Teradyne Reports Fourth Quarter and Fiscal Year 2018 Results


GAAP to Non-GAAP Earnings Reconciliation                        
                            
(In millions, except per share amounts)                        
                    Quarter Ended                      
     December 31,
2018
  % of Net Revenues      September 30,
2018
  % of Net Revenues      December 31,
2017 (1)
  % of Net Revenues     
                            
Net revenues $  519.6        $  566.8        $  479.4        
                              
Gross profit GAAP and non-GAAP $   309.5       59.6 %           $   333.7     58.9 %           $   270.9     56.5 %          
                                                       
Income from operations - GAAP $   112.3       21.6 %           $   143.6     25.3 %           $   94.6     19.7 %          
  Acquired intangible assets amortization     10.6       2.0 %               11.1     2.0 %               7.4     1.5 %          
  Restructuring and other (2)     11.4       2.2 %               1.7     0.3 %               9.0     1.9 %          
Income from operations - non-GAAP $   134.3       25.8 %           $   156.4     27.6 %           $   111.0     23.2 %          
                                                       
                Net Income per Common Share           Net Income per Common Share           Net Income (Loss) per Common Share  
        December 31,
2018
  % of Net Revenues   Basic     Diluted   September 30,
2018
  % of Net Revenues   Basic     Diluted   December 31,
2017
  % of Net Revenues   Basic     Diluted  
Net income (loss) – GAAP $   143.8       27.7 %   $   0.80     $   0.79     $   120.0     21.2 %   $   0.65     $   0.63     $   (105.9 )   -22.1 %   $   (0.54 )   $   (0.54 )  
  Acquired intangible assets amortization     10.6       2.0 %       0.06         0.06         11.1     2.0 %       0.06         0.06         7.4     1.5 %       0.04         0.04    
  Interest and other (3)     3.3       0.6 %       0.02         0.02         3.3     0.6 %       0.02         0.02         3.2     0.7 %       0.02         0.02    
  Restructuring and other (2)     11.4       2.2 %       0.06         0.06         1.7     0.3 %       0.01         0.01         9.0     1.9 %       0.05         0.05    
  Pension mark-to-market adjustment (3)     (3.5 )     -0.7 %       (0.02 )       (0.02 )       0.3     0.1 %       0.00         0.00         (3.8 )   -0.8 %       (0.02 )       (0.02 )  
  Exclude discrete tax adjustments (4)     (52.9 )     -10.2 %       (0.30 )       (0.29 )       0.3     0.1 %       0.00         0.00         184.4     38.5 %       0.94         0.94    
  Non-GAAP tax adjustments     0.3       0.1 %       0.00         0.00         (3.4 )   -0.6 %       (0.02 )       (0.02 )       (2.9 )   -0.6 %       (0.01 )       (0.01 )  
  Convertible share adjustment     -          -           -          -          -        -           -          0.01         -        -           -          -     
Net income - non-GAAP $   113.0       21.7 %   $   0.63     $   0.63     $   133.3     23.5 %   $   0.72     $   0.71     $   91.4     19.1 %   $   0.47     $   0.46    
                                                       
GAAP and non-GAAP weighted average common shares - basic     179.0                     185.7                     196.0                
GAAP weighted average common shares - diluted     181.5                     190.5                     196.0                
  Include dilutive shares     -                      -                      3.0                
  Exclude dilutive shares related to convertible note transaction     (0.9 )                   (3.1 )                   -                 
Non-GAAP weighted average common shares - diluted     180.6                     187.4                     199.0                
                                                       
                                                       
(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 ) Restructuring and other consists of:                                       
        Quarter Ended              
        December 31,
2018
              September 30,
2018
              December 31,
2017
             
    Contingent consideration fair value adjustment $   10.2                 $   (0.8 )               $   6.0                
    Employee severance      0.8                     1.7                     1.8                
    Acquisition related expenses and compensation     0.5                     0.8                     -                 
    Impairment of fixed assets     -                      -                      1.1                
    Other       -                      -                      0.1                
        $   11.4                 $   1.7                 $   9.0                
                                                       
(3 ) For the quarters ended December 31, 2018, September 30, 2018 and December 31, 2017,  adjustment to exclude non-cash convertible debt interest expense and adjustment to exclude actuarial (gains)losses recognized under GAAP in accordance with Teradyne's mark-to-market pension accounting. 
                                                       
(4 ) For the quarters ended December 31, 2018, September 30, 2018 and December 31, 2017, adjustment to exclude discrete income tax items. For the quarter ended December 31, 2018, adjustment to treat the $52 million tax benefit related to the finalization of our U.S. toll tax liability as a discrete item. For the quarter ended December 31, 2017, adjustment to treat the $186 million expense related to the estimated impact of the U.S. Tax Reform Act, as a discrete item.
     
