TERADYNE INC (Form: 10-Q, Received: 08/13/2004 15:37:35)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended July 4, 2004

¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File No. 1-6462

TERADYNE, INC.

(Exact name of registrant as specified in its charter)


Massachusetts		04-2272148
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)

321 Harrison Avenue, Boston, Massachusetts		02118
(Address of Principal Executive Offices)		(Zip Code)

617-482-2700

(Registrant’s Telephone Number, Including Area Code)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to the filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes x No ¨

The number of shares outstanding of the registrant’s only class of Common Stock as of July 30, 2004 was 194,124,642 shares.

TERADYNE, INC.

INDEX


		Page No.
	PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements:

	Condensed Consolidated Balance Sheets as of July 4, 2004 and December 31, 2003	3

	Condensed Consolidated Statements of Operations for the Three and Six Months Ended July 4, 2004 and June 29, 2003	4

	Condensed Consolidated Statements of Cash Flows for the Six Months Ended July 4, 2004 and June 29, 2003	5

	Notes to Condensed Consolidated Financial Statements	6

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	20

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	44

Item 4.	Controls and Procedures	44

	PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	45

Item 4.	Submission of Matters to a Vote of Security Holder s	46

Item 6.	Exhibits and Reports on Form 8-K	46

TERADYNE, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS


	July 4, 2004			December 31, 2003
	(in thousands, except per share data)
ASSETS
Current assets:
Cash and cash equivalents	$	224,335		$	228,444
Marketable securities		104,849			60,974
Accounts receivable, net of allowance for doubtful accounts of $5,691 and $5,986 on July 4, 2004 and December 31, 2003, respectively		295,453			229,532
Inventories:
Parts		134,218			109,538
Assemblies in process		149,692			105,396

		283,910			214,934
Prepayments and other current assets		34,603			35,393

Total current assets		943,150			769,277
Property, plant, and equipment, at cost		1,313,382			1,305,254
Less: accumulated depreciation		(774,913	)		(760,885	)

Net property, plant, and equipment		538,469			544,369
Marketable securities		320,203			296,618
Goodwill		116,176			118,203
Other assets		49,834			56,895

Total assets	$	1,967,832		$	1,785,362

LIABILITIES
Current liabilities:
Notes payable—banks	$	7,217		$	7,272
Current portion of long-term debt		308			310
Accounts payable		130,942			74,097
Accrued employees’ compensation and withholdings		87,575			91,244
Deferred revenue and customer advances		34,698			25,391
Other accrued liabilities		66,553			75,125
Income taxes payable		13,179			7,376

Total current liabilities		340,472			280,815
Pension liability		82,573			93,878
Long-term other accrued liabilities		47,977			53,441
Convertible senior notes		400,000			400,000
Other long-term debt		7,486			7,658

Total liabilities		878,508			835,792

Commitments and contingencies (Note J)

SHAREHOLDERS’ EQUITY
Common stock, $0.125 par value, 1,000,000 shares authorized, 194,095 and 218,628 shares issued and 194,095 and 191,973 shares outstanding at July 4, 2004 and December 31, 2003, respectively		27,598			27,329
Additional paid-in capital		763,670			1,294,661
Accumulated other comprehensive loss		(59,167	)		(51,846	)
Retained earnings		357,223			236,483
Treasury shares, at cost, 26,655 shares at December 31, 2003		—			(557,057	)

Total shareholders’ equity		1,089,324			949,570

Total liabilities and shareholders’ equity	$	1,967,832		$	1,785,362

The accompanying notes, together with the Notes to Consolidated Financial Statements included in Teradyne’s Annual Report on Form 10-K for the year ended December 31, 2003 are an integral part of the condensed consolidated financial statements.

TERADYNE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS


	For the Three Months Ended						For the Six Months Ended
	July 4, 2004			June 29, 2003			July 4, 2004			June 29, 2003
	(in thousands, except per share amounts)
Net revenues:
Products	$	466,802		$	276,394		$	840,769		$	557,659
Services		59,661			55,135			116,297			108,446

Net revenues		526,463			331,529			957,066			666,105

Cost of revenues:
Cost of products		259,500			203,781			474,902			414,708
Cost of services		40,335			39,140			79,561			78,683

Gross profit		226,628			88,608			402,603			172,714

Operating expenses:
Engineering and development		66,914			63,804			131,608			132,389
Selling and administrative		69,991			61,512			136,233			128,914
Restructuring and other charges		152			13,378			282			32,864
Gain on sale of business		(865	)		—			(865	)		—

Operating expenses		136,192			138,694			267,258			294,167

Income (loss) from operations		90,436			(50,086	)		135,345			(121,453	)
Interest income		3,470			3,299			7,061			7,478
Interest expense		(4,895	)		(5,402	)		(9,527	)		(10,813	)
Other income and expense, net		426			1,400			1,277			(1,299	)

Income (loss) before income taxes		89,437			(50,789	)		134,156			(126,087	)
Income tax expense		8,944			1,700			13,416			2,900

Net income (loss)	$	80,493		$	(52,489	)	$	120,740		$	(128,987	)

Net income (loss) per common share—basic	$	0.41		$	(0.28	)	$	0.62		$	(0.70	)

Shares used in calculations of net income (loss) per common share—basic		194,015			185,465			193,934			185,177

Net income (loss) per common share—diluted	$	0.39		$	(0.28	)	$	0.60		$	(0.70	)

Shares used in calculations of net income (loss) per common share—diluted		213,486			185,465			214,383			185,177

TERADYNE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS


	For the Six Months Ended
	July 4, 2004			June 29, 2003
	(in thousands)
Cash flows from operating activities:
Net income (loss)	$	120,740		$	(128,987	)
Adjustments to reconcile net income (loss) to net cash provided by (used for) operating activities:
Depreciation		61,687			76,069
Amortization		2,922			3,808
Impairment of long-lived assets		277			13,988
(Gain) loss on sale of product lines		(865	)		8,048
Provision for inventory		6,563			5,592
Provision for doubtful accounts		94			842
Other non-cash items, net		377			4,578
Changes in operating assets and liabilities, net of product lines sold:
Accounts receivable		(66,015	)		(49,143	)
Inventories		(53,780	)		35,387
Other assets		3,648			(18,553	)
Accounts payable, deferred revenue and accrued expenses		37,517			24,494
Accrued income taxes		5,803			(2,487	)

Net cash provided by (used for) operating activities		118,968			(26,364	)

Cash flows from investing activities:
Additions to property, plant and equipment		(24,778	)		(13,753	)
Increase in equipment manufactured by Teradyne		(53,688	)		(23,318	)
Proceeds from asset disposal		—			5,964
Proceeds from sale of product lines		865			2,114
Purchases of available-for-sale marketable securities		(135,907	)		(106,619	)
Maturities of available-for-sale marketable securities		62,301			75,989
Maturities of held-to-maturity marketable securities		—			29,905

Net cash used for investing activities		(151,207	)		(29,718	)

Cash flows from financing activities:
Payments of long term debt and notes payable		(229	)		(590	)
Issuance of common stock under employee stock option and stock purchase plans		28,359			43,055

Net cash flows provided by financing activities		28,130			42,465

Decrease in cash and cash equivalents		(4,109	)		(13,617	)
Cash and cash equivalents at beginning of period		228,444			251,521

Cash and cash equivalents at end of period	$	224,335		$	237,904

TERADYNE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

A. The Company

Teradyne, Inc. is a leading supplier of automatic test equipment and a leading provider of high performance interconnection systems.

Teradyne’s automatic test equipment products include systems that:

•

test semiconductors (“Semiconductor Test Systems”);

•

test and inspect circuit-boards (“Assembly Test Systems”);

•

diagnose and test automotive electronics systems (“Diagnostic Solutions”); and

•

test voice and broadband access networks (“Broadband Test Systems”).

Teradyne’s interconnection systems products and services (“Connection Systems”) include:

•

high bandwidth backplane assemblies and associated connectors used in electronic systems; and

•

high performance circuits and connectors.

Broadband Test Systems and Diagnostic Solutions have been combined into “Other Test Systems” for purposes of disclosing Teradyne’s reportable segments.

Statements in this Quarterly Report on Form 10-Q which are not historical facts, so called “forward looking statements,” are made pursuant to the safe harbor provisions of Section 21E of the Securities Exchange Act of 1934. Investors are cautioned that all forward looking statements involve risks and uncertainties, including those detailed in Teradyne’s filings with the Securities and Exchange Commission. See also “Item 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations—Certain Factors That May Affect Future Results.”

B. Accounting Policies

Basis of Presentation

The condensed consolidated interim financial statements include the accounts of Teradyne and its subsidiaries. All significant intercompany balances and transactions have been eliminated. These financial statements reflect all normal recurring adjustments which are, in the opinion of management, necessary for the fair presentation of such interim financial statements. Certain prior years’ amounts were reclassified to conform to the current year presentation. The year-end condensed consolidated balance sheet data were derived from audited financial statements, but do not include all disclosures required by generally accepted accounting principles.

The accompanying financial information should be read in conjunction with the consolidated financial statements and notes thereto contained in Teradyne’s Annual Report on Form 10-K, filed with the United States Securities and Exchange Commission on March 15, 2004 for the year ended December 31, 2003.

Preparation of Financial Statements

The preparation of consolidated financial statements requires management to make estimates and judgments that affect the amounts reported in the financial statements. Actual results may differ significantly from these estimates.

TERADYNE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

B. Accounting Policies—(Continued)

Product Warranty

Teradyne generally provides a one year warranty on its products commencing upon installation or shipment. A provision is recorded upon revenue recognition to cost of revenues for estimated warranty expense based on historical experience. Related costs are charged to the warranty accrual as incurred. The balance below is included in other accrued liabilities (in thousands).


	For the Six Months Ended
	July 4, 2004			June 29, 2003
Balance at beginning of period	$	11,436		$	9,087
Accruals for warranties issued during the period		12,083			8,416
Accruals related to pre-existing warranties (including changes in estimates)		(657	)		971
Settlements made during the period		(7,510	)		(7,833	)

Balance at end of period	$	15,352		$	10,641

When Teradyne receives revenue for extended warranties beyond one year, it is deferred and recognized on a straight-line basis over the contract period. Related costs are expensed as incurred. The balance below is included in other accrued liabilities (in thousands).


	For the Six Months Ended
	July 4, 2004			June 29, 2003
Balance at beginning of period	$	1,650		$	2,134
Deferral of new extended warranty revenue		1,872			563
Recognition of extended warranty deferred revenue		(558	)		(1,205	)

Balance at end of period	$	2,964		$	1,492

Employee Stock Option Plans and Employee Stock Purchase Plan

Teradyne accounts for its stock option plans and stock purchase plan under the recognition and measurement principles of Accounting Principles Board Opinion No. 25 “Accounting For Stock Issued to Employees” (“APB 25”) and related Interpretations. Teradyne’s employee stock purchase plan is a non-compensatory plan. Teradyne’s stock option plans are accounted for using the intrinsic value method under the provisions of APB 25. Teradyne has not recorded expense for employee or director stock options or employee stock purchase plans. Proceeds from the exercise of stock options and the issuance of the employee stock purchase plan under Teradyne’s stock plans are credited to common stock at par value and the excess is credited to additional paid-in capital.

TERADYNE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

B. Accounting Policies—(Continued)

Teradyne makes pro forma footnote disclosures as though the fair value method was followed under Statement of Financial Accounting Standard (“SFAS”) No. 123, “Accounting For Stock-Based Compensation” (“SFAS 123”), as amended by SFAS No. 148, “Accounting for Stock-Based Compensation – Transition and Disclosure.” Had compensation for Teradyne’s stock based compensation plans been accounted for at fair value, the amounts reported in the Statement of Operations for the three and six months ended July 4, 2004 and June 29, 2003 would have been the following (in millions, except per share amounts):


	For the Three Months Ended						For the Six Months Ended
	July 4, 2004			June 29, 2003			July 4, 2004			June 29, 2003
Net income (loss) as reported	$	80.5		$	(52.5	)	$	120.7		$	(129.0	)
Deduct: Total stock-based employee compensation expense determined under fair value method		(17.9	)		(27.7	)		(51.3	)		(48.4	)
Pro forma net income (loss)		62.6			(80.2	)		69.4			(177.4	)
Net income (loss) per common share - basic as reported		0.41			(0.28	)		0.62			(0.70	)
Net income (loss) per common share - diluted as reported		0.39			(0.28	)		0.60			(0.70	)
Net income (loss) per common share - basic pro forma		0.32			(0.43	)		0.36			(0.96	)
Net income (loss) per common share - diluted pro forma		0.31			(0.43	)		0.36			(0.96	)

The weighted average grant date fair value for options granted during the three months ended July 4, 2004 and June 29, 2003 was $11.98 and $6.42 per option, respectively, and for the six months ended July 4, 2004 and June 29, 2003 was $14.60 and $6.40 per option, respectively. The fair value of options at the date of grant was estimated using the Black-Scholes option-pricing model with the following weighted average assumptions:


	For the Three Months Ended				For the Six Months Ended
	July 4, 2004		June 29, 2003		July 4, 2004		June 29, 2003
Expected life (years)	4.5		4.4		4.5		4.4
Interest rate	3.6	%	2.5	%	3.0	%	2.5	%
Volatility	64.7	%	68.2	%	65.7	%	68.2	%
Dividend yield	0.0	%	0.0	%	0.0	%	0.0	%

The weighted-average fair value of employee stock purchase rights granted during the three and six months ended July 4, 2004 and June 29, 2003 was $6.93 and $5.74 per right, respectively. The fair value of the employees’ purchase rights was estimated using the Black-Scholes option-pricing model with the following assumptions:


	For the Three Months Ended				For the Six Months Ended
	July 4, 2004		June 29, 2003		July 4, 2004		June 29, 2003
Expected life (years)	1.0		1.0		1.0		1.0
Interest rate	1.3	%	1.1	%	1.3	%	1.1	%
Volatility	44.9	%	65.4	%	44.9	%	65.4	%
Dividend yield	0.0	%	0.0	%	0.0	%	0.0	%

TERADYNE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

B. Accounting Policies—(Continued)

Other Comprehensive Income (Loss)

Comprehensive income (loss) includes net income (loss), minimum pension liability adjustments, unrealized gains and losses on derivative instruments, unrealized gains and losses on certain investments in debt and equity securities and cumulative translation adjustments. The components of comprehensive income (loss) are as follows (in thousands):


	For the Three Months Ended
	July 4, 2004			June 29, 2003
Net income (loss)	$	80,493		$	(52,489	)
Foreign currency translation adjustments		(289	)		1,151
Change in unrealized loss on derivative instruments		(289	)		—
Unrealized (loss) gain on marketable securities, net of applicable tax of $0		(9,145	)		4,411

Comprehensive income (loss)	$	70,770		$	(46,927	)


	For the Six Months Ended
	July 4, 2004			June 29, 2003
Net income (loss)	$	120,740		$	(128,987	)
Foreign currency translation adjustments		294			(48	)
Change in unrealized loss on derivative instruments		(289	)		—
Unrealized (loss) gain on marketable securities, net of applicable tax of $0		(6,363	)		6,696
Reclassification adjustment for gain on marketable securities included in net income (loss), net of applicable tax of $0		(963	)		—

Comprehensive income (loss)	$	113,419		$	(122,339	)

C. Goodwill and Intangible Assets

Amortizable intangible assets consist of the following and are included in other assets on the balance sheet (in thousands):


	July 4, 2004
	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Weighted Average Useful Life
Completed technology	$	19,193	$	6,861	$	12,332	7.5 years
Service and software maintenance contracts and customer relationships		8,342		5,140		3,202	5.7 years
Tradenames and trademarks		3,800		1,267		2,533	8.0 years

Total intangible assets	$	31,335	$	13,268	$	18,067	7.2 years


	December 31, 2003
	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Weighted Average Useful Life
Completed technology	$	19,193	$	5,577	$	13,616	7.5 years
Service and software maintenance contracts and customer relationships		8,342		4,840		3,502	5.7 years
Tradenames and trademarks		3,800		1,029		2,771	8.0 years

Total intangible assets	$	31,335	$	11,446	$	19,889	7.1 years

TERADYNE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

C. Goodwill and Intangible Assets—(Continued)

In the first quarter of 2003, Assembly Test Systems sold its manufacturing software product line and manual x-ray inspection and rework product line for total cash proceeds of $2.1 million. These transactions resulted in a loss of $5.8 million, which has been recorded in restructuring and other charges for the six months ended June 29, 2003. Included in the $5.8 million loss is an intangible asset impairment charge of $3.7 million.

Aggregate amortization expense for the three months ended July 4, 2004 and June 29, 2003 was $0.9 million and $1.2 million, respectively. Aggregate amortization expense for the six months ended July 4, 2004 and June 29, 2003 was $1.8 million and $2.5 million, respectively. Estimated amortization expense for each of the five succeeding fiscal years is as follows (in thousands):


Year	Amount
2004 (remainder)	$	1,821
2005		3,643
2006		3,643
2007		3,529
2008		2,962

Goodwill in the Connection Systems segment was reduced by $2.0 million during the six months ended July 4, 2004 as a result of the return of escrowed shares related to the Herco Technology, Corp. and Perception Laminates, Inc. acquisitions.

D. Net Income (Loss) per Common Share

The following table sets forth the computation of basic and diluted net income (loss) per common share (in thousands, except per share amounts):


	For the Three Months Ended					For the Six Months Ended
	July 4, 2004		June 29, 2003			July 4, 2004		June 29, 2003
Net income (loss)	$	80,493	$	(52,489	)	$	120,740	$	(128,987	)
Income impact of assumed conversion of convertible debentures		3,668		—			7,337		—

Net income (loss) - diluted	$	84,161	$	(52,489	)	$	128,077	$	(128,987	)

Shares used in income (loss) per common share - basic		194,015		185,465			193,934		185,177
Effect of dilutive securities:
Incremental shares from assumed conversion of notes payable		15,385		—			15,385		—
Employee and director stock options		4,005		—			5,014		—
Employee stock purchase rights		81		—			50		—

Dilutive potential common shares		19,471		—			20,449		—

Shares used in income (loss) per common share - diluted		213,486		185,465			214,383		185,177

Net income (loss) per common share - basic	$	0.41	$	(0.28	)	$	0.62	$	(0.70	)

Net income (loss) per common share - diluted	$	0.39	$	(0.28	)	$	0.60	$	(0.70	)

TERADYNE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

D. Net Income (Loss) per Common Share—(Continued)

The computation of diluted income (loss) per common share for the three and six months ended July 4, 2004 excludes the effect of the potential exercise of options to purchase approximately 17.0 million and 16.0 million shares, respectively, because the option price was greater than the average market price of the common shares and the effect would have been anti-dilutive. All options and equivalent shares related to the convertible notes outstanding in the three and six months ended June 29, 2003 were excluded from the calculation of diluted net loss per share because the effect would have been anti-dilutive. As of June 29, 2003 there were 36.1 million options outstanding. The effect of Teradyne’s outstanding convertible notes on diluted net income per share for the three and six months ended July 4, 2004 was calculated using the “if converted” method as required by SFAS No. 128, “Earnings per Share” (“SFAS 128”). In using the “if converted” method, $3.7 million and $7.3 million of interest expense related to the convertible notes for the three and six months ended July 4, 2004, net of tax and profit sharing expenses, was added back to net income to arrive at diluted net income.

E. Treasury Stock

Effective July 1, 2004, the Massachusetts Business Corporation Act was revised to eliminate the use of treasury shares by Massachusetts corporations. As a result, all of Teradyne’s treasury shares were automatically converted to unissued shares on July 1, 2004.

F. Restructuring and Other Charges

The tables below represent activity related to restructuring charges in the three and six months ended July 4, 2004 and June 29, 2003. The accrual for severance and benefits is reflected in accrued employees’ compensation and withholdings. The accrual for lease payments on vacated facilities is reflected in other accrued liabilities and other long-term accrued liabilities and is expected to be paid out over the lease terms, the latest of which expires in 2012. Teradyne expects to pay out approximately $6.0 million against the lease accruals over the next twelve months. Teradyne’s future lease commitments are net of expected sublease income of $13.0 million as of July 4, 2004. Teradyne has subleased approximately 23% of its unoccupied space as of July 4, 2004 and is actively attempting to sublease the remaining space.

The table below summarizes the liability and activity for the three months ended July 4, 2004 relating to restructuring and other charges (in thousands):


	Long-Lived Asset Impairment			Severance and Benefits			Facility Related			Other Charges			Total
Balance at April 4, 2004	$	—		$	4,590		$	28,079		$	1,273		$	33,942
Second quarter 2004 provision (reversal)		(100	)		(458	)		1,201			(491	)		152
Cash payments		—			(1,868	)		(5,880	)		375			(7,373	)
Asset write-downs		100			—			—			—			100

Balance at July 4, 2004	$	—		$	2,264		$	23,400		$	1,157		$	26,821

TERADYNE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

F. Restructuring and Other Charges—(Continued)

The table below summarizes the liability and activity for the six months ended July 4, 2004 relating to restructuring and other charges (in thousands):


	Long-Lived Asset Impairment			Severance and Benefits			Facility Related			Other Charges			Total
Balance at December 31, 2003	$	—		$	7,766		$	29,222		$	1,273		$	38,261
First six months 2004 provision (reversal)		(603	)		(760	)		2,136			(491	)		282
Cash payments		—			(4,742	)		(7,958	)		375			(12,325	)
Asset write-downs		603			—			—			—			603

Balance at July 4, 2004	$	—		$	2,264		$	23,400		$	1,157		$	26,821

In the second quarter of 2004, Teradyne recorded a charge of $1.2 million consisting primarily of revised estimates of losses due to changes in the assumed amount and timing of sublease income on facilities that have been exited prior to the end of the lease term. The Semiconductor Test Systems segment recorded $0.2 million of this charge, and $1.0 million was recorded in the Assembly Test Systems segment. During the six months ended July 4, 2004 Teradyne recorded a charge of $2.1 million, consisting of $1.2 million of revised estimates of losses due to changes in the assumed amount and timing of sublease income on facilities that have been exited prior to the end of the lease term, and $0.9 million in the Connection Systems segment for a settlement of the remaining lease obligation on a facility.

During the three and six months ended July 4, 2004, Teradyne revised its estimates on future benefits for severed employees, decreasing the current provision by approximately $0.8 million and $1.9 million, respectively. This revision is offset by charges taken for severance and related benefits of $0.3 million and $1.1 million for the three and six months ended July 4, 2004, respectively. There were approximately 13 and 23 employees terminated in the first and second quarters of 2004, respectively, across Teradyne. As of July 4, 2004, $2.3 million in severance and benefits remains unpaid and is included in accrued employees’ compensation and withholdings.

