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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
COMMISSION FILE NUMBER 1-6462
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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
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Securities registered pursuant to Section 12(b) of the Act:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
Common Stock, par value $0.125 New York Stock Exchange
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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 16, 1996 was $1.78 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 16, 1996 was 83,383,894 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's proxy statement in connection with its 1996
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 manufacturer of electronic test systems and backplane
connection systems used in the electronics and telecommunications industries.
For financial information concerning these two industry segments, see "Note O:
Industry Segment and Geographic Information" in Notes to Consolidated Financial
Statements. Unless the context indicates otherwise, the term "Company" as used
herein includes Teradyne, Inc. and all its subsidiaries.
On December 1, 1995, the Company completed its acquisition of Megatest
Corporation ("Megatest"), by means of a merger of M Merger Corp., a wholly owned
subsidiary of the Company, with and into Megatest. As a result of the merger,
Megatest became a wholly owned subsidiary of the Company. Megatest, whose
headquarters are in San Jose, California, designs, manufactures, markets, and
services electronic test systems for the integrated circuit industry. The
Megatest combination has been accounted for as a pooling of interests. All
financial information contained in this report has been restated to reflect the
pooling of interests with Megatest and to give effect to the two-for-one stock
split effected in the form of a 100% stock dividend distributed August 29, 1995.
For further information concerning the merger, see "Note C: Merger -- Pooling of
Interests" 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 the Company's filings with the
Securities and Exchange Commission. See also "Item 7. Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Certain Factors
That May Affect Future Results."
ELECTRONIC TEST SYSTEMS
The Company designs, manufactures, markets, and services electronic test
systems and related software used by component manufacturers in the design and
testing of their products and by electronic equipment manufacturers for the
incoming inspection of components and for the design and testing of circuit
boards and other assemblies. Manufacturers use such systems and software to
increase product performance, to improve product quality, to shorten time to
market, to enhance manufacturability, to conserve labor costs, and to increase
production yields. The Company's electronic systems are also used by telephone
operating companies for the testing and maintenance of their subscriber
telephone lines and related equipment.
Electronic test systems produced by the Company include: (i) test systems
for a wide variety of semiconductors, including digital, analog, and mixed
signal integrated circuits ("semiconductor test systems"), (ii) test systems for
circuit boards and other assemblies ("circuit-board test systems"), and (iii)
test systems for telephone lines and networks ("telecommunications test
systems"). The Company's test systems are all controlled by computers, and
programming and operating software is supplied both as an integral part of the
product and as a separately priced enhancement. Semiconductor test systems
accounted for 69% of consolidated net sales in 1995 and 62% in 1994 and 1993.
Circuit-board test systems accounted for 11% of consolidated net sales in 1995,
15% in 1994, and 17% in 1993. Telecommunications test systems accounted for 7%
of consolidated net sales in 1995, 6% in 1994, and 7% in 1993.
The Company's systems are extremely complex and require extensive support
both by the customer and by the Company. Prices for the Company's systems range
from less than $100,000 to $5 million or more.
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BACKPLANE CONNECTION SYSTEMS
The Company also manufactures backplane connection systems, principally for
the computer, telecommunications, and military/aerospace industries. A backplane
is a panel that supports the circuit boards in an electronic assembly and
carries the wiring that connects the boards to each other and to other elements
of a system. The Company produces both printed circuit and metal backplanes,
along with mating circuit-board connectors. Backplanes are custom-configured to
meet specific customer requirements. The Company has begun to extend the
manufacture of backplane connection systems to include the manufacture of fully
integrated electronic assemblies that incorporate backplane, card cage, cabling,
and related design and production services. Backplane connection systems
accounted for 13% of consolidated net sales in 1995, 17% in 1994, and 14% in
1993.
MARKETING AND SALES
MARKETS
The Company sells its products across most sectors of the electronics
industry and to companies in other industries that use electronic devices in
high volume. No single customer accounted for 10% or more of net sales in 1995.
In 1995, the Company's four largest customers accounted for 31% of net sales.
Direct sales to United States government agencies accounted for less than
2% of net sales in 1995, less than 1% in 1994 and approximately 2% of net sales
in 1993. Sales are also made within each of the Company's segments to customers
who are government contractors. Approximately 17% of backplane connection
systems sales and less than 10% of electronic test systems sales fell into this
category during 1995.
The Company's international customers are located primarily in Europe, the
Asia Pacific region, and Japan. The Company sells in these areas both directly
and through foreign sales subsidiaries. Substantially all of the Company's
manufacturing activities are conducted in the United States.
Domestic export sales and foreign jurisdictional sales (which amounted to
less than 10% of total net sales in all periods presented) to international
customers accounted for 52% of net sales in 1995, 46% in 1994, and 41% in 1993.
Identifiable assets of the Company's foreign subsidiaries, consisting
principally of operating assets used in support of domestic export sales,
approximated $125.2 million at December 31, 1995, $94.5 million at December 31,
1994, and $65.0 million at December 31, 1993. Of these identifiable assets at
December 31, 1995, $79.9 million were in Europe, $38.6 million were in Japan,
and $6.7 million were in the Asia Pacific region.
The Company is subject to the inherent risks involved in international
trade, such as political and economic instability, restrictive trade policies,
controls on funds transfer, foreign currency fluctuations, difficulties in
managing distributors, potentially adverse tax consequences, and the possibility
of difficulty in accounts receivable collection. The Company attempts to reduce
the effects of currency fluctuations by hedging part of its exposed position and
by conducting some of its foreign transactions in U.S. dollars or dollar
equivalents.
DISTRIBUTION
The Company sells its products primarily through a direct sales force. The
Company has sales and service offices throughout North America, Europe, the Asia
Pacific region, and Japan.
COMPETITION
The Company faces substantial competition throughout the world, primarily
from electronic test systems manufacturers located in the United States, Europe,
and Japan, as well as several of the Company's customers. Some of these
competitors have substantially greater financial and other resources with which
to pursue engineering, manufacturing, marketing, and distribution of their
products. New product introductions by the Company's competitors could cause a
decline in sales or loss of market acceptance of existing products.
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BACKLOG
On December 31, 1995, the Company's backlog of unfilled orders for
electronic test systems and backplane connection systems was approximately
$607.1 million and $52.2 million, respectively, compared with $352.0 million and
$66.3 million, respectively, on December 31, 1994. Of the backlog at December
31, 1995, approximately 92% of the electronic test systems backlog and
approximately 94% of the backplane connection systems backlog are expected to be
delivered in 1996. The electronic test systems backlog at December 31, 1995
includes $40.2 million of United States government orders for M900 VXI Digital
Test subsystems for the U.S. Navy's Consolidated Automated Support System (CASS)
which are unfunded. The unfunded orders are for shipments scheduled to be
delivered in 1997 and beyond. The Company's past experience indicates that a
portion of orders included in the backlog may be canceled. There are no seasonal
or unusual factors related to the backlog.
RAW MATERIALS
The Company's products require a wide variety of electronic and mechanical
components. In the past, the Company has experienced occasional delays in
obtaining timely delivery of certain items. Additionally, the Company could
experience a temporary adverse impact if any of its sole source suppliers ceased
to deliver products. Any prolonged inability of the Company to obtain adequate
yields or deliveries, or any other circumstances that would require the Company
to seek alternative sources of supply could have a material adverse effect on
the Company's business, financial condition, and results of operations.
PATENTS AND LICENSES
The development of products by the Company, both hardware and software, is
largely based on proprietary information. The Company protects its rights in
proprietary information through various methods such as copyrights, trademarks,
patents and patent applications, software license agreements, and employee
agreements. The Company relies on certain intellectual property protections to
preserve its intellectual property rights. Any invalidation of the Company's
intellectual property rights or lengthy and expensive defense of those rights
could have a material adverse affect on the Company.
EMPLOYEES
As of December 31, 1995, the Company employed approximately 5,200 persons.
Since the inception of the Company's business, there have been no work stoppages
or other labor disturbances. The Company has no collective bargaining contracts.
ENGINEERING AND DEVELOPMENT ACTIVITIES
The highly technical nature of the Company's products requires a large and
continuing engineering and development effort. Engineering and development
expenditures for new and improved products were approximately $123.5 million in
1995, $86.6 million in 1994, and $74.6 million in 1993. These expenditures
amounted to approximately 10% of net sales in 1995, 11% in 1994, and 12% in
1993.
ENVIRONMENTAL AFFAIRS
The Company's manufacturing facilities are subject to numerous laws and
regulations designed to protect the environment, particularly from manufacturing
plant wastes and emissions. These include laws such as the Comprehensive
Environmental Response, Compensation, and Liability Act of 1980, the Superfund
Amendment and Reauthorization Act of 1986, the Occupational Safety and Health
Act, the Clean Air Act, the Clean Water Act, the Resource Conservation and
Recovery Act of 1976, and the Hazardous and Solid Waste Amendments of 1984. In
the opinion of management, the costs associated with complying with these laws
and regulations has not had and is currently not expected to have a material
adverse effect upon the capital expenditures, earnings and competitive position
of the Company.
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EXECUTIVE OFFICERS OF THE COMPANY
The following table sets forth the names of all executive officers of the
Company and certain other information relating to their positions held with the
Company and other business experience. Executive officers of the Company do not
have a specific term of office but rather serve at the discretion of the Board
of Directors.
BUSINESS EXPERIENCE FOR THE PAST 5
EXECUTIVE OFFICER AGE POSITION YEARS
- ---------------------------- ---- --------------------------- ----------------------------------
Alexander V. d'Arbeloff..... 68 Chairman of the Board and Chairman of the Board of the
Chief Executive Officer Company since 1977; Chief
Executive Officer beginning in
1996; President of the Company
from 1971 to 1996; Director of the
Company since 1960.
James A. Prestridge......... 64 Vice Chairman of the Board Vice Chairman of the Board
and Executive Vice beginning in 1996; Executive Vice
President President of the Company since
1992; Vice President of the
Company from 1971 to 1992.
Owen W. Robbins............. 66 Vice Chairman of the Board Vice Chairman of the Board
and Executive Vice beginning in 1996; Executive Vice
President President of the Company since
1992; Vice President of the
Company from 1977 to 1992.
George W. Chamillard........ 57 President, Chief Operating President, Chief Operating
Officer, and Member of the Officer, and Director of the
Board Company beginning in 1996;
Executive Vice President of the
Company from 1994 to 1996; Vice
President of the Company from 1981
to 1993.
Michael A. Bradley.......... 47 Vice President Vice President of the Company
since 1992; TQM Manager of the
Company from 1990 to 1992.
