance Graph included in such proxy statement are specifically not incorporated herein. ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. Certain information relating to directors and executive officers of the Company, executive compensation, security ownership of certain beneficial owners and management, and certain relationships and related transactions is incorporated by reference herein from the Company's definitive proxy statement in connection with its Annual Meeting of Shareholders to be held on May 15, 1997, which proxy statement will be filed with the Securities and Exchange Commission not later than 120 days after the close of the fiscal year. For this purpose, the Management Compensation and Development Committee Report and Performance Graph included in such proxy statement are specifically not incorporated herein. 30 32 PART IV ITEM 14: EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K. (a) 1. Financial Statements The following consolidated financial statements are included in Item 8: Balance Sheets as of December 31, 1996 and 1995 Statements of Income for the years ended December 31, 1996, 1995, and 1994 Statements of Cash Flows for the years ended December 31, 1996, 1995, and 1994 Statements of Changes in Shareholders' Equity for the years ended December 31, 1996, 1995, and 1994 (a) 2. Financial Statement Schedules Financial statement schedules have been omitted since either they are not required or the information is otherwise included. (a) 3. Listing of Exhibits The Exhibits which are filed with this report or which are incorporated by reference herein are set forth in the Exhibit Index. (b) Report on Form 8-K There have been no Form 8-K filings during the three months ended December 31, 1996. 31 33 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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 this 26th day of March, 1997. TERADYNE, INC. By: OWEN W. ROBBINS ------------------------------------ Owen W. Robbins, Executive Vice President Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE - ------------------------------------------ --------------------------------- --------------- ALEXANDER V. D'ARBELOFF Chairman of the Board March 26, 1997 - ------------------------------------------ and Chief Executive Officer Alexander V. d'Arbeloff JAMES A. PRESTRIDGE Vice Chairman of the Board and March 26, 1997 - ------------------------------------------ Executive Vice President James A. Prestridge OWEN W. ROBBINS Vice Chairman of the Board and March 26, 1997 - ------------------------------------------ Executive Vice President Owen W. Robbins (Principal Financial Officer) GEORGE W. CHAMILLARD President, Chief Operating March 26, 1997 - ------------------------------------------ Officer, and Member of the Board George W. Chamillard DONALD J. HAMMAN Controller March 26, 1997 - ------------------------------------------ (Principal Accounting Officer) Donald J. Hamman EDWIN L. ARTZT Director March 26, 1997 - ------------------------------------------ Edwin L. Artzt JAMES W. BAGLEY Director March 26, 1997 - ------------------------------------------ James W. Bagley ALBERT CARNESALE Director March 26, 1997 - ------------------------------------------ Albert Carnesale DANIEL S. GREGORY Director March 26, 1997 - ------------------------------------------ Daniel S. Gregory DWIGHT H. HIBBARD Director March 26, 1997 - ------------------------------------------ Dwight H. Hibbard
32 34
SIGNATURE TITLE DATE --------- ----- ---- JOHN P. MULRONEY Director March 26, 1997 - ------------------------------------------ John P. Mulroney RICHARD J. TESTA Director March 26, 1997 - ------------------------------------------ Richard J. Testa PATRICIA S. WOLPERT Director March 26, 1997 - ------------------------------------------ Patricia S. Wolpert
33 35 EXHIBIT INDEX The following designated exhibits are, as indicated below, either filed herewith or have heretofore been filed with the Securities and Exchange Commission and are referred to and incorporated by reference to such filings.
EXHIBIT NO. DESCRIPTION SEC DOCUMENT REFERENCE ----------- ----------- ---------------------- 2.0 Agreement and Plan of Merger and Exhibit 2.0 to the Company's Reorganization, as amended, dated Registration Statement on Form S-4 September 5, 1995, by and among the (Registration Statement No. Company, M Merger Corp., and Megatest 33-63781). Corporation 3.1 Restated Articles of Organization of Exhibit 4.1 to the Company's Form S-3 the Company, as amended Registration Statement No. 33-44347, effective December 12, 1991. 3.2 Amendment, dated May 23, 1996, to Restated Articles of Organization of the Company, as amended 3.3 Amended and Restated Bylaws of the Company 4.1 Rights Agreement between the Company Exhibit 4.1 to the Company's Current and The First National Bank of Boston Report on Form 8-K dated March 15, dated as of March 14, 1990 1990. 10.1 Multicurrency Revolving Credit Exhibit to the Company's Quarterly Agreement dated April 29, 1991 Report on Form 10-Q for the quarterly period ended March 30, 1991. 10.2 First Amendment to Multicurrency Exhibit 3.10 (ii) to the Company's Revolving Credit Agreement dated as Annual Report on Form 10-K for the of March 5, 1993 fiscal year ended December 31, 1992. 10.3 Second Amendment to Multicurrency Exhibit 10.3 to the Company's Annual Revolving Credit Agreement dated as Report on Form 10-K for the fiscal of January 31, 1996 year ended December 31, 1995. 10.4 1987 Non-Employee Director Stock Exhibit 3.10 (iii) to the Company's Option Plan Annual Report on Form 10-K for the fiscal year ended December 31, 1992. 10.5 Teradyne, Inc. Supplemental Executive Exhibit 3.10 (iv) to the Company's Retirement Plan Annual Report on Form 10-K for the fiscal year ended December 31, 1992. 10.6 1991 Employee Stock Option Plan, as Exhibit 4.2 to the Company's amended Registration Statement on Form S-8 (Registration Statement No. 33-07177). 10.7 1979 Stock Purchase Plan, as amended Exhibit 10.6 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1994. 10.8 1990 Megatest Stock Option Plan Exhibit 4.1 to the Company's Registration Statement on Form S-8 (Registration Statement No. 33-64683). 10.9 Megatest Corporation Director Stock Exhibit 4.2 to the Company's Option Plan Registration Statement on Form S-8 (Registration Statement No. 33-64683). 10.10 1996 Stock Purchase Plan Exhibit 4.1 to the Company's Registration Statement on Form S-8 (Registration Statement No. 33-07177). 10.11 Master Lease Agreement between Exhibit 10.10 to the Company's Annual Megatest and General Electric Capital Report on Form 10-K for the fiscal Corporation dated August 10, 1995 year ended December 31, 1995.
34 36
EXHIBIT NO. DESCRIPTION SEC DOCUMENT REFERENCE ----------- ------------------------------------- ------------------------------------- 10.12 Loan and Security Agreement between Exhibit 10.11 to the Company's Annual Megatest and the CIT Group/Equipment Report on Form 10-K for the fiscal Financing, Inc. dated August 14, 1995 year ended December 31, 1995. 10.13 Deed of Trust, Financing Statement, Exhibit 10.12 to the Company's Annual Security Agreement and Fixture Filing Report on Form 10-K for the fiscal between Megatest and the Sun Life year ended December 31, 1995. Assurance Company of Canada (U.S.) dated August 25, 1995 10.14 1997 Employee Stock Option Plan 10.15 Letter Agreement dated January 24, 1997 between the Company and Executive Officer. 22.1 Subsidiaries of the Company 23.1 Consent of Coopers & Lybrand L.L.P. 23.2 Consent of Price Waterhouse L.L.P. 27.0 Financial Data Schedule
35 EX-3.2 2 ARTICLE OF INCORPORATION 1 EXHIBIT 3.2 THE COMMONWEALTH OF MASSACHUSETTS William Francis Galvin Secretary of the Commonwealth ONE ASHBURTON PLACE, BOSTON, MASSACHUSETTS 02108 ARTICLES OF AMENDMENT GENERAL LAWS, CHAPTER 156B, SECTION 72 We George W. Chamillard President and Donald G. Leka Assistant Clerk of Teradyne, Inc. ------------------------------------- (EXACT Name of Corporation) located at 321 Harrison Avenue, Boston, Massachusetts 02118 -------------------------------------------------------------- (MASSACHUSETTS Address of Corporation) do hereby certify that these ARTICLES OF AMENDMENT affecting Articles NUMBERED: --- Article 3 - ---------------------------------------------------------------------------- (Number those articles 1, 2, 3, 4, 5 and/or 6 being amended hereby) of the Articles of Organization were duly adopted at a meeting held on May 23 1996 by vote of: 63,652,370 shares of Common Stock out of 71,452,818 shares outstanding, - ---------- ------------ ---------- type, class & series (if any) shares of out of shares outstanding, - ---------- ------------ ---------- type, class & series (if any) shares of out of shares outstanding, - ---------- ------------ ---------- type, class & series (if any) CROSS OUT being at least a majority of each type, class or series outstanding INAPPLI- and entitled to vote thereon:(1) CABLE CLAUSE (1) For amendments adopted pursuant to Chapter 156B, Section 70. (2) For amendments adopted pursuant to Chapter 156B, Section 71. Note: If the space provided under any Amendment or item on this form is insufficient, additions shall be set forth on a separate 8-1/2 X 11 sheets of paper leaving a left-hand margin of at least 1 inch for binding. Additions to more than one Amendment may be continued on a single sheet so long as each Amendment requiring each such addition is clearly indicated. 2 TO CHANGE the number of shares and the par value (if any) of any type, class or series of stock which the corporation is authorized to issue, fill in the following: The total presently authorized is: - --------------------------------------- WITHOUT PAR VALUE STOCKS - --------------------------------------- TYPE NUMBER OF SHARES - --------------------------------------- COMMON: - --------------------------------------- PREFERRED: - --------------------------------------- - -------------------------------------------------------- WITH PAR VALUE STOCKS - -------------------------------------------------------- TYPE NUMBER OF SHARES PAR VALUE - -------------------------------------------------------- COMMON: 125,000,000 $0.125 - -------------------------------------------------------- PREFERRED: - -------------------------------------------------------- CHANGE the total authorized to: - --------------------------------------- WITHOUT PAR VALUE STOCKS - --------------------------------------- TYPE NUMBER OF SHARES - --------------------------------------- COMMON: - --------------------------------------- PREFERRED: - --------------------------------------- - -------------------------------------------------------- WITH PAR VALUE STOCKS - -------------------------------------------------------- TYPE NUMBER OF SHARES PAR VALUE - -------------------------------------------------------- COMMON: 250,000,000 $0.125 - -------------------------------------------------------- PREFERRED: - -------------------------------------------------------- 3 THE COMMONWEALTH OF MASSACHUSETTS ARTICLES OF AMENDMENT GENERAL LAWS, CHAPTER 156B, section 72 I hereby approve the within articles of amendment and, the filing fee in the amount of $125,000.00 having been paid, said articles are deemed to have been filed with me this 31st day of July 1996 WILLIAM FRANCIS GALVIN Secretary of the Commonwealth TO BE FILLED IN BY CORPORATION PHOTOCOPY OF ARTICLES OF AMENDMENT TO BE SENT TO: Kevin M. Barry, Esq. Testa, Hurwitz & Thibeault 125 High Street Boston, MA 02110 4 The foregoing amendment will become effective when these articles of amendment are filed in accordance with Chapter 156B, Section 6 of the General Laws unless these articles specify, in accordance with the vote adopting the amendment, a later effective date not more than thirty days after such filing, in which event the amendment will become effective on such later date. LATER EFFECTIVE DATE: --------------------------------------------------------- IN WITNESS WHEREOF AND UNDER THE PENALTIES OF PERJURY, we have hereunto signed our names this 31st day of July in the year 1996 /s/ George W. Chamillard President ----------------------------------- /s/ Donald G. Leka Assistant Clerk --------------------------------------------- EX-3.3 3 AMENDED AND RESTATED BYLAWS 1 EXHIBIT 3.3 [ANNOTATED] **************** AMENDED AND RESTATED BY-LAWS OF TERADYNE, INC. (Amended and Restated as of January 28, 1997) **************** ARTICLE I --------- Name, Location, Seal and Fiscal Year ------------------------------------ 1. Name. The name of the corporation is Teradyne, Inc. ----- 2. Location. The corporation may have an office and transact business in --------- Boston, Massachusetts, and at such other place or places as the Board of Directors or stockholders may appoint. 