Teradyne Reports Fourth Quarter and Fiscal Year 2018 Results

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Safe Harbor Statement
This release contains forward-looking statements regarding Teradyne’s future business prospects, results of operations, market conditions, earnings per share, the payment of a quarterly dividend, the repurchase of Teradyne common stock pursuant to a share repurchase program, use of proceeds and potential dilution from the senior convertible notes offering, potential borrowings under a senior secured credit facility, and the impact of the U.S. tax reform, export and tariff laws. Such statements are based on the current assumptions and expectations of Teradyne’s management and are neither promises nor guarantees of future performance, events, earnings per share, use of cash, payment of dividends, repurchases of common stock, payment of the senior convertible notes, availability of, or borrowing under, the credit facility, or the impact of the U.S. tax reform, export and tariff laws. There can be no assurance that management’s estimates of Teradyne’s future results or other forward-looking statements will be achieved. Additionally, the current dividend and share repurchase programs may be modified, suspended or discontinued at any time. Important factors that could cause actual results, earnings per share, use of cash, dividend payments, repurchases of common stock, payment of the senior convertible notes or borrowings under the credit facility to differ materially from those presently expected include: conditions affecting the markets in which Teradyne operates; decreased or delayed product demand from one or more significant customers; development, delivery and acceptance of new products; the ability to grow the Industrial Automation business; increased research and development spending; deterioration of Teradyne’s financial condition; the consummation and success of any mergers or acquisitions; unexpected cash needs; insufficient cash flow to make required payments and pay the principal amount on the senior convertible notes; the business judgment of the board of directors that a declaration of a dividend, the repurchase of common stock or borrowing under the credit facility is not in the company’s best interests; additional U.S. tax regulations or IRS guidance; the impact of any tariffs or export controls imposed in the U.S. or China; 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, 2017 and the Quarterly Report on Form 10-Q for the period ended September 30, 2018. 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 FOURTH FISCAL QUARTER OF 2018           
               
CONDENSED  CONSOLIDATED  STATEMENTS OF OPERATIONS
 (In thousands, except per share amounts)         
               
      Quarter Ended  Twelve Months Ended 
      December 31,
2018
  September 30,
2018
  December 31,
2017 (1)
  December 31,
2018
  December 31,
2017 (1)
 
               
Net revenues $  519,558  $  566,848  $  479,415  $  2,100,802  $  2,136,606  
               
 Cost of revenues (exclusive of acquired intangible assets amortization shown separately below) (2)    210,022     233,155        208,485         880,408         915,153    
                             
Gross profit       309,536         333,693         270,930         1,220,394         1,221,453    
                             
Operating expenses:                      
  Selling and administrative       100,552         100,199         87,880         390,669         348,913    
  Engineering and development       74,706         77,049         72,070         301,505         307,305    
  Acquired intangible assets amortization       10,559         11,142         7,384         39,191         30,530    
  Restructuring and other (3)       11,446         1,710         8,970         15,232         9,362    
      Operating expenses       197,263         190,100         176,304         746,597         696,110    
                             
Income from operations       112,273         143,593         94,626         473,797         525,343    
                             
  Interest and other expense (income) (4)       1,144         2,749         (3,458 )       5,996         931    
                             
Income before income taxes        111,129         140,844         98,084         467,801         524,412    
  Income tax (benefit) provision (5)       (32,662 )       20,863         204,007         16,022         266,720    
Net income (loss)   $   143,791     $   119,981     $   (105,923 )   $   451,779     $   257,692    
                             
Net income (loss) per common share:                      
Basic       $   0.80     $   0.65     $   (0.54 )   $   2.41     $   1.30    
Diluted       $   0.79     $   0.63     $   (0.54 )   $   2.35     $   1.28    
                             
Weighted average common shares - basic       178,958         185,744         196,010         187,672         198,069    
                             
Weighted average common shares - diluted (6)       181,520         190,505         196,010         192,605         201,641    
                             
                             
Cash dividend declared per common share   $   0.09     $   0.09     $   0.07     $   0.36     $   0.28    
                             
                             
(1 ) Certain prior period amounts were reclassified to conform with the first quarter 2018 adoption of new accounting guidance for the presentation of pension and post retirement costs.   
                             