George V. d'Arbeloff........ 51 Vice President Vice President of the Company
since 1980.
Ronald J. Dias.............. 52 Vice President Vice President of the Company
since 1988.
John E. Halter.............. 62 Vice President Vice President beginning in 1996;
President and Chief Executive
Officer of Megatest Corporation
from 1990 to 1995.
Donald J. Hamman............ 44 Controller Controller of the Company since
1994; Director of Corporate
Accounting from 1986 to 1994.
Jeffrey R. Hotchkiss........ 48 Vice President Vice President of the Company
since 1990.
John P. McCabe.............. 51 Vice President Vice President of the Company
since 1994; Controller of the
Company from 1975 to 1994.
Stuart M. Osattin........... 50 Vice President and Vice President of the Company
Treasurer since 1994; Treasurer of the
Company since 1980.
Edward Rogas, Jr. .......... 55 Vice President Vice President of the Company
since 1984.
David L. Sulman............. 52 Vice President Vice President of the Company
since 1994; Division General
Manager since 1993; Division
Engineering Manager from 1982 to
1992.
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ITEM 2: PROPERTIES
The Company's executive offices are in Boston, Massachusetts. Manufacturing
and other operations are carried on in several locations. The following table
provides certain information as to the Company's principal general offices and
manufacturing facilities.
APPROXIMATE
PROPERTY SQUARE FEET OF
LOCATION INTEREST FLOOR SPACE
- -------- -------- --------------
ELECTRONIC TEST SYSTEMS INDUSTRY SEGMENT:
Boston, Massachusetts............................................. Own 490,000
Boston, Massachusetts............................................. Lease 45,000
Agoura Hills, California.......................................... Own 360,000
Deerfield, Illinois............................................... Own 65,000
Deerfield, lllinois............................................... Lease 20,000
Walnut Creek, California.......................................... Lease 60,000
Kumamoto, Japan................................................... Own 28,000
San Jose, California.............................................. Own 112,000
San Jose, California.............................................. Lease 17,000
BACKPLANE CONNECTION SYSTEMS INDUSTRY SEGMENT:
Nashua, New Hampshire............................................. Own 377,000
Dublin, Ireland................................................... Lease 46,000
The Company is subleasing an additional 85,000 square feet of space to a
third party in Walnut Creek, California, through the expiration of the lease in
June 1996.
ITEM 3: LEGAL PROCEEDINGS
The Company is not a party to any litigation that, in the opinion of
management, could reasonably be expected to have a material adverse impact on
the Company's financial position.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not Applicable.
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PART II
ITEM 5: MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER
MATTERS
The following table shows the market range for the Company's Common Stock
based on reported sales prices on the New York Stock Exchange, after giving
effect to the two-for-one stock split effected in the form of a 100% stock
dividend distributed on August 29, 1995.
PERIOD HIGH LOW
------ ---- ---
1994 First Quarter.............................. $15 5/8 $11 3/4
Second Quarter............................. 13 3/8 10 1/4
Third Quarter.............................. 16 11 3/4
Fourth Quarter............................. 17 1/8 12 7/8
1995 First Quarter.............................. 21 1/2 16
Second Quarter............................. 33 20
Third Quarter.............................. 42 7/8 32 1/4
Fourth Quarter............................. 36 5/8 20 1/8
The number of record holders of the Company's Common Stock at February 16,
1996 was 3,389.
The Company has never paid cash dividends because it has been its policy to
use earnings to finance expansion and growth. While payment of future cash
dividends will rest within the discretion of the Board of Directors and will
depend, among other things, upon the Company's earnings, capital requirements,
and financial condition. The Company presently expects to retain all of its
earnings for use in the business.
ITEM 6: SELECTED FINANCIAL DATA
YEARS ENDED DECEMBER 31,*
----------------------------------------------------------
1995 1994 1993 1992 1991
---------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Net sales................................. $1,191,022 $777,731 $633,139 $595,072 $568,599
========== ======== ======== ======== ========
Income from
continuing operations................... $ 159,284 $ 76,390 $ 41,202 $ 26,412 $ 20,479
========== ======== ======== ======== ========
Income from continuing
operations per common share............. $ 1.89 $ 0.95 $ 0.54 $ 0.37 $ 0.31
========== ======== ======== ======== ========
Total assets.............................. $1,023,831 $759,480 $621,607 $502,212 $460,945
========== ======== ======== ======== ========
Long-term obligations..................... $ 18,679 $ 9,111 $ 9,942 $ 25,828 $ 26,419
========== ======== ======== ======== ========
- ---------------
*Note: Previously published financial data have been restated to reflect the
pooling of interests with Megatest Corporation (see "Note C:
Merger -- Pooling of Interests" in Notes to Consolidated Financial
Statements) and to give effect to the two-for-one stock split effected in
the form of a 100% stock dividend distributed on August 29, 1995.
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ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
SELECTED RELATIONSHIPS WITHIN THE CONSOLIDATED
STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31,*
------------------------------------
1995 1994 1993
---------- -------- --------
(DOLLARS IN THOUSANDS)
Net sales......................................... $1,191,022 $777,731 $633,139
========== ======== ========
Income from continuing operations................. $ 159,284 $ 76,390 $ 41,202
========== ======== ========
Increase in net sales from preceding year:
Amount.......................................... $ 413,291 $144,592 $ 38,067
========== ======== ========
Percentage...................................... 53% 23% 6%
========== ======== ========
Increase in income from continuing operations
from preceding year............................. $ 82,894 $ 35,188 $ 14,790
========== ======== ========
Percentage of net sales:
Net sales....................................... 100% 100% 100%
Expenses:
Cost of sales................................ 54 56 57
Engineering and development.................. 10 11 12
Selling and administrative................... 15 19 22
---------- -------- --------
79 86 91
Other income (expense):
Merger expenses.............................. (1)
Net interest income.......................... 1 1
---------- -------- --------
Income before income taxes, extraordinary
item,
and cumulative effect of change in
accounting for taxes....................... 21 15 9
Provision for income taxes................... 8 5 2
---------- -------- --------
Income before extraordinary item and
cumulative effect
of change in accounting for income taxes... 13% 10% 7%
---------- -------- --------
- ---------------
*Note: Previously published financial data have been restated to reflect the
pooling of interests with Megatest Corporation (see "Note C:
Merger -- Pooling of Interests" in Notes to Consolidated Financial
Statements) and to give effect to the two-for-one stock split effected in
the form of a 100% stock dividend distributed on August 29, 1995.
RESULTS OF OPERATIONS:
1995 compared to 1994
Sales advanced 53% in 1995 to $1.2 billion. Each of the major product lines
of the Company -- semiconductor test systems, circuit-board test systems,
telecommunications test systems, and backplane connection systems contributed to
the increase in sales. Sales of semiconductor test systems grew 70% as
semiconductor manufacturers continued to add capacity in response to rising
demand for their products. This capacity expansion was evidenced by a number of
new semiconductor manufacturing plants coming on line. Telecommunications test
systems sales increased 84% primarily from the growing installation of
telephone-line test equipment at Deutsche Telekom in Germany. Sales of backplane
connection systems increased 18% as a result of greater penetration into the
Company's high technology commercial customer base. Circuit-
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board test systems sales increased 13%. As a result of the increase in sales,
income from continuing operations more than doubled in 1995, increasing $82.9
million to $159.3 million.
Incoming orders grew faster than sales in 1995, increasing 59% to $1.4
billion. The increase in orders, like the increase in sales, was primarily due
to increases in semiconductor test systems orders, which increased 73%.
Additionally, circuit-board test systems orders increased by 110% due in large
part to U.S. government contracts to supply electronic test equipment for the
B-2 Stealth Bomber and for the Navy's CASS program. Orders for backplane
connection systems and telecommunications test systems declined 11% and 5%,
respectively. As a result of the overall increase in orders, the Company's
backlog grew 58% in 1995, finishing the year at $659.3 million.
Cost of sales, as a percentage of sales, decreased from 56% in 1994 to 54%
in 1995. The improvement was primarily the result of increased utilization of
the fixed and semi-variable components of the Company's overhead structure. In
addition, there was a favorable change in mix as sales of backplane connection
systems, whose product margins are generally lower than those of electronic test
systems, were lower as a percentage of total Company sales.
Engineering and development expenses, as a percentage of sales, declined 1%
from 11% in 1994 to 10% in 1995, as these expenses did not increase at the same
rate as sales. The dollar amount of these expenses grew $36.9 million in 1995 as
a result of increased investment in new product development of semiconductor
test systems. Selling and administrative expenses decreased to 15% of sales in
1995 compared with 19% of sales in 1994, as the dollar volume of these expenses
grew by 19% while sales increased 53%.
In 1995, the Company incurred merger expenses of $5.6 million consisting
primarily of professional fees related to its merger with Megatest.
Interest income increased 82% in 1995 to $14.2 million due to an increase
in the Company's average invested balances and higher interest rates. Interest
expense increased from $1.8 million in 1994 to $3.0 million in 1995 as a result
of increased borrowing at Megatest prior to the merger.
The Company's effective tax rate was 36% in 1995 compared with 33% in 1994.
The Company utilized certain tax credit and net loss carryforward amounts in
1994 to operate below the United States statutory rate of 35%. In 1995, the
effective rate increased as the tax credit and loss carryforwards were no longer
available and certain merger expenses were nondeductible for income tax
purposes. The Company expects its tax rate to approximate the statutory rate of
35% in 1996.
1994 Compared to 1993
Sales increased 23% in 1994, to $777.7 million. Sales increased in each of
the Company's major product groups. The increase in sales was primarily due to a
23% increase in sales of semiconductor test systems and to a 49% increase in
sales of backplane connection systems. Sales of semiconductor test systems
increased as semiconductor manufacturers added capacity to meet rising demand
for their products, while sales of backplane connection systems increased due to
growth in demand for the high technology products of the Company's commercial
customer base. Sales of circuit-board test systems and telecommunications test
systems increased 8% and 11%, respectively, in 1994 compared to 1993. Income
from continuing operations increased by $35.2 million from 1993 to 1994 on a
sales increase of $144.6 million.
Incoming orders grew faster than sales in 1994, increasing 29% to $901.0
million. The increase in orders, like the increase in sales, was primarily due
to increases in semiconductor test systems and backplane connection systems.
Orders for circuit-board test systems and telecommunications test systems
declined in 1994. As a result of the overall increase in orders, the Company's
backlog grew during 1994 to $418.3 million.
