UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 28, 2014
OR
¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File No. 001-06462
TERADYNE, INC.
(Exact name of registrant as specified in its charter)
Massachusetts | 04-2272148 | |
(State or Other Jurisdiction of Incorporation or Organization) |
(I.R.S. Employer Identification No.) | |
600 Riverpark Drive, North Reading, Massachusetts |
01864 | |
(Address of Principal Executive Offices) | (Zip Code) |
978-370-2700
(Registrants Telephone Number, Including Area Code)
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to the filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files) Yes x No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act (check one):
Large accelerated filer | x | Accelerated filer | ¨ | |||
Non-accelerated filer | ¨ | Smaller reporting company | ¨ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
The number of shares outstanding of the registrants only class of Common Stock as of October 31, 2014 was 216,494,252 shares.
INDEX
Page No. | ||||||
PART I. FINANCIAL INFORMATION | ||||||
Item 1. | Financial Statements (Unaudited): | |||||
Condensed Consolidated Balance Sheets as of September 28, 2014 and December 31, 2013 |
1 | |||||
2 | ||||||
3 | ||||||
4 | ||||||
Notes to Condensed Consolidated Financial Statements | 5 | |||||
Item 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations | 26 | ||||
Item 3. | Quantitative and Qualitative Disclosures about Market Risk | 37 | ||||
Item 4. | Controls and Procedures | 37 | ||||
PART II. OTHER INFORMATION | ||||||
Item 1. | Legal Proceedings | 38 | ||||
Item 1A. | Risk Factors | 38 | ||||
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 38 | ||||
Item 4. | Mine Safety Disclosures | 38 | ||||
Item 6. | Exhibits | 39 |
PART I
Item 1: | Financial Statements |
TERADYNE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
September 28, 2014 |
December 31, 2013 |
|||||||
(in thousands, except per share information) |
||||||||
ASSETS | ||||||||
Current assets: |
||||||||
Cash and cash equivalents |
$ | 211,704 | $ | 341,638 | ||||
Marketable securities |
594,801 | 586,882 | ||||||
Accounts receivable, less allowance for doubtful accounts of $2,438 and $2,912 at September 28, 2014 and December 31, 2013, respectively |
321,312 | 157,642 | ||||||
Inventories: |
||||||||
Parts |
64,588 | 84,232 | ||||||
Assemblies in process |
11,147 | 15,539 | ||||||
Finished goods |
32,642 | 38,168 | ||||||
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|
|
|
|||||
108,377 | 137,939 | |||||||
Deferred tax assets |
68,791 | 72,478 | ||||||
Prepayments |
88,732 | 136,374 | ||||||
Other current assets |
7,304 | 7,324 | ||||||
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|
|
|
|||||
Total current assets |
1,401,021 | 1,440,277 | ||||||
Net property, plant and equipment |
335,805 | 275,236 | ||||||
Marketable securities |
374,808 | 271,078 | ||||||
Deferred tax assets |
5,353 | 5,217 | ||||||
Other assets |
9,853 | 14,591 | ||||||
Retirement plans assets |
8,871 | 9,342 | ||||||
Intangible assets, net |
197,477 | 252,291 | ||||||
Goodwill |
361,819 | 361,792 | ||||||
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|
|
|||||
Total assets |
$ | 2,695,007 | $ | 2,629,824 | ||||
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|
|
|
|||||
LIABILITIES | ||||||||
Current liabilities: |
||||||||
Accounts payable |
$ | 60,309 | $ | 62,874 | ||||
Accrued employees compensation and withholdings |
91,053 | 95,619 | ||||||
Deferred revenue and customer advances |
60,178 | 55,404 | ||||||
Other accrued liabilities |
98,424 | 63,712 | ||||||
Accrued income taxes |
19,840 | 11,360 | ||||||
Current debt |
| 186,663 | ||||||
|
|
|
|
|||||
Total current liabilities |
329,804 | 475,632 | ||||||
Long-term deferred revenue and customer advances |
23,248 | 13,756 | ||||||
Retirement plans liabilities |
88,670 | 91,517 | ||||||
Deferred tax liabilities |
35,911 | 40,686 | ||||||
Long-term other accrued liabilities |
27,466 | 23,139 | ||||||
|
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|
|
|||||
Total liabilities |
505,099 | 644,730 | ||||||
|
|
|
|
|||||
Commitments and contingencies (Note O) |
||||||||
SHAREHOLDERS EQUITY | ||||||||
Common stock, $0.125 par value, 1,000,000 shares authorized, 216,482 shares and 191,731 shares issued and outstanding at September 28, 2014 and December 31, 2013, respectively |
27,060 | 23,966 | ||||||
Additional paid-in capital |
1,431,100 | 1,390,896 | ||||||
Accumulated other comprehensive income |
4,859 | 4,000 | ||||||
Retained earnings |
726,889 | 566,232 | ||||||
|
|
|
|
|||||
Total shareholders equity |
2,189,908 | 1,985,094 | ||||||
|
|
|
|
|||||
Total liabilities and shareholders equity |
$ | 2,695,007 | $ | 2,629,824 | ||||
|
|
|
|
The accompanying notes, together with the Notes to Consolidated Financial Statements included in Teradynes
Annual Report on Form 10-K for the year ended December 31, 2013, are an integral part of the condensed
consolidated financial statements.
1
TERADYNE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
For the Three Months Ended |
For the Nine Months Ended |
|||||||||||||||
September 28, 2014 |
September 29, 2013 |
September 28, 2014 |
September 29, 2013 |
|||||||||||||
(in thousands, except per share amount) | ||||||||||||||||
Net revenues: |
||||||||||||||||
Products |
$ | 402,987 | $ | 365,825 | $ | 1,110,861 | $ | 943,212 | ||||||||
Services |
75,023 | 67,551 | 213,726 | 199,420 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total net revenues |
478,010 | 433,376 | 1,324,587 | 1,142,632 | ||||||||||||
Cost of revenues: |
||||||||||||||||
Cost of products |
182,591 | 150,365 | 509,450 | 405,569 | ||||||||||||
Cost of services |
34,298 | 28,717 | 96,556 | 88,119 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total cost of revenues (exclusive of acquired intangible assets amortization shown separately below) |
216,889 | 179,082 | 606,006 | 493,688 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Gross profit |
261,121 | 254,294 | 718,581 | 648,944 | ||||||||||||
Operating expenses: |
||||||||||||||||
Engineering and development |
71,953 | 68,918 | 212,452 | 199,442 | ||||||||||||
Selling and administrative |
73,064 | 72,917 | 228,556 | 210,037 | ||||||||||||
Acquired intangible assets amortization |
18,271 | 18,064 | 54,813 | 54,163 | ||||||||||||
Restructuring and other |
(405 | ) | 889 | 167 | 1,480 | |||||||||||
|
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|
|
|
|
|
|
|||||||||
Total operating expenses |
162,883 | 160,788 | 495,988 | 465,122 | ||||||||||||
|
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|
|
|
|
|||||||||
Income from operations |
98,238 | 93,506 | 222,593 | 183,822 | ||||||||||||
Interest income |
1,922 | 948 | 4,224 | 2,923 | ||||||||||||
Interest expense and other (income) expense |
(510 | ) | 6,902 | 6,628 | 20,262 | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Income before income taxes |
100,670 | 87,552 | 220,189 | 166,483 | ||||||||||||
Income tax provision |
17,721 | 18,093 | 35,106 | 23,879 | ||||||||||||
|
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|
|
|
|
|
|
|||||||||
Net income |
$ | 82,949 | $ | 69,459 | $ | 185,083 | $ | 142,604 | ||||||||
|
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|
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|
|||||||||
Net income per common share: |
||||||||||||||||
Basic |
$ | 0.40 | $ | 0.36 | $ | 0.93 | $ | 0.75 | ||||||||
|
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Diluted |
$ | 0.38 | $ | 0.29 | $ | 0.83 | $ | 0.61 | ||||||||
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|
|||||||||
Weighted average common sharesbasic |
207,381 | 191,307 | 198,367 | 190,521 | ||||||||||||
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|
|
|||||||||
Weighted average common sharesdiluted |
218,333 | 235,828 | 223,795 | 235,165 | ||||||||||||
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|
|||||||||
Cash dividend declared per common share |
$ | 0.06 | $ | | $ | 0.12 | $ | | ||||||||
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The accompanying notes, together with the Notes to Consolidated Financial Statements included in Teradynes
Annual Report on Form 10-K for the year ended December 31, 2013, are an integral part of the condensed
consolidated financial statements.
2
TERADYNE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
For the Three Months Ended |
For the Nine Months Ended |
|||||||||||||||
September 28, 2014 |
September 29, 2013 |
September 28, 2014 |
September 29, 2013 |
|||||||||||||
(in thousands) | ||||||||||||||||
Net income |
$ | 82,949 | $ | 69,459 | $ | 185,083 | $ | 142,604 | ||||||||
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|
|
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|
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Other comprehensive income (loss): |
||||||||||||||||
Available-for-sale marketable securities: |
||||||||||||||||
Net unrealized gains (losses) on marketable securities arising during period, net of tax (benefit) expense of $(139), $358, $1,103, $(367) |
(138 | ) | 623 | 2,166 | (640 | ) | ||||||||||
Less: Reclassification adjustment for net gains included in net income, net of tax (benefit) of $(348), $(109), $(591), $(231) |
(638 | ) | (189 | ) | (1,086 | ) | (401 | ) | ||||||||
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|
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(776 | ) | 434 | 1,080 | (1,041 | ) | |||||||||||
Defined benefit pension and post-retirement plans: |
||||||||||||||||
Amortization of net prior service benefit included in net periodic pension expense and post-retirement income, net of tax (benefit) of $(42), $(40), $(127), $(119) |
(74 | ) | (69 | ) | (221 | ) | (207 | ) | ||||||||
|
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|
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|
|||||||||
Other comprehensive income (loss) |
(850 | ) | 365 | 859 | (1,248 | ) | ||||||||||
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|
|
|
|||||||||
Comprehensive income |
$ | 82,099 | $ | 69,824 | $ | 185,942 | $ | 141,356 | ||||||||
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|
The accompanying notes, together with the Notes to Consolidated Financial Statements included in Teradynes
Annual Report on Form 10-K for the year ended December 31, 2013, are an integral part of the condensed
consolidated financial statements.
3
TERADYNE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the Nine Months Ended |
||||||||
September 28, 2014 |
September 29, 2013 |
|||||||
(in thousands) | ||||||||
Cash flows from operating activities: |
||||||||
Net income |
$ | 185,083 | $ | 142,604 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||
Depreciation |
52,832 | 41,873 | ||||||
Amortization |
62,122 | 69,495 | ||||||
Stock-based compensation |
31,873 | 27,227 | ||||||
Provision for excess and obsolete inventory |
21,505 | 9,616 | ||||||
Deferred taxes |
(8,747 | ) | (19,211 | ) | ||||
Contingent consideration fair value adjustment |
(630 | ) | | |||||
Tax benefit related to stock options and restricted stock units |
(1,726 | ) | (807 | ) | ||||
Retirement plans actuarial gains |
| (1,359 | ) | |||||
Impairment loss on property, plant and equipment |
| 1,074 | ||||||
Other |
2,110 | 1,088 | ||||||
Changes in operating assets and liabilities: |
||||||||
Accounts receivable |
(163,670 | ) | (55,963 | ) | ||||
Inventories |
38,267 | 34,194 | ||||||
Prepayments and other assets |
47,784 | (26,312 | ) | |||||
Accounts payable and other accrued expenses |
29,109 | (17 | ) | |||||
Deferred revenue and customer advances |
14,266 | (9,249 | ) | |||||
Retirement plans contributions |
(3,281 | ) | (3,569 | ) | ||||
Accrued income taxes |
10,208 | 13,750 | ||||||
|
|
|
|
|||||
Net cash provided by operating activities |
317,105 | 224,434 | ||||||
Cash flows from investing activities: |
||||||||
Purchases of property, plant and equipment |
(146,352 | ) | (82,925 | ) | ||||
Purchases of marketable securities |
(844,056 | ) | (658,564 | ) | ||||
Proceeds from maturities of marketable securities |
495,565 | 401,901 | ||||||
Proceeds from sales of marketable securities |
236,060 | 332,968 | ||||||
Proceeds from life insurance |
4,391 | | ||||||
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|
|
|
|||||
Net cash used for investing activities |
(254,392 | ) | (6,620 | ) | ||||
Cash flows from financing activities: |
||||||||
Issuance of common stock under employee stock purchase and stock options plans |
21,030 | 16,778 | ||||||
Tax benefit related to stock options and restricted stock units |
1,726 | 807 | ||||||
Payments of dividend |
(24,428 | ) | | |||||
Payments of long-term debt |
(190,975 | ) | (1,063 | ) | ||||
Payments of contingent consideration |
| (388 | ) | |||||
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|
|||||
Net cash (used for) provided by financing activities |
(192,647 | ) | 16,134 | |||||
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|
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(Decrease) increase in cash and cash equivalents |
(129,934 | ) | 233,948 | |||||
Cash and cash equivalents at beginning of period |
341,638 | 338,920 | ||||||
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|
|||||
Cash and cash equivalents at end of period |
$ | 211,704 | $ | 572,868 | ||||
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|
|
|
The accompanying notes, together with the Notes to Consolidated Financial Statements included in Teradynes
Annual Report on Form 10-K for the year ended December 31, 2013, are an integral part of the condensed
consolidated financial statements.
4
TERADYNE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
A. The Company
Teradyne, Inc. (the Company or Teradyne) is a leading global supplier of automatic test equipment. Teradynes automatic test equipment products and services include:
| semiconductor test (Semiconductor Test) systems; |
| wireless test (Wireless Test) systems; and |
| military/aerospace (Mil/Aero) test instrumentation and systems, storage test (Storage Test) systems, and circuit-board test (Production Board Test) systems (collectively these products represent System Test). |
B. Accounting Policies
Basis of Presentation
The consolidated interim financial statements include the accounts of Teradyne and its wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated. These interim financial statements are unaudited and reflect all normal recurring adjustments that are, in the opinion of management, necessary for the fair presentation of such interim financial statements. Certain prior years amounts were reclassified to conform to the current year presentation. The December 31, 2013 condensed consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America.
The accompanying financial information should be read in conjunction with the consolidated financial statements and notes thereto contained in Teradynes Annual Report on Form 10-K, filed with the U.S. Securities and Exchange Commission (SEC) on February 28, 2014, for the year ended December 31, 2013.
Preparation of Financial Statements and Use of Estimates
The preparation of consolidated financial statements requires management to make estimates and judgments that affect the amounts reported in the financial statements. Actual results may differ significantly from these estimates.
C. Recently Issued Accounting Pronouncements
On July 18, 2013, Financial Accounting Standards Board (FASB) issued Accounting Standard Update (ASU) No. 2013-11, Income Taxes (Topic 740): Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists. Under this ASU, unrecognized tax benefits will be netted against all available same-jurisdiction loss or other tax carryforwards that would be utilized, rather than only against carryforwards that are created by unrecognized tax benefits. The provisions of this ASU are effective for interim and annual periods beginning on or after December 15, 2013. Teradynes implementation of this ASU did not have a material impact on Teradynes financial position and results of operations.
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606) which will replace numerous requirements in U.S. GAAP, including industry-specific requirements, and provide companies with a single revenue recognition model for recognizing revenue from contracts with customers. The
5
core principle of the new standard is that a company should recognize revenue to show the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. The new standard will be effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. For Teradyne, the standard will be effective in the first quarter of 2017. The two permitted transition methods under the new standard are the full retrospective method, in which case the standard would be applied to each prior reporting period presented, or the modified retrospective method, in which case the cumulative effect of applying the standard would be recognized at the date of initial application. Teradyne has not yet selected a transition method. Teradyne is currently evaluating the impact of this ASU on its financial position and results of operations.
D. Financial Instruments and Derivatives
Cash Equivalents
Teradyne considers all highly liquid investments with maturities of three months or less at the date of acquisition to be cash equivalents.
Financial Instruments
Teradyne accounts for its investments in debt and equity securities in accordance with the provisions of ASC 320-10, InvestmentsDebt and Equity Securities. ASC 320-10 requires that certain debt and equity securities be classified into one of three categories; trading, available-for-sale or held-to-maturity securities. As of September 28, 2014, Teradynes investments in debt and equity securities were classified as available-for-sale and recorded at their fair market value.
On a quarterly basis, Teradyne reviews its investments to identify and evaluate those that have an indication of a potential other-than-temporary impairment. Factors considered in determining whether a loss is other-than-temporary include:
| The length of time and the extent to which the market value has been less than cost; |
| The financial condition and near-term prospects of the issuer; and |
| The intent and ability to retain the investment in the issuer for a period of time sufficient to allow for any anticipated recovery in market value. |
Teradyne uses the market and income approach techniques to value its financial instruments and there were no changes in valuation techniques during the three and nine months ended September 28, 2014 and September 29, 2013. As defined in ASC 820-10 Fair Value Measurements and Disclosures, fair value is the price that would be received from the sale of an asset or paid to transfer a liability in an orderly transaction between market participants. ASC 820-10 requires that assets and liabilities carried at fair value be classified and disclosed in one of the following three categories:
Level 1: Quoted prices in active markets for identical assets as of the reporting date.
