Teradyne, Inc.
TERADYNE, INC (Form: 10-Q, Received: 08/08/2014 10:05:01)
Table of Contents

 

 

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 June 29, 2014

OR

 

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     

Commission File No. 001-06462

 

 

TERADYNE, INC.

(Exact name of registrant as specified in its charter)

 

 

 

Massachusetts   04-2272148

(State or Other Jurisdiction of

Incorporation or Organization)

 

(I.R.S. Employer

Identification No.)

600 Riverpark Drive, North Reading,

Massachusetts

  01864
(Address of Principal Executive Offices)   (Zip Code)

978-370-2700

(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 has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files)    Yes   x     No   ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act (check one):

 

Large accelerated filer   x    Accelerated filer   ¨
Non-accelerated filer   ¨    Smaller reporting company   ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange

Act).     Yes   ¨     No   x

The number of shares outstanding of the registrant’s only class of Common Stock as of August 1, 2014 was 204,676,850 shares.

 

 

 


Table of Contents

TERADYNE, INC.

INDEX

 

         Page No.  
PART I. FINANCIAL INFORMATION   
Item 1.   Financial Statements (Unaudited):   
 

Condensed Consolidated Balance Sheets as of June 29, 2014 and December 31, 2013

     1   
 

Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 29, 2014 and June 30, 2013

     2   
 

Condensed Consolidated Statements of Comprehensive Income for the Three and Six Months Ended June 29, 2014 and June 30, 2013

     3   
 

Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 29, 2014 and June 30, 2013

     4   
  Notes to Condensed Consolidated Financial Statements      5   
Item 2.   Management’s Discussion and Analysis of Financial Condition and Results of Operations      24   
Item 3.   Quantitative and Qualitative Disclosures about Market Risk      33   
Item 4.   Controls and Procedures      33   
PART II. OTHER INFORMATION   
Item 1.   Legal Proceedings      34   
Item 1A.   Risk Factors      34   
Item 2.   Unregistered Sales of Equity Securities and Use of Proceeds      34   
Item 4.   Mine Safety Disclosures      34   
Item 6.   Exhibits      35   


Table of Contents

PART I

 

Item 1: Financial Statements

TERADYNE, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

 

     June 29, 
2014
     December 31, 
2013
 
    

(in thousands,

except per share information)

 
ASSETS      

Current assets:

     

Cash and cash equivalents

   $ 254,625       $ 341,638   

Marketable securities

     488,439         586,882   

Accounts receivable, less allowance for doubtful accounts of $2,461 and $2,912 at June 29, 2014 and December 31, 2013, respectively

     300,767         157,642   

Inventories:

     

Parts

     70,444         84,232   

Assemblies in process

     15,191         15,539   

Finished goods

     41,239         38,168   
  

 

 

    

 

 

 
     126,874         137,939   

Deferred tax assets

     68,460         72,478   

Prepayments

     110,473         136,374   

Other current assets

     4,989         7,324   
  

 

 

    

 

 

 

Total current assets

     1,354,627         1,440,277   

Net property, plant and equipment

     308,521         275,236   

Marketable securities

     364,077         271,078   

Deferred tax assets

     5,810         5,217   

Other assets

     10,927         14,591   

Retirement plans assets

     9,134         9,342   

Intangible assets, net

     215,748         252,291   

Goodwill

     361,819         361,792   
  

 

 

    

 

 

 

Total assets

   $ 2,630,663       $ 2,629,824   
  

 

 

    

 

 

 
LIABILITIES      

Current liabilities:

     

Accounts payable

   $ 102,214       $ 62,874   

Accrued employees’ compensation and withholdings

     86,765         95,619   

Deferred revenue and customer advances

     63,968         55,404   

Other accrued liabilities

     93,103         63,712   

Accrued income taxes

     15,182         11,360   

Current debt

     —          186,663   
  

 

 

    

 

 

 

Total current liabilities

     361,232         475,632   

Long-term deferred revenue and customer advances

     18,992         13,756   

Retirement plans liabilities

     92,485         91,517   

Deferred tax liabilities

     39,616         40,686   

Long-term other accrued liabilities

     16,865         23,139   
  

 

 

    

 

 

 

Total liabilities

     529,190         644,730   
  

 

 

    

 

 

 

Commitments and contingencies (Note O)

     
SHAREHOLDERS’ EQUITY      

Common stock, $0.125 par value, 1,000,000 shares authorized, 196,321 shares and 191,731 shares issued and outstanding at June 29, 2014 and December 31, 2013, respectively

     24,540         23,966   

Additional paid-in capital

     1,414,513         1,390,896   

Accumulated other comprehensive income

     5,709         4,000   

Retained earnings

     656,711         566,232   
  

 

 

    

 

 

 

Total shareholders’ equity

     2,101,473         1,985,094   
  

 

 

    

 

 

 

Total liabilities and shareholders’ equity

   $ 2,630,663       $ 2,629,824   
  

 

 

    

 

 

 

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, 2013, are an integral part of the condensed

consolidated financial statements.

 

1


Table of Contents

TERADYNE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

 

     For the Three Months
Ended
     For the Six Months
Ended
 
     June 29,
2014
     June 30,
2013
     June 29,
2014
     June 30,
2013
 
     (in thousands, except per share amount)  

Net revenues:

           

Products

   $ 452,488       $ 363,087       $ 707,874       $ 577,387   

Services

     73,079         65,802         138,703         131,869   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total net revenues

     525,567         428,889         846,577         709,256   

Cost of revenues:

           

Cost of products

     202,411         158,411         326,859         255,204   

Cost of services

     32,743         29,245         62,258         59,402   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total cost of revenues

     235,154         187,656         389,117         314,606   
  

 

 

    

 

 

    

 

 

    

 

 

 

Gross profit

     290,413         241,233         457,460         394,650   

Operating expenses:

           

Engineering and development

     73,414         67,773         140,499         130,524   

Selling and administrative

     77,489         69,230         155,492         137,120   

Acquired intangible assets amortization

     18,271         18,063         36,542         36,099   

Restructuring and other

     572         259         572         591   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total operating expenses

     169,746         155,325         333,105         304,334   
  

 

 

    

 

 

    

 

 

    

 

 

 

Income from operations

     120,667         85,908         124,355         90,316   

Interest income

     1,266         903         2,302         1,975   

Interest expense and other

     541         6,454         7,138         13,360   
  

 

 

    

 

 

    

 

 

    

 

 

 

Income before income taxes

     121,392         80,357         119,519         78,931   

Income tax provision

     20,187         13,801         17,385         5,786   
  

 

 

    

 

 

    

 

 

    

 

 

 

Net income

   $ 101,205       $ 66,556       $ 102,134       $ 73,145   
  

 

 

    

 

 

    

 

 

    

 

 

 

Net income per common share:

           

Basic

   $ 0.52       $ 0.35       $ 0.53       $ 0.38   
  

 

 

    

 

 

    

 

 

    

 

 

 

Diluted

   $ 0.47       $ 0.28       $ 0.45       $ 0.31   
  

 

 

    

 

 

    

 

 

    

 

 

 

Weighted average common shares—basic

     194,408         190,569         193,860         190,128   
  

 

 

    

 

 

    

 

 

    

 

 

 

Weighted average common shares—diluted

     216,568         234,909         226,526         234,833   
  

 

 

    

 

 

    

 

 

    

 

 

 

Cash dividend declared per common share

   $ —         $ —        $ 0.06       $ —    
  

 

 

    

 

 

    

 

 

    

 

 

 

 

 

 

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, 2013, are an integral part of the condensed

consolidated financial statements.

 

2


Table of Contents

TERADYNE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

 

     For the Three Months
Ended
    For the Six Months
Ended
 
     June 29,
2014
    June 30,
2013
    June 29,
2014
    June 30,
2013
 
     (in thousands)  

Net income

   $ 101,205      $ 66,556      $ 102,134      $ 73,145   
  

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income (loss):

        

Available-for-sale marketable securities:

        

Net unrealized gains (losses) on marketable securities arising during period, net of tax of $558, $(841), $1,242, $(726)

     1,165        (1,463     2,304        (1,263

Less: Reclassification adjustment for net gains included in net income, net of tax of $(141), $(39), $(243), $(122)

     (272     (68     (448     (212
  

 

 

   

 

 

   

 

 

   

 

 

 
     893        (1,531     1,856        (1,475

Defined benefit pension and post-retirement plans:

        

Amortization of net prior service benefit included in net periodic pension expense and post-retirement income, net of tax of $(42), $(40), $(85), $(79)

     (74     (69     (147     (138
  

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income (loss)

     819        (1,600     1,709        (1,613
  

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income

   $ 102,024      $ 64,956      $ 103,843      $ 71,532   
  

 

 

   

 

 

   

 

 

   

 

 

 

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, 2013, are an integral part of the condensed

consolidated financial statements.

 

3


Table of Contents

TERADYNE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

     For the Six Months
Ended
 
     June 29,
2014
    June 30,
2013
 
     (in thousands)  

Cash flows from operating activities:

    

Net income

   $ 102,134      $ 73,145   

Adjustments to reconcile net income to net cash provided by operating activities:

    

Depreciation

     33,785        27,552   

Amortization

     42,990        46,052   

Stock-based compensation

     23,530        18,077   

Provision for excess and obsolete inventory

     15,071        5,775   

Deferred taxes

     (5,697     (15,230

Tax benefit related to stock options and restricted stock units

     (1,671     (1,584

Retirement plans actuarial gains

     —          (1,359

Other

     1,165        24   

Changes in operating assets and liabilities:

    

Accounts receivable

     (143,125     (74,785

Inventories

     18,469        26,373   

Prepayments and other assets

     27,000        (17,277

Accounts payable and other accrued expenses

     52,796        (15,428

Deferred revenue and customer advances

     13,800        (2,811

Retirement plans contributions

     (2,388     (2,511

Accrued income taxes

     5,495        2,964   
  

 

 

   

 

 

 

Net cash provided by operating activities

     183,354        68,977   

Cash flows from investing activities:

    

Purchases of property, plant and equipment

     (91,389     (50,798

Purchases of marketable securities

     (523,306     (458,070

Proceeds from maturities of marketable securities

     377,436        268,546   

Proceeds from sales of marketable securities

     152,818        50,255   

Proceeds from life insurance

     4,391        —    
  

 

 

   

 

 

 

Net cash used for investing activities

     (80,050     (190,067

Cash flows from financing activities:

    

Issuance of common stock under employee stock purchase and stock options plans

     10,643        9,638   

Tax benefit related to stock options and restricted stock units

     1,671        1,584   

Payments of dividend

     (11,656     —     

Payments of long-term debt

     (190,975     (1,063

Payments of contingent consideration

     —          (388
  

 

 

   

 

 

 

Net cash (used for) provided by financing activities

     (190,317     9,771   
  

 

 

   

 

 

 

Decrease in cash and cash equivalents

     (87,013     (111,319

Cash and cash equivalents at beginning of period

     341,638        338,920   
  

 

 

   

 

 

 

Cash and cash equivalents at end of period

   $ 254,625      $ 227,601   
  

 

 

   

 

 

 

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, 2013, are an integral part of the condensed

consolidated financial statements.

