-----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, BUNKgoTCzqUucvkYsIyUPNmGk4oqFVE+inbVpbdRnMYjGylJyrZjrRmLlFVRedGn u8nuKyEi/lp8bEV1x7G2Ug== 0000950135-01-000940.txt : 20010328 0000950135-01-000940.hdr.sgml : 20010328 ACCESSION NUMBER: 0000950135-01-000940 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20001231 FILED AS OF DATE: 20010327 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: SEC FILE NUMBER: 001-06462 FILM NUMBER: 1580551 BUSINESS ADDRESS: STREET 1: 321 HARRISON AVE STREET 2: MAIL STOP H93 CITY: BOSTON STATE: MA ZIP: 02118 BUSINESS PHONE: 6174822700 MAIL ADDRESS: STREET 1: 321 HARRISON AVENUE STREET 2: H93 CITY: BOSTON STATE: MA ZIP: 02118 10-K 1 b38191tee10-k.txt TERADYNE, INC. 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, 2000 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 per share New York Stock Exchange Common Stock Purchase Rights 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 25, 2001 was $6.2 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 25, 2001 was 173,888,278 shares. DOCUMENTS INCORPORATED BY REFERENCE Portions of the registrant's proxy statement in connection with its 2001 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 leading manufacturer of automatic test equipment ("ATE") and related software for the electronics and communications industries. Products include systems to test and inspect: - semiconductors ("semiconductor test systems"); - circuit-boards ("circuit-board test and inspection systems"); - high speed voice and data communication ("broadband test systems"); and - software ("software test systems"). On December 29, 2000, Teradyne sold a controlling interest in its software test business to an investor group led by Matrix Partners of Waltham, Massachusetts. Teradyne retains a minority ownership in the new company called Empirix. Software test systems activity is reflected in Teradyne's results for all periods presented. See "Note D: Acquisitions and Divestitures" in Notes to Consolidated Financial Statements for further information. Teradyne is also a leading manufacturer of backplanes and associated connectors used in electronic systems ("connection systems"). Circuit-board test and inspection systems, broadband test systems, and software test systems have been combined into "other test and inspection systems" for purposes of reporting Teradyne's operating segments. For financial information concerning these operating segments, see "Note O: Operating Segment and Geographic Information" in Notes to Consolidated Financial Statements. 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 Teradyne'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." PRODUCTS Semiconductor test systems produced by Teradyne are used by electronic component manufacturers in the design and testing of a wide variety of semiconductor products, including logic, memory, mixed signal, and "system on a chip" integrated circuits. Semiconductor test systems are sold to semiconductor manufacturers and subcontractors to the semiconductor industry. Semiconductor manufacturers use Teradyne's semiconductor test systems to: - measure product performance; - improve product quality; - shorten time to market; - enhance manufacturability; - minimize labor costs; and - increase production yields. Connection systems provides backplane assemblies, connectors and electro-mechanical systems integration for customers in the telecom, data networking, storage, server, and aerospace/defense industries. A backplane is an assembly into which printed circuit boards are inserted that provides for the interconnection of electrical signals between the circuit boards and the other elements of the system. Connection systems provides both a technology advantage and the benefits of vertical integration to its customers. Connection systems product technology can be found in diverse products such as Internet routers, computer servers, mass data storage, telecom switches and aerospace. 1 3 Circuit-board test and inspection systems are used by electronic equipment manufacturers for the design, inspection, and testing of circuit boards and other assemblies. Circuit-board test and inspection systems are also sold to customers across most sectors of the electronics industry and to companies in other industries that use electronic devices in high volume. Similar to semiconductor test systems, circuit-board test and inspection systems customers use their test and inspection systems and related software to increase product performance, to improve product quality, to shorten time to market, to enhance manufacturability, to minimize labor costs, and to increase production yields. Broadband test systems are used by the communications industry for Internet testing, customer care and voice network maintenance. Broadband test systems perform qualification testing for Digital Subscriber Line (DSL) services, assist customer care centers in isolating network service problems, and perform integrated surveillance and maintenance for voice networks. Software test systems, divested in December 2000 as previously noted, are used by a number of industries to test communications networks, computerized telecommunication systems, and web based applications. Teradyne's product lines accounted for the following percentage of consolidated net sales for each of last three years:
% OF CONSOLIDATED NET SALES ---------------------------- 2000 1999 1998 ---- ---- ---- Semiconductor test systems............................ 67% 68% 65% Connection systems.................................... 24 21 18 Circuit-board test and inspection systems............. 5 6 10 Broadband test systems................................ 1 2 5 Software test systems................................. 3 3 2 --- --- --- Total............................................ 100% 100% 100%
SALES AND DISTRIBUTION Teradyne's systems are complex and require extensive support both by the customer and Teradyne. Prices for Teradyne's systems can reach $4 million or more. In 2000, no single customer accounted for more than 10% of consolidated net sales. In 2000, Teradyne's three largest customers accounted for 21% of consolidated net sales. We have sales and service offices throughout North America, South East Asia, Europe, Taiwan, Japan, and Korea as Teradyne's customers outside the United States are located primarily in those geographic areas. Teradyne sells in these areas predominantly utilizing a direct sales force. Substantially all of our manufacturing activities are conducted in the United States. Sales to customers outside the United States accounted for 54% of consolidated net sales in 2000, 52% in 1999, and 46% in 1998. Teradyne 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. Teradyne 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. See also "Item 7A. Quantitative and Qualitative Disclosures About Market Risks." 2 4 COMPETITION We face substantial competition, throughout the world, in each of our operating segments. Some of these competitors have substantial financial and other resources to pursue engineering, manufacturing, marketing and distribution of their products. We also face competition from internal suppliers at several of our customers. Some of our competitors have introduced or announced new products with certain performance characteristics which may be considered equal or superior to those we currently offer. We expect our 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 our products. Moreover, increased competitive pressure could lead to intensified price based competition, which could materially adversely affect our business, financial condition and results of operations. BACKLOG At December 31, 2000 and 1999, Teradyne's backlog of unfilled orders was as follows:
(IN MILLIONS) ---------------------- 2000 1999 ---- ---- Semiconductor test systems........................ $ 742.1 $700.0 Connection systems................................ 534.4 175.4 Other test and inspection systems................. 105.6 104.1 -------- ------ $1,382.1 $979.5
Of the backlog at December 31, 2000, approximately 98% of the semiconductor test systems backlog, 100% of the connection systems backlog and approximately 83% of the other test and inspection systems backlog are expected to be delivered in 2001. Teradyne's experience indicates that a portion of orders included in the backlog may be canceled or rescheduled. We have recently experienced the rescheduling of delivery dates by some of our customers, and thus the timing of the delivery of a significant portion of the backlog is uncertain. There are no seasonal factors related to the backlog. RAW MATERIALS Our products require a wide variety of electronic and mechanical components. Teradyne can experience occasional delays in obtaining timely delivery of certain items. Additionally, we could experience a temporary adverse impact if any of our sole source suppliers ceased to deliver products. Any prolonged inability to obtain adequate yields or deliveries, or any other circumstances that would require us to seek alternative sources of supply could have a material adverse effect on our business, financial condition, and results of operations. PATENTS AND LICENSES The development of products by Teradyne, both hardware and software, is largely based on proprietary information. We protect our rights in proprietary information through various methods such as: - copyrights; - trademarks; - patents and patent applications; - software license agreements; and - employee agreements. Any invalidation of Teradyne's intellectual property rights could have a material adverse effect on our business. 3 5 EMPLOYEES As of December 31, 2000 we employed approximately 10,200 people. Since the inception of Teradyne's business, there have been no work stoppages or other labor disturbances. Teradyne has no collective bargaining contracts. ENGINEERING AND DEVELOPMENT ACTIVITIES The highly technical nature of Teradyne's products requires a large and continuing engineering and development effort. Engineering and development expenditures for new and improved products were approximately $300.9 million in 2000, $228.6 million in 1999, and $195.2 million in 1998. These expenditures amounted to approximately 10% of consolidated net sales in 2000 and 13% in 1999 and 1998. ENVIRONMENTAL AFFAIRS Teradyne's manufacturing facilities are subject to numerous laws and regulations designed to protect the environment, particularly from manufacturing plant wastes and emissions. These laws include: - The Comprehensive Environmental Response, Compensation, and Liability Act; - 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 have not had and are currently not expected to have a material effect upon the financial position of Teradyne. 4 6 EXECUTIVE OFFICERS OF THE COMPANY The following table sets forth the names of all executive officers of Teradyne and certain other information relating to their positions held with Teradyne and other business experience. Executive officers of Teradyne do not have a specific term of office but rather serve at the discretion of the Board of Directors.
EXECUTIVE OFFICER AGE POSITION BUSINESS EXPERIENCE FOR THE PAST 5 YEARS ----------------- --- -------- ---------------------------------------- George W. Chamillard... 62 President, Chairman Chairman of the Board since 2000; President and of the Board, and Chief Executive Officer of Teradyne since 1997; Chief Executive Director of Teradyne since 1996; President and Officer Chief Operating Officer of Teradyne from 1996 to 1997; Executive Vice President of Teradyne from 1994 to 1996. Michael A. Bradley..... 52 Vice President and Chief Financial Officer of Teradyne since 1999; Chief Financial Vice President of Teradyne since 1992. Officer Edward Rogas, Jr....... 60 Senior Vice President Senior Vice President of Teradyne since 2000; Vice President of Teradyne from 1984 to 1999. David L. Sulman........ 57 Senior Vice President Senior Vice President of Teradyne since 2000; Vice President of Teradyne from 1994 to 1999. Thomas S. Grilk........ 53 Vice President and Vice President of General Counsel Teradyne since General Counsel 2000; Previously VP of Government Affairs and Assistant General Counsel at Compaq Computer Corp and Digital Equipment Corp from 1994 to 2000. John M. Casey.......... 52 Vice President Vice President of Teradyne since 1990. Ronald J. Dias......... 57 Vice President Vice President of Teradyne since 1988. Donald J. Hamman....... 49 Vice President Vice President of Teradyne beginning in 2001; and Controller Controller of Teradyne since 1994. Stuart M. Osattin...... 55 Vice President and Vice President and Treasurer of Teradyne since Treasurer 1994.
5 7 ITEM 2: PROPERTIES Teradyne'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 Teradyne's principal general offices and manufacturing facilities.
APPROXIMATE PROPERTY SQUARE FEET OF LOCATION OPERATING SEGMENT INTEREST FLOOR SPACE -------- ----------------- -------- -------------- Boston, Massachusetts........... Semiconductor Test & General Offices Own 492,000 Agoura Hills, California........ Semiconductor Test Own 572,000 Nashua, New Hampshire........... Connection Systems Own 569,000 North Reading, Massachusetts.... Semiconductor Test & Circuit Board Test Own 273,000 and Inspection San Diego, California........... Connection Systems Own 192,000 Hudson, New Hampshire........... Connection Systems Lease 144,000 San Jose, California............ Semiconductor Test Own 120,000 Nashua, New Hampshire........... Connection Systems Lease 107,400 La Verne, California............ Connection Systems Own 93,000 Walnut Creek, California........ Circuit Board Test and Inspection Lease 69,000 Kumamoto, Japan................. Semiconductor Test Own 66,000 Deerfield, Illinois............. Broadband Test Own 63,000 Plano, Texas.................... Connection Systems Lease 50,000 Dublin, Ireland................. Connection Systems Lease 46,000 Fremont, California............. Connection Systems Lease 46,000
Teradyne currently owns an additional 425,000 square feet in North Reading, Massachusetts, leases approximately 205,000 square feet in Woburn, Massachusetts, and owns approximately 120,000 square feet in Stoughton, Massachusetts. This space is unoccupied and therefore available for future expansion. ITEM 3: LEGAL PROCEEDINGS Teradyne is subject to legal proceedings and claims which arise in the ordinary course of business. Management does not believe these actions will have a material affect on the financial position or results of operations of Teradyne. ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. None. 6 8 PART II ITEM 5: MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS The following table shows the market range for Teradyne's Common Stock based on reported sale prices on the New York Stock Exchange.