Level 2: Inputs other than Level 1, that are observable either directly or indirectly as of the reporting date. For example, a common approach for valuing fixed income securities is the use of matrix pricing, a technique used to value securities by relying on the securities relationship to other benchmark quoted prices, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3: Unobservable inputs that are not supported by market data. Unobservable inputs are developed based on the best information available, which might include Teradynes own data.
Substantially all of Teradynes fixed income securities are classified as Level 2, with the exception of investments in equity and debt mutual funds, which are classified as Level 1, and contingent consideration, which
6
is classified as Level 3. The majority of Teradynes Level 2 securities are priced by pricing vendors. These pricing vendors utilize the most recent observable market information in pricing these securities or, if specific prices are not available, use other observable inputs like market transactions involving identical or comparable securities.
During the nine months ended September 28, 2014 and September 29, 2013, there were no transfers in or out of Level 1, Level 2 or Level 3 financial instruments.
Realized gains and (losses) for the three and nine months ended September 28, 2014 and September 29, 2013 were as follows:
For the Three Months Ended |
For the Nine Months Ended |
|||||||||||||||
September 28, 2014 |
September 29, 2013 |
September 28, 2014 |
September 29, 2013 |
|||||||||||||
(in thousands) | ||||||||||||||||
Realized gains |
$ | 986 | $ | 235 | $ | 1,677 | $ | 569 | ||||||||
Realized (losses) |
| | | |
The following table sets forth by fair value hierarchy Teradynes financial assets and liabilities that were measured at fair value on a recurring basis as of September 28, 2014 and December 31, 2013.
September 28, 2014 | ||||||||||||||||
Quoted Prices in Active Markets for Identical Instruments (Level 1) |
Significant Other Observable Inputs (Level 2) |
Significant Unobservable Inputs (Level 3) |
Total | |||||||||||||
(in thousands) | ||||||||||||||||
Assets |
||||||||||||||||
Cash |
$ | 100,633 | $ | | $ | | $ | 100,633 | ||||||||
Cash equivalents |
99,979 | 11,092 | | 111,071 | ||||||||||||
Available-for-sale securities: |
||||||||||||||||
U.S. Treasury securities |
| 459,240 | | 459,240 | ||||||||||||
U.S. government agency securities |
| 285,617 | | 285,617 | ||||||||||||
Commercial paper |
| 99,774 | | 99,774 | ||||||||||||
Corporate debt securities |
| 94,357 | | 94,357 | ||||||||||||
Certificates of deposit and time deposits |
| 18,522 | | 18,522 | ||||||||||||
Equity and debt mutual funds |
12,099 | | | 12,099 | ||||||||||||
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|
|
|
|
|
|
|
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Total |
$ | 212,711 | $ | 968,602 | $ | | $ | 1,181,313 | ||||||||
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|
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Liabilities |
||||||||||||||||
Contingent consideration |
$ | | $ | | $ | 1,600 | $ | 1,600 | ||||||||
Derivatives |
| 546 | | 546 | ||||||||||||
|
|
|
|
|
|
|
|
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Total |
$ | | $ | 546 | $ | 1,600 | $ | 2,146 | ||||||||
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|
|
|
|
|
7
Reported as follows:
(Level 1) | (Level 2) | (Level 3) | Total | |||||||||||||
(in thousands) | ||||||||||||||||
Assets |
||||||||||||||||
Cash and cash equivalents |
$ | 200,612 | $ | 11,092 | $ | | $ | 211,704 | ||||||||
Marketable securities |
| 594,801 | | 594,801 | ||||||||||||
Long-term marketable securities |
12,099 | 362,709 | | 374,808 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
$ | 212,711 | $ | 968,602 | $ | | $ | 1,181,313 | |||||||||
|
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|
|
|
|
|||||||||
Liabilities |
||||||||||||||||
Other accrued liabilities |
$ | | $ | 546 | $ | | $ | 546 | ||||||||
Long-term other accrued liabilities |
| | 1,600 | 1,600 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
$ | | $ | 546 | $ | 1,600 | $ | 2,146 | |||||||||
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|
|
|
|
December 31, 2013 | ||||||||||||||||
Quoted Prices in Active Markets for Identical Instruments (Level 1) |
Significant Other Observable Inputs (Level 2) |
Significant Unobservable Inputs (Level 3) |
Total | |||||||||||||
(in thousands) | ||||||||||||||||
Assets |
||||||||||||||||
Cash |
$ | 117,242 | $ | | $ | | $ | 117,242 | ||||||||
Cash equivalents |
165,865 | 58,531 | | 224,396 | ||||||||||||
Available-for-sale securities: |
||||||||||||||||
U.S. Treasury securities |
| 467,895 | | 467,895 | ||||||||||||
U.S. government agency securities |
| 202,588 | | 202,588 | ||||||||||||
Commercial paper |
| 105,598 | | 105,598 | ||||||||||||
Corporate debt securities |
| 65,387 | | 65,387 | ||||||||||||
Equity and debt mutual funds |
13,156 | | | 13,156 | ||||||||||||
Certificates of deposit and time deposits |
| 3,258 | | 3,258 | ||||||||||||
Non-U.S. government securities |
| 78 | | 78 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
296,263 | 903,335 | | 1,199,598 | ||||||||||||
Derivatives |
| 153 | | 153 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | 296,263 | $ | 903,488 | $ | | $ | 1,199,751 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Liabilities |
||||||||||||||||
Contingent consideration |
$ | | $ | | $ | 2,230 | $ | 2,230 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | | $ | | $ | 2,230 | $ | 2,230 | ||||||||
|
|
|
|
|
|
|
|
8
Reported as follows:
(Level 1) | (Level 2) | (Level 3) | Total | |||||||||||||
(in thousands) | ||||||||||||||||
Assets |
||||||||||||||||
Cash and cash equivalents |
$ | 283,107 | $ | 58,531 | $ | | $ | 341,638 | ||||||||
Marketable securities |
| 586,882 | | 586,882 | ||||||||||||
Long-term marketable securities |
13,156 | 257,922 | | 271,078 | ||||||||||||
Other current assets |
| 153 | | 153 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
$ | 296,263 | $ | 903,488 | $ | | $ | 1,199,751 | |||||||||
|
|
|
|
|
|
|
|
|||||||||
Liabilities |
||||||||||||||||
Long-term other accrued liabilities |
$ | | $ | | $ | 2,230 | $ | 2,230 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
$ | | $ | | $ | 2,230 | $ | 2,230 | |||||||||
|
|
|
|
|
|
|
|
Contingent consideration relates to Teradynes acquisition of ZTEC Instruments, Inc. (ZTEC) on October 25, 2013. The total purchase price included $2.2 million in fair value of contingent consideration payable upon achievement of certain customer order and revenue targets through 2015. The maximum amount of contingent consideration that could be paid is $5.0 million. Based on the projected results for the acquisition, no value was assigned to the revenue component of the contingent consideration.
The acquisition date valuation of the customer order component of the contingent consideration utilized the following assumptions: (1) probability of meeting each benchmark; (2) expected timing of meeting each benchmark; and (3) discount rate reflecting the risk associated with the expected payments. The probabilities and timing for each benchmark were estimated based on a review of the historical and projected results. A discount rate of 5.2 percent was selected based on the cost of debt for the business, as a significant portion of the risk in achieving the customer order contingent consideration was captured in the probabilities assigned to meeting each benchmark. Teradyne assesses these assumptions and estimates on a quarterly basis as additional data impacting the assumptions is obtained. During the three and nine months ended September 28, 2014, the fair value of the customer order component of the contingent consideration was reduced by $0.6 million based on updated assumptions and estimates. The fair value reduction was recorded as a gain in restructuring and other in the statement of operations.
Changes in the fair value of Level 3 contingent consideration for the three and nine months ended September 28, 2014 and September 29, 2013 were as follows:
Contingent consideration related to Teradynes acquisition of ZTEC in October 2013 |
For the Three and Nine Months Ended |
|||
September 28, 2014 | ||||
(in thousands) | ||||
Balance at December 31, 2013 |
$ | 2,230 | ||
Contingent consideration payments |
| |||
|
|
|||
Balance at March 30, 2014 |
2,230 | |||
Contingent consideration payments |
| |||
|
|
|||
Balance at June 29, 2014 |
2,230 | |||
Fair value adjustment |
(630 | ) | ||
|
|
|||
Balance at September 28, 2014 |
$ | 1,600 | ||
|
|
9
Contingent consideration related to Teradynes acquisition of LitePoint in October 2011 |
For the Three and Nine Months Ended |
|||
September 29, 2013 | ||||
(in thousands) | ||||
Balance at December 31, 2012 |
$ | 388 | ||
Contingent consideration payments |
(313 | ) | ||
|
|
|||
Balance at March 31, 2013 |
75 | |||
Contingent consideration payments |
(75 | ) | ||
|
|
|||
Balance at June 30, 2013 |
| |||
Contingent consideration payments |
| |||
|
|
|||
Balance at September 29, 2013 |
$ | | ||
|
|
The carrying amounts and fair values of Teradynes financial instruments at September 28, 2014 and December 31, 2013 were as follows:
September 28, 2014 | December 31, 2013 | |||||||||||||||
Carrying Value | Fair Value | Carrying Value | Fair Value | |||||||||||||
(in thousands) | ||||||||||||||||
Cash and cash equivalents |
$ | 211,704 | $ | 211,704 | $ | 341,638 | $ | 341,638 | ||||||||
Marketable securities |
969,609 | 969,609 | 857,960 | 857,960 | ||||||||||||
Convertible debt(1) |
| | 185,708 | 611,433 | ||||||||||||
Japan loan |
| | 955 | 955 |
(1) | The carrying value represents the bifurcated debt component only, while the fair value is based on quoted market prices for the convertible note which includes the equity conversion feature. |
The fair values of cash and cash equivalents, accounts receivable, net and accounts payable approximate the carrying amount due to the short-term nature of these instruments.
The following tables summarize the composition of available-for-sale marketable securities at September 28, 2014 and December 31, 2013:
September 28, 2014 | ||||||||||||||||||||
Available-for-Sale | Fair Market Value of Investments with Unrealized Losses |
|||||||||||||||||||
Cost | Unrealized Gain |
Unrealized (Loss) |
Fair Market Value |
|||||||||||||||||
(in thousands) | ||||||||||||||||||||
U.S. Treasury securities |
$ | 458,958 | $ | 373 | $ | (91 | ) | $ | 459,240 | $ | 64,267 | |||||||||
U.S. government agency securities |
285,528 | 195 | (106 | ) | 285,617 | 66,700 | ||||||||||||||
Commercial paper |
99,767 | 11 | (4 | ) | 99,774 | 23,722 | ||||||||||||||
Corporate debt securities |
92,883 | 1,734 | (260 | ) | 94,357 | 56,393 | ||||||||||||||
Certificates of deposit and time deposits |
18,508 | 14 | | 18,522 | | |||||||||||||||
Equity and debt mutual funds |
10,199 | 1,933 | (33 | ) | 12,099 | 1,074 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
$ | 965,843 | $ | 4,260 | $ | (494 | ) | $ | 969,609 | $ | 212,156 | ||||||||||
|
|
|
|
|
|
|
|
|
|
10
Reported as follows:
Cost | Unrealized Gain |
Unrealized (Loss) |
Fair Market Value |
Fair Market Value of Investments with Unrealized Losses |
||||||||||||||||
(in thousands) | ||||||||||||||||||||
Marketable securities |
$ | 594,500 | $ | 319 | $ | (18 | ) | $ | 594,801 | $ | 66,188 | |||||||||
Long-term marketable securities |
371,343 | 3,941 | (476 | ) | 374,808 | 145,968 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
$ | 965,843 | $ | 4,260 | $ | (494 | ) | $ | 969,609 | $ | 212,156 | ||||||||||
|
|
|
|
|
|
|
|
|
|
December 31, 2013 | ||||||||||||||||||||
Available-for-Sale | Fair Market Value of Investments with Unrealized Losses |
|||||||||||||||||||
Cost | Unrealized Gain |
Unrealized (Loss) |
Fair Market Value |
|||||||||||||||||
(in thousands) | ||||||||||||||||||||
U.S. Treasury securities |
$ | 468,084 | $ | 94 | $ | (283 | ) | $ | 467,895 | $ | 108,212 | |||||||||
U.S. government agency securities |
202,573 | 75 | (60 | ) | 202,588 | 84,498 | ||||||||||||||
Commercial paper |
105,583 | 16 | (1 | ) | 105,598 | 7,993 | ||||||||||||||
Corporate debt securities |
65,747 | 762 | (1,122 | ) | 65,387 | 40,355 | ||||||||||||||
Equity and debt mutual funds |
10,463 | 2,742 | (49 | ) | 13,156 | 702 | ||||||||||||||
Certificates of deposit and time deposits |
3,258 | | | 3,258 | | |||||||||||||||
Non-U.S. government securities |
78 | | | 78 | | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
$ | 855,786 | $ | 3,689 | $ | (1,515 | ) | $ | 857,960 | $ | 241,760 | ||||||||||
|
|
|
|
|
|
|
|
|
|
Reported as follows:
Cost | Unrealized Gain |
Unrealized (Loss) |
Fair Market Value |
Fair Market Value of Investments with Unrealized Losses |
||||||||||||||||
(in thousands) | ||||||||||||||||||||
Marketable securities |
$ | 586,818 | $ | 85 | $ | (21 | ) | $ | 586,882 | $ | 137,670 | |||||||||
Long-term marketable securities |
268,968 | 3,604 | (1,494 | ) | 271,078 | 104,090 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
$ | 855,786 | $ | 3,689 | $ | (1,515 | ) | $ | 857,960 | $ | 241,760 | ||||||||||
|
|
|
|
|
|
|
|
|
|
As of September 28, 2014, the fair market value of investments with unrealized losses was $212.2 million. Of this value, $5.0 million had unrealized losses greater than one year and $207.2 million had unrealized losses less than one year. As of December 31, 2013, the fair market value of investments with unrealized losses was $241.8 million. Of this value, $0.9 million had unrealized losses greater than one year and $240.9 million had unrealized losses less than one year. Teradyne reviews its investments to identify and evaluate investments that have an indication of possible impairment. Based on this review, Teradyne determined that the unrealized losses related to these investments, at September 28, 2014 and December 31, 2013, were temporary.
11
The contractual maturities of investments held at September 28, 2014 were as follows:
September 28, 2014 | ||||||||
Cost | Fair Market Value |
|||||||
(in thousands) | ||||||||
Due within one year |
$ | 594,500 | $ | 594,801 | ||||
Due after 1 year through 5 years |
330,340 | 330,412 | ||||||
Due after 5 years through 10 years |
5,772 | 5,859 | ||||||
Due after 10 years |
25,032 | 26,438 | ||||||
|
|
|
|
|||||
Total |
$ | 955,644 | $ | 957,510 | ||||
|
|
|
|
Contractual maturities of investments held at September 28, 2014 exclude equity and debt mutual funds as they do not have a contractual maturity date.
Derivatives
Teradyne conducts business in a number of foreign countries, with certain transactions denominated in local currencies. The purpose of Teradynes foreign currency management is to minimize the effect of exchange rate fluctuations on certain foreign currency denominated monetary assets and liabilities. Teradyne does not use derivative financial instruments for trading or speculative purposes.
To minimize the effect of exchange rate fluctuations associated with the remeasurement of monetary assets and liabilities denominated in foreign currencies, Teradyne enters into foreign currency forward contracts. The change in fair value of these derivatives is recorded directly in earnings, and is used to offset the change in value of the monetary assets and liabilities denominated in foreign currencies.
The notional amount of foreign currency forward contracts was $67.9 million and $74.8 million at September 28, 2014 and December 31, 2013, respectively.
The fair value of the outstanding contracts was a loss of $0.6 million and a gain of $0.2 million at September 28, 2014 and December 31, 2013, respectively. The following table summarizes the fair value of derivative instruments at September 28, 2014 and December 31, 2013:
Balance Sheet Location | September 28, 2014 |
December 31, 2013 |
||||||||
(in thousands) | ||||||||||
Derivatives not designated as hedging instruments: |
||||||||||
Foreign currency forward contracts |
Other current assets | $ | | $ | 153 | |||||
Other accrued liabilities | 546 | | ||||||||
|
|
|
|
|||||||
$ | 546 | $ | 153 | |||||||
|
|
|
|
Teradyne had no offsetting foreign exchange contracts at September 28, 2014 and December 31, 2013.
In the three and nine months ended September 28, 2014, Teradyne recorded net realized gains (losses) of $0.2 million and $(1.6) million, respectively, related to foreign currency forward contracts hedging net monetary positions. In the three and nine months ended September 29, 2013, Teradyne recorded net realized gains of $0.0 million and $4.1 million, respectively, related to foreign currency forward contracts hedging net monetary positions. Gains and losses on foreign currency forward contracts and foreign currency remeasurement gains and losses on monetary assets and liabilities are included in interest expense and other.
12
The following table summarizes the effect of derivative instruments recognized in the statement of operations during the three and nine months ended September 28, 2014 and September 29, 2013. The table does not reflect the corresponding gains (losses) from the remeasurement of the monetary assets and liabilities denominated in foreign currencies. For the three and nine months ended September 28, 2014, (losses) gains from the remeasurement of the monetary assets and liabilities denominated in foreign currencies were $(0.4) million and $0.9 million, respectively. For the three and nine months ended September 29, 2013, losses from the remeasurement of the monetary assets and liabilities denominated in foreign currencies were $(0.4) million and $(5.0) million, respectively.
