Teradyne Reports 55% Sequential Growth in First Quarter 2014

Teradyne Reports 55% Sequential Growth in First Quarter 2014 Orders; Expects Revenue Growth in Second Quarter of 2014

About Teradyne

Teradyne (NYSE: TER) is a leading supplier of Automatic Test Equipment used to test semiconductors, wireless products, data storage and complex electronic systems which serve consumer, communications, industrial and government customers. In 2013, Teradyne had sales of $1.43 billion and currently employs approximately 3,800 people worldwide. For more information, visit www.teradyne.com.Teradyne (R) is a registered trademark of Teradyne, Inc. in the U.S. and other countries.

Safe Harbor Statement

This release contains forward-looking statements regarding future business prospects, Teradyne’s results of operations, market conditions and the payment of a quarterly dividend. Such statements are based on the current assumptions and expectations of Teradyne’s management and are neither promises nor guarantees of future performance or future payment of dividends. You can identify these forward-looking statements based on the context of the statements and by the fact that they use words such as “will,” “anticipate,” “expect,” “project,” “intend,” “plan,” “believe,” “target” and other words and terms of similar meaning in connection with any discussion of future operating or financial performance. There can be no assurance that management’s estimates of Teradyne’s future results or other forward looking statements will be achieved or that dividends will be declared in the future. Important factors that could cause actual results or dividend payments to differ materially from those presently expected include: conditions affecting the markets in which Teradyne operates; decreased or delayed product demand; increased research and development spending; deterioration of Teradyne’s financial condition, the business judgment of the board of directors that a declaration of a dividend is not in the company’s best interests and other events, factors and risks disclosed in filings with the SEC, including, but not limited to, the “Risk Factors” section of Teradyne’s Annual Report on Form 10-K for the fiscal year ended December 31, 2013. The forward-looking statements provided by Teradyne in this press release represent management’s views as of the date of this release. Teradyne anticipates that subsequent events and developments may cause management's views to change. However, while Teradyne may elect to update these forward-looking statements at some point in the future, Teradyne specifically disclaims any obligation to do so. These forward-looking statements should not be relied upon as representing Teradyne's views as of any date subsequent to the date of this release.



TERADYNE, INC. REPORT FOR FIRST FISCAL QUARTER OF 2014

CONDENSED CONSOLIDATED OPERATING STATEMENTS
(In thousands, except per share amounts)

			Quarter Ended
			March 30, 2014			December 31, 2013		March 31, 2013

Net revenues			$	321,010		$	285,301	$	280,367

	Cost of revenues (1) (2)			153,963			125,444		126,950

Gross profit				167,047			159,857		153,417

Operating expenses:
	Engineering and development (1)			67,085			64,613		62,751
	Selling and administrative (1) (3)			78,003			69,523		67,890
	Acquired intangible asset amortization			18,271			18,284		18,036
	Restructuring and other (4)			-			600		332
		Operating expenses		163,359			153,020		149,009

Income from operations				3,688			6,837		4,408

	Interest and other (5)			(5,561	)		28,602		(5,834	)

(Loss) income before income taxes				(1,873	)		35,439		(1,426	)
	Income tax (benefit) provision			(2,802	)		13,096		(8,015	)
Net income			$	929		$	22,343	$	6,589

Net income per common share:
Basic			$	0.00		$	0.12	$	0.03
Diluted			$	0.00		$	0.09	$	0.03

Weighted average common shares - basic				193,311			191,525		189,686

Weighted average common shares - diluted (6)				236,484			236,903		234,757


Cash dividend declared per common share			$	0.06		$	-	$	-


Net orders			$	449,826		$	289,653	$	400,082

(1)

In the first quarter of 2012, we changed our accounting method from delayed recognition of actuarial gains and losses for our defined benefit pension plans and other post retirement benefit plans to immediate recognition. We elected to immediately recognize net actuarial gains and losses and the change in the fair value of plan assets in our operating results in the year in which they occur. Below are the pension (gains) and losses included in our operating results:


				Quarter Ended
				March 30, 2014			December 31, 2013			March 31, 2013
			Cost of revenues	$	-		$	(2,742	)	$	-
			Engineering and development		-			(3,782	)		-
			Selling and administrative		-			(2,540	)		-
				$	-		$	(9,064	)	$	-


(2	)	Cost of revenues includes:		Quarter Ended
				March 30, 2014			December 31, 2013			March 31, 2013
			Provision for excess and obsolete inventory	$	10,039		$	6,976		$	3,800
			Sale of previously written down inventory		(1,380	)		(861	)		(1,783	)
				$	8,659		$	6,115		$	2,017


(3)			For the quarter ended March 30, 2014, selling and administrative expenses include an equity charge of $6,598 for the modification of Teradyne's retired CEO's outstanding equity awards to allow continued vesting and maintain the original term in connection with his January 31, 2014 retirement.


