Teradyne Reports Fourth Quarter and Fiscal Year 2014 Results

(1) The December 31, 2013 condensed consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America.

 
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands)                  
               
Quarter Ended Twelve Months Ended
December 31, 2014 December 31, 2013 December 31, 2014 December 31, 2013
Cash flows from operating activities:
Net (loss) income $ (103,811 ) $ 22,343 $ 81,272 $ 164,947
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation 20,558 15,444 73,390 57,317
Amortization 17,032 23,875 79,154 93,370
Stock-based compensation 8,434 9,385 40,307 36,612
Goodwill impairment 98,897 - 98,897 -
Provision for excess and obsolete inventory 688 6,976 22,193 16,592
Deferred taxes (3,435 ) 14,927 (12,182 ) (4,284 )
Gain from sale of equity investment - (34,212 ) - (34,212 )
Contingent consideration fair value adjustment - - (630 ) -
Tax benefit related to stock options and restricted stock units

4,334

(5,111

)

(597

)

(7,419

)
Retirement plans actuarial losses (gains) 46,564 (8,981 ) 46,564 (10,340 )
Impairment loss on property, plant and equipment - - - 1,074
Other 1,395 (1,055 ) 3,505 33
Changes in operating assets and liabilities:
Accounts receivable 171,730 52,307 8,060 (3,656 )
Inventories 12,905 (13,024 ) 51,172 21,170
Prepayments and other assets (6,247 ) (23,260 ) 41,537 (49,572 )
Accounts payable and accrued expenses (65,433 ) 15,222 (36,324 ) 15,205
Deferred revenue and customer advances 7,767 (19,730 ) 22,033 (28,979 )
Retirement plans contributions (30,635 ) (1,971 ) (33,916 ) (5,540 )
Accrued income taxes   (1,308 )   (12,102 )   8,900     1,648  
Net cash provided by operating activities

179,435

41,033

493,335

263,966

 
Cash flows from investing activities:
Purchases of property, plant and equipment (23,965 ) (23,806 ) (170,317 ) (106,731 )
Purchases of marketable securities (734,687 ) (511,942 ) (1,578,743 ) (1,170,506 )
Acquisition of businesses, net of cash acquired (19,419 ) (14,999 ) (19,419 ) (14,999 )
Proceeds from the sale of an equity investment - 34,212 - 34,212
Proceeds from maturities of marketable securities 74,793 114,598 570,358 516,499
Proceeds from sales of marketable securities 623,669 125,523 859,729 458,491
(Purchases of) proceeds from life insurance   (207 )   (307 )   4,184     (307 )
Net cash used for investing activities (79,816 ) (276,721 ) (334,208 ) (283,341 )
 
Cash flows from financing activities:
Issuance of common stock under stock option and stock purchase plans 261 818 21,291 17,596
Tax benefit related to stock options and restricted stock units

(4,334

)

5,111

597

7,419

Dividend payments (12,994 ) - (37,422 ) -
Payments of long-term debt - (1,471 ) (190,975 ) (2,534 )
Payments of contingent consideration   -     -     -     (388 )
Net cash (used for) provided by financing activities

(17,067

)

4,458

(206,509

)

22,093

 
Increase (decrease) in cash and cash equivalents 82,552 (231,230 ) (47,382 ) 2,718
Cash and cash equivalents at beginning of period   211,704     572,868     341,638     338,920  
Cash and cash equivalents at end of period $ 294,256   $ 341,638   $ 294,256   $ 341,638  
 
GAAP to Non-GAAP Earnings Reconciliation                        
     
(In millions, except per share amounts)
Quarter Ended

December 31,
2014

 

% of Net
Revenues

September 28,
2014

 

% of Net
Revenues

December 31,
2013

 

% of Net
Revenues

 
Net revenues $ 323.2 $ 478.0 $ 285.3
 
Gross profit - GAAP $ 160.2 49.6 % $ 261.1 54.6 % $ 159.9 56.0 %
Pension mark-to-market adjustments (1)   12.7   3.9 %   -   -     (2.7 ) -0.9 %
Gross profit - non-GAAP $ 172.9 53.5 % $ 261.1 54.6 % $ 157.2 55.1 %
 