Location of Gains (Losses) Recognized in Statement of Operations |
For the Three Months Ended |
For the Nine Months Ended |
||||||||||||||||||
September 28, 2014 |
September 29, 2013 |
September 28, 2014 |
September 29, 2013 |
|||||||||||||||||
(in thousands) | ||||||||||||||||||||
Derivatives not designated as hedging instruments: |
||||||||||||||||||||
Foreign exchange contracts |
Interest expense and other | $ | 237 | $ | | $ | (1,632 | ) | $ | 4,068 | ||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
$ | 237 | $ | | $ | (1,632 | ) | $ | 4,068 | ||||||||||||
|
|
|
|
|
|
|
|
See Note E: Debt regarding derivatives related to convertible senior notes.
E. Debt
Loan Agreement
On March 31, 2009, Teradyne K.K., Teradynes wholly-owned subsidiary in Japan, entered into a loan agreement with a local bank in Japan to borrow approximately $10.0 million (the loan was denominated in Japanese Yen). The loan had a term of 5 years and a fixed interest rate of 0.8%. Approximately $6.0 million of the loan was collateralized by a real estate mortgage on Teradyne K.K.s building and land in Kumamoto, Japan and approximately $4.0 million was unsecured. Teradyne, Inc. guaranteed payment of the loan obligation. The loan was amortized over the term of the loan with semiannual principal payments of approximately $1.0 million on September 30 and March 30 each year. The final principal and interest payments were made in March 2014.
Convertible Senior Notes
In April 2009, Teradyne issued 4.50% convertible senior notes (the Notes) at an aggregate principal amount of $190 million and a conversion price of $5.4750 or 182.65 shares of Teradynes common stock per $1,000 principal amount of Notes. The Notes had a maturity date of March 15, 2014. Substantially all of the Notes were converted prior to March 15, 2014 and were net share settled, meaning that the holders received, for each $1,000 in principal amount of Notes, $1,000 in cash and approximately 131.95 shares of Teradyne common stock (calculated by taking 182.65 shares less 50.7 shares). The 50.7 shares were determined by dividing the $1,000 principal amount by the $19.74 average trading price of Teradynes common stock over the 25 day trading period from February 5, 2014 to March 12, 2014.
Teradyne satisfied the Notes net share settlement by paying the aggregate principal amount of $190 million in cash and issuing 25.1 million shares of common stock. On March 13, 2014, Teradyne exercised its call option agreement entered into with Goldman, Sachs & Co. (the hedge counterparty) at the time of issuance of the Notes and received 25.1 million shares of Teradynes common stock, which were retired.
From June 17, 2014 to September 17, 2014, the hedge counterparty exercised its warrant agreement entered into with Teradyne at the time of issuance of the Notes. The warrants were net share settled. In the three and nine months ended September 28, 2014, Teradyne issued 19.3 million and 21.2 million shares of its common stock, respectively, for warrants exercised at a weighted average strike price of $7.6348 and $7.6351, respectively.
13
The tables below represent the components of Teradynes convertible senior notes:
September 28, 2014 |
December 31, 2013 |
|||||||
(in thousands) | ||||||||
Debt principal |
$ | | $ | 189,998 | ||||
Unamortized debt discount |
| 4,290 | ||||||
|
|
|
|
|||||
Net carrying amount of the convertible debt |
$ | | $ | 185,708 | ||||
|
|
|
|
The interest expense on Teradynes convertible senior notes for the three and nine months ended September 28, 2014 and September 29, 2013 was as follows:
For the Three Months Ended |
For the Nine Months Ended |
|||||||||||||||
September 28, 2014 |
September 29, 2013 |
September 28, 2014 |
September 29, 2013 |
|||||||||||||
(in thousands) | ||||||||||||||||
Contractual interest expense |
$ | | $ | 2,114 | $ | 1,757 | $ | 6,388 | ||||||||
Amortization of the discount component and debt issue fees |
| 4,221 | 4,493 | 12,266 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total interest expense on the convertible debt |
$ | | $ | 6,335 | $ | 6,250 | $ | 18,654 | ||||||||
|
|
|
|
|
|
|
|
F. Prepayments
Prepayments consist of the following and are included in prepayments on the balance sheet:
September 28, 2014 |
December 31, 2013 |
|||||||
(in thousands) | ||||||||
Contract manufacturer prepayments |
$ | 68,126 | $ | 115,388 | ||||
Prepaid maintenance and other services |
6,794 | 6,538 | ||||||
Prepaid taxes |
3,413 | 3,281 | ||||||
Other prepayments |
10,399 | 11,167 | ||||||
|
|
|
|
|||||
Total prepayments |
$ | 88,732 | $ | 136,374 | ||||
|
|
|
|
G. Deferred Revenue and Customer Advances
Deferred revenue and customer advances consist of the following and are included in short and long-term deferred revenue and customer advances on the balance sheet:
September 28, 2014 |
December 31, 2013 |
|||||||
(in thousands) | ||||||||
Extended warranty |
$ | 43,497 | $ | 34,909 | ||||
Equipment maintenance and training |
27,703 | 22,455 | ||||||
Customer advances |
5,041 | 4,825 | ||||||
Undelivered elements |
7,185 | 6,971 | ||||||
|
|
|
|
|||||
Total deferred revenue and customer advances |
$ | 83,426 | $ | 69,160 | ||||
|
|
|
|
14
H. Product Warranty
Teradyne generally provides a one-year warranty on its products, commencing upon installation or shipment. A provision is recorded upon revenue recognition to cost of revenues for estimated warranty expense based on historical experience. Related costs are charged to the warranty accrual as incurred. The warranty balance below is included in other accrued liabilities on the balance sheet.
For the Three Months Ended |
For the Nine Months Ended |
|||||||||||||||
September 28, 2014 |
September 29, 2013 |
September 28, 2014 |
September 29, 2013 |
|||||||||||||
(in thousands) | ||||||||||||||||
Balance at beginning of period |
$ | 9,073 | $ | 7,351 | $ | 6,660 | $ | 9,786 | ||||||||
Accruals for warranties issued during the period |
4,419 | 3,674 | 12,675 | 8,781 | ||||||||||||
Adjustments related to pre-existing warranties |
(559 | ) | (524 | ) | (1,000 | ) | (2,323 | ) | ||||||||
Settlements made during the period |
(2,982 | ) | (2,470 | ) | (8,384 | ) | (8,213 | ) | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Balance at end of period |
$ | 9,951 | $ | 8,031 | $ | 9,951 | $ | 8,031 | ||||||||
|
|
|
|
|
|
|
|
When Teradyne receives revenue for extended warranty beyond one year, it is deferred and recognized on a straight-line basis over the contract period. Related costs are expensed as incurred. The extended warranty balance below is included in short and long-term deferred revenue and customer advances on the balance sheet.
For the Three Months Ended |
For the Nine Months Ended |
|||||||||||||||
September 28, 2014 |
September 29, 2013 |
September 28, 2014 |
September 29, 2013 |
|||||||||||||
(in thousands) | ||||||||||||||||
Balance at beginning of period |
$ | 40,052 | $ | 34,854 | $ | 34,909 | $ | 26,987 | ||||||||
Deferral of new extended warranty revenue |
9,896 | 5,586 | 24,218 | 17,791 | ||||||||||||
Recognition of extended warranty deferred revenue |
(6,451 | ) | (4,120 | ) | (15,630 | ) | (8,458 | ) | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Balance at end of period |
$ | 43,497 | $ | 36,320 | $ | 43,497 | $ | 36,320 | ||||||||
|
|
|
|
|
|
|
|
I. Stock-Based Compensation
In January 2014, Teradyne granted 0.1 million of performance-based restricted stock units (PRSUs) to its executive officers with a performance metric based on relative total shareholder return (TSR). Teradynes three-year TSR performance will be measured against the Philadelphia Semiconductor Index, which consists of thirty companies in the semiconductor device and capital equipment industries. The final number of TSR PRSUs that vest will vary based upon the level of performance achieved from 200% of the target shares to 0% of the target shares. All TSR PRSUs will vest upon the three-year anniversary of the January 24, 2014 grant date. No TSR PRSUs will vest if the executive officer is no longer an employee at the end of the three-year period. The TSR PRSUs are valued using a Monte Carlo simulation model. The number of units expected to be earned, based upon the achievement of the TSR market condition, is factored into the grant date Monte Carlo valuation. Compensation expense is recognized on a straight-line basis over the three-year service period. Compensation expense is recognized regardless of the eventual number of units that are earned based upon the market condition, provided the executive officer remains an employee at the end of the three-year period. Compensation expense is reversed if the executive officer is not an employee at the end of the three-year service period. During
15
the nine months ended September 28, 2014, Teradyne granted 0.1 million TSR performance-based restricted stock unit awards with an estimated grant date fair value of $22.06 per award. The fair value was estimated using the Monte Carlo simulation model with the following assumptions:
For the Nine Months Ended |
||||
September 28, 2014 |
||||
Risk-free interest rate |
0.75 | % | ||
Teradyne volatility-historical |
36.1 | % | ||
Philadelphia Semiconductor Index volatility-historical |
24.6 | % | ||
Dividend yield |
1.25 | % |
Expected volatility was based on the historical volatility of Teradynes stock and the Philadelphia Semiconductor Index over the most recent three-year period. The risk-free interest rate was determined using the U.S. Treasury yield curve in effect at the time of grant. Dividend yield was based upon an estimated annual dividend amount of $0.24 per share divided by Teradynes January 24, 2014 stock price of $19.16.
During the nine months ended September 28, 2014, Teradyne granted 1.7 million of service-based restricted stock unit awards to employees at a weighted average grant date fair value of $19.09 and 0.1 million of service-based stock options to executive officers at a weighted average grant date fair value of $5.49.
During the nine months ended September 29, 2013, Teradyne granted 1.9 million of service-based restricted stock unit awards to employees at a weighted average grant date fair value of $16.60 and 0.2 million of service-based stock options to executive officers at a weighted average grant date fair value of $6.09.
Restricted stock unit awards granted to employees vest in equal annual installments over four years. Stock options vest in equal annual installments over four years, and have a term of seven years from the date of grant.
The fair value of stock options was estimated using the Black-Scholes option-pricing model with the following assumptions:
For the Nine Months Ended |
||||||||
September 28, 2014 |
September 29, 2013 |
|||||||
Expected life (years) |
4.0 | 4.0 | ||||||
Risk-free interest rate |
1.2 | % | 0.6 | % | ||||
Volatility-historical |
38.8 | % | 46.8 | % | ||||
Dividend yield |
1.25 | % | 0.0 | % |
Teradyne determined the stock options expected life based upon historical exercise data for executive officers, the age of the executive officers and the terms of the stock option grant. Volatility was determined using historical volatility for a period equal to the expected life. The risk-free interest rate was determined using the U.S. Treasury yield curve in effect at the time of grant. Dividend yield was based upon an estimated annual dividend amount of $0.24 per share divided by Teradynes January 24, 2014 stock price of $19.16.
Effective January 31, 2014, Michael Bradley retired as Chief Executive Officer of Teradyne. Mr. Bradley will continue to serve on Teradynes Board of Directors. On January 22, 2014, Teradyne entered into an agreement (the Retirement Agreement) with Mr. Bradley. Under the Retirement Agreement, Mr. Bradleys unvested restricted stock units and stock options granted prior to his retirement date will continue to vest in accordance with their terms through January 31, 2017; and any vested options or options that vest during that period may be exercised for the remainder of the applicable option term. In the Retirement Agreement, Mr. Bradley agreed to be bound by non-competition and non-solicitation restrictions through January 31, 2017. In January 2014, Teradyne recorded a one-time charge to stock-based compensation expense of $6.6 million related to the Retirement Agreement.
16
J. Accumulated Other Comprehensive Income
Changes in accumulated other comprehensive income, which is presented net of tax, consist of the following:
Unrealized Gains on Marketable Securities |
Retirement Plans Prior Service Credit |
Total | ||||||||||
(in thousands) | ||||||||||||
Balance at December 31, 2013, net of tax of $794, $(284) |
$ | 1,381 | $ | 2,619 | $ | 4,000 | ||||||
Other comprehensive income before reclassifications, net of tax of $1,103, $0 |
2,166 | | 2,166 | |||||||||
Amounts reclassified from accumulated other comprehensive income, net of tax of $(591), $(127) |
(1,086 | ) | (221 | ) | (1,307 | ) | ||||||
|
|
|
|
|
|
|||||||
Net current period other comprehensive income |
1,080 | (221 | ) | 859 | ||||||||
|
|
|
|
|
|
|||||||
Balance at September 28, 2014, net of tax of $1,306, $(411) |
$ | 2,461 | $ | 2,398 | $ | 4,859 | ||||||
|
|
|
|
|
|
Reclassifications out of accumulated other comprehensive income to the statement of operations for the three and nine months ended September 28, 2014 and September 29, 2013 were as follows:
Details about Accumulated Other Comprehensive Income Components |
For the Three Months Ended |
For the Nine Months Ended |
Affected Line Item in the Statements of Operations |
|||||||||||||||||
September 28, 2014 |
September 29, 2013 |
September 28, 2014 |
September 29, 2013 |
|||||||||||||||||
(in thousands) | ||||||||||||||||||||
Available-for-sale marketable securities: |
||||||||||||||||||||
Unrealized gains, net of tax of $348, $109, $591, $231 |
$ | 638 | $ | 189 | $ | 1,086 | $ | 401 | Interest income | |||||||||||
Amortization of defined benefit pension and postretirement plans: |
||||||||||||||||||||
Prior service benefit, net of tax of $42, $40, $127, $119 |
74 | 69 | 221 | 207 | (a) | |||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Total reclassifications |
$ | 712 | $ | 258 | $ | 1,307 | $ | 608 | Net income | |||||||||||
|
|
|
|
|
|
|
|
(a) | The amortization of prior service benefit is included in the computation of net periodic pension cost and postretirement benefit; see Note N: Retirement Plans. |
K. Intangible Assets
Amortizable intangible assets consist of the following and are included in intangible assets, net on the balance sheet:
September 28, 2014 | ||||||||||||||||
Gross Carrying Amount |
Accumulated Amortization |
Net Carrying Amount |
Weighted Average Useful Life |
|||||||||||||
(in thousands) | ||||||||||||||||
Developed technology |
$ | 342,933 | $ | 212,949 | $ | 129,984 | 6.2 years | |||||||||
Customer relationships |
141,005 | 90,244 | 50,761 | 8.0 years | ||||||||||||
Trade names and trademarks |
30,034 | 13,302 | 16,732 | 9.1 years | ||||||||||||
|
|
|
|
|
|
|||||||||||
Total intangible assets |
$ | 513,972 | $ | 316,495 | $ | 197,477 | 6.9 years | |||||||||
|
|
|
|
|
|
17
December 31, 2013 | ||||||||||||||||
Gross Carrying Amount |
Accumulated Amortization |
Net Carrying Amount |
Weighted Average Useful Life |
|||||||||||||
(in thousands) | ||||||||||||||||
Developed technology |
$ | 342,933 | $ | 174,563 | $ | 168,370 | 6.2 years | |||||||||
Customer relationships |
141,497 | 76,963 | 64,534 | 8.0 years | ||||||||||||
Trade names and trademarks |
30,034 | 10,647 | 19,387 | 9.1 years | ||||||||||||
Customer backlog |
1,000 | 1,000 | | 0.4 years | ||||||||||||
|
|
|
|
|
|
|||||||||||
Total intangible assets |
$ | 515,464 | $ | 263,173 | $ | 252,291 | 6.9 years | |||||||||
|
|
|
|
|
|
Aggregate intangible asset amortization expense was $18.3 million and $54.8 million, respectively, for the three and nine months ended September 28, 2014 and $18.1 million and $54.2 million, respectively, for the three and nine months ended September 29, 2013. Estimated intangible asset amortization expense for each of the five succeeding fiscal years is as follows:
Year |
Amortization Expense | |||
(in thousands) | ||||
2014 (remainder) |
$ | 15,327 | ||
2015 |
53,391 | |||
2016 |
53,391 | |||
2017 |
47,232 | |||
2018 |
22,691 | |||
Thereafter |
5,445 |
L. Net Income per Common Share
The following table sets forth the computation of basic and diluted net income per common share:
For the Three Months Ended |
For the Nine Months Ended |
|||||||||||||||
September 28, 2014 |
September 29, 2013 |
September 28, 2014 |
September 29, 2013 |
|||||||||||||
(in thousands, except per share amounts) | ||||||||||||||||
Net income for basic and diluted net income per share |
$ | 82,949 | $ | 69,459 | $ | 185,083 | $ | 142,604 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Weighted average common shares-basic |
207,381 | 191,307 | 198,367 | 190,521 | ||||||||||||
Effect of dilutive potential common shares: |
||||||||||||||||
Incremental shares from assumed conversion of convertible notes (1) |
| 23,257 | 6,684 | 23,303 | ||||||||||||
Convertible note hedge warrant shares (2) |
8,885 | 18,678 | 16,744 | 18,742 | ||||||||||||
Restricted stock units |
1,167 | 1,102 | 975 | 1,000 | ||||||||||||
Stock options |
879 | 1,465 | 997 | 1,564 | ||||||||||||
Employee stock purchase rights |
21 | 19 | 28 | 35 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Dilutive potential common shares |
10,952 | 44,521 | 25,428 | 44,644 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Weighted average common shares-diluted |
218,333 | 235,828 | 223,795 | 235,165 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net income per common share-basic |
$ | 0.40 | $ | 0.36 | $ | 0.93 | $ | 0.75 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Net income per common share-diluted |
$ | 0.38 | $ | 0.29 | $ | 0.83 | $ | 0.61 | ||||||||
|
|
|
|
|
|
|
|
(1) | Incremental shares from conversion of the convertible notes for the nine months ended September 28, 2014 were calculated using the difference between the average Teradyne stock price from January 1, 2014 through March 12, 2014 and the conversion price of $5.4750, multiplied by 34.7 million shares. The result |
18
of this calculation, representing the total intrinsic value of the convertible debt, was divided by the average Teradyne stock price for the period from January 1, 2014 to March 12, 2014 and adjusted for the number of days the convertible notes were outstanding. Incremental shares from assumed conversion of the convertible notes for the three and nine months ended September 29, 2013 were calculated using the difference between the average Teradyne stock price for the period the convertible notes were outstanding and the conversion price of $5.48, multiplied by the 34.7 million shares to be issued upon conversion. The result of this calculation, representing the total intrinsic value of the convertible debt, was divided by the average Teradyne stock price for the period. |
(2) | Convertible note hedge warrant shares for the three and nine months ended September 28, 2014 are calculated using the difference between the average Teradyne stock price for the period the warrants were outstanding and the warrant price of $7.63 and $7.64, respectively, multiplied by the weighted average warrant shares outstanding. The result of this calculation, representing the total intrinsic value of the warrant, is divided by the average Teradyne stock price for the period the warrants were outstanding. Convertible note hedge warrant shares for the three and nine months ended September 29, 2013 are calculated using the difference between the average Teradyne stock price for the period and the warrant price of $7.67, multiplied by the 34.7 million shares that would be issued upon conversion. The result of this calculation, representing the total intrinsic value of the warrant, is divided by the average Teradyne stock price for the period. |
The computation of diluted net income per common share for the three and nine months ended September 28, 2014 excludes the effect of the potential exercise of stock options to purchase approximately 0.3 million shares because the effect would have been anti-dilutive.