Cost of sales, as a percentage of sales, decreased from 57% of sales in
1993 to 56% in 1994. The improvement was a result of the following two factors.
First, the increase in sales volume permitted increased utilization of certain
fixed and semi-variable components of the Company's overhead structure. Second,
there was an unfavorable change in mix as sales of backplane connection systems,
whose product margins are
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generally lower than those of electronic test systems, were higher as a
percentage of total Company sales. Engineering and development expenses, as a
percentage of sales, declined 1% in 1994, compared with 1993. The dollar amount
of these expenses grew $12.0 million in 1994 as a result of increased investment
in new product development of semiconductor test systems. Selling and
administrative expenses declined from 22% of sales to 19% as the dollar amount
of these expenses grew only 4% while sales increased by 23%.
Interest income increased $4.0 million in 1994 as a result of a $70.9
million increase in the Company's average invested balances during the year and
as a result of higher interest rates. Interest expense decreased $2.1 million in
1994 as a result of the Company's retirement of its 9.25% convertible
subordinated debentures in the fourth quarter of 1993.
The Company's effective tax rate was 33% in 1994 compared to 28% in 1993.
The Company was able to operate with an effective tax rate below the United
States statutory rate of 35% as a result of the utilization of tax credit and
net operating loss carryforwards. The 1993 combined financial results also
reflect the adoption of Statement of Financial Accounting Standards No. 109,
Accounting for Income Taxes, which resulted in a one-time $7.6 million credit.
The one-time credit resulted from the recognition of previously unrecognized tax
benefits of deductible temporary differences and operating loss carryforwards.
In connection with the retirement of the Company's outstanding 9.25%
convertible subordinated debentures, the Company incurred, in the fourth quarter
of 1993, an extraordinary charge of $0.7 million, net of income taxes, for the
costs of the redemption premium of 3.7% and the write-off of unamortized debt
issuance costs.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash, cash equivalents and marketable securities balance grew
$54.6 million in 1995 following an increase of $70.9 million in 1994. Cash flow
generated from operations was $115.5 million in 1995 and $107.0 million in 1994.
Cash of $24.9 million in 1995 and $17.1 million in 1994 was generated from the
sale of stock to employees under the Company's stock option and stock purchase
plans. A secondary public offering of Megatest common stock, completed in
October 1993 (prior to Megatest's merger with the Company), provided $13.6
million in additional cash in 1994.
Cash was used to fund additions to property, plant and equipment of $93.2
million in 1995 and $40.7 million in 1994. The Company increased its investment
in marketable securities by $64.3 million in 1995. In 1993, the Company's Board
of Directors authorized the repurchase of 1,000,000 shares of the Company's
stock on the open market. Cash of $24.6 million in 1994 and $2.3 million in 1993
was utilized for this buyback of the Company's stock. Long-term debt increased
by $11.5 million in 1995 after a reduction of $1.5 million in 1994. The 1995
increase resulted from borrowing at Megatest prior to the merger.
The Company believes its cash and cash equivalents balance of $182.2
million, together with other sources of funds, including marketable securities
of $93.7 million, cash flow generated from operations, and the available
borrowing capacity of $120.0 million under its line of credit agreement, will be
sufficient to meet working capital and capital expenditure requirements in 1996.
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123, Accounting for Stock-Based
Compensation, "Statement 123". Statement 123 encourages, but does not require,
the recognition of compensation expense for grants of stock, stock options, and
other equity instruments based upon new fair value accounting rules (the
"recognition method"). Companies that choose not to adopt the recognition method
may continue to apply the existing accounting principles however, Statement 123
requires companies that choose not to adopt the new fair value accounting rules
to disclose pro forma net income and earnings per share amounts under the new
fair value method (the "disclosure method"). The Company plans to adopt the
disclosure method in 1996 and will report the pro forma effect of applying fair
value accounting rules to grants of stock-based awards on net income and
earnings per share in its 1996 financial statements.
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Inflation has not had a significant long-term impact on earnings. If there
was inflation, the Company's efforts to cover cost increases with price
increases could be frustrated in the short-term by its relatively high backlog.
CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS
From time to time, information provided by the Company, statements made by
its employees or information included in its filings with the Securities and
Exchange Commission (including this Form 10-K and the Company's Annual Report to
Shareholders) may contain statements which are not historical facts, so-called
"forward looking statements," which involve risks and uncertainties. In
particular, statements in "Item 1. Business" relating to the Company's market
share position and the 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
capital expenditure requirements may be forward-looking statements. The
Company's actual future results may differ significantly from those stated in
any forward looking statements. Factors that may cause such differences include,
but are not limited to, the factors discussed below. Each of these factors, and
others, are discussed from time to time in the Company's filings with the
Securities and Exchange Commission.
The Company's future results are subject to substantial risks and
uncertainties. The Company's business and results of operations depend in
significant part upon capital expenditures of manufacturers of semiconductors,
which in turn depend upon the current and anticipated market demand for
semiconductors and products incorporating semiconductors. Historically, the
semiconductor industry has been highly cyclical with recurring periods of over
supply, which often have had a severe effect on the semiconductor industry's
demand for test equipment, including systems manufactured and marketed by the
Company. The Company believes that the markets for newer generations of
semiconductors will also be subject to similar fluctuations. In recent years,
the semiconductor industry has experienced significant growth which, in turn,
has caused significant growth in the capital equipment industry. There can be no
assurance that such growth can be sustained. In addition, any factor adversely
affecting the semiconductor industry or particular segments within the
semiconductor industry may adversely affect the Company's business, financial
condition and operating results. Also, the Company relies on certain
intellectual property protections to preserve its intellectual property rights.
Any invalidation of the Company's intellectual property rights or lengthy and
expensive defense of those rights could have a material adverse affect on the
Company. The development of new technologies, commercialization of those
technologies into products, and market acceptance and customer demand for those
products is critical to the Company's success. Successful product development
and introduction depends upon a number of factors, including new product
selection, development of competitive products by competitors, timely and
efficient completion of product design, timely and efficient implementation of
manufacturing and assembly processes and product performance at customer
locations. The Company faces substantial competition throughout the world,
primarily from electronic test systems manufacturers located in the United
States, Europe and Japan, as well as several of the Company's customers. Some of
these competitors have substantially greater financial and other resources to
pursue engineering, manufacturing, marketing and distribution of their products.
Certain of the Company's competitors have introduced or announced new products
with certain performance characteristics which may be considered equal or
superior to those currently offered by the Company. The Company expects its
competitors to continue to improve the performance of their current products and
to introduce new products or new technologies that provide improved cost of
ownership and performance characteristics. New product introductions by
competitors could cause a decline in sales or loss of market acceptance of the
Company's existing products. Moreover, increased competitive pressure could lead
to intensified price based competition, which could materially adversely affect
the Company's business, financial condition and results of operations. The
Company derives a significant portion of its total revenues from international
sales. International sales are subject to significant risks, including
unexpected changes in legal and regulatory requirements and policy changes
affecting the Company's markets, changes in tariffs, exchange rates and other
barriers, political and economic instability, difficulties in accounts
receivable collection, difficulties in managing distributors and
representatives, difficulties in staffing and managing foreign operations,
difficulties in protecting the Company's intellectual property and potentially
adverse tax consequences.
11
12
The Company's quarterly and annual operating results are affected by a wide
variety of factors that could materially adversely affect revenues and
profitability, including: competitive pressures on selling prices; the timing
and cancellation of customer orders; changes in product mix; the Company's
ability to introduce new products and technologies on a timely basis;
introduction of products and technologies by the Company's competitors; market
acceptance of the Company's and its competitors' products; the level of orders
received which can be shipped in a quarter; and the timing of investments in
research and development. As a result of the foregoing and other factors, the
Company may experience material fluctuations in future operating results on a
quarterly or annual basis which could materially and adversely affect its
business, financial condition, operating results and stock price.
12
13
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT ACCOUNTANTS
To the Directors and Shareholders of
TERADYNE, INC.:
We have audited the consolidated balance sheets of Teradyne, Inc. as of
December 31, 1995 and 1994, and the related consolidated statements of income,
cash flows, and shareholders' equity for each of the three years in the period
ended December 31, 1995. The financial statements give retroactive effect to the
merger of Teradyne, Inc. and Megatest Corporation (Megatest) on December 1,
1995, which has been accounted for using the pooling of interests method as
described in Note B to the consolidated financial statements. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits. We did not audit the consolidated financial statements of Megatest
for the years ended August 31, 1994 and 1993, which statements reflect
consolidated total assets constituting 13% of the related consolidated total
assets as of December 31, 1994, and which reflect consolidated net sales
constituting 13% and 12% of the related consolidated net sales for the years
ended December 31, 1994 and 1993, respectively. Those statements were audited by
other auditors whose reports have been furnished to us, and our opinion, insofar
as it relates to the amounts included for Megatest, is based solely on the
reports of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits and the reports of the other auditors provide a
reasonable basis for our opinion.
In our opinion, based on our audits and the reports of other auditors, the
financial statements referred to above present fairly, in all material respects,
the consolidated financial position of Teradyne, Inc. as of December 31, 1995
and 1994, and the consolidated results of its operations and its cash flows for
each of the three years in the period ended December 31, 1995, after giving
retroactive effect to the merger of Megatest, as described in the notes to the
consolidated financial statements, in conformity with generally accepted
accounting principles.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
January 18, 1996, except as to the third
paragraph of Note E, for which the date is
January 31, 1996.
