-----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, Eh/G8FNm1IKFPK+NHjr278yYhPxlF6qg5TX/aFc0q+JmtzA5Mfz+Lw0TsST6jYrx xdbxCLIC9XL8ENOPsDXvpg== 0000950135-99-001617.txt : 19990331 0000950135-99-001617.hdr.sgml : 19990331 ACCESSION NUMBER: 0000950135-99-001617 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990330 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: 99577516 BUSINESS ADDRESS: STREET 1: 321 HARRISON AVE CITY: BOSTON STATE: MA ZIP: 02118 BUSINESS PHONE: 6174822700 MAIL ADDRESS: STREET 1: 321 HARRISON AVENUE STREET 2: H93 CITY: BOSTON STATE: MA ZIP: 02118 10-K 1 TERADYNE, 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, 1998 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
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 26, 1999 was $4.1 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 26, 1999 was 85,088,987 shares. DOCUMENTS INCORPORATED BY REFERENCE Portions of the registrant's proxy statement in connection with its 1999 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 semiconductors ("semiconductor test systems"), circuit-boards ("circuit-board test systems"), telephone lines and networks ("telecommunication test systems"), and software ("software test systems"). The Company is also a leading manufacturer of backplanes and associated connectors used in electronic systems ("backplane connection systems"). Circuit-board test systems, telecommunications test systems, and software test systems have been combined into "other test systems" for purposes of reporting the Company's operating segments. For financial information concerning these operating segments, see "Note M: Operating Segment and Geographic Information" in Notes to Consolidated Financial Statements. Unless the context indicates otherwise, the term "Company" as used herein includes Teradyne, Inc. and all its subsidiaries. Statements in this Annual Report on Form 10-K which are not historical facts, so called "forward looking statements," are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Investors are cautioned that all forward looking statements involve risks and uncertainties, including those detailed in the Company's filings with the Securities and Exchange Commission. See also "Item 7: Management's Discussion and Analysis of Financial Condition and Results of Operations -- Certain Factors That May Affect Future Results." PRODUCTS Semiconductor test systems produced by the Company 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 the Company's semiconductor test systems to measure product performance, to improve product quality, to shorten time to market, to enhance manufacturability, to conserve labor costs, and to increase production yields. Semiconductor test systems accounted for 65% of consolidated net sales in 1998, 67% in 1997, and 65% in 1996. Backplane connection systems are used principally for the computer, communications, and military/ aerospace industries. A backplane is an assembly into which printed circuit boards are inserted that provides for the interconnection of electrical signals between the circuit boards and the other elements of the system. The Company produces both printed circuit and metal backplanes, along with mating circuit-board connectors. Backplane connection systems customers include makers of data storage systems, telecommunications gear, and routers and servers. In addition, backplane connection systems have a long-standing military/ aerospace customer base. Backplane connection systems accounted for 18% of consolidated net sales in 1998, 17% in 1997, and 15% in 1996. Circuit-board test systems are used by electronic equipment manufacturers for the design and testing of circuit boards and other assemblies. Circuit-board test 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 systems customers use their test systems and related software to increase product performance, to improve product quality, to shorten time to market, to enhance manufacturability, to conserve labor costs, and to increase production yields. Circuit-board test systems accounted for less than 10% of consolidated net sales in 1998, 9% in 1997, and 13% in 1996. Telecommunications test systems are used by telephone operating companies for the testing and maintenance of their subscriber telephone lines and related equipment. Telecommunications test systems accounted for 5% of consolidated net sales in 1998, 1997 and 1996. 1 3 Software test systems are used by a number of industries to test communications networks, computerized telecommunication systems, and client/server applications. Software test systems accounted for 2% of consolidated net sales in 1998 and 1997 and 1% in 1996. SALES AND DISTRIBUTION The Company's systems are extremely complex and require extensive support both by the customer and the Company. Prices for the Company's systems can reach $5 million or more. No single customer accounted for 10% or more of consolidated net sales in 1998. In 1998, the Company's three largest customers accounted for 23% of consolidated net sales. Direct sales to United States government agencies accounted for less than 2% of consolidated net sales in 1998, 1997, and 1996. Approximately 7% of other test systems segment sales were to United States government agencies in 1998. Sales are also made within each of the Company's segments to customers who are government contractors. Approximately 11% of backplane connection systems sales and approximately 16% of other test systems segment sales fell into this category during 1998. The Company has sales and service offices throughout North America, Europe, the Asia Pacific region, and Japan as the Company's customers outside the United States are located primarily in those geographic areas. The Company sells in these areas both directly and through non U.S. sales subsidiaries utilizing a direct sales force. Substantially all of the Company's manufacturing activities are conducted in the United States. Sales to customers outside the United States accounted for 46% of consolidated net sales in 1998, 51% in 1997, and 54% in 1996. The Company is subject to the inherent risks involved in international trade, such as political and economic instability, restrictive trade policies, controls on funds transfer, currency fluctuations, difficulties in managing distributors, potentially adverse tax consequences, and the possibility of difficulty in accounts receivable collection. The Company attempts to reduce the effects of currency fluctuations by hedging part of its exposed position and by conducting some of its international transactions in U.S. dollars or dollar equivalents. See also "Item 7A. Quantitative and Qualitative Disclosures About Market Risks." COMPETITION The Company faces substantial competition, throughout the world, in each operating segment. Some of these competitors have substantially greater financial and other resources with which to pursue engineering, manufacturing, marketing, and distribution of their products. The Company also faces competition from internal suppliers at several of its customers. Competition is principally based on technical performance, equipment and service reliability, reputation and price. New product introductions by the Company's competitors could cause a decline in sales or loss of market acceptance of existing products. BACKLOG On December 31, 1998, the Company's backlog of unfilled orders for semiconductor test systems, backplane connection systems and other test systems segments was approximately $334.0 million, $131.1 million, and $114.7 million, respectively, compared with $619.3 million, $90.0 million and $153.2 million, respectively on December 31, 1997. The $282.7 million year over year decrease in the Company's backlog was primarily due to the semiconductor industry downturn, which has significantly reduced demand for the Company's semiconductor test systems. Of the backlog at December 31, 1998, approximately 98% of the semiconductor test systems backlog, approximately 97% of the backplane connection systems backlog and approximately 67% of the other test systems backlog are expected to be delivered in 1999. The Company's past experience indicates that a portion of orders included in the backlog may be canceled. There are no seasonal factors related to the backlog. 2 4 RAW MATERIALS The Company's products require a wide variety of electronic and mechanical components. The Company can experience occasional delays in obtaining timely delivery of certain items. Additionally, the Company could experience a temporary adverse impact if any of its sole source suppliers ceased to deliver products. Any prolonged inability of the Company to obtain adequate yields or deliveries, or any other circumstances that would require the Company to seek alternative sources of supply could have a material adverse effect on the Company's business, financial condition, and results of operations. PATENTS AND LICENSES The development of products by the Company, both hardware and software, is largely based on proprietary information. The Company protects its rights in proprietary information through various methods such as copyrights, trademarks, patents and patent applications, software license agreements, and employee agreements. Any invalidation of the Company's intellectual property rights could have a material adverse effect on the Company's business. EMPLOYEES As of December 31, 1998 the Company employed approximately 6,800 people. Since the inception of the Company's business, there have been no work stoppages or other labor disturbances. The Company has no collective bargaining contracts. ENGINEERING AND DEVELOPMENT ACTIVITIES The highly technical nature of the Company's products requires a large and continuing engineering and development effort. Engineering and development expenditures for new and improved products were approximately $195.2 million in 1998, $162.5 million in 1997, and $143.9 million in 1996. These expenditures amounted to approximately 13% of consolidated net sales in 1998 and 1997 and 12% in 1996. ENVIRONMENTAL AFFAIRS The Company's manufacturing facilities are subject to numerous laws and regulations designed to protect the environment, particularly from manufacturing plant wastes and emissions. These laws include the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, the Superfund Amendment and Reauthorization Act of 1986, the Occupational Safety and Health Act, the Clean Air Act, the Clean Water Act, the Resource Conservation and Recovery Act of 1976, and the Hazardous and Solid Waste Amendments of 1984. In the opinion of management, the costs associated with complying with these laws and regulations have not had and are currently not expected to have a material adverse effect upon the financial position of the Company. 3 5 EXECUTIVE OFFICERS OF THE COMPANY The following table sets forth the names of all executive officers of the Company and certain other information relating to their positions held with the Company and other business experience. Executive officers of the Company do not have a specific term of office but rather serve at the discretion of the Board of Directors.
BUSINESS EXPERIENCE FOR THE EXECUTIVE OFFICER AGE POSITION PAST 5 YEARS ----------------- --- -------- --------------------------- Alexander V. d'Arbeloff... 71 Chairman of the Board Chairman of the Board of the Company since 1977; Chief Executive Officer of the Company from 1996 to 1997; President of the Company from 1971 to 1996; Director of the Company since 1960. George W. Chamillard...... 60 President, Chief Executive President and Chief Executive Officer, and Member of the Officer of the Company beginning Board in 1997; Director of the Company since 1996; President and Chief Operating Officer of the Company from 1996 to 1997; Executive Vice President of the Company from 1994 to 1996. Jeffrey R. Hotchkiss...... 51 Vice President and Chief Chief Financial Officer Financial Officer beginning in 1997; Vice President of the Company since 1990. Michael A. Bradley........ 50 Vice President Vice President of the Company since 1992. John M. Casey............. 50 Vice President Vice President of the Company since 1990. Ronald J. Dias............ 55 Vice President Vice President of the Company since 1988. Donald J. Hamman.......... 47 Controller Controller of the Company since 1994. Stuart M. Osattin......... 53 Vice President and Treasurer Vice President of the Company since 1994; Treasurer of the Company since 1980. Edward Rogas, Jr.......... 58 Vice President Vice President of the Company since 1984. David L. Sulman........... 55 Vice President Vice President of the Company since 1994.
4 6 ITEM 2: PROPERTIES The Company's executive offices are in Boston, Massachusetts. Manufacturing and other operations are carried on in several locations. The following table provides certain information as to the Company's principal general offices and manufacturing facilities.
APPROXIMATE OPERATING PROPERTY SQUARE FEET OF LOCATION SEGMENT INTEREST FLOOR SPACE -------- --------- -------- -------------- Boston, Massachusetts......................... Semiconductor & Own 492,000 Circuit Board Test Agoura Hills, California...................... Semiconductor Test Own 572,000 Nashua, New Hampshire......................... Backplane Connection Own 530,000 San Jose, California.......................... Semiconductor Test Own 120,000 Walnut Creek, California...................... Circuit Board Test Lease 69,000 Kumamoto, Japan............................... Semiconductor Test Own 65,000 Deerfield, Illinois........................... Telecommunication Test Own 63,000 Dublin, Ireland............................... Backplane Connection Lease 46,000
Currently 273,000 square feet of floor space is under construction in North Reading, Massachusetts. The Company expects to occupy the North Reading facility in the first half of 1999. Approximately 112,000 square feet of the floor space the Company owns in Agoura Hills is unoccupied and therefore available for future expansion. ITEM 3: LEGAL PROCEEDINGS The Company is not a party to any litigation that, in the opinion of management, could reasonably be expected to have a material adverse impact on the Company's financial position. ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. None. 5 7 PART II ITEM 5: MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS The following table shows the market range for the Company's Common Stock based on reported sales prices on the New York Stock Exchange.