3. Seal. The seal of the corporation shall bear the name of the ----- corporation, the word Massachusetts, the year of incorporation and such other device or inscription as the Board of Directors may determine. The form of the seal may be changed by the Board of Directors. 4. Fiscal Year. The fiscal year of the corporation shall, unless ------------ otherwise determined by the Board of Directors, begin on January 1 and end on December 31. ARTICLE II ---------- Stockholders ------------ 1. Annual Meeting. The annual meeting of stockholders shall be held on --------------- such date and at such time and place (within the United States) as may be fixed by the Board of Directors from time to time. The purposes for which the annual 2 -2- meeting is to be held, in addition to those prescribed by law, the Articles of Organization or these By-Laws, may be specified by the Directors, the Chief Executive Officer or the President. If no annual meeting is held in accordance with the foregoing provisions, a special meeting may be held in lieu thereof, and any action taken at such meeting shall have the same effect as if taken at the annual meeting. Except as provided in Article III, Section 2, the only business which may be conducted at any such meeting of the stockholders shall (a) have been specified in the written notice of meeting (or any supplement thereto) given by or at the direction of the Directors, the Chief Executive Officer or the President, (b) have otherwise been properly brought before the meeting by or at the direction of the Directors, the Chief Executive Officer or the President, or (c) have otherwise been properly brought before the meeting by or on behalf of any stockholder who shall have been a stockholder of record on the record date for such meeting and who shall continue to be entitled to vote thereat. In addition to any other applicable requirements, for business to be properly brought before a meeting by a stockholder, the stockholder must have given timely notice thereof in writing to the Clerk of the corporation. To be timely, a stockholder's notice must be delivered to or mailed and received at the principal executive offices of the corporation, not less than fifty (50) days nor more than ninety (90) days prior to the meeting; provided, however, that in the event that less than sixty-five (65) days' notice or prior public disclosure of the date of the meeting is given or made to stockholders, notice by the stockholder to be timely must be so received not later than the close of business on the fifteenth day following the day on which notice of the date of the meeting was mailed or such public disclosure was made, whichever first occurs. A stockholder's notice to the Clerk shall set forth as to each matter the stockholder proposes to bring before the meeting (i) a brief description of the business desired to be brought before the meeting and the reasons for conducting such business at the meeting, (ii) the name and record address of the stockholder proposing such business, (iii) the class and number of shares of capital stock of the corporation held of record, owned beneficially and represented by proxy by such stockholder as of the record date for the meeting (if such date shall then have been made publicly available) and as of the date 3 -3- of such notice by the stockholder, and (iv) all other information which would be required to be included in a proxy statement filed with the Securities and Exchange Commission if, with respect to any such item of business, such stockholder were a participant in a solicitation subject to Regulation 14A under the Securities Exchange Act of 1934, as amended (the "Proxy Rules"). Notwithstanding anything in the By-Laws to the contrary, no business shall be conducted at the meeting except in accordance with the procedures set forth in this Article II, provided, however, that nothing in this Article II shall be deemed to preclude discussion by any stockholder of any business properly brought before the meeting. The Chairman of the meeting may, if the facts warrant, determine and declare to the meeting that business was not properly brought before the meeting in accordance with the provisions of this Article II, and if he should so determine, he shall so declare to the meeting and that business shall be disregarded. [Section 1 restated March 13, 1991 and May 23, 1996.] 2. Special Meetings. Special meetings of stockholders may be called by ----------------- the Chief Executive Officer, the President or by the Directors. A special meeting shall be called by the Clerk, or in case of the death, absence, incapacity or refusal of the Clerk, by any other officer, upon written application of one or more stockholders who hold at least 66-2/3% in interest of the capital stock entitled to vote at a meeting (or such lesser percentage in interest as shall be the maximum percentage permitted under Massachusetts law). The call for the meeting shall state the date, hour and place and the purposes of the meeting. [Section 2 restated September 14, 1989 and May 23, 1996.] 3. Place of Meetings. All meetings of stockholders shall be held at the ------------------ corporation unless a different place (within the United States) is fixed by the Directors, the Chief Executive Officer or the President and stated in the notice of the meeting. [Section 3 restated May 23, 1996.] 4. Notice of Meetings. A written notice of every meeting of --------------------- stockholders, stating the place, date and hour thereof, and the purpose for which the meeting is to be held, shall be given by the Clerk or by the person 4 -4- calling the meeting at least ten days before the meeting or such longer period as required by law to each stockholder entitled to vote thereat and to each stockholder who by law, the Articles of Organization or these By-Laws is entitled to such notice, by leaving such notice with him or at his residence or usual place of business, or by mailing it postage prepaid and addressed to such stockholder at his address as it appears upon the books of the corporation. No notice need be given to any stockholder if a written waiver of notice, executed before or after the meeting by the stockholder or his attorney thereunto authorized, is filed with the records of the meeting. 5. Quorum. The holders of a majority in interest of all stock issued, ------- outstanding and entitled to vote at a meeting shall constitute a quorum, but a lesser number may adjourn any meeting from time to time without further notice; except that if two or more classes of stock are outstanding and entitled to vote as separate classes, then in the case of each such class a quorum shall consist of the holders of a majority in interest of the stock of that class issued, outstanding and entitled to vote. 6. Voting and Proxies. Each stockholder shall have one vote for each ------------------- share of stock entitled to vote held by him of record according to the records of the corporation unless otherwise provided by the Articles of Organization. Stockholders may vote in person or by written proxy. Proxies shall be filed with the Clerk of the meeting, or of any adjournment thereof, before being voted. No proxy dated more than six months before the meeting named therein shall be valid and no proxy shall be valid after the final adjournment of such meeting. Notwithstanding the provisions of the preceding sentence, a proxy coupled with an interest sufficient in law to support an irrevocable power, including, without limitation, an interest in shares or in the corporation generally, may be made irrevocable if it so provides, need not specify the meeting to which it relates, and shall be valid and enforceable until the interest terminates, or for such shorter period as may be specified in the proxy. A proxy with respect to stock held in the name of two or more persons shall be valid if executed by one of them unless at or prior to exercise of the proxy the corporation receives a specific written notice to the contrary from any one of them. A proxy 5 -5- purporting to be executed by or on behalf of a stockholder shall be deemed valid unless challenged at or prior to its exercise and the burden of proving invalidity shall rest on the challenger. 7. Action at Meeting. When a quorum is present, the holders of a ------------------- majority of the stock present or represented and voting on a matter, (or if there are two or more classes of stock entitled to vote as separate classes, then in the case of each such class, the holders of a majority of the stock of that class present or represented and voting on a matter) except where a larger vote is required by law, the Articles of Organization or these By-Laws, shall decide any matter to be voted on by the stockholders. Any election by stockholders shall be determined by a plurality of the votes cast by the stockholders entitled to vote at the election. No ballot shall be required for such election unless requested by a stockholder present or represented at the meeting and entitled to vote in the election. The corporation shall not directly or indirectly vote any share of its stock. 8. Procedure for Meeting. The Clerk, who may call on any officer or ----------------------- officers of the corporation for assistance, shall make all necessary and appropriate arrangements for the meetings of the stockholders, receive all proxies, and ascertain and report by certificate to each meeting of the stockholders the number of shares present in person or by proxy and entitled to vote at such meeting. In the absence of the Clerk, an Assistant Clerk shall perform said duties. The certificate of the Clerk or an Assistant Clerk as to the regularity of such proxies and as to the number of shares present in person or by proxy and entitled to vote at such meeting shall be received as prima facie evidence of the number of shares which are present in person and by proxy and entitled to vote, for the purpose of establishing the presence of a quorum at such meeting, for the purpose of organizing such meeting, and for all other purposes. 9. Inspectors. At each meeting of the stockholders, (i) the proxies ----------- shall be received and taken in charge by three inspectors, (ii) where voting is to be by ballot on any question, the polls shall be opened and closed and the ballots shall be taken in charge by such inspectors, and (iii) all questions touching the qualification of voters, the validity of proxies and the acceptance 6 -6- or rejection of votes shall be decided by such three inspectors or a majority thereof. Such inspectors may be appointed by the Board of Directors before such meeting, or, if no such appointment shall have been made, then by the presiding officer at such meeting. In the event for any reason any of the inspectors previously appointed shall fail to attend such meeting, or being present will not or cannot act in such capacity, then an inspector or inspectors in place of such inspector or inspectors failing to attend or not acting shall be appointed by the presiding officer. ARTICLE III ----------- Directors --------- 1. Powers. The business of the corporation shall be managed by a Board ------- of Directors who may exercise all the powers of the corporation except as otherwise provided by law, by the Articles of Organization or by these By-Laws. In the event of a vacancy in the Board of Directors, the remaining Directors, except as otherwise provided by law, may exercise the powers of the full Board until the vacancy is filled. 