13
14
TERADYNE, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
ASSETS
1995 1994
---------- --------
(DOLLARS IN THOUSANDS)
Current assets:
Cash and cash equivalents........................................ $ 182,165 $202,215
Marketable securities............................................ 93,662 29,835
Accounts receivable, less allowance for doubtful accounts of
$2,269 in 1995 and $2,219 in 1994............................. 254,820 152,138
Inventories:
Parts......................................................... 120,011 53,879
Assemblies in process......................................... 56,840 54,173
---------- ---------
176,851 108,052
Deferred tax assets.............................................. 19,546 21,656
Prepayments and other current assets............................. 13,101 9,026
---------- ---------
Total current assets.......................................... 740,145 522,922
Property, plant, and equipment:
Land............................................................. 22,755 19,482
Buildings and improvements....................................... 128,235 114,887
Machinery and equipment.......................................... 351,950 307,373
Construction in progress......................................... 10,046 7,067
---------- ---------
Total......................................................... 512,986 448,809
Less: Accumulated depreciation................................... (255,968) (239,130)
---------- ---------
Net property, plant, and equipment............................ 257,018 209,679
Deferred charges and other assets.................................. 26,668 26,879
---------- ---------
Total assets.................................................. $1,023,831 $759,480
========== =========
LIABILITIES
Current liabilities:
Notes payable -- banks........................................... $ 8,141 $ 8,431
Current portion of long-term debt................................ 2,082 316
Accounts payable................................................. 42,229 22,342
Accrued employees' compensation and withholdings................. 66,000 42,235
Unearned service revenue and customer advances................... 53,587 48,469
Other accrued liabilities........................................ 41,395 32,154
Income taxes payable............................................. 16,157 9,635
---------- ---------
Total current liabilities..................................... 229,591 163,582
Deferred tax liabilities........................................... 15,711 13,901
Long-term debt..................................................... 18,679 9,111
---------- ---------
Commitments (Note G)
Total liabilities............................................. 263,981 186,594
========== =========
SHAREHOLDERS' EQUITY
Common stock $0.125 par value, authorized 125,000,000 shares
(75,000,000 in 1994), issued and outstanding after deduction of
reacquired shares, 82,633,591 in 1995 and 39,610,602 in 1994..... 10,329 4,952
Additional paid-in capital......................................... 366,970 329,887
Retained earnings.................................................. 382,551 238,047
---------- ---------
Total shareholders' equity.................................... 759,850 572,886
---------- ---------
Total liabilities and shareholders' equity.................... $1,023,831 $759,480
========== =========
The accompanying notes are an integral part of the consolidated financial
statements.
14
15
TERADYNE, INC.
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31,
------------------------------------
1995 1994 1993
---------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Net sales............................................... $1,191,022 $777,731 $633,139
Expenses:
Cost of sales......................................... 646,382 435,129 358,661
Engineering and development........................... 123,487 86,570 74,561
Selling and administrative............................ 176,797 148,004 142,540
---------- -------- --------
946,666 669,703 575,762
---------- -------- --------
Income from operations.................................. 244,356 108,028 57,377
Other income (expense):
Merger expenses....................................... (5,600)
Interest income....................................... 14,209 7,827 3,874
Interest expense...................................... (3,040) (1,830) (3,968)
---------- -------- --------
Income before income taxes, extraordinary item, and
cumulative effect of change in accounting for income
taxes................................................. 249,925 114,025 57,283
Provision for income taxes.............................. 90,641 37,635 16,081
---------- -------- --------
Income before extraordinary item and cumulative effect
of change in accounting for income taxes.............. 159,284 76,390 41,202
Extraordinary item, less applicable income taxes of
$313.................................................. (729)
Cumulative effect of change in accounting for income
taxes................................................. 7,600
---------- -------- --------
Net income.............................................. $ 159,284 $ 76,390 $ 48,073
---------- -------- --------
Income per common share:
Income before extraordinary item and cumulative effect
of change in accounting for income taxes........... $ 1.89 $ 0.95 $ 0.54
Extraordinary item, net of income taxes............... (0.01)
Cumulative effect of change in accounting for income
taxes.............................................. 0.10
---------- -------- --------
Net income per common share........................... $ 1.89 $ 0.95 $ 0.63
---------- -------- --------
Shares used in calculations of income per common
share................................................. 84,253 80,729 75,984
---------- -------- --------
The accompanying notes are an integral part of the consolidated financial
statements.
15
16
TERADYNE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31,
-----------------------------------
1995 1994 1993
--------- -------- --------
(DOLLARS IN THOUSANDS)
Cash flows from operating activities:
Net income............................................ $ 159,284 $ 76,390 $ 48,073
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation.......................................... 39,817 34,686 33,025
Amortization.......................................... 3,329 3,756 3,775
Deferred income taxes................................. 3,920 3,875 3,037
Extraordinary loss on retirement of debt.............. 1,042
Cumulative effect of change in accounting for income
taxes.............................................. (7,600)
Other non-cash items, net............................. 4,881 1,752 1,544
Changes in operating assets and liabilities:
Accounts receivable................................ (114,708) (32,178) 13,642
Inventories........................................ (57,111) (18,277) (13,699)
Other assets....................................... (18,567) (12,764) (3,282)
Accounts payable and accruals...................... 60,361 34,887 16,915
Income taxes payable............................... 34,334 14,902 10,682
--------- --------- ---------
Net cash provided by operating activities........ 115,540 107,029 107,154
--------- --------- ---------
Cash flows from investing activities:
Additions to property, plant, and equipment........... (79,197) (32,568) (28,676)
Increase in equipment manufactured by the Company..... (14,004) (8,127) (10,008)
Purchases of marketable securities.................... (190,961) (55,400) (7,942)
Maturities of marketable securities................... 126,619 25,848
--------- --------- ---------
Net cash used in investing activities............ (157,543) (70,247) (46,626)
--------- --------- ---------
Cash flows from financing activities:
Net payments under short-term borrowing agreements.... (4,100) (3,500)
Payments of long-term debt............................ (1,015) (1,665) (7,449)
Additions to long-term debt........................... 12,500 145 1,420
Payment to retire convertible subordinated
debentures......................................... (10,780)
Issuance of common stock under stock option and stock
purchase plans..................................... 24,914 17,119 24,737
Sale of common stock.................................. 13,575 23,917
Acquisition of treasury stock......................... (24,597) (2,277)
--------- --------- ---------
Net cash provided by financing activities........ 32,299 4,577 26,068
--------- --------- ---------
Increase (decrease) in cash and cash equivalents........ (9,704) 41,359 86,596
Adjustment to conform fiscal year of Megatest........... (10,346)
Cash and cash equivalents at beginning of year.......... 202,215 160,856 74,260
--------- --------- ---------
Cash and cash equivalents at end of year................ $ 182,165 $202,215 $160,856
========= ========= =========
Supplementary disclosure of cash flow information:
Cash paid during the year for:
Interest........................................... $ 3,092 $ 1,722 $ 4,839
Income taxes....................................... 52,339 16,563 1,991
The accompanying notes are an integral part of the consolidated financial
statements.
16
17
TERADYNE, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
SHARES COMMON ADDITIONAL
----------------------- STOCK PAID IN RETAINED
ISSUED REACQUIRED PAR VALUE CAPITAL EARNINGS
---------- ---------- --------- ---------- --------
(DOLLARS IN THOUSANDS)
Balance, December 31, 1992, as
previously reported................. 33,600,578 554,918 $ 4,131 $206,439 $134,078
Adjustment to effect pooling of
interests with Megatest
Corporation......................... 1,734,500 217 42,809 (20,494)
---------- --------- ------- -------- --------
Balance, December 31, 1992, as
restated............................ 35,335,078 554,918 4,348 249,248 113,584
Tax benefit from stock options upon
adoption of SFAS 109................ 6,869
Issuance of stock to employees under
benefit plans....................... 2,689,645 87,054 326 24,411
Tax benefit from stock options........ 8,943
Issuance of stock upon conversion of
convertible subordinated
debentures.......................... 210,585 26 4,656
Repurchase of stock................... 125,580 (16) (2,261)
Initial public offering of Megatest
Corporation, net of offering
costs............................... 1,007,575 126 23,791
Net income............................ 48,073
Pension adjustment.................... (1,468)
---------- --------- ------- -------- --------
Balance, December 31, 1993............ 39,242,883 767,552 4,810 315,657 160,189
Issuance of stock to employees under
benefit plans....................... 1,583,974 17,303 196 16,923
Tax benefit from stock options........ 8,275
Repurchase of stock................... 878,400 (110) (24,487)
Secondary offering of Megatest
Corporation, net offering costs..... 447,000 56 13,519
Net income............................ 76,390
Pension adjustment.................... 1,468
---------- --------- ------- -------- --------
Balance, December 31, 1994............ 41,273,857 1,663,255 4,952 329,887 238,047
Adjustment to conform fiscal year of
Megatest Corporation................ 3,214 9 (14,780)
Issuance of stock to employees under
benefit plans....................... 1,614,317 202 22,940
Tax benefit from stock options........ 17,549
Two-for-one stock split effected in
the form of a 100% stock dividend... 42,891,388 1,663,255 5,154 (5,154)
Issuance of stock to employees under
benefit plans after the two-for-one
stock split......................... 177,325 21 1,751
Payment for fractional shares
resulting from merger............... (12)
Net income............................ 159,284
---------- --------- ------- -------- --------
Balance, December 31, 1995............ 85,960,101 3,326,510 $10,329 $366,970 $382,551
========== ========= ======= ======== ========
The accompanying notes are an integral part of the consolidated financial
statements.
17
18
TERADYNE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. THE COMPANY
Teradyne, Inc. (the "Company") designs, manufactures, markets, and services
electronic test systems and related software used by component manufacturers in
the design and testing of their products and by electronic equipment
manufacturers for the incoming inspection of components and for the design and
testing of circuit boards and other assemblies. Manufacturers use such systems
and software to increase product performance, to improve product quality, to
shorten time to market, to enhance manufacturability, to conserve labor costs,
and to increase production yields. The Company's electronic systems are also
used by telephone operating companies for the testing and maintenance of their
subscriber telephone lines and related equipment.
The Company also manufactures backplane connection systems, principally for
the computer, telecommunications, and military/aerospace industries. A backplane
is a panel that supports the circuit boards in an electronic assembly and
carries the wiring that connects the boards to each other and to other elements
of a system.
B. ACCOUNTING POLICIES
Basis of Presentation
The consolidated financial statements include the accounts of the Company
and its subsidiaries, all of which are wholly owned. All significant
intercompany balances and transactions are eliminated. Certain prior years'
amounts have been reclassified to conform to the current year presentation. On
December 1, 1995, the Company completed its acquisition of Megatest Corporation
("Megatest"), by means of a merger of M Merger Corp., a wholly owned subsidiary
of the Company, with and into Megatest. As a result of the merger, Megatest
became a wholly owned subsidiary of the Company. The Megatest combination has
been accounted for as a pooling of interests. The consolidated financial
statements of the Company for periods prior to the merger have been restated to
include the financial position and results of operations of the combined
companies.
Preparation of Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the dates of the financial
statements and the reported amounts of revenues and expenses during the reported
periods. Actual results could differ from those estimates.
Inventories
Inventories are stated at the lower of cost (first-in, first-out basis) or
market (net realizable value).
Property, Plant and Equipment
Property, plant and equipment are stated at cost. Leasehold improvements
and major renewals are capitalized and included in property, plant and equipment
accounts while expenditures for maintenance and repairs and minor renewals are
charged to expense. When assets are retired, the assets and related allowances
for depreciation and amortization are removed from the accounts and any
resulting gain or loss is reflected in operations.