(4	)	Restructuring and other consists of:		Quarter Ended
				March 30, 2014		December 31, 2013			March 31, 2013
			Employee severance	$	-	$	600		$	332


(5	)	Interest and other includes:		Quarter Ended
				March 30, 2014		December 31, 2013			March 31, 2013
			Gain from the sale of an equity investment	$	-	$	(34,212	)	$	-
			Non-cash convertible debt interest expense		4,290		4,158			3,754

(6)

Under GAAP, when calculating diluted earnings per share, convertible debt must be assumed to have converted if the effect on EPS would be dilutive. Diluted shares assume the conversion of the convertible debt as the effect would be dilutive. Accordingly, for the quarters ended March 30, 2014, December 31, 2013 and March 31, 2013, 20.1 million, 23.5 million and 23.4 million shares, respectively, have been included in diluted shares.



CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands)

			March 30, 2014		December 31, 2013

Assets
	Cash and cash equivalents		$	232,626	$	341,638
	Marketable securities			462,150		586,882
	Accounts receivable			216,524		157,642
	Inventories			137,434		137,939
	Deferred tax assets			68,780		72,478
	Prepayments			131,484		136,374
	Other current assets			12,249		7,324
		Total current assets		1,261,247		1,440,277

	Net property, plant and equipment			278,727		275,236
	Marketable securities			272,068		271,078
	Deferred tax assets			5,551		5,217
	Other assets			10,574		14,591
	Retirement plans assets			9,443		9,342
	Intangible assets			234,020		252,291
	Goodwill			361,819		361,792
		Total assets	$	2,433,449	$	2,629,824

Liabilities
	Accounts payable		$	70,597	$	62,874
	Accrued employees' compensation and withholdings			58,687		95,619
	Deferred revenue and customer advances			64,811		55,404
	Dividend payable (1)			11,648		-
	Other accrued liabilities			65,561		63,712
	Accrued income taxes			1,749		11,360
	Current debt			-		186,663
		Total current liabilities		273,053		475,632

	Long-term deferred revenue and customer advances			13,526		13,306
	Retirement plans liabilities			92,530		91,517
	Deferred tax liabilities			50,532		40,686
	Long-term other accrued liabilities			13,978		23,589
		Total liabilities		443,619		644,730

Shareholders' equity				1,989,830		1,985,094

		Total liabilities and shareholders' equity	$	2,433,449	$	2,629,824

(1)

In January 2014, the Board declared an initial quarterly cash dividend of $0.06 per share to be paid on June 2, 2014 to shareholders of record as of May 9, 2014.


CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands)

				Quarter Ended
				March 30, 2014	March 31, 2013
Cash flows from operating activities:
	Net income			$ 929	$ 6,589
	Adjustments to reconcile net income to net cash used for operating activities:
		Depreciation		15,259	14,115
		Amortization		23,925	23,002
		Stock-based compensation		15,233	9,023
		Provision for excess and obsolete inventory		10,039	3,800
		Deferred taxes		12,699	(6,183)
		Other		(141)	(987)
		Changes in operating assets and liabilities:
			Accounts receivable	(58,882)	(13,191)
			Inventories	2,635	(4,040)
			Prepayments and other assets	(628)	(1,070)
			Accounts payable and accrued expenses	(45,482)	(47,258)
			Deferred revenue and customer advances	9,627	(10,146)
			Retirement plans contributions	(1,425)	(1,063)
			Accrued income taxes	(9,609)	(9,085)
Net cash used for operating activities				(25,821)	(36,494)

Cash flows from investing activities:
	Purchases of property, plant and equipment		(31,197	)		(22,547	)
	Purchases of marketable securities		(257,260	)		(124,514	)
	Proceeds from maturities of marketable securities		280,322			119,552
	Proceeds from sales of marketable securities		101,363			21,694
	Proceeds from life insurance		4,391			-
Net cash provided by (used for) investing activities			97,619			(5,815	)

Cash flows from financing activities:
	Issuance of common stock under stock option and stock purchase plans		10,165			8,921
	Payments of long-term debt		(190,975	)		-
	Payments of contingent consideration		-			(313	)
Net cash (used for) provided by financing activities			(180,810	)		8,608

Decrease in cash and cash equivalents			(109,012	)		(33,701	)
Cash and cash equivalents at beginning of period			341,638			338,920
Cash and cash equivalents at end of period		$	232,626		$	305,219

GAAP to Non-GAAP Earnings Reconciliation

(In millions, except per share amounts)
													Quarter Ended
		March 30, 2014			% of Net Revenues								December 31, 2013			% of Net Revenues								March 31, 2013			% of Net Revenues

Net revenues		$	321.0										$	285.3										$	280.4

Gross profit - GAAP		$	167.0		52.0	%							$	159.9		56.0	%							$	153.4		54.7	%
	Pension mark-to-market adjustments ⁽¹⁾		-		-									(2.7	)	-0.9	%								-		-
Gross profit - non-GAAP		$	167.0		52.0	%							$	157.2		55.1	%							$	153.4		54.7	%

