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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 1-6462
-----------------------------
TERADYNE, INC.
(Exact name of registrant as specified in its charter)
MASSACHUSETTS 04-2272148
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
321 HARRISON AVENUE, BOSTON, MASSACHUSETTS 02118
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (617) 482-2700
------------------------
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
------------------- -----------------------------------------
Common Stock, par value $0.125 per share New York Stock Exchange
Common Stock Purchase Rights New York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to the
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or in any
amendment to this Form 10-K. [ ]
The aggregate market value of the voting stock held by nonaffiliates of the
registrant as of February 25, 2001 was $6.2 billion based upon the composite
closing price of the registrant's Common Stock on the New York Stock Exchange on
that date.
The number of shares outstanding of the registrant's only class of Common
Stock as of February 25, 2001 was 173,888,278 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's proxy statement in connection with its 2001
annual meeting of shareholders are incorporated by reference into Part III.
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TERADYNE, INC.
FORM 10-K
PART I
ITEM 1: BUSINESS
Teradyne, Inc. is a leading manufacturer of automatic test equipment
("ATE") and related software for the electronics and communications industries.
Products include systems to test and inspect:
- semiconductors ("semiconductor test systems");
- circuit-boards ("circuit-board test and inspection systems");
- high speed voice and data communication ("broadband test systems");
and
- software ("software test systems").
On December 29, 2000, Teradyne sold a controlling interest in its software
test business to an investor group led by Matrix Partners of Waltham,
Massachusetts. Teradyne retains a minority ownership in the new company called
Empirix. Software test systems activity is reflected in Teradyne's results for
all periods presented. See "Note D: Acquisitions and Divestitures" in Notes to
Consolidated Financial Statements for further information.
Teradyne is also a leading manufacturer of backplanes and associated
connectors used in electronic systems ("connection systems"). Circuit-board test
and inspection systems, broadband test systems, and software test systems have
been combined into "other test and inspection systems" for purposes of reporting
Teradyne's operating segments. For financial information concerning these
operating segments, see "Note O: Operating Segment and Geographic Information"
in Notes to Consolidated Financial Statements.
Statements in this Annual Report on Form 10-K which are not historical
facts, so called "forward looking statements," are made pursuant to the safe
harbor provisions of the Private Securities Litigation Reform Act of 1995.
Investors are cautioned that all forward looking statements involve risks and
uncertainties, including those detailed in Teradyne's filings with the
Securities and Exchange Commission. See also "Item 7: Management's Discussion
and Analysis of Financial Condition and Results of Operations--Certain Factors
That May Affect Future Results."
PRODUCTS
Semiconductor test systems produced by Teradyne are used by electronic
component manufacturers in the design and testing of a wide variety of
semiconductor products, including logic, memory, mixed signal, and "system on a
chip" integrated circuits. Semiconductor test systems are sold to semiconductor
manufacturers and subcontractors to the semiconductor industry. Semiconductor
manufacturers use Teradyne's semiconductor test systems to:
- measure product performance;
- improve product quality;
- shorten time to market;
- enhance manufacturability;
- minimize labor costs; and
- increase production yields.
Connection systems provides backplane assemblies, connectors and
electro-mechanical systems integration for customers in the telecom, data
networking, storage, server, and aerospace/defense industries. A backplane is an
assembly into which printed circuit boards are inserted that provides for the
interconnection of electrical signals between the circuit boards and the other
elements of the system. Connection systems provides both a technology advantage
and the benefits of vertical integration to its customers. Connection systems
product technology can be found in diverse products such as Internet routers,
computer servers, mass data storage, telecom switches and aerospace.
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Circuit-board test and inspection systems are used by electronic equipment
manufacturers for the design, inspection, and testing of circuit boards and
other assemblies. Circuit-board test and inspection systems are also sold to
customers across most sectors of the electronics industry and to companies in
other industries that use electronic devices in high volume. Similar to
semiconductor test systems, circuit-board test and inspection systems customers
use their test and inspection systems and related software to increase product
performance, to improve product quality, to shorten time to market, to enhance
manufacturability, to minimize labor costs, and to increase production yields.
Broadband test systems are used by the communications industry for Internet
testing, customer care and voice network maintenance. Broadband test systems
perform qualification testing for Digital Subscriber Line (DSL) services, assist
customer care centers in isolating network service problems, and perform
integrated surveillance and maintenance for voice networks.
Software test systems, divested in December 2000 as previously noted, are
used by a number of industries to test communications networks, computerized
telecommunication systems, and web based applications.
Teradyne's product lines accounted for the following percentage of
consolidated net sales for each of last three years:
% OF CONSOLIDATED NET SALES
----------------------------
2000 1999 1998
---- ---- ----
Semiconductor test systems............................ 67% 68% 65%
Connection systems.................................... 24 21 18
Circuit-board test and inspection systems............. 5 6 10
Broadband test systems................................ 1 2 5
Software test systems................................. 3 3 2
--- --- ---
Total............................................ 100% 100% 100%
SALES AND DISTRIBUTION
Teradyne's systems are complex and require extensive support both by the
customer and Teradyne. Prices for Teradyne's systems can reach $4 million or
more. In 2000, no single customer accounted for more than 10% of consolidated
net sales. In 2000, Teradyne's three largest customers accounted for 21% of
consolidated net sales.
We have sales and service offices throughout North America, South East
Asia, Europe, Taiwan, Japan, and Korea as Teradyne's customers outside the
United States are located primarily in those geographic areas. Teradyne sells in
these areas predominantly utilizing a direct sales force. Substantially all of
our manufacturing activities are conducted in the United States. Sales to
customers outside the United States accounted for 54% of consolidated net sales
in 2000, 52% in 1999, and 46% in 1998.
Teradyne is subject to the inherent risks involved in international trade,
such as:
- political and economic instability;
- restrictive trade policies;
- controls on funds transfer;
- currency fluctuations;
- difficulties in managing distributors;
- potentially adverse tax consequences; and
- the possibility of difficulty in accounts receivable collection.
Teradyne attempts to reduce the effects of currency fluctuations by hedging
part of its exposed position and by conducting some of its international
transactions in U.S. dollars or dollar equivalents. See also "Item 7A.
Quantitative and Qualitative Disclosures About Market Risks."
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COMPETITION
We face substantial competition, throughout the world, in each of our
operating segments. Some of these competitors have substantial financial and
other resources to pursue engineering, manufacturing, marketing and distribution
of their products. We also face competition from internal suppliers at several
of our customers. Some of our competitors have introduced or announced new
products with certain performance characteristics which may be considered equal
or superior to those we currently offer. We expect our competitors to continue
to improve the performance of their current products and to introduce new
products or new technologies that provide improved cost of ownership and
performance characteristics. New product introductions by competitors could
cause a decline in sales or loss of market acceptance of our products. Moreover,
increased competitive pressure could lead to intensified price based
competition, which could materially adversely affect our business, financial
condition and results of operations.
BACKLOG
At December 31, 2000 and 1999, Teradyne's backlog of unfilled orders was as
follows:
(IN MILLIONS)
----------------------
2000 1999
---- ----
Semiconductor test systems........................ $ 742.1 $700.0
Connection systems................................ 534.4 175.4
Other test and inspection systems................. 105.6 104.1
-------- ------
$1,382.1 $979.5
Of the backlog at December 31, 2000, approximately 98% of the semiconductor
test systems backlog, 100% of the connection systems backlog and approximately
83% of the other test and inspection systems backlog are expected to be
delivered in 2001. Teradyne's experience indicates that a portion of orders
included in the backlog may be canceled or rescheduled. We have recently
experienced the rescheduling of delivery dates by some of our customers, and
thus the timing of the delivery of a significant portion of the backlog is
uncertain. There are no seasonal factors related to the backlog.
RAW MATERIALS
Our products require a wide variety of electronic and mechanical
components. Teradyne can experience occasional delays in obtaining timely
delivery of certain items. Additionally, we could experience a temporary adverse
impact if any of our sole source suppliers ceased to deliver products. Any
prolonged inability to obtain adequate yields or deliveries, or any other
circumstances that would require us to seek alternative sources of supply could
have a material adverse effect on our business, financial condition, and results
of operations.
PATENTS AND LICENSES
The development of products by Teradyne, both hardware and software, is
largely based on proprietary information. We protect our rights in proprietary
information through various methods such as:
- copyrights;
- trademarks;
- patents and patent applications;
- software license agreements; and
- employee agreements.
Any invalidation of Teradyne's intellectual property rights could have a
material adverse effect on our business.
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EMPLOYEES
As of December 31, 2000 we employed approximately 10,200 people. Since the
inception of Teradyne's business, there have been no work stoppages or other
labor disturbances. Teradyne has no collective bargaining contracts.
ENGINEERING AND DEVELOPMENT ACTIVITIES
The highly technical nature of Teradyne's products requires a large and
continuing engineering and development effort. Engineering and development
expenditures for new and improved products were approximately $300.9 million in
2000, $228.6 million in 1999, and $195.2 million in 1998. These expenditures
amounted to approximately 10% of consolidated net sales in 2000 and 13% in 1999
and 1998.
ENVIRONMENTAL AFFAIRS
Teradyne's manufacturing facilities are subject to numerous laws and
regulations designed to protect the environment, particularly from manufacturing
plant wastes and emissions. These laws include:
- The Comprehensive Environmental Response, Compensation, and Liability
Act;
- The Superfund Amendment and Reauthorization Act of 1986;
- The Occupational Safety and Health Act;
- The Clean Air Act;
- The Clean Water Act;
- The Resource Conservation and Recovery Act of 1976; and
- The Hazardous and Solid Waste Amendments of 1984.
In the opinion of management, the costs associated with complying with these
laws and regulations have not had and are currently not expected to have a
material effect upon the financial position of Teradyne.
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EXECUTIVE OFFICERS OF THE COMPANY
The following table sets forth the names of all executive officers of
Teradyne and certain other information relating to their positions held with
Teradyne and other business experience. Executive officers of Teradyne do not
have a specific term of office but rather serve at the discretion of the Board
of Directors.
EXECUTIVE OFFICER AGE POSITION BUSINESS EXPERIENCE FOR THE PAST 5 YEARS
----------------- --- -------- ----------------------------------------
George W. Chamillard... 62 President, Chairman Chairman of the Board since 2000; President and
of the Board, and Chief Executive Officer of Teradyne since 1997;
Chief Executive Director of Teradyne since 1996; President and
Officer Chief Operating Officer of Teradyne from 1996 to
1997; Executive Vice President of Teradyne from
1994 to 1996.
Michael A. Bradley..... 52 Vice President and Chief Financial Officer of Teradyne since 1999;
Chief Financial Vice President of Teradyne since 1992.
Officer
Edward Rogas, Jr....... 60 Senior Vice President Senior Vice President of Teradyne since 2000;
Vice President of Teradyne from 1984 to 1999.
David L. Sulman........ 57 Senior Vice President Senior Vice President of Teradyne since 2000;
Vice President of Teradyne from 1994 to 1999.
Thomas S. Grilk........ 53 Vice President and Vice President of General Counsel Teradyne since
General Counsel 2000; Previously VP of Government Affairs and
Assistant General Counsel at Compaq Computer
Corp and Digital Equipment Corp from 1994 to
2000.
John M. Casey.......... 52 Vice President Vice President of Teradyne since 1990.
Ronald J. Dias......... 57 Vice President Vice President of Teradyne since 1988.
Donald J. Hamman....... 49 Vice President Vice President of Teradyne beginning in 2001;
and Controller Controller of Teradyne since 1994.
Stuart M. Osattin...... 55 Vice President and Vice President and Treasurer of Teradyne since
Treasurer 1994.
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ITEM 2: PROPERTIES
Teradyne's executive offices are in Boston, Massachusetts. Manufacturing
and other operations are carried on in several locations. The following table
provides certain information as to Teradyne's principal general offices and
manufacturing facilities.
APPROXIMATE
PROPERTY SQUARE FEET OF
LOCATION OPERATING SEGMENT INTEREST FLOOR SPACE
-------- ----------------- -------- --------------
Boston, Massachusetts........... Semiconductor Test & General Offices Own 492,000
Agoura Hills, California........ Semiconductor Test Own 572,000
Nashua, New Hampshire........... Connection Systems Own 569,000
North Reading, Massachusetts.... Semiconductor Test & Circuit Board Test Own 273,000
and Inspection
San Diego, California........... Connection Systems Own 192,000
Hudson, New Hampshire........... Connection Systems Lease 144,000
San Jose, California............ Semiconductor Test Own 120,000
Nashua, New Hampshire........... Connection Systems Lease 107,400
La Verne, California............ Connection Systems Own 93,000
Walnut Creek, California........ Circuit Board Test and Inspection Lease 69,000
Kumamoto, Japan................. Semiconductor Test Own 66,000
Deerfield, Illinois............. Broadband Test Own 63,000
Plano, Texas.................... Connection Systems Lease 50,000
Dublin, Ireland................. Connection Systems Lease 46,000
Fremont, California............. Connection Systems Lease 46,000
Teradyne currently owns an additional 425,000 square feet in North Reading,
Massachusetts, leases approximately 205,000 square feet in Woburn,
Massachusetts, and owns approximately 120,000 square feet in Stoughton,
Massachusetts. This space is unoccupied and therefore available for future
expansion.