 

4


Table of Contents

TERADYNE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

A. The Company

Teradyne, Inc. (the “Company” or “Teradyne”) is a leading global supplier of automatic test equipment. Teradyne’s automatic test equipment products and services include:

 

    semiconductor test (“Semiconductor Test”) systems;

 

    wireless test (“Wireless Test”) systems; and

 

    military/aerospace (“Mil/Aero”) test instrumentation and systems, storage test (“Storage Test”) systems, and circuit-board test (“Production Board Test”) systems (collectively these products represent “System Test”).

B. Accounting Policies

Basis of Presentation

The consolidated interim financial statements include the accounts of Teradyne and its wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated. These interim financial statements are unaudited and reflect all normal recurring adjustments that are, in the opinion of management, necessary for the fair presentation of such interim financial statements. Certain prior year’s amounts were reclassified to conform to the current year presentation. The December 31, 2013 condensed consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America.

The accompanying financial information should be read in conjunction with the consolidated financial statements and notes thereto contained in Teradyne’s Annual Report on Form 10-K, filed with the U.S. Securities and Exchange Commission (“SEC”) on February 28, 2014, for the year ended December 31, 2013.

Preparation of Financial Statements and Use of Estimates

The preparation of consolidated financial statements requires management to make estimates and judgments that affect the amounts reported in the financial statements. Actual results may differ significantly from these estimates.

C. Recently Issued Accounting Pronouncements

On July 18, 2013, Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) No. 2013-11,  “Income Taxes (Topic 740): Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists.” Under this ASU, unrecognized tax benefits will be netted against all available same-jurisdiction loss or other tax carryforwards that would be utilized, rather than only against carryforwards that are created by unrecognized tax benefits. The provisions of this ASU are effective for interim and annual periods beginning on or after December 15, 2013. Teradyne’s implementation of this ASU did not have a material impact on Teradyne’s financial position and results of operations.

In May 2014, the FASB issued ASU 2014-09, “ Revenue from Contracts with Customers (Topic 606)” which will replace numerous requirements in U.S. GAAP, including industry-specific requirements, and provide companies with a single revenue recognition model for recognizing revenue from contracts with customers. The

 

5


Table of Contents

core principle of the new standard is that a company should recognize revenue to show the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. The new standard will be effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. For Teradyne, the standard will be effective in the first quarter of 2017. The two permitted transition methods under the new standard are the full retrospective method, in which case the standard would be applied to each prior reporting period presented, or the modified retrospective method, in which case the cumulative effect of applying the standard would be recognized at the date of initial application. Teradyne has not yet selected a transition method. Teradyne is currently evaluating the impact of this ASU on its financial position and results of operations.

D. Financial Instruments and Derivatives

Cash Equivalents

Teradyne considers all highly liquid investments with maturities of three months or less at the date of acquisition to be cash equivalents.

Financial Instruments

Teradyne accounts for its investments in debt and equity securities in accordance with the provisions of ASC 320-10, “ Investments—Debt and Equity Securities. ” ASC 320-10 requires that certain debt and equity securities be classified into one of three categories; trading, available-for-sale or held-to-maturity securities. As of June 29, 2014, Teradyne’s investments in debt and equity securities were classified as available-for-sale and recorded at their fair market value.

On a quarterly basis, Teradyne reviews its investments to identify and evaluate those that have an indication of a potential other-than-temporary impairment. Factors considered in determining whether a loss is other-than-temporary include:

 

    The length of time and the extent to which the market value has been less than cost;

 

    The financial condition and near-term prospects of the issuer; and

 

    The intent and ability to retain the investment in the issuer for a period of time sufficient to allow for any anticipated recovery in market value.

Teradyne uses the market and income approach techniques to value its financial instruments and there were no changes in valuation techniques during the three and six months ended June 29, 2014 and June 30, 2013. As defined in ASC 820-10 Fair Value Measurements and Disclosures ”, fair value is the price that would be received from the sale of an asset or paid to transfer a liability in an orderly transaction between market participants. ASC 820-10 requires that assets and liabilities carried at fair value be classified and disclosed in one of the following three categories:

Level 1: Quoted prices in active markets for identical assets as of the reporting date.

Level 2: Inputs other than Level 1, that are observable either directly or indirectly as of the reporting date. For example, a common approach for valuing fixed income securities is the use of matrix pricing, a technique used to value securities by relying on the securities’ relationship to other benchmark quoted prices, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3: Unobservable inputs that are not supported by market data. Unobservable inputs are developed based on the best information available, which might include Teradyne’s own data.

Substantially all of Teradyne’s fixed income securities are classified as Level 2, with the exception of investments in equity and debt mutual funds, which are classified as Level 1, and contingent consideration, which

 

6


Table of Contents

is classified as Level 3. The majority of Teradyne’s Level 2 securities are priced by pricing vendors. These pricing vendors utilize the most recent observable market information in pricing these securities or, if specific prices are not available, use other observable inputs like market transactions involving identical or comparable securities.

During the six months ended June 29, 2014 and June 30, 2013, there were no transfers in or out of Level 1, Level 2 or Level 3 financial instruments.

There were no realized losses recorded in the three and six months ended June 29, 2014 and June 30, 2013. Realized gains recorded in the three and six months ended June 29, 2014 were $0.4 million and $0.7 million, respectively. Realized gains recorded in the three and six months ended June 30, 2013 were $0.1 million and $0.3 million, respectively. Realized gains are included in interest income.

The following table sets forth by fair value hierarchy Teradyne’s financial assets and liabilities that were measured at fair value on a recurring basis as of June 29, 2014 and December 31, 2013.

 

     June 29, 2014  
     Quoted Prices
in Active
Markets for
Identical
Instruments
(Level 1)
     Significant
Other
Observable
Inputs
(Level 2)
     Significant
Unobservable
Inputs
(Level 3)
     Total  
     (in thousands)  

Assets

           

Cash

   $ 136,730       $ —        $ —        $ 136,730   

Cash equivalents

     112,152         5,743         —          117,895   

Available-for-sale securities:

           

U.S. Treasury securities

     —          404,942         —          404,942   

U.S. government agency securities

     —          228,075         —          228,075   

Commercial paper

     —          108,459         —          108,459   

Corporate debt securities

     —          82,490         —          82,490   

Equity and debt mutual funds

     14,441         —          —          14,441   

Certificates of deposit and time deposits

     —          14,030         —          14,030   

Non-U.S. government securities

     —          79         —          79   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 263,323       $ 843,818       $ —        $ 1,107,141   
  

 

 

    

 

 

    

 

 

    

 

 

 

Liabilities

           

Contingent consideration

   $ —        $ —        $ 2,230       $ 2,230   

Derivatives

     —          306        —           306   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ —        $ 306      $ 2,230       $ 2,536   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

7


Table of Contents

Reported as follows:

 

     (Level 1)      (Level 2)      (Level 3)      Total  
     (in thousands)  

Assets

           

Cash and cash equivalents

   $ 248,882       $ 5,743       $ —        $ 254,625   

Marketable securities

     —           488,439         —          488,439   

Long-term marketable securities

     14,441         349,636         —          364,077   
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 263,323       $ 843,818       $ —        $ 1,107,141   
  

 

 

    

 

 

    

 

 

    

 

 

 

Liabilities

           

Other accrued liabilities

   $ —        $ 306       $ —         $ 306   

Long-term other accrued liabilities

     —          —          2,230         2,230   
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ —        $ 306       $ 2,230       $ 2,536   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

    December 31, 2013  
    Quoted Prices
in Active
Markets for
Identical
Instruments
(Level 1)
    Significant
Other
Observable
Inputs
(Level 2)
    Significant
Unobservable
Inputs
(Level 3)
    Total  
    (in thousands)  

Assets

       

Cash

  $ 117,242      $ —       $ —        $ 117,242   

Cash equivalents

    165,865        58,531        —         224,396   

Available-for-sale securities:

       

U.S. Treasury securities

    —         467,895       —         467,895   

U.S. government agency securities

    —         202,588        —         202,588   

Commercial paper

    —         105,598        —         105,598   

Corporate debt securities

    —         65,387        —         65,387   

Equity and debt mutual funds

    13,156        —         —         13,156   

Certificates of deposit and time deposits

    —         3,258        —         3,258   

Non-U.S. government securities

    —         78        —          78   
 

 

 

   

 

 

   

 

 

   

 

 

 

Total

    296,263        903,335        —         1,199,598   

Derivatives

    —         153        —         153   
 

 

 

   

 

 

   

 

 

   

 

 

 

Total

  $ 296,263      $ 903,488      $ —       $ 1,199,751   
 

 

 

   

 

 

   

 

 

   

 

 

 

Liabilities

       

Contingent consideration

  $ —       $ —       $ 2,230      $ 2,230   
 

 

 

   

 

 

   

 

 

   

 

 

 

Total

  $ —       $ —       $ 2,230      $ 2,230   
 

 

 

   

 

 

   

 

 

   

 

 

 

 

8


Table of Contents

Reported as follows:

 

     (Level 1)      (Level 2)      (Level 3)      Total  
     (in thousands)  

Assets

           

Cash and cash equivalents

   $ 283,107       $ 58,531       $ —        $ 341,638   

Marketable securities

     —           586,882         —          586,882   

Long-term marketable securities

     13,156         257,922         —          271,078   

Other current assets

     —          153         —          153   
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 296,263       $ 903,488       $ —        $ 1,199,751   
  

 

 

    

 

 

    

 

 

    

 

 

 

Liabilities

           

Long-term other accrued liabilities

   $ —        $ —        $ 2,230       $ 2,230   
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ —        $ —        $ 2,230       $ 2,230   
  

 

 

    

 

 

    

 

 

    

 

 

 

Contingent consideration relates to Teradyne’s acquisition of ZTEC on October 25, 2013. The total purchase price included $2.2 million in fair value of contingent consideration payable upon achievement of certain customer order and revenue targets through 2015. The maximum amount of contingent consideration that could be paid is $5.0 million. Based on the projected results for the acquisition, no value was assigned to the revenue component of the contingent consideration.

The valuation of the customer order component of the contingent consideration utilized the following assumptions: (1) probability of meeting each benchmark; (2) expected timing of meeting each benchmark; and (3) discount rate reflecting the risk associated with the expected payments. The probabilities and timing for each benchmark were estimated based on a review of the historical and projected results. A discount rate of 5.2 percent was selected based on the cost of debt for the business, as a significant portion of the risk in achieving the customer order contingent consideration was captured in the probabilities assigned to meeting each benchmark. There were no changes to the fair value of the contingent consideration during the six months ended June 29, 2014.