PERIOD HIGH LOW ------ ---- --- 1998 First Quarter........................................ $48 7/16 $27 3/4 Second Quarter....................................... 43 7/16 24 5/8 Third Quarter........................................ 28 1/4 17 1/4 Fourth Quarter....................................... 45 7/16 15 1997 First Quarter........................................ $32 7/8 $23 5/8 Second Quarter....................................... 44 3/4 27 Third Quarter........................................ 58 1/2 40 1/8 Fourth Quarter....................................... 59 3/16 27 1/4
The number of record holders of the Company's Common Stock at February 26, 1999 was 2,630. The Company has never paid cash dividends because it has been its policy to use earnings to finance expansion and growth. Payment of future cash dividends will rest within the discretion of the Board of Directors and will depend, among other things, upon the Company's earnings, capital requirements, and financial condition. The Company presently expects to retain all of its earnings for use in the business. ITEM 6: SELECTED FINANCIAL DATA
YEARS ENDED DECEMBER 31, ------------------------------------------------------------ 1998 1997 1996 1995 1994 ---- ---- ---- ---- ---- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Net sales......................... $1,489,151 $1,266,274 $1,171,615 $1,191,022 $777,731 ========== ========== ========== ========== ======== Income from continuing operations...................... $ 102,117 $ 127,608 $ 93,574 $ 159,284 $ 76,390 ========== ========== ========== ========== ======== Income from continuing operations per common share -- basic....... $ 1.22 $ 1.53 $ 1.12 $ 1.95 $ 0.98 ========== ========== ========== ========== ======== Income from continuing operations per common share -- diluted..... $ 1.19 $ 1.48 $ 1.10 $ 1.89 $ 0.95 ========== ========== ========== ========== ======== Total assets...................... $1,312,814 $1,251,674 $1,096,816 $1,023,831 $759,480 ========== ========== ========== ========== ======== Long-term obligations............. $ 13,200 $ 13,141 $ 15,650 $ 18,679 $ 9,111 ========== ========== ========== ========== ========
6 8 ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS SELECTED RELATIONSHIPS WITHIN THE CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, -------------------------------------- 1998 1997 1996 ---- ---- ---- (DOLLARS IN THOUSANDS) Net sales.............................................. $1,489,151 $1,266,274 $1,171,615 ========== ========== ========== Net income............................................. $ 102,117 $ 127,608 $ 93,574 ========== ========== ========== Increase (decrease) in net sales from preceding year: Amount............................................ $ 222,877 $ 94,659 $ (19,407) ========== ========== ========== Percentage........................................ 18% 8% (2)% ========== ========== ========== Increase (decrease) in net income from preceding year................................................. $ (25,491) $ 34,034 $ (65,710) ========== ========== ========== Percentage of net sales: Net sales......................................... 100% 100% 100% Expenses: Cost of sales..................................... 64 58 62 Engineering and development....................... 13 13 12 Selling and administrative........................ 14 15 15 ---------- ---------- ---------- 91 86 89 Net interest income............................... 1 1 1 ---------- ---------- ---------- Income before income taxes........................ 10 15 12 Provision for income taxes........................ 3 5 4 ---------- ---------- ---------- Net income............................................. 7% 10% 8% ========== ========== ==========
RESULTS OF OPERATIONS: 1998 compared to 1997 Sales increased 18% in 1998 to a record $1,489.2 million from $1,266.3 million in 1997. Due to a strong backlog at the beginning of 1998, semiconductor test systems shipments increased by 14%, despite a decline in sales by the semiconductor test equipment market as a whole. Sales of backplane connection systems to unaffiliated customers grew 23% as a result of growth in demand from networking, data storage, and other high technology customers. Other test systems sales were up 31% from 1997 with increases in circuit-board test systems of 28%, telecommunications test systems of 20%, and software test systems of 77%. Net income fell from $127.6 million in 1997 to $102.1 million in 1998. Excluding the effect of pre-tax special charges of $23.0 million for excess raw material inventory and $5.0 million for acquired in-process technology in 1998 and 1997, respectively, income before income taxes decreased $29.5 million from $198.4 million in 1997 to $168.9 million in 1998. Incoming orders decreased 25% from $1,612.4 million in 1997 to $1,206.5 million in 1998. A 40% drop in semiconductor test system orders drove the decline. Offsetting that decline, backplane connection systems orders grew 36% and software test systems orders increased by 73%. Orders for circuit-board test systems and telecommunications test systems decreased 3% and 38%, respectively. The Company's backlog fell 33% to $579.8 million as a result of the decrease in orders. Costs of products sold as a percentage of sales, excluding a 1998 charge of $23.0 million for excess inventory, increased from 58% of sales in 1997 to 62% of sales in 1998. The charge for excess inventory resulted from the drop in demand for semiconductor test systems products. The increase in cost of sales was primarily due to higher costs related to the increased shipment of new semiconductor test systems products and the relationship of fixed manufacturing costs to the lower semiconductor test systems shipment volume in the second half of 1998. In addition, backplane connection systems 1998 cost of sales, as a percentage of sales, increased over 1997 as a result of capacity expansion at its printed circuit-board facility and the costs to support production activity of connector design wins at several new customers. 7 9 Engineering and development expenses were 13% of sales in both 1997 and 1998 which represents an increase of $32.6 million. The increases were primarily in semiconductor test systems although there were increased expenses related to product development in each of the operating segments. Selling and administrative expenses increased by $18.8 million in 1998 over 1997, representing a decrease from 15% of sales in 1997 to 14% of sales in 1998. The dollar increase was primarily related to the introduction and marketing of new semiconductor and software test system products. The Company's effective tax rate was 30% in 1998 compared to 34% in 1997. The tax rate declined due to increases in certain research and development tax credits and increases in export sales corporation benefits. 1997 compared to 1996 In 1997, sales increased 8% to a then record level of $1,266.3 million from $1,171.6 million in 1996. The year to year increase in sales was primarily due to a 12% increase in shipments of semiconductor test systems. Semiconductor test systems sales increased due to an increase in orders from semiconductor device manufacturers for capacity expansion following reduced demand in 1996. Sales of backplane connection systems to unaffiliated customers grew 23% as a result of growth in demand from networking, data storage and other high technology customers. In the other test systems segment, sales of software test systems, while 2% of total sales, were up 180% over 1996 and included the results of two new acquisitions in 1997 - Softbridge, Inc. and RSW Software, Inc. Offsetting these increases, sales of telecommunications test systems and circuit board test systems decreased 3% and 23%, respectively, in 1997. Net income increased from $93.6 million in 1996 to $127.6 million in 1997. Excluding the effect of pre-tax special charges of $5.0 million ($3.2 million after taxes) in 1997 and $48.9 million ($32.0 million after taxes) in 1996, comparative net income increased $5.2 million from $125.6 million in 1996 to $130.8 million in 1997. Incoming orders increased 54%, from $1,045.1 million in 1996 to $1,612.4 million in 1997. The increase in incoming orders was led by a 78% increase in semiconductor test systems orders, which included significant orders for several new products introduced by the Company in the fourth quarter of 1996. As a result of the increase in orders, the Company's backlog grew 67% in 1997, finishing the year at $862.5 million. Cost of sales, as a percentage of sales, decreased from 62% in 1996 to 58% in 1997. Cost of sales in 1996 included a $34.1 million special charge in connection with the consolidation of the VLSI product lines of Megatest and Teradyne. Excluding the product line consolidation charge, cost of sales, as a percentage of 1996 sales, was 59%. The remaining decrease in cost of sales percentage was the result of increased utilization of the fixed and semi-variable components of the Company's overhead structure. Engineering and development expenses increased from 12% of sales in 1996 to 13% of sales in 1997, which was an increase of $18.6 million. The expense increases were primarily due to increased investment in new product development of semiconductor and software test systems. Selling and administrative expenses were 15% of sales in both 1996 and 1997. Expenses in 1996 included a charge of $10.8 million for salary continuation and enhanced medical and pension benefits associated with an early retirement program and other workforce reductions. Excluding this special charge, selling and administrative increased from 14% of sales in 1996 to 15% in 1997. The increase was primarily related to the introduction and marketing of new semiconductor test system products. The Company's effective tax rate was 34% in 1997 compared with 33% in 1996. The Company utilized export sales corporation benefits and certain research and development tax credits in 1997 and 1996 to operate below the U.S. statutory rate of 35%. LIQUIDITY AND CAPITAL RESOURCES The Company's cash, cash equivalents and marketable securities balance increased $48.0 million in 1998, to $297.9 million. Cash generated from operations increased to $238.6 million in 1998 from $13.5 million in 1997, principally due to changes in accounts receivable and inventory. Accounts receivable decreased $81.6 million in 1998 from 1997 and increased $122.5 million in 1997 from 1996. These changes resulted from 8 10 varying sales levels in the fourth quarters of the three years. Inventories decreased $6.0 million in 1998 from 1997, including the effect of a non-cash $23.0 million charge for excess inventory, after an increase of $133.4 million in 1997. The 1997 increase was due to anticipated demand for semiconductor test systems. Cash was used to fund additions to property, plant and equipment of $164.4 million in 1998 and $132.1 million in 1997. Property, plant and equipment expenditures relate primarily to the expansion of production capacity in semiconductor test and backplane connection systems. In 1998, the Company's Board of Directors authorized the repurchase of 5.0 million additional shares of the Company's stock on the open market increasing to 10.0 million the total number of shares authorized for repurchase. The Company repurchased 1.4 million shares and 2.6 million shares for $51.2 million and $104.5 million in 1998 and 1997, respectively. The cumulative total through 1998, under the buyback program which began in 1996, aggregates to 5.3 million shares at a cost of $185.5 million. Cash of $26.6 million in 1998 and $44.1 million in 1997 was generated from the sale of stock to employees under the Company's stock option and stock purchase plans. The Company believes its cash, cash equivalents, and marketable securities balance of $297.9 million, together with other sources of funds, including cash flow generated from operations and the available borrowing capacity of $120.0 million under its line of credit agreement, will be sufficient to meet working capital and capital expenditure requirements for the foreseeable future. Inflation has not had a significant long-term impact on earnings. If there were inflation, the Company's efforts to cover cost increases with price increases could be limited in the short-term by its relatively high backlog. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133 requires that all derivative instruments be recorded on the balance sheet at their fair value. Changes in the fair value of derivatives are recorded each period in current earnings or other comprehensive income, depending on whether a derivative is designated as part of a hedge transaction and, if it is, the type of hedge transaction. The statement is effective for fiscal years beginning after June 15, 1999. Management is currently evaluating the effects of this change on its recording of derivatives and hedging activities. The Company will adopt SFAS No. 133 for its fiscal year ending December 31, 2000. In March 1998, the American Institute of Certified Public Accountants issued Statement of Position (SOP) 98-1, "Internal Use Software," which provides guidance on the accounting for the costs of software developed or obtained for internal use. SOP 98-1 is effective for fiscal years beginning after December 15, 1998. Management does not expect the statement to have a material impact on its financial position or results of operations. ITEM 7A: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS EXCHANGE RATE RISK MANAGEMENT The Company regularly enters into forward contracts in European and Japanese currencies to hedge its overseas net monetary position and firm commitments. The Company's firm commitments consist of certain orders received in currencies other than U.S. dollars. Forward currency contracts have maturities of less than one year. These contracts are used to reduce the Company's risk associated with exchange rate movements, as gains and losses on these contracts are intended to offset exchange losses and gains on underlying exposures. The Company does not engage in currency speculation. At December 31, 1998 the face amount of outstanding forward currency contracts to buy and sell U.S. dollars for non U.S. currencies was $36.4 million and $10.3 million, respectively. A 10% fluctuation in exchange rates for these currencies would change the fair value by approximately $2.6 million. However, since these contracts hedge non U.S. currency transactions, any change in the fair value of the contracts would be offset by changes in the underlying value of the transactions being hedged. The hypothetical movement was 9 11 estimated by calculating the fair value of the forward currency contracts at December 31, 1998 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 the Company's cash and investment portfolio at December 31, 1998 approximated carrying value. Interest rate 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 the Company, statements made by its employees or information included in its filings with the Securities and Exchange Commission (including this Form 10-K and the Company's Annual Report to Shareholders) may contain statements which are not historical facts, so-called "forward looking statements," which involve risks and uncertainties. In particular, statements in "Item 1: Business" relating to the Company's delivery time of unfilled orders, and in "Item 7: Management's Discussion and Analysis of Financial Condition and Results of Operations" relating to the sufficiency of capital to meet working capital and planned capital expenditures, may be forward looking statements. The Company's actual future results may differ significantly from those stated in any forward looking statements. Factors that may cause such differences include, but are not limited to, the factors discussed below. Each of these factors, and others, are discussed from time to time in the Company's filings with the Securities and Exchange Commission. The Company's future results are subject to substantial risks and uncertainties. The Company's business and results of operations depend in significant part upon capital expenditures of manufacturers of semiconductors, which in turn depend upon the current and anticipated market demand for semiconductors and products incorporating semiconductors. The semiconductor industry has been highly cyclical with recurring periods of over supply, which often have had a severe effect on the semiconductor industry's demand for test equipment, including systems manufactured and marketed by the Company. The Company believes that the markets for newer generations of semiconductors will also be subject to similar fluctuations. There can be no assurance that any future increase in semiconductor test systems bookings for a calendar quarter will be sustained in subsequent quarters. In addition, any factor adversely affecting the semiconductor industry or particular segments within the semiconductor industry may adversely affect the Company's business, financial condition and operating results. The Company relies on certain intellectual property protections to preserve its intellectual property rights, including patents, copyrights, and trade secrets. While the Company believes that its patents, copyrights, and trade secrets have value, in general no single one is in itself essential. The Company believes that its technological position depends primarily on the technical competence and creative ability of its research and development personnel. From time to time the Company is notified that it may be in violation of patents held by others. An assertion of patent infringement against the Company, if successful, could have a material adverse effect on the Company or could require a lengthy and expensive defense which could adversely affect the Company's operating results. The development of new technologies, commercialization of those technologies into products, and market acceptance and customer demand for those products is critical to the Company's success. Successful product development and introduction depends upon a number of factors, including new product selection, development of competitive products by competitors, timely and efficient completion of product design, timely and efficient implementation of manufacturing and assembly processes and product performance at customer locations. The Company faces substantial competition, throughout the world, in each operating segment. Some of these competitors have substantially greater financial and other resources to pursue engineering, manufacturing, marketing and distribution of their products. The Company also faces competition from internal suppliers at several of its customers. Certain of the Company's competitors have introduced or announced new products 10 12 with certain performance characteristics which may be considered equal or superior to those currently offered by the Company. The Company expects its competitors to continue to improve the performance of their current products and to introduce new products or new technologies that provide improved cost of ownership and performance characteristics. New product introductions by competitors could cause a decline in sales or loss of market acceptance of the Company's existing products. Moreover, increased competitive pressure could lead to intensified price based competition, which could materially adversely affect the Company's business, financial condition and results of operations. The Company derives a significant portion of its total revenue from customers outside the United States. International sales are subject to significant risks, including unexpected changes in legal and regulatory requirements and policy changes affecting the Company's markets, changes in tariffs, exchange rates and other barriers, political and economic instability, difficulties in accounts receivable collection, difficulties in managing distributors and representatives, difficulties in staffing and managing international operations, difficulties in protecting the Company's intellectual property and potentially adverse tax consequences. In the recent past there has been significant economic instability in several countries in Asia. Continued economic instability would increase the likelihood of either a direct or indirect adverse impact on the Company's future operating results. The Company's quarterly and annual operating results are affected by a wide variety of factors that could materially adversely affect revenues and profitability, including: competitive pressures on selling prices; the timing and cancellation of customer orders; changes in product mix; the Company's ability to introduce new products and technologies on a timely basis; introduction of products and technologies by the Company's competitors; market acceptance of the Company's and its competitors' products; fulfilling backlog on a timely basis; reliance on sole source suppliers; potential retrofit costs; the level of orders received which can be shipped in a quarter; and the timing of investments in engineering and development. As a result of the foregoing and other factors, the Company may experience material fluctuations in future operating results on a quarterly or annual basis which could materially and adversely affect its business, financial condition, operating results and stock price. YEAR 2000 READINESS The "Year 2000 problem" arose because many existing computer programs use only the last two digits to refer to a year. Therefore, these computer programs do not properly recognize a year that begins with "20" instead of "19". If not corrected, many computer applications could fail or create erroneous results. The Company is employing a combination of internal resources and outside consultants to coordinate and implement its program for Year 2000 readiness. The Company has committed to having all its current products Year 2000 ready in advance of the Year 2000. All of the Company's current products have been assessed, using industry accepted test procedures, and most have been determined to be Year 2000 ready. The Company has also evaluated which of its former products, still in use but no longer sold, will be made Year 2000 ready. The schedule of Company products which will or will not be made Year 2000 ready is published and updated regularly by the Company on its web site. The Company has completed an inventory and assessment of internal business systems that use date-sensitive software. The Company is actively working with suppliers and using consultants and internal engineering resources to modify or replace internal business systems depending on the level of criticality for the Company's ongoing operations. The Company is also at risk of disruption to its business if Year 2000 problems are experienced by its key suppliers. To mitigate this risk, the Company has contacted its suppliers to assess their Year 2000 readiness and continually monitors the progress of its key suppliers. Alternate suppliers are being qualified in appropriate circumstances. Most of the Company's effort toward Year 2000 readiness is funded as ongoing operating expenses, as a part of ongoing software support operations. The Company is not able to estimate the amount of accelerated 11 13 upgrade costs which have been or will be incurred for third party software or systems. Expenditures directly related to the Year 2000 readiness program, consisting primarily of dedicated staff and consulting services, are estimated at less than $5.0 million through 1999. The Company believes that its Year 2000 readiness project will be completed on a timely basis. The Company believes that the year 2000 transition will not have a material adverse effect on the Company's financial condition or overall trends in its operating results. However, there can be no assurance that unexpected delays or problems, including failure of Year 2000 readiness programs by its product and service suppliers, will not occur and have an adverse effect on the Company's financial condition or performance, or its competitive position. The Company has not yet adopted formal contingency plans, but such plans are under active development at this time. ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA REPORT OF INDEPENDENT ACCOUNTANTS To the Directors and Shareholders of Teradyne, Inc.: In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of income, changes in shareholders' equity and of cash flows present fairly, in all material respects, the consolidated financial position of Teradyne, Inc. and its subsidiaries at December 31, 1998 and 1997, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1998, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. PricewaterhouseCoopers LLP Boston, Massachusetts January 15, 1999 12 14 TERADYNE, INC. CONSOLIDATED BALANCE SHEETS DECEMBER 31, 1998 AND 1997
1998 1997 ---- ---- (IN THOUSANDS) ASSETS Current assets: Cash and cash equivalents.............................. $ 185,514 $ 74,668 Marketable securities.................................. 15,914 18,693 Accounts receivable, less allowance for doubtful accounts of $2,395 and $1,938 in 1998 and 1997, respectively.......................................... 219,303 300,933 Inventories: Parts............................................. 154,706 168,385 Assemblies in process............................. 111,641 103,972 ---------- ---------- 266,347 272,357 Deferred tax assets.................................... 49,262 40,530 Prepayments and other current assets................... 23,200 19,902 ---------- ---------- Total current assets.............................. 759,540 727,083 Property, plant, and equipment: Land................................................... 41,060 35,515 Buildings and improvements............................. 171,895 150,938 Machinery and equipment................................ 591,897 480,887 Construction in progress............................... 52,699 25,492 ---------- ---------- Total............................................. 857,551 692,832 Less: Accumulated depreciation......................... (422,594) (349,707) ---------- ---------- Net property, plant, and equipment................ 434,957 343,125 Marketable securities....................................... 96,494 156,574 Other assets................................................ 21,823 24,892 ---------- ---------- Total assets...................................... $1,312,814 $1,251,674 ========== ========== LIABILITIES Current liabilities: Notes payable -- banks................................. $ 7,393 $ 6,632 Current portion of long-term debt...................... 1,309 1,807 Accounts payable....................................... 45,042 58,685 Accrued employees' compensation and withholdings....... 68,431 77,299 Unearned service revenue and customer advances......... 64,674 49,122 Other accrued liabilities.............................. 54,071 65,642 Income taxes payable................................... 14,770 18,786 ---------- ---------- Total current liabilities......................... 255,690 277,973 Deferred tax liabilities.................................... 17,554 23,429 Long-term debt.............................................. 13,200 13,141 Commitments (Note E) ---------- ---------- Total liabilities................................. 286,444 314,543 ---------- ---------- SHAREHOLDERS' EQUITY Common stock, $0.125 par value, 250,000 shares authorized, 83,744 and 83,303 net shares issued and outstanding in 1998 and 1997, respectively............................... 10,468 10,413 Additional paid-in capital.................................. 310,052 322,985 Retained earnings........................................... 705,850 603,733 ---------- ---------- Total shareholders' equity........................ 1,026,370 937,131 ---------- ---------- Total liabilities and shareholders' equity........ $1,312,814 $1,251,674 ========== ==========
