UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
| x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended April 4, 2004
OR
| ¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File No. 1-6462
TERADYNE, INC.
(Exact name of registrant as specified in its charter)
| Massachusetts | 04-2272148 | |
| (State or Other Jurisdiction of Incorporation or Organization) |
(I.R.S. Employer Identification No.) |
| 321 Harrison Avenue, Boston, Massachusetts | 02118 | |
| (Address of Principal Executive Offices) | (Zip Code) |
617-482-2700
(Registrant’s Telephone Number, Including Area Code)
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to the filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes x No ¨
The number of shares outstanding of the registrant’s only class of Common Stock as of April 30, 2004 was 193,977,980 shares.
INDEX
| Page No. | ||||
| PART I. FINANCIAL INFORMATION | ||||
| Item 1. | Financial Statements: |
|||
| Condensed Consolidated Balance Sheets as of April 4, 2004 and December 31, 2003 |
3 | |||
| 4 | ||||
| 5 | ||||
| 6 | ||||
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
18 | ||
| Item 3. | 36 | |||
| Item 4. | 36 | |||
| PART II. OTHER INFORMATION | ||||
| Item 1. | 36 | |||
| Item 6. | 37 | |||
2
CONDENSED CONSOLIDATED BALANCE SHEETS
| April 4, 2004 |
December 31, 2003 |
|||||||
| (in thousands, except per share data) |
||||||||
| ASSETS | ||||||||
| Current assets: |
||||||||
| Cash and cash equivalents |
$ | 222,970 | $ | 228,444 | ||||
| Marketable securities |
67,281 | 60,974 | ||||||
| Accounts receivable, net of allowance for doubtful accounts of $5,684 and $5,986 on April 4, 2004 and December 31, 2003, respectively |
255,246 | 229,532 | ||||||
| Inventories: |
||||||||
| Parts |
128,258 | 109,538 | ||||||
| Assemblies in process |
119,551 | 105,396 | ||||||
| 247,809 | 214,934 | |||||||
| Prepayments and other current assets |
33,225 | 35,393 | ||||||
| Total current assets |
826,531 | 769,277 | ||||||
| Property, plant, and equipment, at cost |
1,299,111 | 1,305,254 | ||||||
| Less: accumulated depreciation |
(756,939 | ) | (760,885 | ) | ||||
| Net property, plant, and equipment |
542,172 | 544,369 | ||||||
| Marketable securities |
326,401 | 296,618 | ||||||
| Other assets |
51,973 | 56,895 | ||||||
| Goodwill |
116,233 | 118,203 | ||||||
| Total assets |
$ | 1,863,310 | $ | 1,785,362 | ||||
| LIABILITIES | ||||||||
| Current liabilities: |
||||||||
| Notes payable—banks |
$ | 7,521 | $ | 7,272 | ||||
| Current portion of long-term debt |
321 | 310 | ||||||
| Accounts payable |
118,363 | 74,097 | ||||||
| Accrued employees’ compensation and withholdings |
68,519 | 91,244 | ||||||
| Deferred revenue and customer advances |
29,439 | 25,391 | ||||||
| Other accrued liabilities |
73,204 | 75,125 | ||||||
| Income taxes payable |
7,313 | 7,376 | ||||||
| Total current liabilities |
304,680 | 280,815 | ||||||
| Pension liability |
85,813 | 93,878 | ||||||
| Long-term other accrued liabilities |
48,584 | 53,441 | ||||||
| Convertible senior notes |
400,000 | 400,000 | ||||||
| Other long-term debt |
7,668 | 7,658 | ||||||
| Total liabilities |
846,745 | 835,792 | ||||||
| Commitments and contingencies (Note I) |
||||||||
| SHAREHOLDERS’ EQUITY | ||||||||
| Common stock, $0.125 par value, 1,000,000 shares authorized, 220,639 and 218,628 shares issued and 193,949 and 191,973 shares outstanding at April 4, 2004 and December 31, 2003, respectively |
27,580 | 27,329 | ||||||
| Additional paid-in capital |
1,320,726 | 1,294,661 | ||||||
| Accumulated other comprehensive loss |
(49,444 | ) | (51,846 | ) | ||||
| Retained earnings |
276,730 | 236,483 | ||||||
| Treasury shares, at cost, 26,690 and 26,655 shares at April 4, 2004 and December 31, 2003, respectively |
(559,027 | ) | (557,057 | ) | ||||
| Total shareholders’ equity |
1,016,565 | 949,570 | ||||||
| Total liabilities and shareholders’ equity |
$ | 1,863,310 | $ | 1,785,362 | ||||
The accompanying notes, together with the Notes to Consolidated Financial Statements included in Teradyne’s Annual Report on Form 10-K for the year ended December 31, 2003 are an integral part of the condensed consolidated financial statements.