ITEM 3: LEGAL PROCEEDINGS
Teradyne is subject to legal proceedings and claims which arise in the
ordinary course of business. Management does not believe these actions will have
a material affect on the financial position or results of operations of
Teradyne.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
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PART II
ITEM 5: MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
The following table shows the market range for Teradyne's Common Stock
based on reported sale prices on the New York Stock Exchange.
PERIOD HIGH LOW
------ ---- ---
2000 First Quarter........................................... $ 94 15/16 $54 7/8
Second Quarter.......................................... 115 7/16 65
Third Quarter........................................... 81 34 15/16
Fourth Quarter.......................................... 41 5/8 23
1999 First Quarter........................................... $ 32 1/2 $21 1/8
Second Quarter.......................................... 36 23 3/8
Third Quarter........................................... 41 7/8 32
Fourth Quarter.......................................... 66 29 1/2
The number of record holders of Teradyne's Common Stock at February 25,
2001 was 2,406.
Teradyne has never paid cash dividends because it has been its policy to
use earnings to finance expansion and growth. Payment of future cash dividends
will rest within the discretion of the Board of Directors and will depend, among
other things, upon Teradyne's earnings, capital requirements, and financial
condition. Teradyne presently expects to retain all of its earnings for use in
the business.
ITEM 6: SELECTED FINANCIAL DATA
YEARS ENDED DECEMBER 31,*
--------------------------------------------------------------
2000 1999 1998 1997 1996
---------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Net sales............................ $3,043,946 $1,790,912 $1,489,151 $1,266,274 $1,171,615
========== ========== ========== ========== ==========
Income before cumulative effect of
change in accounting principle..... $ 517,754 $ 191,694 $ 102,117 $ 127,608 $ 93,574
========== ========== ========== ========== ==========
Income before cumulative effect of
change in accounting principle per
common share -- basic.............. $ 2.99 $ 1.12 $ 0.61 $ 0.76 $ 0.56
========== ========== ========== ========== ==========
Income before cumulative effect of
change in accounting principle per
common share -- diluted............ $ 2.86 $ 1.07 $ 0.59 $ 0.74 $ 0.55
========== ========== ========== ========== ==========
Total assets......................... $2,355,868 $1,568,213 $1,312,814 $1,251,674 $1,096,816
========== ========== ========== ========== ==========
Long-term obligations................ $ 8,352 $ 8,948 $ 13,200 $ 13,141 $ 15,650
========== ========== ========== ========== ==========
- ---------------
* Note: Pro forma amounts for the periods beginning before January 1, 2000 have
not been presented as the effect of the change in accounting principle could
not be reasonably determined. See "Note C: Change in Accounting Principle" in
Notes to Consolidated Financial Statements for further information.
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ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" (SAB
101). SAB 101 summarizes certain areas of the Staff's views in applying
generally accepted accounting principles to revenue recognition in financial
statements. Historically, Teradyne recognized revenue from the sales of products
upon shipment, provided that risk of loss had passed to the customer, and
accrued for the costs of installation. Under the new accounting method adopted
retroactive to January 1, 2000, Teradyne recognizes revenue from the sales of
products when both title and risk of loss pass to the customer. Teradyne also
defers the greater of the fair value or the contractual holdback of any
undelivered elements, such as installation services, until the undelivered
elements are delivered. Teradyne previously accounted for contractual acceptance
terms based upon probable achievement of meeting the acceptance criteria.
Teradyne now accounts for acceptance terms based upon whether such contractual
acceptance criteria is objectively demonstrated prior to shipment. During the
fourth quarter of 2000, Teradyne implemented the SEC's SAB 101 guidelines,
retroactive to the beginning of the year. This was reported as a cumulative
effect of a change in accounting principle as of January 1, 2000. The net impact
for fiscal year 2000 of the adoption of SAB 101 on sales, including the amounts
deferred at December 31, 2000 which previously would have been recognized prior
to SAB 101, was not material. The results for the first three quarters of fiscal
year ending December 31, 2000 have been restated in accordance with SAB 101. Pro
forma amounts for the periods beginning before January 1, 2000 have not been
presented as the effect of the change in accounting principle could not be
reasonably determined.
SELECTED RELATIONSHIPS WITHIN THE CONSOLIDATED
STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31,
--------------------------------------
2000 1999 1998
---------- ---------- ----------
(DOLLARS IN THOUSANDS)
Net sales.............................................. $3,043,946 $1,790,912 $1,489,151
========== ========== ==========
Income before cumulative effect of change in accounting
principle............................................ $ 517,754 $ 191,694 $ 102,117
========== ========== ==========
Increase in net sales from preceding year:
Amount............................................ $1,253,034 $ 301,761 $ 222,877
========== ========== ==========
Percentage........................................ 70% 20% 18%
========== ========== ==========
Increase (decrease) in income from preceding year...... $ 326,060 $ 89,577 $ (25,491)
========== ========== ==========
Percentage of net sales:
Net sales......................................... 100% 100% 100%
Expenses:
Cost of sales................................ 55 59 64
Engineering and development.................. 10 13 13
Selling and administrative................... 12 14 14
---------- ---------- ----------
77 85 91
Net interest and other income.......................... 1 1 1
---------- ---------- ----------
Income before income taxes and cumulative effect of
change in accounting principle....................... 24 15 10
Provision for income taxes............................. 7 4 3
---------- ---------- ----------
Income before cumulative effect of change in accounting
principle............................................ 17 11 7
Cumulative effect of change in accounting principle.... 2 -- --
---------- ---------- ----------
Net income............................................. 15% 11% 7%
========== ========== ==========
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RESULTS OF OPERATIONS:
2000 compared to 1999
Sales increased 70% in 2000 to a record $3,043.9 million from $1,790.9
million in 1999. Semiconductor test systems shipments increased by 69% due to
increased sales to semiconductor manufacturers and subcontractors as these
customers increased capacity to meet their customer's requirements. Sales of
connection systems to unaffiliated customers grew 97% as a result of significant
growth in demand from networking, data storage, and other high technology
customers. Other test and inspection systems sales increased 28% from 1999 with
increases in circuit-board test and inspection systems of 19%, broadband test
systems of 10%, and software test systems of 64%. Due to the sale of a majority
interest in the software test business in December 2000, software test systems
revenue will not be reflected on an on-going basis.
As described in "Item 7: Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Certain Factors That May Affect Future
Results," our business is impacted by the slowdown in economies worldwide. We
are further affected by the cyclical nature of the electronics and semiconductor
industry with recurring periods of over supply. These factors have resulted in a
downturn in the demand for our products. Teradyne does not have visibility as to
the length or severity of the downturn. During this period we expect a decline
in orders and are anticipating a reduction in sales from the fourth quarter 2000
level. Consequently, Teradyne is taking appropriate actions to bring expenses in
line with the economic conditions.
Income before income taxes and cumulative effect of change in accounting
principle increased $465.8 million from $273.8 million in 1999 to $739.6 million
in 2000. Semiconductor test systems, connection systems, and other test and
inspection systems income before income taxes increased $387.4 million, $91.8
million, and $16.5 million, respectively in 2000 due to increased sales in each
group.
Incoming orders increased 52% from $2,190.6 million in 1999 to a record
$3,320.9 million in 2000. Orders increased in all operating segments and were
led by a 159% increase in connection systems orders. Semiconductor test systems
orders increased 24%. Broadband test systems orders increased 77% and circuit-
board test and inspection systems and software test systems increased 26% and
70%, respectively. Teradyne's backlog increased 41% to a record $1,382.1
million.
Costs of sales as a percentage of sales decreased from 59% of sales in 1999
to 55% of sales in 2000. The decrease in cost of sales was primarily due to the
increased utilization of Teradyne's manufacturing overhead as sales volume
increased while certain components of cost of sales remained fixed.
Engineering and development expenses decreased from 13% of sales in 1999 to
10% of sales in 2000, even though spending increased $72.4 million. The increase
in spending was primarily due to new product development expenses in
semiconductor test systems, and, to a lesser extent, increased expenses related
to product development in connection systems, circuit-board test and inspection
systems, and software test systems.
Selling and administrative expenses as a percentage of sales decreased from
14% in 1999 to 12% in 2000. Spending increased by $106.2 million year over year
in support of increased semiconductor test systems, connection systems, and
software test systems sales.
Interest and other income increased $13.4 million to $30.7 million in 2000
compared to 1999. Interest income increased due to an increase in Teradyne's
average invested balances and higher interest rates. Included in interest and
other income is a gain relating to the divestiture of the software test
business. Expenses related to the divestiture are included in selling and
administrative expense. These elements offset and the transaction results in an
immaterial impact to the financial statements.
Teradyne's effective tax rate was 30% in 2000 and 1999. Teradyne continued
to utilize export sales corporation benefits and other tax benefits to operate
below the U.S. statutory rate of 35%.
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1999 compared to 1998
Sales increased 20% in 1999 to $1,790.9 million from $1,489.2 million in
1998. Semiconductor test systems shipments increased by 25% due to increased
orders resulting from capacity expansion at semiconductor manufacturers and
subcontractors. Sales of connection systems to unaffiliated customers grew 39%
as a result of continued growth in demand from networking, data storage, and
other high technology customers. Other test and inspection systems sales were
down 18% from 1998 with decreases in broadband test systems of 45% and
circuit-board test and inspection systems of 20%. These decreases were a result
of telecommunication customers reducing investment in traditional voice testing
technology and circuit-board test and inspection systems customers seeking lower
cost solutions and/or new solutions to test increasingly complex circuit-
boards. Other test and inspection systems sales decreases were offset slightly
by an increase of 42% in sales of software test systems to customers within the
telecommunication and web-based application development markets.
Net income grew $89.6 million to $191.7 million in 1999 from $102.1 million
in 1998. Income before income taxes increased $127.9 million from $145.9 million
in 1998 to $273.8 million in 1999. Semiconductor test systems and connection
systems income before income taxes increased $183.4 million and $29.2 million,
respectively in 1999 due to increased sales. Other test and inspection systems
income before income taxes decreased $46.5 million in 1999 resulting in a loss
before income taxes of $14.3 million in 1999. This decrease in income before
income taxes was due to decreased sales coupled with Teradyne maintaining its
engineering and development of new products.
Incoming orders increased 82% from $1,206.5 million in 1998 to a record
$2,190.6 million in 1999. Orders increased in nearly all operating segments and
were led by a 130% increase in semiconductor test systems orders. Connection
systems and software test systems orders both increased 34% and circuit-board
test and inspection systems orders increased by a modest 4%. Orders for
broadband test systems decreased 59% in 1999. As a result of record bookings,
Teradyne's backlog increased 69% to a record $979.5 million.
Costs of sales as a percentage of sales decreased from 64% of sales in 1998
to 59% of sales in 1999. Included in cost of sales in 1998 was a $23.0 million
charge for excess inventory. The charge resulted from the drop in demand for
semiconductor test systems products. Excluding this charge, cost of sales
decreased from 62% to 59%. The decrease in cost of sales was primarily due to
the increased utilization of Teradyne's manufacturing overhead as sales volume
increased while certain components of cost of sales remained fixed.
Engineering and development expenses were 13% of sales in both 1999 and
1998 representing a year over year increase of $33.4 million. The increase was
primarily due to new product development expenses in semiconductor test systems
although there were increased expenses related to product development in each of
Teradyne's operating segments.
Selling and administrative expenses were 14% of sales in both 1999 and 1998
representing a year over year increase of $43.5 million. The increase was due to
higher compensation related expenses and spending in support of increased
semiconductor test systems.
Interest income increased $3.8 million to $17.3 million in 1999 compared to
1998 due to an increase in Teradyne's average invested balances.
Teradyne's effective tax rate was 30% in 1999 and 1998. Teradyne utilized
export sales corporation benefits and certain research and development tax
credits to operate below the U.S. statutory rate of 35%.
LIQUIDITY AND CAPITAL RESOURCES
Teradyne's cash, cash equivalents and marketable securities balance
increased $77.0 million in 2000, to $464.4 million. Teradyne has generated cash
from operating activities in each of the last three years and has used that cash
to fund operations. Net income, adjusted to exclude the effects of non-cash
items, provided cash of $500.2 million in 2000, $278.3 million in 1999, and
$186.0 million 1998. Accounts receivable increased 38% in 2000 primarily as a
result of increased shipment volume in the fourth quarter of 2000 compared to
the fourth quarter of 1999. Inventories increased 88% in 2000 to support
Teradyne's backlog commitment. These
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increases were partially offset by an increase of 67% in accounts payable and
other accruals. In total, other than those assets and liabilities resulting from
investing and financing activities the cash effect of changes in operating
assets and liabilities was: a $29.4 million use in 2000; a $89.1 million source
in 1999; and a $52.6 million source in 1998.
