TERADYNE, INC. REPORT FOR THIRD FISCAL QUARTER OF 2019 | |||||||||||||||||||||||||||||||
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS | |||||||||||||||||||||||||||||||
(In thousands, except per share amounts) | |||||||||||||||||||||||||||||||
Quarter Ended | Nine Months Ended | ||||||||||||||||||||||||||||||
September 29, 2019 |
June 30,
2019 | September 30, 2018 | September 29, 2019 | September 30, 2018 | |||||||||||||||||||||||||||
Net revenues | $ | 582,038 | $ | 564,178 | $ | 566,848 | $ | 1,640,315 | $ | 1,581,244 | |||||||||||||||||||||
Cost of revenues (exclusive of acquired intangible assets amortization shown separately below) (1) | 237,000 | 240,260 | 233,155 | 683,724 | 670,385 | ||||||||||||||||||||||||||
Gross profit | 345,038 | 323,918 | 333,693 | 956,591 | 910,859 | ||||||||||||||||||||||||||
Operating expenses: | |||||||||||||||||||||||||||||||
Selling and administrative (2) | 109,166 | 108,811 | 100,199 | 319,990 | 290,115 | ||||||||||||||||||||||||||
Engineering and development | 77,804 | 81,434 | 77,049 | 236,030 | 226,799 | ||||||||||||||||||||||||||
Acquired intangible assets amortization | 9,647 | 10,083 | 11,142 | 30,363 | 28,633 | ||||||||||||||||||||||||||
Restructuring and other (3) | (6,500) | (10,404) | 1,710 | (11,792) | 3,785 | ||||||||||||||||||||||||||
Operating expenses | 190,117 | 189,924 | 190,100 | 574,591 | 549,332 | ||||||||||||||||||||||||||
Income from operations | 154,921 | 133,994 | 143,593 | 382,000 | 361,527 | ||||||||||||||||||||||||||
Interest and other expense (4) | 3,188 | 2,817 | 2,749 | 5,111 | 4,852 | ||||||||||||||||||||||||||
Income before income taxes | 151,733 | 131,177 | 140,844 | 376,889 | 356,675 | ||||||||||||||||||||||||||
Income tax provision (5) | 15,873 | 33,780 | 20,863 | 34,494 | 48,684 | ||||||||||||||||||||||||||
Net income | $ | 135,860 | $ | 97,397 | $ | 119,981 | $ | 342,395 | $ | 307,991 | |||||||||||||||||||||
Net income per common share: | |||||||||||||||||||||||||||||||
Basic | $ | 0.80 | $ | 0.57 | $ | 0.65 | $ | 2.00 | $ | 1.62 | |||||||||||||||||||||
Diluted | $ | 0.75 | $ | 0.55 | $ | 0.63 | $ | 1.92 | $ | 1.57 | |||||||||||||||||||||
Weighted average common shares - basic | 169,641 | 171,241 | 185,744 | 171,471 | 190,576 | ||||||||||||||||||||||||||
Weighted average common shares - diluted (6) | 180,494 | 178,590 | 190,505 | 178,685 | 196,300 | ||||||||||||||||||||||||||
Cash dividend declared per common share | $ | 0.09 | $ | 0.09 | $ | 0.09 | $ | 0.27 | $ | 0.27 | |||||||||||||||||||||
(1) | Cost of revenues includes: | Quarter Ended | Nine Months Ended | ||||||||||||||||||||||||||||
September 29, 2019 |
June 30,
2019 | September 30, 2018 | September 29, 2019 | September 30, 2018 | |||||||||||||||||||||||||||
Provision for excess and obsolete inventory | $ | 3,049 | $ | 3,402 | $ | 3,347 | $ | 8,848 | $ | 9,522 | |||||||||||||||||||||
Sale of previously written down inventory | (821) | (363) | (1,013) | (1,962) | (5,178) | ||||||||||||||||||||||||||
Inventory step-up | - | 383 | - | 383 | 372 | ||||||||||||||||||||||||||
$ | 2,228 | $ | 3,422 | $ | 2,334 | $ | 7,269 | $ | 4,716 | ||||||||||||||||||||||
(2) | For the quarter and nine months ended September 29, 2019, selling and administrative expenses include an equity charge of $2,109 for the modification of Teradyne's retired CFO's outstanding equity awards to allow continued vesting and maintain the original term in connection with his July 17, 2019 retirement. | ||||||||||||||||||||||||||||||
