Teradyne Reports Third Quarter 2016 Results

CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands)

			October 2, 2016		December 31, 2015

Assets
	Cash and cash equivalents		$	297,937	$	264,705
	Marketable securities			598,501		477,696
	Accounts receivable			163,213		211,293
	Inventories, net			115,066		153,588
	Deferred tax assets			-		54,973
	Prepayments			104,078		91,519
	Other current assets			6,393		6,194
		Total current assets		1,285,188		1,259,968

	Net property, plant and equipment			261,821		273,414
	Marketable securities			357,751		265,928
	Deferred tax assets			90,546		7,404
	Other assets			12,777		13,080
	Retirement plans assets			4,869		636
	Intangible assets, net			114,146		239,831
	Goodwill			238,589		488,413
		Total assets	$	2,365,687	$	2,548,674

Liabilities
	Accounts payable		$	61,890	$	92,358
	Accrued employees' compensation and withholdings			89,723		113,994
	Deferred revenue and customer advances			138,916		85,527
	Other accrued liabilities			56,580		43,727
	Contingent consideration			1,050		15,500
	Accrued income taxes			20,925		21,751
		Total current liabilities		369,084		372,857

	Retirement plans liabilities			108,095		103,531
	Long-term deferred revenue and customer advances			26,336		25,745
	Deferred tax liabilities			16,837		26,663
	Long-term other accrued liabilities			31,354		32,156
	Long-term contingent consideration			31,837		21,936
		Total liabilities		583,543		582,888

Shareholders' equity				1,782,144		1,965,786

		Total liabilities and shareholders' equity	$	2,365,687	$	2,548,674

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands)

				Quarter Ended						Nine Months Ended
				October 2, 2016			October 4, 2015			October 2, 2016			October 4, 2015
Cash flows from operating activities:
	Net income (loss)			$	63,794		$	71,453		$	(109,767	)	$	207,118
	Adjustments to reconcile net income (loss) to net cash provided by operating activities:
		Depreciation			16,269			16,301			48,437			52,531
		Amortization			9,095			20,764			46,275			52,159
		Provision for excess and obsolete inventory			3,033			3,058			15,148			18,939
		Stock-based compensation			7,555			7,675			23,012			23,080
		Contingent consideration adjustment			7,974			(1,000	)		10,452			(2,600	)
		Goodwill impairment			-			-			254,946			-
		Acquired intangible assets impairment			-			-			83,339			-
		Deferred taxes			(21,110	)		(3,602	)		(42,568	)		(13,973	)
		Impairment of fixed assets			-			-			4,179			-
		Property insurance recovery			(312	)		-			(5,363	)		-
		Retirement plans actuarial losses (gains)			662			-			(1,200	)		-
		Non-cash charge for the sale of inventories revalued at the date of acquisition			-			972			-			1,567
		Gain from the sale of an equity investment			-			-			-			(5,406	)
		Tax benefit related to employee stock compensation awards			(3,399	)		(2,321	)		(3,399	)		(3,213	)
		Other			(426	)		1,368			150			2,523
		Changes in operating assets and liabilities, net of business acquired:
			Accounts receivable		186,371			51,376			45,660			(91,117	)
			Inventories		18,378			9,876			48,601			33,376
			Prepayments and other assets		696			1,475			(12,961	)		15,529
			Accounts payable and accrued expenses		(32,749	)		(729	)		(47,941	)		52,663
			Deferred revenue and customer advances		(52,692	)		1,066			53,380			6,751
			Retirement plans contributions		(3,573	)		(999	)		(5,871	)		(2,998	)
			Accrued income taxes		4,221			2,416			4,227			25,677
Net cash provided by operating activities					203,787			179,149			408,736			372,606

Cash flows from investing activities:
	Purchases of property, plant and equipment				(19,659	)		(20,617	)		(66,252	)		(66,727	)
	Purchases of available-for-sale marketable securities				(438,526	)		(367,356	)		(875,837	)		(957,606	)
	Proceeds from sales of available-for-sale marketable securities				131,946			212,334			466,744			843,734
	Proceeds from maturities of available-for-sale marketable securities				74,138			98,947			202,162			330,363
	Proceeds from property insurance				-			-			5,051			-
	Acquisition of business, net of cash acquired				-			(409	)		-			(282,741	)
	Proceeds from the sale of an equity investment				-			-			-			5,406
	Proceeds from life insurance				-			-			-			1,098
Net cash used for investing activities					(252,101	)		(77,101	)		(268,132	)		(126,473	)

Cash flows from financing activities:
	Issuance of common stock under stock purchase and stock option plans				2,189			267			20,085			18,145
	Repurchase of common stock				(28,309	)		(98,527	)		(85,092	)		(226,843	)
	Dividend payments				(12,123	)		(12,577	)		(36,548	)		(38,434	)
	Tax benefit related to employee stock compensation awards				3,399			2,321			3,399			3,213
	Payment of revolving credit facility costs				-			-			-			(2,253	)
	Payment of contingent consideration				-			-			(11,697	)		-
Net cash used for financing activities					(34,844	)		(108,516	)		(109,853	)		(246,172	)

