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Teradyne Reports Third Quarter 2013 Results

Stocks in this article: TER

Teradyne, Inc. (NYSE: TER) reported revenue of $433 million for the third quarter of 2013 of which $304 million was in Semiconductor Test, $93 million in Wireless Test and $36 million in System Test. On a non-GAAP basis, Teradyne’s net income in the third quarter was $95.0 million, or $0.46 per diluted share, which excluded acquired intangible asset amortization, non-cash convertible debt interest, and included income taxes on a cash basis. GAAP net income for the third quarter was $69.5 million, or $0.29 per diluted share.

Bookings in the third quarter of 2013 were $271 million of which $207 million were in Semiconductor Test, $40 million in Wireless Test and $24 million in System Test.

"Despite industry-wide lower capital spending this year, we've achieved solid operating results and market share momentum through three quarters,” said CEO, Mike Bradley. “Consistent with prior years, we're projecting the normal seasonal slowdown in the fourth quarter, but at somewhat higher revenue levels than we experienced at this time last year. We continue to make progress in mobility applications in both Semiconductor Test and LitePoint and will be well-positioned for any expected market growth in 2014."

Guidance for the fourth quarter of 2013 is revenue of $260 million to $285 million with non-GAAP net income per diluted share of $0.00 to $0.07 and GAAP net income per diluted share of $0.04 to $0.08. Non-GAAP net income guidance excludes a gain from the sale of an equity investment, acquired intangible asset amortization, non-cash convertible debt interest and includes income taxes on a cash basis.

WebcastA conference call to discuss the third quarter of 2013 results, along with management's business outlook is scheduled at 10 a.m. EDT, Thursday, October 24, 2013. The call will be broadcast simultaneously over the Internet. Interested investors should access the webcast at www.teradyne.com and click on "Investors" at least five minutes before the call begins. Presentation materials will be available at www.teradyne.com at 10 a.m. EDT.

A replay will be available approximately two hours after the completion of the call. The replay number in the U.S. & Canada is 855-859-2056. The replay number outside the U.S. & Canada is 404-537-3406. The pass code for both numbers is 76276015. A replay will also be available on the Teradyne website www.teradyne.com. Click on "Investors" for a link to the replay. The replay will be available via phone and website through November 10, 2013.

Non-GAAP ResultsIn addition to disclosing results that are determined in accordance with GAAP, Teradyne also discloses non-GAAP results of operations that exclude certain income items and charges. These results are provided as a complement to results provided in accordance with GAAP. Non-GAAP income from operations and non-GAAP net income exclude acquired intangible asset amortization, non-cash convertible debt interest, fair value inventory step-up related to LitePoint, pension and post retirement actuarial gains and losses, restructuring and other, and a gain from the sale of an equity investment, and include income taxes on a cash basis. GAAP requires that these items be included in determining income from operations and net income. Non-GAAP income from operations, non-GAAP net income, non-GAAP income from operations and non-GAAP net income as a percentage of revenue, and non-GAAP net income per share are non-GAAP measures presented to provide meaningful supplemental information regarding Teradyne's baseline performance before gains, losses or other charges that may not be indicative of Teradyne’s current core business or future outlook. These non-GAAP measures are used to make operational decisions, to determine employee compensation, to forecast future operational results, and for comparison with Teradyne’s business plan, historical operating results and the operating results of Teradyne’s competitors. Non-GAAP gross margin excludes charges related to the fair value inventory step-up recorded as part of acquisition purchase accounting and pension and post retirement actuarial gains and losses. GAAP requires that this item be included in determining gross margin. Non-GAAP gross margin dollar amount and percentage are non-GAAP measures that management believes provide useful supplemental information for management and the investor. Management uses non-GAAP gross margin as a performance measure for Teradyne’s current core business and future outlook and for comparison with Teradyne’s business plan, historical gross margin results and the gross margin results of Teradyne’s competitors. Non-GAAP diluted shares include the impact of Teradyne’s call option on its shares. Management believes each of these non-GAAP measures provides useful supplemental information for investors, allowing greater transparency to the information used by management in its operational decision making and in the review of Teradyne’s financial and operational performance, as well as facilitating meaningful comparisons of Teradyne’s results in the current period compared with those in prior and future periods. A reconciliation of each available GAAP to non-GAAP financial measure discussed in this press release is contained in the attached exhibits and on the Teradyne website at www.teradyne.com by clicking on "Investors" and then selecting the "GAAP to Non-GAAP Reconciliation" link. The non-GAAP financial measures discussed in this press release may not be comparable to similarly titled measures used by other companies. The presentation of non-GAAP measures is not meant to be considered in isolation, as a substitute for, or superior to, financial measures or information provided in accordance with GAAP.