(Loss) Income from operations - GAAP $ (126.2 ) -39.0 % $ 98.2 20.5 % $ 6.8 2.4 %
Acquired intangible asset amortization 16.0 5.0 % 18.3 3.8 % 18.3 6.4 %
Goodwill impairment (2) 98.9 30.6 % - - - -
Restructuring and other (3) 1.2 0.4 % (0.4 ) -0.1 % 0.6 0.2 %
Pension mark-to-market adjustments (1)   46.6   14.4 %   -   -     (9.0 ) -3.2 %
Income from operations - non-GAAP $ 36.5   11.3 % $ 116.1   24.3 % $ 16.7   5.9 %
 

Net Income
per Common Share

Net Income
per Common Share

Net Income
per Common Share

December 31,
2014

 

% of Net
Revenues

  Basic   Diluted

September 28,
2014

 

% of Net
Revenues

  Basic   Diluted

December 31,
2013

 

% of Net
Revenues

  Basic   Diluted
Net (loss) income - GAAP $ (103.8 ) -32.1 % $ (0.48 ) $

(0.48

) $ 82.9 17.3 % $ 0.40 $ 0.38 $ 22.3 7.8 % $ 0.12 $ 0.09
Acquired intangible asset amortization 16.0 5.0 % 0.07 0.07 18.3 3.8 % 0.09 0.08 18.3 6.4 % 0.10 0.08
Goodwill impairment (2) 98.9 30.6 % 0.46 0.45 - - - - - - - -
Restructuring and other (3) 1.2 0.4 % 0.01 0.01 (0.4 ) -0.1 % (0.00 ) (0.00 ) 0.6 0.2 % 0.00 0.00
Pension mark-to-market adjustments (1) 46.6 14.4 % 0.22 0.21 - - - - (9.0 ) -3.2 % (0.05 ) (0.04 )
Exclude discrete tax adjustments (4) 1.5 0.5 % 0.01 0.01 (1.6 ) -0.3 % (0.01 ) (0.01 ) - - - -
Tax effect of non-GAAP adjustments (29.3 ) -9.1 % (0.14 ) (0.13 ) (3.4 ) -0.7 % (0.02 ) (0.02 ) - - - -
Income tax adjustment (5) - - - - - - - - 11.1 3.9 % 0.06 0.05
Interest and other (6) - - - - - - - - (30.0 ) -10.5 % (0.16 ) (0.13 )
Convertible share adjustment   -   -     -     -     -   -     -     -     -   -     -     0.02  
Net income - non-GAAP $ 31.1   9.6 % $ 0.14   $ 0.14   $ 95.8   20.0 % $ 0.46   $ 0.44   $ 13.3   4.7 % $ 0.07   $ 0.07  
 
GAAP and non-GAAP weighted average common shares - basic 216.5 207.4 191.5
GAAP weighted average common shares - diluted 216.5 218.3 236.9
Include GAAP dilutive shares 2.3 - -
Exclude dilutive shares from convertible note   -     -     (42.4 )
Non-GAAP weighted average common shares - diluted   218.8     218.3     194.5  
 
(1) Actuarial losses (gains) recognized under GAAP in accordance with Teradyne's mark-to-market pension accounting.
 
(2) Goodwill impairment related to Teradyne's Wireless Test business segment.
 
(3) Restructuring and other consists of:
Quarter Ended

December 31,
2014

September 28,
2014

December 31,
2013

Employee severance $ 0.8 $ 0.2 $ 0.6
Acquisition costs 0.4 - -
Contingent consideration fair value adjustment   -     (0.6 )   -  
$ 1.2   $ (0.4 ) $ 0.6  
 
 
(4) For the quarters ended December 31, 2014 and September 28, 2014, adjustment to exclude discrete income tax items.
 
(5) For the quarter ended December 31, 2013, adjustment to record income taxes on a cash basis. Cash taxes reflect the usage of prior year favorable tax attributes (e.g. NOLs and credits) against current year tax liability.
 
(6) For the quarter ended December 31, 2013, Interest and other included non-cash convertible debt interest expense and a gain from the sale of an equity investment.
 