Income from operations - GAAP		$	3.7		1.2	%							$	6.8		2.4	%							$	4.4		1.6	%
	Acquired intangible asset amortization		18.3		5.7	%								18.3		6.4	%								18.0		6.4	%
	Equity modification charge ⁽²⁾		6.6		2.1	%								-		-									-		-
	Restructuring and other ⁽³⁾		-		-									0.6		0.2	%								0.3		0.1	%
	Pension mark-to-market adjustments ⁽¹⁾		-		-									(9.1	)	-3.2	%								-		-
Income from operations - non-GAAP		$	28.6		8.9	%							$	16.6		5.8	%							$	22.7		8.1	%

							Net Income per Common Share											Net Income per Common Share											Net Income per Common Share
		March 30, 2014			% of Net Revenues		Basic			Diluted			December 31, 2013			% of Net Revenues		Basic			Diluted			March 31, 2013			% of Net Revenues		Basic			Diluted
Net income - GAAP		$	0.9		0.3	%	$	0.00		$	0.00		$	22.3		7.8	%	$	0.12		$	0.09		$	6.6		2.4	%	$	0.03		$	0.03
	Acquired intangible asset amortization		18.3		5.7	%		0.09			0.08			18.3		6.4	%		0.10			0.08			18.0		6.4	%		0.09			0.08
	Income tax adjustment ⁽⁴⁾		-		-			-			-			11.1		3.9	%		0.06			0.05			(10.5	)	-3.7	%		(0.06	)		(0.04	)
	Interest and other ⁽⁵⁾		4.3		1.3	%		0.02			0.02			(30.0	)	-10.5	%		(0.16	)		(0.13	)		3.8		1.4	%		0.02			0.02
	Equity modification charge ⁽²⁾		6.6		2.1	%		0.03			0.03			-		-			-			-			-		-			-			-
	Exclude discrete tax adjustments ⁽⁶⁾		(2.4	)	-0.7	%		(0.01	)		(0.01	)		-		-			-			-			-		-			-			-
	Tax effect of non-GAAP adjustments		(5.3	)	-1.6	%		(0.03	)		(0.02	)		-		-			-			-			-		-			-			-
	Restructuring and other ⁽³⁾		-		-			-			-			0.6		0.2	%		0.00			0.00			0.3		0.1	%		0.00			0.00
	Pension mark-to-market adjustments ⁽¹⁾		-		-			-			-			(9.1	)	-3.2	%		(0.05	)		(0.04	)		-		-			-			-
	Convertible share adjustment ⁽⁷⁾		-		-			-			0.01			-		-			-			0.02			-		-			-			0.01
Net income - non-GAAP		$	22.4		7.0	%	$	0.12		$	0.11		$	13.2		4.6	%	$	0.07		$	0.07		$	18.2		6.5	%	$	0.10		$	0.09

GAAP and non-GAAP weighted average common shares - basic			193.3											191.5											189.7
GAAP weighted average common shares - diluted			236.5											236.9											234.8
	Exclude dilutive shares from convertible note		(20.1	)										(42.4	)										(42.3	)
Non-GAAP weighted average common shares - diluted ⁽⁷⁾			216.4											194.5											192.5

(1)			Actuarial (gains) losses recognized under GAAP in accordance with the Company's mark-to-market pension accounting.

(2)			For the quarter ended March 30, 2014, selling and administrative expenses include an equity charge for the modification of Teradyne's retired CEO's outstanding equity awards to allow continued vesting and maintain the original term in connection with his January 31, 2014 retirement.

(3)	Restructuring and other consists of:

			Quarter Ended
			March 30, 2014	December 31, 2013	March 31, 2013
		Employee severance	$ -	$ 0.6	$ 0.3


(4)			For the quarters December 31, 2013 and March 31, 2013, adjustment to record income taxes on a cash basis. Cash taxes reflects the usage of prior year favorable tax attributes (e.g. NOLs and credits) against current year tax liability.

(5)			For the quarters ended March 30, 2014, December 31, 2013 and March 31, 2013, Interest and other included non-cash convertible debt interest expense. For the quarter ended December 31, 2013, Interest and other included a gain from the sale of an equity investment.

(6)			For the quarter ended March 30, 2014, adjustment to exclude discrete income tax items.

(7)			For the quarter ended March 30, 2014, the calculation of non-GAAP diluted earnings per share gives benefit to the Company's call option on its stock for 34.7 million shares at $5.48. As a result 20.9 million shares have been included in non-GAAP diluted shares and net interest expense of $2.0 million has been added back to non-GAAP net income for the non-GAAP diluted earnings per share calculation.

GAAP to Non-GAAP Reconciliation of Second Quarter 2014 guidance:

GAAP and non-GAAP second quarter revenue guidance:		$460 million			to	$490 million
GAAP net income per diluted share		$	0.29			$	0.36
	Exclude acquired intangible asset amortization		0.08				0.08
	Tax effect of non-GAAP adjustment		(0.02	)			(0.02	)
Non-GAAP net income per diluted share		$	0.36			$	0.43

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