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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