The accompanying notes are an integral part of the consolidated financial statements. 13 15 TERADYNE, INC. CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, ----------------------------------------- 1998 1997 1996 ---- ---- ---- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Net sales............................................... $1,489,151 $1,266,274 $1,171,615 Expenses: Cost of sales...................................... 947,174 734,370 724,624 Engineering and development........................ 195,158 162,500 143,931 Selling and administrative......................... 212,885 194,103 180,265 ---------- ---------- ---------- 1,355,217 1,090,973 1,048,820 ---------- ---------- ---------- Income from operations.................................. 133,934 175,301 122,795 Interest income.................................... 13,514 20,289 19,295 Interest expense................................... (1,566) (2,245) (2,427) ---------- ---------- ---------- Income before income taxes.............................. 145,882 193,345 139,663 Provision for income taxes.............................. 43,765 65,737 46,089 ---------- ---------- ---------- Net income.............................................. $ 102,117 $ 127,608 $ 93,574 ========== ========== ========== Net income per common share -- basic.................... $ 1.22 $ 1.53 $ 1.12 ========== ========== ========== Net income per common share -- diluted.................. $ 1.19 $ 1.48 $ 1.10 ========== ========== ========== Shares used in net income per common share -- basic..... 83,822 83,434 83,262 ========== ========== ========== Shares used in net income per common share -- diluted... 85,965 86,319 85,060 ========== ========== ==========
The accompanying notes are an integral part of the consolidated financial statements. 14 16 TERADYNE, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, ----------------------------------- 1998 1997 1996 ---- ---- ---- (IN THOUSANDS) Cash flows from operating activities: Net income............................................ $ 102,117 $ 127,608 $ 93,574 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation....................................... 75,351 57,983 49,577 Amortization....................................... 953 1,168 1,326 Product line consolidation......................... 34,100 Workforce reduction provision...................... 10,810 Charge for excess inventory........................ 23,000 Deferred income tax provision (credit)............. (14,607) 1,341 (14,607) Other non-cash items, net.......................... (804) 1,377 (260) Changes in operating assets and liabilities: Accounts receivable.............................. 81,630 (122,503) 74,990 Inventories...................................... (16,990) (131,014) 20,584 Other assets..................................... (1,184) (3,861) (4,117) Accounts payable and accruals.................... (18,530) 41,261 (10,638) Income taxes payable............................. 7,685 40,092 (4,515) --------- --------- --------- Net cash provided by operating activities..... 238,621 13,452 250,824 --------- --------- --------- Cash flows from investing activities: Additions to property, plant, and equipment........... (119,457) (106,436) (59,494) Increase in equipment manufactured by the Company..... (44,983) (25,695) (15,735) Purchases of held-to-maturity marketable securities... (20,000) (111,033) (250,594) Maturities of held-to-maturity marketable securities......................................... 20,000 206,556 248,733 Purchases of available-for-sale marketable securities......................................... (162,092) (192,174) (142,600) Maturities of available-for-sale marketable securities......................................... 224,951 151,426 8,081 --------- --------- --------- Net cash used in investing activities................. (101,581) (77,356) (211,609) --------- --------- --------- Cash flows from financing activities: Payments of long-term debt............................ (1,615) (2,410) (3,550) Issuance of common stock under stock option and stock purchase plans..................................... 26,579 44,065 13,455 Acquisition of treasury stock......................... (51,158) (104,535) (29,833) --------- --------- --------- Net cash used by financing activities......... (26,194) (62,880) (19,928) --------- --------- --------- Increase (decrease) in cash and cash equivalents........ 110,846 (126,784) 19,287 Cash and cash equivalents at beginning of year.......... 74,668 201,452 182,165 --------- --------- --------- Cash and cash equivalents at end of year................ $ 185,514 $ 74,668 $ 201,452 ========= ========= ========= Supplementary disclosure of cash flow information: Cash paid during the year for: Interest........................................... $ 1,525 $ 2,257 $ 2,426 Income taxes....................................... $ 47,225 $ 31,971 $ 68,089
The accompanying notes are an integral part of the consolidated financial statements. 15 17 TERADYNE, INC. CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
SHARES COMMON ADDITIONAL ------------------- STOCK PAID-IN RETAINED ISSUED REACQUIRED PAR VALUE CAPITAL EARNINGS ------ ---------- --------- ---------- -------- (IN THOUSANDS) Balance, December 31, 1995................... 85,961 3,327 $10,329 $ 366,970 $382,551 Issuance of stock to employees under benefit plans......................... 1,281 160 13,295 Tax benefit from stock options.......... 4,965 Repurchase of stock..................... 1,435 (179) (29,654) Net income.............................. 93,574 ------ ----- ------- --------- -------- Balance, December 31, 1996................... 87,242 4,762 10,310 355,576 476,125 Issuance of stock to employees under benefit plans......................... 3,373 422 43,643 Tax benefit from stock options.......... 27,982 Repurchase of stock..................... 2,550 (319) (104,216) Net income.............................. 127,608 ------ ----- ------- --------- -------- Balance, December 31, 1997................... 90,615 7,312 10,413 322,985 603,733 Issuance of stock to employees under benefit plans......................... 1,796 224 26,355 Tax benefit from stock options.......... 11,701 Repurchase of stock..................... 1,355 (169) (50,989) Net income.............................. 102,117 ------ ----- ------- --------- -------- Balance, December 31, 1998................... 92,411 8,667 $10,468 $ 310,052 $705,850 ====== ===== ======= ========= ========
The accompanying notes are an integral part of the consolidated financial statements. 16 18 TERADYNE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS A. THE COMPANY Teradyne, Inc. (the "Company") designs, manufactures, markets, and services test systems and related software, and backplanes and associated connectors. The Company has five principal products; semiconductor test systems, backplane connection systems, circuit-board test systems, telecommunications test systems, and software test systems. Semiconductor test systems are used by electronic component manufacturers in the design and testing of their products. Backplane connection systems are used principally for the computer, communications, and military/aerospace industries. A backplane is an assembly into which printed circuit boards are inserted that provides for the interconnection of electrical signals between the circuit boards and the other elements of the system. Circuit-board test systems are used by electronic equipment manufacturers for the design and testing of circuit boards and other assemblies. Telecommunication test systems are used by telephone operating companies for the testing and maintenance of their subscriber telephone lines and related equipment. Software test systems are used by a number of industries to test communications networks, computerized telecommunication systems, and client/server applications. B. ACCOUNTING POLICIES Basis of Presentation The consolidated financial statements include the accounts of the Company and its subsidiaries. All significant intercompany balances and transactions are eliminated. Certain prior years' amounts were reclassified to conform to the current year presentation. 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. Inventories Inventories are stated at the lower of cost (first-in, first-out basis) or market (net realizable value). Property, Plant, and Equipment Property, plant, and equipment are stated at cost. Leasehold improvements and major renewals are capitalized and included in property, plant, and equipment accounts while expenditures for maintenance and repairs and minor renewals are charged to expense. When assets are retired, the assets and related allowances for depreciation and amortization are removed from the accounts and any resulting gain or loss is reflected in operations. The Company provides for depreciation of its assets principally on the straight-line method with the cost of the assets being charged to expense over their useful lives as follows: buildings and improvements -- 5 to 40 years; and machinery and equipment -- 2 to 10 years. Revenue Recognition Revenue is recorded when products are shipped or, in instances where products are configured to customer requirements, upon the successful completion of the Company's final test procedures. Service revenue is recognized ratably over applicable contract periods or as services are performed. In certain situations, revenue is recorded using the percentage of completion method based upon the completion of measurable milestones, with changes to total estimated costs and anticipated losses, if any, recognized in the period in which determined. 17 19 TERADYNE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) B. ACCOUNTING POLICIES -- (CONTINUED) Engineering and Development Costs The Company's products are highly technical in nature and require a large and continuing engineering and development effort. All engineering and development costs are expensed as incurred. Income Taxes Deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. The measurement of deferred tax assets is reduced by a valuation allowance if, based upon weighted available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. The Company's practice is to provide U.S. Federal taxes on undistributed earnings of the Company's non U.S. sales and service subsidiaries. Translation of Non U.S. Currencies Assets and liabilities of non U.S. subsidiaries, which are denominated in currencies other than the U.S. dollar, are remeasured into U.S. dollars at rates of exchange in effect at the end of the fiscal year except nonmonetary assets and liabilities which are remeasured using historical exchange rates. Revenue and expense amounts are remeasured using an average of exchange rates in effect during the year, except those amounts related to nonmonetary assets and liabilities, which are remeasured at historical exchange rates. Net realized and unrealized gains and losses resulting from currency remeasurement are included in operations. Net Income per Common Share The Company previously adopted SFAS No. 128, "Earnings per Share" (Statement 128). Statement 128 specifies the calculation and presentation of basic and diluted net income per 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 During 1998, The Company adopted SFAS No. 130, "Reporting Comprehensive Income" (Statement 130), which established standards for reporting and displaying comprehensive income and its components in a financial statement that is displayed with the same prominence as other financial statements. Comprehensive income is equal to net income, for the years ended December 31, 1998, 1997 and 1996. C. FINANCIAL INSTRUMENTS Cash Equivalents The Company considers all highly liquid investments with original maturities of three months or less at the date of acquisition to be cash equivalents. Marketable Securities The Company classifies investments in marketable securities as trading, available-for-sale or held-to-maturity at the time of purchase and periodically re-evaluates such classification. All securities were classified as available-for-sale at December 31, 1998 and 1997. Securities are classified as held-to-maturity when the Company has the positive intent and ability to hold the securities to maturity. Held-to-maturity securities are 18 20 TERADYNE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) C. FINANCIAL INSTRUMENTS -- (CONTINUED) 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 market value. Unrealized gains or losses on available-for-sale securities, if material, are included, net of tax, in shareholders' equity until disposition. Realized gains and losses and declines in value judged to be other-than-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, 1998 and 1997 these investments are reported as follows (in thousands):
1998 1997 ---- ---- Short-term marketable securities: U.S. Treasury and government agency securities........... $ 8,142 $ 14,665 Corporate debt securities................................ 7,772 4,028 ------- -------- $15,914 $ 18,693 ======= ======== Long-term marketable securities: U.S. Treasury and government agency securities........... $37,888 $ 60,937 Corporate debt securities................................ 58,606 95,637 ------- -------- $96,494 $156,574 ======= ========