Teradyne used $312.3 million of cash for investing activities in 2000,
$244.8 million in 1999, and $101.6 million in 1998. Investing activities consist
of purchases, sales, and maturities of marketable securities and purchases of
capital assets to support long-term growth. Capital expenditures increased by
$147.0 million in 2000 compared with 1999 primarily in semiconductor test
systems and connection systems segments. This was due to capacity expansion in
land, buildings and improvements, and machinery and equipment. Capital
expenditures were $298.2 million in 2000, $151.2 million in 1999, and $164.4
million in 1998.
Teradyne used $97.5 million of cash for financing activities in 2000,
$126.8 million in 1999, and $26.2 million in 1998. Financing activities include
sales and repurchases of Teradyne's common stock, as well as repayments of debt.
During 2000, 1999, and 1998 net common stock activity used $92.2 million, $125.5
million, and $24.6 million of cash, respectively. Since 1996, Teradyne has used
$540.8 million of cash to repurchase 20.0 million shares of its common stock on
the open market.
Teradyne's available revolving credit line of $120.0 million expired on
January 31, 2001. At expiration of the revolver, any amounts outstanding are
converted into a two year term note. As of December 31, 2000 and 1999, no
amounts were outstanding under this agreement. The revolving credit line was not
renewed in 2001. Teradyne believes its cash, cash equivalents, and marketable
securities balance of $464.4 million, together with other sources of funds,
including cash flow generated from operations, will be sufficient to meet
working capital and capital expenditure requirements for the foreseeable future.
Inflation has not had a significant long-term impact on earnings.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1999, the Financial Accounting Standards Board issued SFAS No. 137,
"Accounting for Derivative Instruments and Hedging Activities -- Deferral of the
Effective Date of FASB Statement No. 133." SFAS No. 137 amends SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities" which was issued
in June 1998 and was to be effective for all fiscal quarters of fiscal years
beginning after June 15, 1999. SFAS No. 137 defers the effective date of SFAS
No. 133 to the first quarter of all fiscal years beginning after June 15, 2000.
Teradyne will implement SFAS No. 133, as amended in 2001 and does not expect any
material impact on its financial position or results of operations.
ITEM 7A: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject Teradyne to concentrations
of credit risk consist principally of cash investments, forward currency
contracts, and accounts receivable. Teradyne maintains cash investments
primarily in U.S. Treasury and government agency securities and corporate debt
securities, rated AA or higher, which have minimal credit risk. Teradyne places
forward currency contracts with high credit-quality financial institutions in
order to minimize credit risk exposure. Concentrations of credit risk with
respect to accounts receivable are limited due to the large number of
geographically dispersed customers.
EXCHANGE RATE RISK MANAGEMENT
Teradyne regularly enters into forward contracts in European and Japanese
currencies to hedge its overseas net monetary position and firm commitments.
Teradyne's firm commitments consist of certain orders received in currencies
other than U.S. dollars. Forward currency contracts generally have maturities of
less than one year. These contracts are used to reduce our risk associated with
exchange rate movements, as gains and losses on these contracts are intended to
offset exchange losses and gains on underlying exposures. Teradyne does not
engage in currency speculation.
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At December 31, 2000 the face amount of outstanding forward currency
contracts to buy U.S. dollars for non U.S. currencies was $73.0 million. A 10%
fluctuation in exchange rates for these currencies would change the fair value
by approximately $7.3 million. However, since these contracts hedge non U.S.
currency transactions, any change in the fair value of the contracts would be
offset by opposite changes in the underlying value of the transactions being
hedged. The hypothetical movement was estimated by calculating the fair value of
the forward currency contracts at December 31, 2000 and comparing that with
those calculated using hypothetical forward currency exchange rates.
INTEREST RATE RISK MANAGEMENT
Due to its short-term duration the fair value of Teradyne's cash and
investment portfolio at December 31, 2000 approximated carrying value. Market
risk was estimated as the potential decrease in fair value resulting from a
hypothetical 10% increase in interest rates for issues contained in the
investment portfolio. The resulting hypothetical fair value was not materially
different from the year-end carrying value.
CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS
From time to time, information provided by Teradyne, statements made by its
employees or information included in its filings with the Securities and
Exchange Commission (including this Form 10-K and Teradyne's Annual Report to
Shareholders) may contain statements which are not historical facts, so-called
"forward looking statements," which involve risks and uncertainties. In
particular, statements in "Item 1: Business" relating to Teradyne's delivery
time of unfilled orders, and in "Item 7: Management's Discussion and Analysis of
Financial Condition and Results of Operations" relating to the sufficiency of
capital to meet working capital and planned capital expenditures, may be forward
looking statements. Teradyne's actual future results may differ significantly
from those stated in any forward looking statements. Factors that may cause such
differences include, but are not limited to, the factors discussed below. Each
of these factors, and others, are discussed from time to time in Teradyne's
filings with the Securities and Exchange Commission.
OUR BUSINESS IS IMPACTED BY THE SLOWDOWN IN ECONOMIES WORLDWIDE.
Our business is dependent on current and anticipated market demand for
electronics, which has been impacted by the slowdown in the economies of the
United States, Asia, and elsewhere that began in the latter portions of 2000.
While our diverse businesses may allow us to perform better than some companies
in periods of economic decline, there is no guarantee that this will be the case
currently.
OUR BUSINESS IS DEPENDENT ON THE CURRENT AND ANTICIPATED MARKET FOR ELECTRONICS.
Our business and results of operations depend in significant part upon
capital expenditures of manufacturers of semiconductors and other electronics,
which in turn depend upon the current and anticipated market demand for those
products. The electronic and semiconductor industry has been highly cyclical
with recurring periods of over supply, which often have had a severe effect on
demand for test equipment, including systems manufactured and marketed by us. We
believe that the markets for newer generations of electronic products will also
be subject to similar fluctuations. We are dependent on the timing of customer
orders and the deferral or cancellation of previous customer orders could impact
our results of operations. We cannot assure that any future increase in sales or
bookings for a calendar quarter will be sustained in subsequent quarters. In
addition, any factor adversely affecting the electronic industry or particular
segments within the electronic industry may adversely affect our business,
financial condition and operating results.
WE HAVE TAKEN AND EXPECT TO CONTINUE TO TAKE REMEDIAL MEASURES TO ADDRESS THE
RECENT SLOWDOWN IN THE MARKET FOR OUR PRODUCTS WHICH COULD HAVE LONG-TERM
EFFECTS ON OUR BUSINESS.
We have taken and expect to continue to take remedial measures to address
the recent slowdown in the market for our products. In particular, we have
reduced our workforce, frozen hiring, delayed salary increases, reduced senior
managers pay, implemented furloughs, and reduced our planned capital
expenditures and expense budgets. These measures will reduce our expenses in the
face of decreased revenues due to decreased
12
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or cancelled customer orders. However, each of these measures could have
long-term effects on our business by reducing our pool of technical talent,
decreasing or slowing improvements in our products, and making it more difficult
for us to respond to customers.
IF WE ARE NOT ABLE TO MEET OUR CUSTOMERS' DELIVERY REQUIREMENTS, IT WOULD HAVE
AN ADVERSE EFFECT ON OUR RESULTS OF OPERATIONS.
We typically maintain a large multi-week order backlog. If we are unable to
fill these orders and meet customer delivery expectations, customers may cancel
existing orders or fail to place new orders in the future, which would have an
adverse effect on our revenues and results of operations. Factors that affect
our ability to meet customer delivery expectations include:
- the availability of expanded manufacturing facilities;
- our ability to attract and retain qualified manufacturing personnel to
meet anticipated manufacturing levels;
- the difficulties inherent in manufacturing highly complex products
that have only recently been introduced; and
- the availability of components, including semiconductor chips, which
may be in short supply from time to time.
In addition, we rely upon third-party contract manufacturers for certain
subsystems used in our products, and our ability to meet customer orders for
those products depends upon the timeliness and quality of the work performed by
these subcontractors, over whom we do not exercise any control.
IF WE ARE UNABLE TO PROTECT OUR INTELLECTUAL PROPERTY, WE MAY LOSE A VALUABLE
ASSET OR MAY INCUR COSTLY LITIGATION TO PROTECT OUR RIGHTS.
Our products incorporate technology that we protect in several ways,
including patents, copyrights, and trade secrets. While we believe that our
patents, copyrights, and trade secrets have value, in general no single one is
in itself essential. At times we have been notified that we may be in violation
of patents held by others. An assertion of patent infringement against us, if
successful, could have a material adverse effect on our ability to sell our
products, or could require a lengthy and expensive defense which could adversely
affect our operating results.
IF WE FAIL TO DEVELOP NEW TECHNOLOGIES TO ADAPT TO OUR CUSTOMERS' NEEDS AND IF
OUR CUSTOMERS FAIL TO ACCEPT OUR NEW PRODUCTS, IT WILL ADVERSELY AFFECT OUR
REVENUES.
We believe that our technological position depends primarily on the
technical competence and creative ability of our engineers. Our development of
new technologies, commercialization of those technologies into products, and
market acceptance and customer demand for those products is critical to our
success. Successful product development and introduction depends upon a number
of factors, including:
- new product selection;
- development of competitive products by competitors;
- timely and efficient completion of product design; and
- timely and efficient implementation of manufacturing and assembly
processes and product performance at customer locations.
INTENSE COMPETITION IN OUR INDUSTRY MAY AFFECT OUR REVENUES.
We face substantial competition, throughout the world, in each of our
operating segments. Some of these competitors also have substantial financial
and other resources to pursue engineering, manufacturing, marketing and
distribution of their products. We also face competition from internal suppliers
at several of our customers. Some of our competitors have introduced or
announced new products with certain performance characteristics which may be
considered equal or superior to those we currently offer. We expect our
competitors to continue to improve the performance of their current products and
to introduce new products or
13
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new technologies that provide improved cost of ownership and performance
characteristics. New product introductions by competitors could cause a decline
in sales or loss of market acceptance of our products. Moreover, increased
competitive pressure could lead to intensified price based competition, which
could materially adversely affect our business, financial condition and results
of operations.
WE ARE SUBJECT TO RISKS OF OPERATING INTERNATIONALLY.
We derive a significant portion of our total revenue from customers outside
the United States. Our international sales are subject to significant risks and
difficulties, including:
- unexpected changes in legal and regulatory requirements and in policy
changes affecting our markets;
- changes in tariffs and exchange rates;
- political and economic instability;
- difficulties in accounts receivable collection;
- difficulties in staffing and managing international operations; and
- potentially adverse tax consequences.
OUR OPERATING RESULTS ARE LIKELY TO FLUCTUATE SIGNIFICANTLY.
Our quarterly and annual operating results are affected by a wide variety
of factors that could materially adversely affect revenues and profitability,
including:
- competitive pressures on selling prices;
- the timing of customer orders and the deferral or cancellation of
orders previously received;
- changes in product mix;
- our ability to introduce new products and technologies on a timely
basis;
- introduction of products and technologies by our competitors;
- market acceptance of our and our competitors' products;
- fulfilling backlog on a timely basis;
- reliance on sole source suppliers;
- potential retrofit costs;
- the level of orders received which can be shipped in a quarter; and
- the timing of investments in engineering and development.
As a result of the foregoing and other factors, we have and may continue to
experience material fluctuations in future operating results on a quarterly or
annual basis which could materially and adversely affect our business, financial
condition, operating results and stock price.
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ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT ACCOUNTANTS
To the Directors and Shareholders of Teradyne, Inc.:
In our opinion, the consolidated financial statements listed in the index
appearing under Item 14(a)(1) present fairly, in all material respects, the
financial position of Teradyne, Inc. and its subsidiaries at December 31, 2000
and 1999, and the results of their operations and their cash flows for each of
the three years in the period ended December 31, 2000 in conformity with
accounting principles generally accepted in the United States of America. In
addition, in our opinion, the financial statement schedule listed in the index
appearing under Item 14(a)(2) presents fairly, in all material respects, the
information set forth therein when read in conjunction with the related
consolidated financial statements. These financial statements and financial
statement schedule are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements and
financial statement schedule based on our audits. We conducted our audits of
these statements in accordance with auditing standards generally accepted in the
United States of America, which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
As discussed in Note C to the consolidated financial statements, during the
year ended December 31, 2000 the Company changed its method of recognizing
revenue.