During the three and six months ended July 4, 2004, Teradyne recorded, as a gain on the sale of a business, proceeds of $0.9 million from the previous sale of certain assets and product lines. These amounts relate to an earn out provision from a divestiture in the Connection Systems segment in 1999.

The table below summarizes the liability and activity for the three months ended June 29, 2003, relating to restructuring and other charges (in thousands):


	Long-Lived Asset Impairment			Severance and Benefits			Loss on Sale of Product Lines			Facility Related			Total
Balance at March 30, 2003	$	—		$	9,039		$	—		$	24,271		$	33,310
Second quarter 2003 provision		6,494			3,407			1,055			2,422			13,378
Cash payments		—			(4,470	)		—			(2,412	)		(6,882	)
Asset write-downs		(6,494	)		—			(1,055	)		—			(7,549	)

Balance at June 29, 2003	$	—		$	7,976		$	—		$	24,281		$	32,257

TERADYNE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

F. Restructuring and Other Charges—(Continued)

The table below summarized the liability and activity for the six months ended June 29, 2003, relating to restructuring and other charges (in thousands):


	Long-Lived Asset Impairment			Severance and Benefits			Loss on Sale of Product Lines			Facility Related			Total
Balance at December 31, 2002	$	—		$	8,242		$	—		$	25,240		$	33,482
First six months of 2003 provision		13,988			9,563			6,891			2,422			32,864
Cash payments		—			(9,829	)		—			(3,381	)		(13,210	)
Asset write-downs		(13,988	)		—			(6,891	)		—			(20,879	)

Balance at June 29, 2003	$	—		$	7,976		$	—		$	24,281		$	32,257

During the three months ended June 29, 2003, Teradyne recorded charges of $6.5 million primarily for certain long-lived assets held for sale that were impaired as the estimated fair value was less than the carrying value of the assets. The charge for the Connection Systems segment of $3.8 million included $2.5 million related to the decision to sell a facility in Laverne, CA, $1.1 million for the impairment of manufacturing assets held for sale, and $0.2 million for a reduction in the fair value of a property held for sale in Nashua, NH. The charge for the Semiconductor Test Systems segment of $2.4 million included $1.9 million related to a reduction in the fair value of properties held for sale in Agoura Hills, CA and $0.5 million for the impairment of manufacturing assets held for sale. The charge for the Assembly Test Systems segment of $0.3 million relates to the impairment of manufacturing assets held for sale. The charge for the properties held for sale resulted from deterioration in real estate market conditions.

During the six months ended June 29, 2003, Teradyne recorded charges of $14.0 million primarily for certain long-lived assets held for sale that were impaired as the estimated fair value was less than the carrying value of the assets. The charge for the Connection Systems segment of $8.2 million includes $3.3 million for a reduction in the fair value of properties held for sale in Nashua, NH and San Diego, CA, $2.5 million related to the decision to sell a facility in Laverne, CA, and $2.4 million for the impairment of manufacturing assets held for sale. The charge for the Semiconductor Test Systems segment of $5.5 million related primarily to a reduction in the fair value of properties held for sale in Agoura Hills, CA. The charge for the properties held for sale resulted from deterioration in real estate market conditions. The charge in the Assembly Test Systems segment of $0.3 million relates to the impairment of manufacturing assets held for sale.

Teradyne recorded a charge for severance and related benefits during the three and six months ended June 29, 2003 of $3.4 million and $9.6 million, respectively. There were approximately 120 employees terminated in the second quarter of 2003 and 460 employees terminated in the first six months of 2003 across Teradyne.

During the three and six months ended June 29, 2003, Teradyne recorded a charge of $2.3 million and $8.1 million, respectively, for the loss on sale of product lines, of which $1.1 million and $6.9 million, respectively has been recorded in restructuring and other charges and $1.2 million in each period has been recorded in cost of sales. The product lines sold were in the Assembly Test Systems segment and the Other Test Systems segment. In the first quarter of 2003, the Assembly Test Systems segment sold its manufacturing software product line and manual x-ray inspection and rework product line for total cash proceeds of $2.1 million. These transactions resulted in a loss of $0.9 million during the three months ended June 29, 2003 and $6.7 million for the six months ended June 29, 2003 of which $0.4 million and $6.2 million, respectively, has been recorded in restructuring and other charges, and $0.5 million has been recorded in cost of sales for both periods. In the three and six months

TERADYNE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

ended June 29, 2003, the Other Test Systems Segment recorded a charge of $1.4 million to write down its net assets relating to the sale of the Autodiagnosis automotive after market product line of which $0.7 million has been recorded in restructuring and other charges and $0.7 million has been recorded in cost of sales.

In the second quarter of 2003, Teradyne recorded a charge of $2.4 million consisting primarily of revised estimates of losses due to changes in the assumed amount and timing of sublease income on facilities that have been exited prior to the end of the lease term. The Connection Systems segment recorded $1.4 million of this charge and $1.0 million was recorded in the Assembly Test Systems segment.

G. Other Income and Expense, net

Other income and expense, net for the three and six months ended July 4, 2004 and June 29, 2003 includes the following (in thousands):


	For the Three Months Ended					For the Six Months Ended
	July 4, 2004			June 29, 2003		July 4, 2004			June 29, 2003
Gain on sale of an investment	$	—		$	1,250	$	1,058		$	1,250
Repayment of loan (1)		585			—		585			—
Other than temporary impairment of investment		—			—		—			(2,592	)
Fair value adjustment on warrants		(159	)		150		(366	)		43

Total	$	426		$	1,400	$	1,277		$	(1,299	)

(1)	The loan had previously been valued at zero due to its uncertainty of collection.

H. Retirement Plans

Teradyne has defined benefit pension plans covering a majority of domestic employees and employees of certain non-U.S. subsidiaries. Benefits under these plans are based on employees’ years of service and compensation. Teradyne’s funding policy is to make contributions to the plans in accordance with local laws and to the extent that such contributions are tax deductible. In addition, Teradyne has an unfunded supplemental executive defined benefit plan in the United States to provide retirement benefits in excess of levels allowed by the Employment Retirement Income Security Act and the Internal Revenue Code.

Components of net periodic pension cost for the three and six months ended July 4, 2004 and June 29, 2003, respectively, are as follows (in thousands):


	For the Three Months Ended						For the Six Months Ended
	July 4, 2004			June 29, 2003			July 4, 2004			June 29, 2003
Net Periodic Benefit Cost:
Service cost	$	1,592		$	1,672		$	3,196		$	3,343
Interest cost		3,526			3,458			7,062			6,917
Expected return on plan assets		(3,197	)		(2,765	)		(6,397	)		(5,531	)
Amortization of unrecognized:
Net transition obligation		22			22			44			44
Prior service cost		215			215			430			430
Net loss		855			925			1,712			1,851

Total expense	$	3,013		$	3,527		$	6,047		$	7,054

TERADYNE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

H. Retirement Plans—(Continued)

Contributions

Teradyne expects to contribute approximately $25.6 million to the pension plans in fiscal 2004. As of July 4, 2004, $16.6 million of contributions had been made. Teradyne anticipates contributing an additional $9.0 million to fund its pension plan in 2004.

Postretirement benefit plans

In addition to receiving pension benefits, Teradyne’s U.S. employees who meet retirement eligibility requirements as of their termination dates may participate in Teradyne’s Welfare Plan, which includes medical, dental and death benefits. Death benefits provide a fixed sum to retirees’ survivors and are available to all retirees.

Substantially all of Teradyne’s current U.S. employees could become eligible for these benefits, and the existing benefit obligation relates primarily to those employees.

Components of net periodic postretirement cost are as follows (in thousands):


	For the Three Months Ended						For the Six Months Ended
	July 4, 2004			June 29, 2003			July 4, 2004			June 29, 2003
Net Periodic Benefit Cost:
Service cost	$	342		$	278		$	684		$	556
Interest cost		491			464			982			929
Expected return on plan assets		—			—			—			—
Amortization of unrecognized:
Net assets		72			72			144			144
Prior service cost		(18	)		(18	)		(36	)		(36	)
Net loss		117			93			234			186

Total expense	$	1,004		$	889		$	2,008		$	1,779

I. Segment Information

Teradyne has four principal reportable segments which include the design, manufacturing and marketing of Semiconductor Test Systems, Connection Systems, Assembly Test Systems, and Other Test Systems. These reportable segments were determined based upon the nature of the products and services offered by each. The Other Test Systems segment is comprised of Broadband Test Systems and Diagnostic Solutions.

TERADYNE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

I. Segment Information—(Continued)

Teradyne evaluates performance based on several factors, of which the primary financial measure is business segment income before taxes. The accounting policies of the business segments are the same as those described in Note B: “Accounting Policies” in Teradyne’s Annual Report on Form 10-K for the year ended December 31, 2003. Intersegment sales are accounted for at fair value as if sales were made to third parties. Segment information for the three and six months ended July 4, 2004 and June 29, 2003 is as follows (in thousands):


	Semiconductor Test Systems Segment			Connection Systems Segment			Assembly Test Systems Segment			Other Test Systems Segment			Corporate and Eliminations			Consolidated
Three months ended July 4, 2004:
Net revenue to unaffiliated customers	$	361,685		$	99,139		$	39,113		$	26,526		$	—		$	526,463
Intersegment sales		—			9,081			—			—			(9,081	)		—

Net sales		361,685			108,220			39,113			26,526			(9,081	)		526,463
Income (loss) before taxes (1)(2)	$	95,393		$	12,146		$	(197	)	$	1,701		$	(19,606	)	$	89,437

Three months ended June 29, 2003:
Net revenue to unaffiliated customers	$	174,656		$	91,585		$	38,389		$	26,899		$	—		$	331,529
Intersegment sales		—			13,106			—			—			(13,106	)		—

Net sales		174,656			104,691			38,389			26,899			(13,106	)		331,529
Loss before taxes (1)(2)	$	(23,199	)	$	(7,779	)	$	(18,573	)	$	(1,156	)	$	(82	)	$	(50,789	)

	Semiconductor Test Systems Segment			Connection Systems Segment			Assembly Test Systems Segment			Other Test Systems Segment			Corporate and Eliminations			Consolidated
Six months ended July 4, 2004:
Net revenue to unaffiliated customers	$	635,801		$	194,400		$	72,489		$	54,376		$	—		$	957,066
Intersegment sales		—			16,983			—			—			(16,983	)		—

Net sales		635,801			211,383			72,489			54,376			(16,983	)		957,066
Income (loss) before taxes (1)(2)	$	144,351		$	21,653		$	(2,402	)	$	4,544		$	(33,990	)	$	134,156

Six months ended June 29, 2003:
Net revenue to unaffiliated customers	$	342,208		$	183,454		$	82,353		$	58,090		$	—		$	666,105
Intersegment sales		—			17,489			—			—			(17,489	)		—

Net sales		342,208			200,943			82,353			58,090			(17,489	)		666,105
Loss before taxes (1)(2)	$	(60,275	)	$	(19,604	)	$	(38,870	)	$	192		$	(7,530	)	$	(126,087	)

(1)	Income (loss) before taxes of the principal businesses excludes the effects of employee profit sharing, management incentive compensation, other unallocated expenses, and net interest and other income which are included in Corporate and Eliminations.

TERADYNE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

I. Segment Information—(Continued)

(2)	Included in the income (loss) before taxes for the following segments are charges for the first three and six months of 2004 and 2003 that include restructuring and other charges, accelerated depreciation, impairment of investments, inventory provisions and inventory write downs:

Included in the Semiconductor Test Systems segment are charges for the following (in thousands):


	For the Three Months Ended					For the Six Months Ended
	July 4, 2004			June 29, 2003		July 4, 2004			June 29, 2003
Cost of revenues – inventory	$	1,600		$	1,314	$	2,841		$	2,514
Engineering and development – accelerated depreciation		—			74		—			526
Selling and administrative – accelerated depreciation		—			22		66			191
Restructuring charges (reversals)		(542	)		3,570		(849	)		9,865

Total	$	1,058		$	4,980	$	2,058		$	13,096

Included in the Connection Systems segment are charges for the following (in thousands):


	For the Three Months Ended					For the Six Months Ended
	July 4, 2004			June 29, 2003		July 4, 2004			June 29, 2003
Cost of revenues – inventory	$	319		$	225	$	1,234		$	(790	)
Cost of revenues – accelerated depreciation		—			—		—			1,827
Gain on Sale of Business		(865	)		—		(865	)		—
Restructuring charges		—			5,893		616			11,213

Total	$	(546	)	$	6,118	$	985		$	12,250

Included in the Assembly Test Systems segment are charges for the following (in thousands):


	For the Three Months Ended				For the Six Months Ended
	July 4, 2004		June 29, 2003		July 4, 2004			June 29, 2003
Cost of revenues – inventory	$	310	$	2,821	$	2,144		$	4,298
Cost of revenues – accelerated depreciation		—		1,142		—			2,884
Engineering and development – accelerated depreciation		—		381		—			960
Selling and administrative – accelerated depreciation		—		703		—			1,774
Restructuring charges (reversals)		418		2,954		(542	)		9,935

Total	$	728	$	8,001	$	1,602		$	19,851

TERADYNE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

I. Segment Information—(Continued)

Included in the Other Test Systems segment are charges for the following (in thousands):


	For the Three Months Ended				For the Six Months Ended
	July 4, 2004		June 29, 2003		July 4, 2004		June 29, 2003
Cost of revenues – inventory	$	75	$	722	$	344	$	728
Restructuring charges		—		866		59		1,351

Total	$	75	$	1,588	$	403	$	2,079

Included in the Corporate and Eliminations segment are charges for the following (in thousands):


	For the Three Months Ended					For the Six Months Ended
	July 4, 2004			June 29, 2003		July 4, 2004			June 29, 2003
Other income and expense, net	$	(585	)	$	—	$	(585	)	$	2,592
Selling and administrative – accelerated depreciation		—			—		—			590
Restructuring charges		276			95		998			500

Total	$	(309	)	$	95	$	413		$	3,682

J. Commitments and Contingencies

After the August 2000 acquisition of Herco Technology Corp. and Perception Laminates, Inc. the former owners of those companies filed a complaint on September 5, 2001 against Teradyne and two of its executive officers. The case is now pending in Federal District Court, in San Diego, California. Teradyne and the two individual defendants filed a motion to dismiss the complaint in its entirety. The court granted the motion in part, and the only remaining claims were that the sale of Teradyne’s common stock to the former owners violated certain California securities statutes and common law and that Teradyne breached certain contractual obligations in the agreements relating to the acquisitions. Teradyne’s subsequent motion for partial summary judgment with respect to the breach of contract claims was granted on November 7, 2002. On December 9, 2002, the plaintiffs filed a motion asking the court to reconsider its summary judgment ruling or, alternatively, for certification under Rule 54(b) which would grant the plaintiffs leave to appeal both the Court’s ruling regarding dismissal of claims and its ruling granting summary judgment to the Ninth Circuit Court of Appeals. Teradyne opposed these motions. On April 22, 2003, the Court denied the plaintiffs’ motion for reconsideration and the plaintiffs’ request for certification under Rule 54(b). The only claim still pending before the District Court from the original complaint relates to fraud in connection with the setting of the transaction price. Teradyne has answered and denied all liability.

Teradyne and two of its executive officers were named as defendants in three purported class action complaints that were filed in Federal District Court, Boston, Massachusetts, in October and November 2001. The court consolidated the cases and has appointed three lead plaintiffs. On November 8, 2002, plaintiffs filed and served a consolidated amended class action complaint. The complaint alleges, among other things, that the defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, by making, during the period from July 14, 2000 until October 17, 2000, material misrepresentations and omissions to the investing public regarding Teradyne’s business operations and future prospects. The complaint seeks unspecified damages, including compensatory damages and recovery of reasonable attorneys’ fees and costs. Teradyne filed a motion

TERADYNE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

J. Commitments and Contingencies—(Continued)

to dismiss all claims asserted in the complaint on February 7, 2003. On January 16, 2004, the U.S. Magistrate Judge recommended to the U.S. District Court that Teradyne’s motion to dismiss the consolidated amended class action complaint in its entirety be allowed without prejudice. On February 2, 2004, the lead plaintiffs filed an objection to the U.S. Magistrate Judge’s recommendation. Teradyne filed its response to the lead plaintiff’s objection on March 2, 2004, and the matter remains pending in the Federal District Court in San Diego, California.

In 2001, Teradyne was designated as a “potentially responsible party” (“PRP”) at a clean-up site in Los Angeles, California. This claim arises out of Teradyne’s acquisition of Perception Laminates, Inc. in August 2000. Prior to that date, Perception Laminates had itself acquired certain assets of Alco Industries Inc. under an asset purchase agreement dated July 30, 1992. Neither Teradyne nor Perception Laminates have ever conducted any operations at the Los Angeles site. Teradyne has asked the State of California to drop the PRP designation, but California has not yet agreed to do so.

On April 30, 2004, Hampshire Equity Partners II, LP (“HEP”) filed a complaint against Teradyne and Teradyne’s Connection Systems segment (“TCS”) in the United States District Court of the Southern District of New York, relating to its February 21, 2001 investment of $55.0 million in Connector Service Corporation, aka AMAX Plating, Inc. (“CSC”), which was a supplier to TCS at the time. During the due diligence that HEP conducted prior to making that investment, an agent of HEP spoke with TCS, among other CSC customers, concerning CSC. On or about September 24, 2003, CSC filed for bankruptcy protection. HEP has now brought suit against Teradyne and TCS asserting fraud and negligence based claims, and a claim for intentional interference with economic opportunity, relating to statements that a TCS representative made to HEP’s agent prior to HEP’s February 2001 investment in CSC. HEP seeks to hold Teradyne and TCS responsible for its decision to invest in CSC and for the losses that it suffered upon the bankruptcy of CSC. HEP is now seeking damages for an unstated amount of not less than $55.0 million. On June 17, 2004, Teradyne and TCS filed a motion to dismiss HEP’s compliant in its entirety. On August 9, 2004, HEP filed its opposition to the motion to dismiss, and that motion remains pending.

Teradyne believes that it has meritorious defenses against the above unsettled claims and intends to vigorously contest them. While it is not possible to predict or determine the outcomes of the unsettled claims or to provide possible ranges of losses that may arise, Teradyne believes the losses associated with all of these actions will not have a material adverse effect on its consolidated financial position or liquidity, but could possibly be material to the consolidated results of operations of any one period.

In addition, Teradyne is subject to legal proceedings, claims and investigations that arise in the ordinary course of business such as, but not limited to, patent, employment, commercial and environmental matters. Although there can be no assurance, there are no such matters pending that Teradyne expects to be material with respect to its business, financial position or results of operations.

Guarantees and Indemnification Obligations

For “Guarantees and Indemnification Obligations” see Note J: “Commitments and Contingencies” in our Annual Report on Form 10-K for the year ended December 31, 2003. In addition to the guarantee and indemnification obligations set forth in our Annual Report, Teradyne occasionally guarantees the performance obligations and responsibilities of its subsidiary and affiliate companies.

Item 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations

SELECTED RELATIONSHIPS WITHIN THE CONDENSED CONSOLIDATED

STATEMENTS OF OPERATIONS


	For the Three Months Ended						For the Six Months Ended
	July 4, 2004			June 29, 2003			July 4, 2004			June 29, 2003
	(in thousands)						(in thousands)
Net revenue	$	526,463		$	331,529		$	957,066		$	666,105

Net income (loss)		80,493			(52,489	)		120,740			(128,987	)

Percentage of net revenues:
Products		88.7	%		83.4	%		87.8	%		83.7	%
Services		11.3			16.6			12.2			16.3

Net revenues		100			100			100			100

Cost of revenues:
Cost of products		49.3			61.5			49.6			62.3
Cost of services		7.7			11.8			8.3			11.8

Gross profit		43.0			26.7			42.1			25.9

Operating expenses:
Engineering and development		12.7			19.2			13.8			19.9
Selling and administrative		13.3			18.6			14.2			19.4
Restructuring and other charges		—			4.0			—			4.9
Gain on sale of business		(0.2	)		—			(0.1	)		—

Operating expenses		25.8			41.8			27.9			44.2

Income (loss) from operations		17.2			(15.1	)		14.2			(18.3	)
Interest income		0.7			1.0			0.7			1.1
Interest expense		(1.0	)		(1.6	)		(1.0	)		(1.6	)
Other income and expense, net		0.1			0.4			0.1			(0.2	)

Income (loss) before income taxes		17.0			(15.3	)		14.0			(19.0	)
Provision for income taxes		1.7			0.5			1.4			0.4

Net income (loss)		15.3	%		(15.8	)%		12.6	%		(19.4	)%

Provision for income taxes as a percentage of income (loss) before income taxes		10.0	%		(3.3	)%		10.0	%		(2.3	)%

Results of Operations

Business Overview

We recorded net income in the first two quarters of 2004, after eleven consecutive quarters of losses. Semiconductor Test Systems led the growth in revenue with an increase of $187.0 million from the second quarter of last year. Total company net bookings increased to $557.9 million, the highest level since the fourth quarter of 2000.

Second Quarter 2004 Compared to Second Quarter 2003

Bookings

Net bookings for our four principal reportable segments were as follows (in millions, except percent change):


	For the Three Months Ended				% Change
	July 4, 2004		June 29, 2003		% Change
Semiconductor Test Systems	$	386.8	$	186.4	108	%
Connection Systems		108.2		64.6	67
Assembly Test Systems		43.5		31.8	37
Other Test Systems		19.4		21.8	(11	)

	$	557.9	$	304.6	83	%

As total Semiconductor Test Systems orders more than doubled from the second quarter of 2003 to the second quarter of 2004, Semiconductor Test’s percentage of total bookings grew as well, increasing from 61.2% of total bookings in the second quarter of 2003 to 69.3% for the second quarter of 2004. The growth in orders was driven by both new and existing products, when compared to the same period in 2003. The growth was concentrated primarily in South East Asia, Taiwan, and Korea where total Semiconductor Test Systems orders more than doubled year over year. This growth was spurred by higher demand in a variety of markets, such as optical disk applications, cellular phone power management, graphics and chipsets for personal computers, smart card devices, broadband and other consumer devices.

The growth in Connection Systems orders was led by stronger customer demand in the wireless market segment across both connector and backplane assembly products. This growth was partially offset by a decline in orders due to the decision to exit the lower margin portion of Connection Systems’ EMS business.