PERIOD HIGH LOW ------ ---- --- 2000 First Quarter........................................... $ 94 15/16 $54 7/8 Second Quarter.......................................... 115 7/16 65 Third Quarter........................................... 81 34 15/16 Fourth Quarter.......................................... 41 5/8 23 1999 First Quarter........................................... $ 32 1/2 $21 1/8 Second Quarter.......................................... 36 23 3/8 Third Quarter........................................... 41 7/8 32 Fourth Quarter.......................................... 66 29 1/2
The number of record holders of Teradyne's Common Stock at February 25, 2001 was 2,406. Teradyne 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 Teradyne's earnings, capital requirements, and financial condition. Teradyne presently expects to retain all of its earnings for use in the business. ITEM 6: SELECTED FINANCIAL DATA
YEARS ENDED DECEMBER 31,* -------------------------------------------------------------- 2000 1999 1998 1997 1996 ---------- ---------- ---------- ---------- ---------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Net sales............................ $3,043,946 $1,790,912 $1,489,151 $1,266,274 $1,171,615 ========== ========== ========== ========== ========== Income before cumulative effect of change in accounting principle..... $ 517,754 $ 191,694 $ 102,117 $ 127,608 $ 93,574 ========== ========== ========== ========== ========== Income before cumulative effect of change in accounting principle per common share -- basic.............. $ 2.99 $ 1.12 $ 0.61 $ 0.76 $ 0.56 ========== ========== ========== ========== ========== Income before cumulative effect of change in accounting principle per common share -- diluted............ $ 2.86 $ 1.07 $ 0.59 $ 0.74 $ 0.55 ========== ========== ========== ========== ========== Total assets......................... $2,355,868 $1,568,213 $1,312,814 $1,251,674 $1,096,816 ========== ========== ========== ========== ========== Long-term obligations................ $ 8,352 $ 8,948 $ 13,200 $ 13,141 $ 15,650 ========== ========== ========== ========== ==========
- --------------- * Note: Pro forma amounts for the periods beginning before January 1, 2000 have not been presented as the effect of the change in accounting principle could not be reasonably determined. See "Note C: Change in Accounting Principle" in Notes to Consolidated Financial Statements for further information. 7 9 ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS In December 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" (SAB 101). SAB 101 summarizes certain areas of the Staff's views in applying generally accepted accounting principles to revenue recognition in financial statements. Historically, Teradyne recognized revenue from the sales of products upon shipment, provided that risk of loss had passed to the customer, and accrued for the costs of installation. Under the new accounting method adopted retroactive to January 1, 2000, Teradyne recognizes revenue from the sales of products when both title and risk of loss pass to the customer. Teradyne also defers the greater of the fair value or the contractual holdback of any undelivered elements, such as installation services, until the undelivered elements are delivered. Teradyne previously accounted for contractual acceptance terms based upon probable achievement of meeting the acceptance criteria. Teradyne now accounts for acceptance terms based upon whether such contractual acceptance criteria is objectively demonstrated prior to shipment. During the fourth quarter of 2000, Teradyne implemented the SEC's SAB 101 guidelines, retroactive to the beginning of the year. This was reported as a cumulative effect of a change in accounting principle as of January 1, 2000. The net impact for fiscal year 2000 of the adoption of SAB 101 on sales, including the amounts deferred at December 31, 2000 which previously would have been recognized prior to SAB 101, was not material. The results for the first three quarters of fiscal year ending December 31, 2000 have been restated in accordance with SAB 101. Pro forma amounts for the periods beginning before January 1, 2000 have not been presented as the effect of the change in accounting principle could not be reasonably determined. SELECTED RELATIONSHIPS WITHIN THE CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, -------------------------------------- 2000 1999 1998 ---------- ---------- ---------- (DOLLARS IN THOUSANDS) Net sales.............................................. $3,043,946 $1,790,912 $1,489,151 ========== ========== ========== Income before cumulative effect of change in accounting principle............................................ $ 517,754 $ 191,694 $ 102,117 ========== ========== ========== Increase in net sales from preceding year: Amount............................................ $1,253,034 $ 301,761 $ 222,877 ========== ========== ========== Percentage........................................ 70% 20% 18% ========== ========== ========== Increase (decrease) in income from preceding year...... $ 326,060 $ 89,577 $ (25,491) ========== ========== ========== Percentage of net sales: Net sales......................................... 100% 100% 100% Expenses: Cost of sales................................ 55 59 64 Engineering and development.................. 10 13 13 Selling and administrative................... 12 14 14 ---------- ---------- ---------- 77 85 91 Net interest and other income.......................... 1 1 1 ---------- ---------- ---------- Income before income taxes and cumulative effect of change in accounting principle....................... 24 15 10 Provision for income taxes............................. 7 4 3 ---------- ---------- ---------- Income before cumulative effect of change in accounting principle............................................ 17 11 7 Cumulative effect of change in accounting principle.... 2 -- -- ---------- ---------- ---------- Net income............................................. 15% 11% 7% ========== ========== ==========
8 10 RESULTS OF OPERATIONS: 2000 compared to 1999 Sales increased 70% in 2000 to a record $3,043.9 million from $1,790.9 million in 1999. Semiconductor test systems shipments increased by 69% due to increased sales to semiconductor manufacturers and subcontractors as these customers increased capacity to meet their customer's requirements. Sales of connection systems to unaffiliated customers grew 97% as a result of significant growth in demand from networking, data storage, and other high technology customers. Other test and inspection systems sales increased 28% from 1999 with increases in circuit-board test and inspection systems of 19%, broadband test systems of 10%, and software test systems of 64%. Due to the sale of a majority interest in the software test business in December 2000, software test systems revenue will not be reflected on an on-going basis. As described in "Item 7: Management's Discussion and Analysis of Financial Condition and Results of Operations -- Certain Factors That May Affect Future Results," our business is impacted by the slowdown in economies worldwide. We are further affected by the cyclical nature of the electronics and semiconductor industry with recurring periods of over supply. These factors have resulted in a downturn in the demand for our products. Teradyne does not have visibility as to the length or severity of the downturn. During this period we expect a decline in orders and are anticipating a reduction in sales from the fourth quarter 2000 level. Consequently, Teradyne is taking appropriate actions to bring expenses in line with the economic conditions. Income before income taxes and cumulative effect of change in accounting principle increased $465.8 million from $273.8 million in 1999 to $739.6 million in 2000. Semiconductor test systems, connection systems, and other test and inspection systems income before income taxes increased $387.4 million, $91.8 million, and $16.5 million, respectively in 2000 due to increased sales in each group. Incoming orders increased 52% from $2,190.6 million in 1999 to a record $3,320.9 million in 2000. Orders increased in all operating segments and were led by a 159% increase in connection systems orders. Semiconductor test systems orders increased 24%. Broadband test systems orders increased 77% and circuit- board test and inspection systems and software test systems increased 26% and 70%, respectively. Teradyne's backlog increased 41% to a record $1,382.1 million. Costs of sales as a percentage of sales decreased from 59% of sales in 1999 to 55% of sales in 2000. The decrease in cost of sales was primarily due to the increased utilization of Teradyne's manufacturing overhead as sales volume increased while certain components of cost of sales remained fixed. Engineering and development expenses decreased from 13% of sales in 1999 to 10% of sales in 2000, even though spending increased $72.4 million. The increase in spending was primarily due to new product development expenses in semiconductor test systems, and, to a lesser extent, increased expenses related to product development in connection systems, circuit-board test and inspection systems, and software test systems. Selling and administrative expenses as a percentage of sales decreased from 14% in 1999 to 12% in 2000. Spending increased by $106.2 million year over year in support of increased semiconductor test systems, connection systems, and software test systems sales. Interest and other income increased $13.4 million to $30.7 million in 2000 compared to 1999. Interest income increased due to an increase in Teradyne's average invested balances and higher interest rates. Included in interest and other income is a gain relating to the divestiture of the software test business. Expenses related to the divestiture are included in selling and administrative expense. These elements offset and the transaction results in an immaterial impact to the financial statements. Teradyne's effective tax rate was 30% in 2000 and 1999. Teradyne continued to utilize export sales corporation benefits and other tax benefits to operate below the U.S. statutory rate of 35%. 9 11 1999 compared to 1998 Sales increased 20% in 1999 to $1,790.9 million from $1,489.2 million in 1998. Semiconductor test systems shipments increased by 25% due to increased orders resulting from capacity expansion at semiconductor manufacturers and subcontractors. Sales of connection systems to unaffiliated customers grew 39% as a result of continued growth in demand from networking, data storage, and other high technology customers. Other test and inspection systems sales were down 18% from 1998 with decreases in broadband test systems of 45% and circuit-board test and inspection systems of 20%. These decreases were a result of telecommunication customers reducing investment in traditional voice testing technology and circuit-board test and inspection systems customers seeking lower cost solutions and/or new solutions to test increasingly complex circuit- boards. Other test and inspection systems sales decreases were offset slightly by an increase of 42% in sales of software test systems to customers within the telecommunication and web-based application development markets. Net income grew $89.6 million to $191.7 million in 1999 from $102.1 million in 1998. Income before income taxes increased $127.9 million from $145.9 million in 1998 to $273.8 million in 1999. Semiconductor test systems and connection systems income before income taxes increased $183.4 million and $29.2 million, respectively in 1999 due to increased sales. Other test and inspection systems income before income taxes decreased $46.5 million in 1999 resulting in a loss before income taxes of $14.3 million in 1999. This decrease in income before income taxes was due to decreased sales coupled with Teradyne maintaining its engineering and development of new products. Incoming orders increased 82% from $1,206.5 million in 1998 to a record $2,190.6 million in 1999. Orders increased in nearly all operating segments and were led by a 130% increase in semiconductor test systems orders. Connection systems and software test systems orders both increased 34% and circuit-board test and inspection systems orders increased by a modest 4%. Orders for broadband test systems decreased 59% in 1999. As a result of record bookings, Teradyne's backlog increased 69% to a record $979.5 million. Costs of sales as a percentage of sales decreased from 64% of sales in 1998 to 59% of sales in 1999. Included in cost of sales in 1998 was a $23.0 million charge for excess inventory. The charge resulted from the drop in demand for semiconductor test systems products. Excluding this charge, cost of sales decreased from 62% to 59%. The decrease in cost of sales was primarily due to the increased utilization of Teradyne's manufacturing overhead as sales volume increased while certain components of cost of sales remained fixed. Engineering and development expenses were 13% of sales in both 1999 and 1998 representing a year over year increase of $33.4 million. The increase was primarily due to new product development expenses in semiconductor test systems although there were increased expenses related to product development in each of Teradyne's operating segments. Selling and administrative expenses were 14% of sales in both 1999 and 1998 representing a year over year increase of $43.5 million. The increase was due to higher compensation related expenses and spending in support of increased semiconductor test systems. Interest income increased $3.8 million to $17.3 million in 1999 compared to 1998 due to an increase in Teradyne's average invested balances. Teradyne's effective tax rate was 30% in 1999 and 1998. Teradyne utilized export sales corporation benefits and certain research and development tax credits to operate below the U.S. statutory rate of 35%. LIQUIDITY AND CAPITAL RESOURCES Teradyne's cash, cash equivalents and marketable securities balance increased $77.0 million in 2000, to $464.4 million. Teradyne has generated cash from operating activities in each of the last three years and has used that cash to fund operations. Net income, adjusted to exclude the effects of non-cash items, provided cash of $500.2 million in 2000, $278.3 million in 1999, and $186.0 million 1998. Accounts receivable increased 38% in 2000 primarily as a result of increased shipment volume in the fourth quarter of 2000 compared to the fourth quarter of 1999. Inventories increased 88% in 2000 to support Teradyne's backlog commitment. These 10 12 increases were partially offset by an increase of 67% in accounts payable and other accruals. In total, other than those assets and liabilities resulting from investing and financing activities the cash effect of changes in operating assets and liabilities was: a $29.4 million use in 2000; a $89.1 million source in 1999; and a $52.6 million source in 1998. Teradyne used $312.3 million of cash for investing activities in 2000, $244.8 million in 1999, and $101.6 million in 1998. Investing activities consist of purchases, sales, and maturities of marketable securities and purchases of capital assets to support long-term growth. Capital expenditures increased by $147.0 million in 2000 compared with 1999 primarily in semiconductor test systems and connection systems segments. This was due to capacity expansion in land, buildings and improvements, and machinery and equipment. Capital expenditures were $298.2 million in 2000, $151.2 million in 1999, and $164.4 million in 1998. Teradyne used $97.5 million of cash for financing activities in 2000, $126.8 million in 1999, and $26.2 million in 1998. Financing activities include sales and repurchases of Teradyne's common stock, as well as repayments of debt. During 2000, 1999, and 1998 net common stock activity used $92.2 million, $125.5 million, and $24.6 million of cash, respectively. Since 1996, Teradyne has used $540.8 million of cash to repurchase 20.0 million shares of its common stock on the open market. Teradyne's available revolving credit line of $120.0 million expired on January 31, 2001. At expiration of the revolver, any amounts outstanding are converted into a two year term note. As of December 31, 2000 and 1999, no amounts were outstanding under this agreement. The revolving credit line was not renewed in 2001. Teradyne believes its cash, cash equivalents, and marketable securities balance of $464.4 million, together with other sources of funds, including cash flow generated from operations, will be sufficient to meet working capital and capital expenditure requirements for the foreseeable future. Inflation has not had a significant long-term impact on earnings. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS In June 1999, the Financial Accounting Standards Board issued SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities -- Deferral of the Effective Date of FASB Statement No. 133." SFAS No. 137 amends SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities" which was issued in June 1998 and was to be effective for all fiscal quarters of fiscal years beginning after June 15, 1999. SFAS No. 137 defers the effective date of SFAS No. 133 to the first quarter of all fiscal years beginning after June 15, 2000. Teradyne will implement SFAS No. 133, as amended in 2001 and does not expect any material impact on its financial position or results of operations. ITEM 7A: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS CONCENTRATION OF CREDIT RISK Financial instruments which potentially subject Teradyne to concentrations of credit risk consist principally of cash investments, forward currency contracts, and accounts receivable. Teradyne maintains cash investments primarily in U.S. Treasury and government agency securities and corporate debt securities, rated AA or higher, which have minimal credit risk. Teradyne 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 geographically dispersed customers. EXCHANGE RATE RISK MANAGEMENT Teradyne regularly enters into forward contracts in European and Japanese currencies to hedge its overseas net monetary position and firm commitments. Teradyne's firm commitments consist of certain orders received in currencies other than U.S. dollars. Forward currency contracts generally have maturities of less than one year. These contracts are used to reduce our risk associated with exchange rate movements, as gains and losses on these contracts are intended to offset exchange losses and gains on underlying exposures. Teradyne does not engage in currency speculation. 11 13 At December 31, 2000 the face amount of outstanding forward currency contracts to buy U.S. dollars for non U.S. currencies was $73.0 million. A 10% fluctuation in exchange rates for these currencies would change the fair value by approximately $7.3 million. However, since these contracts hedge non U.S. currency transactions, any change in the fair value of the contracts would be offset by opposite changes in the underlying value of the transactions being hedged. The hypothetical movement was estimated by calculating the fair value of the forward currency contracts at December 31, 2000 and comparing that with those calculated using hypothetical forward currency exchange rates. INTEREST RATE RISK MANAGEMENT Due to its short-term duration the fair value of Teradyne's cash and investment portfolio at December 31, 2000 approximated carrying value. Market risk was estimated as the potential decrease in fair value resulting from a hypothetical 10% increase in interest rates for issues contained in the investment portfolio. The resulting hypothetical fair value was not materially different from the year-end carrying value. CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS From time to time, information provided by Teradyne, statements made by its employees or information included in its filings with the Securities and Exchange Commission (including this Form 10-K and Teradyne'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 Teradyne'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 expenditures, may be forward looking statements. Teradyne'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 Teradyne's filings with the Securities and Exchange Commission. OUR BUSINESS IS IMPACTED BY THE SLOWDOWN IN ECONOMIES WORLDWIDE. Our business is dependent on current and anticipated market demand for electronics, which has been impacted by the slowdown in the economies of the United States, Asia, and elsewhere that began in the latter portions of 2000. While our diverse businesses may allow us to perform better than some companies in periods of economic decline, there is no guarantee that this will be the case currently. OUR BUSINESS IS DEPENDENT ON THE CURRENT AND ANTICIPATED MARKET FOR ELECTRONICS. Our business and results of operations depend in significant part upon capital expenditures of manufacturers of semiconductors and other electronics, which in turn depend upon the current and anticipated market demand for those products. The electronic and semiconductor industry has been highly cyclical with recurring periods of over supply, which often have had a severe effect on demand for test equipment, including systems manufactured and marketed by us. We believe that the markets for newer generations of electronic products will also be subject to similar fluctuations. We are dependent on the timing of customer orders and the deferral or cancellation of previous customer orders could impact our results of operations. We cannot assure that any future increase in sales or bookings for a calendar quarter will be sustained in subsequent quarters. In addition, any factor adversely affecting the electronic industry or particular segments within the electronic industry may adversely affect our business, financial condition and operating results. WE HAVE TAKEN AND EXPECT TO CONTINUE TO TAKE REMEDIAL MEASURES TO ADDRESS THE RECENT SLOWDOWN IN THE MARKET FOR OUR PRODUCTS WHICH COULD HAVE LONG-TERM EFFECTS ON OUR BUSINESS. We have taken and expect to continue to take remedial measures to address the recent slowdown in the market for our products. In particular, we have reduced our workforce, frozen hiring, delayed salary increases, reduced senior managers pay, implemented furloughs, and reduced our planned capital expenditures and expense budgets. These measures will reduce our expenses in the face of decreased revenues due to decreased 12 14 or cancelled customer orders. However, each of these measures could have long-term effects on our business by reducing our pool of technical talent, decreasing or slowing improvements in our products, and making it more difficult for us to respond to customers. IF WE ARE NOT ABLE TO MEET OUR CUSTOMERS' DELIVERY REQUIREMENTS, IT WOULD HAVE AN ADVERSE EFFECT ON OUR RESULTS OF OPERATIONS. We typically maintain a large multi-week order backlog. If we are unable to fill these orders and meet customer delivery expectations, customers may cancel existing orders or fail to place new orders in the future, which would have an adverse effect on our revenues and results of operations. Factors that affect our ability to meet customer delivery expectations include: - the availability of expanded manufacturing facilities; - our ability to attract and retain qualified manufacturing personnel to meet anticipated manufacturing levels; - the difficulties inherent in manufacturing highly complex products that have only recently been introduced; and - the availability of components, including semiconductor chips, which may be in short supply from time to time. In addition, we rely upon third-party contract manufacturers for certain subsystems used in our products, and our ability to meet customer orders for those products depends upon the timeliness and quality of the work performed by these subcontractors, over whom we do not exercise any control. IF WE ARE UNABLE TO PROTECT OUR INTELLECTUAL PROPERTY, WE MAY LOSE A VALUABLE ASSET OR MAY INCUR COSTLY LITIGATION TO PROTECT OUR RIGHTS. Our products incorporate technology that we protect in several ways, including patents, copyrights, and trade secrets. While we believe that our patents, copyrights, and trade secrets have value, in general no single one is in itself essential. At times we have been notified that we may be in violation of patents held by others. An assertion of patent infringement against us, if successful, could have a material adverse effect on our ability to sell our products, or could require a lengthy and expensive defense which could adversely affect our operating results. IF WE FAIL TO DEVELOP NEW TECHNOLOGIES TO ADAPT TO OUR CUSTOMERS' NEEDS AND IF OUR CUSTOMERS FAIL TO ACCEPT OUR NEW PRODUCTS, IT WILL ADVERSELY AFFECT OUR REVENUES. We believe that our technological position depends primarily on the technical competence and creative ability of our engineers. Our development of new technologies, commercialization of those technologies into products, and market acceptance and customer demand for those products is critical to our 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; and - timely and efficient implementation of manufacturing and assembly processes and product performance at customer locations. INTENSE COMPETITION IN OUR INDUSTRY MAY AFFECT OUR REVENUES. We face substantial competition, throughout the world, in each of our operating segments. Some of these competitors also have substantial financial and other resources to pursue engineering, manufacturing, marketing and distribution of their products. We also face competition from internal suppliers at several of our customers. Some of our competitors have introduced or announced new products with certain performance characteristics which may be considered equal or superior to those we currently offer. We expect our competitors to continue to improve the performance of their current products and to introduce new products or 13 15 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 our products. Moreover, increased competitive pressure could lead to intensified price based competition, which could materially adversely affect our business, financial condition and results of operations. WE ARE SUBJECT TO RISKS OF OPERATING INTERNATIONALLY. We derive a significant portion of our total revenue from customers outside the United States. Our international sales are subject to significant risks and difficulties, including: - unexpected changes in legal and regulatory requirements and in policy changes affecting our markets; - changes in tariffs and exchange rates; - political and economic instability; - difficulties in accounts receivable collection; - difficulties in staffing and managing international operations; and - potentially adverse tax consequences. OUR OPERATING RESULTS ARE LIKELY TO FLUCTUATE SIGNIFICANTLY. Our 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 of customer orders and the deferral or cancellation of orders previously received; - changes in product mix; - our ability to introduce new products and technologies on a timely basis; - introduction of products and technologies by our competitors; - market acceptance of our and our competitors' products; - fulfilling backlog on a timely basis; - reliance on sole source suppliers; - potential retrofit costs; - the level of orders received which can be shipped in a quarter; and - the timing of investments in engineering and development. As a result of the foregoing and other factors, we have and may continue to experience material fluctuations in future operating results on a quarterly or annual basis which could materially and adversely affect our business, financial condition, operating results and stock price. 14 16 ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA REPORT OF INDEPENDENT ACCOUNTANTS To the Directors and Shareholders of Teradyne, Inc.: In our opinion, the consolidated financial statements listed in the index appearing under Item 14(a)(1) present fairly, in all material respects, the financial position of Teradyne, Inc. and its subsidiaries at December 31, 2000 and 1999, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2000 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the index appearing under Item 14(a)(2) presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and financial statement schedule are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, 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 audits provide a reasonable basis for our opinion. As discussed in Note C to the consolidated financial statements, during the year ended December 31, 2000 the Company changed its method of recognizing revenue. PricewaterhouseCoopers LLP Boston, Massachusetts January 15, 2001 15 17 TERADYNE, INC. CONSOLIDATED BALANCE SHEETS DECEMBER 31, 2000 AND 1999
2000 1999 ---------- ---------- (IN THOUSANDS) ASSETS Current assets: Cash and cash equivalents.............................. $ 242,421 $ 181,345 Marketable securities.................................. 60,154 66,316 Accounts receivable, less allowance for doubtful accounts of $5,176 and $4,410 in 2000 and 1999, respectively.......................................... 420,040 296,159 Inventories: Parts.................................................. 318,790 123,300 Assemblies in process.................................. 159,123 145,393 Finished goods......................................... 34,650 -- ---------- ---------- 512,563 268,693 Deferred tax assets.................................... 93,958 49,716 Prepayments and other current assets................... 48,698 45,458 ---------- ---------- Total current assets.............................. 1,377,834 907,687 Property, plant, and equipment: Land................................................... 54,774 41,774 Buildings and improvements............................. 293,124 238,136 Machinery and equipment................................ 831,539 692,383 Construction in progress............................... 75,520 9,693 ---------- ---------- Total............................................. 1,254,957 981,986 ---------- ---------- Less: Accumulated depreciation........................ (521,171) (484,247) Net property, plant, and equipment................ 733,786 497,739 Marketable securities....................................... 161,848 139,752 Other assets................................................ 82,400 23,035 ---------- ---------- Total assets...................................... $2,355,868 $1,568,213 ========== ========== LIABILITIES Current liabilities: Notes payable -- banks................................. $ 7,389 $ 8,221 Current portion of long-term debt...................... 169 4,659 Accounts payable....................................... 153,897 104,335 Accrued employees' compensation and withholdings....... 158,817 117,314 Deferred revenue and customer advances................. 183,465 60,096 Other accrued liabilities.............................. 86,637 66,223 Accrued income taxes................................... 28,914 31,478 ---------- ---------- Total current liabilities......................... 619,288 392,326 Deferred tax liabilities.................................... 21,257 13,907 Long-term debt.............................................. 8,352 8,948 Commitments (Note G)........................................ ---------- ---------- Total liabilities................................. 648,897 415,181 ========== ========== SHAREHOLDERS' EQUITY Common stock, $0.125 par value, 1,000,000 shares authorized, 172,559 and 170,319 net shares issued and outstanding in 2000 and 1999, respectively............................... 21,570 21,290 Additional paid-in capital.................................. 334,241 234,198 Retained earnings........................................... 1,351,160 897,544 ---------- ---------- Total shareholders' equity........................ 1,706,971 1,153,032 ---------- ---------- Total liabilities and shareholders' equity........ $2,355,868 $1,568,213 ========== ==========