The Company provides for depreciation of its property principally on the
straight-line method by charges to expense which are sufficient to write-off the
cost of the assets over their estimated useful lives.
18
19
TERADYNE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
B. ACCOUNTING POLICIES -- (CONTINUED)
Revenue Recognition
Revenue is recorded when products are shipped or, in instances where
products are configured to customer requirements, upon the successful completion
of test procedures. Service revenue is recognized ratably over applicable
contract periods or as services are performed. In certain situations, revenue is
recorded using the percentage of completion method based upon the completion of
measurable milestones, with changes to total estimated costs and anticipated
losses, if any, recognized in the period in which determined.
Engineering and Development Costs
The Company's products are highly technical in nature and require a large
and continuing engineering and development effort. All engineering and
development costs are expensed as incurred.
Income Taxes
Deferred tax assets and liabilities are determined based on differences
between financial reporting and tax bases of assets and liabilities and are
measured using the enacted tax rates and laws that will be in effect when the
differences are expected to reverse. The measurement of deferred tax assets is
reduced by a valuation allowance if, based upon weighted available evidence, it
is more likely than not that some or all of the deferred tax assets will not be
realized.
The Company's practice is to provide U.S. federal taxes on undistributed
earnings of the Company's foreign sales and service subsidiaries.
Translation of Foreign Currencies
Assets and liabilities of foreign subsidiaries which are denominated in
foreign currencies 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 foreign currency remeasurement are included in
operations.
Net Income per Common Share
Net income per common share is based upon the weighted average number of
common and common equivalent shares (when dilutive) outstanding each year.
Common equivalent shares result from the assumed exercise of outstanding stock
options, the proceeds of which are then assumed to have been used to repurchase
outstanding common stock using the treasury stock method. Primary and fully
diluted earnings per share are equal for all periods presented.
C. MERGER -- POOLING OF INTERESTS
On December 1, 1995, the Company acquired through a merger all of the
authorized and outstanding common stock of Megatest in exchange for
approximately 6,831,000 shares of the Company's common stock using an exchange
ratio of 0.9091 of one share of the Company's common stock for each Megatest
share. In addition, all outstanding Megatest stock options were converted, at
the common stock exchange ratio, into options to purchase the Company's common
stock. Megatest manufactures electronic test systems for the integrated circuit
industry. Prior to the merger, Megatest prepared its financial statements on an
August 31 fiscal year end. Megatest's fiscal year has been changed to December
31 to conform to the Company's year end. The restated financial statements for
1994 and 1993 include Megatest's amounts as of and for the years ended August
31, 1994 and 1993, respectfully. As a result, Megatest's financial position and
results of
19
20
TERADYNE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
C. MERGER -- (CONTINUED)
operations as of and for the four month period ended December 31, 1994 are not
reflected in the Company's consolidated balance sheet and statements of income
and cash flows. Megatest's loss for this period of $14.8 million has been
charged to retained earnings effective January 1, 1995. Megatest's results of
operations for the four months ended December 31, 1994 are summarized as follows
(in thousands):
Revenue........................................................... $ 14,111
Net Loss.......................................................... $(14,780)
Separate results of the Company and Megatest that have been combined in the
Company's consolidated results for the years ended December 31, 1995, 1994, and
1993 are as follows (in thousands):
1995 1994 1993
---------- -------- --------
Net sales:
Teradyne...................................... $1,059,409 $677,440 $554,734
Megatest...................................... 131,613 100,291 78,405
---------- -------- --------
$1,191,022 $777,731 $633,139
========== ======== ========
Net income:
Teradyne...................................... $ 157,204 $ 70,941 $ 35,194
Megatest...................................... 2,297 10,799 5,279
Adjustments................................... (217) (5,350) 7,600
---------- -------- --------
$ 159,284 $ 76,390 $ 48,073
========== ======== ========
The combined financial results reflect the restatement of Megatest's
provision for income taxes in accordance with Financial Accounting Standards No.
109 Accounting for Income Taxes. Due to the merger, Megatest's previously
unrecognized tax benefits of deductible temporary differences and operating loss
carryforwards were recognized by the combined company in the restated periods.
The restatement of the provision for income taxes increased net income in 1993
by $7.6 million and decreased net income in 1994 by $5.1 million. The combined
financial results also include adjustments, which were immaterial to the
combined financial statements, to conform accounting policies of the two
companies. Adjustments made to conform the accounting policies of the two
companies decreased net income by $0.2 million in 1994 and 1995. All other
adjustments consist of reclassifications to conform financial statement
presentation. There were no intercompany transactions between the two companies
for the periods presented.
In connection with the merger, the Company recorded a $5.6 million one-time
charge in the fourth quarter of 1995 for transaction costs consisting primarily
of professional fees.
D. FINANCIAL INSTRUMENTS
Fair Value
The Company considers all highly liquid debt instruments with maturities of
three months or less at date of acquisition to be cash equivalents. At December
31, 1995 and 1994, marketable securities consist of short-term investments in
U.S. Treasury Bills with original maturities of greater than three months and
remaining contractual maturities of less than one year. The Company has
classified these marketable securities as held to maturity. Accordingly,
marketable securities and cash equivalents are carried at amortized cost plus
accrued interest, which approximate fair value. The Company's debt includes
subsidized loans whose fair value is not practicable to estimate. For all other
balance sheet financial instruments and the remaining debt of the Company, the
carrying amount approximates fair value.
20
21
TERADYNE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
D. FINANCIAL INSTRUMENTS -- (CONTINUED)
Off-Balance Sheet Risk
The Company regularly enters into forward foreign exchange contracts in
European and Japanese currencies to hedge its overseas net monetary position and
firm commitments. These contracts are used to reduce the Company's risk
associated with exchange rate movements, as gains and losses on these contracts
are intended to offset foreign exchange losses and gains on underlying
exposures. The Company does not engage in foreign currency speculation. Forward
foreign exchange contracts have maturities of less than one year, unless they
relate to long term sales contracts denominated in a foreign currency; these
maturities are from one to three years.
At December 31, 1995, the Company had the following forward exchange
contracts to buy U.S. dollars for foreign currencies, with notional amounts
totaling $66.3 million; $38.8 million German deutschemark, $13.8 million
Japanese yen, and $13.7 million various other European currencies. In addition,
the Company had forward exchange contracts to sell U.S. dollars for German
deutschemarks with notional amounts of $22.9 million. At December 31, 1994 the
face amount of forward exchange contracts outstanding was $67.9 million. The
fair value of these contracts as of December 31, 1995 and 1994, determined by
applying the year end foreign currency exchange rates to the notional contract
amounts, represented a net unrealized loss of $4.4 million and $2.0 million,
respectively.
The Company's policy is to defer gains and losses on these contracts until
the corresponding losses and gains are recognized on the items being hedged.
During 1994, the Company recorded in other current assets a $2.9 million loss on
deferred forward foreign exchange contracts relating to a long term sales
contract denominated in a foreign currency. At December 31, 1995, a net $1.0
million loss remains in other current assets. This remaining net loss will serve
to offset foreign exchange transaction gains to be recognized on the hedged
items.
Concentration of Credit Risk
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of cash investments, forward
foreign exchange contracts, and accounts receivable. Concentrations of credit
risk with respect to accounts receivable are limited due to the large number of
diverse and geographically dispersed customers. The Company maintains cash
investments primarily in U.S. government obligations which essentially have no
credit risk. Credit risk exposure from forward contracts is minimized as these
instruments are contracted with high quality financial institutions.
E. DEBT
Long-term debt at December 31, 1995 and 1994 consisted of the following (in
thousands):
1995 1994
------- ------
Mortgage notes payable............................................. $10,452 $5,040
Capital equipment notes payable.................................... 6,534
Other long-term debt............................................... 3,775 4,387
------- ------
Total............................................................ 20,761 9,427
Less current maturities............................................ 2,082 316
------- ------
$18,679 $9,111
======= ======
The total maturities of long-term debt for the succeeding five years and
thereafter are: 1996 -- $2.1 million; 1997 -- $2.1 million; 1998 -- $2.3
million; 1999 -- 1.8 million; 2000 -- $0.5 million and $12.0 million thereafter.
21
22
TERADYNE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
E. DEBT -- (CONTINUED)
Revolving Credit Agreement
On January 31, 1996, the Company increased its available revolving credit
line to $120.0 million from $80.0 million. The revolving credit agreement is in
effect through January 31, 1999. At expiration of the revolver, any amounts
outstanding are converted into a two year term note. As of December 31, 1995, no
amounts were outstanding under this agreement. The terms of this line of credit
include restrictive covenants regarding working capital, tangible net worth, and
leverage. Interest rates on borrowings are either at the stated prime rate or
based upon Eurocurrency or certificate of deposit interest rates. Pursuant to
the terms of the credit agreement, the Company may incur additional indebtedness
of up to $30.0 million provided that the liabilities of the Company, exclusive
of deferred income taxes and subordinated debt, shall not exceed 100% of the
Company's tangible net worth.
Mortgage Notes Payable
The Company received a loan of $4.5 million from the Boston Redevelopment
Authority in the form of a 3% mortgage loan maturing March 31, 2013. This loan
is collateralized by a mortgage on the Company's property at 321 Harrison Avenue
which may, at the Company's option, become subordinated to another mortgage up
to a maximum of $5.0 million. Interest for the first 4 1/2 years of the note was
capitalized up to a principal amount of $5.0 million. Since September 30, 1987,
the Company has been making semi-annual interest payments.
In conjunction with the purchase of its general operating facilities
Megatest received a $5.5 million mortgage loan which matures on August 31, 2000.
The loan is collateralized by a mortgage on Megatest's facilities in San Jose,
California. The loan bears interest at 8.1% per annum and is payable in 59
consecutive monthly installments of $0.05 million with a $4.6 million balloon
payment due at maturity. The terms of this mortgage note payable require
compliance with certain restrictive financial covenants and principal prepayment
clauses.
Equipment Notes Payable
During August 1995, Megatest entered into two capital equipment notes
payable. The first note with an original amount of $5.0 million is payable in 48
consecutive monthly installments of principal and interest at 9.5% per annum.
The second note with an original amount of $1.9 million is payable in 48
consecutive monthly installments of principal and interest at 8.7% with a $0.4
million balloon payment due at maturity. The terms of these equipment notes
payable require compliance with certain restrictive financial covenants and
principal prepayment clauses.