Changes in the fair value of Level 3 contingent consideration for the three and six months ended June 29, 2014 and June 30, 2013 were as follows:

Contingent consideration related to Teradyne’s acquisition of ZTEC

in October 2013

      
   For the Three and Six Months
Ended
 
   June 29, 2014  
     (in thousands)  

Balance at December 31, 2013

   $ 2,230   

Contingent consideration payments

     —    
  

 

 

 

Balance at March 30, 2014

     2,230   

Contingent consideration payments

     —     
  

 

 

 

Balance at June 29, 2014

   $ 2,230   
  

 

 

 

 

Contingent consideration related to Teradyne’s acquisition of LitePoint

in October 2011

   For the Three and Six Months
Ended
 
   June 30, 2013  
     (in thousands)  

Balance at December 31, 2012

   $ 388   

Contingent consideration payments

     (313
  

 

 

 

Balance at March 31, 2013

     75   

Contingent consideration payments

     (75
  

 

 

 

Balance at June 30, 2013

   $ —     
  

 

 

 

 

9


Table of Contents

The carrying amounts and fair values of Teradyne’s financial instruments at June 29, 2014 and December 31, 2013 were as follows:

 

     June 29, 2014      December 31, 2013  
     Carrying Value      Fair Value      Carrying Value      Fair Value  
     (in thousands)  

Cash and cash equivalents

   $ 254,625       $ 254,625       $ 341,638       $ 341,638   

Marketable securities

     852,516         852,516         857,960         857,960   

Convertible debt(1)

     —          —          185,708         611,433   

Japan loan

     —          —          955         955   

 

(1) The carrying value represents the bifurcated debt component only, while the fair value is based on quoted market prices for the convertible note which includes the equity conversion feature.

The fair values of cash and cash equivalents, accounts receivable, net and accounts payable approximate the carrying amount due to the short-term nature of these instruments.

The following tables summarize the composition of available-for-sale marketable securities at June 29, 2014 and December 31, 2013:

 

     June 29, 2014  
     Available-for-Sale      Fair Market
Value of
Investments
with Unrealized
Losses
 
     Cost      Unrealized
Gain
     Unrealized
(Loss)
    Fair Market
Value
    
     (in thousands)  

U.S. Treasury securities

   $ 404,707       $ 308       $ (73   $ 404,942       $ 36,402   

U.S. government agency securities

     227,889         202         (16     228,075         41,122   

Commercial paper

     108,446         13         —          108,459         —     

Corporate debt securities

     80,771         1,903         (184     82,490         25,959   

Equity and debt mutual funds

     11,567         2,898         (24     14,441         839   

Certificates of deposit and time deposits

     14,027         3         —         14,030         —    

Non-U.S. government securities

     79         —          —         79         —    
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

 
   $ 847,486       $ 5,327       $ (297   $ 852,516       $ 104,322   
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

 

Reported as follows:

 

     Cost      Unrealized
Gain
     Unrealized
(Loss)
    Fair Market
Value
     Fair Market
Value of
Investments
with Unrealized
Losses
 
     (in thousands)  

Marketable securities

   $ 488,257       $ 186       $ (4   $ 488,439       $ 26,407   

Long-term marketable securities

     359,229         5,141         (293     364,077         77,915   
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

 
   $ 847,486       $ 5,327       $ (297   $ 852,516       $ 104,322   
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

 

 

10


Table of Contents
     December 31, 2013  
     Available-for-Sale      Fair Market
Value of
Investments
with Unrealized
Losses
 
     Cost      Unrealized
Gain
     Unrealized
(Loss)
    Fair Market
Value
    
     (in thousands)  

U.S. Treasury securities

   $ 468,084       $ 94       $ (283   $ 467,895       $ 108,212   

U.S. government agency securities

     202,573         75         (60     202,588         84,498   

Commercial paper

     105,583         16         (1     105,598         7,993   

Corporate debt securities

     65,747         762         (1,122     65,387         40,355   

Equity and debt mutual funds

     10,463         2,742         (49     13,156         702   

Certificates of deposit and time deposits

     3,258         —          —         3,258         —    

Non-U.S. government securities

     78         —          —         78         —    
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

 
   $ 855,786       $ 3,689       $ (1,515   $ 857,960       $ 241,760   
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

 

Reported as follows:

 

     Cost      Unrealized
Gain
     Unrealized
(Loss)
    Fair Market
Value
     Fair Market
Value of
Investments
with Unrealized
Losses
 
     (in thousands)  

Marketable securities

   $ 586,818       $ 85       $ (21   $ 586,882       $ 137,670   

Long-term marketable securities

     268,968         3,604         (1,494     271,078         104,090   
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

 
   $ 855,786       $ 3,689       $ (1,515   $ 857,960       $ 241,760   
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

 

As of June 29, 2014, the fair market value of investments with unrealized losses was $104.3 million. Of this value, $6.9 million had unrealized losses greater than one year and $97.4 million had unrealized losses less than one year. As of December 31, 2013, the fair market value of investments with unrealized losses was $241.8 million. Of this value, $0.9 million had unrealized losses greater than one year and $240.9 million had unrealized losses less than one year. Teradyne reviews its investments to identify and evaluate investments that have an indication of possible impairment. Based on this review, Teradyne determined that the unrealized losses related to these investments, at June 29, 2014 and December 31, 2013, were temporary.

The contractual maturities of investments held at June 29, 2014 were as follows:

 

     June 29, 2014  
     Cost      Fair Market
Value
 
     (in thousands)  

Due within one year

   $ 488,257       $ 488,439   

Due after 1 year through 5 years

     317,047         317,321   

Due after 5 years through 10 years

     6,289         6,467   

Due after 10 years

     24,326         25,848   
  

 

 

    

 

 

 

Total

   $ 835,919       $ 838,075   
  

 

 

    

 

 

 

Contractual maturities of investments held at June 29, 2014 exclude equity and debt mutual funds as they do not have a contractual maturity date.

Derivatives

Teradyne conducts business in a number of foreign countries, with certain transactions denominated in local currencies. The purpose of Teradyne’s foreign currency management is to minimize the effect of exchange rate fluctuations on certain foreign currency denominated monetary assets and liabilities. Teradyne does not use derivative financial instruments for trading or speculative purposes.

 

11


Table of Contents

To minimize the effect of exchange rate fluctuations associated with the remeasurement of monetary assets and liabilities denominated in foreign currencies, Teradyne enters into foreign currency forward contracts. The change in fair value of these derivatives is recorded directly in earnings, and is used to offset the change in value of the monetary assets and liabilities denominated in foreign currencies.

The notional amount of foreign currency forward contracts was $69.4 million and $74.8 million at June 29, 2014 and December 31, 2013, respectively.

The fair value of the outstanding contracts was a loss of $0.3 million and a gain of $0.2 million at June 29, 2014 and December 31, 2013, respectively. The following table summarizes the fair value of derivative instruments at June 29, 2014 and December 31, 2013:

 

     Balance Sheet Location    June 29,
2014
     December 31,
2013
 
          (in thousands)  

Derivatives not designated as hedging instruments:

        

Foreign currency forward contracts

   Other current assets    $ —         $ 153   
   Other accrued liabilities      306         —     
     

 

 

    

 

 

 
      $ 306       $ 153   
     

 

 

    

 

 

 

Teradyne had no offsetting foreign exchange contracts at June 29, 2014 and December 31, 2013.

In the three and six months ended June 29, 2014, Teradyne recorded net realized losses of $1.1 million and $1.9 million, respectively, related to foreign currency forward contracts hedging net monetary positions. In the three and six months ended June 30, 2013, Teradyne recorded net realized gains of $1.8 million and $4.1 million, respectively, related to foreign currency forward contracts hedging net monetary positions. Gains and losses on foreign currency forward contracts and foreign currency remeasurement gains and losses on monetary assets and liabilities are included in interest expense and other.

The following table summarizes the effect of derivative instruments recognized in the statement of operations during the three and six months ended June 29, 2014 and June 30, 2013. The table does not reflect the corresponding gains (losses) from the remeasurement of the monetary assets and liabilities denominated in foreign currencies. For the three and six months ended June 29, 2014, gains from the remeasurement of the monetary assets and liabilities denominated in foreign currencies were $0.7 million and $1.3 million, respectively. For the three and six months ended June 30, 2013, (losses) from the remeasurement of the monetary assets and liabilities denominated in foreign currencies were $(1.8) million and $(4.6) million, respectively.

 

     Location of Gains
(Losses)
Recognized in
Statement
of Operations
     For the Three Months
Ended
     For the Six
Months

Ended
 
      June 29,
2014
    June 30,
2013
     June 29,
2014
    June 30,
2013
 
            (in thousands)  

Derivatives not designated as hedging instruments:

            

Foreign exchange contracts

     Interest expense and other       $ (1,122   $ 1,818       $ (1,869   $ 4,067   
     

 

 

   

 

 

    

 

 

   

 

 

 
      $ (1,122   $ 1,818       $ (1,869   $ 4,067   
     

 

 

   

 

 

    

 

 

   

 

 

 

See Note E: “Debt” regarding derivatives related to convertible senior notes.

 

12


Table of Contents

E. Debt

Loan Agreement

On March 31, 2009, Teradyne K.K., Teradyne’s wholly-owned subsidiary in Japan, entered into a loan agreement with a local bank in Japan to borrow approximately $10.0 million (the loan was denominated in Japanese Yen). The loan had a term of 5 years and a fixed interest rate of 0.8%. Approximately $6.0 million of the loan was collateralized by a real estate mortgage on Teradyne K.K.’s building and land in Kumamoto, Japan and approximately $4.0 million was unsecured. Teradyne, Inc. guaranteed payment of the loan obligation. The loan was amortized over the term of the loan with semiannual principal payments of approximately $1.0 million on September 30 and March 30 each year. The final principal and interest payments were made in March 2014.

Convertible Senior Notes

In April 2009, Teradyne issued 4.50% convertible senior notes (the “Notes”) at an aggregate principal amount of $190 million and a conversion price of $5.4750 or 182.65 shares of Teradyne’s common stock per $1,000 principal amount of Notes. The Notes had a maturity date of March 15, 2014. Substantially all of the Notes were converted prior to March 15, 2014 and were “net share settled,” meaning that the holders received, for each $1,000 in principal amount of Notes, $1,000 in cash and approximately 131.95 shares of Teradyne common stock (calculated by taking 182.65 shares less 50.7 shares). The 50.7 shares were determined by dividing the $1,000 principal amount by the $19.74 average trading price of Teradyne’s common stock over the 25 day trading period from February 5, 2014 to March 12, 2014.

Teradyne satisfied the Notes “net share settlement” by paying the aggregate principal amount of $190 million in cash and issuing 25.1 million shares of common stock. On March 13, 2014, Teradyne exercised its call option agreement entered into with Goldman, Sachs & Co. (the “hedge counterparty”) at the time of issuance of the Notes and received 25.1 million shares of Teradyne’s common stock, which were retired.

Subsequently, the hedge counterparty can exercise warrants with a strike price of $7.6389. The warrants are net share settled. Approximately 536,000 warrants expire on a daily basis over a 65-day trading period from June 17, 2014 to September 17, 2014. In the three months ended June 29, 2014, approximately 1.9 million shares were issued for warrants exercised.