PricewaterhouseCoopers LLP
Boston, Massachusetts
January 15, 2001
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TERADYNE, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2000 AND 1999
2000 1999
---------- ----------
(IN THOUSANDS)
ASSETS
Current assets:
Cash and cash equivalents.............................. $ 242,421 $ 181,345
Marketable securities.................................. 60,154 66,316
Accounts receivable, less allowance for doubtful
accounts of $5,176 and $4,410 in 2000 and 1999,
respectively.......................................... 420,040 296,159
Inventories:
Parts.................................................. 318,790 123,300
Assemblies in process.................................. 159,123 145,393
Finished goods......................................... 34,650 --
---------- ----------
512,563 268,693
Deferred tax assets.................................... 93,958 49,716
Prepayments and other current assets................... 48,698 45,458
---------- ----------
Total current assets.............................. 1,377,834 907,687
Property, plant, and equipment:
Land................................................... 54,774 41,774
Buildings and improvements............................. 293,124 238,136
Machinery and equipment................................ 831,539 692,383
Construction in progress............................... 75,520 9,693
---------- ----------
Total............................................. 1,254,957 981,986
---------- ----------
Less: Accumulated depreciation........................ (521,171) (484,247)
Net property, plant, and equipment................ 733,786 497,739
Marketable securities....................................... 161,848 139,752
Other assets................................................ 82,400 23,035
---------- ----------
Total assets...................................... $2,355,868 $1,568,213
========== ==========
LIABILITIES
Current liabilities:
Notes payable -- banks................................. $ 7,389 $ 8,221
Current portion of long-term debt...................... 169 4,659
Accounts payable....................................... 153,897 104,335
Accrued employees' compensation and withholdings....... 158,817 117,314
Deferred revenue and customer advances................. 183,465 60,096
Other accrued liabilities.............................. 86,637 66,223
Accrued income taxes................................... 28,914 31,478
---------- ----------
Total current liabilities......................... 619,288 392,326
Deferred tax liabilities.................................... 21,257 13,907
Long-term debt.............................................. 8,352 8,948
Commitments (Note G)........................................
---------- ----------
Total liabilities................................. 648,897 415,181
========== ==========
SHAREHOLDERS' EQUITY
Common stock, $0.125 par value, 1,000,000 shares authorized,
172,559 and 170,319 net shares issued and outstanding in
2000 and 1999, respectively............................... 21,570 21,290
Additional paid-in capital.................................. 334,241 234,198
Retained earnings........................................... 1,351,160 897,544
---------- ----------
Total shareholders' equity........................ 1,706,971 1,153,032
---------- ----------
Total liabilities and shareholders' equity........ $2,355,868 $1,568,213
========== ==========
The accompanying notes are an integral part of the consolidated financial
statements.
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TERADYNE, INC.
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31,
-----------------------------------------
2000 1999 1998
----------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Net sales.............................................. $3,043,946 $1,790,912 $1,489,151
Expenses:
Cost of sales..................................... 1,669,699 1,047,752 947,174
Engineering and development....................... 300,920 228,570 195,158
Selling and administrative........................ 362,562 256,392 212,885
---------- ---------- ----------
2,333,181 1,532,714 1,355,217
---------- ---------- ----------
Income from operations................................. 710,765 258,198 133,934
Interest and other income.............................. 30,724 17,307 13,514
Interest expense....................................... (1,841) (1,656) (1,566)
---------- ---------- ----------
Income before income taxes and cumulative effect of
change in accounting principle....................... 739,648 273,849 145,882
Provision for income taxes............................. 221,894 82,155 43,765
---------- ---------- ----------
Income before cumulative effect of change in accounting
principle............................................ 517,754 191,694 102,117
Cumulative effect of change in accounting principle,
net of applicable tax of $27,488 (Note C)............ (64,138) -- --
---------- ---------- ----------
Net income............................................. $ 453,616 $ 191,694 $ 102,117
========== ========== ==========
Income per share before cumulative effect of change in
accounting principle -- basic........................ $ 2.99 $ 1.12 $ 0.61
========== ========== ==========
Cumulative effect of change in accounting
principle -- basic................................... $ (0.37) $ -- $ --
========== ========== ==========
Net income per common share -- basic................... $ 2.62 $ 1.12 $ 0.61
========== ========== ==========
Income per share before cumulative effect of change in
accounting principle -- diluted...................... $ 2.86 $ 1.07 $ 0.59
========== ========== ==========
Cumulative effect of change in accounting
principle -- diluted................................. $ (0.35) $ -- $ --
========== ========== ==========
Net income per common share -- diluted................. $ 2.51 $ 1.07 $ 0.59
========== ========== ==========
Shares used in net income per common share -- basic.... 173,312 170,519 167,645
========== ========== ==========
Shares used in net income per common share --diluted... 181,011 178,550 171,930
========== ========== ==========
The accompanying notes are an integral part of the consolidated financial
statements.
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TERADYNE, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
SHARES COMMON ADDITIONAL TOTAL
-------------------- STOCK PAID-IN RETAINED SHAREHOLDERS'
ISSUED REACQUIRED PAR VALUE CAPITAL EARNINGS EQUITY
------- ---------- --------------- ---------- ---------- -------------
(IN THOUSANDS)
Balance, December 31, 1997... 90,615 7,312 $10,413 $322,985 $ 603,733 $ 937,131
Issuance of stock to
employees under benefit
plans...................... 1,796 224 26,355 26,579
Tax benefit from stock
options.................... 11,701 11,701
Repurchase of stock.......... 1,355 (169) (50,989) (51,158)
Net income................... 102,117 102,117
------- ------ ------- -------- ---------- ----------
Balance, December 31,
1998....................... 92,411 8,667 10,468 310,052 705,850 1,026,370
Issuance of stock to
employees under benefit
plans...................... 3,205 401 60,730 61,131
Repurchase of stock.......... 1,366 (171) (86,980) (87,151)
Two-for-one stock split
effected in the form of a
100% stock dividend........ 95,616 10,033 10,698 (10,698) 0
Issuance of stock to
employees under benefit
plans after two-for-one
stock split................ 1,973 246 20,947 21,193
Tax benefit from stock
options.................... 60,462 60,462
Repurchase of stock after
two-for-one stock split.... 2,820 (352) (120,315) (120,667)
Net income................... 191,694 191,694
------- ------ ------- -------- ---------- ----------
Balance, December 31, 1999... 193,205 22,886 21,290 234,198 897,544 1,153,032
Issuance of stock to
employees under benefit
plans...................... 4,168 521 54,742 55,263
Tax benefit from stock
options.................... 88,046 88,046
Shares issued to effect
acquisition................ 1,841 230 104,256 104,486
Repurchase of stock.......... 3,769 (471) (147,001) (147,472)
Net income................... 453,616 453,616
------- ------ ------- -------- ---------- ----------
Balance, December 31,
2000....................... 199,214 26,655 $21,570 $334,241 $1,351,160 $1,706,971
======= ====== ======= ======== ========== ==========
The accompanying notes are an integral part of the consolidated financial
statements.
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TERADYNE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31,
-----------------------------------
2000 1999 1998
--------- --------- ---------
(IN THOUSANDS)
Cash flows from operating activities:
Net income............................................ $ 453,616 $ 191,694 $ 102,117
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation....................................... 99,929 85,279 75,351
Amortization....................................... 1,933 1,107 953
Charge for excess inventory........................ -- -- 23,000
Deferred income tax benefit........................ (44,242) (4,101) (14,607)
Other non-cash items, net.......................... (10,997) 4,354 (804)
Changes in operating assets and liabilities
excluding effect of acquisition:
Accounts receivable.............................. (113,930) (76,856) 81,630
Inventories...................................... (235,319) (2,346) (16,990)
Other assets..................................... 7,589 (24,576) (1,184)
Accounts payable and accruals.................... 226,798 115,750 (18,530)
Accrued income taxes............................. 85,482 77,171 7,685
--------- --------- ---------
Net cash provided by operating activities............... 470,859 367,476 238,621
--------- --------- ---------
Cash flows from investing activities:
Additions to property, plant, and equipment........ (235,189) (119,780) (119,457)
Increase in equipment manufactured by the
Company.......................................... (63,053) (31,376) (44,983)
Purchases of held-to-maturity marketable
securities....................................... (409,180) (177,650) (20,000)
Maturities of held-to-maturity marketable
securities....................................... 394,006 118,990 20,000
Purchases of available-for-sale marketable
securities....................................... (177,864) (204,824) (162,092)
Proceeds from sales and maturities of
available-for-sale marketable securities......... 177,104 169,824 224,951
Cash acquired in acquisition....................... 1,885 -- --
--------- --------- ---------
Net cash used by investing activities................... (312,291) (244,816) (101,581)
--------- --------- ---------
Cash flows from financing activities:
Payments of long-term debt......................... (5,283) (1,333) (1,615)
Issuance of common stock under stock option and
stock purchase plans............................. 55,263 82,323 26,579
Acquisition of treasury stock...................... (147,472) (207,819) (51,158)
--------- --------- ---------
Net cash used by financing activities................... (97,492) (126,829) (26,194)
--------- --------- ---------
Increase (decrease) in cash and cash equivalents........ 61,076 (4,169) 110,846
Cash and cash equivalents at beginning of year.......... 181,345 185,514 74,668
--------- --------- ---------
Cash and cash equivalents at end of year................ $ 242,421 $ 181,345 $ 185,514
========= ========= =========
Supplementary disclosure of cash flow information:
Cash paid during the year for:
Interest......................................... $ 1,728 $ 1,615 $ 1,525
Income taxes..................................... $ 130,416 $ 22,747 $ 47,225
Business acquired:
Fair value of assets acquired.................... $ 119,887
Liabilities assumed.............................. $ 15,401
Common stock issued.............................. $ 104,486
The accompanying notes are an integral part of the consolidated financial
statements.
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21
TERADYNE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. THE COMPANY
Teradyne, Inc. designs, manufactures, markets, and services test and
inspection systems and related software, and backplanes and associated
connectors. Teradyne had five principal product lines during 2000;
- semiconductor test systems;
- connection systems;
- circuit-board test and inspection systems;
- broadband test systems; and
- software test systems.
Semiconductor test systems are used by electronic component manufacturers
in the design and testing of their products. Connection systems are used
principally for the computer, communications, data networking, and
military/aerospace industries. Connection systems provides both a technology
advantage and the benefits of vertical integration to its customers. A backplane
is an assembly into which printed circuit boards are inserted that provides for
the interconnection of electrical signals between the circuit boards and the
other elements of the system. Circuit-board test and inspection systems are used
by electronic equipment manufacturers for the design, inspection, and testing of
circuit boards and other assemblies. Broadband test systems are used by the
communications industry for Internet testing, customer care and voice network
maintenance. Software test systems, divested at the end of 2000, are used by a
number of industries to test communications networks, computerized
telecommunication systems, and client/server applications.
B. ACCOUNTING POLICIES
Basis of Presentation
The consolidated financial statements include the accounts of Teradyne and
its subsidiaries. All significant intercompany balances and transactions are
eliminated. Certain prior years' amounts were reclassified to conform to the
current year presentation.
Preparation of Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions. These estimates affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the dates of
the financial statements and the reported amounts of revenues and expenses
during the reported periods. Actual results could differ from those estimates.
Recently Issued Accounting Pronouncements
In June 1999, the Financial Accounting Standards Board issued SFAS No. 137,
"Accounting for Derivative Instruments and Hedging Activities -- Deferral of the
Effective Date of FASB Statement No. 133." SFAS No. 137 amends SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities" which was issued
in June 1998 and was to be effective for all fiscal quarters of fiscal years
beginning after June 15, 1999. SFAS No. 137 defers the effective date of SFAS
No. 133 to the first quarter of all fiscal years beginning after June 15,
2000.Teradyne will implement SFAS No. 133, as amended in 2001 and does not
expect any material impact on its financial position or results of operations.
Inventories
Inventories are stated at the lower of cost (first-in, first-out basis) or
market (net realizable value). Inventories include materials, labor, and
manufacturing overhead costs.
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22
TERADYNE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
B. ACCOUNTING POLICIES -- (CONTINUED)
Property, Plant, and Equipment
Property, plant, and equipment are stated at cost. Leasehold improvements
and major renewals are capitalized and included in property, plant, and
equipment accounts while expenditures for maintenance and repairs and minor
renewals are charged to expense. When assets are retired, the assets and related
allowances for depreciation and amortization are removed from the accounts and
any resulting gain or loss is reflected in operations.
Teradyne provides for depreciation of its assets principally on the
straight-line method with the cost of the assets being charged to expense over
their useful lives as follows: buildings and improvements -- 5 to 40 years; and
machinery and equipment -- 2 to 10 years.
Revenue Recognition
Revenue related to products and software licenses is recognized upon
shipment provided that title and risk of loss has passed to the customer, there
is persuasive evidence of an arrangement, the sales price is fixed or
determinable, collection of the related receivable is reasonably assured and
customer acceptance criteria have been successfully demonstrated. For products
with acceptance criteria that are not successfully demonstrated prior to
shipment, revenue is recognized upon customer acceptance. For multiple element
arrangements, Teradyne defers the greater of the fair value of any undelivered
elements of the contract, such as installation services, or the portion of the
sales price which is not payable until the undelivered elements are delivered.
Teradyne unbundles service revenue and post-contract customer support from
product and software license sales based upon the fair value of those services
where such services are sold separately and recognizes such revenue as the
services are provided or ratably over the period of the related contract, as
applicable. Teradyne's products are generally subject to warranty and such
estimated costs are provided for in cost of sales when product revenue is
recognized. Installation and other services are not essential to the
functionality of the products as these services do not alter the products
capabilities, do not require specialized skills or tools and can be performed by
the customers or other vendors.