Other Long-term Debt
At December 31, 1995, other long-term debt includes a Japanese
yen-denominated note with an interest rate of 4.8%, secured by land in Kumamoto,
Japan. Interest only payments were made through March 31, 1995. Monthly
principal and interest payments began April 28, 1995 and continue until March
30, 2007.
Short-term Borrowings
The weighted average interest rate on short-term borrowings outstanding as
of December 31, 1995 and 1994 was 4.2% and 3.2%, respectively.
22
23
TERADYNE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
F. CONVERTIBLE SUBORDINATED DEBENTURES
During 1993, $5.0 million principal amount of debentures was converted into
210,585 shares of common stock resulting in an increase of $4.7 million of
shareholders' equity (net of the related $0.3 million unamortized debt issue
costs). On November 19, 1993, the Company exercised its option to repurchase the
remaining $10.4 million outstanding debentures. The Company used $10.8 million
of available cash to repurchase the debentures at a premium of 103.7% of the
principal amount The premium amount and the write-off of the remaining
unamortized debt issue cost resulted in a charge of $1.0 million. This charge,
net of the related taxes of $0.3 million, is reflected as an extraordinary loss
in the consolidated statements of income.
G. COMMITMENTS
Rental expense for the years ended December 31, 1995, 1994, and 1993 was
$13.1 million, $11.1 million, and $12.8 million, respectively. Minimum annual
rentals under all noncancellable leases are: 1996 -- $5.6 million; 1997 -- $5.0
million; 1998 -- $4.7 million; 1999 -- $3.0 million; 2000 -- $1.8 million; and
$8.8 million thereafter, totaling $28.9 million.
H. PENSION PLANS
The Company has defined benefit pension plans covering substantially all
domestic employees and employees of certain international subsidiaries. Benefits
under these plans are based on the employees' years of service and compensation.
The Company's funding policy is to make contributions to the plans in accordance
with local laws and to the extent that such contributions are tax deductible.
The assets of the plans consist primarily of equity and fixed income securities.
The components of net pension expense are summarized as follows (in
thousands):
1995 1994 1993
------- ------- -------
Service cost (benefits earned during the period).......... $ 3,211 $ 3,627 $ 2,876
Interest cost on projected benefit obligation............. 4,012 3,708 3,065
Actual return on plan assets.............................. (9,514) 1,537 (3,802)
Net amortization and deferral............................. 5,853 (4,371) 863
------- ------- -------
$ 3,562 $ 4,501 $ 3,002
======= ======= =======
23
24
TERADYNE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
H. PENSION PLANS -- (CONTINUED)
The following table sets forth the plans' funded status at December 31 (in
thousands):
1995 1994
-------------------- ---------------------
DOMESTIC FOREIGN DOMESTIC FOREIGN
-------- ------- -------- -------
Actuarial present value of projected benefit
obligation:
Vested benefits................................ $(45,273) $(5,981) $(32,673) $(5,134)
Non-vested benefits............................ (2,634) (695) (2,254) (603)
-------- ------- -------- -------
Accumulated benefit obligation................... (47,907) (6,676) (34,927) (5,737)
Effect of projected future compensation levels... (9,306) (2,742) (5,483) (2,818)
-------- ------- -------- -------
Total projected benefit obligation............. (57,213) (9,418) (40,410) (8,555)
Plan assets at fair market value................. 48,773 5,081 35,532 4,312
-------- ------- -------- -------
Projected benefit obligation in excess of plan
assets......................................... (8,440) (4,337) (4,878) (4,243)
Unrecognized prior service cost.................. 3,076 1,766 3,613 2,000
Unrecognized net loss (gain)..................... 13,587 (821) 7,133 (465)
Unrecognized net (asset) liability at
transition..................................... (242) (458) (485) (501)
Minimum pension liability adjustment............. (214) (219)
-------- ------- -------- -------
Net pension asset (liability).................... $ 7,981 $(4,064) $ 5,383 $(3,428)
======== ======= ======== =======
Actuarial assumptions:
Discount rate.................................. 7.2 % 4.5%-8.0% 8.5 % 5.5%- 9.0%
Average increase in compensation levels........ 5.0 % 3.6%-5.5% 5.0 % 4.6%- 7.0%
Expected long-term return on assets............ 9.0 % 4.5%-9.5% 9.0 % 5.5%-10.5%
In addition to the above plans, the Company in 1993 established an unfunded
supplemental defined benefit pension plan in the United States to provide
retirement benefits in excess of levels allowed by the Employee Retirement
Income Security Act (ERISA). The actuarial present value of accumulated plan
benefits totaled $1.9 million and $1.3 million at December 31, 1995 and 1994,
respectively. Net pension expense was $0.5 million in 1995 and $0.4 million in
1994 and 1993.
I. COMMON STOCK SPLIT
On July 24, 1995 the Company's Board of Directors authorized a two-for-one
stock split effected in the form of a 100% stock dividend distributed on August
29, 1995 to shareholders of record as of August 8, 1995. As a result of the
stock split, the accompanying consolidated financial statements reflect an
increase in the number of outstanding shares of common stock and the transfer of
the par value of these additional shares from paid-in capital. All share and per
share amounts have been restated to reflect the retroactive effect of the stock
split, except for the capitalization of the Company.
24
25
TERADYNE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
J. STOCK OPTION PLANS
Under its stock option plans, the Company and Megatest granted options to
certain directors, officers and employees entitling them to purchase common
stock at 100% of market value at the date of grant.
Information with respect to options authorized, granted, exercised, and
forfeited is set forth below:
OUTSTANDING OPTIONS
SHARES AVAILABLE ----------------------------------
FOR GRANT NUMBER OF SHARES PRICE RANGE
----------------- ----------------- --------------
Balance -- December 31, 1992.............. 4,727,968 9,387,086 $ 0.04-$ 8.80
Options authorized...................... 6,000,000 -- --
Options granted......................... (2,459,609) 2,459,609 $ 4.40-$23.37
Options exercised....................... (4,117,375) $ 0.04-$ 4.40
Options canceled........................ 213,492 (213,492) $ 0.04-$ 4.40
Options terminated...................... (51,580) -- --
---------- ----------
Balance -- December 31, 1993.............. 8,430,271 7,515,828 $ 0.04-$ 4.40
Options granted......................... (2,243,834) 2,243,834 $12.88-$23.92
Options exercised....................... (1,887,882) $ 1.10-$11.00
Options canceled........................ 234,975 (234,975) $ 1.10-$23.37
Options terminated...................... (33,280) -- --
---------- ----------
Balance -- December 31, 1994.............. 6,388,132 7,636,805 $ 0.04-$23.92
Options authorized...................... 909,100
Options granted......................... (2,717,190) 2,717,190 $ 6.87-$40.13
Options exercised....................... (2,790,259) $ 0.04-$20.69
Options canceled........................ 333,237 (333,237) $ 0.04-$23.92
Options terminated...................... (1,400) -- --
---------- ----------
Balance -- December 31, 1995.............. 4,911,879 7,230,499 $ 1.10-$40.13
========== ==========
Options exercisable on December 31,
1995.................................... 2,606,007 $ 1.10-$40.13
==========
There were no charges to operations in connection with these options other
than incidental expenses related to the issuance of shares.
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123, Accounting for Stock-Based
Compensation, (Statement 123). Statement 123 encourages but does not require the
recognition of compensation expense for grants of stock, stock options, and
other equity instruments based upon new fair value accounting rules (the
"recognition method"). Companies that choose not to adopt the recognition method
may continue to apply the existing accounting principles however, Statement 123
requires companies that choose not to adopt the new fair value accounting rules
to disclose pro forma net income and earnings per share amounts under the new
fair value method (the "disclosure method"). The Company plans to adopt the
disclosure method in 1996 and will report the pro forma effect (which has not
yet been determined) of applying fair value accounting rules to grants of
stock-based awards on net income and earnings per share in its 1996 financial
statements.
K. SAVINGS PLANS
The Company sponsors a Savings Plan covering substantially all domestic
employees. Under this plan, employees may contribute up to 12% of their
compensation (subject to Internal Revenue Service limitations). The Company
annually matches employee contributions up to 6% of such compensation at rates
ranging from
25
26
TERADYNE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
K. SAVINGS PLANS -- (CONTINUED)
50% to 100%. The Company's contributions vest after two years, although
contributions for those employees with five years of service vest immediately.
The trustees of the Savings Plan were granted an option to purchase 900,000
shares of the Company's common stock, exercisable at $9.50 per share (the fair
market value of the Company's common stock at the date of the grant) in five
cumulative annual installments beginning in 1990. In 1994, the trustees
exercised the remaining 265,000 shares. Under the terms of the Plan, any gains
realized from the sale of option shares were first allocated to participants'
accounts to fund up to one-half of the minimum Company contribution. Any excess
was applied to additional funding.
In 1994, the Company established a Supplemental Savings Plan to provide
savings benefits in excess of those allowed by ERISA. The provisions of which
are the same as the Savings Plan.
Under these plans, the amounts charged to operations were $8.3 million in
1995 and $2.0 million in 1994 and 1993.
L. EMPLOYEE STOCK PURCHASE PLANS
Under the Company's 1979 Stock Purchase Plan, employees are entitled to
purchase shares of common stock through payroll deductions of up to 10% of their
compensation. The price paid for the common stock is equal to 85% of the lower
of the fair market value of the Company's common stock on either the first or
last business day of the year. In January 1996, the Company issued 503,672
shares of common stock to employees who participated in the Plan during 1995 at
a price of $14.08 per share. Currently there are 617,608 shares reserved for
issuance.
During 1995, Megatest sponsored a Stock Purchase Plan in which employees
were able to purchase on a semi-annual basis shares of common stock through
payroll deductions of up to 10% of their compensation. The price paid for the
common stock was equal to 85% of the lower of the fair market value of
Megatest's common stock on either the first or last business day of the
semi-annual period. On June 30, 1995, employees purchased, as adjusted by the
common stock exchange ratio, 84,546 shares at an equivalent price of $5.81 per
share. Immediately prior to the December 1, 1995 merger, employees purchased an
additional 46,124 shares at a price of $12.23 per share.
M. STOCKHOLDER RIGHTS PLAN
The Company's Board of Directors adopted a Stockholder Rights Plan on March
14, 1990, under which a dividend of one Common Stock Purchase Right was
distributed for each outstanding share of Common Stock. The Plan entitles Stock
Purchase Right holders to purchase shares of the Company's common stock for $20
per share in certain events, such as a tender offer to acquire 30% or more of
the Company's outstanding shares. Under some circumstances, such as a
determination by continuing Directors, that an acquiring party's interests are
adverse to those of the Company, the Plan entitles such holders (other than an
acquiring party or adverse party) to purchase $40 worth of Common Stock (or
other securities or consideration owned by the Company) for $20. The Plan will
expire March 26, 2000 unless earlier redeemed by the Company.