The tables below represent the components of Teradyne’s convertible senior notes:

 

     June 29,
2014
     December 31,
2013
 
     (in thousands)  

Debt principal

   $ —        $ 189,998   

Unamortized debt discount

     —          4,290   
  

 

 

    

 

 

 

Net carrying amount of the convertible debt

   $ —        $ 185,708   
  

 

 

    

 

 

 

The interest expense on Teradyne’s convertible senior notes for the three and six months ended June 29, 2014 and June 30, 2013 was as follows:

 

     For the Three Months
Ended
     For the Six Months
Ended
 
     June 29,
2014
     June 30,
2013
     June 29,
2014
     June 30,
2013
 
     (in thousands)  

Contractual interest expense

   $ —         $ 2,137       $ 1,757       $ 4,274   

Amortization of the discount component and debt issue fees

     —           4,087         4,493         8,044   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total interest expense on the convertible debt

   $ —         $ 6,224       $ 6,250       $ 12,318   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

13


Table of Contents

F. Prepayments

Prepayments consist of the following and are included in prepayments on the balance sheet:

 

     June 29,
2014
     December 31,
2013
 
     (in thousands)  

Contract manufacturer prepayments

   $ 92,196       $ 115,388   

Prepaid maintenance and other services

     6,838         6,538   

Prepaid taxes

     1,960         3,281   

Other prepayments

     9,479         11,167   
  

 

 

    

 

 

 

Total prepayments

   $ 110,473       $ 136,374   
  

 

 

    

 

 

 

G. Deferred Revenue and Customer Advances

Deferred revenue and customer advances consist of the following and are included in short and long-term deferred revenue and customer advances on the balance sheet:

 

     June 29,
2014
     December 31,
2013
 
     (in thousands)  

Extended warranty

   $ 40,052       $ 34,909   

Equipment maintenance and training

     26,535         22,455   

Customer advances

     8,926         4,825   

Undelivered elements

     5,831         6,971   

Customer acceptance

     1,616        —     
  

 

 

    

 

 

 

Total deferred revenue and customer advances

   $ 82,960       $ 69,160   
  

 

 

    

 

 

 

H. Product Warranty

Teradyne generally provides a one-year warranty on its products, commencing upon installation or shipment. A provision is recorded upon revenue recognition to cost of revenues for estimated warranty expense based on historical experience. Related costs are charged to the warranty accrual as incurred. The warranty balance below is included in other accrued liabilities on the balance sheet.

 

     For the Three Months
Ended
    For the Six Months
Ended
 
     June 29,
2014
    June 30,
2013
    June 29,
2014
    June 30,
2013
 
     (in thousands)  

Balance at beginning of period

   $ 6,615      $ 7,075      $ 6,660      $ 9,786   

Accruals for warranties issued during the period

     5,399        3,684        8,257        5,107   

Adjustments related to pre-existing warranties

     (302     (869     (442     (1,798

Settlements made during the period

     (2,639     (2,539     (5,402     (5,744
  

 

 

   

 

 

   

 

 

   

 

 

 

Balance at end of period

   $ 9,073      $ 7,351      $ 9,073      $ 7,351   
  

 

 

   

 

 

   

 

 

   

 

 

 

When Teradyne receives revenue for extended warranty beyond one year, it is deferred and recognized on a straight-line basis over the contract period. Related costs are expensed as incurred. The extended warranty balance below is included in short and long-term deferred revenue and customer advances on the balance sheet.

 

14


Table of Contents
     For the Three Months
Ended
    For the Six Months
Ended
 
     June 29,
2014
    June 30,
2013
    June 29,
2014
    June 30,
2013
 
     (in thousands)  

Balance at beginning of period

   $ 33,949      $ 28,599      $ 34,909      $ 26,987   

Deferral of new extended warranty revenue

     11,960        8,734        14,321        12,205   

Recognition of extended warranty deferred revenue

     (5,857     (2,479     (9,178     (4,338
  

 

 

   

 

 

   

 

 

   

 

 

 

Balance at end of period

   $ 40,052      $ 34,854      $ 40,052      $ 34,854   
  

 

 

   

 

 

   

 

 

   

 

 

 

I. Stock-Based Compensation

In January 2014, Teradyne granted performance-based restricted stock units (“PRSUs”) to its executive officers with a performance metric based on relative total shareholder return (“TSR”). Teradyne’s three-year TSR performance will be measured against the Philadelphia Semiconductor Index, which consists of thirty companies in the semiconductor device and capital equipment industries. The final number of TSR PRSUs that vest will vary based upon the level of performance achieved from 200% of the target shares to 0% of the target shares. All TSR PRSUs will vest upon the three-year anniversary of the January 24, 2014 grant date. No TSR PRSUs will vest if the executive officer is no longer an employee at the end of the three-year period. The TSR PRSUs are valued using a Monte Carlo simulation model. The number of units expected to be earned, based upon the achievement of the TSR market condition, is factored into the grant date Monte Carlo valuation. Compensation expense is recognized on a straight-line basis over the three-year service period. Compensation expense is recognized regardless of the eventual number of units that are earned based upon the market condition, provided the executive officer remains an employee at the end of the three-year period. Compensation expense is reversed if the executive officer is not an employee at the end of the three-year service period. During the six months ended June 29, 2014, Teradyne granted 0.1 million TSR performance-based restricted stock unit awards with a grant date fair value of $22.06. The fair value was estimated using the Monte Carlo simulation model with the following assumptions:

 

     For the Six Months
Ended
 
     June 29,
2014
 

Risk-free interest rate

     0.75

Teradyne volatility-historical

     36.1

Philadelphia Semiconductor Index volatility-historical

     24.6

Dividend yield

     1.25

Expected volatility was based on the historical volatility of Teradyne’s stock and the Philadelphia Semiconductor Index over the most recent three year period. The risk-free interest rate was determined using the U.S. Treasury yield curve in effect at the time of grant. Dividend yield was based upon an estimated annual dividend amount of $0.24 per share divided by Teradyne’s January 24, 2014 stock price of $19.16.

During the six months ended June 29, 2014, Teradyne granted 1.6 million of service-based restricted stock unit awards to employees at a weighted average grant date fair value of $19.08 and 0.1 million of service-based stock options to executive officers at a weighted average grant date fair value of $5.49.

During the six months ended June 30, 2013, Teradyne granted 1.9 million of service-based restricted stock unit awards to employees at a weighted average grant date fair value of $16.60 and 0.2 million of service-based stock options to executive officers at a weighted average grant date fair value of $6.09.

Restricted stock unit awards granted to employees vest in equal annual installments over four years. Stock options vest in equal annual installments over four years, and have a term of seven years from the date of grant.

 

15


Table of Contents

The fair value of stock options was estimated using the Black-Scholes option-pricing model with the following assumptions:

 

     For the Six Months
Ended
 
     June 29,
2014
    June 30,
2013
 

Expected life (years)

     4.0        4.0   

Risk-free interest rate

     1.2     0.6

Volatility-historical

     38.8     46.8

Dividend yield

     1.25     0.0

Teradyne determined the stock options’ expected life based upon historical exercise data for executive officers, the age of the executive officers and the terms of the stock option grant. Volatility was determined using historical volatility for a period equal to the expected life. The risk-free interest rate was determined using the U.S. Treasury yield curve in effect at the time of grant. Dividend yield was based upon an estimated annual dividend amount of $0.24 per share divided by Teradyne’s January 24, 2014 stock price of $19.16.

Effective January 31, 2014, Michael Bradley retired as Chief Executive Officer of Teradyne. Mr. Bradley will continue to serve on Teradyne’s Board of Directors. On January 22, 2014, Teradyne entered into an agreement (the “Retirement Agreement”) with Mr. Bradley. Under the Retirement Agreement, Mr. Bradley’s unvested restricted stock units and stock options granted prior to his retirement date will continue to vest in accordance with their terms through January 31, 2017; and any vested options or options that vest during that period may be exercised for the remainder of the applicable option term. In the Retirement Agreement, Mr. Bradley agreed to be bound by non-competition and non-solicitation restrictions through January 31, 2017. In January 2014, Teradyne recorded a one-time charge to stock-based compensation expense of $6.6 million related to the Retirement Agreement.

J. Accumulated Other Comprehensive Income

Changes in accumulated other comprehensive income, which is presented net of tax, consist of the following:

 

     Unrealized
Gains on
Marketable
Securities
    Retirement
Plans Prior
Service
Credit
    Total  
     (in thousands)  

Balance at December 31, 2013, net of tax of $794, $(284)

   $ 1,381      $ 2,619      $ 4,000   

Other comprehensive income before reclassifications, net of tax of $1,242, $0

     2,304        —         2,304   

Amounts reclassified from accumulated other comprehensive income, net of tax of $(243), $(85)

     (448     (147     (595
  

 

 

   

 

 

   

 

 

 

Net current period other comprehensive income

     1,856        (147     1,709   
  

 

 

   

 

 

   

 

 

 

Balance at June 29, 2014, net of tax of $1,793, $(369)

   $ 3,237      $ 2,472      $ 5,709   
  

 

 

   

 

 

   

 

 

 

 

16


Table of Contents

Reclassifications out of accumulated other comprehensive income to the statement of operations for the three and six months ended June 29, 2014 and June 30, 2013, were as follows:

 

Details about Accumulated Other Comprehensive Income

Components

  For the Three
Months

Ended
    For the Six
Months

Ended
    Affected Line Item
in the Statements
of Operations
    June 29,
2014
    June 30,
2013
    June 29,
2014
    June 30,
2013
     
          (in thousands)      

Available-for-sale marketable securities:

         

Unrealized gains, net of tax of $141, $39, $243, $122

  $ 272      $ 68      $ 448      $ 212      Interest income

Amortization of defined benefit pension and postretirement plans:

         

Prior service benefit, net of tax of $42, $40, $85, $79

    74        69        147        138      (a)
 

 

 

   

 

 

   

 

 

   

 

 

   

Total reclassifications

  $ 346      $ 137      $ 595      $ 350      Net income
 

 

 

   

 

 

   

 

 

   

 

 

   

 

(a) The amortization of prior service benefit is included in the computation of net periodic pension cost and postretirement benefit; see Note N: “Retirement Plans.”