The computation of diluted net income per common share for the three and nine months ended September 29, 2013 excludes the effect of the potential exercise of stock options to purchase approximately 0.4 million shares because the effect would have been anti-dilutive.
19
M. Restructuring and Other
Restructuring
During the nine months ended September 28, 2014, Teradyne recorded $0.8 million of severance charges related to headcount reductions of approximately 30 people, primarily in Wireless Test. During the nine months ended September 29, 2013, Teradyne recorded $1.5 million of severance charges related to headcount reductions of approximately 40 people, of which $1.4 million was in System Test and $0.4 million was in Semiconductor Test, and a $(0.4) million credit in Corporate for a change in the estimated exit costs related to a leased facility.
Severance and Benefits |
Facility Exit Costs |
Total | ||||||||||
(in thousands) | ||||||||||||
Pre-2013 Activities | ||||||||||||
Balance at December 31, 2012 |
$ | 243 | $ | 1,084 | $ | 1,327 | ||||||
Change in estimate |
| (553 | ) | (553 | ) | |||||||
Cash payments |
(243 | ) | (531 | ) | (774 | ) | ||||||
|
|
|
|
|
|
|||||||
Balance at December 31, 2013 |
$ | | $ | | $ | | ||||||
|
|
|
|
|
|
|||||||
2013 Activities | ||||||||||||
Q3 2013 Activity: |
||||||||||||
Provision |
$ | 1,337 | $ | | $ | 1,337 | ||||||
Cash payments |
(966 | ) | | (966 | ) | |||||||
|
|
|
|
|
|
|||||||
Balance at December 31, 2013 |
371 | | 371 | |||||||||
Cash payments |
(161 | ) | | (161 | ) | |||||||
|
|
|
|
|
|
|||||||
Balance at March 30, 2014 |
210 | | 210 | |||||||||
Cash payments |
| | | |||||||||
|
|
|
|
|
|
|||||||
Balance at June 29, 2014 |
210 | | 210 | |||||||||
Cash payments |
| | | |||||||||
|
|
|
|
|
|
|||||||
Balance at September 28, 2014 |
$ | 210 | $ | | $ | 210 | ||||||
|
|
|
|
|
|
|||||||
Q4 2013 Activity: |
||||||||||||
Provision |
$ | 600 | $ | | $ | 600 | ||||||
Cash payments |
(486 | ) | | (486 | ) | |||||||
|
|
|
|
|
|
|||||||
Balance at December 31, 2013 |
114 | | 114 | |||||||||
Cash payments |
(114 | ) | | (114 | ) | |||||||
|
|
|
|
|
|
|||||||
Balance at March 30, 2014 |
$ | | $ | | $ | | ||||||
|
|
|
|
|
|
20
Severance and Benefits |
Facility Exit Costs |
Total | ||||||||||
(in thousands) | ||||||||||||
2014 Activities | ||||||||||||
Q2 2014 Activity: |
||||||||||||
Provision |
$ | 572 | $ | | $ | 572 | ||||||
Cash payments |
(530 | ) | | (530 | ) | |||||||
|
|
|
|
|
|
|||||||
Balance at June 29, 2014 |
42 | | 42 | |||||||||
Cash payments |
(42 | ) | | (42 | ) | |||||||
|
|
|
|
|
|
|||||||
Balance at September 28, 2014 |
$ | | $ | | $ | | ||||||
|
|
|
|
|
|
|||||||
Q3 2014 Activity: |
||||||||||||
Provision |
$ | 225 | $ | | $ | 225 | ||||||
Cash payments |
(225 | ) | | (225 | ) | |||||||
|
|
|
|
|
|
|||||||
Balance at September 28, 2014 |
$ | | $ | | $ | | ||||||
|
|
|
|
|
|
|||||||
Balance at September 28, 2014 |
$ | 210 | $ | | $ | 210 | ||||||
|
|
|
|
|
|
The accrual balance for severance and benefits of $0.2 million is reflected in the accrued employees compensation and withholdings on the balance sheet and is expected to be paid by December 2014.
Other
During the three and nine months ended September 28, 2014, Teradyne recorded a $0.6 million fair value adjustment to decrease the ZTEC acquisition contingent consideration.
N. Retirement Plans
ASC 715, CompensationRetirement Benefits requires an employer with defined benefit plans or other postretirement benefit plans to recognize an asset or a liability on its balance sheet for the overfunded or underfunded status of the plans as defined by ASC 715. The pension asset or liability represents a difference between the fair value of the pension plans assets and the projected benefit obligation.
On October 27, 2014, the U.S. Society of Actuaries released new mortality tables. Teradyne will use the new mortality tables along with other updated pension valuation assumptions (discount rate, asset rate of return, etc.) as part of its annual fourth quarter pension obligation remeasurement. The estimated actuarial loss as a result of the new mortality tables and current discount rates is approximately $50 million.
Defined Benefit Pension Plans
Teradyne has defined benefit pension plans covering a portion of domestic employees and employees of certain non-U.S. subsidiaries. Benefits under these plans are based on employees years of service and compensation. Teradynes funding policy is to make contributions to these plans in accordance with local laws and to the extent that such contributions are tax deductible. The assets of these plans consist primarily of fixed income and equity securities. In addition, Teradyne has an unfunded supplemental executive defined benefit plan in the United States to provide retirement benefits in excess of levels allowed by the Employment Retirement Income Security Act (ERISA) and the Internal Revenue Code (IRC), as well as unfunded foreign plans. In the nine months ended September 28, 2014, Teradyne contributed $1.3 million to the U.S. supplemental executive defined benefit pension plan and $1.2 million to certain qualified plans for non-U.S. subsidiaries.
21
For the three and nine months ended September 28, 2014 and September 29, 2013, Teradynes net periodic pension cost was comprised of the following:
For the Three Months Ended |
For the Nine Months Ended |
|||||||||||||||
September 28, 2014 |
September 29, 2013 |
September 28, 2014 |
September 29, 2013 |
|||||||||||||
(in thousands) | ||||||||||||||||
Service cost |
$ | 761 | $ | 871 | $ | 2,368 | $ | 2,557 | ||||||||
Interest cost |
3,650 | 3,350 | 11,102 | 10,001 | ||||||||||||
Expected return on plan assets |
(3,335 | ) | (3,664 | ) | (10,060 | ) | (10,925 | ) | ||||||||
Amortization of unrecognized prior service cost |
34 | 41 | 101 | 123 | ||||||||||||
Actuarial loss (gain) |
| | 362 | (1,123 | ) | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total net periodic pension cost |
$ | 1,110 | $ | 598 | $ | 3,873 | $ | 633 | ||||||||
|
|
|
|
|
|
|
|
Postretirement Benefit Plan
In addition to receiving pension benefits, U.S. Teradyne employees who meet early retirement eligibility requirements as of their termination dates may participate in Teradynes Welfare Plan, which includes death, and medical and dental benefits up to age 65. Death benefits provide a fixed sum to retirees survivors and are available to all retirees. Substantially all of Teradynes current U.S. employees could become eligible for these benefits, and the existing benefit obligation relates primarily to those employees.
For the three and nine months ended September 28, 2014 and September 29, 2013, Teradynes net periodic postretirement benefit was comprised of the following:
For the Three Months Ended |
For the Nine Months Ended |
|||||||||||||||
September 28, 2014 |
September 29, 2013 |
September 28, 2014 |
September 29, 2013 |
|||||||||||||
(in thousands) | ||||||||||||||||
Service cost |
$ | 15 | $ | 19 | $ | 44 | $ | 56 | ||||||||
Interest cost |
84 | 86 | 252 | 257 | ||||||||||||
Amortization of unrecognized prior service benefit |
(150 | ) | (150 | ) | (449 | ) | (449 | ) | ||||||||
Actuarial gain |
| | (247 | ) | (236 | ) | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total net periodic post-retirement benefit |
$ | (51 | ) | $ | (45 | ) | $ | (400 | ) | $ | (372 | ) | ||||
|
|
|
|
|
|
|
|
O. Commitments and Contingencies
Purchase Commitments
As of September 28, 2014, Teradyne had entered into purchase commitments for certain components and materials. The purchase commitments covered by the agreements aggregate to approximately $155.2 million, of which $147.4 million is for less than one year.
Legal Claims
Teradyne is subject to various legal proceedings and claims which have arisen in the ordinary course of business. In the opinion of management, the ultimate disposition of these matters will not have a material adverse effect on Teradynes results of operations, financial condition or cash flows.
22
P. Income Taxes
The effective tax rate for the three months ended September 28, 2014 and September 29, 2013 was 18% and 21%, respectively. The decrease in the tax rate was primarily due to a more favorable geographic mix of income partially offset by an increase in reserves for uncertain tax positions.
The effective tax rate for the nine months ended September 28, 2014 and September 29, 2013 was 16% and 14%, respectively. The increase in the tax rate was primarily due to income tax expense for the nine months ended September 29, 2013 being reduced for a discrete tax benefit from the January 2013 reinstatement of the U.S. research and development credit for fiscal year 2012 and an increase in reserves for uncertain tax positions in fiscal year 2014, partially offset by a more favorable geographic mix of income in fiscal year 2014.
The effective tax rate for each of these periods is lower than the 35% U.S. statutory federal tax rate primarily due to the geographic mix of income and profits earned by Teradynes international subsidiaries being taxed at rates lower than the U.S. statutory rate.
As of September 28, 2014, Teradyne had $31.6 million of reserves for uncertain tax positions. As of December 31, 2013, Teradyne had $21.2 million of reserves for uncertain tax positions. The $10.4 million net increase in reserves for uncertain tax positions primarily relates to the allocation of income among jurisdictions. As of September 28, 2014, Teradyne anticipates the liability for uncertain tax positions could decrease by approximately $2.8 million over the next twelve months, primarily as a result of the expiration of statutes of limitations and clarification of tax laws. The potential decrease is primarily related to equity compensation.
Teradyne qualifies for a tax holiday in Singapore by fulfilling the requirements of an agreement with the Singapore Economic Development Board under which certain headcount and spending requirements must be met. The tax savings due to the tax holiday for the nine months ended September 28, 2014 were $12.3 million or $0.05 per diluted share. The tax holiday is currently expected to expire on December 31, 2015.
Q. Segment Information
Teradyne has three operating segments (Semiconductor Test, Wireless Test and System Test), which are its reportable segments. The Semiconductor Test segment includes operations related to the design, manufacturing and marketing of semiconductor test products and services. The Wireless Test segment includes operations related to design, manufacturing and marketing of wireless test products and services. The System Test segment includes operations related to design, manufacturing and marketing of products and services for military/aerospace instrumentation test, storage test and circuit-board test. Each operating segment has a segment manager who is directly accountable to and maintains regular contact with Teradynes chief operating decision maker (Teradynes chief executive officer) to discuss operating activities, financial results, forecasts, and plans for the segment.
23
Teradyne evaluates performance based on several factors, of which the primary financial measure is business segment income before income taxes. The accounting policies of the business segments are the same as those described in Note B: Accounting Policies in Teradynes Annual Report on Form 10-K for the year ended December 31, 2013. Segment information is as follows:
Semiconductor Test |
Wireless Test |
System Test |
Corporate and Eliminations |
Consolidated | ||||||||||||||||
(in thousands) | ||||||||||||||||||||
Three months ended September 28, 2014: |
||||||||||||||||||||
Net revenues |
$ | 380,083 | $ | 54,838 | $ | 43,089 | $ | | $ | 478,010 | ||||||||||
Income before income taxes(1)(2) |
91,900 | 2,379 | 5,779 | 612 | 100,670 | |||||||||||||||
Three months ended September 29, 2013: |
||||||||||||||||||||
Net revenues |
$ | 304,131 | $ | 93,132 | $ | 36,113 | $ | | $ | 433,376 | ||||||||||
Income (loss) before income taxes(1)(2) |
68,932 | 27,575 | (2,462 | ) | (6,493 | ) | 87,552 | |||||||||||||
Nine months ended September 28, 2014: |
||||||||||||||||||||
Net revenues |
$ | 1,063,254 | $ | 144,747 | $ | 116,586 | $ | | $ | 1,324,587 | ||||||||||
Income (loss) before income taxes(1)(2) |
233,770 | (8,477 | ) | 5,512 | (10,616 | ) | 220,189 | |||||||||||||
Nine months ended September 29, 2013: |
||||||||||||||||||||
Net revenues |
$ | 808,068 | $ | 226,116 | $ | 108,448 | $ | | $ | 1,142,632 | ||||||||||
Income (loss) before income taxes(1)(2) |
141,304 | 41,491 | (153 | ) | (16,159 | ) | 166,483 |
(1) | Pension and postretirement actuarial gains and losses, interest income, and interest expense and other are included in Corporate and Eliminations. |
(2) | Included in the income (loss) before income taxes for each of the segments are charges and credits for the three and nine months ended September 28, 2014 and September 29, 2013 that include restructuring and other, and provision for excess and obsolete inventory, as follows: |
Included in the Semiconductor Test segment are charges for the following:
For the Three Months Ended |
For the Nine Months Ended |
|||||||||||||||
September 28, 2014 |
September 29, 2013 |
September 28, 2014 |
September 29, 2013 |
|||||||||||||
(in thousands) | ||||||||||||||||
Cost of revenuesprovision for excess and obsolete inventory |
$ | 4,404 | $ | 1,378 | $ | 14,322 | $ | 1,878 | ||||||||
Restructuring and other |
| 282 | | 416 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | 4,404 | $ | 1,660 | $ | 14,322 | $ | 2,294 | ||||||||
|
|
|
|
|
|
|
|
Included in the Wireless Test segment are charges for the following:
For the Three Months Ended |
For the Nine Months Ended |
|||||||||||||||
September 28, 2014 |
September 29, 2013 |
September 28, 2014 |
September 29, 2013 |
|||||||||||||
(in thousands) | ||||||||||||||||
Cost of revenuesprovision for excess and obsolete inventory |
$ | 1,267 | $ | 2,059 | $ | 5,239 | $ | 6,125 | ||||||||
Restructuring and other |
| | 426 | 82 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | 1,267 | $ | 2,059 | $ | 5,665 | $ | 6,207 | ||||||||
|
|
|
|
|
|
|
|
24
Included in the System Test segment are charges for the following:
For the Three Months Ended |
For the Nine Months Ended |
|||||||||||||||
September 28, 2014 |
September 29, 2013 |
September 28, 2014 |
September 29, 2013 |
|||||||||||||
(in thousands) | ||||||||||||||||
Cost of revenuesprovision for excess and obsolete inventory |
$ | 763 | $ | 404 | $ | 1,944 | $ | 1,613 | ||||||||
Restructuring and other |
225 | 1,055 | 371 | 1,430 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | 988 | $ | 1,459 | $ | 2,315 | $ | 3,043 | ||||||||
|
|
|
|
|
|
|
|
Included in Corporate and Eliminations are credits for the following:
For the Three Months Ended |
For the Nine Months Ended |
|||||||||||||||
September 28, 2014 |
September 29, 2013 |
September 28, 2014 |
September 29, 2013 |
|||||||||||||
(in thousands) | ||||||||||||||||
Restructuring and other |
$ | (630 | ) | $ | (448 | ) | $ | (630 | ) | $ | (448 | ) | ||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | (630 | ) | $ | (448 | ) | $ | (630 | ) | $ | (448 | ) | ||||
|
|
|
|
|
|
|
|
R. Shareholders Equity
Stock Repurchase Program
In November 2010, Teradynes Board of Directors authorized a stock repurchase program for up to $200 million. In the three and nine months ended September 28, 2014 and September 29, 2013, Teradyne did not repurchase any shares. The cumulative repurchases under the new program as of September 28, 2014 totaled 2.6 million shares of common stock for $31.2 million at an average price of $11.84.