Other For all other balance sheet financial instruments, the carrying amount approximates fair value. Off-Balance Sheet Risk The Company regularly enters into forward contracts in European and Japanese currencies to hedge its non U.S. currency net monetary position and firm commitments. The Company's firm commitments consist of certain orders received in currencies other than U.S. dollars. Forward currency contracts have maturities of less than one year. These contracts are used to reduce the Company's risk associated with exchange rate movements, as gains and losses on these contracts are intended to offset exchange losses and gains on underlying exposures. The Company does not engage in currency speculation. 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, 1998, the Company had the following forward currency contracts to buy U.S. dollars for non U.S. currencies and sell U.S. dollars for non U.S. currencies for the following notional amounts (in thousands):
BUY SELL --- ---- French francs...................................... $ 9,675 $ 6,251 Japanese yen....................................... 8,566 3,453 British pound sterling............................. 8,148 German deutschemarks............................... 7,339 602 Belgian francs..................................... 1,422 Italian lira....................................... 1,225 ------- ------- $36,375 $10,306 ======= =======
19 21 TERADYNE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) C. FINANCIAL INSTRUMENTS -- (CONTINUED) At December 31, 1997 the face amount of outstanding forward currency contracts to buy and sell U.S. dollars for non U.S. currencies was $61.5 million and $8.5 million, respectively. The fair value of these contracts as of December 31, 1998 and 1997, determined by applying year end currency exchange rates to the notional contract amounts, represented a net unrealized loss of $0.2 million in 1998 and a net unrealized gain of $4.1 million in 1997. The Company's policy is to defer gains and losses on these contracts until the corresponding losses and gains are recognized on the items being hedged. 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 the Company to concentrations of credit risk consist principally of cash investments, forward currency contracts, and accounts receivable. The Company 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. The Company places forward currency contracts with high credit-quality financial institutions in order to minimize credit risk exposure. Concentrations of credit risk with respect to accounts receivable are limited due to the large number of diverse and geographically dispersed customers. D. DEBT Long-term debt at December 31, 1998 and 1997 consisted of the following (in thousands):
1998 1997 ---- ---- Mortgage notes payable............................... $ 9,939 $10,122 Capital equipment notes payable...................... 1,087 2,440 Other long-term debt................................. 3,483 2,386 ------- ------- Total........................................... 14,509 14,948 Less current maturities.............................. 1,309 1,807 ------- ------- $13,200 $13,141 ======= =======
The total maturities of long-term debt for the succeeding five years and thereafter are: 1999 -- $1.3 million; 2000 -- $4.7 million; 2001 -- $0.2 million; 2002 -- $0.3 million; 2003 -- $0.3 million and $7.7 million thereafter. Revolving Credit Agreement The Company's available revolving credit line, in effect through January 31, 2001, is $120.0 million. At expiration of the revolver, any amounts outstanding are converted into a two year term note. As of December 31, 1998, no amounts were outstanding under this agreement. The terms of this line of credit include restrictive covenants regarding working capital, tangible net worth, and leverage. Interest rates on borrowings are either at the stated prime rate, based upon Eurocurrency, or certificate of deposit interest rates. Pursuant to the terms of the credit agreement, the Company may incur additional indebtedness of up to $30.0 million outside the agreement provided that the liabilities of the Company, exclusive of deferred income taxes and subordinated debt, shall not exceed 100% of the Company's tangible net worth. Mortgage Notes Payable In 1983, the Company received a loan of $4.5 million from the Boston Redevelopment Authority in the form of a 3% mortgage loan maturing March 31, 2013. This loan is collateralized by a mortgage on the Company's property at 321 Harrison Avenue which may, at the Company's option, become subordinated to 20 22 TERADYNE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) D. DEBT -- (CONTINUED) another mortgage up to a maximum of $5.0 million. Interest for the first 4 1/2 years of the note was capitalized up to a principal amount of $5.0 million. Since September 30, 1987, the Company has been making semi-annual interest payments. In conjunction with the purchase of operating facilities in San Jose, the Company received a $5.5 million mortgage loan which matures on August 31, 2000. The loan is collateralized by a mortgage on the San Jose facilities. The loan bears interest at 8.1% per annum and is payable in 59 consecutive monthly installments of $0.05 million with a $4.6 million balloon payment due at maturity. The terms of this mortgage note payable include compliance with certain restrictive financial covenants and principal prepayment clauses. Short-term Borrowings The weighted average interest rates on short-term borrowings outstanding as of December 31, 1998 and 1997 was 2.1%. E. COMMITMENTS Rental expense for the years ended December 31, 1998, 1997, and 1996 was $17.7 million, $15.1 million, and $14.6 million, respectively. Minimum annual rentals under all noncancellable leases are: 1999 -- $10.1 million; 2000 -- $7.1 million; 2001 -- $5.2 million; 2002 -- $3.8 million; 2003 -- $2.6 million; and $7.8 million thereafter, totaling $36.6 million. F. 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):
1998 1997 1996 ---- ---- ---- Net income......................................... $102,117 $127,608 $93,574 ======== ======== ======= Shares used in net income per common share -- basic................................... 83,822 83,434 83,262 Effect of dilutive securities: Employee and director stock options........... 1,747 2,601 1,422 Employee stock purchase rights................ 396 284 376 -------- -------- ------- Dilutive potential common shares................. 2,143 2,885 1,798 -------- -------- ------- Shares used in net income per common share -- diluted................................. 85,965 86,319 85,060 ======== ======== ======= Net income per common share -- basic............... $ 1.22 $ 1.53 $ 1.12 ======== ======== ======= Net income per common share -- diluted............. $ 1.19 $ 1.48 $ 1.10 ======== ======== =======
Options to purchase 2.0 million shares of common stock in 1998, 0.4 million shares in 1997, and 1.7 million shares in 1996 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. G. RETIREMENT PLANS The Company has defined benefit pension plans covering substantially all domestic employees and employees of certain non U.S. subsidiaries. Benefits under these plans are based on the employees' years of service and compensation. The Company's funding policy is to make contributions to the plans in accordance with local laws and to the extent that such contributions are tax deductible. The assets of these plans consist primarily of equity and fixed income securities. In addition, the Company has an unfunded supplemental 21 23 TERADYNE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) G. RETIREMENT PLANS -- (CONTINUED) defined benefit plan in the United States to provide retirement benefits in excess of levels allowed by the Employment Retirement Income Security Act (ERISA). The expense of these defined benefit pension plans and the December 31 balances of plan assets and obligations are shown below (in thousands):
EXPENSE - ------- 1998 1997 1996 ------- ------- ------- Service cost.......................................... $ 5,852 $ 5,057 $ 4,559 Interest cost......................................... 6,789 6,031 5,208 Expected return on plan assets........................ (6,317) (5,413) (6,676) Amortization of unrecognized: Net transition (asset)/obligation................ 81 67 (166) Prior service cost............................... 584 525 525 Net loss......................................... 1,196 1,024 2,892 ------- ------- ------- Total expense......................................... $ 8,185 $ 7,291 $ 6,342 ======= ======= =======
WEIGHTED AVERAGE ASSUMPTIONS - ---------------------------- 1998 1997 1996 ------- ------- ------- Discount rate......................................... 7.0% 7.0% 7.25% Expected return on plan assets........................ 9.0% 9.0% 9.0 % Salary progression rate............................... 5.0% 5.0% 5.0 %
ASSETS AND OBLIGATIONS - ---------------------- 1998 1997 -------- -------- Projected benefit obligation: Beginning of year...................................... $ 98,149 $ 79,926 Service cost........................................... 5,852 5,073 Interest cost.......................................... 6,789 6,016 Actuarial loss......................................... 12,132 9,936 Benefits paid.......................................... (2,309) (2,138) Amendments and other................................... 621 (664) -------- -------- End of year............................................ 121,234 98,149 Fair value of plan assets: Beginning of year...................................... 77,809 61,776 Company contributions.................................. 6,224 6,014 Actual return.......................................... 11,870 12,157 Benefits paid.......................................... (2,309) (2,138) -------- -------- End of year................................................. 93,594 77,809 -------- -------- Funded status............................................... (27,640) (20,340) Unrecognized prior service cost............................. 4,363 4,245 Unrecognized net actuarial loss............................. 16,911 11,981 -------- -------- Accrued pension cost........................................ $ (6,366) $ (4,114) ======== ========
The following table provides amounts recognized in the statement of financial position as of December 31, of both years (in thousands):
1998 1997 ---- ---- Prepaid pension cost..................................... $ 2,519 $ 2,816 Accrued benefit liability................................ (8,885) (6,930) ------- ------- Accrued pension cost..................................... $(6,366) $(4,114) ======= =======
22 24 TERADYNE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) G. RETIREMENT PLANS -- (CONTINUED) There is no additional minimum pension liability to be recognized as of December 31, 1998 and 1997. 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 $17.6 million, $11.5 million and $2.5 million, respectively, as of December 31, 1998 and $13.6 million, $9.0 million and $1.9 million, respectively, as of December 31, 1997. H. COMMON STOCK REPURCHASE PROGRAM In 1998, the Company's Board of Directors authorized a 5.0 million share extension to the existing common stock repurchase program that, along with a previous authorization will allow the Company to repurchase up to 10.0 million shares of its common stock on the open market. In 1998, the Company repurchased 1.4 million shares at a cost of $51.2 million, increasing the cumulative shares purchased under this program through 1998 to 5.3 million shares at an aggregate cost of $185.5 million. I. STOCK BASED COMPENSATION At December 31, 1998, the Company had both stock option plans and stock purchase plans. The Company 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. The Company is required to disclose pro forma net income and net income per common share amounts had compensation cost for the Company's stock based compensation plans been determined based on the fair value at the grant dates for awards under those plans. Had compensation expense for the stock based compensation plans been consistent with the method of Statement 123, the amounts reported for 1998, 1997, and 1996, respectively would have been; net income of $77.8 million, $115.4 million and $86.4 million; net income per common share - basic of $0.93, $1.38 and $1.04; and net income per common share - diluted of $0.91, $1.34 and $1.02. The impact to reported net income and per common share amounts of this pro forma disclosure are not comparable among 1998, 1997, and 1996 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, the Company granted options to certain directors, officers and employees entitling them to purchase common stock at 100% of market value at the date of grant. Stock options granted generally have a maximum term of five years and vest over four years. Stock option plan activity for the years 1998, 1997, and 1996 follows (in thousands):
1998 1997 1996 ---- ---- ---- Outstanding at January 1................................ 8,566 8,503 7,230 Options granted.................................... 6,889 3,176 2,401 Options exercised.................................. (1,235) (2,850) (795) Options canceled................................... (3,446) (263) (333) ------ ------ ------ Outstanding at December 31.............................. 10,774 8,566 8,503 ====== ====== ====== Exercisable at December 31.............................. 4,199 3,394 3,995 ====== ====== ====== Available for grant at December 31...................... 9,408 5,683 5,042 ====== ====== ======
23 25 TERADYNE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) I. STOCK BASED COMPENSATION -- (CONTINUED) Weighted average option exercise price information for the years 1998, 1997 and 1996 follows:
1998 1997 1996 ---- ---- ---- Outstanding at January 1................................ $22.48 $13.53 $13.63 Options granted.................................... $22.95 $36.44 $12.13 Options exercised.................................. $12.35 $11.75 $ 8.11 Options canceled................................... $35.47 $18.80 $18.61 Outstanding at December 31.............................. $19.45 $22.48 $13.53 Exercisable at December 31.............................. $17.32 $17.50 $12.46
Significant option groups outstanding at December 31, 1998 and related weighted average price and life information follows (options in thousands):
OPTIONS OUTSTANDING OPTIONS EXERCISABLE ------------------------------------------ ------------------------- WEIGHTED AVERAGE REMAINING WEIGHTED- WEIGHTED- RANGE OF CONTRACTUAL AVERAGE AVERAGE EXERCISE PRICES LIFE (YEARS) SHARES EXERCISE PRICE SHARES EXERCISE PRICE --------------- ------------ ------ -------------- ------ -------------- $ 3.31 - $18.38................ 2.00 2,668 $12.18 1,812 $12.30 $19.19 - $19.19................ 4.58 3,215 $19.19 621 $19.19 $19.53 - $22.88................ 1.44 1,667 $20.82 1,188 $20.73 $23.63 - $46.19................ 4.54 3,224 $25.02 578 $24.05 ------ ----- Total..................... 3.45 10,774 $19.45 4,199 $17.32 ====== =====
During 1998, the Company canceled options to purchase 3.2 million shares. The canceled options were originally granted during 1997 at $36.50 per share. New options to purchase 3.2 million shares at $19.19 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 1998 pro forma disclosure includes 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 1998, 1997 and 1996 was $10.69, $16.11 and $4.79 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:
1998 1997 1996 ---- ---- ---- Expected life (years).................................... 4.3 4.3 3.9 Interest rate............................................ 5.5% 6.5% 6.7% Volatility............................................... 47.9% 44.2% 41.8% Dividend yield........................................... 0.0% 0.0% 0.0%
Employee Stock Purchase Plans During 1996, the Company adopted the 1996 Employee Stock Purchase Plan and authorized 0.7 million shares for future issuance. In 1998, the Company authorized an additional 2.0 million shares. Under this plan, eligible employees may purchase shares of common stock through payroll deductions of up to 10% of their compensation. The price paid for the common stock is equal to 85% of the lower of the fair market value of the Company's common stock on the first business day in January (July for new hires) or the last business day of December. In January 1999, the Company issued 0.6 million shares of common stock to employees who participated in the plan during 1998 at a weighted-average price of $27.62 per share. Currently, there are 1.6 million shares reserved for issuance. 24 26 TERADYNE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) I. STOCK BASED COMPENSATION -- (CONTINUED) The weighted-average fair value of purchase rights granted in 1998, 1997 and 1996 was $13.02, $7.70 and $8.37, respectively. The fair value of the employees' purchase rights was estimated using the Black-Scholes model with the following assumptions for 1998, 1997 and 1996, respectively; dividend yield of 0.0% for all years; an expected life of 1 year for all years; expected volatility of 58.8%, 45.5% and 44.7%; and risk-free interest rates of 5.5%, 5.6% and 5.2%. J. SAVINGS PLANS The Company sponsors a Savings Plan covering substantially all U.S. employees. Under this plan, employees may contribute up to 12% of their compensation (subject to Internal Revenue Service limitations). The Company annually matches employee contributions up to 6% of such compensation at rates ranging from 50% to 100%. The Company's contributions vest after two years, although contributions for those employees with five years of service vest immediately. The Company 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 the Company's savings plans, amounts charged to operations were $9.3 million in 1998 and 1997, and $6.3 million in 1996. K. STOCKHOLDER RIGHTS PLAN The Company's Board of Directors adopted a Stockholder Rights Plan on March 14, 1990, under which a dividend of one Common Stock Purchase Right was distributed for each outstanding share of Common Stock. The Plan entitles Stock Purchase Right holders to purchase shares of the Company's common stock for $20 per share in certain events, such as a tender offer to acquire 30% or more of the Company's outstanding shares. Under some circumstances, such as a determination by continuing Directors, that an acquiring party's interests are adverse to those of the Company, the Plan entitles such holders (other than an acquiring party or adverse party) to purchase $40 worth of Common Stock (or other securities or consideration owned by the Company) for $20. The Rights will expire March 26, 2000 unless earlier redeemed by the Company. L. INCOME TAXES The components of income before income taxes and the provision for income taxes as shown in the consolidated statements of income are as follows (in thousands):
1998 1997 1996 ---- ---- ---- Income before income taxes: United States................................. $131,571 $161,942 $106,708 Non U.S....................................... 14,311 31,403 32,955 -------- -------- -------- $145,882 $193,345 $139,663 ======== ======== ======== Provision (credit) for income taxes: Current: U.S. Federal............................. $ 43,501 $ 45,302 $ 40,033 Non U.S.................................. 11,021 13,053 14,802 State.................................... 3,850 6,041 5,861 -------- -------- -------- 58,372 64,396 60,696 ======== ======== ======== Deferred: U.S. Federal............................. (6,102) 77 (13,667) Non U.S.................................. (7,655) 1,140 (632) State.................................... (850) 124 (308) -------- -------- -------- (14,607) 1,341 (14,607) -------- -------- -------- $ 43,765 $ 65,737 $ 46,089 ======== ======== ========
25 27 TERADYNE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) L. INCOME TAXES -- (CONTINUED) Significant components of the Company's deferred tax assets (liabilities) as of December 31, 1998 and 1997 are as follows (in thousands):
1998 1997 ---- ---- Deferred tax assets: Inventory valuations.............................. $ 28,605 $ 16,733 Accruals.......................................... 9,786 11,335 Vacation.......................................... 7,257 6,907 In process research and development............... 2,751 2,456 Deferred revenue.................................. 2,741 62 U.S. Federal operating loss carryforwards......... 350 975 Tax credits....................................... 1,955 2,502 Other............................................. 3,037 -------- -------- Total deferred tax assets.............................. 53,445 44,007 -------- -------- Deferred tax liabilities: Excess of tax over book depreciation.............. (15,292) (22,828) Amortization...................................... (2,023) (818) Pension........................................... (3,482) (827) Other............................................. (940) (2,433) -------- -------- Total deferred tax liabilities......................... (21,737) (26,906) -------- -------- Net deferred asset..................................... $ 31,708 $ 17,101 ======== ========
A reconciliation of the effective tax rate for the years 1998, 1997, and 1996 follows:
1998 1997 1996 ---- ---- ---- U.S. statutory federal tax rate........................ 35.0% 35.0% 35.0% State income taxes, net of federal tax benefit......... 1.3 2.1 2.6 Tax credits............................................ (3.1) (1.6) (1.0) Export sales corporation............................... (3.4) (2.8) (2.9) Non-deductible costs related to acquisitions........... 0.7 Other, net............................................. 0.2 0.6 (0.7) ---- ---- ---- 30.0% 34.0% 33.0% ==== ==== ====
At December 31, 1998 the Company has U.S. Federal operating loss carryforwards of approximately $1.0 million that expire in the years 2000 through 2002. The Company has approximately $2.0 million of U.S. business tax credit carryforwards that expire in the years 1999 through 2005. All of these losses and credits are limited in their use by "change in ownership" rules as defined in the Internal Revenue Code of 1986. M. OPERATING SEGMENT AND GEOGRAPHIC INFORMATION The Company adopted SFAS No. 131 "Disclosures about Segments of an Enterprise and Related Information" (Statement No. 131), during the fourth quarter of 1998. Statement No. 131 established standards for reporting information about operating segments in annual financial statements and requires selected information about operating segments in interim financial reports issued to stockholders. It also established standards for related disclosures about products and services and geographic areas. The Company has five principal operating segments which are the design, manufacturing and marketing of semiconductor test systems, backplane connection systems, circuit-board test systems, telecommunication test systems, and software test systems. These operating segments were determined based upon the nature of the products and services offered. The Company has three reportable segments; semiconductor test systems 26 28 TERADYNE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) M. OPERATING SEGMENT AND GEOGRAPHIC INFORMATION -- (CONTINUED) segment, backplane connection systems segment, and other test systems segment. The other test systems segment is comprised of circuit-board test systems, telecommunication test systems, and software test systems. These operating segments were not separately reported as they do not meet any of Statement 131's quantitative thresholds. The Company evaluates performance based on several factors, of which the primary financial measure is business segment income before taxes. The accounting policies of the business segments are the same as those described in "Note B: Accounting Policies". Intersegment sales are accounted for at fair value as if sales were to third parties.
SEMICONDUCTOR BACKPLANE OTHER TEST CONNECTION TEST CORPORATE SYSTEMS SYSTEMS SYSTEMS AND SEGMENT SEGMENT SEGMENT ELIMINATIONS CONSOLIDATED ------------- ---------- ------- ------------ ------------ 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 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 1997 Sales to unaffiliated customers... $849,144 $218,532 $194,092 4,506 $1,266,274 Intersegment sales................ -- 16,235 -- $(16,235) -- -------- -------- -------- -------- ---------- Net sales......................... 849,144 234,767 194,092 (11,729) 1,266,274 Income before taxes (1)........... 166,766 33,501 10,431 (17,353) 193,345 Total assets (2).................. 593,290 159,116 118,813 380,455 1,251,674 Property additions (3)............ 76,555 31,523 10,555 13,498 132,131 Depreciation and amortization expense(3)...................... 34,304 9,486 5,118 10,243 59,151 1996 Sales to unaffiliated customers... $759,474 $177,894 $217,669 16,578 $1,171,615 Intersegment sales................ -- 9,065 -- $ (9,065) -- -------- -------- -------- -------- ---------- Net sales......................... 759,474 186,959 217,669 7,513 1,171,615 Income before taxes (1)........... 144,008 26,665 24,346 (55,356) 139,663 Total assets (2).................. 321,297 114,147 106,399 554,973 1,096,816 Property additions (3)............ 39,260 16,422 3,262 16,285 75,229 Depreciation and amortization expense(3)...................... 32,640 7,448 2,946 7,869 50,903
- --------------- (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. In 1997 and 1996 special charges included $5.0 million and $4.0 million for acquired in-process technology, respectively. Special charges in 1996 also includes a $34.1 million product line consolidation charge and a $10.8 million workforce reduction charge. (2) Total business assets are the owned or allocated assets used by 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. 27 29 TERADYNE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) M. OPERATING SEGMENT AND GEOGRAPHIC INFORMATION -- (CONTINUED) (3) Corporate property additions and depreciation and amortization expense include items attributable to the unallocated fixed assets of support divisions and common facilities. Information as to the Company's sales in different geographical areas is as follows (in thousands):
1998 1997 1996 ---- ---- ---- Sales to unaffiliated customers (1): United States......................................... $ 797,143 $ 616,838 $ 536,826 Asia Pacific region................................... 266,409 299,624 209,429 Europe................................................ 247,795 190,220 241,244 Japan................................................. 102,900 114,212 139,095 Other................................................. 74,904 45,380 45,021 ---------- ---------- ---------- $1,489,151 $1,266,274 $1,171,615 ========== ========== ==========
- --------------- (1) Sales are attributable to geographic areas based on location of customer. Because a substantial portion of the Company'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%. 28 30 SUPPLEMENTARY INFORMATION (UNAUDITED) The following sets forth certain unaudited consolidated quarterly statements of operations data for each of the Company's last eight quarters. In management's opinion, this quarterly information reflects all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation for the periods presented. Such quarterly results are not necessarily indicative of future results of operations and should be read in conjunction with the audited consolidated financial statements of the Company and the notes thereto included elsewhere herein.