Increased orders in Assembly Test Systems were attributable to a 7.7% increase in the commercial business as well as an 86.7% increase in orders in the military/aerospace (“mil/aero”) business. The increase in mil/aero was primarily the result of follow-on orders from two large contractors.

The decrease in Other Test Systems’ orders resulted from a decrease in both Broadband Test and Diagnostic Systems bookings, primarily as a result of the timing of significant orders from automotive test system customers. Other Test Systems’ bookings are program related and have significant fluctuations.

Cancellations for our four principal reportable segments were as follows (in millions):


	For the Three Months Ended
	July 4, 2004		June 29, 2003
Semiconductor Test Systems	$	—	$	4.3
Connection Systems		—		3.5
Assembly Test Systems		—		0.4
Other Test Systems		—		0.1

	$	—	$	8.3

The Connection Systems cancellations in the second quarter of 2003 were from major customers in the telecommunications and networking infrastructure industries, due principally to product program cancellations. Customers may delay delivery of products or cancel orders suddenly and without significant notice, subject to

possible cancellation penalties. In the second quarter of 2004 and 2003, there were no significant cancellation penalties received. Due to possible changes in delivery schedules and cancellations of orders, our backlog at any particular date is not necessarily indicative of the actual sales for any succeeding period. Delays in delivery schedules and/or cancellations of backlog during any particular period could have a materially adverse effect on our business, financial condition and results of operations.

Net bookings by region as a percentage of total net bookings were as follows:


	For the Three Months Ended
	July 4, 2004		June 29, 2003
United States	26	%	31	%
Taiwan	18		11
South East Asia	18		18
Singapore	18		15
Europe	12		13
Japan	4		9
Rest of the World	4		3

	100	%	100	%

Backlog of unfilled orders for our four principal reportable segments was as follows (in millions):


	For the Three Months Ended
	July 4, 2004		June 29, 2003
Semiconductor Test Systems	$	457.3	$	236.2
Connection Systems		93.3		67.8
Assembly Test Systems		61.5		39.7
Other Test Systems		48.3		25.3

	$	660.4	$	369.0

Revenue

Net revenues for our four principal reportable segments were as follows (in millions, except percent changes):


	For the Three Months Ended				% Change
	July 4, 2004		June 29, 2003		% Change
Semiconductor Test Systems	$	361.7	$	174.7	107	%
Connection Systems		99.1		91.5	8
Assembly Test Systems		39.1		38.4	2
Other Test Systems		26.6		26.9	(1	)

	$	526.5	$	331.5	59	%

Semiconductor Test Systems revenue made up 68.7% of total revenue for the second quarter of 2004, up from 52.7% a year ago. The growth in sales came from both new and existing products and was spread over all regions, led by the United States, Singapore, Taiwan and South East Asia.

The growth in Connection Systems sales was led by stronger customer demand in the wireless market segment across both connector and backplane assembly products. This growth was partially offset by a decline in sales due to the decision to exit the lower margin portion of Connection Systems’ EMS business.

The increase in Assembly Test Systems sales was due primarily to an increase in the mil/aero business. The increase in mil/aero sales was driven by existing orders with two large contractors.

Our sales by region as a percentage of total net sales were as follows:


	For the Three Months Ended
	July 4, 2004		June 29, 2003
United States	25	%	37	%
South East Asia	21		14
Taiwan	17		8
Europe	16		19
Singapore	15		10
Japan	4		9
Korea	2		1
Rest of the World	—		2

	100	%	100	%

Gross Margin

Our gross profit was as follows (dollars in millions):


	For the Three Months Ended						Period Change
	July 4, 2004			June 29, 2003			Period Change
Gross Profit	$	226.6		$	88.6		$	138.0
Percent of Total Revenue		43.0	%		26.7	%		16.3

The gross margin improvement from the second quarter of 2003 to 2004 was a result of several factors. An improvement of 12 points is credited to an increase in sales volume and a shift in our mix of revenues, with higher Semiconductor Test Systems content coupled with a shift of Connection Systems business from EMS to connectors. The remainder is attributable to lower material costs and a reduction in fixed manufacturing costs, including depreciation and facility costs resulting from past restructuring actions.

We assess the carrying value of our inventory on a quarterly basis by estimating future demand and comparing that demand against on-hand and on-order inventory provisions. Forecasted revenue information is obtained from the sales and marketing groups and incorporates factors such as backlog and future revenue demand. This quarterly process identifies obsolete and excess inventory. Obsolete inventory, which represents items for which there is no demand, is fully reserved. Excess inventory, which represents inventory items

that are not expected to be consumed during the next four quarters, is written down to estimated net realizable value.

The provisions for excess and obsolete inventory were $2.3 million and $3.9 million for the three months ended July 4, 2004 and June 29, 2003, respectively. During the three months ended July 4, 2004, we scrapped $13.8 million of inventory and sold $0.3 million of previously written-down or written-off inventory. As of July 4, 2004, we have inventory related reserves for amounts which had been written-down or written-off of $173.9 million. We have no pre-determined timeline to scrap the remaining inventory.

Engineering and Development

Engineering and development expenses were as follows (dollars in millions):


	For the Three Months Ended						Period Change
	July 4, 2004			June 29, 2003			Period Change
Engineering and Development	$	66.9		$	63.8		$	3.1
Percent of Total Revenue		12.7	%		19.2	%		(6.5	)

The increase of $3 million in engineering and development expenses is primarily the result of our strong commitment to sustained levels of investment in product research and development offset by the results of on-going actions to reduce fixed costs. The increase can be attributed to the following:

•

$3 million increase due to variable employee compensation;

•

$2 million increase in prototype material for engineering development projects; and

•

$1 million from an increase in outsourced contract engineering.

These increases were offset in part by the following:

•

$2 million decrease for the salaries and fringe benefits due to a decrease in headcount; and

•

$1 million in lower depreciation as a result of lower capital spending, asset write-downs and facility closures.

Selling and Administrative

Selling and administrative expenses were as follows (dollars in millions):


	For the Three Months Ended						Period Change
	July 4, 2004			June 29, 2003			Period Change
Selling and Administrative	$	70.0		$	61.5		$	8.5
Percent of Total Revenue		13.3	%		18.6	%		(5.3	)

The increase of $8 million in selling and administrative spending is due primarily to the following:

•

$7 million increase due to variable employee compensation;

•

$2 million from an increase in consulting expenses; and

•

$1 million increase in travel and training costs.

These increases were offset in part by the following:

•

$1 million in lower depreciation costs due to asset write-downs and capital spending cutbacks; and

•

$1 million decrease for the salaries and fringe benefits due to a decrease in headcount.

Restructuring and Other Charges

The tables below represent activity related to restructuring charges for the three months ended July 4, 2004 and June 29, 2003. The accrual for severance and benefits is reflected in accrued employees’ compensation and withholdings. The accrual for lease payments on vacated facilities is reflected in other accrued liabilities and other long-term accrued liabilities and is expected to be paid out over the lease terms, the latest of which expires

in 2012. Teradyne expects to pay out approximately $6.0 million against the lease accruals over the next twelve months. Teradyne’s future lease commitments are net of expected sublease income of $13.0 million as of July 4, 2004. Teradyne has subleased approximately 23% of its unoccupied space as of July 4, 2004 and is actively attempting to sublease the remaining space.

The table below summarizes the liability and activity for the three months ended July 4, 2004 relating to restructuring and other charges (in thousands):


	Long-Lived Asset Impairment			Severance and Benefits			Facility Related			Other Charges			Total
Balance at April 4, 2004	$	—		$	4,590		$	28,079		$	1,273		$	33,942
Second quarter 2004 provision		(100	)		(458	)		1,201			(491	)		152
Cash payments		—			(1,868	)		(5,880	)		375			(7,373	)
Asset write-downs		100			—			—			—			100

Balance at July 4, 2004	$	—		$	2,264		$	23,400		$	1,157		$	26,821

During the three months ended July 4, 2004, Teradyne revised its estimates on future benefits for severed employees, decreasing the current provision by approximately $0.8 million. This revision is offset by charges taken for severance and related benefits of $0.3 million for the three months ended July 4, 2004. There were approximately 23 employees terminated in the second quarter of 2004, all of whom had been employed in the IT department. As of July 4, 2004, $2.3 million in severance and benefits remain unpaid and included in accrued employees’ compensation and withholdings. All remaining severance benefits payable to these employees are expected to be paid by the end of the first quarter of 2005.

During the three months ended July 4, 2004, Teradyne recorded, as a gain on the sale of a business, proceeds of $0.9 million from the previous sale of certain assets and product lines. These amounts relate to an earn out provision from a divestiture in the Connection Systems segment in 1999.

The table below summarizes the liability and activity for the three months ended June 29, 2003, relating to restructuring and other charges (in thousands):


	Long-Lived Asset Impairment			Severance and Benefits			Loss on Sale of Product Lines			Facility Related			Total
Balance at March 30, 2003	$	—		$	9,039		$	—		$	24,271		$	33,310
Second quarter 2003 provision		6,494			3,407			1,055			2,422			13,378
Cash payments		—			(4,470	)		—			(2,412	)		(6,882	)
Asset write-downs		(6,494	)		—			(1,055	)		—			(7,549	)

Balance at June 29, 2003	$	—		$	7,976		$	—		$	24,281		$	32,257

to the decision to sell a facility in Laverne, CA, $1.1 million for the impairment of manufacturing assets held for sale, and $0.2 million for a reduction in the fair value of a property held for sale in Nashua, NH. The charge for the Semiconductor Test Systems segment of $2.4 million included $1.9 million related to a reduction in the fair value of properties held for sale in Agoura Hills, CA and $0.5 million for the impairment of manufacturing assets held for sale. The charge for the Assembly Test Systems segment of $0.3 million relates to the impairment of manufacturing assets held for sale. The charge for the properties held for sale resulted from deterioration in real estate market conditions.

Teradyne recorded a charge for severance and related benefits during the three months ended June 29, 2003 of $3.4 million. There were approximately 120 employees terminated in the second quarter of 2003 across Teradyne.

During the three months ended June 29, 2003, Teradyne recorded a charge of $2.3 million for the loss on sale of product lines in the Assembly Test Systems and Other Test Systems segments, of which $1.1 million has been recorded in restructuring and other charges and $1.2 million in each period has been recorded in cost of sales. The product lines sold were in the Assembly Test Systems segment and the Other Test Systems segment. In the first quarter of 2003, the Assembly Test Systems segment sold its manufacturing software product line and manual x-ray inspection and rework product line for total cash proceeds of $2.1 million. These transactions resulted in a loss of $0.9 million during the three months ended June 29, 2003 of which $0.4 million has been recorded in restructuring and other charges and $0.5 million has been recorded in cost of sales for the three months ended June 29, 2003. In the three months ended June 29, 2003, the Other Test Systems segment recorded a charge of $1.4 million to write down its net assets relating to the sale of the Autodiagnos automotive after market product line of which $0.7 million has been recorded in restructuring and other charges and $0.7 million has been recorded in cost of sales.

Interest Income and Expense

Interest income increased slightly to $3.5 million for the second quarter of 2004 from $3.3 million in the second quarter of 2003 due to an overall increase in Teradyne’s cash and marketable securities balance. Interest expense decreased to $4.9 million in the second quarter of 2004 from $5.4 million in the second quarter of 2003 as a result of the prepayment of our mortgage for our California properties in the third quarter of 2003.

Other Income and Expense, Net

Other income and expense, net for the three months ended July 4, 2004 and June 29, 2003, respectively, includes the following (in thousands):


	For the three months ended
	July 4, 2004			June 29, 2003
Gain on sale of an investment	$	—		$	1,250
Repayment of loan (1)		585			—
Fair value adjustment on warrants		(159	)		150

Total	$	426		$	1,400

(1)	The loan had previously been valued at zero due to its uncertainty of collection.

Income Taxes

As a result of incurring significant operating losses from 2001 through 2003, we determined that it is more likely than not that our deferred tax assets may not be realized, and since the fourth quarter of 2002 we have established a full valuation allowance for our net deferred tax assets. If we generate sustained future taxable income against which these tax attributes may be applied, some portion or all of the valuation allowance would be reversed. If the valuation allowance were reversed, a portion would be recorded as an increase to additional paid in capital, and the remainder would be recorded as a reduction to income tax expense. The tax expense in the second quarter of 2004 and 2003 relates primarily to a tax provision for foreign taxes, and was recorded using an effective tax rate of 10% and 3%, respectively.

Six Months of 2004 Compared to Six Months of 2003

Bookings

Net bookings for our four principal reportable segments were as follows (in millions, except percent change):


	For the Six Months Ended				Percent Change
	July 4, 2004		June 29, 2003		Percent Change
Semiconductor Test Systems	$	759.2	$	338.3	124	%
Connection Systems		210.7		135.5	55
Assembly Test Systems		77.2		71.0	9
Other Test Systems		62.0		48.8	27

	$	1,109.1	$	593.6	87	%

As total Semiconductor Test Systems orders more than doubled from the first six months of 2003 to the first six months of 2004, Semiconductor Test’s percentage of total bookings grew as well, increasing from 57.0% of total bookings in the first six months of 2003 to 68.5% for the first six months of 2004. The growth in orders was spread across all products, both new and existing, and was concentrated primarily in South East Asia, Singapore, and Taiwan, where total Semiconductor Test Systems orders almost doubled year over year. This growth was spurred by higher demand in a variety of markets, such as optical disk applications, cellular phone power management, graphics and chipsets for personal computers, smart card devices, broadband and other consumer devices.

Orders in Assembly Test Systems were increased in the mil/aero business, offset by a decrease in the commercial business due to the sale of the manual X-ray, rework and AOI product lines, resulting in an overall increase year over year.

Other Test Systems’ order growth resulted from an increase in Broadband Test Systems bookings, primarily a result of the timing of significant hardware orders for voice line test from two large telecommunications providers in the first six months of 2004, offset by a decrease in orders in Diagnostic Solutions. Other Test Systems’ bookings are program related and have significant fluctuations.

Cancellations for our four principal reportable segments were as follows (in millions):


	For the Six Months Ended
	July 4, 2004		June 29, 2003
Semiconductor Test Systems	$	—	$	6.6
Connection Systems		—		15.7
Assembly Test Systems		0.2		0.4
Other Test Systems		—		0.1

	$	0.2	$	22.8

The Connection Systems cancellations in the first six months of 2003 were from major customers in the telecommunications and networking infrastructure industries, due principally to product program cancellations. Customers may delay delivery of products or cancel orders suddenly and without significant notice, subject to possible cancellation penalties. In the first six months of 2004 and 2003 there were no significant cancellation penalties received. Due to possible changes in delivery schedules and cancellations of orders, our backlog at any particular date is not necessarily indicative of the actual sales for any succeeding period. Delays in delivery schedules and/or cancellations of backlog during any particular period could have a materially adverse effect on our business, financial condition and results of operations.

Net bookings by region as a percentage of total net bookings were as follows:


	For the Six Months Ended
	July 4, 2004		June 29, 2003
United States	27	%	34	%
South East Asia	20		18
Taiwan	19		8
Europe	15		18
Singapore	14		8
Japan	4		11
Rest of the World	1		3

	100	%	100	%

Revenue

Net revenues for our four principal reportable segments were as follows (in millions, except percent changes):


	For the Six Months Ended				% Change
	July 4, 2004		June 29, 2003		% Change
Semiconductor Test Systems	$	635.8	$	342.2	86	%
Connection Systems		194.4		183.4	6
Assembly Test Systems		72.5		82.4	(12	)
Other Test Systems		54.4		58.1	(6	)

	$	957.1	$	666.1	44	%

Semiconductor Test Systems revenue made up 66.4% of total revenue for the first six months of 2004, up from 51.4% a year ago. The growth in sales came from both new and existing products and was spread over all regions, led by Singapore and Taiwan.

The decline in Assembly Test Systems sales was due primarily to a decrease in revenue in the commercial business from the sale of the manual X-ray, rework and AOI product lines as well as lower in-circuit test sales. The decline in the sales of the commercial business were offset by a moderate increase in mil/aero sales.

Our sales by region as a percentage of total net sales were as follows:


	For the Six Months Ended
	July 4, 2004		June 29, 2003
United States	29	%	38	%
Europe	17		19
South East Asia	17		13
Singapore	15		9
Taiwan	15		9
Japan	4		9
Korea	3		1
Rest of the World	—		2

	100	%	100	%

Gross Margin

Our gross profit was as follows (dollars in millions):


	For the Six Months Ended						Period Change
	July 4, 2004			June 29, 2003			Period Change
Gross Profit	$	402.6		$	172.7		$	229.9
Percent of Total Revenue		42.1	%		25.9	%		16.2

The gross margin improvement from the first six months of 2003 to the first six months of 2004 was a result of several factors. An improvement of 11 points of gross margin is credited to an increase in sales volume and a shift in our mix of revenues, with higher Semiconductor Test Systems content coupled with a shift of Connection Systems business from EMS to connectors. The remainder is attributable to lower material costs and a reduction in fixed manufacturing costs, including depreciation and facility costs resulting from past restructuring actions.

The provisions for excess and obsolete inventory were $6.6 million and $5.6 million for the six months ended July 4, 2004 and June 29, 2003, respectively. During the six months ended July 4, 2004, we scrapped $18.0 million of inventory and sold $0.3 million of previously written-down or written-off inventory. As of July 4, 2004, we have inventory related reserves for amounts which had been written-down or written-off of $173.9 million. We have no pre-determined timeline to scrap the remaining inventory.

Engineering and Development

Engineering and development expenses were as follows (dollars in millions):


	For the Six Months Ended						Period Change
	July 4, 2004			June 29, 2003			Period Change
Engineering and Development	$	131.6		$	132.4		$	(0.8	)
Percent of Total Revenue		13.8	%		19.9	%		(6.1	)

The decrease of $1 million in engineering and development expenses can be attributed primarily to the following:

•

$6 million decrease in the salaries and fringe benefits due to a decrease in headcount; and

•

$4 million decrease in depreciation as a result of lower capital spending including a decrease of $2 million in accelerated depreciation related to asset write-downs and facility closures in the first six months of 2003.

These decreases were offset in part by the following:

•

$4 million increase due to variable employee compensation;

•

$3 million increase in prototype material for engineering development projects; and

•

$2 million from an increase in outsourced contract engineering.

Selling and Administrative

Selling and administrative expenses were as follows (dollars in millions):


	For the Six Months Ended						Period Change
	July 4, 2004			June 29, 2003			Period Change
Selling and Administrative	$	136.2		$	128.9		$	7.3
Percent of Total Revenue		14.2	%		19.4	%		(5.2	)

The increase of $7 million in selling and administrative spending is due primarily to the following:

•

$11 million increase due to variable employee compensation;

•

$1 million from an increase in consulting expenses; and

•

$1 million increase in travel and training costs.

These increases were offset in part by the following:

•

$3 million decrease in the salaries and fringe benefits due to a decrease in headcount; and

•

$3 million in lower depreciation costs due to asset write-downs and capital spending cutbacks.

Restructuring and Other Charges

The tables below represent activity related to restructuring charges in the six months ended July 4, 2004 and June 29, 2003.

The table below summarizes the liability and activity for the six months ended July 4, 2004 relating to restructuring and other charges (in thousands):


	Long-Lived Asset Impairment			Severance and Benefits			Facility Related			Other Charges			Total
Balance at December 31, 2003	$	—		$	7,766		$	29,222		$	1,273		$	38,261
First six months 2004 provision (reversal)		(603	)		(760	)		2,136			(491	)		282
Cash payments		—			(4,742	)		(7,958	)		375			(12,325	)
Asset write-downs		603			—			—			—			603

Balance at July 4, 2004	$	—		$	2,264		$	23,400		$	1,157		$	26,821

During the six months ended July 4, 2004, Teradyne recorded a charge of $2.1 million, of which $1.2 million consisted of revised estimates of losses due to changes in the assumed amount and timing of sublease income on facilities that have been exited prior to the end of the lease term and $0.9 million for settlement of the remaining lease obligation on a facility. The Semiconductor Test Systems segment recorded $0.2 million, the Connection Systems segment recorded $0.9 million, and $1.0 million of the charge was recorded in the Assembly Test segment.

During the six months ended July 4, 2004, Teradyne revised its estimates on future benefits for severed employees, decreasing the current provision by approximately $1.9 million. This revision was offset by charges taken for severance and related benefits for $1.1 million in the six months ended July 4, 2004. There were approximately 36 employees terminated in the first and second quarter of 2004 across all functional groups. The remaining severance benefits payable to these employees are expected to be paid by the end of the first quarter of 2005.

During the six months ended July 4, 2004, Teradyne recorded, as a gain on the sale of a business, proceeds of $0.9 million from the previous sale of certain assets and product lines. These amounts relate to an earn out provision from a divestiture in the Connection Systems segment in 1999.

The table below summarizes the liability and activity for the six months ended June 29, 2003, relating to restructuring and other charges (in thousands):


	Long-Lived Asset Impairment			Severance and Benefits			Loss on Sale of Product Lines			Facility Related			Total
Balance at December 31, 2002	$	—		$	8,242		$	—		$	25,240		$	33,482
First six months of 2003 provision		13,988			9,563			6,891			2,422			32,864
Cash payments		—			(9,829	)		—			(3,381	)		(13,210	)
Asset write-downs		(13,988	)		—			(6,891	)		—			(20,879	)

Balance at June 29, 2003	$	—		$	7,976		$	—		$	24,281		$	32,257

Teradyne recorded a charge for severance and related benefits during the six months ended June 29, 2003 of $9.6 million. There were approximately 460 employees terminated in the first six months of 2003 across Teradyne.

During the six months ended June 29, 2003, Teradyne recorded a charge of $8.1 million for the loss on sale of product lines, of which $6.9 million has been recorded in restructuring and other charges and $1.2 million has been recorded in cost of sales. The product lines sold were in the Assembly Test Systems segment and the Other Test Systems segment. In the first six months of 2003, the Assembly Test Systems segment sold its manufacturing software product line and manual x-ray inspection and rework product line for total cash proceeds of $2.1 million. These transactions resulted in a loss of $6.7 million for the six months ended June 29, 2003 of which $6.2 million has been recorded in restructuring and other charges, and $0.5 million has been recorded in cost of sales. In the six months ended June 29, 2003, the Other Test Systems Segment recorded a charge of $1.4 million to write down its net assets relating to the sale of the Autodiagnosis automotive after market product line of which $0.7 million has been recorded in restructuring and other charges and $0.7 million has been recorded in cost of sales.