Effects of exchange rate changes on cash and cash equivalents					-			-			2,481			-

(Decrease) increase in cash and cash equivalents					(83,158	)		(6,468	)		33,232			(39	)
Cash and cash equivalents at beginning of period					381,095			300,685			264,705			294,256
Cash and cash equivalents at end of period				$	297,937		$	294,217		$	297,937		$	294,217

GAAP to Non-GAAP Earnings Reconciliation

(In millions, except per share amounts)
			Quarter Ended
			October 2, 2016			% of Net Revenues										July 3, 2016			% of Net Revenues								October 4, 2015			% of Net Revenues

Net revenues			$	410.5												$	531.8										$	466.0

Gross profit - GAAP			$	227.4			55.4	%								$	282.9		53.2	%							$	258.6		55.5	%
	Inventory step-up			-			-										-		-									1.0		0.2	%
	Pension mark-to-market adjustment (1)			0.4			0.1	%									(0.2	)	0.0	%								-		-
Gross profit - non-GAAP			$	227.8			55.5	%								$	282.7		53.2	%							$	259.6		55.7	%

Income (loss) from operations - GAAP			$	56.5			13.8	%								$	(231.8	)	-43.6	%							$	86.8		18.6	%
	Restructuring and other (2)			12.2			3.0	%									2.6		0.5	%								0.3		0.1	%
	Acquired intangible assets amortization			8.5			2.1	%									16.2		3.0	%								20.1		4.3	%
	Pension mark-to-market adjustment (1)			0.7			0.2	%									(0.7	)	-0.1	%								-		-
	Goodwill impairment (3)			-			-										254.9		47.9	%								-		-
	Acquired intangible assets impairment (3)			-			-										83.3		15.7	%								-		-
	Inventory step-up			-			-										-		-									1.0		0.2	%
Income from operations - non-GAAP			$	77.9			19.0	%								$	124.5		23.4	%							$	108.2		23.2	%

										Net Income per Common Share											Net (Loss) Income per Common Share											Net Income per Common Share
			October 2, 2016			% of Net Revenues				Basic			Diluted			July 3, 2016			% of Net Revenues		Basic			Diluted			October 4, 2015			% of Net Revenues		Basic			Diluted
Net income (loss) - GAAP			$	63.8			15.5	%		$	0.32		$	0.31		$	(223.5	)	-42.0	%	$	(1.10	)	$	(1.10	)	$	71.5		15.3	%	$	0.34		$	0.34
	Restructuring and other (2)			12.2			3.0	%			0.06			0.06			2.6		0.5	%		0.01			0.01			0.3		0.1	%		0.00			0.00
	Acquired intangible assets amortization			8.5			2.1	%			0.04			0.04			16.2		3.0	%		0.08			0.08			20.1		4.3	%		0.10			0.09
	Pension mark-to-market adjustment (1)			0.7			0.2	%			0.00			0.00			(0.7	)	-0.1	%		(0.00	)		(0.00	)		-		-			-			-
	Goodwill impairment (3)			-			-				-			-			254.9		47.9	%		1.26			1.24			-		-			-			-
	Acquired intangible assets impairment (3)			-			-				-			-			83.3		15.7	%		0.41			0.41			-		-			-			-
	Inventory step-up			-			-				-			-			-		-			-			-			1.0		0.2	%		0.00			0.00
	Exclude discrete tax adjustments (4)			(10.7	)		-2.6	%			(0.05	)		(0.05	)		25.1		4.7	%		0.12			0.12			(3.3	)	-0.7	%		(0.02	)		(0.02	)
	Tax effect of non-GAAP adjustments			(6.8	)		-1.7	%			(0.03	)		(0.03	)		(45.5	)	-8.6	%		(0.22	)		(0.22	)		(4.7	)	-1.0	%		(0.02	)		(0.02	)
Net income - non-GAAP			$	67.7			16.5	%		$	0.33		$	0.33		$	112.4		21.1	%	$	0.55		$	0.55		$	84.9		18.2	%	$	0.40		$	0.40

GAAP and non-GAAP weighted average common shares - basic				202.2													203.0											210.0
GAAP weighted average common shares - diluted				203.9													203.0											211.7
	Include dilutive shares			-													1.9											-
Non-GAAP weighted average common shares - diluted				203.9													204.9											211.7


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

(2)	Restructuring and other consists of:
			Quarter Ended
			October 2, 2016													July 3, 2016											October 4, 2015
		Contingent consideration fair value adjustment	$	8.0												$	1.3										$	(1.0	)
		Employee severance		4.2													1.3											1.2
		Impairment of fixed assets and expenses related to Japan earthquake		0.3													5.1											-
		Property insurance recovery		(0.3	)												(5.1	)										-
		Acquisition costs		-													-											0.1
			$	12.2												$	2.6										$	0.3


(3)	Goodwill and acquired intangible assets impairment related to Teradyne's Wireless Test business segment.