K. Intangible Assets

Amortizable intangible assets consist of the following and are included in intangible assets, net on the balance sheet:

 

     June 29, 2014  
     Gross
Carrying
Amount
     Accumulated
Amortization
     Net
Carrying
Amount
     Weighted
Average
Useful Life
 
     (in thousands)  

Developed technology

   $ 342,933       $ 200,154       $ 142,779         6.2 years   

Customer relationships

     141,497         86,145         55,352         8.0 years   

Trade names and trademarks

     30,034         12,417         17,617         9.1 years   

Customer backlog

     1,000         1,000         —           0.4 years   
  

 

 

    

 

 

    

 

 

    

Total intangible assets

   $ 515,464       $ 299,716       $ 215,748         6.9 years   
  

 

 

    

 

 

    

 

 

    

 

     December 31, 2013  
     Gross
Carrying
Amount
     Accumulated
Amortization
     Net
Carrying
Amount
     Weighted
Average
Useful Life
 
     (in thousands)  

Developed technology

   $ 342,933       $ 174,563       $ 168,370         6.2 years   

Customer relationships

     141,497         76,963         64,534         8.0 years   

Trade names and trademarks

     30,034         10,647         19,387         9.1 years   

Customer backlog

     1,000         1,000         —          0.4 years   
  

 

 

    

 

 

    

 

 

    

Total intangible assets

   $ 515,464       $ 263,173       $ 252,291         6.9 years   
  

 

 

    

 

 

    

 

 

    

 

17


Table of Contents

Aggregate intangible asset amortization expense was $18.3 million and $36.5 million, respectively, for the three and six months ended June 29, 2014 and $18.1 million and $36.1 million, respectively, for the three and six months ended June 30, 2013. Estimated intangible asset amortization expense for each of the five succeeding fiscal years is as follows:

 

Year

   Amortization Expense  
     (in thousands)  

2014 (remainder)

   $ 33,598   

2015

     53,391   

2016

     53,391   

2017

     47,232   

2018

     22,691   

L. Net Income per Common Share

The following table sets forth the computation of basic and diluted net income per common share:

 

     For the Three Months
Ended
     For the Six Months
Ended
 
     June 29,
2014
     June 30,
2013
     June 29,
2014
     June 30,
2013
 
     (in thousands, except per share amounts)  

Net income for basic and diluted net income per share

   $ 101,205       $ 66,556       $ 102,134       $ 73,145   
  

 

 

    

 

 

    

 

 

    

 

 

 

Weighted average common shares-basic

     194,408         190,569         193,860         190,128   

Effect of dilutive potential common shares:

           

Incremental shares from assumed conversion of convertible notes (1)

     —          23,266         10,026         23,326   

Convertible note hedge warrant shares (2)

     20,406         18,689         20,674         18,774   

Restricted stock units

     705         772         878         947   

Stock options

     1,006         1,554         1,056         1,615   

Employee stock purchase rights

     43         59         32         43   
  

 

 

    

 

 

    

 

 

    

 

 

 

Dilutive potential common shares

     22,160         44,340         32,666         44,705   
  

 

 

    

 

 

    

 

 

    

 

 

 

Weighted average common shares-diluted

     216,568         234,909         226,526         234,833   
  

 

 

    

 

 

    

 

 

    

 

 

 

Net income per common share-basic

   $ 0.52       $ 0.35       $ 0.53       $ 0.38   
  

 

 

    

 

 

    

 

 

    

 

 

 

Net income per common share-diluted

   $ 0.47       $ 0.28       $ 0.45       $ 0.31   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) Incremental shares from conversion of the convertible notes for the six months ended June 29, 2014 were calculated using the difference between the average Teradyne stock price from January 1, 2014 through March 12, 2014 and the conversion price of $5.4750, multiplied by 34.7 million shares. The result of this calculation, representing the total intrinsic value of the convertible debt, was divided by the average Teradyne stock price for the period from January 1, 2014 to March 12, 2014 and adjusted for the number of days the convertible notes were outstanding during the six months ended June 29, 2014. Incremental shares from assumed conversion of the convertible notes for the three and six months ended June 30, 2013 were calculated using the difference between the average Teradyne stock price for the period and the conversion price of $5.4750, multiplied by the 34.7 million shares to be issued upon conversion. The result of this calculation, representing the total intrinsic value of the convertible debt, was divided by the average Teradyne stock price for the period.
(2) Convertible note hedge warrant shares for the three and six months ended June 29, 2014 and June 30, 2013 are calculated using the difference between the average Teradyne stock price for the period and the warrant price of $7.6389, multiplied by the weighted average warrant shares outstanding. The result of this calculation, representing the total intrinsic value of the warrant, is divided by the average Teradyne stock price for the period.

 

18


Table of Contents

The computation of diluted net income per common share for the three and six months ended June 29, 2014 excludes the effect of the potential exercise of stock options to purchase approximately 0.3 million shares because the effect would have been anti-dilutive.

The computation of diluted net income per common share for the three and six months ended June 30, 2013 excludes the effect of the potential exercise of stock options to purchase approximately 0.5 million shares because the effect would have been anti-dilutive.

M. Restructuring and Other

Restructuring

During the six months ended June 29, 2014, Teradyne recorded $0.6 million of severance charges related to headcount reductions of 28 people, primarily in Wireless Test. During the six months ended June 30, 2013, Teradyne recorded $0.6 million of severance charges related to headcount reductions in System Test and Semiconductor Test.

 

     Severance
and
Benefits
    Facility
Exit
Costs
    Total  
     (in thousands)  
Pre-2013 Activities       

Balance at December 31, 2012

   $ 243      $ 1,084      $ 1,327   

Change in estimate

     —         (553     (553

Cash payments

     (243     (531     (774
  

 

 

   

 

 

   

 

 

 

Balance at December 31, 2013

   $ —       $ —       $ —    
  

 

 

   

 

 

   

 

 

 
2013 Activities       

Q3 2013 Activity:

      

Provision

   $ 1,337      $ —       $ 1,337   

Cash payments

     (966     —         (966
  

 

 

   

 

 

   

 

 

 

Balance at December 31, 2013

     371        —         371   

Cash payments

     (161     —         (161
  

 

 

   

 

 

   

 

 

 

Balance at March 30, 2014

     210        —         210   

Cash payments

     —          —         —     
  

 

 

   

 

 

   

 

 

 

Balance at June 29, 2014

   $ 210      $ —       $ 210   
  

 

 

   

 

 

   

 

 

 

Q4 2013 Activity:

      

Provision

   $ 600      $ —       $ 600   

Cash payments

     (486     —         (486
  

 

 

   

 

 

   

 

 

 

Balance at December 31, 2013

     114        —         114   

Cash payments

     (114     —         (114
  

 

 

   

 

 

   

 

 

 

Balance at March 30, 2014

   $ —       $ —       $ —    
  

 

 

   

 

 

   

 

 

 
2014 Activities       

Q2 2014 Activity:

      

Provision

   $ 572      $ —       $ 572   

Cash payments

     (530     —         (530
  

 

 

   

 

 

   

 

 

 

Balance at June 29, 2014

   $ 42      $ —       $ 42   
  

 

 

   

 

 

   

 

 

 

Balance at June 29, 2014

   $ 252      $ —       $ 252   
  

 

 

   

 

 

   

 

 

 

The accrual balance for severance and benefits of $0.3 million is reflected in the accrued employees’ compensation and withholdings on the balance sheet and is expected to be paid by September 2014.

 

19


Table of Contents

N. Retirement Plans

ASC 715, “Compensation—Retirement Benefits” requires an employer with defined benefit plans or other postretirement benefit plans to recognize an asset or a liability on its balance sheet for the overfunded or underfunded status of the plans as defined by ASC 715. The pension asset or liability represents a difference between the fair value of the pension plan’s assets and the projected benefit obligation.

Defined Benefit Pension Plans

Teradyne has defined benefit pension plans covering a portion of domestic employees and employees of certain non-U.S. subsidiaries. Benefits under these plans are based on employees’ years of service and compensation. Teradyne’s funding policy is to make contributions to these plans in accordance with local laws and to the extent that such contributions are tax deductible. The assets of these plans consist primarily of fixed income and equity securities. In addition, Teradyne has an unfunded supplemental executive defined benefit plan in the United States to provide retirement benefits in excess of levels allowed by the Employment Retirement Income Security Act (“ERISA”) and the Internal Revenue Code (“IRC”), as well as unfunded foreign plans. In the six months ended June 29, 2014, Teradyne contributed $0.9 million to the U.S. supplemental executive defined benefit pension plan and $1.0 million to certain qualified plans for non-U.S. subsidiaries.

For the three and six months ended June 29, 2014 and June 30, 2013, Teradyne’s net periodic pension cost was comprised of the following:

 

     For the Three Months
Ended
    For the Six Months
Ended
 
     June 29,
2014
    June 30,
2013
    June 29,
2014
    June 30,
2013
 
     (in thousands)  

Service cost

   $ 811      $ 852      $ 1,607      $ 1,686   

Interest cost

     3,732        3,281        7,452        6,651   

Expected return on plan assets

     (3,384     (3,631     (6,725     (7,261

Amortization of unrecognized prior service cost

     34        41        67        82   

Actuarial loss (gain)

     362        (1,123     362        (1,123
  

 

 

   

 

 

   

 

 

   

 

 

 

Total net periodic pension cost (benefit)

   $ 1,555      $ (580   $ 2,763      $ 35   
  

 

 

   

 

 

   

 

 

   

 

 

 

Postretirement Benefit Plan

In addition to receiving pension benefits, U.S. Teradyne employees who meet early retirement eligibility requirements as of their termination dates may participate in Teradyne’s Welfare Plan, which includes death, and medical and dental benefits up to age 65. Death benefits provide a fixed sum to retirees’ survivors and are available to all retirees. Substantially all of Teradyne’s current U.S. employees could become eligible for these benefits, and the existing benefit obligation relates primarily to those employees.

For the three and six months ended June 29, 2014 and June 30, 2013, Teradyne’s net periodic postretirement benefit was comprised of the following:

 

     For the Three Months
Ended
    For the Six Months
Ended
 
     June 29,
2014
    June 30,
2013
    June 29,
2014
    June 30,
2013
 
     (in thousands)  

Service cost

   $ 17      $ 21      $ 29      $ 37   

Interest cost

     82        84        168        171   

Amortization of unrecognized prior service benefit

     (150     (150     (299     (299

Actuarial gain

     (247     (236     (247     (236
  

 

 

   

 

 

   

 

 

   

 

 

 

Total net periodic post-retirement benefit

   $ (298   $ (281   $ (349   $ (327
  

 

 

   

 

 

   

 

 

   

 

 

 

 

20


Table of Contents

O. Commitments and Contingencies

Purchase Commitments

As of June 29, 2014, Teradyne had entered into purchase commitments for certain components and materials. The purchase commitments covered by the agreements aggregate to approximately $222.5 million, of which $211.5 million is for less than one year.

Legal Claims

Teradyne is subject to various legal proceedings and claims which have arisen in the ordinary course of business. In the opinion of management, the ultimate disposition of these matters will not have a material adverse effect on Teradyne’s results of operations, financial condition or cash flows.

P. Income Taxes

The effective tax rate for the three months ended June 29, 2014 and June 30, 2013 was 17%. The effective tax rate for the six months ended June 29, 2014 and June 30, 2013 was 15% and 7%, respectively. The increase in the tax rate for the six months ended June 29, 2014 compared to the six months ended June 30, 2013 was primarily because income tax expense for the six months ended June 30, 2013 was reduced for a discrete tax benefit from the January 2013 reinstatement of the U.S. research and development credit for fiscal year 2012.

The effective tax rate for each of these periods is lower than the 35% U.S. statutory federal tax rate primarily due to the geographic mix of income and profits earned by Teradyne’s international subsidiaries being taxed at rates lower than the U.S. statutory rate.

Teradyne qualifies for a tax holiday in Singapore by fulfilling the requirements of an agreement with the Singapore Economic Development Board under which certain headcount and spending requirements must be met. The tax savings due to the tax holiday for the six months ended June 29, 2014 were $6.1 million or $0.03 per diluted share. The tax holiday is currently expected to expire on December 31, 2015.