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 2012, Teradyne had sales of $1.66 billion and currently employs approximately 3,700 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 StatementThis release contains forward-looking statements regarding future business prospects, Teradyne’s results of operations and market conditions. Such statements are based on the current assumptions and expectations of Teradyne’s management and are neither promises nor guarantees of future performance. 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. Important factors that could cause actual results 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; the closing of the sale of an equity investment 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, 2012 and Quarterly Report on Form 10-Q for the period ended June 30, 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 THIRD FISCAL QUARTER OF 2013
                                   
CONDENSED CONSOLIDATED OPERATING STATEMENTS
(In thousands, except per share amounts)
                       
Quarter Ended Nine Months Ended
September 29, 2013 June 30, 2013 September 30, 2012 September 29, 2013 September 30, 2012
 
Net revenues $ 433,376 $ 428,889 $ 463,394 $ 1,142,632 $ 1,408,346
 
Cost of revenues (1) (2)   179,082     187,656     203,194     493,688     647,714  
 
Gross profit 254,294 241,233 260,200 648,944 760,632
 
Operating expenses:
Engineering and development (1) 68,918 67,773 63,946 199,442 193,059
Selling and administrative (1) 72,917 69,230 69,030 210,037 207,727
Acquired intangible asset amortization 18,064 18,063 18,429 54,163 55,287
Restructuring and other (3)   889     259     683     1,480     (7,404 )
Operating expenses 160,788 155,325 152,088 465,122 448,669
 
Income from operations 93,506 85,908 108,112 183,822 311,963
 
Interest and other (4)   (5,954 )   (5,551 )   (5,087 )   (17,339 )   (15,702 )
 
Income before income taxes 87,552 80,357 103,025 166,483 296,261
Income tax provision   18,093     13,801     14,384     23,879     62,669  
Net income $ 69,459   $ 66,556   $ 88,641   $ 142,604   $ 233,592  
 

Net income per common share:

Basic $ 0.36   $ 0.35   $ 0.47   $ 0.75   $ 1.25  
Diluted $ 0.29   $ 0.28   $ 0.39   $ 0.61   $ 1.02  
 
Weighted average common shares - basic   191,307     190,569     187,364     190,521     186,592  
 
 
Weighted average common shares - diluted (5)   235,828     234,909     229,210     235,165     230,003  
 
Net orders $ 270,733   $ 473,815   $ 230,794   $ 1,144,630   $ 1,280,579  
 

(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 Nine Months Ended
September 29, 2013     June 30, 2013     September 30, 2012 September 29, 2013     September 30, 2012
Cost of revenues $ - $ (335 ) $ 449 $ (335 ) $ 1,227
Engineering and development - (659 ) 936 (659 ) 2,399
Selling and administrative   -     (365 )   552     (365 )   1,365  
$ -   $ (1,359 ) $ 1,937   $ (1,359 ) $ 4,991  
 
 

(2) Cost of revenues includes:

Quarter Ended Nine Months Ended
September 29, 2013 June 30, 2013 September 30, 2012 September 29, 2013 September 30, 2012
Provision for excess and obsolete inventory $ 3,841 $ 1,975 $ 5,481 $ 9,616 $ 16,408
Sale of previously written down inventory (4,093 ) (3,058 ) (651 ) (8,934 ) (3,170 )
Inventory step-up   -     -     -     -     6,089  
$ (252 ) $ (1,083 ) $ 4,830   $ 682   $ 19,327  
 
 

(3) Restructuring and other consists of:

Quarter Ended Nine Months Ended
September 29, 2013 June 30, 2013

September 30, 2012

September 29, 2013 September 30, 2012
Employee severance $ 1,337 $ 259 $ 683 $ 1,928 $ 969
Facility related (448 ) - - (448 ) -
Contingent consideration fair value adjustment   -     -     -     -     (8,373 )
$ 889   $ 259   $ 683   $ 1,480   $ (7,404 )
 