26
27
TERADYNE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
N. INCOME TAXES
The components of income before income taxes, extraordinary item, and
cumulative effect of change in accounting for income taxes and the provision for
income taxes as shown in the consolidated statement of income are as follows (in
thousands):
1995 1994 1993
-------- -------- -------
Income before income taxes, extraordinary item, and cumulative
effect of change in accounting for income taxes:
Domestic................................................... $212,551 $ 96,406 $56,806
Foreign.................................................... 37,374 17,619 477
-------- -------- -------
$249,925 $114,025 $57,283
======== ======== =======
Provision (credit) for income taxes:
Current:
Federal.................................................. 66,228 26,395 9,745
Foreign.................................................. 12,604 2,924 1,314
State.................................................... 7,889 4,441 1,985
-------- -------- -------
86,721 33,760 13,044
-------- -------- -------
Deferred:
Federal.................................................. (241) 3,834 2,486
Foreign.................................................. 3,654 492 259
State.................................................... 507 (451) 292
-------- -------- -------
3,920 3,875 3,037
-------- -------- -------
$ 90,641 $ 37,635 $16,081
======== ======== =======
27
28
TERADYNE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
N. INCOME TAXES -- (CONTINUED)
Significant components of the Company's deferred tax assets (liabilities)
as of December 31, 1995 and 1994 are as follows (in thousands):
1995 1994
-------- --------
Deferred tax assets:
Inventory valuations........................................ $ 4,863 $ 4,054
Accruals.................................................... 1,470 3,744
Vacation.................................................... 4,324 3,121
In process research & development........................... 3,374
Deferred revenue............................................ 5,748 7,262
Federal net operating loss carryforwards.................... 1,050 1,050
Foreign net operating loss carryforwards.................... 1,041
Tax credits................................................. 4,097 2,698
Other....................................................... 1,260 1,660
-------- --------
Total deferred tax assets........................................ 26,186 24,630
-------- --------
Deferred tax liabilities:
Excess of tax over book depreciation........................ (14,871) (9,014)
Amortization................................................ (2,853) (3,306)
Pension..................................................... (1,332) (1,948)
Other....................................................... (3,295) (563)
-------- --------
Total deferred tax liabilities................................... (22,351) (14,831)
-------- --------
Valuation allowance.............................................. (2,044)
-------- --------
Net deferred tax asset........................................... $ 3,835 $ 7,755
======== ========
Effective January 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109, Accounting for Income Taxes, (Statement 109). As
permitted by Statement 109 the Company has elected not to restate its financial
statements for any periods prior to 1993. The effect on operations for 1993
resulted in a one-time $7.6 million credit. The Company also increased
Additional Paid-in Capital by $6.9 million relating to the tax benefits to be
derived from the utilization of U.S. net operating loss carryforward amounts
resulting from tax deductions pertaining to the issuance of the Company's stock
to employees under its benefit plans.
Upon adoption of Statement 109 the Company established a valuation
allowance of $5.5 million related to the utilization of U.S. federal and foreign
tax credit carryforwards and net operating loss carryforwards in certain foreign
jurisdictions. During 1993, 1994, and 1995 the Company decreased the valuation
allowance $1.6 million, $1.9 million, and $2.0 million, respectively.
28
29
TERADYNE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
N. INCOME TAXES -- (CONTINUED)
Below is a reconciliation of the effective tax rate for the three years
indicated:
1995 1994 1993
---- ---- ----
U.S. statutory federal tax rate...................................... 35.0% 35.0% 35.0%
State income taxes, net of federal tax benefit....................... 2.0 2.7 2.6
Utilization of operating loss carryforwards.......................... 0.3 (3.4)
Foreign losses not tax benefited..................................... 1.1
Tax credits.......................................................... (0.6) (2.6) (3.1)
Foreign sales corporation............................................ (2.3) (2.6) (2.2)
Non-deductible merger costs.......................................... 0.8
Change in valuation allowance........................................ (0.8) (1.7) (2.8)
Other, net........................................................... 1.9 2.2 0.9
---- ---- ----
36.3% 33.0% 28.1%
==== ==== ====
At December 31, 1995, the Company had net operating loss carryforwards of
approximately $3.0 million. These net operating loss carryforwards expire in the
years 2000 through 2002. The Company has approximately $4.1 million of U.S.
business tax credit carryforwards. Approximately $2.6 million of these credits
expire in the years 1996 through 1999, and $1.5 million expire in the years 2003
through 2007. All of these losses and credits are limited in their use by
"change in ownership" rules as defined in the Internal Revenue Code of 1986.
29
30
TERADYNE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
O. INDUSTRY SEGMENT AND GEOGRAPHIC INFORMATION
The Company operates in two industry segments, which are the design,
manufacturing and marketing of electronic test systems and backplane connection
systems. Corporate assets consist of cash and cash equivalents, marketable
securities, accounts receivable and certain other assets.
ELECTRONIC BACKPLANE
TEST CONNECTION
SYSTEMS SYSTEMS CORPORATE
INDUSTRY INDUSTRY AND
SEGMENT SEGMENT ELIMINATIONS CONSOLIDATED
---------- ---------- ------------ ----------
(IN THOUSANDS)
1995 Sales to unaffiliated customers............ $1,035,721 $155,301 $1,191,022
Intersegment sales......................... 12,325 $(12,325)
---------- -------- -------- ----------
Net sales.................................. 1,035,721 167,626 (12,325) 1,191,022
Operating income........................... 237,101 22,778 (15,523) 244,356
Identifiable assets........................ 640,597 91,205 292,029 1,023,831
Property additions......................... 77,552 12,038 3,611 93,201
Depreciation and amortization expense...... 37,274 4,670 1,202 43,146
1994 Sales to unaffiliated customers............ $ 645,929 $131,802 $ 777,731
Intersegment sales......................... 5,050 $ (5,050)
---------- -------- -------- ----------
Net sales.................................. 645,929 136,852 (5,050) 777,731
Operating income........................... 102,884 18,449 (13,305) 108,028
Identifiable assets........................ 440,117 82,820 236,543 759,480
Property additions......................... 30,835 9,005 855 40,695
Depreciation and amortization expense...... 31,847 5,754 841 38,442
1993 Sales to unaffiliated customers............ $ 544,710 $ 88,429 $ 633,139
Intersegment sales......................... 4,185 $ (4,185)
---------- -------- -------- ----------
Net sales.................................. 544,710 92,614 (4,185) 633,139
Operating income........................... 63,596 7,652 (13,871) 57,377
Identifiable assets........................ 390,101 64,705 166,801 621,607
Property additions......................... 32,857 5,526 301 38,684
Depreciation and amortization expense...... 30,202 5,545 1,053 36,800
The Company's sales, including domestic export and foreign jurisdictional
sales (which amounted to less than 10% of total net sales in all periods
presented) to unaffiliated customers for the three years ended December 31 were
made to customers in the following geographic areas:
1995 1994 1993
---------- -------- --------
(IN THOUSANDS)
Sales to unaffiliated customers:
United States............................................... $ 566,337 $416,199 $374,871
Asia Pacific region......................................... 256,901 138,458 92,411
Europe...................................................... 222,194 133,127 100,299
Japan....................................................... 94,706 68,019 50,539
Other....................................................... 50,884 21,928 15,019
---------- -------- --------
$1,191,022 $777,731 $633,139
========== ======== ========
See "Item 1: Business -- Marketing and Sales" elsewhere in this report for
information on the Company's export and foreign jurisdictional activities,
identifiable assets of foreign subsidiaries, and major customers.
30
31
SUPPLEMENTARY INFORMATION
(UNAUDITED)
The following sets forth certain unaudited consolidated quarterly
statements of operations data for each of the Company's last eight quarters. In
management's opinion, this quarterly information reflects all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
presentation for the periods presented. Such quarterly results are not
necessarily indicative of future results of operations and should be read in
conjunction with the audited consolidated financial statements of the Company
and the notes thereto included elsewhere herein.
1995*
-----------------------------------------------------
1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER
----------- ----------- ----------- -----------
Net sales................................... $ 232,158 $ 284,849 $ 322,658 $ 351,357
Expenses:
Cost of sales............................. 131,625 152,683 172,316 189,758
Engineering and development............... 24,986 30,795 32,966 34,740
Selling and administrative................ 38,919 42,715 45,353 49,810
-------- -------- -------- --------
195,530 226,193 250,635 274,308
-------- -------- -------- --------
Income from operations...................... 36,628 58,656 72,023 77,049
Other income (expense):
Merger expenses........................... (5,600)
Interest income........................... 3,085 3,547 3,670 3,907
Interest expense.......................... (533) (730) (715) (1,062)
-------- -------- -------- --------
Income before income taxes.................. 39,180 61,473 74,978 74,294
Provision for income taxes.................. 14,706 22,666 26,756 26,513
-------- -------- -------- --------
Net income.................................. $ 24,474 $ 38,807 $ 48,222 $ 47,781
======== ======== ======== ========
Net income per common share................. $ 0.30 $ 0.46 $ 0.57 $ 0.56
======== ======== ======== ========
1994*
-----------------------------------------------------
1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER
----------- ----------- ----------- -----------
Net sales................................... $ 174,459 $ 179,788 $ 205,849 $ 217,635
Expenses:
Cost of sales............................. 97,707 100,162 115,883 121,377
Engineering and development............... 19,614 21,128 21,851 23,977
Selling and administrative................ 36,279 35,992 36,591 39,142
-------- -------- -------- --------
153,600 157,282 174,325 184,496
-------- -------- -------- --------
Income from operations...................... 20,859 22,506 31,524 33,139
Other income (expense):
Interest income........................... 1,324 1,611 2,039 2,853
Interest expense.......................... (572) (402) (424) (432)
-------- -------- -------- --------
Income before income taxes.................. 21,611 23,715 33,139 35,560
Provision for income taxes.................. 7,215 7,826 11,099 11,495
-------- -------- -------- --------
Net income.................................. $ 14,396 $ 15,889 $ 22,040 $ 24,065
======== ======== ======== ========
Net income per common share................. $ 0.18 $ 0.20 $ 0.27 $ 0.30
======== ======== ======== ========
- ---------------
*Note: Previously published quarterly financial data have been restated to
reflect the pooling of interests with Megatest Corporation (see "Note C:
Merger -- Pooling of Interests" in Notes to Consolidated Financial
Statements) and to give effect to the two-for-one stock split effected in
the form of a 100% stock dividend distributed on August 29, 1995.