Q. Segment Information

Teradyne has three operating segments (Semiconductor Test, Wireless Test and System Test), which are its reportable segments. The Semiconductor Test segment includes operations related to the design, manufacturing and marketing of semiconductor test products and services. The Wireless Test segment includes operations related to design, manufacturing and marketing of wireless test products and services. The System Test segment includes operations related to design, manufacturing and marketing of products and services for military/aerospace instrumentation test, storage test and circuit-board test. Each operating segment has a segment manager who is directly accountable to and maintains regular contact with Teradyne’s chief operating decision maker (Teradyne’s chief executive officer) to discuss operating activities, financial results, forecasts, and plans for the segment.

 

21


Table of Contents

Teradyne evaluates performance based on several factors, of which the primary financial measure is business segment income before income taxes. The accounting policies of the business segments are the same as those described in Note B: “Accounting Policies” in Teradyne’s Annual Report on Form 10-K for the year ended December 31, 2013. Segment information is as follows:

 

     Semiconductor
Test
     Wireless
Test
    System
Test
    Corporate
and
Eliminations
    Consolidated  
     (in thousands)  

Three months ended June 29, 2014:

           

Net revenues

   $ 421,434       $ 68,699      $ 35,434      $ —       $ 525,567   

Income (loss) before income taxes(1)(2)

     107,270         14,229        (715     608        121,392   

Three months ended June 30, 2013:

           

Net revenues

   $ 292,431       $ 99,386      $ 37,072      $ —       $ 428,889   

Income (loss) before income taxes(1)(2)

     58,606         23,913        779        (2,941     80,357   

Six months ended June 29, 2014:

           

Net revenues

   $ 683,171       $ 89,909      $ 73,497      $ —       $ 846,577   

Income (loss) before income taxes(1)(2)

     141,870         (10,856     (267     (11,228     119,519   

Six months ended June 30, 2013:

           

Net revenues

   $ 503,937       $ 132,984      $ 72,335      $ —       $ 709,256   

Income (loss) before income taxes(1)(2)

     72,372         13,916        2,309        (9,666     78,931   

 

(1) Pension and postretirement actuarial gains and losses, interest income, and interest expense and other are included in Corporate and Eliminations.
(2) Included in the income (loss) before income taxes for each of the segments are charges and credits for the three and six months ended June 29, 2014 and June 30, 2013 that include restructuring and other, and provision for excess and obsolete inventory, as follows:

Included in the Semiconductor Test segment are charges for the following:

 

     For the Three Months
Ended
     For the Six Months
Ended
 
     June 29, 
2014
     June 30, 
2013
     June 29, 
2014
     June 30, 
2013
 
     (in thousands)  

Cost of revenues—provision for excess and obsolete inventory

   $ 3,713       $ 287       $ 9,918       $ 500   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 3,713       $ 287       $ 9,918       $ 500   
  

 

 

    

 

 

    

 

 

    

 

 

 

Included in the Wireless Test segment are charges for the following:

 

     For the Three Months
Ended
     For the Six Months
Ended
 
     June 29, 
2014
     June 30, 
2013
     June 29, 
2014
     June 30, 
2013
 
     (in thousands)  

Cost of revenues—provision for excess and obsolete inventory

   $ 879       $ 1,398       $ 3,972       $ 4,066   

Restructuring and other

     426         —           426         —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 1,305       $ 1,398       $ 4,398       $ 4,066   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

22


Table of Contents

Included in the System Test segment are charges for the following:

 

     For the Three Months
Ended
     For the Six Months
Ended
 
     June 29, 
2014
     June 30, 
2013
     June 29, 
2014
     June 30, 
2013
 
     (in thousands)  

Cost of revenues—provision for excess and obsolete inventory

   $ 440       $ 290       $ 1,181       $ 1,209   

Restructuring and other

     146         131         146         375   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 586       $ 421       $ 1,327       $ 1,584   
  

 

 

    

 

 

    

 

 

    

 

 

 

R. Shareholders’ Equity

Stock Repurchase Program

In November 2010, Teradyne’s Board of Directors authorized a stock repurchase program for up to $200 million. In the three and six months ended June 29, 2014 and June 30, 2013, Teradyne did not repurchase any shares. The cumulative repurchases under the new program as of June 29, 2014 totaled 2.6 million shares of common stock for $31.2 million at an average price of $11.84.

Dividend

In January 2014, Teradyne’s Board of Directors declared an initial quarterly cash dividend of $0.06 per share that was paid on June 2, 2014 to stockholders of record as of May 9, 2014. The total dividend payment was $11.7 million. Payment of future cash dividends will rest within the discretion of Teradyne’s Board of Directors and will depend, among other things, upon Teradyne’s earnings, capital requirements and financial condition.

 

23


Table of Contents
Item 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations

Statements in this Quarterly Report on Form 10-Q which are not historical facts, so called “forward looking statements,” are made pursuant to the safe harbor provisions of Section 21E of the Securities Exchange Act of 1934, as amended. Investors are cautioned that all forward looking statements involve risks and uncertainties, including those detailed in our filings with the Securities and Exchange Commission. See also Part II, Item 1A of this Quarterly Report on Form 10-Q and Part I, Item 1A “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2013. Readers are cautioned not to place undue reliance on these forward-looking statements which reflect management’s analysis only as of the date hereof. We assume no obligation to update these forward-looking statements to reflect actual results or changes in factors or assumptions affecting forward-looking statements, except as may be required by law.

Overview

We are a leading global supplier of automatic test equipment. We design, develop, manufacture and sell automatic test systems and solutions used to test semiconductors, wireless products, hard disk drives and circuit boards in the consumer electronics, wireless, automotive, industrial, computing, communications and aerospace and defense industries. Our automatic test equipment products and services include:

 

    semiconductor test (“Semiconductor Test”) systems;

 

    wireless test (“Wireless Test”) systems; and

 

    military/aerospace (“Mil/Aero”) test instrumentation and systems, storage test (“Storage Test”) systems, and circuit-board test (“Production Board Test”) systems (collectively these products represent “System Test”).

We have a broad customer base which includes integrated device manufacturers (“IDMs”), outsourced semiconductor assembly and test providers (“OSATs”), wafer foundries, fabless companies that design, but contract with others for the manufacture of integrated circuits (“ICs”), developers of wireless devices and consumer electronics, manufacturers of circuit boards, automotive suppliers, wireless product manufacturers, storage device manufacturers, aerospace and military contractors.

In October 2013, we acquired ZTEC Instruments Inc. (“ZTEC”), a supplier of modular wireless test instruments. The acquisition of ZTEC expands our Wireless Test segment into the design verification test of wireless components and chipsets.

We will continue to invest in our business to further expand our addressable markets while tightly managing our costs.

The sales of our products and services are dependent, to a large degree, on customers who are subject to cyclical trends in the demand for their products. These cyclical periods have had, and will continue to have, a significant effect on our business because our customers often delay or accelerate purchases in reaction to changes in their businesses and to demand fluctuations in the semiconductor and electronics industries. Historically, these demand fluctuations have resulted in significant variations in our results of operations. The sharp swings in the semiconductor and electronics industries in recent years have generally affected the semiconductor and electronics test equipment and services industries more significantly than the overall capital equipment sector.

Critical Accounting Policies and Estimates

We have identified the policies which are critical to understanding our business and our results of operations. There have been no significant changes during the six months ended June 29, 2014 to the items disclosed as our critical accounting policies and estimates in Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the fiscal year ended December 31, 2013.

 

24


Table of Contents

SELECTED RELATIONSHIPS WITHIN THE CONDENSED CONSOLIDATED

STATEMENTS OF OPERATIONS

 

     For the Three Months
Ended
    For the Six Months
Ended
 
     June 29,
2014
    June 30,
2013
    June 29,
2014
    June 30,
2013
 

Percentage of total net revenues:

        

Net revenues:

        

Products

     86     85     84     81

Services

     14        15        16        19   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total net revenues

     100        100        100        100   

Cost of revenues:

        

Cost of products

     39        37        39        36   

Cost of services

     6        7        7        8   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total cost of revenues

     45        44        46        44   
  

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     55        56        54        56   

Operating expenses:

        

Engineering and development

     14        16        17        18   

Selling and administrative

     15        16        18        19   

Acquired intangible assets amortization

     3        4        4        5   

Restructuring and other

     —          —         —          —     
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     32        36        39        43   
  

 

 

   

 

 

   

 

 

   

 

 

 

Income from operations

     23        20        15        13   

Interest income

     —          —         —          —    

Interest expense and other

     —          2        1        2   
  

 

 

   

 

 

   

 

 

   

 

 

 

Income before income taxes

     23        19        14        11   

Income tax provision

     4        3        2        1   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income

     19     16     12     10
  

 

 

   

 

 

   

 

 

   

 

 

 

Results of Operations

Second Quarter 2014 Compared to Second Quarter 2013

Book to Bill Ratio

Book to bill ratio is calculated as net bookings divided by net sales. Book to bill ratio by reportable segment was as follows:

 

     For the Three Months
Ended
 
     June 29,
2014
     June 30,
2013
 

Semiconductor Test

     1.3         1.2   

Wireless Test

     0.8         0.9   

System Test

     1.1         0.7   

Total Company

     1.2         1.1   

 

25


Table of Contents

Revenues

Net revenues by reportable segment were as follows:

 

     For the Three Months
Ended
     Dollar
Change
 
     June 29,
2014
     June 30,
2013
    
     (in millions)  

Semiconductor Test

   $ 421.5       $ 292.4       $ 129.1   

Wireless Test

     68.7         99.4         (30.7

System Test

     35.4         37.1         (1.7
  

 

 

    

 

 

    

 

 

 
   $ 525.6       $ 428.9       $ 96.7   
  

 

 

    

 

 

    

 

 

 

The increase in Semiconductor Test revenues of $129.1 million or 44% was primarily due to higher system-on-a-chip (“SOC”) product volume driven by application processors and microcontrollers, as well as higher Memory product volume driven by FLASH memory market. The decrease in Wireless Test revenue of $30.7 million or 31% was primarily due to lower cellular product volume. The decrease in System Test revenue of $1.7 million or 5% was primarily due to lower Mil/Aero product sales, partially offset by higher product volume in Production Board Test and Storage Test systems.

Our revenues by region as a percentage of total net revenue were as follows:

 

     For the Three Months
Ended
 
     June 29,
2014
    June 30,
2013
 

Taiwan

     30     19

China

     19        28   

Korea

     13        8   

United States

     11        12   

Singapore

     6        11   

Europe

     5        6   

Malaysia

     5        6   

Philippines

     4        2   

Thailand

     4        1   

Japan

     2        5   

Rest of World

     1        2   
  

 

 

   

 

 

 
     100     100
  

 

 

   

 

 

 

Gross Profit

Our gross profit was as follows:

 

     For the Three Months
Ended
    Dollar/Point
Change
 
     June 29,
2014
    June 30,
2013
   
     (in millions)  

Gross Profit

   $ 290.4      $ 241.2      $ 49.2   

Percent of Total Revenue

     55.3     56.2     (0.9

Gross profit as a percent of revenue decreased by 0.9 percentage points, a decrease of 1.3 points related to product mix in SOC Semiconductor Test and lower Wireless Test sales, a decrease of 0.7 points due to higher excess and obsolete inventory provisions, partially offset by higher sales volume.