Dividend
Holders of Teradynes common stock are entitled to receive dividends when they are declared by Teradynes Board of Directors. In January 2014, Teradynes Board of Directors declared an initial quarterly cash dividend of $0.06 per share that was paid on June 2, 2014 to stockholders of record as of May 9, 2014. In August 2014, Teradynes Board of Directors declared a quarterly cash dividend of $0.06 per share that was paid on September 26, 2014 to stockholders of record as of September 5, 2014. Dividend payments for the three and nine months ended September 28, 2014 were $12.8 million and $24.4 million, respectively. Payment of future cash dividends will rest within the discretion of Teradynes Board of Directors and will depend, among other things, upon Teradynes earnings, capital requirements and financial condition.
S. Subsequent Events
On October 31, 2014, Teradyne completed the acquisition of substantially all the assets of Avionics Interface Technologies, LLC (AIT) located in Omaha, Nebraska, for approximately $18.9 million and up to $2.1 million payable upon achievement of certain revenue and gross margin targets through December 31, 2016. The fair value of assets and liabilities acquired has not been disclosed because Teradyne has not completed the valuation. AIT is a leading provider of equipment for testing state-of-the-art data buses. The acquisition complements Teradynes Mil/Aero line of bus test instrumentation for commercial and defense avionics systems. AIT will be included in Teradynes System Test segment.
25
Item 2: | Managements Discussion and Analysis of Financial Condition and Results of Operations |
Statements in this Quarterly Report on Form 10-Q which are not historical facts, so called forward looking statements, are made pursuant to the safe harbor provisions of Section 21E of the Securities Exchange Act of 1934, as amended. Investors are cautioned that all forward looking statements involve risks and uncertainties, including those detailed in our filings with the Securities and Exchange Commission. See also Part II, Item 1A of this Quarterly Report on Form 10-Q and Part I, Item 1A Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2013. Readers are cautioned not to place undue reliance on these forward-looking statements which reflect managements analysis only as of the date hereof. We assume no obligation to update these forward-looking statements to reflect actual results or changes in factors or assumptions affecting forward-looking statements, except as may be required by law.
Overview
We are a leading global supplier of automatic test equipment. We design, develop, manufacture and sell automatic test systems and solutions used to test semiconductors, wireless products, hard disk drives and circuit boards in the consumer electronics, wireless, automotive, industrial, computing, communications and aerospace and defense industries. Our automatic test equipment products and services include:
| semiconductor test (Semiconductor Test) systems; |
| wireless test (Wireless Test) systems; and |
| military/aerospace (Mil/Aero) test instrumentation and systems, storage test (Storage Test) systems, and circuit-board test (Production Board Test) systems (collectively these products represent System Test). |
We have a broad customer base which includes integrated device manufacturers (IDMs), outsourced semiconductor assembly and test providers (OSATs), wafer foundries, fabless companies that design, but contract with others for the manufacture of integrated circuits (ICs), developers of wireless devices and consumer electronics, manufacturers of circuit boards, automotive suppliers, wireless product manufacturers, storage device manufacturers, aerospace and military contractors.
In October 2013, we acquired ZTEC Instruments Inc. (ZTEC), a supplier of modular wireless test instruments. The acquisition of ZTEC expands our Wireless Test segment into the design verification test of wireless components and chipsets.
In October 2014, we acquired substantially all the assets of Avionics Interface Technologies, LLC, a leading provider of equipment for testing state-of-the-art data buses. The acquisition complements our Mil/Aero business units line of bus test instrumentation so that we can provide complete test solutions for todays commercial and defense avionics systems.
We will continue to invest in our business to further expand our addressable markets while tightly managing our costs.
The sales of our products and services are dependent, to a large degree, on customers who are subject to cyclical trends in the demand for their products. These cyclical periods have had, and will continue to have, a significant effect on our business because our customers often delay or accelerate purchases in reaction to changes in their businesses and to demand fluctuations in the semiconductor and electronics industries. Historically, these demand fluctuations have resulted in significant variations in our results of operations. The sharp swings in the semiconductor and electronics industries in recent years have generally affected the semiconductor and electronics test equipment and services industries more significantly than the overall capital equipment sector.
26
Critical Accounting Policies and Estimates
We have identified the policies which are critical to understanding our business and our results of operations. There have been no significant changes during the nine months ended September 28, 2014 to the items disclosed as our critical accounting policies and estimates in Managements Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the fiscal year ended December 31, 2013.
27
SELECTED RELATIONSHIPS WITHIN THE CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS
For the Three Months Ended |
For the Nine Months Ended |
|||||||||||||||
September 28, 2014 |
September 29, 2013 |
September 28, 2014 |
September 29, 2013 |
|||||||||||||
Percentage of total net revenues: |
||||||||||||||||
Net revenues: |
||||||||||||||||
Products |
84 | % | 84 | % | 84 | % | 83 | % | ||||||||
Services |
16 | 16 | 16 | 17 | ||||||||||||
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Total net revenues |
100 | 100 | 100 | 100 | ||||||||||||
Cost of revenues: |
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Cost of products |
38 | 35 | 38 | 35 | ||||||||||||
Cost of services |
7 | 7 | 7 | 8 | ||||||||||||
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Total cost of revenues (exclusive of acquired intangible assets amortization shown separately below) |
45 | 41 | 46 | 43 | ||||||||||||
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Gross profit |
55 | 59 | 54 | 57 | ||||||||||||
Operating expenses: |
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Engineering and development |
15 | 16 | 16 | 17 | ||||||||||||
Selling and administrative |
15 | 17 | 17 | 18 | ||||||||||||
Acquired intangible assets amortization |
4 | 4 | 4 | 5 | ||||||||||||
Restructuring and other |
| | | | ||||||||||||
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Total operating expenses |
34 | 37 | 37 | 41 | ||||||||||||
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Income from operations |
21 | 22 | 17 | 16 | ||||||||||||
Interest income |
| | | | ||||||||||||
Interest expense and other (income) expense |
| 2 | 1 | 2 | ||||||||||||
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Income before income taxes |
21 | 20 | 17 | 15 | ||||||||||||
Income tax provision |
4 | 4 | 3 | 2 | ||||||||||||
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Net income |
17 | % | 16 | % | 14 | % | 12 | % | ||||||||
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Results of Operations
Third Quarter 2014 Compared to Third Quarter 2013
Book to Bill Ratio
Book to bill ratio calculated as net bookings divided by net sales. Book to bill ratio by reportable segment was as follows:
For the Three Months Ended |
||||||||
September 28, 2014 |
September 29, 2013 |
|||||||
Semiconductor Test |
0.5 | 0.7 | ||||||
Wireless Test |
0.8 | 0.4 | ||||||
System Test |
0.6 | 0.7 | ||||||
Total Company |
0.6 | 0.6 |
28
Revenues
Net revenues by reportable segment were as follows:
For the Three Months Ended |
Dollar Change |
|||||||||||
September 28, 2014 |
September 29, 2013 |
|||||||||||
(in millions) | ||||||||||||
Semiconductor Test |
$ | 380.1 | $ | 304.2 | $ | 75.9 | ||||||
Wireless Test |
54.8 | 93.1 | (38.3 | ) | ||||||||
System Test |
43.1 | 36.1 | 7.0 | |||||||||
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$ | 478.0 | $ | 433.4 | $ | 44.6 | |||||||
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The increase in Semiconductor Test revenues of $75.9 million or 25% was primarily due to higher system-on-a-chip (SOC) product volume driven by application processors and an increase in service revenue. The decrease in Wireless Test revenue of $38.3 million or 41% was primarily due to lower connectivity and cellular product volume. The increase in System Test revenue of $7.0 million or 19% was primarily due to higher product volume in Production Board Test and Storage Test systems.
Our revenues by region as a percentage of total net revenues were as follows:
For the Three Months Ended |
||||||||
September 28, 2014 |
September 29, 2013 |
|||||||
Taiwan |
27 | % | 25 | % | ||||
United States |
18 | 11 | ||||||
China |
18 | 27 | ||||||
Korea |
8 | 9 | ||||||
Europe |
7 | 4 | ||||||
Singapore |
5 | 7 | ||||||
Malaysia |
5 | 6 | ||||||
Philippines |
5 | 4 | ||||||
Japan |
4 | 4 | ||||||
Thailand |
2 | 2 | ||||||
Rest of World |
1 | 1 | ||||||
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100 | % | 100 | % | |||||
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Gross Profit
Our gross profit was as follows:
For the Three Months Ended |
Dollar/Point Change |
|||||||||||
September 28, 2014 |
September 29, 2013 |
|||||||||||
(in millions) | ||||||||||||
Gross profit |
$ | 261.1 | $ | 254.3 | $ | 6.8 | ||||||
Percent of total revenue |
54.6 | % | 58.7 | % | (4.1 | ) |
Gross profit as a percent of revenue decreased by 4.1 percentage points, due primarily to product mix in SOC Semiconductor Test and lower Wireless Test sales.
29
We assess the carrying value of our inventory on a quarterly basis by estimating future demand and comparing that demand against on-hand and on-order inventory positions. Forecasted revenue information is obtained from the sales and marketing groups and incorporates factors such as backlog and future revenue demand. This quarterly process identifies obsolete and excess inventory. Obsolete inventory, which represents items for which there is no demand, is fully reserved. Excess inventory, which represents inventory items that are not expected to be consumed during the next twelve quarters, is written-down to estimated net realizable value.
During the three months ended September 28, 2014, we recorded an inventory provision of $6.4 million included in cost of revenues primarily due to downward revisions to previously forecasted demand levels. Of the $6.4 million of total excess and obsolete provisions, $4.4 million was related to Semiconductor Test, $1.3 million was related to Wireless Test, and $0.7 million was related to System Test.
During the three months ended September 29, 2013, we recorded an inventory provision of $3.8 million included in cost of revenues, due to the following factors:
| A $2.0 million inventory write-down as a result of product transition in Wireless Test. |
| The remainder of the charge of $1.8 million primarily reflects downward revisions to previously forecasted demand levels, of which $1.4 million was related to Semiconductor Test and $0.4 million was related to System Test. |
During the three months ended September 28, 2014 and September 29, 2013, we scrapped $11.1 million and $13.9 million of inventory, respectively. During the three months ended September 28, 2014 and September 29, 2013, we sold $6.2 million and $4.1 million, respectively, of previously written-down inventory. As of September 28, 2014, we had inventory related reserves for inventory which had been written-down totaling $116.1 million. We have no pre-determined timeline to scrap the remaining inventory.
Engineering and Development
Engineering and development expenses were as follows:
For the Three Months Ended |
Dollar Change |
|||||||||||
September 28, 2014 |
September 29, 2013 |
|||||||||||
(in millions) | ||||||||||||
Engineering and development |
$ | 72.0 | $ | 68.9 | $ | 3.1 | ||||||
Percent of total revenue |
15.1 | % | 15.9 | % |
The increase of $3.1 million in engineering and development expenses was due primarily to increased spending in Semiconductor Test.
Selling and Administrative
Selling and administrative expenses were as follows:
For the Three Months Ended |
Dollar Change |
|||||||||||
September 28, 2014 |
September 29, 2013 |
|||||||||||
(in millions) | ||||||||||||
Selling and administrative |
$ | 73.1 | $ | 72.9 | $ | 0.2 | ||||||
Percent of total revenue |
15.3 | % | 16.8 | % |
The increase of $0.2 million in selling and administrative expenses was due primarily to increased sales and marketing spending in Semiconductor Test.
30
Restructuring and Other
Restructuring
During the three months ended September 28, 2014, we recorded $0.2 million of severance charges related to headcount reductions of 2 people in System Test.
During the three months ended September 29, 2013, we recorded $1.3 million of severance charges related to headcount reductions of approximately 40 people, of which $1.0 million was in System Test and $0.3 million was in Semiconductor Test, and a $(0.4) million credit related to a change in the estimated exit costs related to a leased facility, in Corporate.
Other
During the three months ended September 28, 2014, we recorded a $0.6 million fair value adjustment to decrease the ZTEC acquisition contingent consideration.
Income Taxes
The effective tax rate for the three months ended September 28, 2014 and September 29, 2013 was 18% and 21%, respectively. The decrease in the tax rate was primarily due to a more favorable geographic mix of income partially offset by an increase in reserves for uncertain tax positions.
The effective tax rate for each of these periods is lower than the 35% U.S. statutory federal tax rate primarily due to the geographic mix of income and profits earned by our international subsidiaries being taxed at rates lower than the U.S. statutory rate.
Nine Months of 2014 Compared to Nine Months of 2013
Revenues
Net revenues by reportable segment were as follows:
For the Nine Months Ended |
Dollar Change |
|||||||||||
September 28, 2014 |
September 29, 2013 |
|||||||||||
(in millions) | ||||||||||||
Semiconductor Test |
$ | 1,063.3 | $ | 808.1 | $ | 255.2 | ||||||
Wireless Test |
144.7 | 226.1 | (81.4 | ) | ||||||||
System Test |
116.6 | 108.4 | 8.2 | |||||||||
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$ | 1,324.6 | $ | 1,142.6 | $ | 182.0 | |||||||
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The increase in Semiconductor Test revenues of $255.2 million or 32% was primarily due to higher SOC product volume, driven by application processors and microcontrollers. The decrease in Wireless Test revenue of $81.4 million or 36% was primarily due to lower cellular and connectivity product volume. The increase in System Test revenue of $8.2 million or 8% was primarily due to higher product volume in Production Board Test and Storage Test systems, partially offset by lower Mil/Aero product sales.
31
Our revenues by region as a percentage of total net revenues were as follows:
For the Nine Months Ended |
||||||||
September 28, 2014 |
September 29, 2013 |
|||||||
Taiwan |
28 | % | 21 | % | ||||
China |
18 | 25 | ||||||
United States |
14 | 13 | ||||||
Korea |
10 | 9 | ||||||
Singapore |
7 | 9 | ||||||
Europe |
6 | 6 | ||||||
Malaysia |
5 | 6 | ||||||
Japan |
4 | 5 | ||||||
Philippines |
4 | 3 | ||||||
Thailand |
3 | 2 | ||||||
Rest of World |
1 | 1 | ||||||
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100 | % | 100 | % | |||||
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|
Gross Profit
Our gross profit was as follows:
For the Nine Months Ended |
Dollar/Point Change |
|||||||||||
September 28, 2014 |
September 29, 2013 |
|||||||||||
(in millions) | ||||||||||||
Gross profit |
$ | 718.6 | $ | 648.9 | $ | 69.7 | ||||||
Percent of total revenues |
54.2 | % | 56.8 | % | (2.6 | ) |
Gross profit as a percent of revenue decreased by 2.6 percentage points due primarily to a decrease of 2.4 points related to product mix in SOC Semiconductor Test and lower Wireless Test sales, a decrease of 0.7 point due to higher excess and obsolete inventory provisions, partially offset by higher sales volume.
We assess the carrying value of our inventory on a quarterly basis by estimating future demand and comparing that demand against on-hand and on-order inventory positions. Forecasted revenue information is obtained from the sales and marketing groups and incorporates factors such as backlog and future revenue demand. This quarterly process identifies obsolete and excess inventory. Obsolete inventory, which represents items for which there is no demand, is fully reserved. Excess inventory, which represents inventory items that are not expected to be consumed during the next twelve quarters, is written-down to estimated net realizable value.
During the nine months ended September 28, 2014, we recorded an inventory provision of $21.5 million included in cost of revenues with $6.2 million related to product transition in Semiconductor Test and $15.3 million due to downward revisions to previously forecasted demand levels. Of the $21.5 million of total excess and obsolete provisions, $14.3 million was related to Semiconductor Test, $5.2 million was related to Wireless Test, and $2.0 million was related to System Test.
During the nine months ended September 29, 2013, we recorded an inventory provision of $9.6 million included in cost of revenues, due to the following factors:
| A $4.1 million inventory write-down as a result of product transition in Wireless Test. |
| The remainder of the charge of $5.5 million primarily reflects downward revisions to previously forecasted demand levels, of which $2.0 million was related to Wireless Test, $1.9 million was related to Semiconductor Test and $1.6 million was related to System Test. |
32
During the nine months ended September 28, 2014 and September 29, 2013, we scrapped $14.3 million and $16.8 million of inventory, respectively. During the nine months ended September 28, 2014 and September 29, 2013, we sold $9.8 million and $8.9 million of previously written-down or written-off inventory. As of September 28, 2014, we had inventory related reserves for inventory which had been written-down or written-off totaling $116.1 million. We have no pre-determined timeline to scrap the remaining inventory.
Engineering and Development
Engineering and development expenses were as follows:
For the Nine Months Ended |
Dollar Change |
|||||||||||
September 28, 2014 |
September 29, 2013 |
|||||||||||
(in millions) | ||||||||||||
Engineering and development |
$ | 212.5 | $ | 199.4 | $ | 13.1 | ||||||
Percent of total revenues |
16.0 | % | 17.5 | % |
The increase of $13.1 million in engineering and development expenses was due primarily to increased spending in Semiconductor Test and Wireless Test and higher variable compensation.