In the first and second quarter of 2003, Teradyne recorded a charge of $2.4 million consisting primarily of revised estimates of losses due to changes in the assumed amount and timing of sublease income on facilities that have been exited prior to the end of the lease term. The Connection Systems segment recorded $1.4 million of this charge and $1.0 million was recorded in the Assembly Test Systems segment.

Interest Income and Expense

Interest income decreased to $7.1 million for the first six months of 2004 from $7.5 million in the first six months of 2003, due primarily to a reduction in interest rates. Interest expense decreased to $9.5 million in the first six months of 2004 from $10.8 million in the first six months of 2003 as a result of the prepayment of our mortgage for our California properties in the third quarter of 2003.

Other Income and Expense, Net

Other income and expense, net for the six months ended July 4, 2004 and June 29, 2003, respectively, includes the following (in thousands):


	For the six months ended
	July 4, 2004			June 29, 2003
Other than temporary impairment of investment	$	—		$	(2,592	)
Repayment of loan (1)		585			—
Gain on sale of an investment		1,058			1,250
Fair value adjustment on warrants		(366	)		43

Total	$	1,277		$	(1,299	)

(1)	The loan had previously been valued at zero due to its uncertainty of collection.

Income Taxes

the first six months of 2004 and 2003 relates primarily to a tax provision for foreign taxes, and was recorded using an effective tax rate of 10% and 2%, respectively.

Liquidity and Capital Resources

Our cash, cash equivalents and marketable securities balance increased $63.4 million in the first six months of 2004, to $649.4 million. Cash activity for the first six months of 2004 and 2003 was as follows (in millions):


	For the Six Months Ended
	July 4, 2004			June 29, 2003
Cash provided by (used for) operating activities:	$	119.0		$	(26.4	)
Cash provided by (used for) net income (loss), adjusted for non-cash items	$	191.8		$	(16.1	)
Changes in operating assets and liabilities, net of product lines sold		(72.8	)		(10.3	)

Total cash provided by (used for) operating activities	$	119.0		$	(26.4	)
Cash used for investing activities		(151.2	)		(29.7	)
Cash provided by financing activities		28.1			42.5

Total cash used	$	(4.1	)	$	(13.6	)

Changes in operating assets and liabilities, net of product lines sold used cash of $72.8 million in the first six months of 2004 due to increased accounts receivable and inventory balances, offset by an increase in accounts payable, deferred revenue and accrued expenses. Accounts receivable balances increased $66.0 million, primarily in the Semiconductor Test segment, due to an increase in sales offset by a decrease in days sales outstanding from 61 days as of June 29, 2003 to 51 days as of July 4, 2004. Inventory increased $53.8 million in the first six months of 2004 due primarily to volume increases in our Semiconductor Test Systems segment. Accounts payable, deferred revenue and accrued expenses had a net increase of $37.5 million, which was partially offset by a contribution to our U.S. Qualified Pension Plan of approximately $16.6 million. We plan to contribute an additional $9.0 million to the U.S. Qualified Pension Plan in the remainder of 2004. Changes in operating assets and liabilities, net of product lines sold used cash of $10.3 million in the first six months of 2003, primarily due to an increase in accounts receivable balances offset by a decrease in inventory.

Investing activities consist of purchases, the sale and maturity of marketable securities, proceeds from the sale of businesses, proceeds from asset disposals, proceeds from the sale of product lines, cash paid for assets and purchases of capital assets. Capital expenditures, including internally manufactured equipment, increased by $41.4 million in the first six months of 2004 compared to the first six months of 2003 across all operating segments, primarily related to increased spending on internally constructed systems and computer equipment.

Financing activities represent the sale of our common stock. The decrease of $14.3 million from the first six months of 2003 to the first six months of 2004 is due primarily to a decrease in stock option exercises.

We believe our cash, cash equivalents and marketable securities balance of $649.4 million will be sufficient to meet working capital and expenditure needs for at least the next twelve months. Inflation has not had a significant long-term impact on earnings.

Employee Stock Options

Our equity compensation program is a broad-based, long-term retention program that is intended to attract and retain talented employees and align stockholder and employee interests. Of the stock options we granted in 2003, 87% went to employees other than the Chief Executive Officer and the five other most highly compensated executive officers.

Stock option plan activity for the first six months of 2004, and the years ended December 31, 2003 and 2002 follows (in thousands):


	Six Months Ended July 4, 2004		Year Ended December 31, 2003		Year Ended December 31, 2002
Outstanding at beginning of period	29,923		33,421		29,750
Options granted	6,631		6,659		7,205
Options exercised	(519	)	(7,115	)	(1,152	)
Options canceled	(987	)	(3,042	)	(2,382	)

Outstanding at end of period	35,048		29,923		33,421

Exercisable at the end of the period	18,633		16,949		19,296

Available for grant at beginning of period	21,401		25,018		29,841
Grants	(6,631	)	(6,659	)	(7,205	)
Cancellations	987		3,042		2,382
Additional shares reserved	—		—		—

Available for grant at end of period	15,757		21,401		25,018

Employee and Executive Option Grants


	Six Months Ended July 4, 2004		Year Ended December 31,
	Six Months Ended July 4, 2004		2003		2002
Net grants during the period as a percentage of outstanding shares at the end of such period	2.91	%	1.88	%	2.63	%
Grants to Named Executive Officers* during the period as a percentage of outstanding shares at the end of such period	0.55	%	0.42	%	0.44	%
Grants to Named Executive Officers* during the period as a percentage of total options granted during such period	16.23	%	12.28	%	11.42	%
Cumulative options held by Named Executive Officers* as a percentage of total options outstanding at the end of such period	12.07	%	11.54	%	10.33	%

*	The term “Named Executive Officers” as used in these notes, includes the Chief Executive Officer and the five other most highly compensated executive officers for the six months ended July 4, 2004.

Summary of in-the-money and out-of the-money option information at July 4, 2004 (shares in thousands):


	Exercisable			Unexercisable			Total
	Shares	Weighted- Average Exercise Price		Shares	Weighted- Average Exercise Price		Shares	Weighted- Average Exercise Price
In-the-Money	4,251	$	14.46	7,239	$	14.46	11,490	$	14.46
Out-of-the-Money(1)	14,382		29.73	9,176		25.72	23,558		28.17

Total Options Outstanding	18,633		26.25	16,415		20.75	35,048		23.67

(1)	Out-of-the-money options are those options with an exercise price equal to or above $20.93, the closing price of our common stock on July 4, 2004.

Executive Options

Options granted to Named Executive Officers, during the six months ended July 4, 2004:


		Individual Grants
	Number of Securities Underlying Options	Percent of Total Options Granted to Employees(1)		Exercise Price Per Share		Expiration Date	5%(2)		10%(2)
George W. Chamillard	250,000	3.83	%	$	27.06	1/28/2011	$	2,754,034	$	6,418,071
Gregory R. Beecher	95,000	1.46			27.06	1/28/2011		1,046,533		2,438,867
Michael A. Bradley	150,000	2.30			27.06	1/28/2011		1,652,421		3,850,843
Michael A. Bradley	300,000	4.60			21.91	5/27/2011		2,675,872		6,235,918
John M. Casey	76,000	1.17			27.06	1/28/2011		837,226		1,951,094
Edward Rogas, Jr.	110,000	1.69			27.06	1/28/2011		1,211,775		2,823,951
Richard E. Schneider	95,000	1.46			27.06	1/28/2011		1,046,533		2,438,867

(1)	Based on July 4, 2004 total of 6,631,045 shares subject to options granted in the first six months of 2004 to employees under our option plans.

(2)

Potential Realizable Value at Assumed Annual Rates of Stock Price Appreciation for Option Term. Amounts reported in these columns represent amounts that may be realized upon exercise of the options immediately prior to the expiration of their term assuming the specified compounded rates of appreciation (5% and 10%) of our common stock over the term of the options. These numbers are calculated based on rules promulgated by the Securities and Exchange Commission and do not reflect our estimate of future stock price increases. Actual gains, if any, on stock option exercises and common stock holdings are dependent on the timing of such exercise and the future performance of our common stock. There can be no assurance that the rates of appreciation assumed in this table can be achieved or that the amounts reflected will be received by the individuals.

Option exercises and aggregate remaining option holdings and option values of Named Executive Officers as of July 4, 2004 and during the six months ended July 4, 2004:


Name	Shares Acquired During First Six Months of 2004	Value Realized		Number of Securities Underlying Unexercised Options at July 4, 2004		Values of Unexercised In-the Money Options at July 4, 2004(1)
Name	Shares Acquired During First Six Months of 2004	Value Realized		Exercisable	Unexercisable	Exercisable		Unexercisable
George W. Chamillard	0	$	0.00	877,569	830,000	$	1,536,000	$	2,304,000
Gregory R. Beecher	0		0.00	208,711	242,250		512,000		768,000
Michael A. Bradley	0		0.00	367,381	559,000		588,800		883,200
John M. Casey	0		0.00	217,771	194,300		409,600		614,400
Edward Rogas, Jr.	0		0.00	304,381	287,000		588,800		883,200
Richard E. Schneider	0		0.00	205,161	235,800		512,000		768,000

(1)	Option values based on stock price of $20.93, the closing price of our common stock on July 4, 2004.

Equity Compensation Plans

In addition to our 1996 Employee Stock Purchase Plan discussed in Note B: “Accounting Policies,” in our Annual Report on Form 10-K for the year ended December 31, 2003, we maintain three equity compensation plans under which equity securities are authorized for issuance to our employees, directors and/or consultants:

1)	1991 Employee Stock Option Plan;

2)	1997 Employee Stock Option Plan; and

3)	1996 Non-Employee Director Stock Option Plan

The purpose of these plans is to promote our interests by attracting and retaining the services of qualified and talented persons to serve as employees, directors and/or consultants. Except for the 1997 Employee Stock Option Plan, each of the foregoing plans was approved by our shareholders.

The following table presents information about these plans as of July 4, 2004 (shares in thousands):


	(1)	(2)	(3)
Plan category	Number of securities to be issued upon exercise of outstanding options, warrants, and rights	Weighted-average exercise price of outstanding options, warrants, and rights	Number of securities remaining available for future issuance under stock option compensation plans (excluding securities reflected in column(1))
Stock option plans approved by shareholders	6,244	23.95	2,042
Stock option plans not approved by shareholders(1)	28,528	23.16	13,717

Total	34,772	23.30	15,759

(1)

In connection with the acquisition of GenRad, Inc. in October, 2001 (the “Acquisition”), we assumed the outstanding options granted under the GenRad, Inc. 1991 Equity Incentive Plan, the GenRad, Inc. 1991 Directors’ Stock Option Plan and the GenRad, Inc. 1997 Non-Qualified Employee Stock Option Plan (collectively, the “GenRad Plans”). Upon the consummation of the Acquisition, these options became exercisable for shares of our common stock based on an exchange ratio of 0.1733 shares of Teradyne common stock for each share of GenRad common stock. No additional options will be granted pursuant to the GenRad Plans. As of July 4, 2004, there were outstanding options exercisable for an aggregate of 276 shares of our common stock pursuant to the GenRad Plans, with a weighted average exercise price of $70.84 per share.

For further information on our stock option plans see Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” in our Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 15, 2004.

Risk Factors

Certain Factors That May Affect Future Results

From time to time, information we provide, statements made by our employees or information included in our filings with the Securities and Exchange Commission (including this Form 10-Q) contain statements that are not purely historical, but are forward looking statements, made under Section 21E of the Securities Exchange Act of 1934, which involve risks and uncertainties. In particular, forward looking statements made herein include projections, plans and objectives for our business, financial condition, operating results, future operations, or future economic performance, statements relating to the sufficiency of capital to meet working capital requirements, capital expenditures, expectations as to customer orders and demand for our products and statements relating to backlog, bookings and cancellations, gross margins and pricing considerations. These statements are neither promises nor guarantees but involve risks and uncertainties, both known and unknown, which could cause our actual future results to differ materially from those stated in any forward looking statements. Factors that may cause such differences include, but are not limited to, the factors discussed below. These factors, and others, are discussed from time to time in our filings with the Securities and Exchange Commission, including in our Annual Report on Form 10-K for the year ended December 31, 2003.

Our Business Is Impacted by the Slowdown in Economies Worldwide.

Capital equipment providers in the electronics and semiconductor industries, such as Teradyne, were negatively impacted by the slowdown in the global economies, and resulting reductions in customer capital investments, that began in the second half of 2000. Future slowdowns in global economies and reductions in customer capital investments, which may adversely impact our business, are difficult to predict.

Acts of War, Terrorists Attacks and the Threat of Domestic and International Terrorist Attacks May Adversely Impact Our Business.

Acts of war and terrorists attacks may cause damage or disruption to our employees, facilities, customers, suppliers and distributors which could have a material adverse effect on our business, results of operation or financial condition. As we sell and manufacture products both in the United States and internationally, the threat of future terrorist attacks could lead to changes in security and operations at those locations which could increase our operating costs and which may adversely affect our business. Such conflicts may also cause damage or disruption to transportation and communication systems. All of these conditions make it difficult for us, and our customers, to accurately forecast and plan future business activities and could have a material adverse effect on our business, financial condition and results of operations.

Our Business is Dependent on the Current and Anticipated Market for Electronics.

Our business and results of operations depend in significant part upon capital expenditures of manufacturers of semiconductors and other electronics, which in turn depend upon the current and anticipated market demand for those products. The market demand for electronics was impacted by the economic slowdown that began in the latter portions of 2000 and the effects of the hostilities which began in September 2001. Historically, the electronics and semiconductor industry has been highly cyclical with recurring periods of over-supply, which often have had a severe negative effect on demand for test equipment, including systems we manufacture and market. We believe that the markets for newer generations of electronic products such as those that we manufacture and market will also be subject to similar fluctuations. We are dependent on the timing of orders from our customers and the deferral or cancellation of previous customer orders could have an adverse effect on our results of operations. We cannot assure that the level of revenues or new orders for a calendar quarter will be sustained in subsequent quarters. In addition, any factor adversely affecting the electronics industry or particular segments within the electronics industry may adversely affect our business, financial condition and operating results.

We Have Taken Measures to Address the Past Slowdown in the Market for Our Products Which Could Have Long-term Negative Effects on Our Business.

During 2001, 2002 and 2003, we took measures to address the slowdown in the market for our products. In particular, we reduced our workforce, closed and/or sold facilities, discontinued certain product lines, implemented material cost reduction programs and reduced planned capital expenditures and expense budgets. Each measure we took to address the slowdown could have long-term negative effects on our business by reducing our pool of technical talent, decreasing or slowing improvements in our products, increasing our debt, and making it more difficult to respond to customers or competitors, as the market and customer orders turn around.

We May Not Be Able to Adequately Address a Rapid Increase in Customer Demand.

Because we took measures during the past three years to scale back operations and reduce expenses in response to decreased customer demand for products and services, we may not be able to satisfy a rapid increase in customer demand. Our ability to meet rapid increases in customer demand is also, to a certain extent, dependant upon the ability of our suppliers and contractors to meet increased product or delivery requirements, over which we have little or no control.

Our Business May Be Adversely Impacted by Acquisitions Which May Affect Our Ability to Manage and Maintain Our Business.

Since our inception, we have acquired a number of businesses. In the future, we may undertake additional acquisitions of businesses that complement our existing operations. Such past or future acquisitions could involve a number of risks, including:

•

the diversion of the attention of management and other key personnel;

•

the costs associated with and/or the inability to effectively integrate an acquired business into our culture, product and service delivery methodology and other standards, controls, procedures and policies;

•

the inability to retain the management, key personnel and other employees of an acquired business;

•

the inability to retain the customers of an acquired business;

•

the possibility that our reputation will be adversely affected by customer satisfaction problems of an acquired business;

•

potential known or unknown liabilities associated with an acquired business, including but not limited to regulatory, environmental and tax liabilities;

•

significant underperformance of the acquired business relative to our expectations;

•

the amortization of acquired identifiable intangibles, which may adversely affect our reported results of operations; and

•

litigation which has or which may arise in the future in connection with such acquisitions.

For example, in connection with the August 2000 acquisition of each of Herco Technology Corp., a California company, and Perception Laminates, Inc., a California company, a complaint was filed on or about September 5, 2001 and is now pending in Federal District Court, San Diego, California, by the former owners of those companies naming as defendants Teradyne and two of our executive officers. This case is further described in “Item 1: Legal Proceedings” in this Form 10-Q.

Additionally, in 2001, we were designated as a “potentially responsible party” (“PRP”) at a clean-up site in Los Angeles, California. This claim arises out of our acquisition of Perception Laminates, Inc. in August 2000. Prior to that date, Perception Laminates had itself acquired certain assets of Alco Industries Inc. under an asset purchase agreement dated July 30, 1992. This case is further described in “Item 1: Legal Proceedings” in this Form 10-Q.

We Currently Are and in the Future May Be Subject to Litigation that Could Have an Adverse Effect on Our Business.

From time to time, we may be subject to litigation or other governmental proceedings that could require significant management time and resources and cause us to incur expenses and, in the event of an adverse decision, pay damages in an amount that could have a material adverse effect on our financial position or results of operations.

For example, on April 30, 2004, Hampshire Equity Partners II, L.P. (“HEP”), filed a complaint against Teradyne and Teradyne Connection Systems segment (“TCS”) asserting fraud and negligence based claims, and a claim for intentional interference with economic opportunity. In the complaint, HEP alleges that it relied upon statements made by a representative of TCS to a HEP agent during its due diligence prior to investing $55 million in Connector Services Corporation, aka AMAX Plating, Inc (“CSC”). HEP seeks to hold Teradyne and

TCS responsible for its decision to invest in CSC and for the losses it has suffered upon the bankruptcy of CSC. HEP seeks damages in an unstated amount exceeding $55 million. The case is currently pending in the U.S. District Court of the Southern District of New York. We believe we have meritorious defenses to the claims and will defend ourselves vigorously. Management does not believe that the outcomes of these claims will have a material adverse effect on our financial position or results of operations but there can be no assurance that any such claims would not have a material adverse effect on our financial position or results of operations. This case is further described in “Item 1: Legal Proceedings” in this Form 10-Q.

We Currently Face, and in the Future May Be the Subject of, Securities Class Action Litigation Due to Past or Future Stock Price Volatility.

Teradyne and two of our executive officers were named as defendants in three purported class action complaints that were filed in Federal District Court, Boston, Massachusetts, in October and November 2001. The court consolidated the cases and has appointed three lead plaintiffs. On November 8, 2002, plaintiffs filed and served a consolidated amended class action complaint. The complaint alleges, among other things, that the defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, by making, during the period from July 14, 2000 until October 17, 2000, material misrepresentations and omissions to the investing public regarding our business operations and future prospects. The complaint seeks unspecified damages, including compensatory damages and recovery of reasonable attorneys’ fees and costs. A motion was filed to dismiss all claims asserted in the complaint on February 7, 2003. On January 16, 2004, the U.S. Magistrate Judge recommended to the U.S. District Court that our motion to dismiss the consolidated amended class action complaint in its entirety be allowed without prejudice. On February 2, 2004, the lead plaintiffs filed an objection to the U.S. Magistrate Judge’s recommendation. On March 2, 2004, we filed our response to the lead plaintiffs objection and the matter remains pending in the Federal District Court in San Diego, California. We believe we have meritorious defenses to the claims and will defend ourselves vigorously. Management does not believe that the outcomes of these claims will have a material adverse effect on our financial position or results of operations but there can be no assurance that any such claims would not have a material adverse effect on our financial position or results of operations. These cases are further described in “Item 1: Legal Proceedings” in this Form 10-Q.

Our Business May be Adversely Impacted by Divestitures of Lines of Business Which May Affect Our Ability to Manage and Maintain Our Business.

Since our inception, we have divested certain lines of business. In the future, we may undertake additional such divestitures. Such past or future divestitures could involve a number of risks, including:

•

the diversion of the attention of management and other key personnel;

•

disruptions and other effects caused by the divestiture of a line of business on our culture, product and service delivery methodology and other standards, controls, procedures and policies;

•

customer satisfaction problems caused by the loss of a divested line of business;

•

restructuring, inventory and other charges which may affect our results of operations; and

•

the decreased diversification of our product lines caused by the divestiture of a line of business which may make our operating results subject to increased market fluctuations.

If We Are Unable to Protect Our Intellectual Property, We May Lose a Valuable Asset or May Incur Costly Litigation to Protect Our Rights.

Our products incorporate technology that we protect in several ways, including patents, copyrights, trade secrets and by contract (“IP”). However, even with these protections, our IP may still be challenged, invalidated or subject to other infringement actions. While we believe that our IP has value in the aggregate, no single element of our IP is in itself essential. If a significant portion of our IP is invalidated or ineffective, our business could be materially adversely affected. In addition, we receive notifications from time to time that we may be in

violation of patents held by others. An assertion of patent infringement against us, if successful, could have a material adverse effect on our ability to sell our products, or require a significant use of management resources and necessitate a lengthy and expensive defense which could adversely affect our operating results.

If We Fail to Develop New Technologies to Adapt to Our Customers’ Needs and if Our Customers Fail to Accept Our New Products, Our Revenues Will Be Adversely Affected.

We believe that our technological position depends primarily on the technical competence and creative ability of our engineers. In a rapidly evolving market, such as ours, the development of new technologies, commercialization of those technologies into products and market acceptance and customer demand for those products are critical to our success. Successful product development and introduction depends upon a number of factors, including:

•

new product selection;

•

ability to meet customer requirements;

•

development of competitive products by competitors;

•

timely and efficient completion of product design;

•

timely and efficient implementation of manufacturing; and

•

assembly processes and product performance at customer locations.

We Are Subject to Intense Competition.

We face significant competition throughout the world in each of our operating segments. Some of our competitors have substantial financial and other resources to pursue engineering, manufacturing, marketing and distribution of their products. We also face competition from internal suppliers at several of our customers. Some of our competitors have introduced or announced new products with certain performance characteristics which may be considered equal or superior to those we currently offer. We expect our competitors to continue to improve the performance of their current products and to introduce new products or new technologies that provide improved cost of ownership and performance characteristics. New product introductions by competitors could cause a decline in revenues or loss of market acceptance of our products. Moreover, increased competitive pressure could lead to intensified price based competition, which could materially adversely affect our business, financial condition and results of operations.

We Are Subject to Risks of Operating Internationally.