The accompanying notes are an integral part of the consolidated financial statements. 16 18 TERADYNE, INC. CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, ----------------------------------------- 2000 1999 1998 ----------- ----------- ----------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Net sales.............................................. $3,043,946 $1,790,912 $1,489,151 Expenses: Cost of sales..................................... 1,669,699 1,047,752 947,174 Engineering and development....................... 300,920 228,570 195,158 Selling and administrative........................ 362,562 256,392 212,885 ---------- ---------- ---------- 2,333,181 1,532,714 1,355,217 ---------- ---------- ---------- Income from operations................................. 710,765 258,198 133,934 Interest and other income.............................. 30,724 17,307 13,514 Interest expense....................................... (1,841) (1,656) (1,566) ---------- ---------- ---------- Income before income taxes and cumulative effect of change in accounting principle....................... 739,648 273,849 145,882 Provision for income taxes............................. 221,894 82,155 43,765 ---------- ---------- ---------- Income before cumulative effect of change in accounting principle............................................ 517,754 191,694 102,117 Cumulative effect of change in accounting principle, net of applicable tax of $27,488 (Note C)............ (64,138) -- -- ---------- ---------- ---------- Net income............................................. $ 453,616 $ 191,694 $ 102,117 ========== ========== ========== Income per share before cumulative effect of change in accounting principle -- basic........................ $ 2.99 $ 1.12 $ 0.61 ========== ========== ========== Cumulative effect of change in accounting principle -- basic................................... $ (0.37) $ -- $ -- ========== ========== ========== Net income per common share -- basic................... $ 2.62 $ 1.12 $ 0.61 ========== ========== ========== Income per share before cumulative effect of change in accounting principle -- diluted...................... $ 2.86 $ 1.07 $ 0.59 ========== ========== ========== Cumulative effect of change in accounting principle -- diluted................................. $ (0.35) $ -- $ -- ========== ========== ========== Net income per common share -- diluted................. $ 2.51 $ 1.07 $ 0.59 ========== ========== ========== Shares used in net income per common share -- basic.... 173,312 170,519 167,645 ========== ========== ========== Shares used in net income per common share --diluted... 181,011 178,550 171,930 ========== ========== ==========
The accompanying notes are an integral part of the consolidated financial statements. 17 19 TERADYNE, INC. CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
SHARES COMMON ADDITIONAL TOTAL -------------------- STOCK PAID-IN RETAINED SHAREHOLDERS' ISSUED REACQUIRED PAR VALUE CAPITAL EARNINGS EQUITY ------- ---------- --------------- ---------- ---------- ------------- (IN THOUSANDS) Balance, December 31, 1997... 90,615 7,312 $10,413 $322,985 $ 603,733 $ 937,131 Issuance of stock to employees under benefit plans...................... 1,796 224 26,355 26,579 Tax benefit from stock options.................... 11,701 11,701 Repurchase of stock.......... 1,355 (169) (50,989) (51,158) Net income................... 102,117 102,117 ------- ------ ------- -------- ---------- ---------- Balance, December 31, 1998....................... 92,411 8,667 10,468 310,052 705,850 1,026,370 Issuance of stock to employees under benefit plans...................... 3,205 401 60,730 61,131 Repurchase of stock.......... 1,366 (171) (86,980) (87,151) Two-for-one stock split effected in the form of a 100% stock dividend........ 95,616 10,033 10,698 (10,698) 0 Issuance of stock to employees under benefit plans after two-for-one stock split................ 1,973 246 20,947 21,193 Tax benefit from stock options.................... 60,462 60,462 Repurchase of stock after two-for-one stock split.... 2,820 (352) (120,315) (120,667) Net income................... 191,694 191,694 ------- ------ ------- -------- ---------- ---------- Balance, December 31, 1999... 193,205 22,886 21,290 234,198 897,544 1,153,032 Issuance of stock to employees under benefit plans...................... 4,168 521 54,742 55,263 Tax benefit from stock options.................... 88,046 88,046 Shares issued to effect acquisition................ 1,841 230 104,256 104,486 Repurchase of stock.......... 3,769 (471) (147,001) (147,472) Net income................... 453,616 453,616 ------- ------ ------- -------- ---------- ---------- Balance, December 31, 2000....................... 199,214 26,655 $21,570 $334,241 $1,351,160 $1,706,971 ======= ====== ======= ======== ========== ==========
The accompanying notes are an integral part of the consolidated financial statements. 18 20 TERADYNE, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, ----------------------------------- 2000 1999 1998 --------- --------- --------- (IN THOUSANDS) Cash flows from operating activities: Net income............................................ $ 453,616 $ 191,694 $ 102,117 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation....................................... 99,929 85,279 75,351 Amortization....................................... 1,933 1,107 953 Charge for excess inventory........................ -- -- 23,000 Deferred income tax benefit........................ (44,242) (4,101) (14,607) Other non-cash items, net.......................... (10,997) 4,354 (804) Changes in operating assets and liabilities excluding effect of acquisition: Accounts receivable.............................. (113,930) (76,856) 81,630 Inventories...................................... (235,319) (2,346) (16,990) Other assets..................................... 7,589 (24,576) (1,184) Accounts payable and accruals.................... 226,798 115,750 (18,530) Accrued income taxes............................. 85,482 77,171 7,685 --------- --------- --------- Net cash provided by operating activities............... 470,859 367,476 238,621 --------- --------- --------- Cash flows from investing activities: Additions to property, plant, and equipment........ (235,189) (119,780) (119,457) Increase in equipment manufactured by the Company.......................................... (63,053) (31,376) (44,983) Purchases of held-to-maturity marketable securities....................................... (409,180) (177,650) (20,000) Maturities of held-to-maturity marketable securities....................................... 394,006 118,990 20,000 Purchases of available-for-sale marketable securities....................................... (177,864) (204,824) (162,092) Proceeds from sales and maturities of available-for-sale marketable securities......... 177,104 169,824 224,951 Cash acquired in acquisition....................... 1,885 -- -- --------- --------- --------- Net cash used by investing activities................... (312,291) (244,816) (101,581) --------- --------- --------- Cash flows from financing activities: Payments of long-term debt......................... (5,283) (1,333) (1,615) Issuance of common stock under stock option and stock purchase plans............................. 55,263 82,323 26,579 Acquisition of treasury stock...................... (147,472) (207,819) (51,158) --------- --------- --------- Net cash used by financing activities................... (97,492) (126,829) (26,194) --------- --------- --------- Increase (decrease) in cash and cash equivalents........ 61,076 (4,169) 110,846 Cash and cash equivalents at beginning of year.......... 181,345 185,514 74,668 --------- --------- --------- Cash and cash equivalents at end of year................ $ 242,421 $ 181,345 $ 185,514 ========= ========= ========= Supplementary disclosure of cash flow information: Cash paid during the year for: Interest......................................... $ 1,728 $ 1,615 $ 1,525 Income taxes..................................... $ 130,416 $ 22,747 $ 47,225 Business acquired: Fair value of assets acquired.................... $ 119,887 Liabilities assumed.............................. $ 15,401 Common stock issued.............................. $ 104,486
The accompanying notes are an integral part of the consolidated financial statements. 19 21 TERADYNE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS A. THE COMPANY Teradyne, Inc. designs, manufactures, markets, and services test and inspection systems and related software, and backplanes and associated connectors. Teradyne had five principal product lines during 2000; - semiconductor test systems; - connection systems; - circuit-board test and inspection systems; - broadband test systems; and - software test systems. Semiconductor test systems are used by electronic component manufacturers in the design and testing of their products. Connection systems are used principally for the computer, communications, data networking, and military/aerospace industries. Connection systems provides both a technology advantage and the benefits of vertical integration to its customers. A backplane is an assembly into which printed circuit boards are inserted that provides for the interconnection of electrical signals between the circuit boards and the other elements of the system. Circuit-board test and inspection systems are used by electronic equipment manufacturers for the design, inspection, and testing of circuit boards and other assemblies. Broadband test systems are used by the communications industry for Internet testing, customer care and voice network maintenance. Software test systems, divested at the end of 2000, are used by a number of industries to test communications networks, computerized telecommunication systems, and client/server applications. B. ACCOUNTING POLICIES Basis of Presentation The consolidated financial statements include the accounts of Teradyne and its subsidiaries. All significant intercompany balances and transactions are eliminated. Certain prior years' amounts were reclassified to conform to the current year presentation. Preparation of Financial Statements The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions. These estimates 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. Recently Issued Accounting Pronouncements In June 1999, the Financial Accounting Standards Board issued SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities -- Deferral of the Effective Date of FASB Statement No. 133." SFAS No. 137 amends SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities" which was issued in June 1998 and was to be effective for all fiscal quarters of fiscal years beginning after June 15, 1999. SFAS No. 137 defers the effective date of SFAS No. 133 to the first quarter of all fiscal years beginning after June 15, 2000.Teradyne will implement SFAS No. 133, as amended in 2001 and does not expect any material impact on its financial position or results of operations. Inventories Inventories are stated at the lower of cost (first-in, first-out basis) or market (net realizable value). Inventories include materials, labor, and manufacturing overhead costs. 20 22 TERADYNE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) B. ACCOUNTING POLICIES -- (CONTINUED) 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. Teradyne 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. Revenue Recognition Revenue related to products and software licenses is recognized upon shipment provided that title and risk of loss has passed to the customer, there is persuasive evidence of an arrangement, the sales price is fixed or determinable, collection of the related receivable is reasonably assured and customer acceptance criteria have been successfully demonstrated. For products with acceptance criteria that are not successfully demonstrated prior to shipment, revenue is recognized upon customer acceptance. For multiple element arrangements, Teradyne defers the greater of the fair value of any undelivered elements of the contract, such as installation services, or the portion of the sales price which is not payable until the undelivered elements are delivered. Teradyne unbundles service revenue and post-contract customer support from product and software license sales based upon the fair value of those services where such services are sold separately and recognizes such revenue as the services are provided or ratably over the period of the related contract, as applicable. Teradyne's products are generally subject to warranty and such estimated costs are provided for in cost of sales when product revenue is recognized. Installation and other services are not essential to the functionality of the products as these services do not alter the products capabilities, do not require specialized skills or tools and can be performed by the customers or other vendors. For certain contracts eligible under American Institute of Certified Public Accountants ("AICPA") Statement of Position No. 81-1, revenue is recognized using the percentage-of-completion accounting method based upon an efforts-expended method. In all cases, changes to totals estimated costs and anticipated losses, if any, are recognized in the period in which determined. Deferred revenue includes customer advances and amounts that have been billed per the contractual terms but have not been recognized as revenue. If a portion of the sales price is not contractually payable until a future deliverable is completed, such as installation, such portion of the sales price is not recorded until such contractual obligation is satisfied. Engineering and Development Costs Teradyne'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. Impairment of Long-Lived Assets Teradyne reviews long-lived assets for impairment whenever events or changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverable or that the useful lives of these assets are no longer appropriate. Each impairment test is based on a comparison of the undiscounted cash flows to the recorded value of the asset. If an impairment is indicated, the asset is written down to its estimated 21 23 TERADYNE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) B. ACCOUNTING POLICIES -- (CONTINUED) fair value on a discounted cash flow basis. The cash flow estimates used to determine the impairment, if any, contain management's best estimates using appropriate assumptions and projections at that time. 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. U.S. Federal taxes are provided for on the retained earnings of non-U.S. sales and service subsidiaries whose earnings are expected to be remitted to the United States. U.S. Federal taxes are not provided for on the earnings of a non-U.S. manufacturing subsidiary which are expected to be reinvested indefinitely in operations outside the U.S. 