Selling and Administrative
Selling and administrative expenses were as follows:
For the Nine Months Ended |
Dollar Change |
|||||||||||
September 28, 2014 |
September 29, 2013 |
|||||||||||
(in millions) | ||||||||||||
Selling and administrative |
$ | 228.6 | $ | 210.0 | $ | 18.6 | ||||||
Percent of total revenue |
17.3 | % | 18.4 | % |
The increase of $18.6 million in selling and administrative expenses was due primarily to a one-time $6.6 million stock-based compensation charge related to Michael Bradleys (retired Chief Executive Officer) Retirement Agreement, increased sales and marketing spending in Semiconductor Test and Wireless Test, and higher variable compensation.
Restructuring and Other
Restructuring
During the nine months ended September 28, 2014, we recorded $0.8 million of severance charges related to headcount reductions of approximately 30 people, primarily in Wireless Test.
During the nine months ended September 29, 2013, Teradyne recorded $1.5 million of severance charges related to headcount reductions of approximately 40 people, of which $1.4 million was in System Test and $0.4 million was in Semiconductor Test, and a $(0.4) million credit in Corporate for a change in the estimated exit costs related to a leased facility.
Other
During the nine months ended September 28, 2014, we recorded a $0.6 million fair value adjustment to decrease the ZTEC acquisition contingent consideration.
33
Income Taxes
The effective tax rate for the nine months ended September 28, 2014 and September 29, 2013 was 16% and 14%, respectively. The increase in the tax rate was primarily due to income tax expense for the nine months ended September 29, 2013 being reduced for a discrete tax benefit from the January 2013 reinstatement of the U.S. research and development credit for fiscal year 2012 and an increase in reserves for uncertain tax positions in fiscal year 2014, partially offset by a more favorable geographic mix of income in fiscal year 2014.
The effective tax rate for each of these periods is lower than the 35% U.S. statutory federal tax rate primarily due to the geographic mix of income and profits earned by our international subsidiaries being taxed at rates lower than the U.S. statutory rate.
Contractual Obligations
The following table reflects our contractual obligations at September 28, 2014:
Payments Due by Period | ||||||||||||||||||||||||
Total | Less than 1 year |
1-3 years | 3-5 years | More than 5 years |
Other | |||||||||||||||||||
(in thousands) | ||||||||||||||||||||||||
Purchase obligations |
$ | 155,210 | $ | 147,373 | $ | 7,837 | $ | | $ | | $ | | ||||||||||||
Retirement plan contributions |
92,557 | 4,640 | 7,781 | 9,993 | 70,143 | | ||||||||||||||||||
Operating lease obligations |
53,514 | 12,806 | 18,523 | 8,175 | 14,010 | | ||||||||||||||||||
Long-term other liabilities reflected on the Balance Sheet under GAAP(1) |
86,625 | | 23,248 | | | 63,377 | ||||||||||||||||||
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Total |
$ | 387,906 | $ | 164,819 | $ | 57,389 | $ | 18,168 | $ | 84,153 | $ | 63,377 | ||||||||||||
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(1) | Included in Long-term other liabilities are liabilities for customer advances, extended warranty, uncertain tax positions, deferred tax liabilities and other obligations. For certain long-term obligations, we are unable to provide a reasonably reliable estimate of the timing of future payments relating to these obligations and therefore we included these amounts in the column marked Other. |
Liquidity and Capital Resources
Our cash, cash equivalents and marketable securities balances decreased by $18.3 million in the nine months ended September 28, 2014, to $1,181 million. Cash activity for the nine months ended September 28, 2014 and September 29, 2013 was as follows:
For the Nine Months Ended |
||||||||
September 28, 2014 |
September 29, 2013 |
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(in millions) | ||||||||
Cash provided by operating activities: |
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Net income, adjusted for non-cash items |
$ | 344.4 | $ | 271.6 | ||||
Change in operating assets and liabilities |
(27.3 | ) | (47.2 | ) | ||||
|
|
|
|
|||||
Net cash provided by operating activities |
317.1 | 224.4 | ||||||
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|
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Net cash used for investing activities |
(254.4 | ) | (6.6 | ) | ||||
|
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|
|
|||||
Net cash (used for) provided by financing activities |
(192.6 | ) | 16.1 | |||||
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|
|
|
|||||
(Decrease) increase in cash and cash equivalents |
$ | (129.9 | ) | $ | 233.9 | |||
|
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|
|
34
In the nine months ended September 28, 2014, changes in operating assets and liabilities used cash of $27.3 million. This was due to a $77.6 million increase in operating assets and a $50.3 million increase in operating liabilities.
The increase in operating assets was due to a $163.7 million increase in accounts receivable due to higher sales and increase in days sales outstanding (DSO). DSO for the three months ended September 28, 2014 was 61 days as compared to December 31, 2013 DSO of 50 days. The increase in accounts receivable was partially offset by a $47.8 million decrease in prepayments and other assets and a $38.3 million decrease in inventories due to higher sales. The increase in operating liabilities was due to a $52.2 million increase in other accrued liabilities, a $14.3 million increase in customer advance payments and deferred revenue and a $10.2 million increase in accrued income taxes, partially offset by a $16.2 million decrease in accrued employee compensation due primarily to variable compensation and employee stock award payroll tax payments, a $4.3 million convertible note interest payment, $3.3 million of retirement plan contributions and a $2.6 million decrease in accounts payable. Based on the new mortality tables released on October 27, 2014 and current discount rates, we estimate the funded status of our U.S. Qualified Pension Plan (the Plan) to be approximately 91%. During the fourth quarter of 2014, we plan to contribute approximately $30.0 million to the Plan to bring the Plan back to being fully funded.
Investing activities during the nine months ended September 28, 2014 used cash of $254.4 million, due to $844.1 million used for purchases of marketable securities and $146.4 million used for purchases of property, plant and equipment, partially offset by proceeds from maturities and sales of marketable securities that provided cash of $495.6 million and $236.1 million, respectively, and proceeds from life insurance of $4.4 million related to the cash surrender value from the cancellation of Teradyne owned life insurance policies on its retired chief executive officer. The increase in purchases of property, plant and equipment of $63.4 million compared to the nine months ended September 29, 2013 is primarily due to testers used for customer leases.
Financing activities during the nine months ended September 28, 2014 used cash of $192.6 million. $191.0 million of cash was used for payments on long-term debt related to the convertible note and the Japan loan and $24.4 million was used for dividend payments, partially offset by $21.0 million provided by the issuance of common stock under employee stock purchase and stock option plans and $1.7 million from the tax benefit related to stock options and restricted stock units.
In the nine months ended September 29, 2013, changes in operating assets and liabilities used cash of $47.2 million. This was due to a $48.1 million increase in operating assets and a $0.9 million increase in operating liabilities.
The increase in operating assets was due to a $56.0 million increase in accounts receivable and a $26.3 million increase in other assets primarily due to an increase in prepayments, partially offset by a $34.2 million decrease in inventories. The increase in operating liabilities was due to an $9.4 million increase in accounts payable, a $13.8 million increase in accrued income taxes and a $9.9 million increase in other accrued liabilities, partially offset by a $19.2 million decrease in accrued employee compensation due primarily to variable compensation and employee stock award payroll tax payments, a $9.2 million decrease in customer advance payments and deferred revenue, and $3.6 million of retirement plan contributions.
Investing activities during the nine months ended September 29, 2013 used cash of $6.6 million, due to $658.6 million used for purchases of marketable securities and $82.9 million used for purchases of property, plant and equipment, partially offset by proceeds from maturities and sales of marketable securities that provided cash of $401.9 million and $333.0 million, respectively.
Financing activities during the nine months ended September 29, 2013 provided cash of $16.1 million, of which $16.8 million was from the issuance of common stock under employee stock purchase and stock option plans and $0.8 million from the tax benefit related to stock options and restricted stock units, partially offset by $1.1 million of cash used for the payments on long-term debt related to the Japan loan and $0.4 million of cash used for payments related to LitePoint acquisition contingent consideration.
35
Holders of our common stock are entitled to receive dividends if and when they are declared by our Board of Directors. In January 2014, our Board of Directors declared an initial quarterly cash dividend of $0.06 per share that was paid on June 2, 2014 to stockholders of record as of May 9, 2014. In August 2014, our Board of Directors declared a quarterly cash dividend of $0.06 per share that was paid on September 26, 2014 to stockholders of record as of September 5, 2014. Total dividend payments in the nine months ended September 28, 2014 were $24.4 million. Payment of future cash dividends will rest within the discretion of our Board of Directors and will depend, among other things, upon our earnings, capital requirements and financial condition.
In 2014, we deployed approximately $75 million of capital into testers for customer leases bringing our total forecasted 2014 capital additions to $169 million.
We believe our cash, cash equivalents and marketable securities balance will be sufficient to meet working capital and expenditure needs for at least the next twelve months. The amount of cash, cash equivalents and marketable securities in the U.S. and our operations in the U.S. provide sufficient liquidity to fund our business activities in the U.S. We have approximately $460 million of cash, cash equivalents and marketable securities outside the U.S. that if repatriated would incur additional taxes. Inflation has not had a significant long-term impact on earnings.
Equity Compensation Plans
As discussed in Note O: Stock Based Compensation in our 2013 Form 10-K, we have a 1996 Employee Stock Purchase Plan and a 2006 Equity and Cash Compensation Incentive Plan (the 2006 Equity Plan).
The purpose of the 1996 Employee Stock Purchase Plan is to encourage stock ownership by all eligible employees of Teradyne. The purpose of the 2006 Equity Plan is to provide equity ownership and compensation opportunities in Teradyne to our employees, officers, directors, consultants and/or advisors. Both plans were approved by our shareholders.
Recently Issued Accounting Pronouncements
On July 18, 2013, the Financial Accounting Standards Board (FASB) issued Accounting Standard Update (ASU) 2013-11, Income Taxes (Topic 740): Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists. Under this ASU, unrecognized tax benefits will be netted against all available same-jurisdiction loss or other tax carryforwards that would be utilized, rather than only against carryforwards that are created by unrecognized tax benefits. The provisions of this ASU are effective for interim and annual periods beginning on or after December 15, 2013. Our implementation of this ASU did not have a material impact on our financial position and results of operations.
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606) which will replace numerous requirements in U.S. GAAP, including industry-specific requirements, and provide companies with a single revenue recognition model for recognizing revenue from contracts with customers. The core principle of the new standard is that a company should recognize revenue to show the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. The new standard will be effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. For Teradyne, the standard will be effective in the first quarter of 2017. The two permitted transition methods under the new standard are the full retrospective method, in which case the standard would be applied to each prior reporting period presented, or the modified retrospective method, in which case the cumulative effect of applying the standard would be recognized at the date of initial application. We have not yet selected a transition method. We are currently evaluating the impact of this ASU on our financial position and results of operations.
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Item 3: | Quantitative and Qualitative Disclosures about Market Risk |
For Quantitative and Qualitative Disclosures about Market Risk affecting Teradyne, see Item 7a, Quantitative and Qualitative Disclosures about Market Risks, in our Annual Report on Form 10-K filed with the SEC on February 28, 2014. There were no material changes in our exposure to market risk from those set forth in our Annual Report for the fiscal year ended December 31, 2013.
Item 4: | Controls and Procedures |
As of the end of the period covered by this report, our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures pursuant to Rule 13a-15(b) promulgated under the Exchange Act. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were effective in ensuring that material information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SECs rules and forms, including ensuring that such material information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
During the period covered by this report, there have been no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met.
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PART II. OTHER INFORMATION
Item 1: | Legal Proceedings |
We are subject to various legal proceedings and claims which have arisen in the ordinary course of business. In the opinion of management, the ultimate disposition of these matters will not have a material adverse effect on our results of operations, financial condition or cash flows.
Item 1A: | Risk Factors |
You should carefully consider the factors discussed in Part I, Item 1A: Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2013, which could materially affect our business, financial condition or future results. The risk factors described in our Annual Report on Form 10-K remain applicable to our business.
The risks described in our Annual Report on Form 10-K are not the only risks that we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.
Item 2: | Unregistered Sales of Equity Securities and Use of Proceeds |
In November 2010, Teradynes Board of Directors authorized a stock repurchase program for up to $200 million. The cumulative repurchases under the new program as of September 28, 2014 totaled 2.6 million shares of common stock for $31.2 million at an average price of $11.84.
The following table includes information with respect to repurchases we made of our common stock during the three months ended September 28, 2014 (in thousands except per share price):
Period |
(a) Total Number of Shares (or Units) Purchased |
(b) Average Price Paid per Share (or Unit) |
(c) Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs |
(d) Maximum Number (or Approximate Dollar Value) of Shares (or Units) that may Yet Be Purchased Under the Plans or Programs |
||||||||||||
June 30, 2014 July 27, 2014 |
| $ | | | $ | 168,825 | ||||||||||
July 28, 2014 August 24, 2014 |
| $ | | | $ | 168,825 | ||||||||||
August 25, 2014 September 28, 2014 |
| $ | | | $ | 168,825 | ||||||||||
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| $ | | | $ | 168,825 | |||||||||||
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We satisfy the U.S. minimum statutory withholding tax obligation due upon the vesting and the conversion of restricted stock units into shares of our common stock, by automatically withholding from the shares being issued a number of shares with an aggregate fair market value on the date of such vesting and conversion that would satisfy the minimum withholding amount due.
Item 4: | Mine Safety Disclosures |
Not Applicable
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Item 6: | Exhibits |
Exhibit Number |
Description | |
10.1 | Executive Officer Change in Control Agreement dated September 1, 2014 between Teradyne, Inc. and Bradford Robbins (filed herewith) | |
10.2 | Employment Agreement dated September 1, 2014 between Teradyne, Inc. and Bradford Robbins (filed herewith) | |
31.1 | Certification of Principal Executive Officer, pursuant to Rule 13a-14(a) of Securities and Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith) | |
31.2 | Certification of Principal Financial Officer, pursuant to Rule 13a-14(a) of Securities and Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith) | |
32.1 | Certification of Principal Executive Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith) | |
32.2 | Certification of Principal Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith) | |
101.INS | XBRL Instance Document | |
101.SCH | XBRL Taxonomy Extension Schema Document | |
101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document | |
101.DEF | XBRL Taxonomy Extension Definition Linkbase Document | |
101.LAB | XBRL Taxonomy Extension Label Linkbase Document | |
101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
TERADYNE, INC. |
Registrant |
/S/ GREGORY R. BEECHER |
Gregory R. Beecher Vice President, Chief Financial Officer and Treasurer (Duly Authorized Officer and Principal Financial Officer) |
November 7, 2014 |
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Exhibit 10.1
EXECUTIVE OFFICER CHANGE IN CONTROL AGREEMENT
EXECUTIVE OFFICER CHANGE IN CONTROL AGREEMENT entered into this 1st day of September 2014 by and between Teradyne, Inc. (including its subsidiaries, Teradyne), and the undersigned executive officer of LitePoint Corporation, a wholly-owned subsidiary of Teradyne, Inc. (Employee).
WITNESSETH:
WHEREAS, Teradyne and Employee desire to set forth certain terms and conditions relating to the termination of Employees employment upon the occurrence of a Change in Control (as hereinafter defined) of Teradyne.
NOW THEREFORE, in consideration of the premises and of the mutual covenants and agreements hereinafter set forth, the parties hereto hereby agree as follows:
1. Entitlements Upon a Termination Event. If, within twenty-four (24) months following a Change in Control or in contemplation of a Change in Control, there is a Termination Event, and subject to the conditions set forth herein and the performance by Employee of the undertakings and duties set forth herein, Employee shall be entitled to the rights, payments and other benefits set forth below:
(a) Treatment of Awards. Equity Awards that are not subject to Performance Criteria shall be governed by Section 1(b) below, and Cash Awards and Equity Awards that are subject to Performance Criteria shall be governed by Section 1(c) below. The parties hereto acknowledge that, except as otherwise provided herein, the terms of this Agreement are intended to modify the terms of Employees existing Cash Award and Equity Award agreements and to be a supplement to Cash Award and Equity Award agreements granted on or subsequent to the date hereof.
(b) Acceleration of Equity Awards. All of Employees unvested or unexercisable Equity Awards or Equity Awards subject to restrictions on transfer imposed by Teradyne or repurchase rights in favor of Teradyne, as applicable, granted prior to, on, or after the date hereof (but only (I) such Equity Awards as have been granted to Employee by Teradyne as of the date of the Change in Control or (II) such Equity Awards as have been assumed by an acquiring company at the time of a Change in Control or such new cash and equity awards that have been substituted by an acquiring company for Equity Awards existing at the time of a Change in Control, each pursuant to the terms of any Teradyne incentive plan) shall automatically become fully vested, exercisable or free of restrictions on transfer imposed by Teradyne or repurchase rights in favor of Teradyne, as applicable, as of the date of such Termination Event, and all Equity Awards granted on or after the date hereof shall, to the extent applicable, remain exercisable for the remainder of the generally applicable term of such Equity Award.