A significant portion of our total revenue is derived from customers outside the United States. Our international sales and operations are subject to significant risks and difficulties, including:

•

unexpected changes in legal and regulatory requirements and in policy changes affecting international markets;

•

changes in tariffs and exchange rates;

•

social, political and economic instability, acts of terrorism and international conflicts;

•

difficulties in accounts receivable collection;

•

cultural differences in the conduct of business;

•

difficulties in staffing and managing international operations;

•

potentially adverse tax consequences; and

•

compliance with customs regulations.

In addition, an increasing portion of our products are sourced or manufactured in foreign locations, including China, and a large portion of the devices our products test are fabricated and tested by foundries and subcontractors in Taiwan, Singapore, China and other parts of Asia. As a result, we are subject to a number of economic and other risks, particularly during times of political or financial instability in these regions. Disruption of manufacturing or supply sources in these international locations could materially adversely impact our ability to fill customer orders and potentially result in lost business.

Our Business May Suffer if We Are Unable to Attract and Retain Key Employees.

Competition for employees with skills we require is intense in the high technology industry. Our success will depend on our ability to attract and retain key technical employees. The loss of one or more key or other employees, our inability to attract additional qualified employees, or the delay in hiring key personnel could each have a material adverse effect on our business, results of operations or financial condition.

If Our Suppliers do not Meet Product or Delivery Requirements, We Could Have Reduced Revenues and Earnings.

Certain components, including semiconductor chips, may be in short supply from time to time because of high industry demand or the inability of some vendors to consistently meet our quality or delivery requirements. Approximately 30% of material purchases require some custom work where having multiple suppliers would be cost prohibitive. If any of our suppliers were to cancel contracts or commitments or fail to meet the quality or delivery requirements needed to satisfy customer orders for our products, we could lose time-sensitive customer orders and have significantly decreased quarterly revenues and earnings, which would have a material adverse effect on our business, results of operations and financial condition. In addition, we rely on contract manufacturers for certain subsystems used in our products, and our ability to meet customer orders for those products depends upon the timeliness and quality of the work performed by these subcontractors, over whom we do not exercise any control.

We are also dependent on the financial strength of our suppliers and may be subject to litigation arising from our relationships with suppliers and others. For example, on September 24, 2003, one of our suppliers filed a petition for Chapter 11 bankruptcy. Subsequently, on April 30, 2004 we were sued by an investor in that supplier. This case is described in “Item 1: Legal Proceedings” in this Form 10-Q. While the loss of this supplier has not had a material adverse effect on our business, results of operations or financial condition, there can be no assurance that the loss of other suppliers either as a result of bankruptcy or otherwise will not have a material adverse effect on our business, results of operations or financial condition.

We May Incur Significant Liabilities if We Fail to Comply With Environmental Regulations.

We are subject to both domestic and international environmental regulations and statutory strict liability relating to the use, storage, discharge, site cleanup and disposal of hazardous chemicals used in our manufacturing processes. If we fail to comply with present and future regulations, or are required to perform site remediation, we could be subject to future liabilities or the suspension of production. Present and future regulations may also:

•

restrict our ability to expand facilities;

•

require us to acquire costly equipment; or

•

require us to incur other significant costs and expenses.

Pursuant to present regulations and agreements, we are conducting groundwater and subsurface assessment and monitoring and are implementing remediation and corrective action plans for facilities located in California, Massachusetts and New Hampshire which are no longer conducting manufacturing operations. As of August 11, 2004, we have not incurred material costs as result of the monitoring and remediation steps taken at the California, Massachusetts and New Hampshire sites.

On January 27, 2003, the European Union adopted the following directives: (i) the Restriction of the Use of Certain Hazardous Substances in Electrical and Electronic Equipment (the “RoHS Directive”); and (ii) the Waste Electrical and Electronic Equipment Directive (the “WEEE Directive”). Both the RoHs Directive and the WEEE Directive will alter the type and manner in which electronic equipment is imported, sold and handled in the European Union. Ensuring compliance with the RoHs Directive and the WEEE Directive could result in additional costs and disruption to operations and logistics and thus, could have a negative impact on the business, operations and financial condition. The RoHs Directive and the WEEE Directive will be become effective on July 6, 2006.

We Have Substantially Increased Our Indebtedness.

On October 24, 2001, we completed a private placement of $400 million principal amount of 3.75% Convertible Senior Notes (the “Notes”) due October 15, 2006 and received net proceeds of $389 million. As a result, we have incurred approximately $400 million principal amount of additional indebtedness, substantially increasing our ratio of debt to total capitalization. The level of our indebtedness, among other things, could:

•

make it difficult to make payments on our debt and other obligations;

•

make it difficult to obtain any necessary future financing for working capital, capital expenditures, debt service requirements or other purposes;

•

require the dedication of a substantial portion of any cash flow from operations to service for indebtedness, thereby reducing the amount of cash flow available for other purposes, including capital expenditures;

•

limit our flexibility in planning for, or reacting to changes in our business and the industries in which we compete;

•

place us at a possible competitive disadvantage with respect to less leveraged competitors and competitors that have better access to capital resources; and

•

make us more vulnerable in the event of a downturn in our business.

There can be no assurance that we will be able to meet our debt service obligations, including our obligations under the Notes.

We May Not Be Able to Satisfy Certain Obligations in the Event of a Change in Control.

The indenture governing the Notes contains provisions that apply to a change in control of Teradyne. If a “change in control” occurs, the holders of the Notes have the right to require us to repurchase all of the Notes not previously called for redemption. The price that we are required to pay is 100% of the principal amount of the Notes to be repurchased, together with interest accrued but unpaid to, but excluding, the repurchase date. At our option and subject to the satisfaction of certain conditions, instead of paying the repurchase price in cash, we may pay the repurchase price in common stock valued at 95% of the average of the closing prices of common stock for the five trading days immediately preceding and including the third trading day prior to the repurchase date. If we are required to repurchase the Notes, there is no guarantee that we will have enough funds to pay such amounts.

As a result, a change in control could have a material adverse effect on our business, results of operations or financial condition.

We May Not Be Able to Pay Our Debt and Other Obligations.

If our cash flow is inadequate to meet our obligations, we could face substantial liquidity problems. If we are unable to generate sufficient cash flow or otherwise obtain funds necessary to make required payments on the Notes or certain of our other obligations, we would be in default under the terms thereof, which would permit the holders of those obligations to accelerate their maturity and also could cause defaults under future indebtedness we may incur. Any such default could have a material adverse effect on our business, prospects, financial position and operating results. In addition, we cannot assure that we would be able to repay amounts due in

respect of the Notes if those obligations were to be accelerated following the occurrence of any other event of default as defined in the instruments creating those obligations. Moreover, we cannot assure that we will have sufficient funds or will be able to arrange for financing to pay the principal amount due on the Notes at maturity.

We May Need Additional Financing, Which Could Be Difficult to Obtain.

We expect that our existing cash and marketable securities and cash generated from operations will be sufficient to meet our cash requirements to fund operations and expected capital expenditures for the next twelve months. However, we have a finite amount of cash and in the event we may need to raise additional funds, due to losses or other reasons, we cannot be certain that we will be able to obtain such additional financing on favorable terms, if at all. Further, if we issue additional equity securities, stockholders may experience additional dilution or the new equity securities may have rights, preferences or privileges senior to those of existing holders of common stock. Future financings may place restrictions on how we operate our business. If we cannot raise funds on acceptable terms, if and when needed, we may not be able to develop or enhance our products and services, take advantage of future opportunities, grow our business or respond to competitive pressures, which could seriously harm our business.

If We Are Required to Account for Options Under Our Employee Stock Plans as a Compensation Expense, Our Reported Operating Results Will Be Adversely Affected.

There has been an increasing public debate about the proper accounting treatment for employee stock options. We currently disclose pro forma compensation expense quarterly and annually by calculating the grants’ fair value and disclosing the impact on net income (loss) and net income (loss) per share in a footnote to the consolidated financial statements. If future laws and regulations require us to record the fair value of all stock options as compensation expense in our consolidated statement of operations, our reported operating results will be adversely affected. Note B: “Accounting Policies,” of the consolidated financial statements reflects the impact that such a change in accounting treatment would have had on net income (loss) and net income (loss) per share if it had been in effect during the three months ended July 4, 2004 and June 29, 2003. Included in Item 2: “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” are additional stock-based compensation disclosures.

Provisions of Our Charter and By-Laws and Massachusetts Law Make a Takeover of Teradyne More Difficult.

Our basic corporate documents, our stockholder rights plan and Massachusetts law contain provisions that could discourage, delay or prevent a change in control, even if a change in control might be regarded as beneficial to some or all of our stockholders.

Our Operating Results Are Likely to Fluctuate Significantly.

Our annual operating results are affected by a wide variety of factors that could materially adversely affect revenues and profitability.

The following factors set out below are expected to impact future operations:

•

competitive pressures on selling prices;

•

our ability to introduce and the market acceptance of new products planned for 2004 and beyond;

•

changes in product revenue mix resulting from changes in customer demand;

•

the level of orders received which can be shipped in a quarter resulting from the tendency of customers to wait until late in a quarter to commit to purchase due to capital expenditure approvals and constraints occurring at the end of a quarter, or the hope of obtaining more favorable pricing from a competitor seeking the business;

•

engineering and development investments relating to new product introductions in 2004 and beyond, and the expansion of manufacturing and engineering operations in Asia;

•

the ability of our suppliers and subcontractors to meet product quality or delivery requirements needed to satisfy customer orders for our products, especially if product demand increases rapidly;

•

provisions for excess and obsolete inventory relating to the lack of demand for and the discontinuance of products; and

•

impairment charges for certain long-lived assets.

In particular, due to the introduction of a number of new, complex test systems in 2003 and the planned introduction of other systems in 2004 and beyond, there can be no assurance that we will not experience delays in shipment of our products or that our products will achieve customer acceptance.

As a result of the foregoing and other factors, we have and may continue to experience material fluctuations in future operating results on a quarterly or annual basis which could materially and adversely affect our business, financial condition, operating results and stock price.

We have Significant Guarantees and Indemnification Obligations

From time to time we make guarantees to customers regarding the performance of our products, guarantee certain indebtedness obligations of our subsidiary companies and have agreed to provide indemnification to our officers, directors, employees and agents, to the extent permitted by law, arising from certain events or occurrences while the officer, director, employee or agent, is or was serving at our request in such capacity. If we become liable under any of these obligations, it could materially and adversely affect our business, financial condition and operating results. For additional information regarding “Guarantees and Indemnification Obligations” see Note J: “Commitments and Contingencies” in our Annual Report on Form 10-K for the year ended December 31, 2003. In addition to the guarantee and indemnification obligations set forth in our Annual Report, Teradyne occasionally guarantees the performance obligations and responsibilities of its subsidiary and affiliate companies.

Item 3: Quantitative and Qualitative Disclosures about Market Risk

For “Quantitative and Qualitative Disclosures about Market Risk” affecting Teradyne, see Item 7a. “Quantitative and Qualitative Disclosures About Market Risks,” in our Annual Report on Form 10-K filed with the SEC on March 15, 2004. There were no material changes in our exposure to market risk from those set forth in our Annual Report for the fiscal year ended December 31, 2003.

Item 4: Controls and Procedures.

As of the end of the period covered by this report, our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures pursuant to Rule 13a-15(b) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were effective in ensuring that material information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, including ensuring that such material information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

During the period covered by this report, there have been no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. The design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. The design of a control system is based in part upon certain assumptions of the likelihood of certain future events, and there can be no assurance that any design will succeed in achieving its goals under all possible future conditions. Because of inherent limitations in any control system, misstatements due to error or fraud may occur and not be detected.

PART II. OTHER INFORMATION

Item 1: Legal Proceedings

After the August 2000 acquisition of Herco Technology Corp. and Perception Laminates, Inc. the former owners of those companies filed a complaint on September 5, 2001 against Teradyne and two of our executive officers. The case is now pending in Federal District Court, in San Diego, California. We filed a motion to dismiss the complaint in its entirety on behalf of Teradyne and the two individual defendants. The court granted the motion in part, and the only remaining claims were that the sale of our common stock to the former owners violated certain California securities statutes and common law and that we had breached certain contractual obligations in the agreements relating to the acquisitions. Our subsequent motion for partial summary judgment with respect to the breach of contract claims was granted on November 7, 2002. On December 9, 2002, the plaintiffs filed a motion asking the court to reconsider its summary judgment ruling or, alternatively, for certification under Rule 54(b) which would grant the plaintiffs leave to appeal both the Court’s ruling regarding dismissal of claims and its ruling granting summary judgment to the Ninth Circuit Court of Appeals. We opposed these motions. On April 22, 2003, the Court denied the plaintiffs’ motion from reconsideration and the plaintiffs’ request for certification under Rule 54(b). The only claim still pending before the District Court from the original complaint relates to an allegation of fraud in connection with the setting of the transaction price. We have answered and denied all liability.

Teradyne and two of our executive officers were named as defendants in three purported class action complaints that were filed in Federal District Court, Boston, Massachusetts, in October and November 2001. The court consolidated the cases and has appointed three lead plaintiffs. On November 8, 2002, plaintiffs filed and served a consolidated amended class action complaint. The complaint alleges, among other things, that the defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, by making, during the period from July 14, 2000 until October 17, 2000, material misrepresentations and omissions to the investing public regarding our business operations and future prospects. The complaint seeks unspecified damages, including compensatory damages and recovery of reasonable attorneys’ fees and costs. We filed a motion to dismiss all claims asserted in the complaint on February 7, 2003. On January 16, 2004, the U.S. Magistrate Judge recommended to the U.S. District Court that our motion to dismiss the consolidated amended class action complaint in its entirety be allowed without prejudice. On February 2, 2004, the lead plaintiffs filed an objection to the U.S. Magistrate Judge’s recommendation. We filed our response to the lead plaintiff’s objection on March 2, 2004 and the matter remains pending in the Federal District Court in San Diego, California. We believe we have meritorious defenses to the claims and will defend ourselves vigorously.

In 2001, we were designated as a “potentially responsible party” (“PRP”) at a clean-up site in Los Angeles, California. This claim arises out of our acquisition of Perception Laminates, Inc. in August 2000. Prior to that date, Perception Laminates had itself acquired certain assets of Alco Industries Inc. under an asset purchase agreement dated July 30, 1992. Neither Teradyne nor Perception Laminates have ever conducted any operations at the Los Angeles site. We have asked the State of California to drop the PRP designation, but California has not yet agreed to do so.

On April 30, 2004, Hampshire Equity Partners II, LP (“HEP”) filed a complaint against Teradyne and Teradyne’s Connection Systems segment (“TCS”) in the United States District Court of the Southern District of New York, relating to its February 21, 2001 investment of $55 million in Connector Service Corporation aka AMAX Plating, Inc. (“CSC”), which was a supplier to TCS at the time. During the due diligence that HEP conducted prior to making that investment, an agent of HEP spoke with TCS, among other CSC customers, concerning CSC. On or about September 24, 2003, CSC filed for bankruptcy protection as discussed above. HEP has now brought suit against Teradyne and TCS asserting fraud and negligence based claims, and a claim for intentional interference with economic opportunity, relating to statements that a TCS representative made to HEP’s agent prior to HEP’s February 2001 investment in CSC. HEP seeks to hold Teradyne and TCS responsible for its decision to invest in CSC and for the losses that it suffered upon the bankruptcy of CSC. HEP is now

seeking damages for an unstated amount of not less than $55 million. On June 17, 2004, Teradyne and TCS filed a motion to dismiss HEP’s compliant in its entirety. On August 9, 2004, HEP filed its opposition to the motion to dismiss and that motion remains pending.

We believe that we have meritorious defenses against the above unsettled claims and intend to vigorously contest them. While it is not possible to predict or determine the outcomes of the unsettled claims or to provide possible ranges of losses that may arise, we believe the losses associated with all of these actions will not have a material adverse effect on our consolidated financial position or liquidity, but could possibly be material to our consolidated results of operations of any one period.

In addition, we are subject to legal proceedings, claims and investigations that arise in the ordinary course of business such as, but not limited to, patent, employment, commercial and environmental matters. Although there can be no assurance, there are no such matters pending that we expect to be material with respect to our business, financial position or results of operations.

Item 4: Submission of Matters to a Vote of Security Holder

The annual meeting of the security holders of Teradyne was held on May 27, 2004. The following were elected as Class III directors, to serve for a three (3) year term and until their successors gave been duly elected and qualified:


Nominee	Total Vote For Each Nominee	Total Vote Withheld For Each Nominee
John P. Mulroney	170,227,062	7,759,919
Patricia S. Wolpert	164,206,888	13,780,093

In addition, the security holders approved an amendment to Teradyne’s 1996 employee Stock Purchase Plan to increase the aggregate number of shares of Common Stock that may be issued pursuant to said plan by 5,000,000 shares, with 123,758,800 shares voting in favor, 28,437,661 shares voting against, 1,607,448 shares abstaining, and 24,183,072 shares that were broker no-votes.

Lastly, the security holders also ratified the selection of the firm of PricewterhouseCooper LLP as auditors for the fiscal year ending December 31, 2004, with 172, 981,823 shares voting in favor, 4,231,105 shares voting against, and 774,053 shares abstaining.

Item 6: Exhibits and Reports on Form 8-K

(a): Exhibits


Exhibit Number		Description

3.4		Amended and Restated Bylaws of Teradyne (filed herewith)

10.6		1996 Employee Stock Purchase Plan, as amended (filed herewith)*

10.35		Employment Agreement between Teradyne and Eileen Casal (filed herewith)*

10.36		Employment Agreement between Teradyne and John Casey (filed herewith)*

10.37		Employment Agreement between Teradyne and Mark Jagiela (filed herewith)*

10.38		Employment Agreement between Teradyne and Michael A. Bradley (filed herewith)*

10.39		Employment Agreement between Teradyne and Edward Rogas, Jr. (filed herewith)*

10.40		Employment Agreement between Teradyne and Gregory R. Beecher (filed herewith)*

10.41		Employment Agreement between Teradyne and Jeffrey R. Hotchkiss (filed herewith)*


Exhibit Number		Description

10.42		Employment Agreement between Teradyne and Richard Schneider (filed herewith)*

10.43		Employment Agreement between Teradyne and Richard MacDonald (filed herewith)*

10.44		Employment Agreement between Teradyne and George Chamillard (filed herewith)*

14.1		Ethics Policy: Teradyne’s Standards of Business Conduct and Ethics, as amended (filed herewith)

31.1		Certification of Principal Executive Officer, pursuant to Rule 13a-14(a) of Securities and Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith)

31.2		Certification of Principal Financial Officer, pursuant to Rule 13a-14(a) of Securities and Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith)

32.1		Certification pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith)

32.2		Certification pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith)

*	Indicates management contracts or compensatory plans

(b): Reports on Form 8-K

(1)	A Current Report on Form 8-K was filed on April 20, 2004, furnishing, pursuant to Item 12, information relating to Teradyne’s first quarter financial results.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

TERADYNE, INC.

Registrant

/s/ GREGORY R. BEECHER

Gregory R. Beecher

Vice President and

Chief Financial Officer

(Duly Authorized Officer and
Principal Financial Officer)

August 13, 2004

Exhibit 3.4

[ANNOTATED]

****************

AMENDED AND RESTATED

BY-LAWS

TERADYNE, INC.

(Amended and Restated as of July 1, 2004)

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ARTICLE I

Name, Location, Seal and Fiscal Year

1. Name . The name of the corporation is Teradyne, Inc.

2. Location . The corporation may have an office and transact business in Boston, Massachusetts, and at such other place or places as the Board of Directors or stockholders may appoint.

3. Seal . The seal of the corporation shall bear the name of the corporation, the word Massachusetts, the year of incorporation and such other device or inscription as the Board of Directors may determine. The form of the seal may be changed by the Board of Directors.

4. Fiscal Year . The fiscal year of the corporation shall, unless otherwise determined by the Board of Directors, begin on January 1 and end on December 31.

ARTICLE II

Stockholders

1. Annual Meeting . The annual meeting of stockholders shall be held on such date and at such time and place (within the United States) as may be fixed by the Board of Directors from time to time. The purposes for which the annual meeting is to be held, in addition to those prescribed by law, the Articles of Organization or these By-Laws, may be specified by the Directors, the Chief Executive Officer or the President. If no annual meeting is held in accordance with the foregoing provisions, a special meeting may be held in lieu thereof, and any action taken at such meeting shall have the same effect as if taken at the annual meeting.

Except as provided in Article III, Section 2, the only business which may be conducted at any such meeting of the stockholders shall (a) have been specified in the written notice of meeting (or any supplement thereto) given by or at the direction of the Directors, the Chief Executive Officer or the President, (b) have otherwise been properly brought before the meeting by or at the direction of the Directors, the Chief Executive Officer or the President, or (c) have otherwise been properly brought before the meeting by or on behalf of any stockholder who shall have been a stockholder of record on the record date for such meeting and who shall continue to be entitled to vote thereat. In addition to any other applicable requirements, for business to be properly brought before a meeting by a stockholder, the stockholder must have given timely notice thereof in writing to the Secretary of the corporation. To be timely, a stockholder’s notice must be delivered to or mailed and received at the principal executive offices of the corporation, not less than fifty (50) days nor more than ninety (90) days prior to the meeting; provided, however, that in the event that less than sixty-five (65) days’ notice or prior public disclosure of the date of the meeting is given or made to stockholders, notice by the stockholder to be timely must be so received not later than the close of business on the fifteenth day following the day on which notice of the date of the meeting was mailed or such public disclosure was made, whichever first occurs. A stockholder’s notice to the Secretary shall set forth as to each matter

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the stockholder proposes to bring before the meeting (i) a brief description of the business desired to be brought before the meeting and the reasons for conducting such business at the meeting, (ii) the name and record address of the stockholder proposing such business, (iii) the class and number of shares of capital stock of the corporation held of record, owned beneficially and represented by proxy by such stockholder as of the record date for the meeting (if such date shall then have been made publicly available) and as of the date of such notice by the stockholder, and (iv) all other information which would be required to be included in a proxy statement filed with the Securities and Exchange Commission if, with respect to any such item of business, such stockholder were a participant in a solicitation subject to Regulation 14A under the Securities Exchange Act of 1934, as amended (the “Proxy Rules”).

Notwithstanding anything in the By-Laws to the contrary, no business shall be conducted at the meeting except in accordance with the procedures set forth in this Article II, provided, however, that nothing in this Article II shall be deemed to preclude discussion by any stockholder of any business properly brought before the meeting.

The Chairman of the meeting may, if the facts warrant, determine and declare to the meeting that business was not properly brought before the meeting in accordance with the provisions of this Article II, and if he should so determine, he shall so declare to the meeting and that business shall be disregarded. [Section 1 restated March 13, 1991, May 23, 1996 and July 1, 2004.]