31
32
REPORT OF INDEPENDENT ACCOUNTANTS
In our opinion, the consolidated balance sheet and related consolidated
statements of operations, of stockholders' equity and of cash flows of Megatest
Corporation (not presented separately herein) present fairly, in all material
respects, the financial position of Megatest Corporation and its subsidiaries at
August 31, 1994, and the results of their operations and their cash flows for
the year ended August 31, 1994, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audit. We conducted our audit of these statements in
accordance with generally accepted auditing standards which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for the opinion expressed
above.
As discussed in Note 1 to the consolidated financial statements referred to
above (and not included herein), Megatest Corporation changed its method of
accounting for income taxes effective September 1, 1993.
PRICE WATERHOUSE LLP
San Jose, California
September 20, 1995
32
33
INDEPENDENT AUDITORS' REPORT
To the Stockholders and Board of Directors of
Megatest Corporation:
We have audited the consolidated statements of operations, stockholders'
equity and cash flows of Megatest Corporation and its subsidiaries for the year
ended August 31, 1993 (not presented separately herein). These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects the results of operations and cash flows of Megatest
Corporation and its subsidiaries for the year ended August 31, 1993 in
conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
San Jose, California
September 21, 1993
33
34
ITEM 9: CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
PART III
ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Certain information relating to directors and executive officers of the
Company, executive compensation, security ownership of certain beneficial owners
and management, and certain relationships and related transactions is
incorporated by reference herein from the Company's definitive proxy statement
in connection with its Annual Meeting of Shareholders to be held on May 23,
1996, which proxy statement will be filed with the Securities and Exchange
Commission not later than 120 days after the close of the fiscal year. For this
purpose, the Management Compensation and Development Committee Report and
Performance Graph included in such proxy statement are specifically not
incorporated herein. (Also see "Item 1 -- Executive Officers of the Company"
elsewhere in this report)
ITEM 11: EXECUTIVE COMPENSATION.
Certain information relating to directors and executive officers of the
Company, executive compensation, security ownership of certain beneficial owners
and management, and certain relationships and related transactions is
incorporated by reference herein from the Company's definitive proxy statement
in connection with its Annual Meeting of Shareholders to be held on May 23,
1996, which proxy statement will be filed with the Securities and Exchange
Commission not later than 120 days after the close of the fiscal year. For this
purpose, the Management Compensation and Development Committee Report and
Performance Graph included in such proxy statement are specifically not
incorporated herein.
ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Certain information relating to directors and executive officers of the
Company, executive compensation, security ownership of certain beneficial owners
and management, and certain relationships and related transactions is
incorporated by reference herein from the Company's definitive proxy statement
in connection with its Annual Meeting of Shareholders to be held on May 23,
1996, which proxy statement will be filed with the Securities and Exchange
Commission not later than 120 days after the close of the fiscal year. For this
purpose, the Management Compensation and Development Committee Report and
Performance Graph included in such proxy statement are specifically not
incorporated herein.
ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Certain information relating to directors and executive officers of the
Company, executive compensation, security ownership of certain beneficial owners
and management, and certain relationships and related transactions is
incorporated by reference herein from the Company's definitive proxy statement
in connection with its Annual Meeting of Shareholders to be held on May 23,
1996, 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.
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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, 1995 and 1994
Statements of Income for the years ended December 31, 1995, 1994, and
1993
Statements of Cash Flows for the years ended December 31, 1995, 1994,
and 1993
Statements of Changes in Shareholders' Equity for the years ended
December 31, 1995, 1994, and 1993
(A) 2. FINANCIAL STATEMENT SCHEDULES
Financial statement schedules have been omitted since either they are not
required or the information is otherwise included.
(A) 3. LISTING OF EXHIBITS
The Exhibits which are filed with this report or which are incorporated by
reference herein are set forth in the Exhibit Index.
(B) REPORT ON FORM 8-K
A current report on Form 8-K dated December 1, 1995, has been filed with
the Securities and Exchange Commission relating to the Company's merger with
Megatest Corporation.
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36
EXHIBIT INDEX
The following designated exhibits are, as indicated below, either filed
herewith or have heretofore been filed with the Securities and Exchange
Commission and are referred to and incorporated by reference to such filings.
EXHIBIT NO. DESCRIPTION SEC DOCUMENT REFERENCE
----------- --------------------------------------- ---------------------------------------
2.0 Agreement and Plan of Merger and Exhibit 2.0 to the Company's
Reorganization, as amended, dated Registration Statement on Form S-4
September 5, 1995, by and among the (Registration Statement No. 33-63781)
Company, M Merger Corp., and Megatest
Corporation
3.1 Restated Articles of Organization of Exhibit 4.1 to the Company's Form S-3
the Company, as amended Registration Statement No. 33-44347,
effective December 12, 1991.
3.2 Amendment, dated May 24, 1995, to
Restated Articles of Organization of
the Company, as amended
3.3 Amended and Restated Bylaws of the Exhibit 3.3 (iii) to the Company's
Company Annual Report on Form 10-K for the
fiscal year ended December 31, 1990.
4.1 Indenture dated as of March 15, 1987 Exhibit 2.3 to the Company's
between Zehntel, Inc. and the Bank of Registration Statement on Form 8-A No.
California, National Association, 0-16446, effective February 17, 1988.
Trustees
4.2 First Supplemental Indenture between Exhibit 2.4 to the Company's
the Company, Zehntel, Inc. and the Bank Registration Statement on Form 8-A No.
of California, National Association, 0-16446, effective February 17, 1988.
Trustee, dated as of December 1, 1987
4.3 Second Supplemental Indenture by and Exhibit 3.4 (iii) to the Company's
among the Company, Zehntel, Inc. and Annual Report on Form 10-K for the
Bankers Trust Company of California, fiscal year ended December 31, 1989.
N.A.
4.4 Instrument of Acknowledgment of Exhibit 3.4 (iv) to the Company's
Satisfaction and Discharge of Indenture Annual Report on Form 10-K for the
and Securities executed by First Trust fiscal year ended December 31, 1994.
of California, National Association,
successor trustee
4.5 Rights Agreement between the Company Exhibit 4.1 to the Company's Current
and The First National Bank of Boston Report on Form 8-K dated March 15,
dated as of March 14, 1990 1990.
10.1 Multicurrency Revolving Credit Exhibit to the Company's Quarterly
Agreement dated April 29, 1991 Report on Form 10-Q for the quarterly
period ended March 30, 1991.
10.2 First Amendment to Multicurrency Exhibit 3.10 (ii) to the Company's
Revolving Credit Agreement dated as of Annual Report on Form 10-K for the
March 5, 1993 fiscal year ended December 31, 1992.
10.3 Second Amendment to Multicurrency
Revolving Credit Agreement dated as of
January 31, 1996
10.4 1987 Non-Employee Director Stock Option Exhibit 3.10 (iii) to the Company's
Plan Annual Report on Form 10-K for the
fiscal year ended December 31, 1992.
10.5 Teradyne, Inc. Supplemental Executive Exhibit 3.10 (iv) to the Company's
Retirement Plan Annual Report on Form 10-K for the
fiscal year ended December 31, 1992.
10.6 1991 Employee Stock Option Plan, as Exhibit 10.5 to the Company's Annual
amended Report on Form 10-K for the fiscal year
ended December 31, 1994.
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37
EXHIBIT NO. DESCRIPTION SEC DOCUMENT REFERENCE
----------- --------------------------------------- ---------------------------------------
10.7 1979 Stock Purchase Plan, as amended Exhibit 10.6 to the Company's Annual
Report on Form 10-K for the fiscal year
ended December 31, 1994.
10.8 Megatest Corporation 1990 Stock Option Exhibit 4.1 to the Company's
Plan Registration Statement on Form S-8
(Registration Statement No. 33-64683).
10.9 Megatest Corporation Director Stock Exhibit 4.2 to the Company's
Option Plan Registration Statement on Form S-8
(Registration Statement No. 33-64683).
10.10 Master Lease Agreement between Megatest
and General Electric Capital
Corporation dated August 10, 1995
10.11 Loan and Security Agreement between
Megatest and the CIT Group/Equipment
Financing, Inc. dated August 14, 1995
10.12 Deed of Trust, Financing Statement,
Security Agreement and Fixture Filing
between Megatest and the Sun Life
Assurance Company of Canada (U.S.)
dated August 25, 1995
22.1 Subsidiaries of the Company
23.1 Consent of Coopers & Lybrand L.L.P.
23.2 Consent of Price Waterhouse LLP
23.3 Consent of Deloitte & Touche LLP
27.0 Financial Data Schedule
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized this 26th day of March,
1996.
TERADYNE, INC.
OWEN W. ROBBINS
By:----------------------------------
Owen W. Robbins,
Executive Vice President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
SIGNATURE: TITLE DATE
--------- ----- ----
ALEXANDER V. D'ARBELOFF Chairman of the Board March 26, 1996
- ------------------------------------- and Chief Executive Officer
Alexander V. d'Arbeloff
Vice Chairman of the Board and March , 1996
- ------------------------------------- Executive Vice President
James A. Prestridge
OWEN W. ROBBINS Vice Chairman of the Board and March 26, 1996
- ------------------------------------- Executive Vice President
Owen W. Robbins (Principal Financial Officer)
GEORGE W. CHAMILLARD President, Chief Operating March 26, 1996
- ------------------------------------- Officer, and Member of the Board
George W. Chamillard
DONALD J. HAMMAN Controller March 26, 1996
- -------------------------------------
Donald J. Hamman
EDWIN L. ARTZT Director March 26, 1996
- -------------------------------------
Edwin L. Artzt
JAMES W. BAGLEY Director March 26, 1996
- -------------------------------------
James W. Bagley
ALBERT CARNESALE Director March 26, 1996
- -------------------------------------
Albert Carnesale
DANIEL S. GREGORY Director March 26, 1996
- -------------------------------------
Daniel S. Gregory
DWIGHT H. HIBBARD Director March 26, 1996
- -------------------------------------
Dwight H. Hibbard
JOHN P. MULRONEY Director March 26, 1996
- -------------------------------------
John P. Mulroney
RICHARD J. TESTA Director March 26, 1996
- -------------------------------------
Richard J. Testa
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