 
Years Ended

December 31,
2014

% of Net
Revenues

December 31,
2013

% of Net
Revenues

 
Net Revenues $ 1,647.8 $ 1,427.9
 
Gross profit - GAAP $ 878.8 53.3 % $ 808.8 56.6 %
Pension mark-to-market adjustments (1)   12.7   0.8 %   (3.1 ) -0.2 %
Gross profit - non-GAAP $ 891.5 54.1 % $ 805.7 56.4 %
 
Income from operations - GAAP $ 96.4 5.9 % $ 190.7 13.4 %
Acquired intangible asset amortization 70.8 4.3 % 72.4 5.1 %
Goodwill impairment (2) 98.9 6.0 % - -
Equity modification charge (3) 6.6 0.4 % - -
Restructuring and other (4) 1.4 0.1 % 2.1 0.1 %
Pension mark-to-market adjustments (1)   46.6   2.8 %   (10.3 ) -0.7 %
Income from operations - non-GAAP $ 320.7   19.5 % $ 254.9   17.9 %
 

Net Income
per Common Share

Net Income
per Common Share

December 31,
2014

% of Net
Revenues

Basic   Diluted

December 31,
2013

% of Net
Revenues

Basic Diluted
Net income - GAAP $ 81.3 4.9 % $ 0.40 $ 0.37 $ 164.9 11.5 % $ 0.86 $ 0.70
Acquired intangible asset amortization 70.8 4.3 % 0.35 0.32 72.4 5.1 % 0.38 0.31
Goodwill impairment (2) 98.9 6.0 % 0.49 0.44 - - - -
Pension mark-to-market adjustments (1) 46.6 2.8 % 0.23 0.21 (10.3 ) -0.7 % (0.05 ) (0.04 )
Equity modification charge (3) 6.6 0.4 % 0.03 0.03 - - - -
Restructuring and other (4) 1.4 0.1 % 0.01 0.01 2.1 0.1 % 0.01 0.01
Interest and other (5) 4.3 0.3 % 0.02 0.02 (18.4 ) -1.3 % (0.10 ) (0.08 )
Exclude discrete tax adjustments (6) (3.0 ) -0.2 % (0.01 ) (0.01 ) - - - -
Tax effect of non-GAAP adjustments (41.3 ) -2.5 % (0.20 ) (0.19 ) - - - -
Income tax adjustment (7) - - - - 4.8 0.3 % 0.03 0.02
Convertible share adjustment (8)   -   -     -     0.02     -   -     -     0.14  
Net income - non-GAAP $ 265.6   16.1 % $ 1.31   $ 1.23   $ 215.5   15.1 % $ 1.13   $ 1.06  
 
GAAP and non-GAAP weighted average common shares - basic 202.9 190.8
GAAP weighted average common shares - diluted 222.6 235.6
Exclude dilutive shares from convertible note   (5.0 )   (23.3 )
Non-GAAP weighted average common shares - diluted (8)   217.6     212.3  
 
 
(1) Actuarial losses (gains) recognized under GAAP in accordance with Teradyne's mark-to-market pension accounting.
 
(2) Goodwill impairment related to Teradyne's Wireless Test business segment.
 
(3) For the year ended December 31, 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.
 
(4) Restructuring and other consists of:
Years Ended

December 31,
2014

December 31,
2013

Employee severance $ 1.6 $ 2.5
Acquisition costs 0.4 -
Contingent consideration fair value adjustment (0.6 ) -
Facility related   -     (0.4 )
$ 1.4   $ 2.1  
 
(5) For the years ended December 31, 2014 and 2013, Interest and other included non-cash convertible debt interest expense. For the year ended December 31, 2013, Interest and other included a gain from the sale of an equity investment.
 
(6) For the year ended December 31, 2014, adjustment to exclude discrete income tax items.
 
(7) For the year ended December 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.
 
(8) For the years ended December 31, 2014 and 2013, 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 5.0 million and 23.3 million shares, respectively, have been excluded from non-GAAP diluted shares. For the years ended December 31, 2014 and 2013, net interest expense of approximately $2.0 million and $9.4 million, respectively, have been added back to non-GAAP net income for the non-GAAP diluted earnings per share calculation.
 
GAAP to Non-GAAP Reconciliation of First Quarter 2015 guidance:        
 
GAAP and non-GAAP first quarter revenue guidance: $320 million to $345 million
GAAP net income per diluted share $ 0.07 $ 0.11
Exclude acquired intangible asset amortization 0.06 0.06
Exclude gain from the sale of an equity investment (0.02 ) (0.02 )
Tax effect of non-GAAP adjustments   (0.01 )   (0.01 )
Non-GAAP net income per diluted share $ 0.09 $ 0.14
 
 

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