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 Basic net income per common share is calculated by dividing net income by the weighted average number of common shares outstanding during the period. Diluted net income per common share is calculated by dividing net income by the sum of the weighted average number of common shares plus additional common shares that would have been outstanding if potential dilutive common shares had been issued for granted stock option and stock purchase rights. Other Comprehensive Income Comprehensive income does not materially differ from net income for the years ended December 31, 2000, 1999 and 1998. C. CHANGE IN ACCOUNTING PRINCIPLE In December 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" (SAB 101). SAB 101 summarizes certain areas of the Staff's views in applying generally accepted accounting principles to revenue recognition in financial statements. Historically, Teradyne recognized revenue from the sales of products upon shipment, provided that risk of loss had passed to the customer, and accrued for the costs of installation. Under the new accounting method adopted retroactive to January 1, 2000, Teradyne recognizes revenue from the sales of products when both title and risk of loss pass to the customer. Teradyne also defers the greater of the fair value or the contractual holdback of any undelivered elements, such as installation services, until the undelivered elements are delivered. Teradyne previously accounted for contractual acceptance terms based upon probable achievement of meeting the acceptance criteria. Teradyne now accounts for acceptance terms based upon whether such 22 24 TERADYNE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) C. CHANGE IN ACCOUNTING PRINCIPLE -- (CONTINUED) contractual acceptance criteria is objectively demonstrated prior to shipment. During the fourth quarter of 2000, Teradyne implemented the SEC's SAB 101 guidelines, retroactive to the beginning of the year. This was reported as a cumulative effect of a change in accounting principle as of January 1, 2000. The cumulative effect of the change in accounting principle on prior years resulted in a charge to income of $64.1 million (net of income taxes of $27.5 million) or $0.35 per diluted share which has been included in income for the fiscal year ending December 31, 2000. For the fiscal year ending December 31, 2000, Teradyne recognized $126.1 million in revenue that is included in the cumulative effect adjustment as of January 1, 2000. The results for the first three quarters of fiscal year ending December 31, 2000 have been restated in accordance with SAB 101. Pro forma amounts for the periods beginning before January 1, 2000 have not been presented as the effect of the change in accounting principle could not be reasonably determined. D. ACQUISITIONS AND DIVESTITURES On August 15, 2000, we acquired two California-based companies, both in the printed circuit board (PCB) industry: Herco Technology of San Diego, CA, a fabricator of printed circuit boards, and Synthane Taylor of La Verne, CA, which supplies PCB laminates and is a major supplier to Herco. The acquisitions are part of the connection systems operating segment. The cost of the acquired companies was $104.5 million with approximately 1.8 million shares of common stock issued. The acquisitions have been accounted for by the purchase method of accounting and accordingly, the results have been included in our consolidated results of operations from the date of acquisition. Pro forma amounts for the acquisitions are not included as their effect is not material to the financial statements. Goodwill of $53.4 million resulting from the acquisitions is being amortized on a straight-line basis over the estimated life of 15 years. The components of the purchase price allocation are as follows:
(IN THOUSANDS) Current assets.............................................. $ 20,140 Property, plant and equipment............................... 41,650 Acquired intangibles........................................ 4,736 Goodwill.................................................... 53,361 Less: Liabilities assumed................................... 15,401 -------- Total............................................. $104,486
On December 29, 2000, Teradyne sold a controlling interest in its software test business to an investor group led by Matrix Partners of Waltham, Massachusetts for proceeds of approximately $28.7 million. Teradyne has retained an ownership position of approximately 21% in the new company called Empirix. Teradyne will, therefore, account for its investment in Empirix under the equity method of accounting. This transaction did not have a material impact on the financial statements. E. FINANCIAL INSTRUMENTS Cash Equivalents Teradyne considers all highly liquid investments with original maturities of three months or less at the date of acquisition to be cash equivalents. Marketable Securities Teradyne classifies investments in marketable securities as trading, available-for-sale or held-to-maturity at the time of purchase. There were no securities classified as trading at December 31, 2000 or 1999. Securities are classified as held-to-maturity when Teradyne has the positive intent and ability to hold the 23 25 TERADYNE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) E. FINANCIAL INSTRUMENTS -- (CONTINUED) 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 classified as available-for-sale are reported at fair value, unless the difference between the fair value and amortized cost is immaterial in which case they are carried at amortized cost. Unrealized gains or losses on available-for-sale securities are not material and therefore have not been recorded. Realized gains and losses and declines in value, if any, judged to be other-than-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 ten years. At December 31, 2000 and 1999 these investments are reported as follows (in thousands):
2000 1999 ---------------------- ---------------------- AVAILABLE- HELD-TO- AVAILABLE- HELD-TO- FOR-SALE MATURITY FOR-SALE MATURITY ---------- -------- ---------- -------- Short-term marketable securities: U.S. Treasury and government agency securities.......................... $ 13,918 $29,539 $ 910 $58,659 Corporate debt securities............. 16,697 6,747 -------- ------- -------- ------- $ 30,615 $29,539 $ 7,657 $58,659 ======== ======= ======== ======= Long-term marketable securities: U.S. Treasury and government agency securities.......................... $ 55,778 $30,000 $ 69,098 Corporate debt securities............. 76,070 70,654 -------- ------- -------- $131,848 $30,000 $139,752 ======== ======= ========
Other For all other balance sheet financial instruments, the carrying amount approximates fair value. Off-Balance Sheet Risk Teradyne regularly enters into forward contracts in European and Japanese currencies to hedge its non U.S. currency net monetary position and firm commitments. Teradyne's firm commitments consist of certain orders received in currencies other than U.S. dollars. Forward currency contracts generally have maturities of less than one year. These contracts are used to reduce Teradyne'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. Teradyne does not engage in currency speculation. Gains or losses associated with the termination of the underlying contract for which a firm commitment no longer exists are immediately included in selling and administrative expenses. At December 31, 2000, Teradyne had the following forward currency contracts to buy U.S. dollars for non U.S. currencies with the following notional amounts totaling $73.0 million; $32.6 million Japanese yen, $5.4 million Euro, $32.1 million British pound sterling, and $2.9 million Swedish Krona. At December 31, 1999 the face amount of outstanding forward currency contracts to buy U.S. dollars for non U.S. currencies was $62.4 million, respectively. 24 26 TERADYNE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) E. FINANCIAL INSTRUMENTS -- (CONTINUED) The fair value of these contracts as of December 31, 2000 and 1999, determined by applying year-end currency exchange rates to the notional contract amounts, represented no unrealized gain or loss in 2000 and a net unrealized gain of $1.0 million in 1999. Teradyne's policy is to defer gains and losses on these contracts until the corresponding losses and gains are recognized on the items being hedged. Both the contract gains and losses and the gains and losses on the items being hedged are included in selling and administrative expenses. Concentration of Credit Risk Financial instruments which potentially subject Teradyne to concentrations of credit risk consist principally of cash investments, forward currency contracts, and accounts receivable. Teradyne maintains cash investments primarily in U.S. Treasury and government agency securities and corporate debt securities, rated AA or higher, which have minimal credit risk. Teradyne 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 geographically dispersed customers. F. DEBT Long-term debt at December 31, 2000 and 1999 consisted of the following (in thousands):
2000 1999 ------ ------ Mortgage notes payable................................. $5,040 $9,699 Other long-term debt................................... 3,481 3,908 ------ ------ Total........................................ 8,521 13,607 Less current maturities........................... 169 4,659 ------ ------ $8,352 $8,948 ====== ======
The total maturities of long-term debt for the succeeding five years and thereafter are: 2001 -- $0.3 million; 2002 -- $0.3 million; 2003 -- $0.3 million; 2004 -- $0.3 million; 2005 -- $0.3 million and $6.9 million thereafter. Mortgage Notes Payable In 1983, we 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 Teradyne's property at 321 Harrison Avenue, which may, at Teradyne'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, Teradyne has been making semi-annual interest payments. Revolving Credit Agreement Teradyne's available revolving credit line of $120.0 million expired on January 31, 2001. At expiration of the revolver, any amounts outstanding are converted into a two year term note. As of December 31, 2000 and 1999, no amounts were outstanding under this agreement. The revolving credit line was not renewed in 2001. Short-term Borrowings The weighted average interest rates on short-term borrowings outstanding as of December 31, 2000 and 1999 was 1.2% and 1.8%, respectively. 25 27 TERADYNE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) G. COMMITMENTS Rental expense for the years ended December 31, 2000, 1999, and 1998 was $21.3 million, $18.8 million, and $17.7 million, respectively. Minimum annual rentals under all noncancellable leases are: 2001 -- $16.3 million; 2002 -- $14.2 million; 2003 -- $12.3 million; 2004 -- $9.7 million; 2005 -- $8.0 million; and $17.1 million thereafter, totaling $77.6 million. H. NET INCOME PER COMMON SHARE The following table sets forth the computation of basic and diluted net income per common share (in thousands, except per share amounts):
2000 1999 1998 -------- -------- -------- Income before cumulative effect of change in accounting principle............................ $517,754 $191,694 $102,117 Cumulative effect of change in accounting principle....................................... (64,138) -- -- -------- -------- -------- Net income........................................ 453,616 191,694 102,117 ======== ======== ======== Shares used in income per common share -- basic... 173,312 170,519 167,645 Effect of dilutive securities: Employee and director stock options.......... 7,293 7,540 3,494 Employee stock purchase rights............... 406 491 791 -------- -------- -------- Dilutive potential common shares.................. 7,699 8,031 4,285 -------- -------- -------- Shares used in income per common share -- diluted................................ 181,011 178,550 171,930 ======== ======== ======== Income before cumulative effect of change in accounting principle per common share --basic... $ 2.99 $ 1.12 $ 0.61 ======== ======== ======== Cumulative effect of change in accounting principle -- basic.............................. $ (0.37) $ -- $ -- ======== ======== ======== Net income per common share -- basic.............. $ 2.62 $ 1.12 $ 0.61 ======== ======== ======== Income before cumulative effect of change in accounting principle per common share -- diluted................................ $ 2.86 $ 1.07 $ 0.59 ======== ======== ======== Cumulative effect of change in accounting principle -- diluted............................ $ (0.35) $ -- $ -- ======== ======== ======== Net income per common share -- diluted............ $ 2.51 $ 1.07 $ 0.59 ======== ======== ========
Options to purchase 1.5 million shares of common stock in 2000, 0.1 million shares in 1999, and 4.0 million shares in 1998 were outstanding during the years then ended, but were not included in the year to date calculation of diluted net income per share because the options' exercise price was greater than the average market price of the common shares during those periods. I. RETIREMENT PLANS Teradyne 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. Teradyne'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 these plans consist primarily of equity and fixed income securities. In addition, Teradyne has an unfunded supplemental defined benefit plan in the United States to provide retirement benefits in excess of levels allowed by the Employment Retirement Income Security Act (ERISA). 26 28 TERADYNE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) I. RETIREMENT PLANS -- (CONTINUED) On December 31, 1999, the U.S. defined benefit pension plan (the "U.S. plan") was amended to update all participating employees accrued benefit to reflect their average pay over the last five years. During the fourth quarter of 1999, Teradyne offered all eligible domestic employees participating in the U.S. plan a choice; to continue to have benefits grow in the U.S. plan and continue to be eligible for the current Savings Plan match described in "Note: L Savings Plan" or to stop growing benefits in the U.S plan and be eligible for an increased match in the Savings Plan. The accrued benefit of those employees who selected the enhanced Savings Plan match was frozen on January 1, 2000 resulting in an insignificant curtailment gain. The expense of these defined benefit pension plans and the December 31 balances of plan assets and obligations are shown below (in thousands):
2000 1999 1998 ------ ------- ------ EXPENSE Service cost........................................... $6,365 $ 7,874 $5,852 Interest cost.......................................... 8,972 8,247 6,789 Expected return on plan assets......................... (8,589) (7,394) (6,317) Amortization of unrecognized: Net transition obligation......................... 89 102 81 Prior service cost................................ 843 612 584 Net loss.......................................... 206 1,592 1,196 Curtailment (gain) / employee contributions............ (89) (87) -- ------ ------- ------ Total expense................................ $7,797 $10,946 $8,185 ====== ======= ======
2000 1999 1998 ---- ---- ---- WEIGHTED AVERAGE ASSUMPTIONS Discount rate............................................... 7.5% 8.0% 7.0% Expected return on plan assets.............................. 9.0 9.0 9.0 Salary progression rate..................................... 5.0 5.0 5.0
2000 1999 -------- -------- ASSETS AND OBLIGATIONS Projected benefit obligation: Beginning of year......................................... $124,546 $121,234 Service cost.............................................. 6,365 7,874 Interest cost............................................. 8,972 8,247 Actuarial (gain) loss..................................... 3,859 (10,983) Benefits paid............................................. (3,372) (3,324) Plan amendment............................................ 623 6,820 Curtailment............................................... -- (5,682) Non U.S. currency movement................................ (1,521) 360 -------- -------- End of year............................................... 139,472 124,546
27 29 TERADYNE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) I. RETIREMENT PLANS -- (CONTINUED)