2. Nomination and Election. The Board of Directors shall consist of not ------------------------ less than three (3) nor more than fifteen (15) persons. The number of the Board of Directors for each year shall be fixed by vote of a majority of the Directors then in office. The Board of Directors shall be classified with respect to the time for which they severally hold office, as provided in Section 50A of Chapter 156B of the Massachusetts General Laws, into three classes, as nearly equal in number as possible, the term of office of those of the first class ("Class I Directors") to continue until the 1990 annual meeting of stockholders and until their successors are duly elected and qualified, the term of office of those of the second class ("Class II Directors") to continue until the 1991 annual meeting of stockholders and until their successors are duly elected and qualified, and the term of those of the third class ("Class III Directors") to continue until the 1992 annual meeting of stockholders and until their 7 -7- successors are duly elected and qualified. At each annual meeting of stockholders the successors to the class of Directors whose term expires at the meeting shall be elected to hold office for a term continuing until the annual meeting of stockholders held in the third year following the year of their election and until their successors shall have been duly elected and qualified. Only persons who are nominated in accordance with the following procedures shall be eligible for election as Directors. Nominations of persons for election to the Board of Directors at the annual meeting may be made at the annual meeting of stockholders by or at the direction of the Board of Directors, by any nominating committee or person appointed by the Board of Directors or by any stockholder entitled to vote for the election of Directors at the meeting who complies with the notice procedures set forth in this Article III. Such nominations, other than those made by or at the direction of the Board of Directors, shall be made pursuant to timely notice in writing to the Clerk of the corporation. To be timely, a stockholder's notice shall be delivered to or mailed and received at the principal executive offices of the corporation not less than fifty (50) days nor more than ninety (90) days prior to the meeting; provided, however, that in the event that less than sixty-five (65) days' notice of prior public disclosure of the date of the meeting is given or made to stockholders, notice by the stockholder to be timely must be so received not later than the close of business on the fifteenth day following the day on which such notice of the date of the meeting was mailed or such public disclosure was made, whichever first occurs. Such stockholder's notice to the Clerk shall set forth (a) as to each person whom the stockholder proposes to nominate for election or re-election as a Director, (i) the name, age, business address and residence address of the person, (ii) the principal occupation or employment of the person, (iii) the citizenship of the person, (iv) the class and number of shares of capital stock of the corporation which are beneficially owned by the person, and (v) any other information relating to the person that is required to be disclosed in solicitations of proxies for election of directors pursuant to the Proxy Rules; and (b) as to the stockholder giving the notice, (i) the name and record address of the stockholder, (ii) the class and number of shares of capital stock of the corporation which are beneficially owned by the stockholder as of the record date for the meeting (if such date shall then have been made 8 -8- publicly available) and as of the date of such notice, (iii) a representation that the stockholder intends to appear in person or by proxy at the meeting to nominate the person or persons specified in the notice, (iv) a description of all arrangements or understandings between such stockholder and each nominee and any other person or persons (naming such person or persons) pursuant to which the nomination or nominations are to be made by such stockholder, (v) such other information regarding each nominee proposed by such stockholder as would be required to be included in a proxy statement filed pursuant to the Proxy Rules and (vi) the consent of each nominee to serve as a Director of the corporation if so elected. The corporation may require any proposed nominee to furnish such other information as may reasonably be required by the corporation to determine the eligibility of such proposed nominee to serve as Director. No person shall be eligible for election as a Director unless nominated in accordance with the procedures set forth herein. Any Director who attains 72 years of age shall immediately retire from his or her position as a Director of the Corporation, provided that this limitation shall not apply to any Director serving on January 28, 1997. [Section 2 restated January 28, 1997.] 3. Vacancies. Vacancies and newly created directorships, whether ---------- resulting from an increase in the size of the Board of Directors, from the death, resignation, disqualification or removal of a Director or otherwise, shall be filled solely by the affirmative vote of a majority of the remaining Directors then in office, even though less than a quorum of the Board of Directors. Any Director elected in accordance with the preceding sentence shall hold office for the remainder of the full term of the class of Directors in which the vacancy occurred or the new directorship was created and until such Director's successor shall have been elected and qualified. No decrease in the number of Directors constituting the Board of Directors shall shorten the term of any incumbent Director. [Section 3 restated March 13, 1991.] 4. Enlargement of the Board. The number of the Board of Directors may be ------------------------- increased and one or more additional Directors elected by vote of a majority of the Directors then in office. [Section 4 restated March 13, 1991.] 9 -9- 5. Resignation. Any Director may resign by delivering his written ------------ resignation to the corporation at its principal office or to the Chief Executive Officer, President, Clerk or Assistant Clerk. Such resignation shall be effective upon receipt unless it is specified to be effective at some other time or upon the happeningof some other event. [Section 5 restated March 13, 1991 and May 23, 1996.] 6. Removal. Any Director may be removed from office only (a) for cause -------- as defined in Section 50A of Chapter 156B of the Massachusetts General Laws and by the affirmative vote of a majority of the shares of the corporation outstanding and entitled to vote in the election of Directors or (b) for cause by vote of a majority of the Directors then in office. 7. Meetings. Regular meetings of the Directors may be held without call --------- or notice at such places and at such times as the Directors may from time to time determine, provided that any Director who is absent when such determination is made shall be given notice of the determination. A regular meeting of the Directors may be held without a call or notice at the same place as the annual meeting of stockholders, or the special meeting held in lieu thereof, following such meeting of stockholders. Special meetings of the Directors may be held at any time and place designated in a call by the Chief Executive Officer, President, Treasurer or two or more Directors. [Section 7 restated May 23, 1996.] 8. Notice of Meetings. Notice of all special meetings of the Directors ------------------- shall be given to each Director by the Clerk or Assistant Clerk, or in the case of the death, absence, incapacity or refusal of such persons, by the officer or one of the Directors calling the meeting. Notice shall be given to each Director in person or by telephone or by telegram sent to his business or home address at least forty-eight hours in advance of the meeting or by written notice mailed to his business or home address at least seventy-two hours in advance of the meeting. Notice need not be given to any Director if a written waiver of notice, executed by him before or after the meeting, is filed with the records of the meeting, or to any Director who attends the meeting without protesting prior 10 -10- thereto or at its commencement the lack of notice to him. A notice or waiver of notice of a Directors' meeting need not specify the purposes of the meeting. 9. Quorum. At any meeting of the Directors, a majority of the Directors ------- then inoffice shall constitute a quorum. Less than a quorum may adjourn any meeting from time to time without further notice. 10. Action at Meeting. At any meeting of the Directors at which a ------------------- quorum is present, the vote of a majority of those present, unless a different vote is specified by law, the Articles of Organization or these By-Laws, shall be sufficient to decide such matter. 11. Action by Consent. Any action by the Directors may be taken ------------------- without a meeting if a written consent thereto is signed by all of the Directors and filed with the records of the Directors' meetings. Such consents shall be treated as a vote of the Directors for all purposes. 12. Committees. The Directors may, by vote of a majority of the Directors ----------- then in office, elect from their number an executive or other committees and may by like vote delegate thereto some or all of their powers except those which by law, the Articles of Organization or these By-Laws they are prohibited from delegating. Except as the Directors may otherwise determine, any such committee may make rules for the conduct of its business, but unless otherwise provided by the Directors or in such rules, its business shall be conducted as nearly as may be in the same manner as is provided by these By-Laws for the Directors. ARTICLE IV ---------- Officers -------- 1. Enumeration. The officers of the corporation shall consist of a ------------ President, a Treasurer, a Clerk, and such other officers, including a Chief Executive, one or more Vice-Presidents, Assistant Treasurers, Assistant Clerks and Secretary as the Directors may determine. [Section 1 restated May 23, 1996.] 11 -11- 2. Election. The President, Treasurer and Clerk shall be elected annually --------- by the Directors at their first meeting following the annual meeting of stockholders. Other officers may be chosen by the Directors at such meeting or at any other meeting. 3. Qualification. The President ( and if so appointed by the Board of -------------- Directors, the Chief Executive Officer) may, but need not, be a Director. No officer need be a stockholder. Any one or more officers may be required by the Directors to give bond for the faithful performance of his duties to the corporation in such amount and with such sureties as the Directors may determine. [Section 3 restated May 23, 1996.] 4. Tenure. Except as otherwise provided by law, the Articles of ------- Organization or these By-Laws, the President, Treasurer and Clerk shall each hold office until the first meeting of the Directors following the annual meeting of stockholders and thereafter until a successor is chosen and qualified; and all other officers shall hold office until the first meeting of the Directors following the annual meeting of stockholders, unless a shorter term is specified in the vote choosing or appointing them. Any officer may resign by delivering his written resignation to the corporation at its principal office or to the President, Clerk or Secretary, and such resignation shall be effective upon receipt unless it is specified to be effective at some other time or upon the happening of some other event. 5. Removal. The Directors may remove any officer with or without cause by -------- vote of a majority of the entire number of Directors then in office; provided, that an officer may be removed for cause only after a reasonable notice and opportunity to be heard by the Board of Directors prior to action thereof. 