(3) | Restructuring and other consists of: | Quarter Ended | Nine Months Ended | ||||||||||||||||||||||||||||
September 29, 2019 |
June 30,
2019 | September 30, 2018 | September 29, 2019 | September 30, 2018 | |||||||||||||||||||||||||||
Contingent consideration fair value adjustment | $ | (7,759) | $ | (11,671) | $ | (768) | $ | (16,460) | $ | (9,236) | |||||||||||||||||||||
Employee severance | 808 | 803 | 1,667 | 2,410 | 7,945 | ||||||||||||||||||||||||||
Acquisition related expenses and compensation | 451 | 464 | 811 | 2,258 | 4,129 | ||||||||||||||||||||||||||
Other | - | - | - | - | 947 | ||||||||||||||||||||||||||
$ | (6,500) | $ | (10,404) | $ | 1,710 | $ | (11,792) | $ | 3,785 | ||||||||||||||||||||||
(4) | Interest and other includes: | Quarter Ended | Nine Months Ended | ||||||||||||||||||||||||||||
September 29, 2019 |
June 30,
2019 | September 30, 2018 | September 29, 2019 | September 30, 2018 | |||||||||||||||||||||||||||
Non-cash convertible debt interest | $ | 3,453 | $ | 3,410 | $ | 3,286 | $ | 10,231 | $ | 9,737 | |||||||||||||||||||||
Pension actuarial loss | - | 448 | 267 | 448 | 196 | ||||||||||||||||||||||||||
$ | 3,453 | $ | 3,858 | $ | 3,553 | $ | 10,679 | $ | 9,933 | ||||||||||||||||||||||
(5) | For the quarter ended June 30, 2019, income tax provision includes a $15 million tax provision related to the finalization of our toll tax charge. For the nine months ended September 29, 2019, income tax provision includes a $26 million tax benefit from the release of uncertain tax position reserves due to the IRS completion of its audit of Teradyne's 2015 Federal tax return and a $15 million tax provision related to the finalization of our toll tax charge. | ||||||||||||||||||||||||||||||
(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 September 29, 2019, June 30, 2019 and September 30, 2018, 5.8 million, 4.4 million and 3.0 million shares, respectively, have been included in diluted shares. For the nine months ended September 29, 2019 and September 30, 2018, 4.1 million and 3.4 million shares, respectively, have been included in diluted shares. For the three months ended September 29, 2019, June 30, 2019 and September 30, 2018, diluted shares also included 3.6 million, 1.8 million and 0.1 million shares, respectively, from the convertible note hedge transaction. For the nine months ended September 29, 2019 and September 30, 2018, diluted shares included 1.8 million and 0.6 million shares, respectively, from the convertible note hedge transaction. | ||||||||||||||||||||||||||||||
CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands) | |||||||||||||||||||||||||||||||
September 29, 2019 | December 31, 2018 | ||||||||||||||||||||||||||||||
Assets | |||||||||||||||||||||||||||||||
Cash and cash equivalents | $ | 593,939 | $ | 926,752 | |||||||||||||||||||||||||||
Marketable securities | 342,538 | 190,096 | |||||||||||||||||||||||||||||
Accounts receivable, net | 357,886 | 291,267 | |||||||||||||||||||||||||||||
Inventories, net | 178,203 | 153,541 | |||||||||||||||||||||||||||||
Prepayments and other current assets | 182,013 | 170,826 | |||||||||||||||||||||||||||||
Total current assets | 1,654,579 | 1,732,482 | |||||||||||||||||||||||||||||