2. Special Meetings . Special meetings of stockholders may be called by the Chief Executive Officer, the President or by the Directors. A special meeting shall be called by the Secretary, or in case of the death, absence, incapacity or refusal of the Secretary, by any other officer, upon written application of one or more stockholders who hold at least 66-2/3% in interest of the capital stock entitled to vote at a meeting (or such lesser percentage in interest as shall be the maximum percentage permitted under Massachusetts law). The call for the meeting shall state the date, hour and place and the purposes of the meeting. [Section 2 restated September 14, 1989, May 23, 1996 and July 1, 2004.]

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3. Place of Meetings . All meetings of stockholders shall be held at the principal office of the corporation unless a different place (within the United States) is fixed by the Directors, the Chief Executive Officer or the President and stated in the notice of the meeting. [Section 3 restated May 23, 1996.]

4. Notice of Meetings . A written notice of every meeting of stockholders, stating the place, date and hour thereof, and the purpose for which the meeting is to be held, shall be given by the Secretary or by the person calling the meeting at least seven days before the meeting or such longer period as required by law to each stockholder entitled to vote thereat and to each stockholder who by law, the Articles of Organization or these By-Laws is entitled to such notice, by (i) leaving such notice with him or at his residence or usual place of business, (ii) mailing it postage prepaid and addressed to such stockholder at his address as it appears upon the books of the corporation or (iii) sending such notice via electronic mail to the stockholder’s electronic mail address as it appears upon the books of the corporation. No notice need be given to any stockholder if a written waiver of notice, executed before or after the meeting by the stockholder or his attorney thereunto authorized, is filed with the records of the meeting. [Section 4 restated July 1, 2004.]

5. Quorum . The holders of a majority in interest of all stock issued, outstanding and entitled to vote at a meeting shall constitute a quorum, but a lesser number may adjourn any meeting from time to time without further notice; except that if two or more classes of stock are outstanding and entitled to vote as separate classes, then in the case of each such class a quorum shall consist of the holders of a majority in interest of the stock of that class issued, outstanding and entitled to vote.

6. Voting and Proxies . Each stockholder shall have one vote for each share of stock entitled to vote held by him of record according to the records of the corporation unless otherwise provided by the Articles of Organization. Stockholders may vote in person or by written proxy. Proxies shall be filed with the Secretary of the meeting, or of any adjournment thereof, before being voted. No proxy dated more than eleven months before the meeting named therein shall be

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valid and no proxy shall be valid after the final adjournment of such meeting. Notwithstanding the provisions of the preceding sentence, a proxy coupled with an interest sufficient in law to support an irrevocable power, including, without limitation, an interest in shares or in the corporation generally, may be made irrevocable if it so provides, need not specify the meeting to which it relates, and shall be valid and enforceable until the interest terminates, or for such shorter period as may be specified in the proxy. A proxy with respect to stock held in the name of two or more persons shall be valid if executed by one of them unless at or prior to exercise of the proxy the corporation receives a specific written notice to the contrary from any one of them. A proxy purporting to be executed by or on behalf of a stockholder shall be deemed valid unless challenged at or prior to its exercise and the burden of proving invalidity shall rest on the challenger. [Section 6 restated July 1, 2004.]

7. Action at Meeting . When a quorum is present, the holders of a majority of the stock present or represented and voting on a matter, (or if there are two or more classes of stock entitled to vote as separate classes, then in the case of each such class, the holders of a majority of the stock of that class present or represented and voting on a matter) except where a larger vote is required by law, the Articles of Organization or these By-Laws, shall decide any matter to be voted on by the stockholders. Any election by stockholders shall be determined by a plurality of the votes cast by the stockholders entitled to vote at the election. No ballot shall be required for such election unless requested by a stockholder present or represented at the meeting and entitled to vote in the election. The corporation shall not directly or indirectly vote any share of its stock, provided, however, that notwithstanding the foregoing, the corporation may vote shares of its own stock held by it, directly or indirectly, in a fiduciary capacity. [Section 7 restated July 1, 2004.]

8. Procedure for Meeting . The Secretary, who may call on any officer or officers of the corporation for assistance, shall make all necessary and appropriate arrangements for the meetings of the stockholders, receive all proxies, and ascertain and report by certificate to each meeting of the stockholders the number of shares present in person or by proxy and entitled to

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vote at such meeting. In the absence of the Secretary, an Assistant Secretary shall perform said duties. The certificate of the Secretary or an Assistant Secretary as to the regularity of such proxies and as to the number of shares present in person or by proxy and entitled to vote at such meeting shall be received as prima facie evidence of the number of shares which are present in person and by proxy and entitled to vote, for the purpose of establishing the presence of a quorum at such meeting, for the purpose of organizing such meeting, and for all other purposes. [Section 8 restated July 1, 2004.]

9. Inspectors . At each meeting of the stockholders, (i) the proxies shall be received and taken in charge by three inspectors, (ii) where voting is to be by ballot on any question, the polls shall be opened and closed and the ballots shall be taken in charge by such inspectors, and (iii) all questions touching the qualification of voters, the validity of proxies and the acceptance or rejection of votes shall be decided by such three inspectors or a majority thereof. Such inspectors may be appointed by the Board of Directors before such meeting, or, if no such appointment shall have been made, then by the presiding officer at such meeting. In the event for any reason any of the inspectors previously appointed shall fail to attend such meeting, or being present will not or cannot act in such capacity, then an inspector or inspectors in place of such inspector or inspectors failing to attend or not acting shall be appointed by the presiding officer.

ARTICLE III

Directors

1. Powers . The business of the corporation shall be managed by a Board of Directors who may exercise all the powers of the corporation except as otherwise provided by law, by the Articles of Organization or by these By-Laws. In the event of a vacancy in the Board of Directors, the remaining Directors, except as otherwise provided by law, may exercise the powers of the full Board until the vacancy is filled.

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2. Nomination and Election . The Board of Directors shall consist of not less than three (3) nor more than fifteen (15) persons. The number of the Board of Directors for each year shall be fixed by vote of a majority of the Directors then in office. The Board of Directors shall be classified with respect to the time for which they severally hold office, as provided in Section 8.06 of Chapter 156D of the Massachusetts General Laws, into three classes, as nearly equal in number as possible, the term of office of those of the first class (“Class I Directors”) to continue until the 1990 annual meeting of stockholders and until their successors are duly elected and qualified, the term of office of those of the second class (“Class II Directors”) to continue until the 1991 annual meeting of stockholders and until their successors are duly elected and qualified, and the term of those of the third class (“Class III Directors”) to continue until the 1992 annual meeting of stockholders and until their successors are duly elected and qualified. At each annual meeting of stockholders the successors to the class of Directors whose term expires at the meeting shall be elected to hold office for a term continuing until the annual meeting of stockholders held in the third year following the year of their election and until their successors shall have been duly elected and qualified.

Only persons who are nominated in accordance with the following procedures shall be eligible for election as Directors. Nominations of persons for election to the Board of Directors at the annual meeting may be made at the annual meeting of stockholders by or at the direction of the Board of Directors, by any nominating committee or person appointed by the Board of Directors or by any stockholder entitled to vote for the election of Directors at the meeting who complies with the notice procedures set forth in this Article III. Nominations, other than those made by or at the direction of the Board of Directors or the nominating committee of the Board of Directors, shall be made pursuant to timely notice in writing to the Secretary of the corporation. To be timely, a stockholder’s notice shall be delivered to or mailed and received at the principal executive offices of the corporation not less than fifty (50) days nor more than ninety (90) days prior to the meeting; provided, however, that in the event that less than sixty-five (65) days’ notice of prior public disclosure of the date of the meeting is given or made to

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stockholders, notice by the stockholder to be timely must be so received not later than the close of business on the fifteenth day following the day on which such notice of the date of the meeting was mailed or such public disclosure was made, whichever first occurs. Such stockholder’s notice to the Secretary shall set forth (a) as to each person whom the stockholder proposes to nominate for election or re-election as a Director, (i) the name, age, business address and residence address of the person, (ii) the principal occupation or employment of the person, (iii) the citizenship of the person, (iv) the class and number of shares of capital stock of the corporation which are beneficially owned by the person, and (v) any other information relating to the person that is required to be disclosed in solicitations of proxies for election of directors pursuant to the Proxy Rules; and (b) as to the stockholder giving the notice, (i) the name and record address of the stockholder, (ii) the class and number of shares of capital stock of the corporation which are beneficially owned by the stockholder as of the record date for the meeting (if such date shall then have been made publicly available) and as of the date of such notice, (iii) a representation that the stockholder intends to appear in person or by proxy at the meeting to nominate the person or persons specified in the notice, (iv) a description of all arrangements or understandings between such stockholder and each nominee and any other person or persons (naming such person or persons) pursuant to which the nomination or nominations are to be made by such stockholder, (v) such other information regarding each nominee proposed by such stockholder as would be required to be included in a proxy statement filed pursuant to the Proxy Rules and (vi) the consent of each nominee to serve as a Director of the corporation if so elected. The corporation may require any proposed nominee to furnish such other information as may reasonably be required by the corporation to determine the eligibility of such proposed nominee to serve as Director.

Additionally, any stockholder may suggest candidates for consideration by the nominating committee of the Board of Directors by submitting the candidate’s name, experience and other relevant information to the nominating committee of the Board of Directors. The nominating committee of the Board of Directors will review any candidate recommended to it

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and will notify the stockholder who made such recommendation of its conclusion with respect to the candidate. If the nominating committee determines that such candidate is qualified and eligible to be a nominee, it shall so notify the Board of Directors. .

No person shall be eligible for election as a Director unless nominated in accordance with the procedures set forth herein. [Section 2 restated January 28, 1997 and July 1, 2004.]

3. Vacancies . Vacancies and newly created directorships, whether resulting from an increase in the size of the Board of Directors, from the death, resignation, disqualification or removal of a Director or otherwise, shall be filled solely by the affirmative vote of a majority of the remaining Directors then in office, even though less than a quorum of the Board of Directors. Any Director elected in accordance with the preceding sentence shall hold office for the remainder of the full term of the class of Directors in which the vacancy occurred or the new directorship was created and until such Director’s successor shall have been elected and qualified. No decrease in the number of Directors constituting the Board of Directors shall shorten the term of any incumbent Director. [Section 3 restated March 13, 1991.]

4. Enlargement of the Board . The number of the Board of Directors may be increased and one or more additional Directors elected by vote of a majority of the Directors then in office. [Section 4 restated March 13, 1991.]

5. Resignation . Any Director may resign by delivering his written resignation to the corporation at its principal office or to the Chief Executive Officer, President, Secretary or Assistant Secretary. Such resignation shall be effective upon receipt unless it is specified to be effective at some other time or upon the happening of some other event. [Section 5 restated March 13, 1991, May 23, 1996 and July 1, 2004.]

6. Removal . Any Director may be removed from office only (a) for cause as defined in Section 8.06(f)(2) of Chapter 156D of the Massachusetts General Laws and by the affirmative vote of a majority of the shares of the corporation outstanding and entitled to vote in the election of Directors or (b) for cause by vote of a majority of the Directors then in office. [Section 6 restated July 1, 2004.]

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7. Meetings . Regular meetings of the Directors may be held without call or notice at such places and at such times as the Directors may from time to time determine, provided that any Director who is absent when such determination is made shall be given notice of the determination. A regular meeting of the Directors may be held without a call or notice at the same place as the annual meeting of stockholders, or the special meeting held in lieu thereof, following such meeting of stockholders.

Special meetings of the Directors may be held at any time and place designated in a call by the Chief Executive Officer, President, Treasurer or two or more Directors. [Section 7 restated May 23, 1996.]

8. Notice of Meetings . Notice of all special meetings of the Directors shall be given to each Director by the Secretary or Assistant Secretary, or in the case of the death, absence, incapacity or refusal of such persons, by the officer or one of the Directors calling the meeting. Notice shall be given to each Director in person or by telephone or by telegram sent to his business or home address at least forty-eight hours in advance of the meeting or by written notice mailed to his business or home address at least seventy-two hours in advance of the meeting. Notice need not be given to any Director if a written waiver of notice, executed by him before or after the meeting, is filed with the records of the meeting, or to any Director who attends the meeting without protesting prior thereto or at its commencement the lack of notice to him. A notice or waiver of notice of a Directors’ meeting need not specify the purposes of the meeting. [Section 8 restated July 1, 2004.]

9. Quorum . At any meeting of the Directors, a majority of the Directors then in office shall constitute a quorum. Less than a quorum may adjourn any meeting from time to time without further notice.

10. Action at Meeting . At any meeting of the Directors at which a quorum is present, the vote of a majority of those present, unless a different vote is specified by law, the Articles of Organization or these By-Laws, shall be sufficient to decide such matter.

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11. Action by Consent . Any action by the Directors may be taken without a meeting if a written consent thereto is signed by all of the Directors and filed with the records of the Directors’ meetings. Such consents shall be treated as a vote of the Directors for all purposes.

12. Committees . The Directors may, by vote of a majority of the Directors then in office, elect from their number an executive or other committees and may by like vote delegate thereto some or all of their powers except those which by law, the Articles of Organization or these By-Laws they are prohibited from delegating. Except as the Directors may otherwise determine, any such committee may make rules for the conduct of its business, but unless otherwise provided by the Directors or in such rules, its business shall be conducted as nearly as may be in the same manner as is provided by these By-Laws for the Directors.

ARTICLE IV

Officers

1. Enumeration . The officers of the corporation shall consist of a President, a Treasurer, a Secretary, and such other officers, including a Chief Executive, one or more Vice-Presidents, Assistant Treasurers, Assistant Secretaries as the Directors may determine. [Section 1 restated May 23, 1996 and July 1, 2004.]

2. Election . The President, Treasurer and Secretary shall be elected annually by the Directors at their first meeting following the annual meeting of stockholders. Other officers may be chosen by the Directors at such meeting or at any other meeting. [Section 2 restated July 1, 2004].

3. Qualification . The President (and if so appointed by the Board of Directors, the Chief Executive Officer) may, but need not, be a Director. No officer need be a stockholder. Any one or more officers may be required by the Directors to give bond for the faithful performance of his duties to the corporation in such amount and with such sureties as the Directors may determine. [Section 3 restated May 23, 1996.]

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4. Tenure . Except as otherwise provided by law, the Articles of Organization or these By-Laws, the President, Treasurer and Secretary shall each hold office until the first meeting of the Directors following the annual meeting of stockholders and thereafter until a successor is chosen and qualified; and all other officers shall hold office until the first meeting of the Directors following the annual meeting of stockholders, unless a shorter term is specified in the vote choosing or appointing them. Any officer may resign by delivering his written resignation to the corporation at its principal office or to the President or Secretary, and such resignation shall be effective upon receipt unless it is specified to be effective at some other time or upon the happening of some other event. [Section 4 restated July 1, 2004.]

5. Removal . The Directors may remove any officer with or without cause by vote of a majority of the entire number of Directors then in office; provided, that an officer may be removed for cause only after a reasonable notice and opportunity to be heard by the Board of Directors prior to action thereof.

6. President, Chief Executive Officer and Vice-President . If a Chief Executive Officer has been appointed by the Board of Directors, he shall be the chief executive officer of the corporation and shall, subject to the direction of the Directors, have general supervision and control of its business. If the Board of Directors has not appointed a Chief Executive Officer, the President shall be the chief executive officer of the corporation and shall, subject to the direction of the Directors, have general supervision and control of its business. Unless otherwise provided by the Directors, the President (or if at any time there exists a Chief Executive Officer, the Chief Executive Officer) shall preside, when present, at all meetings of stockholders and of the Directors. [Section 6 restated May 23, 1996.]

Any Vice-President (and the President, if at any time there is a Chief Executive Officer) shall have such powers as the Directors may from time to time designate.

7. Treasurer and Assistant Treasurers . The Treasurer shall, subject to the direction of the Directors, have general charge of the financial affairs of the corporation and shall cause to be kept accurate books of account. He shall have custody of all funds, securities, and valuable documents of the corporation, except as the Directors may otherwise provide.

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Any Assistant Treasurer shall have such powers as the Directors may from time to time designate.

8. Secretary and Assistant Secretaries . The Secretary shall keep a record of the meetings of stockholders. Unless a Transfer Agent is appointed, the Secretary shall keep or cause to be kept in Massachusetts, at the principal office of the corporation, the stock and transfer records of the corporation, in which are contained the names and the record addresses of all stockholders and the amount of stock held by each.

The Secretary shall keep a record of the meetings of the Directors.

Any Assistant Secretary shall have such powers as the Directors may from time to time designate. In the absence of the Secretary from any meeting of stockholders, an Assistant Secretary if one be elected, and otherwise a Temporary Secretary designated by the person presiding at the meeting, shall perform the duties of the Secretary. [Section 8 restated July 1, 2004.]

9. Other Powers and Duties . Each officer shall, subject to these By-Laws, have in addition to the duties and powers specifically set forth in these By-Laws, such duties and powers as are customarily incident to his office, and such duties and powers as the Directors may from time to time designate.

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ARTICLE V

Capital Stock

1. Issuance of Stock . The Board of Directors shall have the power to issue from time to time shares of the capital stock of the corporation for such consideration, in such installments, and upon such terms as the Directors may determine in accordance with the law, the Articles of Organization or these By-Laws.

2. Certificates of Stock . Each stockholder shall be entitled to a certificate of the capital stock of the corporation in such form as may be prescribed from time to time by the Directors. The certificate shall be signed by the Chief Executive Officer, the President or a Vice President, and by the Treasurer or an Assistant Treasurer, but when a certificate is countersigned by a Transfer Agent or a Registrar other than a Director, officer or employee of the corporation, such signatures may be facsimiles. In case any officer who has signed or whose facsimile signature has been placed on such certificate shall have ceased to be such officer before such certificate is issued, it may be issued by the corporation with the same effect as if he were such officer at the time of its issue.

Every certificate for shares of stock which are subject to any restriction on transfer pursuant to the Articles of Organization, these By-Laws or any agreement to which the corporation is a party, shall have the restriction noted conspicuously on the certificate and shall also set forth on the face or back either the full text of the restriction or a statement of the existence of such restriction and a statement that the corporation will furnish a copy to the holder of such certificate upon written request and without charge. Every certificate issued when the corporation is authorized to issue more than one class or series of stock shall set forth on its face or back either the full text of the preferences, voting powers, qualifications and special and relative rights of the shares of each class and series authorized to be issued or a statement of the existence of such preferences, powers, qualifications and rights, and a statement that the corporation will furnish a copy thereof to the holder of such certificate upon written request and without charge.

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3. Transfers . Subject to the restrictions, if any, stated or noted on the stock certificates, shares of stock may be transferred on the books of the corporation by the surrender to the corporation or its Transfer Agent of the certificate therefor properly endorsed or accompanied by a written assignment and power of attorney properly executed, with necessary transfer stamps affixed, and with such proof of the authenticity of signature as the corporation or its Transfer Agent may reasonably require. Except as may be otherwise required by law, the Articles of Organization or these By-Laws, the corporation shall be entitled to treat the record holder of stock as shown on its books as the owner of such stock for all purposes, including the payment of dividends and the right to vote with respect thereof, regardless of any transfer, pledge or other disposition of such stock, until the shares have been transferred on the books of the corporation in accordance with the requirements of these By-Laws.

It shall be the duty of each stockholder to notify the corporation or its Transfer Agent of his post office address.

4. Transfer Agent and Registrar . The Directors shall have power to appoint one or more Transfer Agents and Registrars for the transfer and registration of certificates of stock of any class, and may require that stock certificates shall be countersigned and registered by one or more of such Transfer Agents and Registrars. The resolutions adopted by the Board of Directors, appointing and conferring the powers, rights, duties and obligations of the Transfer Agent or Registrar, or both, shall allocate and delimit the power to make original issue and transfer of the capital stock of the corporation, shall specify whether stockholders shall give notice of changes of their addresses to the Transfer Agent or the Registrar, and shall allocate and impose the duty of maintaining the original stock ledgers or transfer books, or both, of the corporation, and of disclosing the names of the stockholders, the number of shares held by each, by kinds and classes, and the address of each stockholder as it appears upon the records of the corporation. Stockholders shall be responsible for notifying the Transfer Agent or Registrar, as the case may

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be, in writing, of any changes in their addresses from time to time, and failure so to do will relieve the corporation, its stockholders, officers, Directors, Transfer Agent and Registrar, of liability for failure to direct notices, dividends, or other documents or property to an address other than the one appearing upon the records of the Transfer Agent or Registrar, as the case may be, who is the agent specified in such a resolution as the agent to receive notices of changes of address.

5. Lost, Stolen or Destroyed Certificates . The corporation may issue a new certificate for shares of stock in the place of any certificate theretofore issued and alleged to have been lost, stolen or destroyed, but the Board of Directors may require the owner of such lost, stolen or destroyed certificate, or his legal representative, to furnish affidavit as to such loss, theft or destruction, and to give a bond in such form and substance, and with such surety or sureties, with fixed or open penalty, as it may direct, to indemnify the corporation and the Transfer Agent or Registrar against any claim that may be made on account of the alleged loss, theft or destruction of such certificate.

6. Record Date . The Directors may fix in advance a time of not more than seventy days preceding the date of any meeting of stockholders, or the date for the payment of any dividend or the making of any distribution to stockholders, or the last day on which the consent or dissent of stockholders may be effectively expressed for any purpose, as the record date for determining the stockholders having the right to notice of and to vote at such meeting and any adjournment thereof, or the right to receive such dividend or distribution or the right to give such consent or dissent. In such case only stockholders of record on such record date shall have such right, notwithstanding any transfer of stock on the books of the corporation after the record date. Without fixing such record date the Directors may for any of such purposes close the transfer books for all or any part of such period. [Section 6 restated July 1, 2004.]

7. Reacquisition of Stock . Shares of stock previously issued which have been reacquired by the corporation, may be restored to the status of authorized but unissued shares by vote of the Board of Directors, without amendment of the Articles of Organization.

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ARTICLE VI

Protection of Directors and Officers

1. Contracts and Transactions with Interested Directors and Officers . If the corporation enters into contracts or other transactions with one or more of its Directors and officers or with any corporation, partnership, association, trust, or other organization with which any of its Directors or officers are directly or indirectly connected, such contracts or transactions shall not be invalidated or in any way affected by the fact that any such Director or officer has or may have any interest therein which is or might be adverse to the interests of the corporation, even though the vote or votes of the Director or Directors having such interest shall have been necessary to obligate the corporation under or in such contract or transaction, nor shall any such Director or officer, corporation, partnership, association, trust or other organization be liable to account to this corporation for any profit realized by him or such corporation, partnership, association, or trust or other organization from or through any such transaction or contract by reason of the fact that he or such corporation, partnership, association, trust or other organization with which such Director or officer is directly or indirectly connected was interested in such transaction or contract; provided, however, that in every such case the fact of such interest and all material matters concerning same shall be disclosed to other Directors or stockholders authorizing such contract or transaction.