6. President, Chief Executive Officer and Vice-President. If a Chief ------------------------------------------------------- Executive Officer has been appointed by the Board of Directors, he shall be the chief executive officer of the corporation and shall, subject to the direction of the Directors, have general supervision and control of its business. If the Board of Directors has not appointed a Chief Executive Officer, the President shall be the chief executive officer of the corporation and shall, subject to the direction of the Directors, have general supervision and control of its business. Unless otherwise provided by the Directors, the President ( or if at 12 -12- any time there exists a Chief Executive Officer, the Chief Executive Officer) shall preside, when present, at all meetings of stockholders and of the Directors. [Section 6 restated May 23, 1996.] Any Vice-President (and the President, if at any time there is a Chief Executive Officer) shall have such powers as the Directors may from time to time designate. 7. Treasurer and Assistant Treasurers. The Treasurer shall, subject to ----------------------------------- the direction of the Directors, have general charge of the financial affairs of the corporation and shall cause to be kept accurate books of account. He shall have custody of all funds, securities, and valuable documents of the corporation, except as the Directors may otherwise provide. Any Assistant Treasurer shall have such powers as the Directors may from time to time designate. 8. Clerk and Assistant Clerks. The Clerk shall keep a record of the --------------------------- meetings of stockholders. Unless a Transfer Agent is appointed, the Clerk shall keep or cause to be kept in Massachusetts, at the principal office of the corporation, the stock and transfer records of the corporation, in which are contained the names and the record addresses of all stockholders and the amount of stock held by each. The Clerk shall keep a record of the meetings of the Directors. Any Assistant Clerk shall have such powers as the Directors may from time to time designate. In the absence of the Clerk from any meeting of stockholders, an Assistant Clerk if one be elected, and otherwise a Temporary Clerk designated by the person presiding at the meeting, shall perform the duties of the Clerk. 9. Other Powers and Duties. Each officer shall, subject to these --------------------------- By-Laws, have in addition to the duties and powers specifically set forth in these By-Laws, such duties and powers as are customarily incident to his office, and such duties and powers as the Directors may from time to time designate. 13 -13- ARTICLE V --------- Capital Stock ------------- 1. Issuance of Stock. The Board of Directors shall have the power to ------------------ issue from time to time shares of the capital stock of the corporation for such consideration, in such installments, and upon such terms as the Directors may determine in accordance with the law, the Articles of Organization or these By-Laws. 2. Certificates of Stock. Each stockholder shall be entitled to a ----------------------- certificate of the capital stock of the corporation in such form as may be prescribed from time to time by the Directors. The certificate shall be signed by the Chief Executive Officer, the President or a Vice President, and by the Treasurer or an Assistant Treasurer, but when a certificate is countersigned by a Transfer Agent or a Registrar other than a Director, officer or employee of the corporation, such signatures may be facsimiles. In case any officer who has signed or whose facsimile signature has been placed on such certificate shall have ceased to be such officer before such certificate is issued, it may be issued by the corporation with the same effect as if he were such officer at the time of its issue. Every certificate for shares of stock which are subject to any restriction on transfer pursuant to the Articles of Organization, these By-Laws or any agreement to which the corporation is a party, shall have the restriction noted conspicuously on the certificate and shall also set forth on the face or back either the full text of the restriction or a statement of the existence of such restriction and a statement that the corporation will furnish a copy to the holder of such certificate upon written request and without charge. Every certificate issued when the corporation is authorized to issue more than one class or series of stock shall set forth on its face or back either the full text of the preferences, voting powers, qualifications and special and relative rights of the shares of each class and series authorized to be issued or a statement of the existence of such preferences, powers, qualifications and 14 -14- rights, and a statement that the corporation will furnish a copy thereof to the holder of such certificate upon written request and without charge. 3. Transfers. Subject to the restrictions, if any, stated or noted on ---------- the stock certificates, shares of stock may be transferred on the books of the corporation by the surrender to the corporation or its Transfer Agent of the certificate therefor properly endorsed or accompanied by a written assignment and power of attorney properly executed, with necessary transfer stamps affixed, and with such proof of the authenticity of signature as the corporation or its Transfer Agent may reasonably require. Except as may be otherwise required by law, the Articles of Organization or these By-Laws, the corporation shall be entitled to treat the record holder of stock as shown on its books as the owner of such stock for all purposes, including the payment of dividends and the right to vote with respect thereof, regardless of any transfer, pledge or other disposition of such stock, until the shares have been transferred on the books of the corporation in accordance with the requirements of these By-Laws. It shall be the duty of each stockholder to notify the corporation or its Transfer Agent of his post office address. 4. Transfer Agent and Registrar. The Directors shall have power to ------------------------------- appoint one or more Transfer Agents and Registrars for the transfer and registration of certificates of stock of any class, and may require that stock certificates shall be countersigned and registered by one or more of such Transfer Agents and Registrars. The resolutions adopted by the Board of Directors, appointing and conferring the powers, rights, duties and obligations of the Transfer Agent or Registrar, or both, shall allocate and delimit the power to make original issue and transfer of the capital stock of the corporation, shall specify whether stockholders shall give notice of changes of their addresses to the Transfer Agent or the Registrar, and shall allocate and impose the duty of maintaining the original stock ledgers or transfer books, or both, of the corporation, and of disclosing the names of the stockholders, the number of shares held by each, by kinds and classes, and the address of each stockholder as it appears upon the records of the corporation. Stockholders shall be responsible for notifying the Transfer Agent or Registrar, as the case 15 -15- may be, in writing, of any changes in their addresses from time to time, and failure so to do will relieve the corporation, its stockholders, officers, Directors, Transfer Agent and Registrar, of liability for failure to direct notices, dividends, or other documents or property to an address other than the one appearing upon the records of the Transfer Agent or Registrar, as the case may be, who is the agent specified in such a resolution as the agent to receive notices of changes of address. 5. Lost, Stolen or Destroyed Certificates. The corporation may issue a --------------------------------------- new certificate for shares of stock in the place of any certificate theretofore issued and alleged to have been lost, stolen or destroyed, but the Board of Directors may require the owner of such lost, stolen or destroyed certificate, or his legal representative, to furnish affidavit as to such loss, theft or destruction, and to give a bond in such form and substance, and with such surety or sureties, with fixed or open penalty, as it may direct, to indemnify the corporation and the Transfer Agent or Registrar against any claim that may be made on account of the alleged loss, theft or destruction of such certificate. 6. Record Date. The Directors may fix in advance a time of not more ------------- than sixty days preceding the date of any meeting of stockholders, or the date for the payment of any dividend or the making of any distribution to stockholders, or the last day on which the consent or dissent of stockholders may be effectively expressed for any purpose, as the record date for determining the stockholders having the right to notice of and to vote at such meeting and any adjournment thereof, or the right to receive such dividend or distribution or the right to give such consent or dissent. In such case only stockholders of record on such record date shall have such right, notwithstanding any transfer of stock on the books of the corporation after the record date. Without fixing such record date the Directors may for any of such purposes close the transfer books for all or any part of such period. 7. Reacquisition of Stock. Shares of stock previously issued which have ----------------------- been reacquired by the corporation, may be restored to the status of authorized Articles of Organization. but unissued shares by vote of the Board of Directors ,without amendment of the Articles of Organization. 16 -16- ARTICLE VI ---------- Protection of Directors and Officers ------------------------------------ 1. Contracts and Transactions with Interested Directors and Officers. -------------------------------------------------------------------- If the corporation enters into contracts or other transactions with one or more of its Directors and officers or with any corporation, partnership, association, trust, or other organization with which any of its Directors or officers are directly or indirectly connected, such contracts or transactions shall not be invalidated or in any way affected by the fact that any such Director or officer has or may have any interest therein which is or might be adverse to the interests of the corporation, even though the vote or votes of the Director or Directors having such interest shall have been necessary to obligate the corporation under or in such contract or transaction, nor shall any such Director or officer, corporation, partnership, association, trust or other organization be liable to account to this corporation for any profit realized by him or such corporation, partnership, association, or trust or other organization from or through any such transaction or contract by reason of the fact that he or such corporation, partnership, association, trust or other organization with which such Director or officer is directly or indirectly connected was interested in such transaction or contract; provided, however, that in every such case the fact of such interest and all material matters concerning same shall be disclosed to other Directors or stockholders authorizing such contract or transaction. 