 
 

(4) Interest and other includes:

Quarter Ended Nine Months Ended
September 29, 2013 June 30, 2013 September 30, 2012 September 29, 2013 September 30, 2012
Non-cash convertible debt interest expense $ 4,018 $ 3,884 $ 3,506 11,656 $ 10,170
 

(5) 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 September 29, 2013, June 30, 2013 and September 30, 2012, and for the nine months ended September 29, 2013 and September 30, 2012, 23.3 million, 23.3 million, 21.9 million, 23.3 million and 22.4 million shares, respectively, have been included in diluted shares.

         
CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands)
 
September 29, 2013 December 31, 2012
 
Assets
Cash and cash equivalents $ 572,868 $ 338,920
Marketable securities 384,334 431,516
Accounts receivable 209,386 153,423
Inventories 123,032 139,410
Deferred tax assets 83,780 77,305
Prepayments and other current assets   120,980   95,487
Total current assets 1,494,380 1,236,061
 
Net property, plant and equipment 275,421 265,782
Marketable securities 202,087 235,872
Other assets 19,763 20,209
Retirement plan assets 5,020 3,282
Intangible assets 265,705 318,867
Goodwill   349,272   349,272
Total assets $ 2,611,648 $ 2,429,345
 
Liabilities
Accounts payable $ 67,734 $ 58,324
Accrued employees' compensation and withholdings 78,616 86,264
Deferred revenue and customer advances 70,367 81,357
Other accrued liabilities 62,184 57,249
Accrued income taxes 25,249 12,306
Current debt   183,573   2,328
Total current liabilities 487,723 297,828
 
Long-term deferred revenue and customer advances 17,455 16,227
Retirement plan liabilities 95,982 94,373
Deferred tax liabilities 37,632 50,201
Long-term other accrued liabilities 21,355 21,302
Long-term debt   -   171,059
Total liabilities 660,147 650,990
 
Shareholders' equity 1,951,501 1,778,355
   
Total liabilities and shareholders' equity $ 2,611,648 $ 2,429,345
 
 
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands)
                   
Quarter Ended Nine Months Ended
September 29, 2013 September 30, 2012 September 29, 2013 September 30, 2012
Cash flows from operating activities:
Net income $ 69,459 $ 88,641 $ 142,604 $ 233,592
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation 14,321 14,234 41,873 39,812
Amortization 22,175 22,046 66,100 65,790
Stock-based compensation 9,150 9,238 27,227 30,634
Provision for excess and obsolete inventory 3,841 5,481 9,616 16,408
Deferred taxes (3,981 ) (8,861 ) (19,211 ) 7,076
Inventory step-up - - - 6,089
Contingent consideration adjustment - - - (8,373 )
Tax benefit related to stock options and restricted stock units 777 - (807 ) (7,600 )
Retirement plan actuarial losses (gains) - 1,937 (1,359 ) 4,991
Impairment loss on property, plant and equipment - - 1,074 -
Other 2,401 (312 ) 3,478 (783 )
 
Changes in operating assets and liabilities:
Accounts receivable 18,822 140,660 (55,963 ) (76,134 )
Inventories 7,821 3,624 34,194 25,070
Prepayments and other assets (9,035 ) 2,251 (26,312 ) 7,278
Accounts payable and accrued expenses 15,645 (44,740 ) 496 (17,600 )
Deferred revenue and customer advances (6,672 ) (4,453 ) (9,762 ) (10,651 )
Retirement plan contributions (1,058 ) (1,129 ) (3,569 ) (3,679 )
Accrued income taxes   10,786     20,355     13,750     50,313  
Net cash provided by operating activities 154,452 248,972 223,429 362,233
 
Cash flows from investing activities:
Purchases of property, plant and equipment (32,127 ) (33,328 ) (82,925 ) (91,132 )
Purchases of marketable securities (199,118 ) (356,286 ) (657,188 ) (510,157 )
Proceeds from maturities of marketable securities 133,355 70,230 401,901 156,422
Proceeds from sales of marketable securities   282,342     4,222     332,597     14,250  
Net cash provided by (used for) investing activities 184,452 (315,162 ) (5,615 ) (430,617 )
 