Property, plant and equipment, net | 307,567 | 279,821 | |||||||||||||||||||||||||||||
Operating lease right-of-use assets, net | 57,595 | - | |||||||||||||||||||||||||||||
Marketable securities | 103,558 | 87,731 | |||||||||||||||||||||||||||||
Deferred tax assets | 69,120 | 70,848 | |||||||||||||||||||||||||||||
Other assets | 22,724 | 11,509 | |||||||||||||||||||||||||||||
Retirement plans assets | 16,358 | 16,883 | |||||||||||||||||||||||||||||
Acquired intangible assets, net | 96,573 | 125,482 | |||||||||||||||||||||||||||||
Goodwill | 370,717 | 381,850 | |||||||||||||||||||||||||||||
Total assets | $ | 2,698,791 | $ | 2,706,606 | |||||||||||||||||||||||||||
Liabilities | |||||||||||||||||||||||||||||||
Accounts payable | $ | 117,936 | $ | 100,688 | |||||||||||||||||||||||||||
Accrued employees' compensation and withholdings | 127,912 | 148,566 | |||||||||||||||||||||||||||||
Deferred revenue and customer advances | 95,936 | 77,711 | |||||||||||||||||||||||||||||
Other accrued liabilities | 93,736 | 78,272 | |||||||||||||||||||||||||||||
Operating lease liabilities | 18,386 | - | |||||||||||||||||||||||||||||
Contingent consideration | 6,297 | 34,865 | |||||||||||||||||||||||||||||
Income taxes payable | 33,508 | 36,185 | |||||||||||||||||||||||||||||
Total current liabilities | 493,711 | 476,287 | |||||||||||||||||||||||||||||
Retirement plans liabilities | 121,340 | 117,456 | |||||||||||||||||||||||||||||
Long-term deferred revenue and customer advances | 42,592 | 32,750 | |||||||||||||||||||||||||||||
Deferred tax liabilities | 15,390 | 20,662 | |||||||||||||||||||||||||||||
Long-term other accrued liabilities | 9,803 | 37,547 | |||||||||||||||||||||||||||||
Long-term contingent consideration | 11,783 | 35,678 | |||||||||||||||||||||||||||||
Long-term operating lease liabilities | 46,813 | - | |||||||||||||||||||||||||||||
Long-term income taxes payable | 83,782 | 83,891 | |||||||||||||||||||||||||||||
Debt | 390,942 | 379,981 | |||||||||||||||||||||||||||||
Total liabilities | 1,216,156 | 1,184,252 | |||||||||||||||||||||||||||||
Shareholders' equity | 1,482,635 | 1,522,354 | |||||||||||||||||||||||||||||
Total liabilities and shareholders' equity | $ | 2,698,791 | $ | 2,706,606 | |||||||||||||||||||||||||||
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) | |||||||||||||||||||||||||||||||
Quarter Ended | Nine Months Ended | ||||||||||||||||||||||||||||||
September 29, 2019 | September 30, 2018 | September 29, 2019 | September 30, 2018 | ||||||||||||||||||||||||||||
Cash flows from operating activities: | |||||||||||||||||||||||||||||||
Net income | $ | 135,860 | $ | 119,981 | $ | 342,395 | $ | 307,991 | |||||||||||||||||||||||
Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||||||||||||||||||||||
Depreciation | 17,626 | 16,774 | 51,508 | 49,930 | |||||||||||||||||||||||||||
Amortization | 11,873 | 12,732 | 36,849 | 32,909 | |||||||||||||||||||||||||||
Deferred taxes | (3,492) | 7,130 | (2,977) | 24,442 | |||||||||||||||||||||||||||
Stock-based compensation | 10,713 | 7,702 | 28,822 | 25,327 | |||||||||||||||||||||||||||
Provision for excess and obsolete inventory | 3,049 | 3,347 | 8,848 | 9,522 | |||||||||||||||||||||||||||
Contingent consideration fair value adjustment | (7,759) | (768) | (16,460) | (9,236) | |||||||||||||||||||||||||||
