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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