(4)	For the quarters ended October 2, 2016, July 3, 2016 and October 4, 2015, adjustment to exclude discrete income tax items. For the quarters ended October 2, 2016 and July 3, 2016, adjustment to treat Wireless Test business segment goodwill and intangible assets impairments as discrete tax items.
			Nine Months Ended
			October 2, 2016			% of Net Revenues										October 4, 2015			% of Net Revenues

Net Revenues			$	1,373.3												$	1,321.1

Gross profit - GAAP			$	740.6			53.9	%								$	749.6		56.7	%
	Inventory step-up			-			-										1.6		0.1	%
	Pension mark-to-market adjustment (1)			(0.3	)		0.0	%									-		-
Gross profit - non-GAAP			$	740.3			53.9	%								$	751.2		56.9	%

(Loss) income from operations - GAAP			$	(119.2	)		-8.7	%								$	252.7		19.1	%
	Goodwill impairment (2)			254.9			18.6	%									-		-
	Acquired intangible assets impairment (2)			83.3			6.1	%									-		-
	Acquired intangible assets amortization			44.7			3.3	%									49.1		3.7	%
	Restructuring and other (3)			16.4			1.2	%									(0.1	)	0.0	%
	Pension mark-to-market adjustment (1)			(1.2	)		-0.1	%									-		-
	Inventory step-up			-			-										1.6		0.1	%
Income from operations - non-GAAP			$	278.9			20.3	%								$	303.3		23.0	%

										Net (Loss) Income per Common Share											Net Income per Common Share
			October 2, 2016			% of Net Revenues				Basic			Diluted			October 4, 2015			% of Net Revenues		Basic			Diluted
Net (loss) income - GAAP			$	(109.8	)		-8.0	%		$	(0.54	)	$	(0.54	)	$	207.1		15.7	%	$	0.97		$	0.96
	Goodwill impairment (2)			254.9			18.6	%			1.25			1.24			-		-			-			-
	Acquired intangible assets impairment (2)			83.3			6.1	%			0.41			0.41			-		-			-			-
	Acquired intangible assets amortization			44.7			3.3	%			0.22			0.22			49.1		3.7	%		0.23			0.23
	Restructuring and other (3)			16.4			1.2	%			0.08			0.08			(0.1	)	0.0	%		(0.00	)		(0.00	)
	Pension mark-to-market adjustment (1)			(1.2	)		-0.1	%			(0.01	)		(0.01	)		-		-			-			-
	Interest and other (4)			-			-				-			-			(5.4	)	-0.4	%		(0.03	)		(0.03	)
	Inventory step-up			-			-				-			-			1.6		0.1	%		0.01			0.01
	Exclude discrete tax adjustments (5)			11.8			0.9	%			0.06			0.06			(4.9	)	-0.4	%		(0.02	)		(0.02	)
	Tax effect of non-GAAP adjustments			(55.7	)		-4.1	%			(0.27	)		(0.27	)		(10.5	)	-0.8	%		(0.05	)		(0.05	)
Net income - non-GAAP			$	244.4			17.8	%		$	1.20		$	1.19		$	236.9		17.9	%	$	1.11		$	1.10

GAAP and non-GAAP weighted average common shares - basic				203.2													213.7
GAAP weighted average common shares - diluted				203.2													215.3
	Include dilutive shares			1.7													-
Non-GAAP weighted average common shares - diluted				204.9													215.3


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

(2)	Goodwill and acquired intangible assets impairment related to Teradyne's Wireless Test business segment.

(3)	Restructuring and other consists of:
			Nine Months Ended
			October 2, 2016													October 4, 2015
		Contingent consideration fair value adjustment	$	10.5												$	(2.6	)
		Employee severance		5.9													1.4
		Impairment of fixed assets and expenses related to Japan earthquake		5.4													-
		Property insurance recovery		(5.4	)												-
		Acquisition costs		-													1.1
			$	16.4												$	(0.1	)


(4)	For the nine months ended October 4, 2015, Interest and other included a gain from the sale of an equity investment.


(5)	For the nine months ended October 2, 2016 and October 4, 2015, adjustment to exclude discrete income tax items. For the nine months ended October 2, 2016, adjustment to treat Wireless Test business segment goodwill and intangible assets impairments as discrete tax items.

GAAP to Non-GAAP Reconciliation of Fourth Quarter 2016 guidance:

GAAP and non-GAAP fourth quarter revenue guidance:						$330 million			to	$360 million
GAAP net income per diluted share						$	0.17			$	0.26
	Exclude acquired intangible assets amortization						0.04				0.04
	Non-GAAP tax adjustment						(0.03	)			(0.05	)
Non-GAAP net income per diluted share						$	0.18			$	0.25

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