For certain contracts eligible under American Institute of Certified Public
Accountants ("AICPA") Statement of Position No. 81-1, revenue is recognized
using the percentage-of-completion accounting method based upon an
efforts-expended method. In all cases, changes to totals estimated costs and
anticipated losses, if any, are recognized in the period in which determined.
Deferred revenue includes customer advances and amounts that have been
billed per the contractual terms but have not been recognized as revenue. If a
portion of the sales price is not contractually payable until a future
deliverable is completed, such as installation, such portion of the sales price
is not recorded until such contractual obligation is satisfied.
Engineering and Development Costs
Teradyne's products are highly technical in nature and require a large and
continuing engineering and development effort. All engineering and development
costs are expensed as incurred.
Impairment of Long-Lived Assets
Teradyne reviews long-lived assets for impairment whenever events or
changes in business circumstances indicate that the carrying amount of the
assets may not be fully recoverable or that the useful lives of these assets are
no longer appropriate. Each impairment test is based on a comparison of the
undiscounted cash flows to the recorded value of the asset. If an impairment is
indicated, the asset is written down to its estimated
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23
TERADYNE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
B. ACCOUNTING POLICIES -- (CONTINUED)
fair value on a discounted cash flow basis. The cash flow estimates used to
determine the impairment, if any, contain management's best estimates using
appropriate assumptions and projections at that time.
Income Taxes
Deferred tax assets and liabilities are determined based on differences
between financial reporting and tax bases of assets and liabilities and are
measured using the enacted tax rates and laws that will be in effect when the
differences are expected to reverse. The measurement of deferred tax assets is
reduced by a valuation allowance if, based upon weighted available evidence, it
is more likely than not that some or all of the deferred tax assets will not be
realized.
U.S. Federal taxes are provided for on the retained earnings of non-U.S.
sales and service subsidiaries whose earnings are expected to be remitted to the
United States. U.S. Federal taxes are not provided for on the earnings of a
non-U.S. manufacturing subsidiary which are expected to be reinvested
indefinitely in operations outside the U.S.
Translation of Non U.S. Currencies
Assets and liabilities of non U.S. subsidiaries, which are denominated in
currencies other than the U.S. dollar, are remeasured into U.S. dollars at rates
of exchange in effect at the end of the fiscal year except nonmonetary assets
and liabilities which are remeasured using historical exchange rates. Revenue
and expense amounts are remeasured using an average of exchange rates in effect
during the year, except those amounts related to nonmonetary assets and
liabilities, which are remeasured at historical exchange rates. Net realized and
unrealized gains and losses resulting from currency remeasurement are included
in operations.
Net Income per Common Share
Basic net income per common share is calculated by dividing net income by
the weighted average number of common shares outstanding during the period.
Diluted net income per common share is calculated by dividing net income by the
sum of the weighted average number of common shares plus additional common
shares that would have been outstanding if potential dilutive common shares had
been issued for granted stock option and stock purchase rights.
Other Comprehensive Income
Comprehensive income does not materially differ from net income for the
years ended December 31, 2000, 1999 and 1998.
C. CHANGE IN ACCOUNTING PRINCIPLE
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" (SAB
101). SAB 101 summarizes certain areas of the Staff's views in applying
generally accepted accounting principles to revenue recognition in financial
statements. Historically, Teradyne recognized revenue from the sales of products
upon shipment, provided that risk of loss had passed to the customer, and
accrued for the costs of installation. Under the new accounting method adopted
retroactive to January 1, 2000, Teradyne recognizes revenue from the sales of
products when both title and risk of loss pass to the customer. Teradyne also
defers the greater of the fair value or the contractual holdback of any
undelivered elements, such as installation services, until the undelivered
elements are delivered. Teradyne previously accounted for contractual acceptance
terms based upon probable achievement of meeting the acceptance criteria.
Teradyne now accounts for acceptance terms based upon whether such
22
24
TERADYNE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
C. CHANGE IN ACCOUNTING PRINCIPLE -- (CONTINUED)
contractual acceptance criteria is objectively demonstrated prior to shipment.
During the fourth quarter of 2000, Teradyne implemented the SEC's SAB 101
guidelines, retroactive to the beginning of the year. This was reported as a
cumulative effect of a change in accounting principle as of January 1, 2000. The
cumulative effect of the change in accounting principle on prior years resulted
in a charge to income of $64.1 million (net of income taxes of $27.5 million) or
$0.35 per diluted share which has been included in income for the fiscal year
ending December 31, 2000. For the fiscal year ending December 31, 2000, Teradyne
recognized $126.1 million in revenue that is included in the cumulative effect
adjustment as of January 1, 2000. The results for the first three quarters of
fiscal year ending December 31, 2000 have been restated in accordance with SAB
101. Pro forma amounts for the periods beginning before January 1, 2000 have not
been presented as the effect of the change in accounting principle could not be
reasonably determined.
D. ACQUISITIONS AND DIVESTITURES
On August 15, 2000, we acquired two California-based companies, both in the
printed circuit board (PCB) industry: Herco Technology of San Diego, CA, a
fabricator of printed circuit boards, and Synthane Taylor of La Verne, CA, which
supplies PCB laminates and is a major supplier to Herco. The acquisitions are
part of the connection systems operating segment. The cost of the acquired
companies was $104.5 million with approximately 1.8 million shares of common
stock issued. The acquisitions have been accounted for by the purchase method of
accounting and accordingly, the results have been included in our consolidated
results of operations from the date of acquisition. Pro forma amounts for the
acquisitions are not included as their effect is not material to the financial
statements. Goodwill of $53.4 million resulting from the acquisitions is being
amortized on a straight-line basis over the estimated life of 15 years.
The components of the purchase price allocation are as follows:
(IN THOUSANDS)
Current assets.............................................. $ 20,140
Property, plant and equipment............................... 41,650
Acquired intangibles........................................ 4,736
Goodwill.................................................... 53,361
Less: Liabilities assumed................................... 15,401
--------
Total............................................. $104,486
On December 29, 2000, Teradyne sold a controlling interest in its software
test business to an investor group led by Matrix Partners of Waltham,
Massachusetts for proceeds of approximately $28.7 million. Teradyne has retained
an ownership position of approximately 21% in the new company called Empirix.
Teradyne will, therefore, account for its investment in Empirix under the equity
method of accounting. This transaction did not have a material impact on the
financial statements.
E. FINANCIAL INSTRUMENTS
Cash Equivalents
Teradyne considers all highly liquid investments with original maturities
of three months or less at the date of acquisition to be cash equivalents.
Marketable Securities
Teradyne classifies investments in marketable securities as trading,
available-for-sale or held-to-maturity at the time of purchase. There were no
securities classified as trading at December 31, 2000 or 1999. Securities are
classified as held-to-maturity when Teradyne has the positive intent and ability
to hold the
23
25
TERADYNE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
E. FINANCIAL INSTRUMENTS -- (CONTINUED)
securities to maturity. Held-to-maturity securities are stated at cost with
corresponding premiums or discounts amortized over the life of the investment to
interest income. Securities classified as available-for-sale are reported at
fair value, unless the difference between the fair value and amortized cost is
immaterial in which case they are carried at amortized cost. Unrealized gains or
losses on available-for-sale securities are not material and therefore have not
been recorded. Realized gains and losses and declines in value, if any, judged
to be other-than-temporary on available-for-sale securities are included in
interest income. The cost of securities sold is based on the specific
identification method.
The fair market value of cash equivalents and short-term and long-term
investments in marketable securities is substantially equal to the carrying
value and represents the quoted market prices at the balance sheet dates. The
short-term investments mature in less than one year. Long-term investments have
maturities of one to ten years. At December 31, 2000 and 1999 these investments
are reported as follows (in thousands):
2000 1999
---------------------- ----------------------
AVAILABLE- HELD-TO- AVAILABLE- HELD-TO-
FOR-SALE MATURITY FOR-SALE MATURITY
---------- -------- ---------- --------
Short-term marketable securities:
U.S. Treasury and government agency
securities.......................... $ 13,918 $29,539 $ 910 $58,659
Corporate debt securities............. 16,697 6,747
-------- ------- -------- -------
$ 30,615 $29,539 $ 7,657 $58,659
======== ======= ======== =======
Long-term marketable securities:
U.S. Treasury and government agency
securities.......................... $ 55,778 $30,000 $ 69,098
Corporate debt securities............. 76,070 70,654
-------- ------- --------
$131,848 $30,000 $139,752
======== ======= ========
Other
For all other balance sheet financial instruments, the carrying amount
approximates fair value.
Off-Balance Sheet Risk
Teradyne regularly enters into forward contracts in European and Japanese
currencies to hedge its non U.S. currency net monetary position and firm
commitments. Teradyne's firm commitments consist of certain orders received in
currencies other than U.S. dollars. Forward currency contracts generally have
maturities of less than one year. These contracts are used to reduce Teradyne's
risk associated with exchange rate movements, as gains and losses on these
contracts are intended to offset exchange losses and gains on underlying
exposures. Teradyne does not engage in currency speculation. Gains or losses
associated with the termination of the underlying contract for which a firm
commitment no longer exists are immediately included in selling and
administrative expenses.
At December 31, 2000, Teradyne had the following forward currency contracts
to buy U.S. dollars for non U.S. currencies with the following notional amounts
totaling $73.0 million; $32.6 million Japanese yen, $5.4 million Euro, $32.1
million British pound sterling, and $2.9 million Swedish Krona. At December 31,
1999 the face amount of outstanding forward currency contracts to buy U.S.
dollars for non U.S. currencies was $62.4 million, respectively.
24
26
TERADYNE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
E. FINANCIAL INSTRUMENTS -- (CONTINUED)
The fair value of these contracts as of December 31, 2000 and 1999,
determined by applying year-end currency exchange rates to the notional contract
amounts, represented no unrealized gain or loss in 2000 and a net unrealized
gain of $1.0 million in 1999. Teradyne's policy is to defer gains and losses on
these contracts until the corresponding losses and gains are recognized on the
items being hedged. Both the contract gains and losses and the gains and losses
on the items being hedged are included in selling and administrative expenses.
Concentration of Credit Risk
Financial instruments which potentially subject Teradyne to concentrations
of credit risk consist principally of cash investments, forward currency
contracts, and accounts receivable. Teradyne maintains cash investments
primarily in U.S. Treasury and government agency securities and corporate debt
securities, rated AA or higher, which have minimal credit risk. Teradyne places
forward currency contracts with high credit-quality financial institutions in
order to minimize credit risk exposure. Concentrations of credit risk with
respect to accounts receivable are limited due to the large number of
geographically dispersed customers.
F. DEBT
Long-term debt at December 31, 2000 and 1999 consisted of the following (in
thousands):
2000 1999
------ ------
Mortgage notes payable................................. $5,040 $9,699
Other long-term debt................................... 3,481 3,908
------ ------
Total........................................ 8,521 13,607
Less current maturities........................... 169 4,659
------ ------
$8,352 $8,948
====== ======
The total maturities of long-term debt for the succeeding five years and
thereafter are: 2001 -- $0.3 million; 2002 -- $0.3 million; 2003 -- $0.3
million; 2004 -- $0.3 million; 2005 -- $0.3 million and $6.9 million thereafter.
Mortgage Notes Payable
In 1983, we received a loan of $4.5 million from the Boston Redevelopment
Authority in the form of a 3% mortgage loan maturing March 31, 2013. This loan
is collateralized by a mortgage on Teradyne's property at 321 Harrison Avenue,
which may, at Teradyne's option, become subordinated to another mortgage up to a
maximum of $5.0 million. Interest for the first 4 1/2 years of the note was
capitalized up to a principal amount of $5.0 million. Since September 30, 1987,
Teradyne has been making semi-annual interest payments.
Revolving Credit Agreement
Teradyne's available revolving credit line of $120.0 million expired on
January 31, 2001. At expiration of the revolver, any amounts outstanding are
converted into a two year term note. As of December 31, 2000 and 1999, no
amounts were outstanding under this agreement. The revolving credit line was not
renewed in 2001.
Short-term Borrowings
The weighted average interest rates on short-term borrowings outstanding as
of December 31, 2000 and 1999 was 1.2% and 1.8%, respectively.
25
27
TERADYNE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
G. COMMITMENTS
Rental expense for the years ended December 31, 2000, 1999, and 1998 was
$21.3 million, $18.8 million, and $17.7 million, respectively. Minimum annual
rentals under all noncancellable leases are: 2001 -- $16.3 million; 2002 --
$14.2 million; 2003 -- $12.3 million; 2004 -- $9.7 million; 2005 -- $8.0
million; and $17.1 million thereafter, totaling $77.6 million.