(2 ) Cost of revenues includes:   Quarter Ended   Twelve Months Ended  
          December 31,
2018
  September 30,
2018
  December 31,
2017
  December 31,
2018
  December 31,
2017
 
      Provision for excess and obsolete inventory   $   1,720     $   3,347     $   1,690     $   11,242     $   8,844    
      Sale of previously written down inventory       (1,501 )       (1,013 )       (1,048 )       (6,679 )       (7,451 )  
          $   219     $   2,334     $   642     $   4,563     $   1,393    
                             
(3 ) Restructuring and other consists of:   Quarter Ended   Twelve Months Ended  
          December 31,
2018
  September 30,
2018
  December 31,
2017
  December 31,
2018
  December 31,
2017
 
      Contingent consideration fair value adjustment   $   10,223     $   (768 )   $   5,973     $   987     $   7,820    
      Employee severance        768         1,667         1,801         8,714         3,754    
      Acquisition related expenses and compensation       455         811         -         4,584         -    
      Impairment of fixed assets       -         -         1,124         -         1,124    
      Other       -         -         72         947         973    
      Property insurance recovery, net       -         -         -         -         (4,309 )  
          $   11,446     $   1,710     $   8,970     $   15,232     $   9,362    
                             
                             
(4 ) Interest and other (income) expense, includes:   Quarter Ended   Twelve Months Ended  
          December 31,
2018
  September 30,
2018
  December 31,
2017
  December 31,
2018
  December 31,
2017
 
      Non-cash convertible debt interest   $   3,327     $   3,286     $   3,166     $   13,064     $   12,431    
      Pension actuarial (gain) loss       (3,512 )       267         (3,786 )       (3,316 )       (6,624 )  
          $   (185 )   $   3,553     $   (620 )   $   9,748     $   5,807    
                             
                             
(5 ) For the quarter and twelve months ended December 31, 2018 income tax (benefit) provision includes a $52 million tax benefit related to the finalization of our U.S. toll tax liability. For the quarter and twelve months ended December 31, 2017, income tax provision included an expense of $186 million related to the estimated impact of the U.S. Tax Reform Act.  
                             
(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 December 31, 2018, September 30, 2018 and December 31, 2017, 0.9 million, 3.0 million and 3.3 million shares, respectively, have been included in diluted shares. For the twelve months ended December 31, 2018 and December 31, 2017, 2.7 million and 1.3 million shares, respectively, have been included in diluted shares.  For the twelve months ended December 31, 2018 and December 31, 2017, diluted shares also included 0.5 million shares and 0.1 million shares, respectively,  from the convertible note hedge transaction.   
                             
                             
                             
CONDENSED  CONSOLIDATED  BALANCE  SHEETS  (In thousands)                      
                             
          December 31,
2018
  December 31,
2017
             
                             
Assets                          
  Cash and cash equivalents   $   926,752     $   429,843                
  Marketable securities       190,096         1,347,979                
  Accounts receivable, net       291,267         272,783                
  Inventories, net       153,541         107,525                
  Prepayments and other current assets       170,817         112,151                
                                     
      Total current assets       1,732,473         2,270,281                
                             
  Property, plant and equipment, net       279,821         268,447                
  Marketable securities       87,731         125,926                
  Deferred tax assets       70,858         84,026                
  Other assets       11,508         12,275                
  Retirement plans assets       16,883         17,491                
  Acquired intangible assets, net       125,482         79,088                
  Goodwill       381,850         252,011                
                             
      Total assets   $   2,706,606     $   3,109,545                
                             
Liabilities                        
  Accounts payable   $   100,688     $   86,393                
  Accrued employees' compensation and withholdings       148,566         141,694                
  Deferred revenue and customer advances       78,427         83,614                
  Other accrued liabilities       78,272         59,083                
  Contingent consideration       34,865         24,497                
  Income taxes payable       36,185         59,055                
                             
      Total current liabilities       477,003         454,336                
                             
  Retirement plans liabilities       117,456         119,776                
  Long-term deferred revenue and customer advances       32,033         30,127                
  Deferred tax liabilities       20,662         6,720                
  Long-term other accrued liabilities       37,548         10,273                
  Long-term contingent consideration       35,678         20,605                
  Long-term income taxes payable       83,891         148,075                
  Long-term debt       379,981         365,987                
                             