Retirement plans actuarial loss | - | 267 | 448 | 196 | |||||||||||||||||||||||||||
Gains on marketable securities | (417) | (1,182) | (4,158) | (420) | |||||||||||||||||||||||||||
Other | 181 | 530 | 610 | 936 | |||||||||||||||||||||||||||
Changes in operating assets and liabilities, net of businesses acquired: | |||||||||||||||||||||||||||||||
Accounts receivable | 12,689 | 101,596 | (66,789) | (77,807) | |||||||||||||||||||||||||||
Inventories | (11,696) | (12,834) | (14,143) | (34,117) | |||||||||||||||||||||||||||
Prepayments and other assets | 949 | (30,360) | (16,118) | (28,719) | |||||||||||||||||||||||||||
Accounts payable and other liabilities | 35,231 | 24,279 | 20,807 | 16,124 | |||||||||||||||||||||||||||
Deferred revenue and customer advances | 11,953 | (695) | 27,779 | 9,823 | |||||||||||||||||||||||||||
Retirement plans contributions | (1,361) | (1,071) | (3,775) | (3,244) | |||||||||||||||||||||||||||
Income taxes | (16,251) | (6,844) | (31,224) | (33,152) | |||||||||||||||||||||||||||
Net cash provided by operating activities | 199,148 | 240,584 | 362,422 | 290,505 | |||||||||||||||||||||||||||
Cash flows from investing activities: | |||||||||||||||||||||||||||||||
Purchases of property, plant and equipment | (37,092) | (25,606) | (96,048) | (88,269) | |||||||||||||||||||||||||||
Proceeds from government subsidy for property, plant and equipment | - | 7,920 | - | 7,920 | |||||||||||||||||||||||||||
Purchases of marketable securities | (121,358) | (162,450) | (605,539) | (809,521) | |||||||||||||||||||||||||||
Proceeds from sales of marketable securities | 17,820 | 14,111 | 60,274 | 843,164 | |||||||||||||||||||||||||||
Proceeds from maturities of marketable securities | 160,279 | 464,238 | 393,472 | 934,100 | |||||||||||||||||||||||||||
Proceeds from life insurance | 2,639 | 1,126 | 2,912 | 1,126 | |||||||||||||||||||||||||||
Purchase of investments and acquisition of businesses, net of cash acquired | - | 1,158 | (21,970) | (169,474) | |||||||||||||||||||||||||||
Net cash provided by (used for) investing activities | 22,288 | 300,497 | (266,899) | 719,046 | |||||||||||||||||||||||||||
Cash flows from financing activities: | |||||||||||||||||||||||||||||||
Issuance of common stock under stock purchase and stock option plans | 14,191 | 10,278 | 29,280 | 20,959 | |||||||||||||||||||||||||||
Repurchase of common stock | (121,560) | (201,468) | (368,782) | (562,263) | |||||||||||||||||||||||||||
Dividend payments | (15,250) | (16,638) | (46,269) | (51,320) | |||||||||||||||||||||||||||
Payments related to net settlement of employee stock compensation awards | (104) | (90) | (14,550) | (19,841) | |||||||||||||||||||||||||||
Payments of contingent consideration | - | - | (27,615) | (13,571) | |||||||||||||||||||||||||||
Net cash used for financing activities | (122,723) | (207,918) | (427,936) | (626,036) | |||||||||||||||||||||||||||
Effects of exchange rate changes on cash and cash equivalents
| 119 | 472 | (400) | 661 | |||||||||||||||||||||||||||
Increase (decrease) in cash and cash equivalents | 98,832 | 333,635 | (332,813) | 384,176 | |||||||||||||||||||||||||||
Cash and cash equivalents at beginning of period | 495,107 | 480,384 | 926,752 | 429,843 | |||||||||||||||||||||||||||
Cash and cash equivalents at end of period | $ | 593,939 | $ | 814,019 | $ | 593,939 | $ | 814,019 | |||||||||||||||||||||||