3
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
| For the Three Months Ended |
||||||||
| April 4, 2004 |
March 30, 2003 |
|||||||
| (in thousands, except per share amounts) |
||||||||
| Net revenues: |
||||||||
| Products |
$ | 364,496 | $ | 277,231 | ||||
| Services |
66,107 | 57,345 | ||||||
| Net revenues |
430,603 | 334,576 | ||||||
| Cost of revenues: |
||||||||
| Cost of products |
215,402 | 210,927 | ||||||
| Cost of services |
39,226 | 39,543 | ||||||
| Gross profit |
175,975 | 84,106 | ||||||
| Operating expenses: |
||||||||
| Engineering and development |
64,694 | 68,585 | ||||||
| Selling and administrative |
66,242 | 67,402 | ||||||
| Restructuring and other charges |
130 | 19,486 | ||||||
| Operating expenses |
131,066 | 155,473 | ||||||
| Income (loss) from operations |
44,909 | (71,367 | ) | |||||
| Interest income |
3,591 | 4,179 | ||||||
| Interest expense |
(4,632 | ) | (5,411 | ) | ||||
| Other income and expense, net |
851 | (2,699 | ) | |||||
| Income (loss) before income taxes |
44,719 | (75,298 | ) | |||||
| Provision for income taxes |
4,472 | 1,200 | ||||||
| Net income (loss) |
$ | 40,247 | $ | (76,498 | ) | |||
| Net income (loss) per common share—basic |
$ | 0.21 | $ | (0.41 | ) | |||
| Shares used in calculations of net income (loss) per common share—basic |
193,852 | 184,889 | ||||||
| Net income (loss) per common share—diluted |
$ | 0.20 | $ | (0.41 | ) | |||
| Shares used in calculations of net income (loss) per common share—diluted |
199,893 | 184,889 | ||||||
The accompanying notes, together with the Notes to Consolidated Financial Statements included in Teradyne’s Annual Report on Form 10-K for the year ended December 31, 2003 are an integral part of the condensed consolidated financial statements.