H. NET INCOME PER COMMON SHARE
The following table sets forth the computation of basic and diluted net
income per common share (in thousands, except per share amounts):
2000 1999 1998
-------- -------- --------
Income before cumulative effect of change in
accounting principle............................ $517,754 $191,694 $102,117
Cumulative effect of change in accounting
principle....................................... (64,138) -- --
-------- -------- --------
Net income........................................ 453,616 191,694 102,117
======== ======== ========
Shares used in income per common share -- basic... 173,312 170,519 167,645
Effect of dilutive securities:
Employee and director stock options.......... 7,293 7,540 3,494
Employee stock purchase rights............... 406 491 791
-------- -------- --------
Dilutive potential common shares.................. 7,699 8,031 4,285
-------- -------- --------
Shares used in income per common
share -- diluted................................ 181,011 178,550 171,930
======== ======== ========
Income before cumulative effect of change in
accounting principle per common share --basic... $ 2.99 $ 1.12 $ 0.61
======== ======== ========
Cumulative effect of change in accounting
principle -- basic.............................. $ (0.37) $ -- $ --
======== ======== ========
Net income per common share -- basic.............. $ 2.62 $ 1.12 $ 0.61
======== ======== ========
Income before cumulative effect of change in
accounting principle per common
share -- diluted................................ $ 2.86 $ 1.07 $ 0.59
======== ======== ========
Cumulative effect of change in accounting
principle -- diluted............................ $ (0.35) $ -- $ --
======== ======== ========
Net income per common share -- diluted............ $ 2.51 $ 1.07 $ 0.59
======== ======== ========
Options to purchase 1.5 million shares of common stock in 2000, 0.1 million
shares in 1999, and 4.0 million shares in 1998 were outstanding during the years
then ended, but were not included in the year to date calculation of diluted net
income per share because the options' exercise price was greater than the
average market price of the common shares during those periods.
I. RETIREMENT PLANS
Teradyne has defined benefit pension plans covering substantially all
domestic employees and employees of certain non U.S. subsidiaries. Benefits
under these plans are based on the employees' years of service and compensation.
Teradyne's funding policy is to make contributions to the plans in accordance
with local laws and to the extent that such contributions are tax deductible.
The assets of these plans consist primarily of equity and fixed income
securities. In addition, Teradyne has an unfunded supplemental defined benefit
plan in the United States to provide retirement benefits in excess of levels
allowed by the Employment Retirement Income Security Act (ERISA).
26
28
TERADYNE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
I. RETIREMENT PLANS -- (CONTINUED)
On December 31, 1999, the U.S. defined benefit pension plan (the "U.S.
plan") was amended to update all participating employees accrued benefit to
reflect their average pay over the last five years.
During the fourth quarter of 1999, Teradyne offered all eligible domestic
employees participating in the U.S. plan a choice; to continue to have benefits
grow in the U.S. plan and continue to be eligible for the current Savings Plan
match described in "Note: L Savings Plan" or to stop growing benefits in the U.S
plan and be eligible for an increased match in the Savings Plan. The accrued
benefit of those employees who selected the enhanced Savings Plan match was
frozen on January 1, 2000 resulting in an insignificant curtailment gain.
The expense of these defined benefit pension plans and the December 31
balances of plan assets and obligations are shown below (in thousands):
2000 1999 1998
------ ------- ------
EXPENSE
Service cost........................................... $6,365 $ 7,874 $5,852
Interest cost.......................................... 8,972 8,247 6,789
Expected return on plan assets......................... (8,589) (7,394) (6,317)
Amortization of unrecognized:
Net transition obligation......................... 89 102 81
Prior service cost................................ 843 612 584
Net loss.......................................... 206 1,592 1,196
Curtailment (gain) / employee contributions............ (89) (87) --
------ ------- ------
Total expense................................ $7,797 $10,946 $8,185
====== ======= ======
2000 1999 1998
---- ---- ----
WEIGHTED AVERAGE ASSUMPTIONS
Discount rate............................................... 7.5% 8.0% 7.0%
Expected return on plan assets.............................. 9.0 9.0 9.0
Salary progression rate..................................... 5.0 5.0 5.0
2000 1999
-------- --------
ASSETS AND OBLIGATIONS
Projected benefit obligation:
Beginning of year......................................... $124,546 $121,234
Service cost.............................................. 6,365 7,874
Interest cost............................................. 8,972 8,247
Actuarial (gain) loss..................................... 3,859 (10,983)
Benefits paid............................................. (3,372) (3,324)
Plan amendment............................................ 623 6,820
Curtailment............................................... -- (5,682)
Non U.S. currency movement................................ (1,521) 360
-------- --------
End of year............................................... 139,472 124,546
27
29
TERADYNE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
I. RETIREMENT PLANS -- (CONTINUED)
2000 1999
-------- --------
ASSETS AND OBLIGATIONS
Fair value of plan assets:
Beginning of year......................................... 111,535 93,594
Company contributions..................................... 9,445 6,131
Plan participants' contributions.......................... 79 --
Actual return............................................. (2,285) 14,996
Benefits paid............................................. (3,372) (3,324)
Non U.S. currency movement................................ (890) 138
-------- --------
End of year................................................. 114,512 111,535
-------- --------
Funded status............................................... (24,960) (13,011)
Unrecognized prior service cost............................. 7,110 7,566
Unrecognized net transition obligation...................... 470 646
Unrecognized net actuarial (gain) loss...................... 8,597 (5,993)
-------- --------
Accrued pension cost........................................ (8,783) (10,792)
======== ========
The following table provides amounts recognized in the statement of
financial position as of December 31, of both years (in thousands):
2000 1999
-------- ---------
Prepaid pension cost.............................. $ 3,162 $ 554
Accrued benefit liability......................... (11,945) (11,346)
-------- ---------
Accrued pension cost.............................. $ (8,783) ($ 10,792)
======== =========
There is no additional minimum pension liability to be recognized as of
December 31, 2000 and 1999. The projected benefit obligation, accumulated
benefit obligation, and fair value of plan assets for pension plans with
accumulated benefit obligations in excess of plan assets were $22.2 million,
$14.3 million and $3.7 million, respectively, as of December 31, 2000 and $19.9
million, $13.4 million and $3.7 million, respectively, as of December 31, 1999.
J. COMMON STOCK REPURCHASE PROGRAM
Teradyne's Board of Directors has authorized the repurchase of 30.0 million
shares of Teradyne's stock on the open market. In 2000, Teradyne repurchased 3.8
million shares at a cost of $147.5 million, increasing the cumulative shares
purchased under this program through 2000 to 20.0 million shares at an aggregate
cost of $540.8 million. Teradyne records treasury stock at its acquisition cost.
28
30
TERADYNE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
K. STOCK BASED COMPENSATION
At December 31, 2000, Teradyne had both stock option plans and stock
purchase plans. Teradyne previously adopted SFAS No. 123 "Accounting for
Stock-Based Compensation" (Statement 123), and as permitted by this standard,
will continue to apply Accounting Principles Board (APB) Opinion 25 and related
interpretations in accounting for its plans. Teradyne is required to disclose
pro forma net income and net income per common share amounts had compensation
costs for Teradyne's stock based compensation plans been determined based on the
fair value at the grant dates for awards under those plans. Had compensation
expense for the stock based compensation plans been consistent with the method
of Statement 123, amounts reported for 2000, 1999, and 1998, respectively would
have been:
2000 1999 1998
------ ------ -----
Income before cumulative effect of change in accounting
principle.............................................. $458.0 $153.6 $77.8
Income before cumulative effect of change in accounting
principle per common share -- basic.................... $ 2.64 $ 0.90 $0.46
Income before cumulative effect of change in accounting
principle per common share -- diluted.................. $ 2.53 $ 0.86 $0.45
The impact to reported net income and per common share amounts of this pro
forma disclosure are not comparable among 2000, 1999, and 1998 as Statement 123
did not apply to awards prior to 1995. The amounts of this pro forma disclosure
are also not indicative of the impact on net income for future years.
Stock Option Plans
Under its stock option plans, all of which are fixed, Teradyne granted
options to directors, officers, certain employees, and other individuals
entitling them to purchase common stock at 100% of market value at the date of
grant. Stock options granted generally have a maximum term of five years and
vest over four years.
Stock option plan activity for the years 2000, 1999, and 1998 follows (in
thousands):
2000 1999 1998
------ ------ ------
Outstanding at January 1................................ 19,225 21,548 17,132
Options granted.................................... 7,905 5,631 13,778
Options exercised.................................. (3,217) (7,272) (2,470)
Options canceled................................... (1,168) (682) (6,892)
------ ------ ------
Outstanding at December 31.............................. 22,745 19,225 21,548
====== ====== ======
Exercisable at December 31.............................. 8,758 6,355 8,398
====== ====== ======
Available for grant at December 31...................... 7,130 13,867 18,816
====== ====== ======
Weighted average option exercise price information for the years 2000, 1999
and 1998 follows:
2000 1999 1998
------ ------ ------
Outstanding at January 1................................ $16.44 $ 9.73 $11.24
Options granted.................................... $34.73 $32.13 $11.48
Options exercised.................................. $11.49 $ 9.03 $ 6.18
Options canceled................................... $30.62 $12.68 $17.74
Outstanding at December 31.............................. $22.79 $16.44 $ 9.73
Exercisable at December 31.............................. $16.71 $12.59 $ 8.66
29
31
TERADYNE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
K. STOCK BASED COMPENSATION -- (CONTINUED)
Significant option groups outstanding at December 31, 2000 and related
weighted average price and life information follows (options in thousands):
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------------------- -------------------------
WEIGHTED
AVERAGE
REMAINING
CONTRACTUAL WEIGHTED-AVERAGE WEIGHTED-AVERAGE
RANGE OF EXERCISE PRICES LIFE (YEARS) SHARES EXERCISE PRICE SHARES EXERCISE PRICE
- ------------------------ ------------ ------ ---------------- ------ ----------------
$3.82 -- $ 9.59......... 2.13 5,768 $ 8.65 3,603 $ 8.08
$ 9.81 -- $26.84........ 2.54 4,840 $13.16 2,311 $12.78
$28.13.................. 4.80 6,542 $28.13 1,210 $28.13
$28.44 -- $111.25....... 3.93 5,595 $39.44 1,634 $32.84
------ -----
Total......... 3.43 22,745 $22.79 8,758 $16.71
====== =====
On August 20, 1998, the Stock Option Committee of the Board of Directors
(the "Option Committee") approved a reduction, effective August 27, 1998, in the
exercise price of certain outstanding stock options held by officers and
employees of Teradyne. Action was taken to attempt to restore the long-term
incentive feature of employee stock options. The Option Committee believed that
at their original exercise prices, the disparity between the exercise price of
these options and recent market prices for Teradyne's Common Stock did not
provide meaningful long-term incentive to officers and employees holding these
options to perform to their maximum potential and work toward the success of
Teradyne. In connection with this action we canceled options to purchase 6.4
million shares. The canceled options were originally granted between May 15,
1997 and July 1, 1998 at exercise prices ranging from $18.25 to $20.94 per
share. New options to purchase 6.4 million shares at $9.59 were then granted.
All vesting under the canceled options was lost and new vesting periods were
started. The effect of this option repricing on the above pro forma disclosures
is considered, under Statement 123, a modification of the terms of the
outstanding options. Accordingly, the 2000, 1999, and 1998 pro forma disclosures
include compensation cost for the incremental fair value, under Statement 123,
resulting from such modification.
The weighted average fair value at date of grant for options granted during
2000, 1999 and 1998 was $15.34, $16.21 and $5.35 per option, respectively. The
fair value of options at date of grant was estimated using the Black-Scholes
model with the following weighted average assumptions:
2000 1999 1998
---- ----- ----
Expected life (years).............................. 4.2 4.1 4.3
Interest rate...................................... 5.7% 6.1% 5.5%
Volatility......................................... 63.7% 56.7% 47.9%
Dividend yield..................................... 0.0% 0.0% 0.0%
Employee Stock Purchase Plans
Teradyne has an Employee Stock Purchase plan. Under this plan, eligible
employees may purchase shares of common stock through payroll deductions of up
to 10% of their compensation. The price paid for the common stock is equal to
85% of the lower of the fair market value of Teradyne's common stock on the
first business day in January (July for new hires) or the last business day of
December. In January 2001, Teradyne issued 0.8 million shares of common stock to
employees who participated in the plan during 2000 at a weighted-average price
of $31.98 per share. Currently, there are 1.4 million shares reserved for
issuance.
The weighted-average fair value of purchase rights granted in 2000, 1999
and 1998 was $17.98, $8.18 and $6.51, respectively. The fair value of the
employees' purchase rights was estimated using the Black-Scholes model with the
following assumptions for 2000, 1999 and 1998, respectively; dividend yield of
0.0% for all
30
32
TERADYNE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
K. STOCK BASED COMPENSATION -- (CONTINUED)
years; an expected life of 1 year for all years; expected volatility of 81.5%,
58.4% and 58.8%; and risk-free interest rates of 6.0%, 4.5% and 5.5%.
L. SAVINGS PLANS
Teradyne sponsors a Savings Plan covering substantially all U.S. employees.
Under Teradyne's original savings plan, employees may contribute up to 12% of
their compensation (subject to Internal Revenue Service limitations). Teradyne
annually matches employee contributions up to 6% of such compensation at rates
ranging from 50% to 100%. Teradyne's contributions vest after two years,
although contributions for those employees with five years of service vest
immediately. In January 2000, Teradyne implemented a second savings plan for
domestic employees who elected to discontinue participation in Teradyne's
retirement plan, see "Note I: Retirement Plans," and all new domestic employees.