Cash flows from financing activities:
Issuance of common stock under stock option and stock purchase plans 7,140 975 16,778 17,959
Tax benefit related to stock options and restricted stock units (777 ) - 807 7,600
Payments of long-term debt - - (1,063 ) (1,246 )
Payments of contingent consideration   -     (38,149 )   (388 )   (43,973 )
Net cash provided by (used for) financing activities 6,363 (37,174 ) 16,134 (19,660 )
 
Increase (decrease) in cash and cash equivalents 345,267 (103,364 ) 233,948 (88,044 )
Cash and cash equivalents at beginning of period   227,601     589,056     338,920     573,736  
Cash and cash equivalents at end of period $ 572,868   $ 485,692   $ 572,868   $ 485,692  
 
 
GAAP to Non-GAAP Earnings Reconciliation
                                                     
(In millions, except per share amounts)
Quarter Ended

September 29, 2013

   

% of Net Revenues

June 30, 2013    

% of Net Revenues

September 30, 2012

   

% of Net Revenues

 
Net revenues $ 433.4 $ 428.9 $ 463.4
 
Gross profit - GAAP $ 254.3 58.7 % $ 241.2 56.2 % $ 260.2 56.2 %
Pension mark-to-market adjustments (1)   - -     (0.3 ) -0.1 %   0.4 0.1 %
Gross profit - non-GAAP $ 254.3 58.7 % $ 240.9 56.2 % $ 260.6 56.2 %
 
Income from operations - GAAP $ 93.5 21.6 % $ 85.9 20.0 % $ 108.1 23.3 %
Acquired intangible asset amortization 18.1 4.2 % 18.1 4.2 % 18.4 4.0 %
Restructuring and other (2) 0.9 0.2 % 0.3 0.1 % 0.7 0.2 %
Pension mark-to-market adjustments (1)   - -     (1.4 ) -0.3 %   1.9 0.4 %
Income from operations - non-GAAP $ 112.5 26.0 % $ 102.9   24.0 % $ 129.1 27.9 %
 

Net Income per Common Share

Net Income per Common Share

Net Income per Common Share

September 29, 2013

   

% of Net Revenues

    Basic     Diluted

June 30, 2013

   

% of Net Revenues

    Basic     Diluted

September 30, 2012

   

% of Net Revenues

    Basic     Diluted
Net income - GAAP $ 69.5 16.0 % $ 0.36 $ 0.29 $ 66.6 15.5 % $ 0.35 $ 0.28 $ 88.6 19.1 % $ 0.47 $ 0.39
Acquired intangible asset amortization 18.1 4.2 % 0.09 0.08 18.1 4.2 % 0.09 0.08 18.4 4.0 % 0.10 0.09
Income tax adjustment (3) 2.5 0.6 % 0.01 0.01 1.6 0.4 % 0.01 0.01 (4.7 ) -1.0 % (0.03 ) (0.02 )
Interest and other (4) 4.0 0.9 % 0.02 0.02 3.9 0.9 % 0.02 0.02 3.5 0.8 % 0.02 0.02
Restructuring and other (2) 0.9 0.2 % 0.00 0.00 0.3 0.1 % 0.00 0.00 0.7 0.2 % 0.00 0.00
Pension mark-to-market adjustments (1) - - - - (1.4 ) -0.3 % (0.01 ) (0.01 ) 1.9 0.4 % 0.01 0.01
Convertible share adjustment (5)   - -     -   0.06   -   -     -     0.05     -   -     -     0.04  
Net income - non-GAAP $ 95.0 21.9 % $ 0.50 $ 0.46 $ 89.1   20.8 % $ 0.47   $ 0.43   $ 108.4   23.4 % $ 0.58   $ 0.53  
 
GAAP and non-GAAP weighted average common shares - basic 191.3 190.6 187.4
GAAP weighted average common shares - diluted 235.8 234.9 229.2
Exclude dilutive shares from convertible note   (23.3 )   (23.3 )   (21.9 )
Non-GAAP weighted average common shares - diluted (5)   212.5     211.6     207.3  
 

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

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