4
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
| For the Three Months Ended |
||||||||
| April 4, 2004 |
March 30, 2003 |
|||||||
| (in thousands) | ||||||||
| Cash flows from operating activities: |
||||||||
| Net income (loss) |
$ | 40,247 | $ | (76,498 | ) | |||
| Adjustments to reconcile net income (loss) to net cash provided by (used for) operating activities: |
||||||||
| Depreciation |
29,537 | 38,033 | ||||||
| Amortization |
1,099 | 1,493 | ||||||
| Impairment of long-lived assets |
377 | 7,494 | ||||||
| Loss on sale of product lines |
— | 5,836 | ||||||
| Provision for inventory |
4,259 | 1,668 | ||||||
| Provision for doubtful accounts |
— | 842 | ||||||
| Other non-cash items, net |
722 | 2,682 | ||||||
| Changes in operating assets and liabilities, net of product lines sold: |
||||||||
| Accounts receivable |
(25,714 | ) | (49,911 | ) | ||||
| Inventories |
(26,024 | ) | 22,762 | |||||
| Other assets |
5,425 | (3,532 | ) | |||||
| Accounts payable, deferred revenue and accrued expenses |
11,121 | 6,198 | ||||||
| Accrued income taxes |
(63 | ) | (1,425 | ) | ||||
| Net cash provided by (used for) operating activities |
40,986 | (44,358 | ) | |||||
| Cash flows from investing activities: |
||||||||
| Additions to property, plant and equipment |
(16,046 | ) | (1,596 | ) | ||||
| Increase in equipment manufactured by Teradyne |
(23,424 | ) | (16,901 | ) | ||||
| Proceeds from asset disposal |
— | 5,964 | ||||||
| Proceeds from sale of product lines |
— | 2,114 | ||||||
| Purchases of available-for-sale marketable securities |
(65,318 | ) | (58,774 | ) | ||||
| Maturities of available-for-sale marketable securities |
32,087 | 33,128 | ||||||
| Maturities of held-to-maturity marketable securities |
— | 29,905 | ||||||
| Net cash used for investing activities |
(72,701 | ) | (6,160 | ) | ||||
| Cash flows from financing activities: |
||||||||
| Payments of long term debt |
(75 | ) | (291 | ) | ||||
| Issuance of common stock under employee stock option and stock purchase plans |
26,316 | 19,169 | ||||||
| Net cash flows provided by financing activities |
26,241 | 18,878 | ||||||
| Decrease in cash and cash equivalents |
(5,474 | ) | (31,640 | ) | ||||
| Cash and cash equivalents at beginning of period |
228,444 | 251,521 | ||||||
| Cash and cash equivalents at end of period |
$ | 222,970 | $ | 219,881 | ||||
The accompanying notes, together with the Notes to Consolidated Financial Statements included in Teradyne’s Annual Report on Form 10-K for the year ended December 31, 2003 are an integral part of the condensed consolidated financial statements.
5
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
A. The Company
Teradyne, Inc. is a leading supplier of automatic test equipment and a leading provider of high performance interconnection systems.
Teradyne’s automatic test equipment products include systems that:
| • | test semiconductors (“Semiconductor Test Systems”); |
| • | test and inspect circuit-boards (“Assembly Test Systems”); |
| • | diagnose and test automotive electronics systems (“Diagnostic Solutions”); and |
| • | test voice and broadband access networks (“Broadband Test Systems”). |
Teradyne’s interconnection systems products and services (“Connection Systems”) include:
| • | high bandwidth backplane assemblies and associated connectors used in electronic systems; and |
| • | backplane assemblies that include Teradyne backplanes and connectors. |
Broadband Test Systems and Diagnostic Solutions have been combined into “Other Test Systems” for purposes of disclosing Teradyne’s reportable segments.
Statements in this Quarterly Report on Form 10-Q which are not historical facts, so called “forward looking statements,” are made pursuant to the safe harbor provisions of Section 21E of the Securities Exchange Act of 1934. Investors are cautioned that all forward looking statements involve risks and uncertainties, including those detailed in Teradyne’s filings with the Securities and Exchange Commission. See also “Item 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations—Certain Factors That May Affect Future Results.”
B. Accounting Policies
Basis of Presentation
The condensed consolidated interim financial statements include the accounts of Teradyne and its subsidiaries. All significant intercompany balances and transactions have been eliminated. These financial statements reflect all normal recurring adjustments which are, in the opinion of management, necessary for the fair presentation of such interim financial statements. Certain prior years’ amounts were reclassified to conform to the current year presentation. The year-end condensed consolidated balance sheet data were derived from audited financial statements, but do not include all disclosures required by generally accepted accounting principles.
The accompanying financial information should be read in conjunction with the consolidated financial statements and notes thereto contained in Teradyne’s Annual Report on Form 10-K, filed with the United States Securities and Exchange Commission on March 15, 2004 for the year ended December 31, 2003.
Preparation of Financial Statements
The preparation of consolidated financial statements requires management to make estimates and judgments that affect the amounts reported in the financial statements. Actual results may differ significantly from these estimates.
6
TERADYNE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
B. Accounting Policies—(Continued)
Product Warranty