Under this new savings plan, domestic employees are eligible for an increased
minimum Teradyne match of 100% on contributions up to 5%. Teradyne has also
established a Supplemental Savings Plan to provide savings benefits in excess of
those allowed by ERISA. The provisions of this plan are the same as the Savings
Plan. Under Teradyne's savings plans, amounts charged to operations were $16.6
million in 2000, $9.8 million in 1999, and $9.3 million in 1998.
M. STOCKHOLDER RIGHTS PLAN
Teradyne's Board of Directors adopted a Stockholder Rights Plan on November
16, 2000, under which a dividend of one Common Stock Purchase Right was
distributed for each outstanding share of Common Stock. The plan entitles Stock
Purchase Right holders to purchase shares of Teradyne's common stock for $540
per share subject to adjustment (the "Purchase Price") in certain events, such
as a tender offer to acquire 20% or more of Teradyne's outstanding shares. Under
some circumstances, such as a determination by continuing Directors, that an
acquiring party's interests are adverse to those of Teradyne, the Plan entitles
such holders (other than an acquiring party or adverse party) to purchase Common
Stock (or other securities or consideration owned by Teradyne) having a value
equal to two times the Purchase Price of the right for the Purchase Price. The
Rights expire on November 27, 2010.
N. INCOME TAXES
The components of income before income taxes and the provision for income
taxes as shown in the consolidated statements of income are as follows (in
thousands):
2000 1999 1998
-------- -------- --------
Income before income taxes and cumulative effect
of change in accounting principle:
United States................................ $655,103 $239,453 $131,571
Non U.S...................................... 84,545 34,396 14,311
-------- -------- --------
$739,648 $273,849 $145,882
======== ======== ========
31
33
TERADYNE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
N. INCOME TAXES -- (CONTINUED)
2000 1999 1998
-------- -------- --------
Provision (credit) for income taxes:
Current:
U.S. Federal................................. $182,202 $ 65,104 $ 43,501
Non U.S...................................... 29,393 14,296 11,021
State........................................ 19,703 6,856 3,850
-------- -------- --------
231,298 86,256 58,372
-------- -------- --------
Deferred:
U.S. Federal................................. (4,529) (184) (6,102)
Non U.S...................................... (3,172) (3,461) (7,655)
State........................................ (1,703) (456) (850)
-------- -------- --------
(9,404) (4,101) (14,607)
-------- -------- --------
$221,894 $ 82,155 $ 43,765
======== ======== ========
Significant components of Teradyne's deferred tax assets (liabilities) as
of December 31, 2000 and 1999 are as follows (in thousands):
2000 1999
------- -------
Deferred tax assets:
Inventory valuations................................... $13,494 $17,385
Accruals............................................... 23,495 13,477
Vacation............................................... 9,211 4,826
In process research and development.................... 2,898 2,986
Deferred revenue....................................... 32,088 4,622
U.S. Federal operating loss carryforwards.............. 592 382
Tax credits............................................ 9,686 3,672
Other.................................................. 2,494 2,366
------- -------
Total deferred tax assets................................... 93,958 49,716
------- -------
Deferred tax liabilities:
Excess of tax over book depreciation................... (16,509) (9,240)
Amortization........................................... (916) (2,089)
Pension................................................ (3,572) (3,023)
Other.................................................. (260) 445
------- -------
Total deferred tax liabilities.............................. (21,257) (13,907)
------- -------
Net deferred asset.......................................... $72,701 $35,809
======= =======
At December 31, 2000 Teradyne had U.S. Federal operating loss carryforwards
of approximately $1.6 million that expire in the years 2001 through 2010.
Teradyne has approximately $9.6 million of U.S. business tax credit
carryforwards that expire in the years 2003 through 2019. These losses and
credits are limited in their use by "change in ownership" rules as defined in
the Internal Revenue Code of 1986.
32
34
TERADYNE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
N. INCOME TAXES -- (CONTINUED)
A reconciliation of the effective tax rate for the years 2000, 1999, and
1998 follows:
2000 1999 1998
---- ---- ----
U.S. statutory federal tax rate............................. 35.0% 35.0% 35.0%
State income taxes, net of federal tax benefit.............. 1.6 1.5 1.3
Tax credits................................................. (0.8) (1.3) (3.1)
Export sales corporation.................................... (4.8) (4.7) (3.4)
Other, net.................................................. (1.0) (0.5) 0.2
---- ---- ----
30.0% 30.0% 30.0%
==== ==== ====
U.S. federal taxes have not been provided for approximately $59.0 million
of cumulative undistributed earnings of a non-U.S. manufacturing subsidiary.
Teradyne intends to reinvest these earnings indefinitely in operations outside
the U.S.
O. OPERATING SEGMENT AND GEOGRAPHIC INFORMATION
Teradyne has five principal operating segments which are the design,
manufacturing and marketing of semiconductor test systems, connection systems,
circuit-board test and inspection systems, broadband test systems, and software
test systems, which was divested at the end of 2000. These operating segments
were determined based upon the nature of the products and services offered.
Teradyne has three reportable segments; semiconductor test systems segment,
connection systems segment, and other test and inspection systems segment. The
other test and inspection systems segment is comprised of circuit-board test and
inspection systems, broadband test systems, and software test systems.
Teradyne evaluates performance based on several factors, of which the
primary financial measure is business segment income before taxes. The
accounting policies of the business segments are the same as those described in
"Note B: Accounting Policies". Intersegment sales are accounted for at fair
value as if sales were to third parties. During 2000 and 1998 no individual
customer accounted for more than 10% of consolidated net sales. During 1999,
principally all of Teradyne's operating segments reported sales to Motorola Inc.
accounting for a total of 11% of consolidated net sales.
OTHER TEST
SEMICONDUCTOR AND
TEST CONNECTION INSPECTION CORPORATE SAB 101
SYSTEMS SYSTEMS SYSTEMS AND ADJUSTMENTS
SEGMENT SEGMENT SEGMENT ELIMINATIONS (4) CONSOLIDATED
------------- ---------- ---------- ------------ ----------- ------------
2000
Sales to unaffiliated
customers.............. $2,044,330 $734,642 $265,341 -- $ (367) $3,043,946
Intersegment sales....... -- $ 29,294 -- $(29,294) -- --
---------- -------- -------- -------- ------ ----------
Net sales................ 2,044,330 763,936 265,341 (29,294) (367) 3,043,946
Income (loss) before
taxes(1)............... 675,315 155,040 2,176 (92,730) (154) 739,648
Total assets (2)......... 920,629 511,083 105,335 780,926 37,895 2,355,868
Property additions (3)... 119,705 92,403 9,272 76,862 -- 298,242
Depreciation and
amortization
expense(3)............. 47,497 33,118 6,263 14,984 -- 101,862
33
35
TERADYNE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
O. OPERATING SEGMENT AND GEOGRAPHIC INFORMATION -- (CONTINUED)
OTHER TEST
SEMICONDUCTOR AND
TEST CONNECTION INSPECTION CORPORATE SAB 101
SYSTEMS SYSTEMS SYSTEMS AND ADJUSTMENTS
SEGMENT SEGMENT SEGMENT ELIMINATIONS (4) CONSOLIDATED
------------- ---------- ---------- ------------ ----------- ------------
1999
Sales to unaffiliated
customers.............. $1,210,543 $373,051 $207,318 -- -- $1,790,912
Intersegment sales....... -- 15,069 -- $(15,069) -- --
---------- -------- -------- -------- ------ ----------
Net sales................ 1,210,543 388,120 207,318 (15,069) -- 1,790,912
Income (loss) before
taxes(1)............... 287,960 63,249 (14,298) (63,062) -- 273,849
Total assets(2).......... 564,536 219,763 94,096 686,656 -- 1,565,051
Property additions(3).... 47,054 38,500 8,493 57,109 -- 151,156
Depreciation and
amortization
expense(3)............. 32,086 18,567 8,357 27,376 -- 86,386
1998
Sales to unaffiliated
customers.............. $ 967,147 $268,363 $253,641 -- -- $1,489,151
Intersegment sales....... -- 11,473 -- $(11,473) -- --
---------- -------- -------- -------- ------ ----------
Net sales................ 967,147 279,836 253,641 (11,473) -- 1,489,151
Income (loss) before
taxes(1)............... 104,586 34,027 32,245 (24,976) -- 145,882
Total assets(2).......... 510,938 189,338 114,734 497,804 -- 1,312,814
Property additions(3).... 87,390 31,417 5,866 39,767 -- 164,440
Depreciation and
amortization
expense(3)............. 39,973 14,079 7,581 14,671 -- 76,304
- ---------------
(1) Income before taxes of the principal businesses exclude the effects of
employee profit sharing, management incentive compensation, other
unallocated expenses, net interest income, and certain special charges.
(2) Total business assets are directly attributable to each business. Corporate
assets consist of cash and cash equivalents, marketable securities,
unallocated fixed assets of support divisions and common facilities and
certain other assets.
(3) Corporate property additions and depreciation and amortization expense
include items attributable to the unallocated fixed assets of support
divisions and common facilities.
(4) SAB 101 adjustment reflects the impact of SAB 101 on sales, income before
taxes, and total assets in 2000. Segments reflect their results before the
change in accounting principle.
34
36
TERADYNE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
O. OPERATING SEGMENT AND GEOGRAPHIC INFORMATION -- (CONTINUED)
Information as to Teradyne's sales in different geographical areas is as
follows (in thousands):
2000 1999 1998
---------- ---------- ----------
Sales to unaffiliated customers (1):
United States..................................... $1,407,110 $ 859,638 $ 797,143
South East Asia................................... 626,060 359,430 177,910
Europe............................................ 425,694 268,637 247,795
Taiwan............................................ 306,611 147,876 76,200
Japan............................................. 119,883 89,546 102,900
Korea............................................. 88,833 12,058 12,299
Other............................................. 69,755 53,727 74,904
---------- ---------- ----------
$3,043,946 $1,790,912 $1,489,151
========== ========== ==========
- ---------------
(1) Sales are attributable to geographic areas based on location of customer
site.
Because a substantial portion of Teradyne's sales are derived from the
sales of product manufactured in the United States, long-lived assets located
outside the United States are less than 10% of total assets.
35
37
SUPPLEMENTARY INFORMATION
(UNAUDITED)
The following sets forth certain unaudited consolidated quarterly
statements of operations data for each of Teradyne's last eight quarters. In
management's opinion, this quarterly information reflects all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
presentation for the periods presented. Such quarterly results are not
necessarily indicative of future results of operations and should be read in
conjunction with the audited consolidated financial statements of Teradyne and
the notes thereto included elsewhere herein.