2000 1999 -------- -------- ASSETS AND OBLIGATIONS Fair value of plan assets: Beginning of year......................................... 111,535 93,594 Company contributions..................................... 9,445 6,131 Plan participants' contributions.......................... 79 -- Actual return............................................. (2,285) 14,996 Benefits paid............................................. (3,372) (3,324) Non U.S. currency movement................................ (890) 138 -------- -------- End of year................................................. 114,512 111,535 -------- -------- Funded status............................................... (24,960) (13,011) Unrecognized prior service cost............................. 7,110 7,566 Unrecognized net transition obligation...................... 470 646 Unrecognized net actuarial (gain) loss...................... 8,597 (5,993) -------- -------- Accrued pension cost........................................ (8,783) (10,792) ======== ========
The following table provides amounts recognized in the statement of financial position as of December 31, of both years (in thousands):
2000 1999 -------- --------- Prepaid pension cost.............................. $ 3,162 $ 554 Accrued benefit liability......................... (11,945) (11,346) -------- --------- Accrued pension cost.............................. $ (8,783) ($ 10,792) ======== =========
There is no additional minimum pension liability to be recognized as of December 31, 2000 and 1999. The projected benefit obligation, accumulated benefit obligation, and fair value of plan assets for pension plans with accumulated benefit obligations in excess of plan assets were $22.2 million, $14.3 million and $3.7 million, respectively, as of December 31, 2000 and $19.9 million, $13.4 million and $3.7 million, respectively, as of December 31, 1999. J. COMMON STOCK REPURCHASE PROGRAM Teradyne's Board of Directors has authorized the repurchase of 30.0 million shares of Teradyne's stock on the open market. In 2000, Teradyne repurchased 3.8 million shares at a cost of $147.5 million, increasing the cumulative shares purchased under this program through 2000 to 20.0 million shares at an aggregate cost of $540.8 million. Teradyne records treasury stock at its acquisition cost. 28 30 TERADYNE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) K. STOCK BASED COMPENSATION At December 31, 2000, Teradyne had both stock option plans and stock purchase plans. Teradyne previously adopted SFAS No. 123 "Accounting for Stock-Based Compensation" (Statement 123), and as permitted by this standard, will continue to apply Accounting Principles Board (APB) Opinion 25 and related interpretations in accounting for its plans. Teradyne is required to disclose pro forma net income and net income per common share amounts had compensation costs for Teradyne's stock based compensation plans been determined based on the fair value at the grant dates for awards under those plans. Had compensation expense for the stock based compensation plans been consistent with the method of Statement 123, amounts reported for 2000, 1999, and 1998, respectively would have been:
2000 1999 1998 ------ ------ ----- Income before cumulative effect of change in accounting principle.............................................. $458.0 $153.6 $77.8 Income before cumulative effect of change in accounting principle per common share -- basic.................... $ 2.64 $ 0.90 $0.46 Income before cumulative effect of change in accounting principle per common share -- diluted.................. $ 2.53 $ 0.86 $0.45
The impact to reported net income and per common share amounts of this pro forma disclosure are not comparable among 2000, 1999, and 1998 as Statement 123 did not apply to awards prior to 1995. The amounts of this pro forma disclosure are also not indicative of the impact on net income for future years. Stock Option Plans Under its stock option plans, all of which are fixed, Teradyne granted options to directors, officers, certain employees, and other individuals 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 2000, 1999, and 1998 follows (in thousands):
2000 1999 1998 ------ ------ ------ Outstanding at January 1................................ 19,225 21,548 17,132 Options granted.................................... 7,905 5,631 13,778 Options exercised.................................. (3,217) (7,272) (2,470) Options canceled................................... (1,168) (682) (6,892) ------ ------ ------ Outstanding at December 31.............................. 22,745 19,225 21,548 ====== ====== ====== Exercisable at December 31.............................. 8,758 6,355 8,398 ====== ====== ====== Available for grant at December 31...................... 7,130 13,867 18,816 ====== ====== ======
Weighted average option exercise price information for the years 2000, 1999 and 1998 follows:
2000 1999 1998 ------ ------ ------ Outstanding at January 1................................ $16.44 $ 9.73 $11.24 Options granted.................................... $34.73 $32.13 $11.48 Options exercised.................................. $11.49 $ 9.03 $ 6.18 Options canceled................................... $30.62 $12.68 $17.74 Outstanding at December 31.............................. $22.79 $16.44 $ 9.73 Exercisable at December 31.............................. $16.71 $12.59 $ 8.66
29 31 TERADYNE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) K. STOCK BASED COMPENSATION -- (CONTINUED) Significant option groups outstanding at December 31, 2000 and related weighted average price and life information follows (options in thousands):
OPTIONS OUTSTANDING OPTIONS EXERCISABLE ----------------------------------------- ------------------------- WEIGHTED AVERAGE REMAINING CONTRACTUAL WEIGHTED-AVERAGE WEIGHTED-AVERAGE RANGE OF EXERCISE PRICES LIFE (YEARS) SHARES EXERCISE PRICE SHARES EXERCISE PRICE - ------------------------ ------------ ------ ---------------- ------ ---------------- $3.82 -- $ 9.59......... 2.13 5,768 $ 8.65 3,603 $ 8.08 $ 9.81 -- $26.84........ 2.54 4,840 $13.16 2,311 $12.78 $28.13.................. 4.80 6,542 $28.13 1,210 $28.13 $28.44 -- $111.25....... 3.93 5,595 $39.44 1,634 $32.84 ------ ----- Total......... 3.43 22,745 $22.79 8,758 $16.71 ====== =====
On August 20, 1998, the Stock Option Committee of the Board of Directors (the "Option Committee") approved a reduction, effective August 27, 1998, in the exercise price of certain outstanding stock options held by officers and employees of Teradyne. Action was taken to attempt to restore the long-term incentive feature of employee stock options. The Option Committee believed that at their original exercise prices, the disparity between the exercise price of these options and recent market prices for Teradyne's Common Stock did not provide meaningful long-term incentive to officers and employees holding these options to perform to their maximum potential and work toward the success of Teradyne. In connection with this action we canceled options to purchase 6.4 million shares. The canceled options were originally granted between May 15, 1997 and July 1, 1998 at exercise prices ranging from $18.25 to $20.94 per share. New options to purchase 6.4 million shares at $9.59 were then granted. All vesting under the canceled options was lost and new vesting periods were started. The effect of this option repricing on the above pro forma disclosures is considered, under Statement 123, a modification of the terms of the outstanding options. Accordingly, the 2000, 1999, and 1998 pro forma disclosures include compensation cost for the incremental fair value, under Statement 123, resulting from such modification. The weighted average fair value at date of grant for options granted during 2000, 1999 and 1998 was $15.34, $16.21 and $5.35 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:
2000 1999 1998 ---- ----- ---- Expected life (years).............................. 4.2 4.1 4.3 Interest rate...................................... 5.7% 6.1% 5.5% Volatility......................................... 63.7% 56.7% 47.9% Dividend yield..................................... 0.0% 0.0% 0.0%
Employee Stock Purchase Plans Teradyne has an Employee Stock Purchase plan. 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 Teradyne's common stock on the first business day in January (July for new hires) or the last business day of December. In January 2001, Teradyne issued 0.8 million shares of common stock to employees who participated in the plan during 2000 at a weighted-average price of $31.98 per share. Currently, there are 1.4 million shares reserved for issuance. The weighted-average fair value of purchase rights granted in 2000, 1999 and 1998 was $17.98, $8.18 and $6.51, respectively. The fair value of the employees' purchase rights was estimated using the Black-Scholes model with the following assumptions for 2000, 1999 and 1998, respectively; dividend yield of 0.0% for all 30 32 TERADYNE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) K. STOCK BASED COMPENSATION -- (CONTINUED) years; an expected life of 1 year for all years; expected volatility of 81.5%, 58.4% and 58.8%; and risk-free interest rates of 6.0%, 4.5% and 5.5%. L. SAVINGS PLANS Teradyne sponsors a Savings Plan covering substantially all U.S. employees. Under Teradyne's original savings plan, employees may contribute up to 12% of their compensation (subject to Internal Revenue Service limitations). Teradyne annually matches employee contributions up to 6% of such compensation at rates ranging from 50% to 100%. Teradyne's contributions vest after two years, although contributions for those employees with five years of service vest immediately. In January 2000, Teradyne implemented a second savings plan for domestic employees who elected to discontinue participation in Teradyne's retirement plan, see "Note I: Retirement Plans," and all new domestic employees. Under this new savings plan, domestic employees are eligible for an increased minimum Teradyne match of 100% on contributions up to 5%. Teradyne has also established a Supplemental Savings Plan to provide savings benefits in excess of those allowed by ERISA. The provisions of this plan are the same as the Savings Plan. Under Teradyne's savings plans, amounts charged to operations were $16.6 million in 2000, $9.8 million in 1999, and $9.3 million in 1998. M. STOCKHOLDER RIGHTS PLAN Teradyne's Board of Directors adopted a Stockholder Rights Plan on November 16, 2000, 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 Teradyne's common stock for $540 per share subject to adjustment (the "Purchase Price") in certain events, such as a tender offer to acquire 20% or more of Teradyne's outstanding shares. Under some circumstances, such as a determination by continuing Directors, that an acquiring party's interests are adverse to those of Teradyne, the Plan entitles such holders (other than an acquiring party or adverse party) to purchase Common Stock (or other securities or consideration owned by Teradyne) having a value equal to two times the Purchase Price of the right for the Purchase Price. The Rights expire on November 27, 2010. N. 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):
2000 1999 1998 -------- -------- -------- Income before income taxes and cumulative effect of change in accounting principle: United States................................ $655,103 $239,453 $131,571 Non U.S...................................... 84,545 34,396 14,311 -------- -------- -------- $739,648 $273,849 $145,882 ======== ======== ========
31 33 TERADYNE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) N. INCOME TAXES -- (CONTINUED)
2000 1999 1998 -------- -------- -------- Provision (credit) for income taxes: Current: U.S. Federal................................. $182,202 $ 65,104 $ 43,501 Non U.S...................................... 29,393 14,296 11,021 State........................................ 19,703 6,856 3,850 -------- -------- -------- 231,298 86,256 58,372 -------- -------- -------- Deferred: U.S. Federal................................. (4,529) (184) (6,102) Non U.S...................................... (3,172) (3,461) (7,655) State........................................ (1,703) (456) (850) -------- -------- -------- (9,404) (4,101) (14,607) -------- -------- -------- $221,894 $ 82,155 $ 43,765 ======== ======== ========
Significant components of Teradyne's deferred tax assets (liabilities) as of December 31, 2000 and 1999 are as follows (in thousands):
2000 1999 ------- ------- Deferred tax assets: Inventory valuations................................... $13,494 $17,385 Accruals............................................... 23,495 13,477 Vacation............................................... 9,211 4,826 In process research and development.................... 2,898 2,986 Deferred revenue....................................... 32,088 4,622 U.S. Federal operating loss carryforwards.............. 592 382 Tax credits............................................ 9,686 3,672 Other.................................................. 2,494 2,366 ------- ------- Total deferred tax assets................................... 93,958 49,716 ------- ------- Deferred tax liabilities: Excess of tax over book depreciation................... (16,509) (9,240) Amortization........................................... (916) (2,089) Pension................................................ (3,572) (3,023) Other.................................................. (260) 445 ------- ------- Total deferred tax liabilities.............................. (21,257) (13,907) ------- ------- Net deferred asset.......................................... $72,701 $35,809 ======= =======
At December 31, 2000 Teradyne had U.S. Federal operating loss carryforwards of approximately $1.6 million that expire in the years 2001 through 2010. Teradyne has approximately $9.6 million of U.S. business tax credit carryforwards that expire in the years 2003 through 2019. These losses and credits are limited in their use by "change in ownership" rules as defined in the Internal Revenue Code of 1986. 32 34 TERADYNE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) N. INCOME TAXES -- (CONTINUED) A reconciliation of the effective tax rate for the years 2000, 1999, and 1998 follows:
2000 1999 1998 ---- ---- ---- U.S. statutory federal tax rate............................. 35.0% 35.0% 35.0% State income taxes, net of federal tax benefit.............. 1.6 1.5 1.3 Tax credits................................................. (0.8) (1.3) (3.1) Export sales corporation.................................... (4.8) (4.7) (3.4) Other, net.................................................. (1.0) (0.5) 0.2 ---- ---- ---- 30.0% 30.0% 30.0% ==== ==== ====
U.S. federal taxes have not been provided for approximately $59.0 million of cumulative undistributed earnings of a non-U.S. manufacturing subsidiary. Teradyne intends to reinvest these earnings indefinitely in operations outside the U.S. O. OPERATING SEGMENT AND GEOGRAPHIC INFORMATION Teradyne has five principal operating segments which are the design, manufacturing and marketing of semiconductor test systems, connection systems, circuit-board test and inspection systems, broadband test systems, and software test systems, which was divested at the end of 2000. These operating segments were determined based upon the nature of the products and services offered. Teradyne has three reportable segments; semiconductor test systems segment, connection systems segment, and other test and inspection systems segment. The other test and inspection systems segment is comprised of circuit-board test and inspection systems, broadband test systems, and software test systems. Teradyne evaluates performance based on several factors, of which the primary financial measure is business segment income before taxes. The accounting policies of the business segments are the same as those described in "Note B: Accounting Policies". Intersegment sales are accounted for at fair value as if sales were to third parties. During 2000 and 1998 no individual customer accounted for more than 10% of consolidated net sales. During 1999, principally all of Teradyne's operating segments reported sales to Motorola Inc. accounting for a total of 11% of consolidated net sales.