(c) Satisfaction of Performance Criteria. All of Employees Cash Awards and Equity Awards that are subject to Performance Criteria shall be settled and paid in the following manner:
Employee shall be deemed to have satisfied the necessary percentage of the Performance Criteria to which such Cash Awards and Equity Awards are subject as of the date of the Termination Event, that will provide Employee with the target level of such Cash Awards and Equity Awards; and Employee shall be entitled to receive that portion of each Cash Award and Equity Award payable, at the target level. For purposes of the Cash Awards, the payment shall be multiplied by a fraction, the numerator of which shall be the number of calendar months that have passed during the period in which the Performance Criteria are to be measured (treating the month in which the Termination Event occurs as a full calendar month) and the denominator of which shall be the total number of calendar months in such period. For purposes of this Agreement, target level is that percentage of the Performance Criteria established at the beginning of each calendar year in order for the Employee to achieve Model Compensation. Unless otherwise required under Section 1(e) below, such Cash Awards and Equity Awards shall be paid to Employee or the restrictions on transfer removed not later than 10 days following the Termination Event.
(d) Salary Continuation. Unless otherwise required under Section 1 (e) below, Teradyne shall pay Employee monthly an amount equal to 1/12th of Employees current annual Model Compensation as of the Termination Event for a period of 24 months following the date of the Termination Event (the Salary Continuation Period). In the event a Termination Event constitutes termination for Good Reason on account of a material reduction in Model Compensation, the payment obligation pursuant to this Section 1(d) shall be calculated without giving effect to any such reductions in Model Compensation. All such continued payments shall be made in accordance with Teradynes customary pay practices. Subject to Section 1(e)(i) of this Agreement but notwithstanding any other provision of this Agreement to the contrary, the continued payments to Employee contemplated by this Section 1(d) and any benefits provided to Employee that are subject to Section 409A of the Code shall commence on the 60th day following the Termination Event provided Employee has complied with the requirements of Section 1(g) of this Agreement and the release of claims has become irrevocable under applicable law no later than on the 60th day following his Termination Event.
(e) Deferred Compensation/Section 409A.
(i) Notwithstanding any other provision of this Agreement, if the Employee is a specified employee at the time of the Employees separation from service as defined in Section 409A of the Code , all payments, benefits, or removal of restrictions on the transfer of equity under this Agreement with respect to the Employees separation from service that constitute compensation deferred under a nonqualified deferred compensation plan as defined in Section 409A of the Code to which such specified employee would otherwise be entitled during the first six months following the date of separation from service shall be made on the first day of the seventh month after the date of separation from service (or, if earlier, the date of death of the Employee).
(ii) For purposes of this Agreement, each amount to be paid or benefit to be provided shall be construed as a separate identified payment for purposes of Section 409A, and any payments that are due within the short term deferral period as defined in Section 409A or payments that are made under separation pay plans as described in Treasury Regulation Section 1.409A-1(b)(9)(ii), (iii) or (iv), shall not be treated as deferred compensation unless applicable law
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requires otherwise. Neither Teradyne nor the Employee shall have the right to accelerate or defer the delivery of any payments or benefits under this Agreement except to the extent specifically permitted or required by Section 409A.
(iii) This Agreement is intended to comply with the provisions of Section 409A and the Agreement shall, to the extent practicable, be construed in accordance therewith. Terms defined in the Agreement shall have the meanings given such terms under Section 409A if and to the extent required to comply with Section 409A. In any event, Teradyne makes no representations or warranty and shall have no liability to Employee or any other person if any provisions of or payments under this Agreement are determined to constitute deferred compensation subject to Code Section 409A but not to satisfy the conditions of that section.
(iv) If any amount is payable under the provisions of paragraph (f), below, as a reimbursement of Employees expenses, under the provisions of Section 2 and 13, or any other provision of this Agreement that constitutes a reimbursement of expenses under Section 409A then, notwithstanding the other provisions of this Agreement with respect to the payment of such reimbursement, the following limitations shall apply; (A) the expenses eligible for reimbursement may not affect the expenses eligible for reimbursement in any other taxable year; (B) such reimbursement must be made on or before the last day of the year following the year in which the expenses are incurred; (C) the right to reimbursement is not subject to liquidation or exchange for another benefit; and (D) in connection with reimbursements under Section 13 the period during which such expenses can be incurred extends to the end of the period permitted for such claims under the applicable statute of limitations.
(f) Benefit Continuation. During the Salary Continuation Period, Teradyne shall arrange or provide for continued health, dental and vision insurance plan coverage for the Employee at the same levels of coverage in existence prior to the Termination Event subject to Teradyne and Employee each contributing to the applicable insurance premium payments on the same basis and in the same proportions as in existence at the date of the Termination Event. If the Employee is not eligible for continued health, dental and vision insurance plan coverage for any portion of the twenty-four (24) month period defined herein, Teradyne shall provide or reimburse Employee for comparable individual insurance and, if such provision or reimbursement constitutes taxable income to the Employee, such additional amount as is necessary to place the Employee in substantially the same after tax position as he was while an employee of Teradyne with respect to such insurance plan coverages. All other benefits, including but not limited to flex/vacation time accrual, short and long term disability insurance, life insurance, contributions (including company matches) into savings plan and savings plan plus, profit sharing payments and participation in the Employee stock purchase plan shall cease as of the date of the Termination Event.
To the extent that amounts paid by Teradyne to provide the benefits under this paragraph (f) are deemed to be deferred compensation subject to Section 409A, then such payments shall be made monthly and any payment to preserve the Employees after tax position shall be made within 60 days after the end of each calendar year in which the taxable provision or reimbursement occurs.
(g) Release. Notwithstanding any other provision of this Agreement to the contrary, no payment, benefit or removal of restriction on the transfer of equity provided for under or by
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virtue of the provisions of this Agreement shall be paid or otherwise made available unless Teradyne shall have first received from Employee a valid, binding and irrevocable general release, in the form of Attachment A to this Agreement within twenty-one (21) days of the date of the Termination Event. Employee shall sign such release within twenty-one (21) days of a Termination Event subsequent to a Change in Control. Teradyne agrees to provide Employee an estimate relating to payments to be made under this Agreement upon Employees written request. All rights, benefits, payments and other entitlements contemplated to be provided or paid to Employee under this Agreement shall be forfeited as of the 60th day following Employees Termination Event if Employee has not provided Teradyne with a valid, irrevocable release of claims as of such 60th day.
(h) Certain Definitions. For purposes of this Agreement, the following terms shall have the following meanings:
Cash Awards shall mean any cash-based bonus, cash incentive or other cash awards provided by Teradyne to Employee pursuant to incentive plans that Teradyne maintains, including but not limited to its 2006 Equity and Cash Compensation Incentive Plan.
Cause shall mean conduct involving one or more of the following: (i) the substantial and continuing failure of Employee, after notice thereof, to render services to Teradyne in accordance with the terms or requirements of his or her employment as established by the Teradyne Board of Directors from time to time and communicated to the Employee; (ii) Employees disloyalty, gross negligence, willful misconduct, dishonesty, fraud or breach of fiduciary duty to Teradyne, each in connection with Employees employment by Teradyne; (iii) Employees deliberate disregard of the rules or policies of, or breach of an agreement with, Teradyne which results in direct or indirect material loss, damage or injury to Teradyne; (iv) the intentional unauthorized disclosure by Employee of any trade secret or confidential information of Teradyne; (v) the commission by Employee of an act which constitutes unfair competition with Teradyne; or (vi) the conviction of, or the entry of a plea of guilty or nolo contendere by the Employee, to any crime involving moral turpitude or any felony. In the event that Teradyne determines that Cause may exist pursuant to clauses (i), (iii) and (v) above, Teradyne shall give Employee written notice of the facts constituting such Cause and Employee shall have 30 days following receipt of such notice to remedy such Cause.
A Change in Control shall be deemed to have occurred upon the occurrence of any of the following events: (i) any consolidation, cash tender offer, reorganization, recapitalization, merger or plan of share exchange following which the capital stock of Teradyne outstanding immediately prior to such transaction constitutes less than a majority of the combined voting power of the then-outstanding securities of the combined corporation or person immediately after such transaction; (ii) any sale, lease, exchange or other transfer of all or substantially all of Teradynes assets; (iii) the adoption by the Board of Directors of Teradyne of any plan or proposal for the liquidation or dissolution of Teradyne; (iv) a change in the majority of the Board of Directors of Teradyne through one or more contested elections occurring within a three-year period; or (v) any person (as that term is used in Section 13(d)(3) or Section 14(d)(2) of the Securities Exchange Act of 1934, as amended) becomes beneficial owner of 30% or more of the combined voting power of Teradynes outstanding voting securities, other than (A) as a result of a consolidation, reorganization, recapitalization, merger or plan of share exchange following which the capital stock
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of Teradyne outstanding immediately prior to such transaction constitutes at least a majority of combined voting power of the then-outstanding securities of the combined corporation or person immediately after such transaction, (B) by any trustee or other fiduciary holding securities under an employee benefit plan of Teradyne, or (C) by a person temporarily acquiring beneficial ownership in its capacity as an underwriter (as defined pursuant to Section 2(a)(11) of the Securities Act of 1933, as amended) in connection with a public offering of Teradyne securities.
Equity Awards shall mean the equity ownership, participation or appreciation opportunities provided by Teradyne to Employee pursuant to incentive plans that Teradyne maintains, including but not limited to its 2006 Equity and Cash Compensation Incentive Plan, the Teradyne, Inc. 1991 Employee Stock Option Plan and the Teradyne, Inc. 1997 Employee Stock Option Plan, and any stock options, restricted stock units, restricted stock, stock appreciation rights, phantom stock and other stock-based awards granted thereunder.
Good Reason shall mean any one or more of the following: (i) any material reduction of Employees responsibilities (other than for Cause or as a result of death or disability) as they shall exist on the date of the consummation of the Change in Control; (ii) any material reduction in Employees Model Compensation as in effect on the date of the consummation of the Change in Control, or as the same may be increased from time to time, or any failure by Teradyne to pay to Employee any bonus accrued, but not yet paid, upon written notice by Employee to Teradyne, within 45 days; (iii) a material reduction in the value of Employees benefit package from the value of Employees benefit package on the date of the consummation of the Change in Control; or (iv) a requirement that Employee be based at an office that is greater than 50 miles from the location of Employees office immediately prior to the Change in Control except for required travel on Teradynes business to an extent substantially consistent with the business travel obligations which Employee undertook on behalf of Teradyne prior to the date of the consummation of the Change in Control. In the event of a Termination Event in contemplation of a Change in Control, the applicable baseline measurement date shall be six months prior to such Termination Event and not the date of the consummation of the Change in Control.
Model Compensation shall mean Employees annual Model Compensation as determined by Teradynes Compensation Committee or Board of Directors, which consists of (i) a fixed annual salary and (ii) a target annual variable amount.
Performance Criteria shall have the meaning ascribed to that term in the Teradyne, Inc. 2006 Equity and Cash Compensation Incentive Plan.
Termination Event shall mean (i) any termination of Employee by Teradyne without Cause or (ii) any voluntary termination by Employee for Good Reason; provided, that it shall not be a Termination Event merely because Employee ceases to be employed by Teradyne and becomes employed by a successor to Teradyne involved in the Change in Control that assumes or is otherwise bound by this Agreement as provided in Section 7(a). It is expressly understood that no Termination Event shall be deemed to have occurred merely because, upon the occurrence of a Change in Control, Employee ceases to be employed by Teradyne and does not become employed by a successor to Teradyne after the Change in Control if the successor makes an offer to employ Employee on terms and conditions which, if imposed by Teradyne, would not give Employee a basis on which to terminate employment for Good Reason.
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(i) Termination in Contemplation of a Change in Control. For purposes of this Agreement, including without limitation, this Section 1, a Termination Event occurring in contemplation of a Change in Control means a Termination Event occurring within 3 months prior to an actual Change in Control at the request or direction of a person who enters or has entered into an agreement the consummation of which would cause a Change in Control or who conditions the entry into such an agreement on the Employees termination whether or not such person actually enters into such an agreement. A termination by the Employee for Good Reason shall constitute a Termination Event in contemplation of a Change in Control if the actions constituting Good Reason were taken at the request or direction of a person who has entered into an agreement the consummation of which would cause a Change in Control.
2. Reduction of Payments
(a) Notwithstanding any other provision of this Agreement, in the event that the Company undergoes a Change in Ownership or Control (as defined below), the Company shall not be obligated to provide to the Executive a portion of any Contingent Compensation Payments (as defined below) that the Executive would otherwise be entitled to receive to the extent necessary to eliminate any excess parachute payments (as defined in Section 280G(b)(1) of the Internal Revenue Code of 1986, as amended (the Code)) for the Executive. For purposes of this Section 2, the Contingent Compensation Payments so eliminated shall be referred to as the Eliminated Payments and the aggregate amount (determined in accordance with Treasury Regulation Section 1.280G-1, Q/A-30 or any successor provision) of the Contingent Compensation Payments so eliminated shall be referred to as the Eliminated Amount.
(b) For purposes of this Section 2, the following terms shall have the following respective meanings:
(i) | Change in Ownership or Control shall mean a change in the ownership or effective control of the Company or in the ownership of a substantial portion of the assets of the Company determined in accordance with Section 280G(b)(2) of the Code. |
(ii) | Contingent Compensation Payment shall mean any payment (or benefit) in the nature of compensation that is made or made available (under this Agreement or otherwise) to a disqualified individual (as defined in Section 280G(c) of the Code) and that is contingent (within the meaning of Section 280G (b)(2)(A)(i) of the Code) on a Change in Ownership or Control of the Company. |
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(c) If and to the extent that any Contingent Compensation Payments are required to be treated as Eliminated Payments pursuant to this Section 2, then the Payments shall be reduced or eliminated, as determined by the Company, in the following order (i) any cash payments, (ii) any taxable benefits, (iii) any nontaxable benefits and (iv) any vesting of equity awards, in each case in reverse order beginning with the payments or benefits that are to be paid the farthest in time from the date that triggers the applicability of the excise tax, to the extent necessary to maximize the Eliminated Payments.
3. (a) Non-Solicitation. From the Termination Event through the end of the Salary Continuation Period, Employee shall not directly or indirectly:
(i) | Either alone or in association with others, recruit, solicit, hire or engage as an independent contractor, any person who was employed by Teradyne at any time during the period of Employees employment with Teradyne, except for an individual whose employment with Teradyne has been terminated for a period of six months or longer; and |
(ii) | Either alone or in association with others, solicit, divert or take away, or attempt to divert or to take away, the business or patronage of any client or customer or entity that was a prospective client or customer of Teradyne during the Employees employment. |
(b) If any restriction set forth in this Section 3 is found by any court of competent jurisdiction to be unenforceable because it extends for too long a period of time or over too great a range of activities or in too broad a geographic area, it shall be interpreted to extend only over the maximum period of time, range of activities or geographic area as to which it may be enforceable.
(c) Employee acknowledges that the restrictions contained in this Section 3 are necessary for the protection of the business and goodwill of Teradyne and are considered by Employee to be reasonable for such purpose. Employee agrees that any breach of this Section 3 will cause Teradyne irreparable harm and therefore, in the event of any such breach, in addition to such other remedies that may be available, Teradyne shall have the right to seek equitable and/or injunctive relief.
(d) The geographic scope of this Section 3 shall extend to anywhere Teradyne or any of its subsidiaries is doing business, has done business or has plans to do business.
(e) Employee agrees that during the Salary Continuation Period, he/she will make reasonable good faith efforts to give verbal notice to Teradyne of each new business activity he/she plans to undertake, at least (5) business days prior to beginning any such activity.
(f) If Employee violates the provisions of this Section 3, Teradyne shall be entitled to suspend and recoup any salary continuation payment made per Section 1 (d) above and Employee shall continue to be bound by the restrictions set forth in this Section 3 for an additional period of time equal to the duration of the violation, such additional period not to exceed 24 months.
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3A. No Obligation of Employment. Employee understands that the employment relationship between Employee and Teradyne will be at will and Employee understands that, prior to any Change in Control, Teradyne may terminate Employee with or without Cause at any time, including in contemplation of a Change in Control. Following any Change in Control, Teradyne may also terminate Employee with or without Cause at any time subject to Employees rights and Teradynes obligations specified in this Agreement.
4. Governing Law. This Agreement shall be governed by and construed in accordance with the internal laws of the State of California and this Agreement shall be deemed to be performable in California.
5. Severability. In case any one or more of the provisions contained in this Agreement for any reason shall be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provision of this Agreement and this Agreement shall be construed to the maximum extent permitted by law.
6. Waivers and Modifications. This Agreement may be modified, and the rights, remedies and obligations contained in any provision hereof may be waived, only in accordance with this Section 6. No waiver by either party of any breach by the other or any provision hereof shall be deemed to be a waiver of any later or other breach thereof or as a waiver of any other provision of this Agreement. This Agreement may not be waived, changed, discharged or terminated orally or by any course of dealing between the parties, but only by an instrument in writing signed by the party against whom any waiver, change, discharge or termination is sought.
7. Assignment. (a) Teradyne shall require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business or assets of Teradyne expressly to assume and agree to perform under the terms of this Agreement in the same manner and to the same extent that Teradyne and its affiliates would be required to perform it if no such succession had taken place (provided that such a requirement to perform which arises by operation of law shall be deemed to satisfy the requirements for such an express assumption and agreement), and in such event Teradyne (as constituted prior to such succession) shall have no further obligation under or with respect to this Agreement. Failure of Teradyne to obtain such assumption and agreement with respect to Employee prior to the effectiveness of any such succession shall be a breach of the terms of this Agreement with respect to Employee and shall entitle Employee to compensation from Teradyne (as constituted prior to such succession) in the same amount and on the same terms as Employee would be entitled to hereunder were Employees employment terminated for Good Reason following a Change in Control, except that for purposes of implementing the foregoing, the date on which any such succession becomes effective shall be deemed the date of the Termination Event. As used in this Agreement, Teradyne shall mean Teradyne as hereinbefore defined and any successor to its business or assets as aforesaid which assumes and agrees (or is otherwise required) to perform this Agreement. Nothing in this Section 7(a) shall be deemed to cause any event or condition which would otherwise constitute a Change in Control not to constitute a Change in Control.