1998 -------------------------------------------------------- 1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER ----------- ----------- ----------- ----------- Net sales.................................... $431,569 $406,236 $335,227 $316,119 Expenses: Cost of sales........................... 251,947 246,457 239,131 209,639 Engineering and development............. 48,922 49,164 49,569 47,503 Selling and administrative.............. 58,713 57,549 47,288 49,335 -------- -------- -------- -------- 359,582 353,170 335,988 306,477 -------- -------- -------- -------- Income (loss) from operations................ 71,987 53,066 (761) 9,642 Interest income......................... 3,473 2,871 2,756 4,414 Interest expense........................ (247) (266) (120) (933) -------- -------- -------- -------- Income before income taxes................... 75,213 55,671 1,875 13,123 Provision for income taxes................... 25,572 16,311 600 1,282 -------- -------- -------- -------- Net income................................... $ 49,641 $ 39,360 $ 1,275 $ 11,841 ======== ======== ======== ======== Net income per common share -- basic......... $ 0.59 $ 0.47 $ 0.02 $ 0.14 ======== ======== ======== ======== Net income per common share -- diluted....... $ 0.58 $ 0.46 $ 0.01 $ 0.14 ======== ======== ======== ========
1997 -------------------------------------------------------- 1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER ----------- ----------- ----------- ----------- Net sales.................................... $248,302 $289,541 $336,747 $391,684 Expenses: Cost of sales........................... 152,935 164,648 190,651 226,136 Engineering and development............. 33,308 42,635 41,663 44,894 Selling and administrative.............. 40,783 47,449 51,685 54,186 -------- -------- -------- -------- 227,026 254,732 283,999 325,216 -------- -------- -------- -------- Income from operations....................... 21,276 34,809 52,748 66,468 Interest income......................... 5,665 5,234 5,198 4,192 Interest expense........................ (541) (565) (553) (586) -------- -------- -------- -------- Income before income taxes................... 26,400 39,478 57,393 70,074 Provision for income taxes................... 9,240 14,476 18,196 23,825 -------- -------- -------- -------- Net income................................... $ 17,160 $ 25,002 $ 39,197 $ 46,249 ======== ======== ======== ======== Net income per common share -- basic......... $ 0.21 $ 0.30 $ 0.47 $ 0.55 ======== ======== ======== ======== Net income per common share -- diluted....... $ 0.20 $ 0.29 $ 0.45 $ 0.54 ======== ======== ======== ========
29 31 ITEM 9: CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. Certain information relating to directors and executive officers of the Company, executive compensation, security ownership of certain beneficial owners and management, and certain relationships and related transactions is incorporated by reference herein from the Company's definitive proxy statement in connection with its Annual Meeting of Shareholders to be held on May 27, 1999, which proxy statement will be filed with the Securities and Exchange Commission not later than 120 days after the close of the fiscal year. For this purpose, the Management Compensation and Development Committee Report and Performance Graph included in such proxy statement are specifically not incorporated herein. (Also see "Item 1 -- Executive Officers of the Company" elsewhere in this report.) ITEM 11: EXECUTIVE COMPENSATION. Certain information relating to directors and executive officers of the Company, executive compensation, security ownership of certain beneficial owners and management, and certain relationships and related transactions is incorporated by reference herein from the Company's definitive proxy statement in connection with its Annual Meeting of Shareholders to be held on May 27, 1999, which proxy statement will be filed with the Securities and Exchange Commission not later than 120 days after the close of the fiscal year. For this purpose, the Management Compensation and Development Committee Report and Performance Graph included in such proxy statement are specifically not incorporated herein. ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. Certain information relating to directors and executive officers of the Company, executive compensation, security ownership of certain beneficial owners and management, and certain relationships and related transactions is incorporated by reference herein from the Company's definitive proxy statement in connection with its Annual Meeting of Shareholders to be held on May 27, 1999, which proxy statement will be filed with the Securities and Exchange Commission not later than 120 days after the close of the fiscal year. For this purpose, the Management Compensation and Development Committee Report and Performance Graph included in such proxy statement are specifically not incorporated herein. ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. Certain information relating to directors and executive officers of the Company, executive compensation, security ownership of certain beneficial owners and management, and certain relationships and related transactions is incorporated by reference herein from the Company's definitive proxy statement in connection with its Annual Meeting of Shareholders to be held on May 27, 1999, which proxy statement will be filed with the Securities and Exchange Commission not later than 120 days after the close of the fiscal year. For this purpose, the Management Compensation and Development Committee Report and Performance Graph included in such proxy statement are specifically not incorporated herein. 30 32 PART IV ITEM 14: EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K. (a) 1. FINANCIAL STATEMENTS The following consolidated financial statements are included in Item 8: Balance Sheets as of December 31, 1998 and 1997 Statements of Income for the years ended December 31, 1998, 1997, and 1996 Statements of Cash Flows for the years ended December 31, 1998, 1997, and 1996 Statements of Changes in Shareholders' Equity for the years ended December 31, 1998, 1997, and 1996 (a) 2. FINANCIAL STATEMENT SCHEDULES Financial statement schedules have been omitted since either they are not required or the information is otherwise included. (a) 3. LISTING OF EXHIBITS The Exhibits which are filed with this report or which are incorporated by reference herein are set forth in the Exhibit Index. (b) REPORT ON FORM 8-K There have been no Form 8-K filings during the three months ended December 31, 1998. 31 33 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 Exhibit 3.1 to the Company's Annual the Company, as amended Report on Form 10-K for the fiscal year ended December 31, 1997. 3.2 Amendment, dated May 23, 1996, to Exhibit 3.2 to the Company's Annual Restated Articles of Organization of Report on Form 10-K for the fiscal year the Company, as amended ended December 31, 1996. 3.3 Amended and Restated Bylaws of the Exhibit 3.3 to the Company's Annual Company Report on Form 10-K for the fiscal year ended December 31, 1996. 4.1 Rights Agreement between the Company Exhibit 4.1 to the Company's Annual and The First National Bank of Boston Report on Form 10-K for the fiscal year dated as of March 14, 1990 ended December 31, 1997. 10.1 Amended and Restated Multicurrency Exhibit 10.3 to the Company's Annual Revolving Credit Agreement dated as of Report on Form 10-K for the fiscal year January 1, 1996. ended December 31, 1995. 10.2 First Amendment to Amended and Restated Exhibit 10.2 to the Company's Annual Multicurrency Revolving Credit Report on Form 10-K for the fiscal year Agreement dated as of January 31, 1997 ended December 31, 1997. 10.3 Second Amendment to Amended and Exhibit 10.3 to the Company's Annual Restated Multicurrency Revolving Credit Report on Form 10-K for the fiscal year Agreement dated as of May 20, 1997 ended December 31, 1997. 10.4 Third Amendment to Amended and Restated Multicurrency Revolving Credit Agreement dated as of August 21, 1998 10.5 Teradyne, Inc. Supplemental Executive Exhibit 10.4 to the Company's Annual Retirement Plan Report on Form 10-K for the fiscal year ended December 31, 1997. 10.6 1991 Employee Stock Option Plan, as Exhibit 4.2 to the Company's amended Registration Statement on Form S-8 (Registration Statement No. 333-07177). 10.7 Megatest Corporation 1990 Stock Option Exhibit 4.1 to the Company's Plan Registration Statement on Form S-8 (Registration Statement No. 333-64683). 10.8 Megatest Corporation Director Stock Exhibit 4.2 to the Company's Option Plan Registration Statement on Form S-8 (Registration Statement No. 333-64683). 10.9 1996 Stock Purchase Plan Exhibit 4.1 to the Company's Registration Statement on Form S-8 (Registration Statement No. 333-07177). 10.10 Master Lease Agreement between Megatest Exhibit 10.10 to the Company's Annual and General Electric Capital Report on Form 10-K for the fiscal year Corporation dated August 10, 1995 ended December 31, 1995. 10.11 Loan and Security Agreement between Exhibit 10.11 to the Company's Annual Megatest and the CIT Group/Equipment Report on Form 10-K for the fiscal year Financing, Inc. dated August 14, 1995 ended December 31, 1995.
32 34
EXHIBIT NO. DESCRIPTION SEC DOCUMENT REFERENCE - ----------- ----------- ---------------------- 10.12 Deed of Trust, Financing Statement, Exhibit 10.12 to the Company's Annual Security Agreement and Fixture Filing Report on Form 10-K for the fiscal year between Megatest and the Sun Life ended December 31, 1995. Assurance Company of Canada (U.S.) dated August 25, 1995 10.13 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. 10.14 Letter Agreement dated January 24, 1997 Exhibit 10.15 to the Company's Annual between the Company and Executive Report on Form 10-K for the fiscal year Officer ended December 31, 1996. 10.15 1996 Non-Employee Director Stock Option Exhibit 10.15 to the Company's Annual Plan Report on Form 10-K for the fiscal year ended December 31, 1996. 10.16 Letter Agreement dated June 1, 1997 Exhibit 10.15 to the Company's Annual between the Company and Member of Board Report on Form 10-K for the fiscal year ended December 31, 1997. 10.17 Letter Agreement dated June 1, 1997 Exhibit 10.16 to the Company's Annual between the Company and Member of Board Report on Form 10-K for the fiscal year ended December 31, 1997. 22.1 Subsidiaries of the Company 23.1 Consent of PricewaterhouseCoopers LLP 27.1 Financial Data Schedule 27.2 Financial Data Schedule for the Form 10-Q for the nine months ended September 27, 1997 27.3 Financial Data Schedule for the Form 10-Q for the six months ended June 28, 1998 27.4 Financial Data Schedule for the Form 10-Q for the three months ended March 29, 1998 27.5 Financial Data Schedule for the Form Exhibit 27.1 to the Company's Annual 10-K for the fiscal year ended December Report on Form 10-K for the fiscal year 31, 1997 ended December 31, 1997. 27.6 Financial Data Schedule for the Form Exhibit 27.2 to the Company's Annual 10-Q for the nine months ended Report on Form 10-K for the fiscal year September 28, 1997 ended December 31, 1997. 27.7 Financial Data Schedule for the Form Exhibit 27.3 to the Company's Annual 10-Q for the six months ended June 29, Report on Form 10-K for the fiscal year 1997 ended December 31, 1997. 27.8 Financial Data Schedule for the Form Exhibit 27.4 to the Company's Annual 10-Q for the three months ended March Report on Form 10-K for the fiscal year 30, 1997 ended December 31, 1997. 27.9 Financial Data Schedule for the Form Exhibit 27.5 to the Company's Annual 10-K for the fiscal year ended December Report on Form 10-K for the fiscal year 31, 1996 ended December 31, 1997. 27.10 Financial Data Schedule for the Form Exhibit 27.6 to the Company's Annual 10-Q for the nine months ended Report on Form 10-K for the fiscal year September 29, 1996 ended December 31, 1997.
33 35
EXHIBIT NO. DESCRIPTION SEC DOCUMENT REFERENCE - ----------- ----------- ---------------------- 27.11 Financial Data Schedule for the Form Exhibit 27.7 to the Company's Annual 10-Q for the six months ended June 30, Report on Form 10-K for the fiscal year 1996 ended December 31, 1997. 27.12 Financial Data Schedule for the Form Exhibit 27.8 to the Company's Annual 10-Q for the three months ended March Report on Form 10-K for the fiscal year 31, 1996 ended December 31, 1997.