 

26


Table of Contents

We assess the carrying value of our inventory on a quarterly basis by estimating future demand and comparing that demand against on-hand and on-order inventory positions. Forecasted revenue information is obtained from the sales and marketing groups and incorporates factors such as backlog and future revenue demand. This quarterly process identifies obsolete and excess inventory. Obsolete inventory, which represents items for which there is no demand, is fully reserved. Excess inventory, which represents inventory items that are not expected to be consumed during the next twelve quarters, is written-down to estimated net realizable value.

During the three months ended June 29, 2014, we recorded an inventory provision of $5.0 million included in cost of revenues primarily due to downward revisions to previously forecasted demand levels. Of the $5.0 million of total excess and obsolete provisions, $3.7 million was related to Semiconductor Test, $0.9 million was related to Wireless Test, and $0.4 million was related to System Test.

During the three months ended June 30, 2013, we recorded an inventory provision of $2.0 million included in cost of revenues, due to downward revisions to previously forecasted demand levels. Of the $2.0 million of total excess and obsolete provisions, $1.4 million was related to Wireless Test, $0.3 million was related to System Test, and $0.3 million was related to Semiconductor Test.

During the three months ended June 29, 2014 and June 30, 2013, we scrapped $2.3 million and $2.3 million of inventory, respectively. During the three months ended June 29, 2014 and June 30, 2013, we sold $2.1 million and $3.1 million, respectively, of previously written-down inventory. As of June 29, 2014, we had inventory related reserves for inventory which had been written-down totaling $125.5 million. We have no pre-determined timeline to scrap the remaining inventory.

Engineering and Development

Engineering and development expenses were as follows:

 

     For the Three Months
Ended
    Dollar
Change
 
     June 29,
2014
    June 30,
2013
   
     (in millions)  

Engineering and Development

   $ 73.4      $ 67.8      $ 5.6   

Percent of Total Revenue

     14.0     15.8  

The increase of $5.6 million in engineering and development expenses was due primarily to increased spending in Semiconductor Test and Wireless Test and higher variable compensation.

Selling and Administrative

Selling and administrative expenses were as follows:

 

     For the Three Months
Ended
    Dollar
Change
 
     June 29,
2014
    June 30,
2013
   
     (in millions)  

Selling and Administrative

   $ 77.5      $ 69.2      $ 8.3   

Percent of Total Revenue

     14.7     16.1  

The increase of $8.3 million in selling and administrative expenses was due primarily to increased sales and marketing spending in Semiconductor Test and Wireless Test and higher variable compensation.

 

27


Table of Contents

Restructuring and Other

Restructuring

During the three months ended June 29, 2014, we recorded $0.6 million of severance charges related to headcount reductions of 28 people, primarily in Wireless Test.

Income Taxes

The effective tax rate for the three months ended June 29, 2014 and June 30, 2013 was 17%. The effective tax rate for each of these periods is lower than the 35% U.S. statutory federal tax rate primarily due to the geographic mix of income and profits earned by Teradyne’s international subsidiaries being taxed at rates lower than the U.S. statutory rate.

Six Months of 2014 Compared to Six Months of 2013

Revenues

Net revenues by reportable segment were as follows:

 

     For the Six Months
Ended
     Dollar
Change
 
     June 29,
2014
     June 30,
2013
    
     (in millions)  

Semiconductor Test

   $ 683.2       $ 504.0       $ 179.2   

Wireless Test

     89.9         133.0         (43.1

System Test

     73.5         72.3         1.2   
  

 

 

    

 

 

    

 

 

 
   $ 846.6       $ 709.3       $ 137.3   
  

 

 

    

 

 

    

 

 

 

The increase in Semiconductor Test revenues of $179.2 million or 36% was primarily due to higher SOC product volume, driven by application processors and microcontrollers. The decrease in Wireless Test revenue of $43.1 million or 32% was primarily due to lower cellular product volume. The increase in System Test revenue of $1.2 million or 2% was primarily due to higher product volume in Storage Test systems, partially offset by lower Mil/Aero product sales.

Our revenues by region as a percentage of total net revenue were as follows:

 

     For the Six Months
Ended
 
     June 29,
2014
    June 30,
2013
 

Taiwan

     29     18

China

     17        24   

United States

     12        15   

Korea

     10        8   

Singapore

     8        10   

Europe

     6        7   

Malaysia

     5        6   

Japan

     4        5   

Philippines

     4        3   

Thailand

     4        2   

Rest of World

     1        2   
  

 

 

   

 

 

 
     100     100
  

 

 

   

 

 

 

 

28


Table of Contents

Gross Profit

Our gross profit was as follows:

 

     For the Six Months
Ended
    Dollar/Point
Change
 
     June 29,
2014
    June 30,
2013
   
     (in millions)  

Gross Profit

   $ 457.5      $ 394.7      $ 62.8   

Percent of Total Revenue

     54.0     55.6     (1.6

Gross profit as a percent of revenue decreased by 1.6 percentage points due to a decrease of 1.8 points related to product mix in SOC Semiconductor Test, lower Wireless Test sales and higher Storage Test sales, a decrease of 1.0 point due to higher excess and obsolete inventory provisions, partially offset by higher sales volume.

We assess the carrying value of our inventory on a quarterly basis by estimating future demand and comparing that demand against on-hand and on-order inventory positions. Forecasted revenue information is obtained from the sales and marketing groups and incorporates factors such as backlog and future revenue demand. This quarterly process identifies obsolete and excess inventory. Obsolete inventory, which represents items for which there is no demand, is fully reserved. Excess inventory, which represents inventory items that are not expected to be consumed during the next twelve quarters, is written-down to estimated net realizable value.

During the six months ended June 29, 2014, we recorded an inventory provision of $15.1 million included in cost of revenues with $6.1 million related to product transitions in Semiconductor Test and $9.0 million due to downward revisions to previously forecasted demand levels. Of the $15.1 million of total excess and obsolete provisions, $9.9 million was related to Semiconductor Test, $4.0 million was related to Wireless Test, and $1.2 million was related to System Test.

During the six months ended June 30, 2013, we recorded an inventory provision of $5.8 million included in cost of revenues, due to downward revisions to previously forecasted demand levels. Of the $5.8 million of total excess and obsolete provisions, $4.1 million was related to Wireless Test, $1.2 million was related to System Test, and $0.5 million was related to Semiconductor Test.

During the six months ended June 29, 2014 and June 30, 2013, we scrapped $3.3 million and $2.9 million of inventory, respectively. During the six months ended June 29, 2014 and June 30, 2013, we sold $3.6 million and $4.8 million of previously written-down or written-off inventory. As of June 29, 2014, we had inventory related reserves for inventory which had been written-down or written-off totaling $125.5 million. We have no pre-determined timeline to scrap the remaining inventory.

Engineering and Development

Engineering and development expenses were as follows:

 

     For the Six Months
Ended
    Dollar
Change
 
     June 29,
2014
    June 30,
2013
   
     (in millions)  

Engineering and Development

   $ 140.5      $ 130.5      $ 10.0   

Percent of Total Revenue

     16.6     18.4  

The increase of $10.0 million in engineering and development expenses was due primarily to increased spending in Semiconductor Test and Wireless Test and higher variable compensation.

 

29


Table of Contents

Selling and Administrative

Selling and administrative expenses were as follows:

 

     For the Six Months
Ended
    Dollar
Change
 
     June 29,
2014
    June 30,
2013
   
     (in millions)  

Selling and Administrative

   $ 155.5      $ 137.1      $ 18.4   

Percent of Total Revenue

     18.4     19.3  

The increase of $18.4 million in selling and administrative expenses was due primarily to a one-time $6.6 million stock-based compensation charge related to Michael Bradley’s (retired Chief Executive Officer) Retirement Agreement, increased sales and marketing spending in Semiconductor Test and Wireless Test, and higher variable compensation.

Restructuring and Other

Restructuring

During the six months ended June 29, 2014, we recorded $0.6 million of severance charges related to headcount reductions of 28 people, primarily in Wireless Test. During the six months ended June 30, 2013, we recorded $0.6 million of severance charges related to headcount reductions in System Test and Semiconductor Test.

Income Taxes

The effective tax rate for the six months ended June 29, 2014 and June 30, 2013 was 15% and 7%, respectively. The increase in the tax rate for the six months ended June 29, 2014 compared to the six months ended June 30, 2013 was primarily because income tax expense for the six months ended June 30, 2013 was reduced for a discrete tax benefit from the January 2013 reinstatement of the U.S. research and development credit for fiscal year 2012.

The effective tax rate for each of these periods is lower than the 35% U.S. statutory federal tax rate primarily due to the geographic mix of income and profits earned by Teradyne’s international subsidiaries being taxed at rates lower than the U.S. statutory rate.

Contractual Obligations

The following table reflects our contractual obligations at June 29, 2014:

 

     Payments Due by Period  
     Total      Less than
1 year
     1-3 years      3-5 years      More than
5 years
     Other  
     (in thousands)  

Purchase Obligations

   $ 222,482       $ 211,477       $ 11,005       $ —        $ —        $ —    

Retirement Plan Contributions

     96,442         4,834         9,024         8,994         73,590         —    

Operating Lease Obligations

     57,937         13,571         20,576         8,760         15,030         —    

Long-Term Other Liabilities Reflected on the Balance Sheet under GAAP(1)

     75,473         —          18,992         —          —          56,481   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 452,334       $ 229,882       $ 59,597       $ 17,754       $ 88,620       $ 56,481   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) Included in Long-Term Other Liabilities are liabilities for customer advances, extended warranty, uncertain tax positions, deferred tax liabilities and other obligations. For certain long-term obligations, we are unable to provide a reasonably reliable estimate of the timing of future payments relating to these obligations and therefore we included these amounts in the column marked “Other”.

 

30


Table of Contents

Liquidity and Capital Resources

Our cash, cash equivalents and marketable securities balances decreased by $92.5 million in the six months ended June 29, 2014, to $1,107 million. Cash activity for the six months ended June 29, 2014 and June 30, 2013 was as follows:

 

     For the Six Months
Ended
 
     June 29,
2014
    June 30,
2013
 
     (in millions)  

Cash provided by operating activities:

    

Net income, adjusted for non-cash items

   $ 211.3      $ 152.5   

Change in operating assets and liabilities

     (27.9     (83.5
  

 

 

   

 

 

 

Net cash provided by operating activities

     183.4        69.0   
  

 

 

   

 

 

 

Net cash used for investing activities

     (80.1     (190.1
  

 

 

   

 

 

 

Net cash (used for) provided by financing activities

     (190.3     9.8   
  

 

 

   

 

 

 

Decrease in cash and cash equivalents

   $ (87.0   $ (111.3
  

 

 

   

 

 

 

In the six months ended June 29, 2014, changes in operating assets and liabilities used cash of $27.9 million. This was due to a $97.7 million increase in operating assets and a $69.7 million increase in operating liabilities.