      Total liabilities       1,184,252         1,155,899                
                             
Shareholders' equity       1,522,354         1,953,646                
                             
      Total liabilities and shareholders' equity   $   2,706,606     $   3,109,545                
                         
                         
                         
CONDENSED  CONSOLIDATED  STATEMENTS OF CASH FLOWS (In thousands)                    
                           
          Quarter Ended   Twelve Months Ended      
          December 31,
2018
  December 31,
2017
  December 31,
2018
  December 31,
2017
     
Cash flows from operating activities:                       
  Net income (loss)   $   143,791     $   (105,923 )   $   451,779     $   257,692        
  Adjustments to reconcile net income to net cash provided by operating activities:                      
    Depreciation        17,485         16,879         67,415         66,122        
    Amortization        12,900         9,640         45,809         41,953        
    Stock-based compensation       8,250         8,477         33,577         34,097        
    Deferred taxes       3,898         37,784         28,340         37,105        
    Provision for excess and obsolete inventory        1,720         1,690         11,242         8,844        
    Contingent consideration fair value adjustment       10,223         5,973         987         7,820        
    Losses (gains) on investments       3,914         (953 )       3,494         (878 )      
    Retirement plan actuarial gains       (3,512 )       (3,786 )       (3,316 )       (6,624 )      
    Property insurance recovery, net       -         -         -         (4,309 )      
    Other        144         891         1,083         1,585        
    Changes in operating assets and liabilities, net of businesses acquired:                    
      Accounts receivable        59,869         (4,961 )       (17,938 )       (80,584 )      
      Inventories        4,619         21,190         (29,498 )       44,960        
      Prepayments and other assets        (29,683 )       (5,108 )       (58,402 )       2,254        
      Accounts payable and accrued expenses        (2,431 )       38,276         13,693         43,574        
      Deferred revenue and customer advances       3,556         (29,551 )       13,379         4,984        
      Retirement plans contributions        (1,090 )       (1,040 )       (4,334 )       (5,902 )      
      Income taxes       (47,277 )       157,994         (80,429 )       173,802        
Net cash provided by operating activities       186,376         147,472         476,881         626,495        
                             
Cash flows from investing activities:                      
  Purchases of property, plant and equipment       (26,110 )       (32,128 )       (114,379 )       (105,375 )      
  Proceeds from government subsidy for property, plant and equipment       -         -         7,920         -        
  Purchases of marketable securities       (109,223 )       (355,394 )       (918,744 )       (1,391,917 )      
  Proceeds from sales of marketable securities       2,958         84,577         846,122         527,746        
  Proceeds from maturities of marketable securities       336,339         228,426         1,270,439         701,681        
  Proceeds from property insurance       -         -         -         5,064        
  Proceeds from life insurance       -         -         1,126         -        
  Acquisition of businesses, net of cash acquired       -         -         (169,474 )       -        
Net cash provided by (used for) investing activities       203,964         (74,519 )       923,010         (262,801 )      
                             
Cash flows from financing activities:                       
  Issuance of common stock under stock purchase and stock option plans       14         31         20,973         24,493        
  Repurchase of common stock       (261,215 )       (48,482 )       (823,478 )       (200,304 )      
  Dividend payments       (16,002 )       (13,717 )       (67,322 )       (55,447 )      
  Payment related to net settlement of employee stock compensation awards       (182 )       (297 )       (20,023 )       (12,881 )      
  Payment of contingent consideration       -          -          (13,571 )       (1,050 )      
Net cash used for financing activities        (277,385 )       (62,465 )       (903,421 )       (245,189 )      
                             
Effects of exchange rate changes on cash and cash equivalents       (222 )       678         439         3,454        
                             
Increase in cash and cash equivalents        112,733         11,166         496,909         121,959        
Cash and cash equivalents at beginning of period        814,019         418,677         429,843         307,884        
Cash and cash equivalents at end of period    $   926,752     $   429,843     $   926,752     $   429,843        
                             

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