OTHER TEST SEMICONDUCTOR AND TEST CONNECTION INSPECTION CORPORATE SAB 101 SYSTEMS SYSTEMS SYSTEMS AND ADJUSTMENTS SEGMENT SEGMENT SEGMENT ELIMINATIONS (4) CONSOLIDATED ------------- ---------- ---------- ------------ ----------- ------------ 2000 Sales to unaffiliated customers.............. $2,044,330 $734,642 $265,341 -- $ (367) $3,043,946 Intersegment sales....... -- $ 29,294 -- $(29,294) -- -- ---------- -------- -------- -------- ------ ---------- Net sales................ 2,044,330 763,936 265,341 (29,294) (367) 3,043,946 Income (loss) before taxes(1)............... 675,315 155,040 2,176 (92,730) (154) 739,648 Total assets (2)......... 920,629 511,083 105,335 780,926 37,895 2,355,868 Property additions (3)... 119,705 92,403 9,272 76,862 -- 298,242 Depreciation and amortization expense(3)............. 47,497 33,118 6,263 14,984 -- 101,862
33 35 TERADYNE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) O. OPERATING SEGMENT AND GEOGRAPHIC INFORMATION -- (CONTINUED)
OTHER TEST SEMICONDUCTOR AND TEST CONNECTION INSPECTION CORPORATE SAB 101 SYSTEMS SYSTEMS SYSTEMS AND ADJUSTMENTS SEGMENT SEGMENT SEGMENT ELIMINATIONS (4) CONSOLIDATED ------------- ---------- ---------- ------------ ----------- ------------ 1999 Sales to unaffiliated customers.............. $1,210,543 $373,051 $207,318 -- -- $1,790,912 Intersegment sales....... -- 15,069 -- $(15,069) -- -- ---------- -------- -------- -------- ------ ---------- Net sales................ 1,210,543 388,120 207,318 (15,069) -- 1,790,912 Income (loss) before taxes(1)............... 287,960 63,249 (14,298) (63,062) -- 273,849 Total assets(2).......... 564,536 219,763 94,096 686,656 -- 1,565,051 Property additions(3).... 47,054 38,500 8,493 57,109 -- 151,156 Depreciation and amortization expense(3)............. 32,086 18,567 8,357 27,376 -- 86,386 1998 Sales to unaffiliated customers.............. $ 967,147 $268,363 $253,641 -- -- $1,489,151 Intersegment sales....... -- 11,473 -- $(11,473) -- -- ---------- -------- -------- -------- ------ ---------- Net sales................ 967,147 279,836 253,641 (11,473) -- 1,489,151 Income (loss) before taxes(1)............... 104,586 34,027 32,245 (24,976) -- 145,882 Total assets(2).......... 510,938 189,338 114,734 497,804 -- 1,312,814 Property additions(3).... 87,390 31,417 5,866 39,767 -- 164,440 Depreciation and amortization expense(3)............. 39,973 14,079 7,581 14,671 -- 76,304
- --------------- (1) Income before taxes of the principal businesses exclude the effects of employee profit sharing, management incentive compensation, other unallocated expenses, net interest income, and certain special charges. (2) Total business assets are directly attributable to each business. Corporate assets consist of cash and cash equivalents, marketable securities, unallocated fixed assets of support divisions and common facilities and certain other assets. (3) Corporate property additions and depreciation and amortization expense include items attributable to the unallocated fixed assets of support divisions and common facilities. (4) SAB 101 adjustment reflects the impact of SAB 101 on sales, income before taxes, and total assets in 2000. Segments reflect their results before the change in accounting principle. 34 36 TERADYNE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) O. OPERATING SEGMENT AND GEOGRAPHIC INFORMATION -- (CONTINUED) Information as to Teradyne's sales in different geographical areas is as follows (in thousands):
2000 1999 1998 ---------- ---------- ---------- Sales to unaffiliated customers (1): United States..................................... $1,407,110 $ 859,638 $ 797,143 South East Asia................................... 626,060 359,430 177,910 Europe............................................ 425,694 268,637 247,795 Taiwan............................................ 306,611 147,876 76,200 Japan............................................. 119,883 89,546 102,900 Korea............................................. 88,833 12,058 12,299 Other............................................. 69,755 53,727 74,904 ---------- ---------- ---------- $3,043,946 $1,790,912 $1,489,151 ========== ========== ==========
- --------------- (1) Sales are attributable to geographic areas based on location of customer site. Because a substantial portion of Teradyne's sales are derived from the sales of product manufactured in the United States, long-lived assets located outside the United States are less than 10% of total assets. 35 37 SUPPLEMENTARY INFORMATION (UNAUDITED) The following sets forth certain unaudited consolidated quarterly statements of operations data for each of Teradyne'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 Teradyne and the notes thereto included elsewhere herein.
2000 (AS REPORTED)* -------------------------------------------------------- 1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER ----------- ----------- ----------- ----------- Net sales........................................... $648,131 $758,955 $848,027 $821,652 Expenses: Cost of sales..................................... 348,840 402,570 460,752 469,710 Engineering and development....................... 69,025 73,637 78,963 79,295 Selling and administrative........................ 78,956 91,982 95,149 96,475 -------- -------- -------- -------- 496,821 568,189 634,864 645,480 -------- -------- -------- -------- Income from operations.............................. 151,310 190,766 213,163 176,172 Interest and other income........................... 4,962 6,235 6,641 12,886 Interest expense.................................... (425) (412) (570) (434) -------- -------- -------- -------- Income before income taxes.......................... 155,847 196,589 219,234 188,624 Provision for income taxes.......................... 46,754 58,977 65,770 56,587 -------- -------- -------- -------- Net income.......................................... $109,093 $137,612 $153,464 $132,037 ======== ======== ======== ======== Net income per common share -- basic................ $ 0.63 $ 0.79 $ 0.88 $ 0.76 ======== ======== ======== ======== Net income per common share -- diluted.............. $ 0.60 $ 0.76 $ 0.84 $ 0.74 ======== ======== ======== ========
4TH QUARTER 1ST QUARTER THROUGH 3RD QUARTER 2000 (AS 2000 (AS ADJUSTED)* REPORTED)* ----------------------------------------- ----------- 1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER ----------- ----------- ----------- ----------- Net sales........................................... $615,358 $747,458 $859,478 $821,652 Expenses: Cost of sales..................................... 338,484 403,529 457,976 469,710 Engineering and development....................... 69,025 73,637 78,963 79,295 Selling and administrative........................ 78,956 91,982 95,149 96,475 -------- -------- -------- -------- 486,465 569,148 632,088 645,480 -------- -------- -------- -------- Income from operations.............................. 128,893 178,310 227,390 176,172 Interest and other income........................... 4,962 6,235 6,641 12,886 Interest expense.................................... (425) (412) (570) (434) -------- -------- -------- -------- Income before income taxes and cumulative effect of change in accounting principle.................... 133,430 184,133 233,461 188,624 Provision for income taxes.......................... 40,029 55,240 70,038 56,587 -------- -------- -------- -------- Income before cumulative effect of change accounting principle......................................... 93,401 128,893 163,423 132,037 Cumulative effect of change in accounting principle......................................... (64,138) -- -- -- -------- -------- -------- -------- Net income.......................................... $ 29,263 $128,893 $163,423 $132,037 ======== ======== ======== ======== Income per share before cumulative effect of change in accounting principle -- basic.................. $ 0.54 $ 0.74 $ 0.94 $ 0.76 ======== ======== ======== ======== Cumulative effect of change in accounting principle -- basic................................ $ (0.37) $ -- $ -- $ -- ======== ======== ======== ======== Net income per common share -- basic................ $ 0.17 $ 0.74 $ 0.94 $ 0.76 ======== ======== ======== ======== Income per share before cumulative effect of change in accounting principle -- diluted................ $ 0.52 $ 0.71 $ 0.90 $ 0.74 ======== ======== ======== ======== Cumulative effect of change in accounting principle -- diluted.............................. $ (0.35) $ -- $ -- $ -- ======== ======== ======== ======== Net income per common share -- diluted.............. $ 0.16 $ 0.71 $ 0.90 $ 0.74 ======== ======== ======== ========
36 38 SUPPLEMENTARY INFORMATION -- (CONTINUED) (UNAUDITED)
1999 -------------------------------------------------------- 1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER ----------- ----------- ----------- ----------- Net sales.................................... $344,454 $400,904 $497,039 $548,515 Expenses: Cost of sales.............................. 219,858 236,940 281,299 309,655 Engineering and development................ 47,724 56,829 60,331 63,686 Selling and administrative................. 54,481 59,386 70,470 72,055 -------- -------- -------- -------- 322,063 353,155 412,100 445,396 -------- -------- -------- -------- Income from operations....................... 22,391 47,749 84,939 103,119 Interest income.............................. 3,778 3,842 4,794 4,893 Interest expense............................. (462) (442) (217) (535) -------- -------- -------- -------- Income before income taxes................... 25,707 51,149 89,516 107,477 Provision for income taxes................... 7,712 15,345 26,855 32,243 -------- -------- -------- -------- Net income................................... $ 17,995 $ 35,804 $ 62,661 $ 75,234 ======== ======== ======== ======== Net income per common share -- basic......... $ 0.11 $ 0.21 $ 0.37 $ 0.44 ======== ======== ======== ======== Net income per common share -- diluted....... $ 0.10 $ 0.20 $ 0.35 $ 0.42 ======== ======== ======== ========
- --------------- * Note: The results for the first three quarters of fiscal year 2000 have been adjusted to reflect the adoption of SAB 101. Pro forma amounts for the periods beginning before January 1, 2000 have not been presented as the effect of the change in accounting principle could not be reasonably determined. ITEM 9: CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 37 39 PART III ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. Certain information relating to directors and executive officers of Teradyne, executive compensation, security ownership of certain beneficial owners and management, and certain relationships and related transactions is incorporated by reference herein from Teradyne's definitive proxy statement in connection with its Annual Meeting of Shareholders to be held on May 24, 2001, 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 Teradyne, executive compensation, security ownership of certain beneficial owners and management, and certain relationships and related transactions is incorporated by reference herein from Teradyne's definitive proxy statement in connection with its Annual Meeting of Shareholders to be held on May 24, 2001, 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 Teradyne, executive compensation, security ownership of certain beneficial owners and management, and certain relationships and related transactions is incorporated by reference herein from Teradyne's definitive proxy statement in connection with its Annual Meeting of Shareholders to be held on May 24, 2001, 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 Teradyne, executive compensation, security ownership of certain beneficial owners and management, and certain relationships and related transactions is incorporated by reference herein from Teradyne's definitive proxy statement in connection with its Annual Meeting of Shareholders to be held on May 24, 2001, 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. 38 40 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, 2000 and 1999 Statements of Income for the years ended December 31, 2000, 1999, and 1998 Statements of Shareholders' Equity for the years ended December 31, 2000, 1999, and 1998 Statements of Cash Flows for the years ended December 31, 2000, 1999, and 1998 (a) 2. FINANCIAL STATEMENT SCHEDULES The following consolidated financial statement schedule is included in Item 14(d): Schedule II -- Valuation and Qualifying Accounts Schedules other than those listed above have been omitted since they are either not required or 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 A Current Report on Form 8-K dated November 16, 2000, was filed with the Securities and Exchange Commission on November 20, 2000 relating to the declaration of a dividend of one common share purchase right for each outstanding share of common stock, par value $0.125 per share outstanding on November 27, 2000 to the stockholders of record on that date. 39 41 ITEM 14(d) FINANCIAL STATEMENT SCHEDULES TERADYNE, INC. SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E -------- ------------ ----------------------- ---------- -------- ADDITIONS ----------------------- BALANCE AT CHARGED TO CHARGED TO BALANCE AT BEGINNING OF COST AND OTHER END OF DESCRIPTION PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD ----------- ------------ ---------- ---------- ---------- ---------- (THOUSANDS OF DOLLARS) --------------------------------------------------------------- Valuation reserve deducted in the balance sheet from the asset to which it applies: Accounts receivable: 2000 Allowance for doubtful accounts... $4,410 $1,337 $ -- $571 $5,176 ====== ====== ====== ==== ====== 1999 Allowance for doubtful accounts... $2,395 $1,407 $ 804 $196 $4,410 ====== ====== ====== ==== ====== 1998 Allowance for doubtful accounts... $1,938 $ 17 $1,044 $604 $2,395 ====== ====== ====== ==== ======
40 42 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 - ----------- ----------- ---------------------- 3.1 Restated Articles of Organization of the Company, Exhibit 3.1 to the Company's Annual as amended Report on Form 10-K for the fiscal year ended December 31, 1997. 3.2 Amendment, dated May 23, 1996, to Restated Articles Exhibit 3.2 to the Company's Annual of Organization of the Company, as amended Report on Form 10-K for the fiscal year ended December 31, 1996. 3.3 Amended and Restated Bylaws of the Company Exhibit 3.3 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1996. 3.4 Amendment dated March 25, 2000, to Restated Exhibit 3.1 to the Company's Quarterly Articles of Organization of the Company, as amended Report on Form 10-Q for the quarter ended July 2, 2000. 4.1 Rights Agreement between the Company and Fleet Exhibit 4.1 to the Company's Form 8-K National Bank dated as of November 17, 2000 filed November 20, 2000. 10.1 Teradyne, Inc. Supplemental Executive Retirement Exhibit 10.4 to the Company's Annual Plan Report on Form 10-K for the fiscal year ended December 31, 1997. 10.2 1991 Employee Stock Option Plan, as amended Exhibit 4.2 to the Company's Registration Statement on Form S-8 (Registration Statement No. 333-07177). 10.3 Amendment to 1991 Stock Plan dated Exhibit 10.3 to the Company's Annual March 9, 2001 Report on Form 10-K for the fiscal year ended December 31, 2000. 10.4 Megatest Corporation 1990 Stock Option Plan Exhibit 4.1 to the Company's Registration Statement on Form S-8 (Registration Statement No. 333-64683). 10.5 Megatest Corporation Director Stock Option Plan Exhibit 4.2 to the Company's Registration Statement on Form S-8 (Registration Statement No. 333-64683). 10.6 1996 Employee Stock Purchase Plan Exhibit 4.1 to the Company's Registration Statement on Form S-8 (Registration Statement No. 333-07177). 10.7 Master Lease Agreement between Megatest and General Exhibit 10.10 to the Company's Annual Electric Capital Corporation dated August 10, 1995 Report on Form 10-K for the fiscal year ended December 31, 1995. 10.8 Loan and Security Agreement between Megatest and Exhibit 10.11 to the Company's Annual the CIT Group/Equipment Financing, Inc. dated Report on Form 10-K for the fiscal year August 14, 1995 ended December 31, 1995. 10.9 Deed of Trust, Financing Statement, Security Exhibit 10.12 to the Company's Annual Agreement and Fixture Filing between Megatest and Report on Form 10-K for the fiscal year the Sun Life Assurance Company of Canada (U.S.) ended December 31, 1995. dated August 25, 1995 10.10 1997 Employee Stock Option Plan Exhibit 10.14 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1996.