2. Indemnification. (a) Each Director, officer, employee and other ---------------- agent of the corporation, and any person who, at the request of the corporation, serves as a director, officer, employee or other agent of another organization in which the corporation directly or indirectly owns shares or of which it is a creditor shall be indemnified by the corporation against any cost, expense (including attorneys' fees), judgment, liability and/or amount paid in settlement reasonably incurred by or imposed upon him in connection with any action, suit or proceeding (including any proceeding before any administrative or legislative body or agency), which he may be made a party to or otherwise 17 -17- involved with or with which he shall be threatened, by reason of his being, or related to his status as, a Director, officer, employee or other agent of the corporation or of any other organization in which the corporation directly or indirectly owns shares or of which the corporation is a creditor, which other organization he serves or has served as director, officer, employee or other agent at the request of the corporation (whether or not he continues to be an officer, Director, employee or other agent of the corporation or such other organization at the time such action, suit or proceeding is brought or threatened), unless such indemnification is prohibited by the Business Corporation Law of the Commonwealth of Massachusetts. The foregoing right of indemnification shall be in addition to any rights to which any such person may otherwise be entitled and shall inure to the benefit of the executors or administrators of each such person. The corporation may pay the expenses incurred by any such person in defending a civil or criminal action, suit or proceeding in advance of the final disposition of such action, suit, or proceeding, upon receipt of an undertaking by such person to repay such payment if it is determined that such person is not entitled to indemnification hereunder. This section shall be subject to amendment or repeal only by action of the stockholders. (b) The Board of Directors may, without stockholder approval, authorize the corporation to enter into agreements, including any amendments or modifications thereto, with any of its Directors, officers or other persons described in paragraph (a) above providing for indemnification of such persons to the maximum extent permitted under applicable law and the corporation's Articles of Organization and By-Laws. [Section 2(b) added May 8, 1987.] ARTICLE VII ----------- Miscellaneous Provisions ------------------------ 1. Execution of Instruments. All deeds, leases, transactions, contracts, ------------------------- bonds, notes and other obligations authorized to be executed by an officer of the corporation in its behalf shall be signed by the Chief Executive Officer, 18 -18- the President or the Treasurer except as the Directors may generally or in particular cases otherwise determine. [Section 1 restated May 23, 1996.] 2. Voting of Securities. Except as the Directors may otherwise ----------------------- designate, the Chief Executive Officer, the President or Treasurer may waive notice of, and appoint any person or persons to act as proxy or attorney in fact for this corporation (with or without power of substitution) at any meeting of stockholders or shareholders of any other corporation or organization, the securities of which may be held by this corporation. [Section 2 restated May 23, 1996.] 3. Corporate Records. The original, or attested copies, of the Articles ------------------ of Organization, By-Laws and records of all meetings of the incorporators and stockholders, and the stock and transfer records, which shall contain the names of all stockholders and the record address and the amount of stock held by each, shall be kept in Massachusetts at the principal office of the corporation, or at an office of its Transfer Agent or of the Clerk. Said copies and records need not all be kept in the same office. They shall be available at all reasonable times to the inspection of any stockholder for any proper purpose but not to secure a list of stockholders for the purpose of selling said list or copies thereof or of using the same for a purpose other than in the interest of the applicant, as a stockholder, relative to the affairs of the corporation. 4. Articles of Organization. All references in these By-Laws to the ------------------------- Articles of Organization shall be deemed to refer to the Articles of Organization of the corporation, as amended and in effect from time to time. 5. Amendments. These By-Laws may be amended or repealed in whole or in ----------- part at any annual or special meeting of the stockholders by a vote of a majority of the stock present and entitled to vote, provided notice of the proposed amendment or repeal shall have been given in the notice of such meeting. In addition, the Directors may amend or repeal these By-Laws in whole or in part, except with respect to any provision thereof which by law, the Articles of Organization or these By-Laws requires action by the stockholders. Any By-Law adopted by the Directors may be amended or repealed by the stockholders in the manner hereinabove in this Article set forth. Not later than 19 -19- the time of giving notice of the meeting of stockholders next following the amending or repealing by the Directors of any By-Law, notice thereof stating the substance of such change shall be given to all stockholders entitled to vote on amending these By-Laws. [Section 5 restated March 13, 1991.] 6. The provisions of Chapter 110D of the Massachusetts General Laws as in effect from time to time shall not apply to control share acquisitions of the corporation. [Section 6 added July 14, 1988.] Amended and Restated November 12, 1986 Amended May 8, 1987 Amended July 14, 1988 Amended September 14, 1989 Amended and Restated March 13, 1991 Amended and Restated May 23, 1996 Amended and Restated January 28, 1997 EX-10.14 4 1997 EMPLOYEE STOCK OPTION PLAN 1 EXHIBIT 10.14 TERADYNE, INC. 1997 EMPLOYEE STOCK OPTION PLAN ------------------------------- 1. Purpose. The purpose of the Teradyne, Inc. 1997 Employee Stock -------- Option Plan (the "Plan") is to encourage key employees of Teradyne, Inc. (the "Company") and of any present or future parent or subsidiary of the Company (collectively, "Related Corporations") and other individuals who render services to the Company or a Related Corporation, by providing opportunities to participate in the ownership of the Company and its future growth through (a) the grant of options which qualify as "incentive stock options" ("ISOs") under Section 422(b) of the Internal Revenue Code of 1986, as amended (the "Code"); (b) the grant of options which do not qualify as ISOs ("Non-Qualified Options"); (c) awards of stock in the Company ("Awards"); and (d) opportunities to make direct purchases of stock in the Company ("Purchases"). Both ISOs and Non-Qualified Options are referred to hereafter individually as an "Option" and collectively as "Options." Options, Awards and authorizations to make Purchases are referred to hereafter collectively as "Stock Rights." As used herein, the terms "parent" and "subsidiary" mean "parent corporation" and "subsidiary corporation," respectively, as those terms are defined in Section 424 of the Code. 2. Administration of the Plan. --------------------------- A. Board or Committee Administration. The Plan shall (be ---------------------------------- administered by the Board of Directors of the Company (the "Board") or, subject to paragraph 2(D) (relating to compliance with Section 162(m) of the Code), by a committee appointed by the Board (the "Committee"). Hereinafter, all references in this Plan to the "Committee" shall mean the Board if no Committee has been appointed. Subject to ratification of the grant or authorization of each Stock Right by the Board (if so required by applicable state law), and subject to the terms of the Plan, the Committee shall have the authority to (i) determine to whom (from among the class of employees eligible under paragraph 3 to receive ISOs) ISOs shall be granted, and to whom (from among the class of individuals and entities eligible under paragraph 3 to receive Non-Qualified Options and Awards and to make Purchases) Non-Qualified Options, Awards and authorizations to make Purchases may be granted; (ii) determine the time or times at which Options or Awards shall be granted or Purchases made; (iii) determine the purchase price of shares subject to each Option or Purchase, which prices shall not be less than the minimum price specified in paragraph 6; (iv) determine whether each Option granted shall be an ISO or a Non-Qualified Option; (v) determine (subject to paragraph 7) the time or times when each Option shall become exercisable and the duration of the exercise period; (vi) extend the period during which outstanding Options may be exercised; (vii) determine whether restrictions such as repurchase options are to be imposed on shares subject to Options, Awards and Purchases and the 2 -2- nature of such restrictions, if any, and (viii) interpret the Plan and prescribe and rescind rules and regulations relating to it. If the Committee determines to issue a Non-Qualified Option, it shall take whatever actions it deems necessary, under Section 422 of the Code and the regulations promulgated thereunder, to ensure that such Option is not treated as an ISO. The interpretation and construction by the Committee of any provisions of the Plan or of any Stock Right granted under it shall be final unless otherwise determined by the Board. The Committee may from time to time adopt such rules and regulations for carrying out the Plan as it may deem advisable. No member of the Board or the Committee shall be liable for any action or determination made in good faith with respect to the Plan or any Stock Right granted under it. B. Committee Actions. The Committee may select one of its ------------------- members as its chairman, and shall hold meetings at such time and places as it may determine. A majority of the Committee shall constitute a quorum and acts of a majority of the members of the Committee at a meeting at which a quorum is present, or acts reduced to or approved in writing by all the members of the Committee (if consistent with applicable state law), shall be the valid acts of the Committee. From time to time the Board may increase the size of the Committee and appoint additional members thereof, remove members (with or without cause) and appoint new members in substitution therefor, fill vacancies however caused, or remove all members of the Committee and thereafter directly administer the Plan. C. Grant of Stock Rights to Board Members. Stock Rights may --------------------------------------- be granted to members of the Board. All grants of Stock Rights to members of the Board shall in all respects be made in accordance with the provisions of this Plan applicable to other eligible persons. Members of the Board who either (i) are eligible to receive grants of Stock Rights pursuant to the Plan or (ii) have been granted Stock Rights may vote on any matters affecting the administration of the Plan or the grant of any Stock Rights pursuant to the Plan, except that no such member shall act upon the granting to himself or herself of Stock Rights, but any such member may be counted in determining the existence of a quorum at any meeting of the Board during which action is taken with respect to the granting to such member of Stock Rights. D. Performance-Based Compensation. The Board, in its dis- ------------------------------- cretion, may take such action as may be necessary to ensure that Stock Rights granted under the Plan qualify as "qualified performance-based compensation" within the meaning of Section 162(m) of the Code and applicable regulations promulgated thereunder ("Performance-Based Compensation"). Such action may include, in the Board's discretion, some or all of the following (i) if the Board determines that Stock Rights granted under the Plan generally shall constitute Performance-Based Compensation, the Plan shall be administered, to the extent required for such Stock Rights to constitute Performance-Based 3 -3- Compensation, by a Committee consisting solely of two or more "outside directors" (as defined in applicable regulations promulgated under Section 162(m) of the Code), (ii) if any Non-Qualified Options with an exercise price less than the fair market value per share of Common Stock are granted under the Plan and the Board determines that such Options should constitute Performance-Based Compensation, such options shall be made exercisable only upon the attainment of a pre-established, objective performance goal established by the Committee, and such grant shall be submitted for, and shall be contingent upon shareholder approval and (iii) Stock Rights granted under the Plan may be subject to such other terms and conditions as are necessary for compensation recognized in connection with the exercise or disposition of such Stock Right or the disposition of Common Stock acquired pursuant to such Stock Right, to constitute Performance-Based Compensation. 