2000 (AS REPORTED)*
--------------------------------------------------------
1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER
----------- ----------- ----------- -----------
Net sales........................................... $648,131 $758,955 $848,027 $821,652
Expenses:
Cost of sales..................................... 348,840 402,570 460,752 469,710
Engineering and development....................... 69,025 73,637 78,963 79,295
Selling and administrative........................ 78,956 91,982 95,149 96,475
-------- -------- -------- --------
496,821 568,189 634,864 645,480
-------- -------- -------- --------
Income from operations.............................. 151,310 190,766 213,163 176,172
Interest and other income........................... 4,962 6,235 6,641 12,886
Interest expense.................................... (425) (412) (570) (434)
-------- -------- -------- --------
Income before income taxes.......................... 155,847 196,589 219,234 188,624
Provision for income taxes.......................... 46,754 58,977 65,770 56,587
-------- -------- -------- --------
Net income.......................................... $109,093 $137,612 $153,464 $132,037
======== ======== ======== ========
Net income per common share -- basic................ $ 0.63 $ 0.79 $ 0.88 $ 0.76
======== ======== ======== ========
Net income per common share -- diluted.............. $ 0.60 $ 0.76 $ 0.84 $ 0.74
======== ======== ======== ========
4TH QUARTER
1ST QUARTER THROUGH 3RD QUARTER 2000 (AS
2000 (AS ADJUSTED)* REPORTED)*
----------------------------------------- -----------
1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER
----------- ----------- ----------- -----------
Net sales........................................... $615,358 $747,458 $859,478 $821,652
Expenses:
Cost of sales..................................... 338,484 403,529 457,976 469,710
Engineering and development....................... 69,025 73,637 78,963 79,295
Selling and administrative........................ 78,956 91,982 95,149 96,475
-------- -------- -------- --------
486,465 569,148 632,088 645,480
-------- -------- -------- --------
Income from operations.............................. 128,893 178,310 227,390 176,172
Interest and other income........................... 4,962 6,235 6,641 12,886
Interest expense.................................... (425) (412) (570) (434)
-------- -------- -------- --------
Income before income taxes and cumulative effect of
change in accounting principle.................... 133,430 184,133 233,461 188,624
Provision for income taxes.......................... 40,029 55,240 70,038 56,587
-------- -------- -------- --------
Income before cumulative effect of change accounting
principle......................................... 93,401 128,893 163,423 132,037
Cumulative effect of change in accounting
principle......................................... (64,138) -- -- --
-------- -------- -------- --------
Net income.......................................... $ 29,263 $128,893 $163,423 $132,037
======== ======== ======== ========
Income per share before cumulative effect of change
in accounting principle -- basic.................. $ 0.54 $ 0.74 $ 0.94 $ 0.76
======== ======== ======== ========
Cumulative effect of change in accounting
principle -- basic................................ $ (0.37) $ -- $ -- $ --
======== ======== ======== ========
Net income per common share -- basic................ $ 0.17 $ 0.74 $ 0.94 $ 0.76
======== ======== ======== ========
Income per share before cumulative effect of change
in accounting principle -- diluted................ $ 0.52 $ 0.71 $ 0.90 $ 0.74
======== ======== ======== ========
Cumulative effect of change in accounting
principle -- diluted.............................. $ (0.35) $ -- $ -- $ --
======== ======== ======== ========
Net income per common share -- diluted.............. $ 0.16 $ 0.71 $ 0.90 $ 0.74
======== ======== ======== ========
36
38
SUPPLEMENTARY INFORMATION -- (CONTINUED)
(UNAUDITED)
1999
--------------------------------------------------------
1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER
----------- ----------- ----------- -----------
Net sales.................................... $344,454 $400,904 $497,039 $548,515
Expenses:
Cost of sales.............................. 219,858 236,940 281,299 309,655
Engineering and development................ 47,724 56,829 60,331 63,686
Selling and administrative................. 54,481 59,386 70,470 72,055
-------- -------- -------- --------
322,063 353,155 412,100 445,396
-------- -------- -------- --------
Income from operations....................... 22,391 47,749 84,939 103,119
Interest income.............................. 3,778 3,842 4,794 4,893
Interest expense............................. (462) (442) (217) (535)
-------- -------- -------- --------
Income before income taxes................... 25,707 51,149 89,516 107,477
Provision for income taxes................... 7,712 15,345 26,855 32,243
-------- -------- -------- --------
Net income................................... $ 17,995 $ 35,804 $ 62,661 $ 75,234
======== ======== ======== ========
Net income per common share -- basic......... $ 0.11 $ 0.21 $ 0.37 $ 0.44
======== ======== ======== ========
Net income per common share -- diluted....... $ 0.10 $ 0.20 $ 0.35 $ 0.42
======== ======== ======== ========
- ---------------
* Note: The results for the first three quarters of fiscal year 2000 have been
adjusted to reflect the adoption of SAB 101. Pro forma amounts for the periods
beginning before January 1, 2000 have not been presented as the effect of the
change in accounting principle could not be reasonably determined.
ITEM 9: CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
37
39
PART III
ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Certain information relating to directors and executive officers of
Teradyne, executive compensation, security ownership of certain beneficial
owners and management, and certain relationships and related transactions is
incorporated by reference herein from Teradyne's definitive proxy statement in
connection with its Annual Meeting of Shareholders to be held on May 24, 2001,
which proxy statement will be filed with the Securities and Exchange Commission
not later than 120 days after the close of the fiscal year. For this purpose,
the Management Compensation and Development Committee Report and Performance
Graph included in such proxy statement are specifically not incorporated herein.
(Also see "Item 1 -- Executive Officers of the Company" elsewhere in this
report.)
ITEM 11: EXECUTIVE COMPENSATION.
Certain information relating to directors and executive officers of
Teradyne, executive compensation, security ownership of certain beneficial
owners and management, and certain relationships and related transactions is
incorporated by reference herein from Teradyne's definitive proxy statement in
connection with its Annual Meeting of Shareholders to be held on May 24, 2001,
which proxy statement will be filed with the Securities and Exchange Commission
not later than 120 days after the close of the fiscal year. For this purpose,
the Management Compensation and Development Committee Report and Performance
Graph included in such proxy statement are specifically not incorporated herein.
ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Certain information relating to directors and executive officers of
Teradyne, executive compensation, security ownership of certain beneficial
owners and management, and certain relationships and related transactions is
incorporated by reference herein from Teradyne's definitive proxy statement in
connection with its Annual Meeting of Shareholders to be held on May 24, 2001,
which proxy statement will be filed with the Securities and Exchange Commission
not later than 120 days after the close of the fiscal year. For this purpose,
the Management Compensation and Development Committee Report and Performance
Graph included in such proxy statement are specifically not incorporated herein.
ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Certain information relating to directors and executive officers of
Teradyne, executive compensation, security ownership of certain beneficial
owners and management, and certain relationships and related transactions is
incorporated by reference herein from Teradyne's definitive proxy statement in
connection with its Annual Meeting of Shareholders to be held on May 24, 2001,
which proxy statement will be filed with the Securities and Exchange Commission
not later than 120 days after the close of the fiscal year. For this purpose,
the Management Compensation and Development Committee Report and Performance
Graph included in such proxy statement are specifically not incorporated herein.
38
40
PART IV
ITEM 14: EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(A) 1. FINANCIAL STATEMENTS
The following consolidated financial statements are included in Item 8:
Balance Sheets as of December 31, 2000 and 1999
Statements of Income for the years ended December 31, 2000, 1999, and
1998
Statements of Shareholders' Equity for the years ended December 31,
2000, 1999, and 1998
Statements of Cash Flows for the years ended December 31, 2000, 1999,
and 1998
(a) 2. FINANCIAL STATEMENT SCHEDULES
The following consolidated financial statement schedule is included in Item
14(d):
Schedule II -- Valuation and Qualifying Accounts
Schedules other than those listed above have been omitted since they are
either not required or information is otherwise included.
(a) 3. LISTING OF EXHIBITS
The Exhibits which are filed with this report or which are incorporated by
reference herein are set forth in the Exhibit Index.
(b) REPORT ON FORM 8-K
A Current Report on Form 8-K dated November 16, 2000, was filed with the
Securities and Exchange Commission on November 20, 2000 relating to the
declaration of a dividend of one common share purchase right for each
outstanding share of common stock, par value $0.125 per share outstanding on
November 27, 2000 to the stockholders of record on that date.
39
41
ITEM 14(d) FINANCIAL STATEMENT SCHEDULES
TERADYNE, INC.
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
-------- ------------ ----------------------- ---------- --------
ADDITIONS
-----------------------
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
BEGINNING OF COST AND OTHER END OF
DESCRIPTION PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD
----------- ------------ ---------- ---------- ---------- ----------
(THOUSANDS OF DOLLARS)
---------------------------------------------------------------
Valuation reserve deducted in the
balance sheet from the asset to which
it applies:
Accounts receivable:
2000 Allowance for doubtful accounts... $4,410 $1,337 $ -- $571 $5,176
====== ====== ====== ==== ======
1999 Allowance for doubtful accounts... $2,395 $1,407 $ 804 $196 $4,410
====== ====== ====== ==== ======
1998 Allowance for doubtful accounts... $1,938 $ 17 $1,044 $604 $2,395
====== ====== ====== ==== ======
40
42
EXHIBIT INDEX
The following designated exhibits are, as indicated below, either filed
herewith or have heretofore been filed with the Securities and Exchange
Commission and are referred to and incorporated by reference to such filings.
EXHIBIT NO. DESCRIPTION SEC DOCUMENT REFERENCE
- ----------- ----------- ----------------------
3.1 Restated Articles of Organization of the Company, Exhibit 3.1 to the Company's Annual
as amended Report on Form 10-K for the fiscal year
ended December 31, 1997.
3.2 Amendment, dated May 23, 1996, to Restated Articles Exhibit 3.2 to the Company's Annual
of Organization of the Company, as amended Report on Form 10-K for the fiscal year
ended December 31, 1996.
3.3 Amended and Restated Bylaws of the Company Exhibit 3.3 to the Company's Annual
Report on Form 10-K for the fiscal year
ended December 31, 1996.
3.4 Amendment dated March 25, 2000, to Restated Exhibit 3.1 to the Company's Quarterly
Articles of Organization of the Company, as amended Report on Form 10-Q for the quarter
ended July 2, 2000.
4.1 Rights Agreement between the Company and Fleet Exhibit 4.1 to the Company's Form 8-K
National Bank dated as of November 17, 2000 filed November 20, 2000.
10.1 Teradyne, Inc. Supplemental Executive Retirement Exhibit 10.4 to the Company's Annual
Plan Report on Form 10-K for the fiscal year
ended December 31, 1997.
10.2 1991 Employee Stock Option Plan, as amended Exhibit 4.2 to the Company's
Registration Statement on Form S-8
(Registration Statement No. 333-07177).
10.3 Amendment to 1991 Stock Plan dated Exhibit 10.3 to the Company's Annual
March 9, 2001 Report on Form 10-K for the fiscal year
ended December 31, 2000.
10.4 Megatest Corporation 1990 Stock Option Plan Exhibit 4.1 to the Company's
Registration Statement on Form S-8
(Registration Statement No. 333-64683).
10.5 Megatest Corporation Director Stock Option Plan Exhibit 4.2 to the Company's
Registration Statement on Form S-8
(Registration Statement No. 333-64683).
10.6 1996 Employee Stock Purchase Plan Exhibit 4.1 to the Company's
Registration Statement on Form S-8
(Registration Statement No. 333-07177).
10.7 Master Lease Agreement between Megatest and General Exhibit 10.10 to the Company's Annual
Electric Capital Corporation dated August 10, 1995 Report on Form 10-K for the fiscal year
ended December 31, 1995.
10.8 Loan and Security Agreement between Megatest and Exhibit 10.11 to the Company's Annual
the CIT Group/Equipment Financing, Inc. dated Report on Form 10-K for the fiscal year
August 14, 1995 ended December 31, 1995.
10.9 Deed of Trust, Financing Statement, Security Exhibit 10.12 to the Company's Annual
Agreement and Fixture Filing between Megatest and Report on Form 10-K for the fiscal year
the Sun Life Assurance Company of Canada (U.S.) ended December 31, 1995.
dated August 25, 1995
10.10 1997 Employee Stock Option Plan Exhibit 10.14 to the Company's Annual
Report on Form 10-K for the fiscal year
ended December 31, 1996.
41
43
EXHIBIT NO. DESCRIPTION SEC DOCUMENT REFERENCE
- ----------- ----------- ----------------------
10.11 Letter Agreement dated January 24, 1997 between the Exhibit 10.15 to the Company's Annual
Company and Executive Officer Report on Form 10-K for the fiscal year
ended December 31, 1996.
10.12 1996 Non-Employee Director Stock Option Plan Exhibit 10.15 to the Company's Annual
Report on Form 10-K for the fiscal year
ended December 31, 1996.
10.13 Amendment to 1996 Non-Employee Director Option Plan Exhibit 10.13 to the Company's Annual
dated January 18, 2001 Report on Form 10-K for the fiscal year
ended December 31, 2000.
10.14 Letter Agreement dated June 1, 1997 between the Exhibit 10.15 to the Company's Annual
Company and Member of Board Report on Form 10-K for the fiscal year
ended December 31, 1997.
10.15 Letter Agreement dated June 1, 1997 between the Exhibit 10.16 to the Company's Annual
Company and Member of Board Report on Form 10-K for the fiscal year
ended December 31, 1997.
21.1 Subsidiaries of the Company
23.1 Consent of PricewaterhouseCoopers LLP
42
44
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized this 27th day of March,
2001.
TERADYNE, INC.
By: /s/ MICHAEL A. BRADLEY
------------------------------------
MICHAEL A. BRADLEY,
VICE PRESIDENT AND CHIEF FINANCIAL
OFFICER
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ GEORGE W. CHAMILLARD Chairman of the Board, President, and March 27, 2001
- --------------------------------------------------- Chief Executive Officer
GEORGE W. CHAMILLARD
/s/ MICHAEL A. BRADLEY Vice President and March 27, 2001
- --------------------------------------------------- Chief Financial Officer
MICHAEL A. BRADLEY
/s/ DONALD J. HAMMAN Vice President and Controller March 27, 2001
- --------------------------------------------------- Principal Accounting Officer
DONALD J. HAMMAN
/s/ JAMES W. BAGLEY Director March 27, 2001
- ---------------------------------------------------
JAMES W. BAGLEY
/s/ ALBERT CARNESALE Director March 27, 2001
- ---------------------------------------------------
ALBERT CARNESALE
/s/ DANIEL S. GREGORY Director March 27, 2001
- ---------------------------------------------------
DANIEL S. GREGORY
Director March , 2001
- ---------------------------------------------------
DWIGHT H. HIBBARD
/s/ JOHN P. MULRONEY Director March 27, 2001
- ---------------------------------------------------
JOHN P. MULRONEY
/s/ VINCENT M. O'REILLY Director March 27, 2001
- ---------------------------------------------------
VINCENT M. O'REILLY
/s/ RICHARD J. TESTA Director March 27, 2001
- ---------------------------------------------------
RICHARD J. TESTA
/s/ ROY A. VALLEE Director March 27, 2001
- ---------------------------------------------------
ROY A. VALLEE
Director March , 2001
- ---------------------------------------------------
PATRICIA S. WOLPERT
43