        Twelve Months Ended                  
        December 31,
2018
  % of Net Revenues           December 31,
2017 (1)
  % of Net Revenues                          
                                                       
Net Revenues   $   2,100.8                 $   2,136.6                                
                                               
Gross profit GAAP $   1,220.4       58.1 %           $   1,221.5     57.2 %                          
  Inventory step-up     0.4       0.0 %               -        -                              
Gross profit non-GAAP $   1,220.8       58.1 %           $   1,221.5     57.2 %                          
                                               
Income from operations - GAAP $   473.8       22.6 %           $   525.3     24.6 %                  
  Acquired intangible assets amortization     39.2       1.9 %               30.5     1.4 %                  
  Restructuring and other (2)     15.2       0.7 %               9.4     0.4 %                  
  Inventory step-up     0.4       0.0 %               -        -                      
Income from operations - non-GAAP $   528.6       25.2 %           $   565.2     26.5 %                  
                                               
                Net Income
per Common Share
          Net Income
per Common Share
         
        December 31,
2018
  % of Net Revenues   Basic     Diluted   December 31,
2017
  % of Net Revenues   Basic     Diluted          
Net income - GAAP $   451.8       21.5 %   $   2.41     $   2.35     $   257.7     12.1 %   $   1.30     $   1.28            
  Acquired intangible assets amortization     39.2       1.9 %       0.21         0.20         30.5     1.4 %       0.15         0.15            
  Interest and other (3)     13.1       0.6 %       0.07         0.07         12.4     0.6 %       0.06         0.06            
  Restructuring and other (2)     15.2       0.7 %       0.08         0.08         9.4     0.4 %       0.05         0.05            
  Inventory step-up     0.4       0.0 %       0.00         0.00         -        -           -          -                     
  Pension mark-to-market adjustment (3)     (3.3 )     -0.2 %       (0.02 )       (0.02 )       (6.3 )   -0.3 %       (0.03 )       (0.03 )          
  Exclude discrete tax adjustments (4)      (59.4 )     -2.8 %       (0.32 )       (0.31 )       178.3     8.3 %       0.90         0.88            
  Non-GAAP tax adjustments     (8.4 )     -0.4 %       (0.04 )       (0.04 )       (12.8 )   -0.6 %       (0.06 )       (0.06 )          
  Convertible share adjustment     -          -           -          0.04         -        -           -          0.01            
Net income - non-GAAP $   448.6       21.4 %   $   2.39     $   2.37     $   469.2     22.0 %   $   2.37     $   2.34            
                                               
GAAP and non-GAAP weighted average common shares - basic     187.7                     198.1                        
GAAP weighted average common shares - diluted     192.6                     201.6                        
  Exclude dilutive shares from convertible note     (3.2 )                   (1.3 )                      
Non-GAAP weighted average common shares - diluted     189.4                     200.3                        
                                               
(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 ) Restructuring and other consists of: 
        Twelve Months Ended                      
        December 31,
2018
              December 31,
2017
                     
    Employee severance  $   8.7                 $   3.8                        
    Acquisition related expenses and compensation     4.6                     -                         
    Contingent consideration fair value adjustment     1.0                     7.8                        
    Other       0.9                     1.0                     -                 
    Impairment of fixed assets     -                      1.1                        
    Property insurance recovery, net     -                      (4.3 )                      
        $   15.2                 $   9.4                        
                                               
(3 ) For the twelve months ended December 31, 2018 and December 31, 2017, interest and other included non-cash convertible debt interest expense. For the twelve months ended December 31, 2018 and December 31, 2017, adjustments to exclude actuarial gains recognized under GAAP in accordance with Teradyne's mark-to-market pension accounting. 
                                               
(4 ) For the twelve months ended December 31, 2018 and December 31, 2017, adjustment to exclude discrete income tax items. For the twelve months ended December 31, 2018, adjustment to treat the $52 million tax benefit related to the finalization of our U.S. toll tax liability as a discrete item. For the twelve months ended December 31, 2017, adjustment to treat the $186 million expense related to the estimated impact of the U.S. Tax Reform Act, as a discrete item.
                                               
                                               
GAAP to Non-GAAP Reconciliation of First Quarter 2019 guidance:
                                       
GAAP and non-GAAP first quarter revenue guidance:    $460 million  to $490 million                      
GAAP net income per diluted share     $   0.31     $   0.39                        
  Exclude acquired intangible assets amortization         0.06         0.06                        
  Exclude non-cash convertible debt interest         0.02         0.02                        
  Tax effect of non-GAAP adjustments         (0.02 )       (0.02 )                      
  Convertible share adjustment         0.01         0.01                        
Non-GAAP net income per diluted share     $   0.39     $   0.47                        
                                       

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