3. Eligible Employees and Others. ISOs may be granted only to employees ------------------------------ of the Company or any Related Corporation. Non-Qualified Options, Awards and authorizations to make Purchases may be granted to any employee, consultant or director of the Company or any Related Corporation; provided, however, that no Option may be granted hereunder to any non-employee director. The Committee may take into consideration a recipient's individual circumstances in determining whether to grant a Stock Right. The granting of any Stock Right to any individual or entity shall neither entitle that individual or entity to, nor disqualify such individual or entity from, participation in any other grant of Stock Rights. 4. Stock. The stock subject to Stock Rights shall be authorized but ------ unissued shares of Common Stock of the Company, par value $.125 per share (the "Common Stock"), or shares of Common Stock reacquired by the Company in any manner. The aggregate number of shares which may be issued pursuant to the Plan is 3,000,000, subject to adjustment as provided in paragraph 13. If any Option granted under the Plan shall expire or terminate for any reason without having been exercised in full or shall cease for any reason to be exercisable in whole or in part or shall be repurchased by the Company, the unpurchased shares of Common Stock subject to such Option shall again be available for grants of Stock Rights under the Plan. No employee of the Company or any Related Corporation may be granted Options to acquire, in the aggregate, more than 2,000,000 shares of Common Stock under the Plan during any fiscal year of the Company. If any Option granted under the Plan shall expire or terminate for any reason without having been exercised in full or shall cease for any reason to be exercisable in whole or in part or shall be repurchased by the Company, the shares subject to such Option shall be included in the determination of the aggregate number of shares of Common Stock deemed to have been granted to such employee under the Plan. 5. Granting of Stock Rights. Stock Rights may be granted under the Plan ------------------------- at any time on or after January 28, 1997 and prior to January 25, 2007. The date of grant of a Stock Right under the Plan will be the date specified by the Committee at the time it grants the Stock Right; provided, however, that such date shall not be prior to the date on which the Committee acts to approve the 4 -4- grant. The Committee shall have the right, with the consent of the optionee, to convert an ISO granted under the Plan to a Non-Qualified Option pursuant to paragraph 16. 6. Minimum Option Price; ISO Limitations. -------------------------------------- A. Price for Non-Qualified Options, Awards and Purchases. -------------------------------------------------------- Subject to paragraph 2(D) (relating to compliance with Section 162(m) of the Code), the exercise price per share specified in the agreement relating to each Non-Qualified Option granted, and the purchase price per share of stock granted in any Award or authorized as a Purchase, under the Plan may be less than the fair market value of the Common Stock of the Company on the date of grant; provided that, in no event shall such exercise price or such purchase price be less than the minimum legal consideration required therefor under the laws of any jurisdiction in which the Company or its successors in interest may be organized. No more than 400,000 Non-Qualified Options may be granted under the Plan for less than "fair market value" (as hereinafter defined). B. Price for ISOs. The exercise price per share specified ----------------- in the agreement relating to each ISO granted under the Plan shall not be less than the fair market value per share of Common Stock on the date of such grant. In the case of an ISO to be granted to an employee owning stock possessing more than ten percent (10%) of the total combined voting power of all classes of stock of the Company or any Related Corporation, the price per share specified in the agreement relating to such ISO shall not be less than one hundred ten percent (110%) of the fair market value per share of Common Stock on the date of grant. For purposes of determining stock ownership under this paragraph, the rules of Section 424(d) of the Code shall apply. C. $100,000 Annual Limitation on ISO Vesting. Each eligible ------------------------------------------- employee may be granted Options treated as ISOs only to the extent that, in the aggregate under this Plan and all incentive stock option plans of the Company and any Related Corporation, ISOs do not become exercisable for the first time by such employee during any calendar year with respect to stock having a fair market value (determined at the time the ISOs were granted) in excess of $100,000. Any Options granted to an employee in excess of such limitation will be granted as Non-Qualified Options, and the Company shall issue separate certificates to the optionee with respect to Options that are Non-Qualified Options and Options that are ISOs. D. Determination of Fair Market Value. If, at the time ------------------------------------- an Option is granted under the Plan, the Company's Common Stock is publicly traded, "fair market value" shall be determined as of the date of grant or, if the prices or quotes discussed in this sentence are unavailable for such date, the last business day for which such prices or quotes are available prior to the date of grant and shall mean (i) the average (on that date) of the high, low and closing 5 -5- prices of the Common Stock on the principal national securities exchange on which the Common Stock is traded, if the Common Stock is then traded on a national securities exchange; or (ii) the last reported sale price (on that date) of the Common Stock on the Nasdaq National Market, if the Common Stock is not then traded on a national securities exchange; or (iii) the closing bid price (or average of bid prices) last quoted (on that date) by an established quotation service for over-the-counter securities, if the Common Stock is not reported on the Nasdaq National Market. If the Common Stock is not publicly traded at the time an Option is granted under the Plan, "fair market value" shall mean the fair value of the Common Stock as determined by the Committee after taking into consideration all factors which it deems appropriate, including, without limitation, recent sale and offer prices of the Common Stock in private transactions negotiated at arm's length. 7. Option Duration. Subject to earlier termination as provided in ----------------- paragraphs 9 and 10 or in the agreement relating to such Option, each Option shall expire on the date specified by the Committee, but not more than (i) ten years and one day from the date of grant in the case of Non-Qualified Options, (ii) ten years from the date of grant in the case of ISOs and (iii) five years from the date of grant in the case of ISOs granted to an employee owning stock possessing more than ten percent (10%) of the total combined voting power of all classes of stock of the Company or any Related Corporation, as determined under paragraph 6(B). Subject to earlier termination as provided in paragraphs 9 and 10, the term of each ISO shall be the term set forth in the original instrument granting such ISO, except with respect to any part of such ISO that is converted into a Non-Qualified Option pursuant to paragraph 16. 8. Exercise of Option. Subject to the provisions of paragraphs 9 ------------------- through 12, each Option granted under the Plan shall be exercisable as follows: A. Vesting. The Option shall either be fully exercisable on -------- the date of grant or shall become exercisable thereafter in such installments as the Committee may specify. B. Full Vesting of Installments. Once an installment becomes ----------------------------- exercisable, it shall remain exercisable until expiration or termination of the Option, unless otherwise specified by the Committee. C. Partial Exercise. Each Option or installment may be ----------------- exercised at any time or from time to time, in whole or in part, for up to the total number of shares with respect to which it is then exercisable. D. Acceleration of Vesting. The Committee shall have the ------------------------- right to accelerate the date that any installment of any Option becomes exercisable; provided, that the Committee shall not, without the consent of an optionee, accelerate the permitted exercise date of any installment of any Option granted to any employee as an ISO (and not previously converted into a Non-Qualified Option pursuant to paragraph 16) if such acceleration would violate the annual vesting limitation contained 6 -6- in Section 422(d) of th Code, as described in paragraph 6(C). 9. Termination of Employment. Unless otherwise specified in the ---------------------------- agreement relating to such ISO, if an optionee ceases to be employed by the Company and all Related Corporations other than by reason of death or disability as defined in paragraph 10, no further installments of his or her Options shall become exercisable, and his or her Options shall terminate after the passage of 90 days from the date of termination of his or her employment; provided, that the Committee may specify that Non-Qualified Options may remain exercisable for more than 90 days from the date of termination of employment; provided, further, that in no event shall any Option or part or installment thereof become or remain exercisable after its specified expiration date. Employment shall be considered as continuing uninterrupted during any bona fide leave of absence (such as those attributable to illness, military obligations or governmental service) provided that the period of such leave does not exceed 90 days or, if longer, any period during which such optionee's right to reemployment is guaranteed by statute. A bona fide leave of absence with the written approval of the Committee shall not be considered an interruption of employment under the Plan, provided that such written approval contractually obligates the Company or any Related Corporation to continue the employment of the optionee after the approved period of absence. Options granted under the Plan shall not be affected by any change of employment within or among the Company and Related Corporations, so long as the optionee continues to be an employee of the Company or any Related Corporation. Nothing in the Plan shall be deemed to give any grantee of any Stock Right the right to be retained in employment or other service by the Company or any Related Corporation for any period of time. Notwithstanding anything to the contrary contained above, in the case of normal retirement, Non-Qualified Options granted to an optionee shall remain exercisable until the date which is the earlier of (i) the Non-Qualified Options specified expiration date or (ii) 90 days from the date upon which such optionee becomes employed by a competitor of the Company, to the extent of the number of shares which have vested prior to and during such period. The Committee shall have the absolute discretion to determine whether and as of what date any optionee is employed by a competitor of the Company. 10. Death; Disability. ------------------ A. Death. If an optionee ceases to be employed by the ------ Company and all Related Corporations by reason of his or her death, by such optionee may be exercised, to the extent of the number of shares with respect to which such optionee has theretofore been granted Options (whether or not such Options have vested in accordance with their terms),by the estate, personal representative or beneficiary who has acquired the Option by will or by the laws of descent and distribution,(i) in the case of ISOs, at any time prior to the earlier of the ISOs' specified expiration date or 180 days from the date of such optionee's death or (ii) in the case of Non-Qualified Options, at any time prior to the earlier of the Non-Qualified Options specified expiration date or one year from the date of such optionee's death. 