34 36 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 25th day of March, 1999. TERADYNE, INC. By: /s/ JEFFREY R. HOTCHKISS ---------------------------------- JEFFREY R. HOTCHKISS, 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/ ALEXANDER V. d'ARBELOFF Chairman of the Board March 25, 1999 - --------------------------------------------------- ALEXANDER V. d'ARBELOFF /s/ GEORGE W. CHAMILLARD President, Chief Executive March 25, 1999 - --------------------------------------------------- Officer, and Member of the Board GEORGE W. CHAMILLARD /s/ JEFFREY R. HOTCHKISS Vice President and Chief March 25, 1999 - --------------------------------------------------- Financial Officer JEFFREY R. HOTCHKISS /s/ DONALD J. HAMMAN Controller (Principal Accounting March 25, 1999 - --------------------------------------------------- Officer) DONALD J. HAMMAN /s/ JAMES W. BAGLEY Director March 25, 1999 - --------------------------------------------------- JAMES W. BAGLEY /s/ ALBERT CARNESALE Director March 25, 1999 - --------------------------------------------------- ALBERT CARNESALE /s/ DANIEL S. GREGORY Director March 25, 1999 - --------------------------------------------------- DANIEL S. GREGORY /s/ DWIGHT H. HIBBARD Director March 25, 1999 - --------------------------------------------------- DWIGHT H. HIBBARD /s/ JOHN P. MULRONEY Director March 25, 1999 - --------------------------------------------------- JOHN P. MULRONEY /s/ VINCENT M. O'REILLY Director March 25, 1999 - --------------------------------------------------- VINCENT M. O'REILLY /s/ JAMES A. PRESTRIDGE Director March 25, 1999 - --------------------------------------------------- JAMES A. PRESTRIDGE /s/ OWEN W. ROBBINS Director March 25, 1999 - --------------------------------------------------- OWEN W. ROBBINS /s/ RICHARD J. TESTA Director March 25, 1999 - --------------------------------------------------- RICHARD J. TESTA /s/ PATRICIA S. WOLPERT Director March 25, 1999 - --------------------------------------------------- PATRICIA S. WOLPERT
35 EX-10.4 2 THIRD AMENDMENT TO THE REVOLVING CREDIT AGREEMENT 1 EXHIBIT 10.4 THIRD AMENDMENT TO AMENDED AND RESTATED MULTICURRENCY REVOLVING CREDIT AND TERM LOAN AGREEMENT Third Amendment dated as of August 21, 1998 to Amended and Restated Multicurrency Revolving Credit and Term Loan Agreement (the "Third Amendment"), by and among (a) TERADYNE, INC. a Massachusetts corporation (the "Company"), (b) BANKBOSTON, N.A., BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, STATE STREET BANK AND TRUST COMPANY, FLEET NATIONAL BANK and the other lending institutions listed on Schedule 1 to the Credit Agreement (as hereinafter defined) (collectively, the "Banks") and (c) BANKBOSTON, N.A. in its capacity as agent for the Banks (the "Agent"), amending certain provisions of the Amended and Restated Multicurrency Revolving Credit and Term Loan Agreement dated as of January 31, 1996 (as amended and in effect from time to time, the "Credit Agreement") by and among the Company, the Banks and the Agent. Terms not otherwise defined herein which are defined in the Credit Agreement shall have the same respective meanings herein as therein. WHEREAS, the Company, the Banks and the Agent have agreed to modify certain terms and conditions of the Credit Agreement as specifically set forth in this Third Amendment; NOW, THEREFORE, in consideration of the premises and the mutual agreements contained herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows: Section 1. AMENDMENT TO SECTION 2 OF THE CREDIT AGREEMENT. Section 2 of the Credit Agreement is hereby amended as follows: (a) Section 2.2 of the Credit Agreement is hereby amended by deleting the date "January 31, 2000" which appears in Section 2.2 and substituting in place thereof the date "January 31, 2001"; (b) Section 2.5 of the Credit Agreement is hereby amended by deleting the date "January 31, 1999" which appears in Section 2.5(b) and substituting in place thereof the date "January 31, 2000"; (c) Section 2.10 of the Credit Agreement is hereby amended by (i) deleting the words "commencing on April 30, 2000, and ending on January 31, 2002" which appear in Section 2.10(a) and substituting in place thereof the words "commencing on April 30, 2001, and ending on January 31, 2003" and (ii) deleting the words "on January 31, 2002 (the "Final Repayment Date")" which appear in Section 2.10(a) and substituting in place thereof the words "on January 31, 2003 (the "Final Repayment Date"). SECTION 2. CONDITIONS TO EFFECTIVENESS. This Third Amendment shall not become effective until the Agent receives the following: (a) a counterpart of this Third Amendment, executed by the Company, the Banks and the Agent; and (b) certified copies of corporate certificates and resolutions evidencing all necessary action on the part of the Company with respect to the authorization of this Third Amendment and the authorization of certain officer(s) to execute, deliver and take all other actions required under this Third Amendment, and providing specimen signature of such officers. SECTION 3. REPRESENTATIONS AND WARRANTIES. The Company hereby repeats, on and as of the date hereof, each of the representations and warranties made by it in Section 4 of the Credit Agreement (except to the extent 2 of changes resulting from matters contemplated or permitted by the Credit Agreement and the other Loan Documents, changes occurring in the ordinary course of business that singly or in the aggregate are not materially adverse, and to the extent that such representations and warranties relate expressly to an earlier date), provided, that all references therein to the Credit Agreement shall refer to such Credit Agreement as amended hereby. In addition, the Company hereby represents and warrants that the execution and delivery by the Company of this Third Amendment and the performance by the Company of all of its agreements and obligations under the Credit Agreement as amended hereby are within the corporate authority of the Company and have been duly authorized by all necessary corporate action on the part of the Company, and further represents and warrants that the execution and deliver by the Company of this Third Amendment and the performance by the Company of the transactions contemplated hereby will not contravene any term or condition set forth in any agreement to which the Company is a party or by which the Company is bound. SECTION 4. RATIFICATION, Etc. Except as expressly amended hereby, the Credit Agreement and all documents, instruments and agreements related thereto are hereby ratified and confirmed in all respects and shall continue in full force and effect. The Credit Agreement and this Third Amendment shall be read and construed as a single agreement. All references in the Credit Agreement, the Loan Documents or any related agreement or instrument to the Credit Agreement shall hereafter refer to the Credit Agreement as amended hereby. SECTION 5. NO WAIVER. Nothing contained herein shall constitute a waiver of, impair or otherwise affect any Obligations, any other obligation of the Company or any rights of the Agent or any of the Banks consequent thereon. SECTION 6. COUNTERPARTS. This Third Amendment may be executed in one or more counterparts, each of which shall be deemed an original but which together shall constitute one and the same instrument. SECTION 7. GOVERNING LAW. THIS THIRD AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS (WITHOUT REFERENCE TO CONFLICT OF LAWS). IN WITNESS WHEREOF, the parties hereto have executed this Third Amendment as a document under seal as of the date first above written. TERADYNE, INC. By: \S\ Stuart M. Osattin ---------------------------------------- Name: Stuart M. Osattin Title: Vice President and Treasurer BANKBOSTON, N.A., INDIVIDUALLY AND AS AGENT By: ---------------------------------------- Name: Title: 3 BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION By: ---------------------------------------- Name: Title: STATE STREET BANK AND TRUST COMPANY, N.A. By: ---------------------------------------- Name: Title: FLEET NATIONAL BANK By: ---------------------------------------- Name: Title: EX-22.1 3 SUBSIDIARIES 1 EXHIBIT 22.1 PRESENT SUBSIDIARIES
PERCENTAGE STATE OR OF VOTING JURISDICTION SECURITIES INCORPORATION OWNED ------------- ---------- Teradyne Assembly GmbH Ltd. ............................... Germany 100% Teradyne Benelux, Inc. (Ltd.) ............................. Delaware 100% Teradyne Canada Limited.................................... Canada 100% Teradyne Control Automation, Inc. ......................... Delaware 100% Teradyne GmbH.............................................. Germany 100% Teradyne Holdings, Inc. ................................... New Hampshire 100% Teradyne Holdings Limited.................................. United Kingdom 100% Teradyne Limited.................................... United Kingdom 100% Teradyne Hong Kong, Ltd. .................................. Delaware 100% Teradyne International, Ltd. .............................. 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 Midnight Networks Inc. ........................... Delaware 100% Teradyne Netherlands B.V. ................................. Netherlands 100% Teradyne Netherlands, Ltd. ................................ Delaware 100% Teradyne Realty, Inc. ..................................... Massachusetts 100% Teradyne RSW Software, Inc................................. Delaware 100% RSW Software, Inc..................................... Massachusetts 100% Teradyne S.A. ............................................. France 100% Teradyne Scandinavia, Inc. ................................ Delaware 100% Teradyne Singapore, Ltd. .................................. Delaware 100% Teradyne Software and Systems Test, Inc. .................. Delaware 100% Teradyne Taiwan, Ltd. ..................................... Delaware 100% Kinetrix, Inc. ............................................ Delaware 83% Hammer Technologies, Inc. ................................. Massachusetts 100% Megatest Corporation....................................... Delaware 100% Megatest Limited.................................... United Kingdom 100% Megatest SARL....................................... France 100% Megatest GmbH....................................... Germany 100% Megatest H.K. Ltd. ................................. Hong Kong 100% Teradyne Philippines Ltd. .......................... California 100% Megatest International Sales Corporation............ Barbados 100% Megatest Asia Pte. Ltd. ............................ Singapore 100% Softbridge, Inc............................................ Delaware 100% Zehntel Holdings, Inc. .................................... California 100% 1000 Washington, Inc. ..................................... Massachusetts 100%
EX-23.1 4 CONSENT OF PRICEWATERHOUSECOOPERS 1 EXHIBIT 23.1 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the incorporation by reference in the registration statements of Teradyne, Inc. and its subsidiaries on Form S-8 (File Nos. 333-32547; 333-26045; 33-16077; 33-42352; 33-55123; 333-64683; and 333-07177) of our report dated January 15, 1999, on our audits of the consolidated financial statements of Teradyne, Inc. and its subsidiaries at December 31, 1998 and 1997, and for each of the three years in the period ended December 31, 1998, which report is included in this Annual Report on Form 10-K. PricewaterhouseCoopers LLP Boston, Massachusetts March 23, 1999 EX-27.1 5 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEET AT DECEMBER 31, 1998 AND THE CONSOLIDATED STATEMENT OF INCOME FOR THE YEAR ENDED DECEMBER 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000097210 TERADYNE, INC. 1,000 U.S. DOLLARS YEAR DEC-31-1998 JAN-01-1998 DEC-31-1998 1.00 185,514 15,914 221,698 2,395 266,347 759,540 857,551 422,594 1,312,814 255,690 0 0 0 10,468 1,015,902 1,312,814 1,489,151 1,489,151 947,174 1,355,217 0 0 1,566 145,882 43,765 102,117 0 0 0 102,117 1.22 1.19
EX-27.2 6 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONDENSED CONSOLIDATED BALANCE SHEET AT SEPTEMBER 27, 1998 AND THE CONDENSED CONSOLIDATED STATEMENT OF INCOME FOR THE NINE MONTHS ENDED SEPTEMBER 27, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000097210 TERADYNE, INC. 1,000 U.S. DOLLARS 9-MOS DEC-31-1998 JAN-01-1998 SEP-27-1998 1.00 131,264 21,478 283,843 2,746 296,649 795,638 838,637 402,390 1,332,300 265,457 12,716 0 0 10,507 1,020,191 1,332,300 1,173,032 1,173,032 737,535 1,048,740 0 0 633 132,759 42,483 90,276 0 0 0 90,276 1.08 1.05
EX-27.3 7 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONDENSED CONSOLIDATED BALANCE SHEET AT JUNE 28, 1998 AND THE CONDENSED CONSOLIDATED STATEMENT OF INCOME FOR THE SIX MONTHS ENDED JUNE 28, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000097210 TERADYNE, INC. 1,000 U.S. DOLLARS 6-MOS DEC-31-1998 JAN-01-1998 JUN-28-1998 1.00 67,308 23,170 356,975 2,012 348,503 862,327 798,704 384,997 1,370,516 307,701 13,046 0 0 10,499 1,015,841 1,370,516 837,805 837,805 498,404 712,752 0 0 513 130,884 41,883 89,001 0 0 0 89,001 1.06 1.04
EX-27.4 8 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONDENSED CONSOLIDATED BALANCE SHEET AT MARCH 29, 1998 AND THE CONDENSED CONSOLIDATED STATEMENT OF INCOME FOR THE THREE MONTHS ENDED MARCH 29, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000097210 TERADYNE, INC. 1,000 U.S. DOLLARS 3-MOS DEC-31-1998 JAN-01-1998 MAR-29-1998 1.00 32,911 8,550 381,039 1,938 330,119 821,460 747,528 369,075 1,345,638 330,245 12,716 0 0 10,432 968,816 1,345,638 431,569 431,569 251,947 359,582 0 0 247 75,213 25,572 49,641 0 0 0 49,641 0.59 0.58
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