2. Indemnification . (a) Each Director, officer, employee and other agent of the corporation, and any person who, at the request of the corporation, serves as a director, officer, employee or other agent of another organization in which the corporation directly or indirectly owns shares or of which it is a creditor shall be indemnified by the corporation against any cost, expense (including attorneys’ fees), judgment, liability and/or amount paid in settlement reasonably incurred by or imposed upon him in connection with any action, suit or proceeding (including any proceeding before any administrative or legislative body or agency), which he

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may be made a party to or otherwise involved with or with which he shall be threatened, by reason of his being, or related to his status as, a Director, officer, employee or other agent of the corporation or of any other organization in which the corporation directly or indirectly owns shares or of which the corporation is a creditor, which other organization he serves or has served as director, officer, employee or other agent at the request of the corporation (whether or not he continues to be an officer, Director, employee or other agent of the corporation or such other organization at the time such action, suit or proceeding is brought or threatened), unless such indemnification is prohibited by the Massachusetts Business Corporation Act. The foregoing right of indemnification shall be in addition to any rights to which any such person may otherwise be entitled and shall inure to the benefit of the executors or administrators of each such person. The corporation may pay the expenses incurred by any such person in defending a civil or criminal action, suit or proceeding in advance of the final disposition of such action, suit, or proceeding, upon receipt of an undertaking by such person to repay such payment if it is determined that such person is not entitled to indemnification hereunder. This section shall be subject to amendment or repeal only by action of the stockholders.

(b) The Board of Directors may, without stockholder approval, authorize the corporation to enter into agreements, including any amendments or modifications thereto, with any of its Directors, officers or other persons described in paragraph (a) above providing for indemnification of such persons to the maximum extent permitted under applicable law and the corporation’s Articles of Organization and By-Laws. [Section 2(b) added May 8, 1987 and restated July 1, 2004.]

ARTICLE VII

Miscellaneous Provisions

1. Execution of Instruments . All deeds, leases, transactions, contracts, bonds, notes and other obligations authorized to be executed by an officer of the corporation in its behalf shall be signed by the Chief Executive Officer, the President or the Treasurer except as the Directors may generally or in particular cases otherwise determine. [Section 1 restated May 23, 1996.]

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2. Voting of Securities . Except as the Directors may otherwise designate, the Chief Executive Officer, the President or Treasurer may waive notice of, and appoint any person or persons to act as proxy or attorney in fact for this corporation (with or without power of substitution) at any meeting of stockholders or shareholders of any other corporation or organization, the securities of which may be held by this corporation. [Section 2 restated May 23, 1996.]

3. Corporate Records . The original, or attested copies, of the Articles of Organization, By-Laws and records of all meetings of the incorporators and stockholders, and the stock and transfer records, which shall contain the names of all stockholders and the record address and the amount of stock held by each, shall be kept in Massachusetts at the principal office of the corporation, or at an office of its Transfer Agent or of the Secretary. Said copies and records need not all be kept in the same office. They shall be available at all reasonable times to the inspection of any stockholder for any proper purpose but not to secure a list of stockholders for the purpose of selling said list or copies thereof or of using the same for a purpose other than in the interest of the applicant, as a stockholder, relative to the affairs of the corporation. [Section 3 restated July 1, 2004.]

4. Articles of Organization . All references in these By-Laws to the Articles of Organization shall be deemed to refer to the Articles of Organization of the corporation, as amended and in effect from time to time.

5. Amendments . These By-Laws may be amended or repealed in whole or in part at any annual or special meeting of the stockholders by a vote of a majority of the stock present and entitled to vote, provided notice of the proposed amendment or repeal shall have been given in the notice of such meeting. In addition, the Directors may amend or repeal these By-Laws in whole or in part, except with respect to any provision thereof which by law, the Articles of Organization or these By-Laws requires action by the stockholders. Any By-Law adopted by the

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Directors may be amended or repealed by the stockholders in the manner hereinabove in this Article set forth. Not later than the time of giving notice of the meeting of stockholders next following the amending or repealing by the Directors of any By-Law, notice thereof stating the substance of such change shall be given to all stockholders entitled to vote on amending these By-Laws. [Section 5 restated March 13, 1991.]

6. The provisions of Chapter 110D of the Massachusetts General Laws as in effect from time to time shall not apply to control share acquisitions of the corporation. [Section 6 added July 14, 1988.]

Amended and Restated November 12, 1986

Amended May 8, 1987

Amended July 14, 1988

Amended September 14, 1989

Amended and Restated March 13, 1991

Amended and Restated May 23, 1996

Amended and Restated January 28, 1997

Amended and Restated effective July 1, 2004 (approved by the Board of Directors May 27, 2004)

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Exhibit 10.6

TERADYNE, INC.

1996 EMPLOYEE STOCK PURCHASE PLAN

(as amended as of May 27, 2004)

Article 1 - Purpose .

This 1996 Employee Stock Purchase Plan (the “Plan”) is intended to encourage stock ownership by all eligible employees of Teradyne, Inc. (the “Company”), a Massachusetts corporation, and its participating subsidiaries (as defined in Article 17) so that they may share in the growth of the Company by acquiring or increasing their proprietary interest in the Company. The Plan is designed to encourage eligible employees to remain in the employ of the Company and its participating subsidiaries. The Plan is intended to constitute an “employee stock purchase plan” within the meaning of Section 423(b) of the Internal Revenue Code of 1986, as amended (the “Code”).

Article 2 - Administration of the Plan .

The Plan may be administered by a committee appointed by the Board of Directors of the Company (the “Committee”). The Committee shall consist of not less than two members of the Company’s Board of Directors. The Board of Directors may from time to time remove members from, or add members to, the Committee. Vacancies on the Committee, howsoever caused, shall be filled by the Board of Directors. The Committee may select one of its members as Chairman, and shall hold meetings at such times and places as it may determine. Acts by a majority of the Committee, or acts reduced to or approved in writing by a majority of the members of the Committee, shall be the valid acts of the Committee.

The interpretation and construction by the Committee of any provisions of the Plan or of any option granted under it shall be final, unless otherwise determined by the Board of Directors. The Committee may from time to time adopt such rules and regulations for carrying out the Plan as it may deem best, provided that any such rules and regulations shall be applied on a uniform basis to all employees under the Plan. No member of the Board of Directors or the Committee shall be liable for any action or determination made in good faith with respect to the Plan or any option granted under it.

In the event the Board of Directors fails to appoint or refrains from appointing a Committee, the Board of Directors shall have all power and authority to administer the Plan. In such event, the word “Committee” wherever used herein shall be deemed to mean the Board of Directors.

Article 3 - Eligible Employees .

No option may be granted to any person serving as a member of the Committee at the time of grant. Subject to the foregoing limitation, all employees of the Company or any of its participating subsidiaries on United States payroll who are employees of the

Company or any of its participating subsidiaries (i) on or before the first day of any Payment Period (as defined in Article 5) or (ii) for employees first employed after the first day of a particular Payment Period, on or before the first day of the next succeeding July in any such Payment Period, and whose customary employment is not less than twenty hours per week and more than five months in any calendar year shall be eligible to receive options under the Plan to purchase common stock of the Company, par value $.125 per share (“Common Stock”). An employee eligible under this Plan solely by virtue of clause (ii) of the preceding sentence shall be referred to herein as a “July Employee.” All eligible employees shall have the same rights and privileges hereunder. Persons who elect to enter the Plan in accordance with Article 7 and who are eligible employees on the first business day of any Payment Period (as defined in Article 5) (or on the first business day of July with respect to July Employees) shall receive their options as of such day. Persons who elect to enter the Plan in accordance with Article 7 and who become eligible employees after any date on which options are granted under the Plan shall be granted options on the first business day of the next succeeding Payment Period or the first business day of July (whichever is applicable) on which options are granted to eligible employees under the Plan. In no event, however, may an employee be granted an option if such employee, immediately after the option was granted, would be treated as owning stock possessing five percent or more of the total combined voting power or value of all classes of stock of the Company or of any parent corporation or subsidiary corporation, as the terms “parent corporation” and “subsidiary corporation” are defined in Section 424(e) and (f) of the Code. For purposes of determining stock ownership under this paragraph, the rules of Section 424(d) of the Code shall apply, and stock which the employee may purchase under outstanding options shall be treated as stock owned by the employee.

Article 4 - Stock Subject to the Plan .

The stock subject to the options under the Plan shall be authorized but unissued Common Stock, or shares of Common Stock reacquired by the Company, including shares purchased in the open market. The aggregate number of shares which may be issued pursuant to the Plan is 15,400,000, subject to adjustment as provided in Article 12. If any option granted under the Plan shall expire or terminate for any reason without having been exercised in full or shall cease for any reason to be exercisable in whole or in part, the unpurchased shares subject thereto shall again be available under the Plan.

Article 5 - Payment Period and Stock Options .

For the duration of the Plan, the Payment Period shall be defined as the twelve-month period commencing on the first day of January and ending annually on the last day of December of each calendar year. Notwithstanding the foregoing, the first Payment Period during which payroll deductions will be accumulated under the Plan shall commence on July 1, 1996 and shall end on December 31, 1996.

On the first business day of each Payment Period (or on the first business day of July of such Payment Period in the case of a July Employee), the Company will grant to each eligible employee who is then a participant in the Plan an option to purchase on the last day of such Payment Period, at the Option Price hereinafter provided for, a maximum of

6,000 shares, on condition that such employee remains eligible to participate in the Plan throughout the remainder of such Payment Period. The participant shall be entitled to exercise the option so granted only to the extent of the participant’s accumulated payroll deductions on the last day of such Payment Period. If the participant’s accumulated payroll deductions on the last day of the Payment Period would enable the participant to purchase more than 6,000 shares except for the 6,000 share limitation, the excess of the amount of the accumulated payroll deductions over the aggregate purchase price of the 6,000 shares shall be promptly refunded to the participant by the Company, without interest. The Option Price per share for each Payment Period shall be the lesser of (i) 85% of the fair market value of the Common Stock on the first business day of the Payment Period (or, in the case of a July Employee, on the first business day of July of such Payment Period) and (ii) 85% of the fair market value of the Common Stock on the last business day of the Payment Period, in either event rounded up to the nearest cent. The foregoing limitation on the number of shares subject to option and the Option Price shall be subject to adjustment as provided in Article 12.

For purposes of the Plan, the term “fair market value” on any date means (i) the average (on that date) of the high and low prices of the Common Stock on the principal national securities exchange on which the Common Stock is traded, if the Common Stock is then traded on a national securities exchange; or (ii) the last reported sale price (on that date) of the Common Stock on The Nasdaq Stock Market, if the Common Stock is not then traded on a national securities exchange; or (iii) the average of the closing bid and asked prices last quoted (on that date) by an established quotation service for over-the-counter securities, if the Common Stock is not reported on The Nasdaq Stock Market; or (iv) if the Common Stock is not publicly traded, the fair market value of the Common Stock as determined by the Committee after taking into consideration all factors which it deems appropriate, including, without limitation, recent sale and offer prices of the Common Stock in private transactions negotiated at arm’s length.

For purposes of the Plan, the term “business day” means a day on which there is trading on The Nasdaq Stock Market or the aforementioned national securities exchange, whichever is applicable pursuant to the preceding paragraph; and if neither is applicable, a day that is not a Saturday, Sunday or legal holiday in Massachusetts.

Notwithstanding any other provision herein, no employee shall be granted an option which permits the employee’s right to purchase stock under the Plan, and under all other Section 423(b) employee stock purchase plans of the Company and any parent or subsidiary corporations, to accrue at a rate which exceeds $25,000 of fair market value of such stock (determined on the date or dates that options on such stock were granted) for each calendar year in which such option is outstanding at any time. The purpose of the limitation in the preceding sentence is to comply with Section 423(b)(8) of the Code. If the participant’s accumulated payroll deductions on the last day of the Payment Period would otherwise enable the participant to purchase Common Stock in excess of the Section 423(b)(8) $25,000 limitation described in this paragraph, the excess of the amount of the accumulated payroll deductions over the aggregate purchase price of the shares actually purchased shall be promptly refunded to the participant by the Company, without interest.

Article 6 - Exercise of Option .

Each eligible employee who continues to be a participant in the Plan on the last day of a Payment Period shall be deemed to have exercised his or her option on such date and shall be deemed to have purchased from the Company such number of full shares of Common Stock reserved for the purpose of the Plan as the participant’s accumulated payroll deductions on such date will pay for at the Option Price, subject to the 6,000 share limit of the option and the Section 423(b)(8) $25,000 limitation described in Article 5. If the individual is not a participant on the last day of a Payment Period, then he or she shall not be entitled to exercise his or her option. Only full shares of Common Stock may be purchased under the Plan. Unused payroll deductions remaining in a participant’s account at the end of a Payment Period solely by reason of the inability to purchase a fractional share (and for no other reason) shall be refunded.

Article 7 - Authorization for Entering the Plan .

An employee may elect to enter the Plan by filling out, signing and delivering to the Company an authorization:

A. Stating the percentage to be deducted from the employee’s pay;

B. Authorizing the purchase of stock for the employee in each Payment Period in accordance with the terms of the Plan; and

C. Specifying the exact name or names in which stock purchased for the employee is to be issued as provided under Article 11 hereof.

Such authorization must be received by the Company on or before the first day of the next succeeding Payment Period or on or prior to the first day of July of such Payment Period in the case of a July Employee.

Unless a participant files a new authorization or withdraws from the Plan, the deductions and purchases under the authorization the participant has on file under the Plan will continue from one Payment Period to succeeding Payment Periods as long as the Plan remains in effect.

The Company will accumulate and hold for each participant’s account the amounts deducted from his or her pay. No interest will be paid on these amounts.

Article 8 - Maximum Amount of Payroll Deductions .

An employee may authorize payroll deductions in an amount (expressed as a whole percentage) not less than two percent (2%) but not more than ten percent (10%) of the employee’s cash compensation.

Article 9 - Change in Payroll Deductions .

Deductions may not be increased during a Payment Period. Deductions may be decreased during a Payment Period, provided that an employee may not decrease his deduction more often than twice during any Payment Period (and with respect to July Employees once during any Payment Period).

Article 10 - Withdrawal from the Plan .

A participant may withdraw from the Plan (in whole but not in part) at any time prior to the last day of a Payment Period by delivering a withdrawal notice to the Company.

To re-enter the Plan, an employee who has previously withdrawn must file a new authorization on or before the first day of the next Payment Period in which he or she wishes to participate. The employee’s re-entry into the Plan becomes effective at the beginning of such Payment Period, provided that he or she is an eligible employee on the first business day of the Payment Period.

Article 11 - Issuance of Stock .

Certificates for stock issued to participants shall be delivered as soon as practicable after each Payment Period by the Company’s transfer agent.

Stock purchased under the Plan shall be issued only in the name of the participant, or if the participant’s authorization so specifies, in the name of the participant and another person of legal age as joint tenants with rights of survivorship.

Article 12 - Adjustments .

Upon the happening of any of the following described events, a participant’s rights under options granted under the Plan shall be adjusted as hereinafter provided:

A. In the event that the shares of Common Stock shall be subdivided or combined into a greater or smaller number of shares or if, upon a reorganization, split-up, liquidation, recapitalization or the like of the Company, the shares of Common Stock shall be exchanged for other securities of the Company, each participant shall be entitled, subject to the conditions herein stated, to purchase such number of shares of Common Stock or amount of other securities of the Company as were exchangeable for the number of shares of Common Stock that such participant would have been entitled to purchase except for such action, and appropriate adjustments shall be made in the purchase price per share to reflect such subdivision, combination or exchange; and

B. In the event the Company shall issue any of its shares as a stock dividend upon or with respect to the shares of stock of the class which shall at the time be subject to options hereunder, each participant upon exercising such an option shall be entitled to receive (for the purchase price paid upon such exercise) the shares as to which the participant is exercising his or her option and, in addition thereto (at no additional cost), such number of shares of the class or classes in which such stock dividend or dividends were declared or paid, and such amount of cash in lieu of fractional shares, as is equal to the number of shares thereof and the amount of cash in lieu of fractional shares, respectively, which the participant would have received if the participant had been the holder of the shares as to which the participant is exercising his or her option at all times between the date of the granting of such option and the date of its exercise.

Upon the happening of any of the foregoing events, the class and aggregate number of shares set forth in Article 4 hereof which are subject to options which have been or may be granted under the Plan and the limitations set forth in the second paragraph of Article 5

shall also be appropriately adjusted to reflect the events specified in paragraphs A and B above. Notwithstanding the foregoing, any adjustments made pursuant to paragraphs A or B shall be made only after the Committee, based on advice of counsel for the Company, determines whether such adjustments would constitute a “modification” (as that term is defined in Section 424 of the Code). If the Committee determines that such adjustments would constitute a modification, it may refrain from making such adjustments.

If the Company is to be consolidated with or acquired by another entity in a merger, a sale of all or substantially all of the Company’s assets or otherwise (an “Acquisition”), the Committee or the board of directors of any entity assuming the obligations of the Company hereunder (the “Successor Board”) shall, with respect to options then outstanding under the Plan, either (i) make appropriate provision for the continuation of such options by arranging for the substitution on an equitable basis for the shares then subject to such options either (a) the consideration payable with respect to the outstanding shares of the Common Stock in connection with the Acquisition, (b) shares of stock of the successor corporation, or a parent or subsidiary of such corporation, or (c) such other securities as the Successor Board deems appropriate, the fair market value of which shall not exceed the fair market value of the shares of Common Stock subject to such options immediately preceding the Acquisition; or (ii) terminate each participant’s options in exchange for a cash payment equal to the excess of the fair market value on the date of the Acquisition of the number of shares of Common Stock that the participant’s accumulated payroll deductions as of the date of the Acquisition could purchase, at an option price determined with reference only to the first business day of the applicable Payment Period (or the first business day of July of such Payment Period in the case of a July Employee) and subject to the 6,000 share limit, Code Section 423(b)(8) and fractional-share limitations on the amount of stock a participant would be entitled to purchase over the aggregate option price to such participant thereof.

The Committee or Successor Board shall determine the adjustments to be made under this Article 12, and its determination shall be conclusive.

Article 13 - No Transfer or Assignment of Employee’s Rights .

An option granted under the Plan may not be transferred or assigned, otherwise than by will or by the laws of descent and distribution. Any option granted under the Plan may be exercised, during the participant’s lifetime, only by the participant.

Article 14 - Termination of Employee’s Rights .

Whenever a participant ceases to be an eligible employee because of retirement, voluntary or involuntary termination, resignation, layoff, discharge, death or for any other reason, his or her rights under the Plan shall immediately terminate, and the Company shall promptly refund, without interest, the entire balance of his or her payroll deduction account under the Plan; provided , however, that if an employee is laid off during the last three months of any Payment Period, he shall nevertheless be deemed to be a participant in the Plan on the last day of the Payment Period. Notwithstanding the foregoing, eligible employment shall be treated as continuing intact while a participant is on military leave, sick leave or other bona fide leave of absence, for up to 90 days, or, if such leave is

longer than 90 days, for so long as the participant’s right to re-employment is guaranteed either by statute or by written contract. Notwithstanding any other provision herein, if a participant’s employment is terminated by reason of retirement, and the date of such termination occurs after the date that is 3 months prior to the last day of the Payment Period, such participant’s rights under the Plan are not immediately terminated, and if the participant has not withdrawn from the Plan, such participant’s options shall be deemed to have been exercised on the last day of the Payment Period in accordance with the terms of the Plan.

Article 15 - Termination and Amendments to Plan .

The Plan may be terminated at any time by the Company’s Board of Directors but such termination shall not affect options then outstanding under the Plan. If at any time shares of stock reserved for the purpose of the Plan remain available for purchase but not in sufficient number to satisfy all then unfilled purchase requirements, the available shares shall be apportioned among participants in proportion to the amount of payroll deductions accumulated on behalf of each participant that would otherwise be used to purchase stock, and the Plan shall terminate. Upon such termination or any other termination of the Plan, all payroll deductions not used to purchase stock will be refunded, without interest.

The Committee or the Board of Directors may from time to time adopt amendments to the Plan provided that, without the approval of the shareholders of the Company, no amendment may (i) increase the number of shares that may be issued under the Plan; (ii) change the class of employees eligible to receive options under the Plan, if such action would be treated as the adoption of a new plan for purposes of Code Section 423(b) and the regulations thereunder; (iii) cause Rule 16b-3 under the Securities Exchange Act of 1934 to become inapplicable to the Plan; or (iv) materially revise the plan pursuant to the rules and regulations of the NYSE.

Article 16 - Limits on Sale of Stock Purchased under the Plan .

The Plan is intended to provide shares of Common Stock for investment and not for resale. The Company does not, however, intend to restrict or influence any employee in the conduct of his or her own affairs. An employee may, therefore, sell stock purchased under the Plan at any time the employee chooses, subject to compliance with any applicable federal or state securities laws and subject to any restrictions imposed under Article 21 to ensure that tax withholding obligations are satisfied. THE EMPLOYEE ASSUMES THE RISK OF ANY MARKET FLUCTUATIONS IN THE PRICE OF THE STOCK.

Article 17 - Participating Subsidiaries .

The term “participating subsidiary” shall mean any present or future subsidiary of the Company, as that term is defined in Section 424(f) of the Code, that is designated from time to time by the Board of Directors to participate in the Plan. The Board of Directors shall have the power to make such designation before or after the Plan is approved by the shareholders.

Article 18 - Optionees Not Shareholders .

Neither the granting of an option to an employee nor the deductions from his or her pay shall constitute such employee a stockholder of the shares covered by an option until such shares have been actually purchased by the employee.

Article 19 - Application of Funds .

The proceeds received by the Company from the sale of Common Stock pursuant to options granted under the Plan will be used for general corporate purposes.

Article 20 - Notice to Company of Disqualifying Disposition .