7 -7- B. Disability. If an optionee ceases to be employed ----------- by the Company and all Related Corporations by reason of his or her disability, any Option theretofore granted to such optionee shall remain exercisable until the date which is (i) in the case of ISOs, the earlier of such ISOs' specified expiration date or 180 days from the date of the termination of such optionee's employment or (ii) in the case of Non-Qualified Options, the earlier of the Non-Qualified Options specified expiration date or 33 months from the date of the termination of the optionee's employment, to the extent of the number of shares (a) which, in the case of ISOs, have vested prior to and during the period specified in clause (i) and (b) which, in the case of Non-Qualified Options, have vested prior to and during the period which is 30 months from the date the optionee ceases to be employed by the Company. For the purposes of the Plan, the term "disability" shall mean "permanent and total disability" as defined in Section 22(e)(3) of the Code or any successor statute. 11. Assignability. No Option shall be assignable or transferable by the -------------- optionee except by will or by the laws of descent and distribution, and during the lifetime of the optionee shall be exercisable only by such optionee. 12. Terms and Conditions of Options. Options shall be evidenced by ---------------------------------- instruments (which need not be identical) in such forms as the Committee may from time to time approve. Such instruments shall conform to the terms and conditions set forth in paragraphs 6 through 11 hereof and may contain such other provisions as the Committee deems advisable which are not inconsistent with the Plan, including restrictions applicable to shares of Common Stock issuable upon exercise of Options. The Committee may specify that any Non-Qualified Option shall be subject to the restrictions set forth herein with respect to ISOs, or to such other termination and cancellation provisions as the Committee may determine. The Committee may from time to time confer authority and responsibility on one or more of its own members and/or one or more officers of the Company to execute and deliver such instruments. The proper officers of the Company are authorized and directed to take any and all action necessary or advisable from time to time to carry out the terms of such instruments. 13. Adjustments. Upon the occurrence of any of the following events, an ------------ optionee's rights with respect to Options granted to such optionee hereunder shall be adjusted as hereinafter provided, unless otherwise specifically provided in the written agreement between the optionee and the Company relating to such Option: A. Stock Dividends and Stock Splits. If the shares of Common --------------------------------- Stock shall be subdivided into a greater or smaller number of shares or if the Company shall issue any shares of Common Stock as a stock dividend on its outstanding Common Stock, the number of shares of Common Stock deliverable upon the exercise of Options shall be appropriately increased or decreased proportionately, and appropriate adjustments shall be made in the purchase price per share to reflect such subdivision, combination or stock dividend. 8 -8- B. Consolidations or Mergers. If the Company is to be ---------------------------- consolidated with or acquired by another entity in a merger, sale of all or substantially all of the Company's assets or otherwise (each, an "Acquisition"), the Committee or the board of directors of any entity assuming the obligations of the Company hereunder (the "Successor Board"), shall, as to outstanding Options, either (i) make appropriate provision for the continuation of such Options by substituting on an equitable basis for the shares then subject to such Options the consideration payable with respect to the outstanding shares of Common Stock in connection with the Acquisition; or (ii) to the extent not inconsistent with tax and accounting principles applicable to the subject Options, (A) upon written notice to the optionees, provide that all Options must be exercised, to the extent then exercisable within a specified number of days of the date of such notice, at the end of which period the Options shall terminate; or (B) terminate all Options in exchange for a cash payment equal to the excess of the fair market value of the shares subject to such Options (to the extent then exercisable or to be exercisable as a result of the Acquisition) over the exercise price thereof. C. Recapitalization or Reorganization. In the event of a ------------------------------------- recapitalization or reorganization of the Company pursuant to which securities of the Company or of another corporation are issued with respect to the outstanding shares of Common Stock, an optionee upon exercising an Option shall be entitled to receive for the purchase price paid upon such exercise the securities he or she would have received if he or she had exercised such Option prior to such recapitalization or reorganization. D. Modification of ISOs. Notwithstanding the foregoing, any --------------------- adjustments made pursuant to subparagraphs A, B or C with respect to ISOs shall be made only after the Committee, after consulting with counsel for the Company, determines whether such adjustments would constitute a "modification" of such ISOs (as that term is defined in Section 424 of the Code) or would cause any adverse tax consequences for the holders of such ISOs. If the Committee determines that such adjustments made with respect to ISOs would constitute a modification of such ISOs or would cause adverse tax consequences to the holders, it may refrain from making such adjustments. E. Dissolution or Liquidation. In the event of the proposed --------------------------- dissolution or liquidation of the Company, each Option will terminate immediately prior to the consummation of such proposed action or at such other time and subject to such other conditions as shall be determined by the Committee. F. Issuances of Securities. Except as expressly provided ------------------------- herein, no issuance by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of shares subject to Options. No 9 -9- adjustments shall be made for dividends paid in cash or in property other than securities of the Company. G. Fractional Shares. No fractional shares shall be issued ------------------- under the Plan and the optionee shall receive from the Company cash in lieu of such fractional shares. H. Adjustments. Upon the happening of any of the events ------------ described in subparagraphs A, B or C above, the class and aggregate number of shares set forth in paragraph 4 hereof that are subject to Stock Rights which previously have been or subsequently may be granted under the Plan shall also be appropriately adjusted to reflect the events described in such subparagraphs. The Committee or the Successor Board shall determine the specific adjustments to be made under this paragraph 13 and, subject to paragraph 2, its determination shall be conclusive. If any person or entity owning restricted Common Stock obtained by exercise of an Option receives shares or securities or cash in connection with a corporate transaction described in subparagraphs A, B or C above as a result of owning such restricted Common Stock, such shares or securities or cash shall be subject to all of the conditions and restrictions applicable to the restricted Common Stock with respect to which such shares or securities or cash were issued, unless otherwise determined by the Committee or the Successor Board. 14. Means of Exercising Options. An Option (or any part or installment ----------------------------- thereof) shall be exercised by giving written notice to the Company at its principal office address. Such notice shall identify the Option being exercised and specify the number of shares as to which such Option is being exercised, accompanied by full payment of the purchase price therefor either (a) in United States dollars in cash or by check, (b) at the discretion of the Committee, through delivery of shares of Common Stock having a fair market value equal as of the date of the exercise to the cash exercise price of the Option, (c) at the discretion of the Committee in exceptional cases, by delivery of the grantee's personal recourse note bearing interest payable not less than annually at no less than 100% of the lowest applicable Federal rate, as defined in Section 1274(d) of the Code, or (d) at the discretion of the Committee, by any combination of (a), (b) and (c) above. If the Committee exercises its discretion to permit payment of the exercise price of an ISO by means of the methods set forth in clauses (b), (c) or (d) of the preceding sentence, such discretion shall be exercised in writing at the time of the grant of the ISO in question. Alternatively, payment may be made in whole or in part in shares of the Common Stock of the Company already owned by the person or persons exercising the Option or shares subject to the Option being exercised (subject to such restrictions and guidelines as the Board may adopt from time to time), or consistent with applicable law, through the delivery of an assignment to the Company of a sufficient amount of the proceeds from the sale of the Common Stock acquired upon exercise of the Option and an authorization to the broker or selling agent to pay that amount to the Company, which sale shall be at the participant's direction at the time of exercise, provided that the Committee shall allow for such payment at the time of grant of the ISO. The holder of an Option shall not have the rights of a shareholder with respect to the shares 10 -10- covered by such Option until the date of issuance of a stock certificate to such holder for such shares. Except as expressly provided above in paragraph 13 with respect to changes in capitalization and stock dividends, no adjustment shall be made for dividends or similar rights for which the record date is before the date such stock certificate is issued. 15. Term and Amendment of Plan. This Plan was adopted by the Board on ---------------------------- January 28, 1997, and shall expire at the end of the day on January 25, 2007 (except as to Options outstanding on that date). The Board may at any time terminate this Plan or make such modification or amendment thereof as it deems advisable; provided, however, that the Board may not modify or amend this Plan, --------- -------- without approval by the affirmative vote of the holders of a majority of the securities of the Company present, or represented, and entitled to vote at a meeting duly held in accordance with the applicable laws of the state in which the Company is incorporated, if (i) such approval would be necessary for Option grants under the Plan to qualify for favorable treatment under Sections 162(m) or 422 of the Code, or any successor provisions; or (ii) such approval is otherwise required by law or the rules of any national securities exchange or inter-dealer quotation system on which the Common Stock is then listed (in each case, at the time of any such modification or amendment). Termination or any modification or amendment of this Plan shall not, without consent of a participant, affect his or her rights under an option previously granted to him or her. 16. Conversion of ISOs into Non-Qualified Options. The Committee, at ----------------------------------------------- the written request or with the written consent of any optionee, may in its discretion take such actions as may be necessary to convert such optionee's ISOs (or any installments or portions of installments thereof) that have not been exercised on the date of conversion into Non-Qualified Options at any time prior to the expiration of such ISOs, regardless of whether the optionee is an employee of the Company or a Related Corporation at the time of such conversion. Such actions may include, but shall not be limited to, extending the exercise period or reducing the exercise price of the appropriate installments of such ISOs. At the time of such conversion, the Committee (with the consent of the optionee) may impose such conditions on the exercise of the resulting Non-Qualified Options as the Committee in its discretion may determine, provided that such conditions shall not be inconsistent with this Plan. Nothing in the Plan shall be deemed to give any optionee the right to have such optionee's ISOs converted into Non-Qualified Options, and no such conversion shall occur until and unless the Committee takes appropriate action. Upon the taking of such action, the Company shall issue separate certificates to the optionee with respect to Options that are Non-Qualified Options and Options that are ISOs. The Committee, with the consent of the optionee, may also terminate any portion of any ISO that has not been exercised at the time of such termination. 