41 43
EXHIBIT NO. DESCRIPTION SEC DOCUMENT REFERENCE - ----------- ----------- ---------------------- 10.11 Letter Agreement dated January 24, 1997 between the Exhibit 10.15 to the Company's Annual Company and Executive Officer Report on Form 10-K for the fiscal year ended December 31, 1996. 10.12 1996 Non-Employee Director Stock Option Plan Exhibit 10.15 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1996. 10.13 Amendment to 1996 Non-Employee Director Option Plan Exhibit 10.13 to the Company's Annual dated January 18, 2001 Report on Form 10-K for the fiscal year ended December 31, 2000. 10.14 Letter Agreement dated June 1, 1997 between the Exhibit 10.15 to the Company's Annual Company and Member of Board Report on Form 10-K for the fiscal year ended December 31, 1997. 10.15 Letter Agreement dated June 1, 1997 between the Exhibit 10.16 to the Company's Annual Company and Member of Board Report on Form 10-K for the fiscal year ended December 31, 1997. 21.1 Subsidiaries of the Company 23.1 Consent of PricewaterhouseCoopers LLP
42 44 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 27th day of March, 2001. TERADYNE, INC. By: /s/ MICHAEL A. BRADLEY ------------------------------------ MICHAEL A. BRADLEY, VICE PRESIDENT AND CHIEF FINANCIAL OFFICER 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 --------- ----- ---- /s/ GEORGE W. CHAMILLARD Chairman of the Board, President, and March 27, 2001 - --------------------------------------------------- Chief Executive Officer GEORGE W. CHAMILLARD /s/ MICHAEL A. BRADLEY Vice President and March 27, 2001 - --------------------------------------------------- Chief Financial Officer MICHAEL A. BRADLEY /s/ DONALD J. HAMMAN Vice President and Controller March 27, 2001 - --------------------------------------------------- Principal Accounting Officer DONALD J. HAMMAN /s/ JAMES W. BAGLEY Director March 27, 2001 - --------------------------------------------------- JAMES W. BAGLEY /s/ ALBERT CARNESALE Director March 27, 2001 - --------------------------------------------------- ALBERT CARNESALE /s/ DANIEL S. GREGORY Director March 27, 2001 - --------------------------------------------------- DANIEL S. GREGORY Director March , 2001 - --------------------------------------------------- DWIGHT H. HIBBARD /s/ JOHN P. MULRONEY Director March 27, 2001 - --------------------------------------------------- JOHN P. MULRONEY /s/ VINCENT M. O'REILLY Director March 27, 2001 - --------------------------------------------------- VINCENT M. O'REILLY /s/ RICHARD J. TESTA Director March 27, 2001 - --------------------------------------------------- RICHARD J. TESTA /s/ ROY A. VALLEE Director March 27, 2001 - --------------------------------------------------- ROY A. VALLEE Director March , 2001 - --------------------------------------------------- PATRICIA S. WOLPERT
43 EX-10.3 2 b38191teex10-3.txt AMEND. TO 1991 STOCK PLAN 1 EX-10.3 Exhibit 10.3 TERADYNE, INC. AMENDMENT TO 1991 EMPLOYEE STOCK OPTION PLAN March 9, 2001 The Teradyne, Inc. 1991 Employee Stock Option Plan (the "Plan") is hereby amended as follows: 1. The first sentence of Section 15 is hereby deleted in its entirety and replaced with the following: "This Plan was adopted by the Board and effective on March 13, 1991, and shall expire on the end of the day on the date twenty years following the date of effectiveness (except as to Options outstanding on that date)." In all other respects the Plan is hereby affirmed and shall remain in full force and effect. [Remainder of Page Left Blank Intentionally] TERADYNE, INC. /s/ James. W. Bagley -------------------------------- James W. Bagley /s/ Dwight H. Hibbard -------------------------------- Dwight H. Hibbard /s/ Roy A. Vallee -------------------------------- Roy A. Vallee /s/ Patricia S. Wolpert -------------------------------- Patricia S. Wolpert EX-10.13 3 b38191teex10-13.txt AMEND. TO 1996 NON-EMPLOYEE DIRECTOR OPTION PLAN 1 EX-10.13 Exhibit 10.13 AMENDMENT TO 1996 NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN January 18, 2001 The Teradyne, Inc. 1996 Non-Employee Director Stock Option Plan (the "PLAN") is hereby amended as follows: 1. Paragraph 4 of the Plan shall be and hereby is amended and restated in its entirety to read as follows: "4. AUTOMATIC GRANT OF OPTIONS. Subject to the availability of shares under this Plan, (a) each person who becomes a member of the Board on or after August 26, 1999 and who is not an employee or officer of the Company (each, a "NON-EMPLOYEE DIRECTOR") shall be automatically granted on the date such person is first elected to the Board, without further action by the Board, an option to purchase 22,500 shares of the Common Stock, (b) each person who was a Non-Employee Director on February 7, 2000 shall be granted on February 5, 2001 an option to purchase 6,750 shares of the Common Stock, (c) each Non-Employee Director who became a new member of the Board during February 2000 shall be granted on February 5, 2001 an option to purchase 15,750 shares of the Common Stock, and (d) beginning on February 5, 2001 and throughout the term of this Plan, each person who is a Non-Employee Director on the first Monday in February in each year shall be automatically granted on each such date an option to purchase 11,250 shares of the Common Stock. The options to be granted under this paragraph 4 shall be the only options ever to be granted at any time to each such member under this Plan. The number of shares covered by options granted under this paragraph 4 shall be subject to adjustment in accordance with the provisions of paragraph 10 of this Plan." 2. Paragraph 7(a) of the Plan shall be and hereby is amended and restated in its entirety to read as follows: "7. (a) VESTING OF SHARES AND NON-TRANSFERABILITY OF OPTIONS. Options granted under this Plan shall not be exercisable until they become vested. Options granted under this Plan prior to February 5, 2001 shall vest in the optionee and thus become exercisable, in accordance with the following schedule, provided that the optionee has continuously served as a member of the Board through such vesting date: Percentage of Option Shares for which Option Will be Exercisable Date of Vesting - -------------------------- --------------- 0% Less than one year from the date of grant 25% One year from the date of grant 50% Two years from the date of grant 75% Three years from the date of grant 100% Four years from the date of grant Options granted on or after February 5, 2001 shall not be subject to vesting and shall be immediately exercisable in their entirety on the date of grant. The number of shares as to which options may be exercised shall be cumulative, so that once the option shall become exercisable as to any shares it shall continue to be exercisable as to said shares, until expiration or termination of the option as provided in this Plan. In all other respects, the Plan is hereby affirmed and shall remain in full force and effect. TERADYNE, INC. /s/ James. W. Bagley ----------------------------- James W. Bagley /s/ Dwight H. Hibbard ----------------------------- Dwight H. Hibbard /s/ Roy A. Vallee ----------------------------- Roy A. Vallee /s/ Patricia S. Wolpert ----------------------------- Patricia S. Wolpert EX-21.1 4 b38191teex21-1.txt SUBSIDIARIES 1 EX-21.1 SUBSIDIARIES EXHIBIT 21.1 PRESENT SUBSIDIARIES PERCENTAGE STATE OR OF VOTING JURISDICTION SECURITIES INCORPORATION OWNED ------------- ----- Teradyne ATE (Wuxi) Co., Ltd ....................... Peoples Republic of China 100% Teradyne Benelux, Inc. (Ltd.) ...................... Delaware 100% Teradyne Canada Limited ............................ Canada 100% Teradyne de Costa Rica S.A. ........................ Costa Rica 100% Teradyne GmbH ...................................... Germany 100% Teradyne Holdings Limited .......................... United Kingdom 100% Teradyne Limited ............................ United Kingdom 100% Teradyne Hong Kong, Ltd. ........................... Delaware 100% Teradyne International, Ltd. ....................... Barbados 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 de Mexico, S.A. de C.V .................... Mexico 100% Teradyne Netherlands B.V ........................... Netherlands 100% Teradyne Netherlands, Ltd. ......................... Delaware 100% Teradyne Philippines Limited ....................... Delaware 100% Teradyne Realty, Inc. .............................. Massachusetts 100% Teradyne S.A.S. .................................... France 100% Teradyne Scandinavia, Inc. ......................... Delaware 100% Teradyne Singapore, Ltd. ........................... Delaware 100% Teradyne Spain, Inc. ............................... Delaware 100% Teradyne Taiwan, Ltd. .............................. Delaware 100% Teradyne Thailand Inc. ............................. Delaware 100% Alternative Delivery Systems Support, Inc. ......... North Carolina 100% Control Automation Inc. ............................ Delaware 100% Herco Technology Corp. ............................. California 100% Kinetrix, Inc. ..................................... Delaware 100% Megatest Corporation ............................... Delaware 100% Megatest H.K. Ltd. .......................... Hong Kong 100% Teradyne Philippines Ltd. ................... California 100% Perception Laminates, Inc. ......................... California 100% Softbridge, Inc..................................... Delaware 100% Zehntel Holdings, Inc. ............................. California 100% 1000 Washington, Inc. .............................. Massachusetts 100% EX-23.1 5 b38191teex23-1.txt CONSENT OF PRICEWATERHOUSECOOPERS 1 EX-23.1 CONSENT OF INDEPENDENT ACCOUNTANTS EXHIBIT 23.1 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (No. 333-32547; 333-26045; 33-16077; 33-42352; 33-55123; 33-64683; 333-07177 and 333-56373) of Teradyne, Inc. of our report dated January 15, 2001, relating to the financial statements and financial statement schedule, which appears in this Form 10-K. PricewaterhouseCoopers LLP Boston, Massachusetts March 26, 2001 -----END PRIVACY-ENHANCED MESSAGE-----