The increase in operating assets was due to a $143.1 million increase in accounts receivable due to higher sales, partially offset by a $27.0 million decrease in prepayments and other assets and an $18.5 million decrease in inventories due to higher sales. The increase in operating liabilities was due to a $39.3 million increase in accounts payable due to higher sales, a $37.9 million increase in other accrued liabilities, a $13.8 million increase in customer advance payments and deferred revenue and a $5.5 million increase in accrued income taxes, partially offset by a $20.1 million decrease in accrued employee compensation due primarily to variable compensation and employee stock award payroll tax payments, a $4.3 million convertible note interest payment, and $2.4 million of retirement plan contributions.

Investing activities during the six months ended June 29, 2014 used cash of $80.1 million, due to $523.3 million used for purchases of marketable securities and $91.4 million used for purchases of property, plant and equipment, partially offset by proceeds from maturities and sales of marketable securities that provided cash of $377.4 million and $152.8 million, respectively, and proceeds from life insurance of $4.4 million related to the cash surrender value from the cancellation of Teradyne owned life insurance policies on its retired chief executive officer. The increase in purchases of property, plant and equipment of $40.6 million compared to the six months ended June 30, 2013 is primarily due to testers used for customer leases.

Financing activities during the six months ended June 29, 2014 used cash of $190.3 million. $191.0 million of cash was used for payments on long-term debt related to the convertible note and the Japan loan and $11.7 million was used for dividend payments, partially offset by $10.6 million provided by the issuance of common stock under employee stock purchase and stock option plans and $1.7 million from the tax benefit related to stock options and restricted stock units.

In the six months ended June 30, 2013, changes in operating assets and liabilities used cash of $83.5 million. This was due to a $65.7 million increase in operating assets and a $17.8 million decrease in operating liabilities.

The increase in operating assets was due to a $74.8 million increase in accounts receivable resulting from higher sales volume, a $17.3 million increase in other assets primarily due to an increase in prepayments, partially offset by a $26.4 million decrease in inventories. The decrease in operating liabilities was due to a $24.0 million decrease in accrued employee compensation due primarily to variable compensation and employee stock

 

31


Table of Contents

awards payroll taxes payments, a $2.8 million decrease in customer advance payments and deferred revenue, and $2.5 million of retirement plan contributions, partially offset by an $8.5 million increase in accounts payable due to increased sales volume and a $3.0 million increase in accrued income taxes.

Investing activities during the six months ended June 30, 2013 used cash of $190.1 million, due to $458.1 million used for purchases of marketable securities and $50.8 million used for purchases of property, plant and equipment, partially offset by proceeds from maturities and sales of marketable securities that provided cash of $268.5 million and $50.3 million, respectively.

Financing activities during the six months ended June 30, 2013 provided cash of $9.8 million, of which $9.6 million was from the issuance of common stock under employee stock purchase and stock option plans and $1.6 million from the tax benefit related to stock options and restricted stock units, partially offset by $0.4 million of cash used for payments related to LitePoint acquisition contingent consideration and $1.1 million of cash used for the payments on long-term debt related to the Japan loan.

In January 2014, our Board of Directors declared an initial quarterly cash dividend of $0.06 per share that was paid on June 2, 2014 to stockholders of record as of May 9, 2014. The total dividend payment was $11.7 million. Holders of our common stock are entitled to receive dividends if and when they are declared by our Board of Directors. Payment of future cash dividends will rest within the discretion of our Board of Directors and will depend, among other things, upon our earnings, capital requirements and financial condition.

In 2014, we expect to deploy approximately $75 million of capital into testers for customer leases bringing our total forecasted 2014 capital additions to $162 million. As of June 29, 2014, we purchased approximately $45 million of the forecasted $75 million of testers for customer leases.

We believe our cash, cash equivalents and marketable securities balance will be sufficient to meet working capital and expenditure needs for at least the next twelve months. The amount of cash, cash equivalents and marketable securities in the U.S. and our operations in the U.S. provide sufficient liquidity to fund our business activities in the U.S. We have approximately $430 million of cash, cash equivalents and marketable securities outside the U.S. that if repatriated would incur additional taxes. Inflation has not had a significant long-term impact on earnings.

Equity Compensation Plans

As discussed in Note O: “Stock Based Compensation” in our 2013 Form 10-K, we have a 1996 Employee Stock Purchase Plan and a 2006 Equity and Cash Compensation Incentive Plan (the “2006 Equity Plan”).

The purpose of the 1996 Employee Stock Purchase Plan is to encourage stock ownership by all eligible employees of Teradyne. The purpose of the 2006 Equity Plan is to provide equity ownership and compensation opportunities in Teradyne to our employees, officers, directors, consultants and/or advisors. Both plans were approved by our shareholders.

Recently Issued Accounting Pronouncements

On July 18, 2013, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) 2013-11, “ Income Taxes (Topic 740): Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists.” Under this ASU, unrecognized tax benefits will be netted against all available same-jurisdiction loss or other tax carryforwards that would be utilized, rather than only against carryforwards that are created by unrecognized tax benefits. The provisions of this ASU are effective for interim and annual periods beginning on or after December 15, 2013. Our implementation of this ASU did not have a material impact on our financial position and results of operations.

 

32


Table of Contents

In May 2014, the FASB issued ASU 2014-09, “ Revenue from Contracts with Customers (Topic 606)” which will replace numerous requirements in U.S. GAAP, including industry-specific requirements, and provide companies with a single revenue recognition model for recognizing revenue from contracts with customers. The core principle of the new standard is that a company should recognize revenue to show the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. The new standard will be effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. For Teradyne, the standard will be effective in the first quarter of 2017. The two permitted transition methods under the new standard are the full retrospective method, in which case the standard would be applied to each prior reporting period presented, or the modified retrospective method, in which case the cumulative effect of applying the standard would be recognized at the date of initial application. We have not yet selected a transition method. We are currently evaluating the impact of this ASU on our financial position and results of operations.

 

Item 3: Quantitative and Qualitative Disclosures about Market Risk

For “Quantitative and Qualitative Disclosures about Market Risk” affecting Teradyne, see Item 7a, “Quantitative and Qualitative Disclosures about Market Risks,” in our Annual Report on Form 10-K filed with the SEC on February 28, 2014. There were no material changes in our exposure to market risk from those set forth in our Annual Report for the fiscal year ended December 31, 2013.

 

Item 4: Controls and Procedures

As of the end of the period covered by this report, our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures pursuant to Rule 13a-15(b) promulgated under the Exchange Act. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were effective in ensuring that material information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, including ensuring that such material information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

During the period covered by this report, there have been no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met.

 

33


Table of Contents

PART II. OTHER INFORMATION

 

Item 1: Legal Proceedings

We are subject to various legal proceedings and claims which have arisen in the ordinary course of business. In the opinion of management, the ultimate disposition of these matters will not have a material adverse effect on our results of operations, financial condition or cash flows.

 

Item 1A: Risk Factors

You should carefully consider the factors discussed in Part I, “Item 1A: Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2013, which could materially affect our business, financial condition or future results. The risk factors described in our Annual Report on Form 10-K remain applicable to our business.

The risks described in our Annual Report on Form 10-K are not the only risks that we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.

 

Item 2: Unregistered Sales of Equity Securities and Use of Proceeds

In November 2010, Teradyne’s Board of Directors authorized a stock repurchase program for up to $200 million. The cumulative repurchases under the new program as of June 29, 2014 totaled 2.6 million shares of common stock for $31.2 million at an average price of $11.84.

The following table includes information with respect to repurchases we made of our common stock during the three months ended June 29, 2014 (in thousands except per share price):

 

Period

   (a) Total
Number of
Shares
(or Units)
Purchased
     (b) Average
Price Paid per
Share (or Unit)
     (c) Total Number of
Shares (or Units)
Purchased as Part of
Publicly Announced
Plans or Programs
     (d) Maximum Number
(or Approximate Dollar
Value) of Shares (or
Units) that may Yet Be
Purchased Under the
Plans or Programs
 

March 31, 2014 – April 27, 2014

     —        $ —          —        $ 168,825   

April 28, 2014 – May 25, 2014

     —        $ —          —        $ 168,825   

May 26, 2014 – June 29, 2014

     —        $ —          —        $ 168,825   
  

 

 

    

 

 

    

 

 

    

 

 

 
     —        $ —          —        $ 168,825   
  

 

 

    

 

 

    

 

 

    

 

 

 

We satisfy the U.S. minimum statutory withholding tax obligation due upon the vesting and the conversion of restricted stock units into shares of our common stock, by automatically withholding from the shares being issued a number of shares with an aggregate fair market value on the date of such vesting and conversion that would satisfy the minimum withholding amount due.

 

Item 4: Mine Safety Disclosures

Not Applicable

 

34


Table of Contents
Item 6: Exhibits

 

Exhibit

Number

  

Description

  31.1    Certification of Principal Executive Officer, pursuant to Rule 13a-14(a) of Securities and Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith)
  31.2    Certification of Principal Financial Officer, pursuant to Rule 13a-14(a) of Securities and Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith)
  32.1    Certification of Principal Executive Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith)
  32.2    Certification of Principal Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith)
101.INS    XBRL Instance Document
101.SCH    XBRL Taxonomy Extension Schema Document
101.CAL    XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF    XBRL Taxonomy Extension Definition Linkbase Document
101.LAB    XBRL Taxonomy Extension Label Linkbase Document
101.PRE    XBRL Taxonomy Extension Presentation Linkbase Document

 

35


Table of Contents

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

TERADYNE, INC.
Registrant

/ S / G REGORY R. B EECHER        

Gregory R. Beecher

Vice President,

Chief Financial Officer and Treasurer

(Duly Authorized Officer

and Principal Financial Officer)

August 8, 2014

 

36

Exhibit 31.1

CERTIFICATIONS

I, Mark E. Jagiela, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Teradyne, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent function):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 8, 2014

 

By:  

/ S / M ARK E. J AGIELA        

 

Mark E. Jagiela

Chief Executive Officer

Exhibit 31.2

CERTIFICATIONS

I, Gregory R. Beecher, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Teradyne, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent function):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 8, 2014

 

By:  

/ S / G REGORY R. B EECHER        

 

Gregory R. Beecher

Chief Financial Officer

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Teradyne, Inc. (the “Company”) on Form 10-Q for the period ending June 29, 2014 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Mark E. Jagiela, Chief Executive Officer of the Company, certify pursuant to 18 U.S.C (S) 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of the dates and for the periods expressed in the Report.

 

/ S / M ARK E. J AGIELA        

Mark E. Jagiela

Chief Executive Officer

August 8, 2014

Exhibit 32.2

CERTIFICATION PURSUANT TO

18 U.S.C SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Teradyne, Inc. (the “Company”) on Form 10-Q for the period ending June 29, 2014 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Gregory R. Beecher, Chief Financial Officer of the Company, certify pursuant to 18 U.S.C (S) 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of the dates and for the periods expressed in the Report.

 

/ S / G REGORY R. B EECHER        

Gregory R. Beecher

Chief Financial Officer

August 8, 2014