17. Application Of Funds. The proceeds received by the Company from --------------------- the sale of shares pursuant to Options granted and Purchases authorized under the Plan shall be used for general corporate purposes. 18. Notice to Company of Disqualifying Disposition. Each employee who ------------------------------------------------ receives an ISO shall agree to notify the Company in writing immediately after such optionee makes a Disqualifying Disposition (as described in Sections 421, 11 -11- 422 and 424 of the Code and regulations thereunder) of any stock acquired pursuant to the exercise of ISOs granted under the Plan. A Disqualifying Disposition is generally any disposition occurring on or before the later of (a) the date two years following the date the ISO was granted or (b) the date one year following the date the ISO was exercised. 19. Withholding of Additional Income Taxes. Upon the exercise of a ------------------------------------------ Non-Qualified Option, the transfer of a Non-Qualified Stock Option pursuant to an arm's-length transaction, the grant of an Award, the making of a Purchase of Common Stock for less than its fair market value, the making of a Disqualifying Disposition (as defined in paragraph 18), the vesting or transfer of restricted stock or securities acquired on the exercise of an Option hereunder, or the making of a distribution or other payment with respect to such stock or securities, the Company may withhold taxes in respect of amounts that constitute compensation includible in such Optionee's gross income. The Committee in its discretion may condition (i) the exercise of an Option, (ii) the transfer of a Non-Qualified Stock Option, (iii) the grant of an Award, (iv) the making of a Purchase of Common Stock for less than its fair market value, or (v) the vesting or transferability of restricted stock or securities acquired by exercising an Option, on the grantee's making satisfactory arrangement for such withholding. Such arrangement may include payment by the grantee in cash or by check of the amount of the withholding taxes or, at the discretion of the Committee, by the grantee's delivery of previously held shares of Common Stock or the withholding from the shares of Common Stock otherwise deliverable upon exercise of a Option shares having an aggregate fair market value equal to the amount of such withholding taxes. 20. Governmental Regulation. The Company's obligation to sell and ------------------------ deliver shares of Common Stock under this Plan is subject to the approval of any governmental authority required in connection with the authorization, issuance or sale of such shares. Government regulations may impose reporting or other obligations on the Company with respect to the Plan. For example, the Company may be required to send tax information statements to employees and former employees that exercise ISOs under the Plan, and the Company may be required to file tax information returns reporting the income received by grantees of Options in connection with the Plan. 21. Governing Law. The validity and construction of the Plan and the --------------- instruments evidencing Stock Rights shall be governed by the laws of The Commonwealth of Massachusetts, or the laws of any jurisdiction in which the Company or its successors in interest may be organized. EX-10.15 5 LETTER AGREEMENT 1 EXHIBIT 10.15 [Teradyne, Inc. Letterhead] Mr. John E. Halter 576 E. Crescent Drive Palo Alto, CA 94301 January 24, 1997 Dear Jack: The purpose of this letter is to confirm our agreement regarding your employment status. As we discussed, effective with the date of this letter, you resign from any and all offices and directorships which you hold at Teradyne, Inc. and any of Teradyne's subsidiaries or their subsidiaries and branches. However, you shall remain an employee of Teradyne in accordance with the terms described in your Employment Agreement dated December 1, 1995, as modified in this letter. You will remain an employee through November 30, 1997, at which time your employment will cease, unless earlier terminated for cause in accordance with the December 1, 1995 Employment agreement. During this period your monthly compensation will be $22,917.00 per month, and we expect you may be asked to devote as much as 50% of your time to Teradyne, as requested by us. However, should you find another job, which we agree is not competitive with Teradyne, before December 1, 1997, your salary will be reduced to $1,000.00 per month. During your remaining term of employment you will not participate in Teradyne benefit plans or compensation programs (including Variable Compensation and Profit Sharing), except that while you are employed solely by Teradyne, you may continue participation in the following: health, dental, and vision plans, with Teradyne paying its normal (approx. 75%) share; life insurance and supplemental life insurance (to the extent you presently participate); and our 401k plan (however, you will not be eligible for any company match). Upon termination of employment, in accordance with COBRA, you may continue to participate in the health, dental and vision plans, at your sole expense for up to 18 months (or until age 65, which ever comes first). While you are employed by Teradyne your options will continue to vest 1/16th per quarter at the end of each of the following quarters: February 28, 1997, May 31, 1997, August 31, 1997 and November 30, 1997. Upon your termination of employment, vesting will cease, and you shall have 90 days to exercise any vested and unexercised options (but only 30 days for the 350 share ISO grant). Any unused flex amounts due you will be paid within 30 days of termination of employment. Also, while you are employed, you will continue to have a voice mail and e-mail account, although you will vacate your office no later than March 1, 1997. Assuming you agree to the above, please sign the enclosed copy of this letter and return it to me. Sincerely, Teradyne, Inc. /s/ James A. Prestridge ----------------------- James A. Prestridge Vice Chairman Above Agreed to: By:/s/ John E. Halter Date: 1/24/97 - --------------------- ------------- John E. Halter EX-22.1 6 LIST OF SUBSIDIARIES 1 EXHIBIT 22.1 PRESENT SUBSIDIARIES
PERCENTAGE STATE OR OF VOTING JURISDICTION SECURITIES INCORPORATION OWNED ------------------- ---------- Teradyne Benelux, Inc. (Ltd.)................................. Delaware 100% Teradyne Canada Limited....................................... Canada 100% Teradyne GmbH................................................. Germany 100% Teradyne Holdings, Inc........................................ New Hampshire 100% Teradyne Holdings Limited..................................... United Kingdom 100% Teradyne Limited............................................ United Kingdom 100% Teradyne Hong Kong, Ltd. ..................................... Delaware 100% Teradyne International, Ltd. ................................. U.S. Virgin Islands 100% Teradyne Ireland Limited...................................... Ireland 100% Teradyne Italia S.r.L. ....................................... Italy 100% Teradyne Japan, Ltd. ......................................... Delaware 100% Teradyne K.K. .............................................. Japan 100% Teradyne Korea, Ltd. ......................................... Delaware 100% Teradyne Leasing, Inc. ....................................... Massachusetts 100% Teradyne Malaysia, Ltd. ...................................... Delaware 100% Teradyne Midnight Networks Inc................................ Delaware 100% Teradyne Netherlands B.V. .................................... Netherlands 100% Teradyne Netherlands, Ltd. ................................... Delaware 100% Teradyne Realty, Inc. ........................................ Massachusetts 100% Teradyne S.A. ................................................ France 100% Teradyne Scandinavia, Inc. ................................... Delaware 100% Teradyne Singapore, Ltd. ..................................... Delaware 100% Teradyne Software and Systems Test, Inc. ..................... Delaware 100% Teradyne Taiwan, Ltd. ........................................ Delaware 100% Control Automation, Inc....................................... Delaware 100% Hammer Technologies, Inc. .................................... Massachusetts 100% Kinetrix, Inc................................................. Delaware 84% Megatest Corporation.......................................... Delaware 100% Megatest Limited............................................ United Kingdom 100% Megatest SARL............................................... France 100% Megatest GmbH............................................... Germany 100% Megatest H.K. Ltd. ......................................... Hong Kong 100% Teradyne Philippines Ltd.................................... California 100% Megatest International Sales Corporation.................... Barbados 100% Megatest Asia Pte. Ltd. .................................... Singapore 100% Zehntel Holdings, Inc. ....................................... California 100% 1000 Washington, Inc. ........................................ Massachusetts 100%
EX-23.1 7 CONSENT OF COOPERS & LYBRAND 1 EXHIBIT 23.1 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the incorporation by reference in the registration statements of Teradyne, Inc. on Form S-8 (File Nos. 33-25868; 33-16077; 33-42352; 33-38251; 33-55123; 33-64683; and 333-07177) and Form S-3 (File No. 33-44347) of our report dated January 17, 1997, on our audits of the consolidated financial statements of Teradyne, Inc. as of December 31, 1996 and 1995, and for each of the three years in the period ended December 31, 1996, which report is included in this Annual Report on Form 10-K. COOPERS & LYBRAND L.L.P. Boston, Massachusetts March 26, 1997 EX-23.2 8 CONSENT OF PRICE WATERHOUSE LLP 1 EXHIBIT 23.2 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (Nos. 33-64683; 33-25868; 33-16077; 33-42352; 33-38251; 33-55123; and 333-07177) and Form S-3 (File No. 33-44347) of Teradyne, Inc. of our report dated September 20, 1995 relating to the consolidated financial statements of Megatest Corporation and its subsidiaries as of and for the year ended August 31, 1994, which report is included in this Annual Report on Form 10-K. PRICE WATERHOUSE LLP San Jose, California March 26, 1997 EX-27 9 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEET AT DECEMBER 31, 1996 AND THE CONSOLIDATED STATEMENT OF INCOME FOR THE YEAR ENDED DECEMBER 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 U.S. DOLLARS 12-MOS DEC-31-1996 JAN-01-1996 DEC-31-1996 1 201,452 48,266 180,366 1,936 138,954 617,108 563,585 290,088 1,096,816 225,257 15,650 0 0 10,310 831,701 1,096,816 1,171,615 1,171,615 724,624 1,048,820 0 0 2,427 139,663 46,089 93,574 0 0 0 93,574 1.10 1.10
-----END PRIVACY-ENHANCED MESSAGE-----