What drove Teradyne's improved profitability in 1993?

Profitability improved mainly because sales grew while operating expenses stayed flat. Cost of sales fell to 57% of net sales from 59% in 1992, reflecting cost-reduction programs, and engineering and selling/administrative expenses were held essentially constant. Lower costs in circuit-board test operations after 1992 consolidation actions also helped offset weaker demand in that business.

How strong is Teradyne's order and backlog position heading into 1994?

Strong. Incoming orders increased 19% to $625.0 million in 1993, and backlog grew to about $288.0 million at year-end, up from roughly $217.8 million in 1992 (electronic test $238.9 million vs. $183.0 million; backplane $49.1 million vs. $34.8 million). Most of the backplane backlog and about 75% of the electronic test backlog are expected to ship in 1994, though the company notes some orders may be cancelled.

Does Teradyne have material debt or liquidity concerns?

No. Teradyne retired its 9.25% convertible subordinated debentures in November 1993 using $10.8 million of cash. Its remaining debt is modest, about $9.7 million total, and it had no borrowings outstanding under its $80.0 million revolving credit agreement at year-end. Cash and equivalents of $143.6 million are expected to be sufficient for working capital and capital expenditure needs.

What are the main risks for investors?

Key risks include customer concentration (Motorola was over 10% of sales), exposure to cyclical semiconductor and telecom capital spending, intense competition from larger, better-resourced rivals, and international risks, since 41% of sales are overseas. Foreign currency exposure is partly hedged with $51.9 million of forward contracts. The effective tax rate is expected to rise as carryforwards are used, and the company may face backlog cancellations.

Does Teradyne pay dividends, and what is its capital return policy?

Teradyne has never paid cash dividends. Management's stated policy is to use earnings to finance expansion and growth, and it currently expects to retain all earnings. The company did repurchase $2.3 million of stock on the open market in 1993, but its primary use of capital has been reinvestment in the business and debt reduction.

TER 10-K FY1993 Annual Report — Revenue, Net Income, EPS

01—Abstract

Summary

Summary of the 10-K filed March 31, 1994. Cited figures are marked; the original filing is the authoritative source.

Teradyne, Inc. (TER) reported a strong 1993 recovery in its 10-K for fiscal year ended December 31, 1993.

Net sales rose 5% to $554.7 million^a from $529.6 million, and income before extraordinary item more than doubled to $35.9 million ($1.00 per share) from $22.5 million ($0.67 per share in 1992). Gross margin improved as cost of sales fell to 57% of sales from 59%, driven by a 13% increase in semiconductor test system sales and cost-reduction programs, partly offset by an 18% decline in telecommunications systems and a 7% decline in circuit-board test systems. Incoming orders grew 19% to $625.0 million, and backlog reached roughly $288.0 million (electronic test $238.9 million plus backplane $49.1 million), supporting near-term revenue visibility.

The balance sheet strengthened considerably. Cash and equivalents rose to $143.6 million^b from $67.4 million, operating cash flow was $91.8 million, and the company retired its 9.25% convertible subordinated debentures, eliminating most long-term debt (long-term obligations fell to $9.1 million from $23.6 million). Shareholders' equity grew to $420.1 million, and the company had an undrawn $80.0 million revolving credit line.

Management stated it expects to retain all earnings and has never paid cash dividends. Customer concentration is notable: Motorola accounted for $69.3 million^c, or more than 10% of 1993 sales, and overseas customers represented 41% of sales.

Key risks for investors include the cyclical nature of semiconductor capital equipment spending, the company's large backlog cancellation risk, intense competition from larger rivals, a tax rate of 30% that is expected to rise as carryforwards are used up, and foreign currency exposure, which the company partially hedges with $51.9 million^d of foreign exchange contracts. The company also disclosed that its 1993 results benefited from lower circuit-board test operating costs following 1992 consolidation actions.

02—Key points

Key Highlights

Net sales increased 5% to $554.7 million in 1993, led by a 13% rise in semiconductor test system sales
Income before extraordinary item nearly tripled in percentage terms to $35.9 million ($1.00 per share), versus $22.5 million ($0.67 per share) in 1992
Incoming orders rose 19% to $625.0 million; year-end backlog grew to approximately $288.0 million, with about 75% of electronic test backlog expected to ship in 1994
Operating cash flow of $91.8 million, more than double the $40.7 million generated in 1992
Cash and equivalents increased to $143.6 million, and the company retired its $10.4 million of 9.25% convertible debentures, leaving long-term obligations at $9.1 million
Customer concentration: Motorola accounted for $69.3 million of 1993 sales (above 10%); overseas customers were 41% of sales
Company has never paid cash dividends and intends to retain earnings for growth; effective tax rate rose to 30% as NOL carryforwards were exhausted

03—Questions

Frequently Asked Questions

What drove Teradyne's improved profitability in 1993?
Profitability improved mainly because sales grew while operating expenses stayed flat. Cost of sales fell to 57% of net sales from 59% in 1992, reflecting cost-reduction programs, and engineering and selling/administrative expenses were held essentially constant. Lower costs in circuit-board test operations after 1992 consolidation actions also helped offset weaker demand in that business.
How strong is Teradyne's order and backlog position heading into 1994?
Strong. Incoming orders increased 19% to $625.0 million in 1993, and backlog grew to about $288.0 million at year-end, up from roughly $217.8 million in 1992 (electronic test $238.9 million vs. $183.0 million; backplane $49.1 million vs. $34.8 million). Most of the backplane backlog and about 75% of the electronic test backlog are expected to ship in 1994, though the company notes some orders may be cancelled.
Does Teradyne have material debt or liquidity concerns?
No. Teradyne retired its 9.25% convertible subordinated debentures in November 1993 using $10.8 million of cash. Its remaining debt is modest, about $9.7 million total, and it had no borrowings outstanding under its $80.0 million revolving credit agreement at year-end. Cash and equivalents of $143.6 million are expected to be sufficient for working capital and capital expenditure needs.
What are the main risks for investors?
Key risks include customer concentration (Motorola was over 10% of sales), exposure to cyclical semiconductor and telecom capital spending, intense competition from larger, better-resourced rivals, and international risks, since 41% of sales are overseas. Foreign currency exposure is partly hedged with $51.9 million of forward contracts. The effective tax rate is expected to rise as carryforwards are used, and the company may face backlog cancellations.
Does Teradyne pay dividends, and what is its capital return policy?
Teradyne has never paid cash dividends. Management's stated policy is to use earnings to finance expansion and growth, and it currently expects to retain all earnings. The company did repurchase $2.3 million of stock on the open market in 1993, but its primary use of capital has been reinvestment in the business and debt reduction.

04—Continue

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