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(b) Notwithstanding Section 7(a), Teradyne shall remain liable to Employee upon a Termination Event after a Change in Control if Employee is not offered continuing employment by a successor to Teradyne or is offered continuing employment by a successor to Teradyne only on a basis which would constitute Good Reason for termination of employment hereunder.
(c) This Agreement, and Employees and Teradynes rights and obligations hereunder, may not be assigned by Employee or, except as provided in Section 7(a), Teradyne, respectively; any purported assignment by Employee or Teradyne in violation hereof shall be null and void.
(d) The terms of this Agreement shall inure to the benefit of and be enforceable by the personal or legal representatives, executors, administrators, permitted successors, heirs, distributees, devisees and legatees of Employee. If Employee shall die while an amount would still be payable to Employee hereunder if they had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to Employees devisee, legatee or other designee or, if there is no such designee, Employees estate.
8. Entire Agreement. This Agreement constitutes the entire understanding of the parties relating to the subject matter hereof and supersedes and cancels all agreements, written or oral, made prior to the date hereof between Employee and Teradyne relating to the subject matter hereof; provided, however, that Employees existing Cash Award and Equity Award agreements, as modified hereby, shall remain in effect. This Agreement shall not limit any right of Employee to receive any payments or benefits under an employee benefit or Employee compensation plan of Teradyne, initially adopted as of or after the date hereof, which are expressly contingent thereunder upon the occurrence of a Change in Control (including, but not limited to, the acceleration of any rights or benefits thereunder); provided that in no event shall Employee be entitled to any payment or benefit under this Agreement which duplicates a payment or benefit received or receivable by Employee under any severance or similar plan or policy of Teradyne, and in any such case Employee shall only be entitled to receive the greater of the two payments.
9. Notices. All notices hereunder shall be in writing and shall be delivered in person or mailed by certified or registered mail, return receipt requested, addressed as follows:
If to Teradyne, to: | Teradyne, Inc. | |
600 Riverpark Drive | ||
MS NR600-2-2 (Legal Department) | ||
North Reading, MA 01864 | ||
Attention: General Counsel |
If to Employee, at Employees address in his employment file on record with the Human Resources Department.
10. Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed to be an original, but all of which together shall constitute one and the same instrument.
9
11. Section Headings. The descriptive section headings herein have been inserted for convenience only and shall not be deemed to define, limit, or otherwise affect the construction of any provision hereof.
12. Term. The term of this Agreement (the Term) shall commence upon the Effective Date hereof and terminate upon the earlier of (i) twenty-four (24) months following any Change in Control of Teradyne, (ii) the date prior to any Change in Control of Teradyne that Employee for any reason ceases to be an employee of Teradyne (other than a Termination Event in contemplation of a Change in Control) and (iii) the date following any Change in Control of Teradyne that Employee is terminated for Cause or voluntary terminates his employment (other than for Good Reason).
13. Expenses. All reasonable legal fees and expenses incurred in a legal proceeding by Employee in seeking to obtain or enforce any right or benefit provided by this Agreement against a successor to Teradyne shall be the responsibility of and paid for by the successor to Teradyne (but not Teradyne as constituted prior to such succession). Such payments are to be made within twenty (20) days after Employees request for payment accompanied with such evidence of fees and expenses incurred as Teradynes successor reasonably may require; provided that if Employee institutes a proceeding and the judge or other decision-maker presiding over the proceeding affirmatively finds that Employee has failed to prevail substantially, Employee shall pay Employees own costs and expenses (and, if applicable, return any amounts theretofore paid on Employees behalf under this Section 13).
14. Payments. Any payments hereunder shall be made out of the general assets of Teradyne. The Employee shall have the status of general unsecured creditor of Teradyne, and this Agreement constitutes a mere promise by Teradyne to make payments under this Agreement in the future as and to the extent provided herein. Unless otherwise determined by Teradyne in an applicable plan or arrangement, no amounts payable hereunder upon a Termination Event shall be deemed salary or compensation for the purpose of computing benefits under any employee benefit plan or other arrangement of Teradyne for the benefit of its employees. Teradyne shall be entitled to withhold from any payments or deemed payments any amount of tax withholding required by law.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first above written.
EMPLOYEE | TERADYNE, INC. | |||||||
/s/ Bradford Robbins |
By: | /s/ Charles J. Gray | ||||||
Name: Brad Robbins | Name: | Charles J. Gray | ||||||
Title: | Vice President and General Counsel |
10
Exhibit 10.1
ATTACHMENT A
Release
In consideration of the payments and benefits described in the Executive Officer Change in Control Agreement dated September 1, 2014 between me and Teradyne, Inc. (the Company), all of which I acknowledge I would not otherwise be entitled to receive, I hereby fully, forever, irrevocably and unconditionally release, remise and discharge the Company, its successors and assigns and their respective officers, directors, stockholders, corporate affiliates, subsidiaries, parent companies, agents and employees (each in their individual and corporate capacities) (hereinafter, the Released Parties) from any and all claims, charges, complaints, demands, actions, causes of action, suits, rights, debts, sums of money, costs, accounts, reckonings, covenants, contracts, agreements, promises, doings, omissions, damages, executions, obligations, liabilities, and expenses (including attorneys fees and costs), of every kind and nature which I ever had or now have against the Released Parties arising out of my employment with and/or termination or separation from the Company or relating to my relationship as an officer or in any other capacity for the Company, including, but not limited to, all employment discrimination claims under Title VII of the Civil Rights Act of 1964, 42 U.S.C. §2000e et seq., the Age Discrimination in Employment Act, 29 U.S.C. § 621 et seq., the Americans With Disabilities Act of 1990, 42 U.S.C., §12101 et seq., the Family and Medical Leave Act, 29 U.S.C. § 2601 et seq., and the California Family Rights Act Cal. Govt Code § 12945.2 et seq., as amended; California Fair Employment and Housing Act Cal. Govt Code § 12900 et seq., as amended; California Unruh Civil Rights Act Cal. Civ. Code § 51 et seq., as amended; California Sexual Orientation Bias Law Cal. Lab. Code § 1101 et seq., as amended; Statutory Provisions Regarding the Confidentiality of AIDS Information Cal. Health & Safety Code § 120775 et seq., as amended; California Confidentiality of Medical Information Cal. Civ. Code § 56 et seq., as amended; California Smokers Rights Law Cal. Lab. Code § 96, as amended; California Parental Leave Law Cal. Lab. Code § 230.7 et seq., as amended; California Apprenticeship Program Bias Law Cal. Lab. Code § 3070 et seq., as amended; California Wage Payment Act, as amended, and Cal. Lab. Code, as amended; California Equal Pay Law Cal. Lab. Code § 1197.5 et seq., as amended; California Whistleblower Protection Law Cal. Lab. Code § 1102.5(a) to (c), as amended; California Military Personnel Bias Law Cal. Mil. & Vet. Code § 394 et seq., as amended; Statutory Provision Regarding California Family and Medical Leave Cal. Lab. Code § 233, as amended; California Parental Leave for School Visits Law Cal. Lab. Code § 230.7 et seq., as amended; Statutory Provisions Regarding California Electronic Monitoring of Employees Cal. Lab. Code § 435 et seq., as amended; The California Occupational Safety and Health Act Law Cal. Lab. Code § 6300 et seq., as amended, and any applicable regulations thereunder; California Consumer Reports: Discrimination Law Cal. Civ. Code § 1786.10 et seq., as amended; California Political Activities of Employees Act Cal. Lab. Code § 1101 et seq., as amended; California Domestic Violence Victim Employment Leave Act Cal. Lab. Code § 230.1, as amended; California Voting Leave Law Cal. Elec. Code § 14350 et seq., as amended; California Court Leave Law Cal. Lab. Code § 230, as amended; Los Angeles AIDS-Based Discrimination Ordinance, Los Angeles Municipal Ordinance §45.80 et seq., all as amended; all common law claims including, but not limited to, actions in tort, defamation and breach of contract; all claims to any non-vested ownership interest in the Company, contractual or otherwise, including but not limited to claims to stock or stock options; and any claim or damage arising out of my employment with, termination or separation from the Company (including a claim for retaliation) under any common law theory or any federal, state or local statute or ordinance not expressly referenced above; provided, however, that notwithstanding the foregoing, the Company agrees and hereby acknowledges that this
Release Agreement is not intended to and does not (i) apply to any claims Executive may bring to enforce the terms of the Executive Officer Change in Control Agreement, (ii) release the Company of any obligation it may have pursuant to a written agreement, the Companys articles of organization or bylaws, or as mandated by statute to indemnify me as an officer of the Company; and (iii) release the Company of any obligation to provide and/or pay benefits to me or my estate, conservator or designated beneficiary(ies) under and in accordance with the terms of any applicable Company benefit plan and/or program; provided further, that nothing in this Release Agreement prevents me from filing, cooperating with, or participating in any proceeding before the EEOC or a state Fair Employment Practices Agency (except that I acknowledge that I may not be able to recover any monetary benefits in connection with any such claim, charge or proceeding).
This Agreement does not extend to those rights which as a matter of law cannot be waived. Nor does this Agreement affect any right I may have to receive workers compensation benefits, unemployment benefits pursuant to the California Unemployment Insurance Code or State Disability insurance benefits.
Waiver of California Civil Code section 1542. To effect a full and complete general release as described above, I expressly waive and relinquish all rights and benefits of section 1542 of the Civil Code of the State of California, and I do so understanding and acknowledging the significance and consequence of specifically waiving section 1542. Section 1542 of the Civil Code of the State of California states as follows:
A general release does not extend to claims which the creditor does not know or suspect to exist in his or her favor at the time of executing the release, which if known by him or her must have materially affected his or her settlement with the debtor.
Thus, notwithstanding the provisions of section 1542, and to implement a full and complete release and discharge of the Released Parties, I expressly acknowledge this Agreement is intended to include in its effect, without limitation, all claims I do not know or suspect to exist in my favor at the time of signing this Agreement, and that this Agreement contemplates the extinguishment of any such claim. I warrant that I have read this Agreement, including this waiver of California Civil Code section 1542, and that I have consulted counsel about this Agreement and specifically about the waiver of section 1542, and that I understand this Agreement and the section 1542 waiver, and so I freely and knowingly enter into this Agreement. I acknowledge that I may later discover facts different from or in addition to those I now know or believe to be true regarding the matters released or described in this Agreement, and even so I agree that the releases and agreements contained in this Agreement shall remain effective in all respects notwithstanding any later discovery of any different or additional facts. I assume any and all risk of any mistake in connection with the true facts involved in the matters, disputes, or controversies released or described in this Agreement or with regard to any facts now unknown to me relating thereto.
Waiver of Rights and Claims Under the Age Discrimination in Employment Act of 1967: Since I am 40 years of age or older, I have been informed that I have or may have specific rights and/or claims under the Age Discrimination in Employment Act of 1967 (ADEA) and I agree that:
2
in consideration for the payments and benefits described in the Executive Officer Change in Control Agreement, which I am not otherwise entitled to receive, I specifically and voluntarily waive such rights and/or claims under the ADEA I might have against the Released Parties to the extent such rights and/or claims arose prior to the date this Release Agreement was executed;
I understand that rights or claims under the ADEA which may arise after the date this Release Agreement is executed are not waived by me;
I was advised that I have at least 21 days within which to consider the terms of this Release Agreement and to consult with or seek advice from an attorney of my choice or any other person of your choosing prior to executing this Release Agreement;
I have carefully read and fully understand all of the provisions of this Release Agreement, and I knowingly and voluntarily agree to all of the terms set forth in this Release Agreement; and in entering into this Release Agreement I am not relying on any representation, promise or inducement made by the Company or its attorneys with the exception of those promises described in this document.
Period for Review and Consideration of Agreement:
I acknowledge that I was informed and understand that I have twenty-one (21) days to review this Release Agreement and consider its terms before signing it.
The 21-day review period will not be affected or extended by any revisions, whether material or immaterial, that might be made to this Agreement.
Accord and Satisfaction: The amounts set forth in the Executive Officer Change in Control Agreement shall be complete and unconditional payment, settlement, accord and/or satisfaction with respect to all obligations and liabilities of the Released Parties to me, including, without limitation, all claims for back wages, salary, vacation pay, draws, incentive pay, bonuses, cash awards, equity awards, commissions, severance pay, reimbursement of expenses, any and all other forms of compensation or benefits, attorneys fees, or other costs or sums.
Revocation Period: I may revoke this Release Agreement at any time during the seven-day period immediately following my execution hereof. As a result, this Release Agreement shall not become effective or enforceable and the Company shall have no obligation to make any payments or provide any benefits described herein until the seven-day revocation period has expired.
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Name: Brad Robbins | Date | |||
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Witness | Date |
3
IF YOU DO NOT WISH TO USE THE 21-DAY PERIOD,
PLEASE CAREFULLY REVIEW AND SIGN THIS DOCUMENT
I, Brad Robbins, acknowledge that I was informed and understand that I have 21 days within which to consider the attached Release Agreement, have been advised of my right to consult with an attorney regarding such Agreement and have considered carefully every provision of the Agreement, and that after having engaged in those actions, I prefer to and have requested that I enter into the Agreement prior to the expiration of the 21 day period.
Dated: |
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| ||||||
Name: Brad Robbins | ||||||||
Dated: |
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Witness |
4
Exhibit 10.2
EMPLOYMENT AGREEMENT
I acknowledge that I have carefully read this Agreement and understand and agree to all the provisions in this Agreement.
The parties hereto agree that the effective date of this Agreement shall be September 1, 2014. |
Employee Signature: | /s/ Bradford Robbins |
LitePoint Signature: | /s/ Charles J. Gray |
Exhibit 31.1
CERTIFICATIONS
I, Mark E. Jagiela, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Teradyne, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and
5. The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent function):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting.
Date: November 7, 2014
By: | /S/ MARK E. JAGIELA | |
Mark E. Jagiela Chief Executive Officer |
Exhibit 31.2
CERTIFICATIONS
I, Gregory R. Beecher, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Teradyne, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and
5. The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent function):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting.
Date: November 7, 2014
By: | /S/ GREGORY R. BEECHER | |
Gregory R. Beecher Chief Financial Officer |
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Teradyne, Inc. (the Company) on Form 10-Q for the period ending September 28, 2014 as filed with the Securities and Exchange Commission on the date hereof (the Report), I, Mark E. Jagiela, Chief Executive Officer of the Company, certify pursuant to 18 U.S.C (S) 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of the dates and for the periods expressed in the Report.
/S/ MARK E. JAGIELA |
Mark E. Jagiela Chief Executive Officer November 7, 2014 |
Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Teradyne, Inc. (the Company) on Form 10-Q for the period ending September 28, 2014 as filed with the Securities and Exchange Commission on the date hereof (the Report), I, Gregory R. Beecher, Chief Financial Officer of the Company, certify pursuant to 18 U.S.C (S) 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of the dates and for the periods expressed in the Report.
/S/ GREGORY R. BEECHER |
Gregory R. Beecher Chief Financial Officer November 7, 2014 |
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Segment Information (Tables)
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Sep. 28, 2014
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Segment Information | Segment information is as follows:
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Semiconductor Test
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Schedule of Segment Reporting Information by Segment Charges | Included in the Semiconductor Test segment are charges for the following:
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Wireless Test
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Schedule of Segment Reporting Information by Segment Charges | Included in the Wireless Test segment are charges for the following:
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System Test
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Schedule of Segment Reporting Information by Segment Charges | Included in the System Test segment are charges for the following:
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Corporate And Eliminations
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Schedule of Segment Reporting Information by Segment Charges | Included in Corporate and Eliminations are credits for the following:
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Deferred Revenue and Customer Advances (Detail) (USD $)
In Thousands, unless otherwise specified |
Sep. 28, 2014
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Jun. 29, 2014
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Dec. 31, 2013
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Sep. 29, 2013
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Jun. 30, 2013
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Dec. 31, 2012
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Deferred Revenue Arrangement | ||||||
Extended warranty | $ 43,497 | $ 40,052 | $ 34,909 | $ 36,320 | $ 34,854 | $ 26,987 |
Equipment maintenance and training | 27,703 | 22,455 | ||||
Customer advances | 5,041 | 4,825 | ||||
Undelivered elements | 7,185 | 6,971 | ||||
Total deferred revenue and customer advances | $ 83,426 | $ 69,160 |
Contractual Maturities of Investments Held (Detail) (USD $)
In Thousands, unless otherwise specified |
Sep. 28, 2014
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Schedule of Available-for-sale Securities | |
Due within one year, cost | $ 594,500 |
Due after 1 year through 5 years, cost | 330,340 |
Due after 5 years through 10 years, cost | 5,772 |
Due after 10 years, cost | 25,032 |
Total, cost | 955,644 |
Due within one year, fair value | 594,801 |
Due after 1 year through 5 years, fair value | 330,412 |
Due after 5 years through 10 years, fair value | 5,859 |
Due after 10 years, fair value | 26,438 |
Total, fair value | $ 957,510 |
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