By electing to participate in the Plan, each participant agrees to notify the Company in writing immediately after the participant transfers Common Stock acquired under the Plan, if such transfer occurs within two years after the first business day of the Payment Period in which such Common Stock was acquired. Each participant further agrees to provide any information about such a transfer as may be requested by the Company or any subsidiary corporation in order to assist it in complying with the tax laws. Such dispositions generally are treated as “disqualifying dispositions” under Sections 421 and 424 of the Code, which have certain tax consequences to participants and to the Company and its participating subsidiaries.

Article 21 - Withholding of Additional Income Taxes .

By electing to participate in the Plan, each participant acknowledges that the Company and its participating subsidiaries are required to withhold taxes with respect to the amounts deducted from the participant’s compensation and accumulated for the benefit of the participant under the Plan, and each participant agrees that the Company and its participating subsidiaries may deduct additional amounts from the participant’s compensation, when amounts are added to the participant’s account, used to purchase Common Stock or refunded, in order to satisfy such withholding obligations. Each participant further acknowledges that when Common Stock is purchased under the Plan the Company and its participating subsidiaries may be required to withhold taxes with respect to all or a portion of the difference between the fair market value of the Common Stock purchased and its purchase price, and each participant agrees that such taxes may be withheld from compensation otherwise payable to such participant. It is intended that tax withholding will be accomplished in such a manner that the full amount of payroll deductions elected by the participant under Article 7 will be used to purchase Common Stock. However, if amounts sufficient to satisfy applicable tax withholding obligations have not been withheld from compensation otherwise payable to any participant, then, notwithstanding any other provision of the Plan, the Company may withhold such taxes from the participant’s accumulated payroll deductions and apply the net amount to the purchase of Common Stock, unless the participant pays to the Company, prior to the exercise date, an amount sufficient to satisfy such withholding obligations. Each participant further acknowledges that the Company and its participating subsidiaries may be required to withhold taxes in connection with the disposition of stock acquired under the Plan and agrees that the Company or any participating subsidiary may take whatever action it considers appropriate to satisfy such withholding requirements, including

deducting from compensation otherwise payable to such participant an amount sufficient to satisfy such withholding requirements or conditioning any disposition of Common Stock by the participant upon the payment to the Company or such subsidiary of an amount sufficient to satisfy such withholding requirements.

Article 22 - Governmental Regulations .

The Company’s obligation to sell and deliver shares of Common Stock under the Plan is subject to the approval of any governmental authority required in connection with the authorization, issuance or sale of such shares.

Government regulations may impose reporting or other obligations on the Company with respect to the Plan. For example, the Company may be required to identify shares of Common Stock issued under the Plan on its stock ownership records and send tax information statements to employees and former employees who transfer title to such shares.

Article 23 - Governing Law .

The validity and construction of the Plan shall be governed by the laws of Massachusetts, without giving effect to the principles of conflicts of law thereof.

Article 24 - Approval of Board of Directors and Stockholders of the Company .

The Plan was adopted by the Board of Directors on March 19, 1996 and on such date the Board of Directors resolved that the Plan was to be submitted to the shareholders of the Company for approval at the next meeting of shareholders. If the Plan does not receive such approval, all payroll deductions shall be returned without interest and the Plan shall be terminated.

Exhibit 10.35

EMPLOYMENT AGREEMENT

In consideration of my at-will employment by Teradyne, Inc., a corporation of the Commonwealth of Massachusetts (herein referred to as “the Company”), and the payments made to me as consequence thereof and specifically the grant of an option in 2004 to purchase common stock of the Company, I agree that I will promptly report to an officer of the Company or to such other individual as may from time to time be designated, all inventions and new ideas which I, alone or with others, have conceived or reduced to practice since the time of entering the employment of the Company in respect to any subject matter relating to the business in which the Company is engaging as of the date of conception or reduction to practice of each such invention or new idea. This obligation ceases with termination of my employment with the Company.

I further agree to assign to the Company the entire interest throughout the world in all inventions and new ideas referred to in the proceeding paragraph, whether or not reported by me, and to execute all papers and do anything necessary and reasonable to secure to the Company title therein and Letters Patent pertaining thereto including the giving of testimony in any suit if called so to do during or after my employment but all at the expense of the Company. I also waive all claims to moral rights in any Inventions.

All inventions and new ideas that would fall within the scope of this agreement, but for the fact that they were conceived prior to my employment by the Company, may be excluded from this agreement only if I can establish, under applicable inventorship law, a date of conception prior to my entering the employment of the Company.

I further agree that I will make a written record of all inventions and new ideas falling within the scope of this agreement in the form of notes, sketches, drawing, or reports relating thereto, which records shall be and remain the property of and available to the Company at all times.

I further agree that I will not, during or after the period of my employment with the Company, divulge to any unauthorized persons confidential information concerning the Company’s business, technology, and activities that I learn during the period of my employment, or use any such information except on the Company’s behalf.

I further agree that I will observe all rules and regulations laid down by the Government agencies relating to the safeguarding of classified information that may be disclosed or entrusted to me in connection with any contract between the Company and the Government or any contractor with the Government.

I further agree that during the period of my employment by the Company , and for a period of one year after my employment ceases for any reason, excluding an involuntary termination by the Company for other than Cause, I will not directly or indirectly enter the employment of, or render any professional services, including but not limited to as an independent contractor, consultant, director, partner, owner or otherwise, except such as are rendered at the request of the Company, to any individual, partnership, association or corporation who or which is a competitor of the Company without the prior permission in writing of the Company. For purposes of this Agreement, “Cause” shall mean (a) a good faith finding by the Company of a failure by me to perform my assigned duties for the Company, dishonesty, gross negligence or misconduct, (b) a failure by me to comply with the Company’s published standards of business conduct; and (c) my conviction of, or the entry of a plea of guilty or nolo contendere by me to, any crime involving moral turpitude or any felony. Competitor includes, but is not limited to, any business or enterprise that develops, designs, produces, markets, sells or renders any product or service or intends to do so that is competitive with any product or service developed, produced, marketed, sold or rendered by the Company, including actual or demonstrably anticipated research or development. I further agree that I will notify the Company of any outside employment in which I am engaged during the period of my employment with the Company .

I further agree that during the period of my employment with the Company, and for a period of one year after my employment ceases for any reason, I will not (except on the Company’s behalf) solicit (for the purpose of providing a product or service that is competitive with the Company) any customer or prospective customer of the Company that was contacted, solicited or served by me within the five year period immediately preceding the termination of my employment with the Company.

I further agree that during the period of my employment with the Company, and for a period of one year after my employment ceases for any reason, I will not recruit, solicit, hire, or engage as an employee or an independent contractor, any employee or former employee, excluding any former employee whose employment with the Company has been terminated for a period of six months or longer.

Due to the global market in which the Company operates, the geographic scope of this Agreement shall extend to anywhere the Company or its subsidiaries do business, have done business or have plans to do business.

This Agreement supersedes all previous agreements between me and the Company relating to the subject matter hereof, and may not be modified on behalf of the Company in whole or in part except by a statement in writing signed by an authorized officer of the Company.

I further agree that if any one or more provisions in this agreement are deemed unenforceable, they will be reformed to the extent necessary to make them enforceable, and the remaining provisions of the agreement will continue in full force and effect.

I further agree that this Agreement shall be governed by and construed as a sealed instrument under and in accordance with the laws of the Commonwealth of Massachusetts without regard to conflict of laws provisions. Any action, suit or other legal proceeding that is commenced to resolve any matter arising under or relating to any provision of this Agreement shall be commenced only in a court of the Commonwealth of Massachusetts (or, if appropriate, federal court located within Massachusetts), and I consent to the jurisdiction of such a court.

I acknowledge that I have carefully read this Agreement and understand and agree to all the provisions in this Agreement.

Signed at: Boston, MA this 3rd day of May , 2004

Employee Signature: /s/ Eileen Casal Teradyne Signature: /s/ Loren Eaton

Non-CA (MA, NH & IL) Exec. Emp. Agree.

April, 2004

Exhibit 10.36

EMPLOYMENT AGREEMENT

I acknowledge that I have carefully read this Agreement and understand and agree to all the provisions in this Agreement.

Signed at: Teradyne—Boston this 4rd day of May , 2004

Employee Signature: /s/ John Casey Teradyne Signature: /s/ Loren Eaton

Non-CA (MA, NH & IL) Exec. Emp. Agree.

April, 2004

Exhibit 10.37

EMPLOYMENT AGREEMENT

I acknowledge that I have carefully read this Agreement and understand and agree to all the provisions in this Agreement.

Signed at: Boston, MA this 7th day of May , 2004

Employee Signature: /s/ Mark Jagiela Teradyne Signature: /s/ Loren Eaton

Non-CA (MA, NH & IL) Exec. Emp. Agree.

April, 2004

Exhibit 10.38

EMPLOYMENT AGREEMENT

I acknowledge that I have carefully read this Agreement and understand and agree to all the provisions in this Agreement.

Signed at: Boston this 30th day of July , 2004

Employee Signature: /s/ Michael A. Bradley Teradyne Signature: /s/ Loren Eaton

Non-CA (MA, NH & IL) Exec. Emp. Agree.

April, 2004

Exhibit 10.39

EMPLOYMENT AGREEMENT

In consideration of my at-will employment by Teradyne, Inc., a corporation of the Commonwealth of Massachusetts (herein referred to as “the Company”), and the payments made to me as consequence thereof and specifically the grant of an option in 2004 to purchase common stock of the Company, I agree that I will promptly report to an officer of the Company or to such other individual as may from time to time be designated, all inventions and new ideas (“Inventions”) which I, alone or with others, have conceived or reduced to practice since the time of entering the employment of the Company in respect to any subject matter relating to the business in which the Company is engaging as of the date of conception or reduction to practice of each such invention or new idea. This obligation ceases with termination of my employment with the Company.

I further agree to assign to the Company the entire interest throughout the world in all Inventions referred to in the proceeding paragraph, whether or not reported by me, to the maximum extent permitted by Section 2870 of the California Labor Code. I also waive all claims to moral rights in any Inventions. I understand that the provisions of this Agreement requiring assignment of Inventions to the Company do not apply to any invention which qualifies fully under the provisions of California Labor Code Section 2870 (attached hereto as Exhibit A). I agree to advise the Company promptly in writing of any inventions that I believe meet the criteria in Section 2870. I also agree to execute all papers and do anything necessary and reasonable to secure to the Company title in any Invention and Letters Patent pertaining thereto including the giving of testimony in any suit if called so to do during or after my employment but all at the expense of the Company.

I further agree that I will not, during the period of my employment by the Company, directly or indirectly enter the employment of, or render any professional services, including but not limited to as an independent contractor, consultant, director, partner, owner or otherwise, except such as are rendered at the request of the Company, to any individual, partnership, association or corporation who or which is a competitor of the Company without the prior permission in writing of the Company. Competitor includes, but is not limited to, any business or enterprise that develops, designs, produces, markets, sells or renders any product or service or intends to do so that is competitive with any product or service developed, produced, marketed, sold or rendered by the Company, including actual or demonstrably anticipated research or development. I further agree that I will notify the Company of any outside employment in which I am engaged during the period of my employment with the Company .

I further agree that during the period of my employment with the Company, and for a period of one year after my employment ceases for any reason, I will not recruit, solicit, hire, or engage as an employee or an independent contractor, any employee or former employee of the Company, excluding former employees whose employment with the Company has been terminated for a period of six months or longer.

I acknowledge that I have carefully read this Agreement and understand and agree to all the provisions in this Agreement.

Signed at: Boston, Mass. this 5 day of August , 2004

Employee Signature: /s/ Edward Rogas, Jr. Teradyne Signature: /s/ James P. Dawson

CA Exec. Emp. Agreement

April, 2004

Exhibit A

CALIFORNIA LABOR CODE SECTION 2870

INVENTION ON OWN TIME – EXEMPTION FROM AGREEMENT

(a) Any provision in an employment agreement which provides that an employee shall assign, or offer to assign, any of his or her rights in an invention to his or her employer shall not apply to an invention that the employee developed entirely on his or her own time without using the employer’s equipment, supplies, facilities, or trade secret information except for those inventions that either:

(1)

Relate at the time of conception or reduction to practice of the invention to the employer’s business, or actual or demonstrably anticipated research or development of the employer, or

(2)

Result from any work performed by the employee for his employer.

(b) To the extent a provision in an employment agreement purports to require an employee to assign an invention otherwise excluded from being required to be assigned under subdivision (a), the provision is against the public policy of this state and is unenforceable.

Exhibit 10.40

EMPLOYMENT AGREEMENT

I acknowledge that I have carefully read this Agreement and understand and agree to all the provisions in this Agreement.

Signed at: Boston this 9th day of August , 2004

Employee Signature: /s/ Gregory R. Beecher Teradyne Signature: /s/ Loren Eaton

Non-CA (MA, NH & IL) Exec. Emp. Agree.

April, 2004

Exhibit 10.41

EMPLOYMENT AGREEMENT

I acknowledge that I have carefully read this Agreement and understand and agree to all the provisions in this Agreement.

Signed at: Boston this 9th day of August , 2004

Employee Signature: /s/ Jeffrey R. Hotchkiss Teradyne Signature: /s/ Loren Eaton

Non-CA (MA, NH & IL) Exec. Emp. Agree.

April, 2004

Exhibit 10.42

EMPLOYMENT AGREEMENT

I acknowledge that I have carefully read this Agreement and understand and agree to all the provisions in this Agreement.

Signed at: Boston this 9th day of August , 2004

Employee Signature: /s/ Richard Schneider Teradyne Signature: /s/ Loren Eaton

Non-CA (MA, NH & IL) Exec. Emp. Agree.

April, 2004

Exhibit 10.43

EMPLOYMENT AGREEMENT

I acknowledge that I have carefully read this Agreement and understand and agree to all the provisions in this Agreement.

Signed at: this 10th day of August , 2004

Employee Signature: /s/ Richard MacDonald Teradyne Signature: /s/ Roberta T. Williams

Non-CA (MA, NH & IL) Exec. Emp. Agree.

April, 2004

Exhibit 10.44

EMPLOYMENT AGREEMENT

I acknowledge that I have carefully read this Agreement and understand and agree to all the provisions in this Agreement.

Signed at: Teradyne, Inc. this 11th day of August , 2004

Employee Signature: /s/ George Chamillard Teradyne Signature: /s/ Roberta T. Williams

Non-CA (MA, NH & IL) Exec. Emp. Agree.

April, 2004

Exhibit 14.1

TERADYNE, INC. ETHICS POLICY: STANDARDS OF BUSINESS CONDUCT AND ETHICS

Dear Members of the Teradyne Community:

This is our latest edition of “Making the Right Choices — Teradyne’s Standards of Business Conduct and Ethics.” It reflects our commitment to honest and ethical business practices and provides standards and guidelines of conduct for Teradyne employees, officers and directors, and for others doing business with the company, such as customers and suppliers. It applies to all Teradyne companies and all members of the Teradyne community on a worldwide basis. To be successful over the long term, a business must be built on a foundation of honesty and integrity. This principle has guided us throughout our history, and we remain committed to it. We want to do the right thing, both because it is right and because it makes good business sense. In a nutshell, this means that we all must act honestly and with integrity in all of our dealings. This means being respectful of others and accountable and responsible in our actions.

You should use these guidelines as a resource to help you make better decisions as you are faced with difficult issues. Of course, these guidelines cannot cover every situation, and when in doubt, you should seek advice from others in the company, and as always, continue to apply common sense. These standards are to promote behavior within the Teradyne community that reflects high standards of integrity and compliance with all applicable laws, rules and regulations.

Any person who feels that our conduct does not meet the guidelines set forth in this booklet should contact his or her manager, any other manager or corporate officer, or a member of the Human Resources or Legal Departments. You also may provide information on a confidential basis to the Legal Department at the following address:

Teradyne, Inc.

Legal Department, Confidential

321 Harrison Ave.

Boston, MA 02118

e-mail: ethics_office@teradyne.com

Hotline: 617-422-5777

Remember, integrity and ethical behavior are hallmarks of Teradyne’s corporate culture and business conduct. They are vital to Teradyne’s continued success and growth. Ultimately, we must all assume personal responsibility for ensuring that the company’s practices and reputation for integrity and ethical behavior remains intact.

LOGO

Mike Bradley, CEO and President

May 27, 2004

Making the Right Choices for Teradyne

This section provides an overview of an employee’s, officer’s and director’s obligations to Teradyne. If you are an employee, the company expects Teradyne to be the primary focus of your business and professional endeavors. The company expects you to use discretion and good judgment in responding to the variety of situations that may arise in the course of your employment or affiliation with Teradyne and that in all instances you will comply with applicable laws, rules and regulations.

Conflict of Interest Situations

You must avoid situations where your loyalties may be divided between Teradyne’s interests and your own. You must also consider how the situation appears to others — inside and outside of Teradyne. A conflict of interest occurs when your personal interest is at odds with the interests of Teradyne. A conflict of interest can arise whenever you take action or have an interest that prevents you from performing your Teradyne duties and responsibilities honestly, objectively and effectively. Whenever you recognize a potential conflict, it is important to discuss the situation with your manager or Teradyne’s Legal Department prior to taking any action. Officers must disclose any actual or apparent conflict to Teradyne’s General Counsel and directors must disclose any actual or apparent conflict to Teradyne’s Audit Committee. The following sections discuss some situations where a conflict of interest may arise.

Outside Business Ventures

At Teradyne you may not work for or receive payment for services from any competitor, supplier, customer, or distributor of Teradyne unless it is approved in advance by your manager. Any outside activity must be strictly separated from Teradyne employment and should not impact your job performance at Teradyne.

Financial Interests in Other Companies

Teradyne employees must not have, or permit any close relative to have, a financial interest in a customer, supplier, competitor, distributor or other organization that would create a conflict of interest or compromise your loyalty to Teradyne.

Whether an investment in these other companies creates the appearance of divided loyalties depends on several factors, such as (1) the size of the investment relative to your total assets; (2) the position you hold with Teradyne and your ability to influence Teradyne decisions that affect your personal interests; and (3) any work you do at or for Teradyne that intersects with that investment. The best practice is to consider these factors, use good judgment and ask your manager or Teradyne’s Legal Department if you have questions. Conflict-of-interest standards also apply to you with respect to your family and close personal friends. If any of them is employed by or has a significant financial interest in a customer, supplier, competitor or distributor, you must be alert to the potential conflict for you and Teradyne, and you should inform your manager or Teradyne’s Legal Department.

Gratuities from Third Parties

You and your immediate family must not solicit or accept gifts when you believe that the gifts have been offered because of your Teradyne position or in the expectation that the gift will influence your decisions or actions or obligate you to do business with the giver. You should accept only those gifts that are nominal in value and that are more in the nature of advertising (calendars or coffee cups, for example). Occasional business meals and other meetings can serve a useful business purpose and can advance Teradyne’s interests, though Teradyne should pay the bill as often as the other party does. Entertainment that is lavish or frequent could appear to influence one’s business judgment on Teradyne’s behalf. For example, occasionally accepting offers to attend sporting events or concerts could be acceptable. Accepting tickets to a World Series game would not be acceptable. Company employees who receive a gift or entertainment worth more than $100 should report the matter to their manager. You must exercise good business judgment and make sure you do nothing that would (a) compromise your objectivity or (b) embarrass Teradyne, your colleagues or yourself.

Unless prohibited by the customer’s own policies, you may pay for a customer’s meal and entertainment or invite a customer to a sporting event or outing, provided the expenses of doing so are reasonable. It is permissible to give a customer a gift of nominal value on special occasions, as long as the gift does not seek, and does not create the appearance of seeking, special favors. The giving of any gift to a customer must also comply with the customer’s code of conduct.

In rare circumstances, local custom may call for an exchange of gifts having more than nominal value. Giving or receiving such gifts should be done only on behalf of Teradyne and with prior approval from an officer of the company. If you receive a gift under these circumstances, discuss the matter immediately with your manager.

Bribery

Offering or accepting a bribe is against Teradyne’s policies and is illegal. Any payment or gift that is given or promised, directly or indirectly, to a foreign governmental official designed to influence that person’s acts or decisions is improper and could subject you and Teradyne to substantial criminal liability for violation of the US Foreign Corrupt Practices Act and similar foreign laws. Additionally, it is improper and illegal for you or Teradyne, to directly or indirectly provide or pay for any meal, travel, entertainment, or lodging of any US or foreign governmental personnel with the intent of influencing government personnel. Giving anything of value to government personnel could subject both you and Teradyne to civil and criminal penalties.

You should not solicit or accept any cash gift. If a customer or supplier gives you cash, return the cash and promptly inform your manager or Teradyne’s Legal Department.

If you become aware of or suspect any questionable business practices, you should immediately contact your manager, Teradyne’s Internal Audit Group or Legal Department.

Handling Company Information

Information is one of Teradyne’s most valuable assets. Given our open environment, and the increasing use of electronic communications, we are each regularly in possession of valuable company information as we perform our normal day-to-day jobs. We all have a responsibility to safeguard company information and prevent it from being inappropriately disclosed or used.

You must not disclose any confidential information regarding Teradyne’s business, technology, know-how, financial performance or prospects, customers, suppliers, employees, or activities to any person unless that person’s responsibilities at Teradyne create a need to know it. This obligation extends to intellectual property and trade secrets, including confidential or private technical, financial, and business information generated by us or received from others in the Teradyne community. It also includes confidential information entrusted to us by customers, suppliers and other third parties. We have the same duty to safeguard their confidential information that we have concerning Teradyne’s confidential information.

You should take steps to avoid inadvertent disclosure of company confidential or proprietary information. Generally, you should not discuss confidential company matters with outsiders, including family and friends, and you should not discuss such information in public places, such as elevators, restaurants and airplanes. Also, as a precautionary practice in order to avoid inadvertent disclosure of information that can be damaging to the company, you should avoid discussing or posting any information pertaining to Teradyne or its customers, suppliers or distributors on electronic or Internet based message boards or chat rooms. Additionally, employees and visitors to company offices are prohibited from using photographic devices, including digital phone cameras at company sites without express permission from company management. Also, it is important to remember not to answer any requests for any information, proprietary or otherwise, from outside Teradyne, to participate in interviews or to make any commitments on behalf of the company unless you are specifically authorized to do so.

You also must observe government rules and regulations relating to the safeguarding of classified information obtained through work between Teradyne and the government.

Using Company Property

All Teradyne related documents in tangible or electronic form in your possession or control, no matter where they are located, are company property. You are not allowed to use such documents for your own benefit or provide them to others for use unrelated to company business, during and after your employment or affiliation with the company. Any taking, downloading or other prohibited use or disclosure of Teradyne documents constitutes theft of Teradyne property and also may be a misappropriation of Teradyne’s trade secrets. (See also, “Use of Electronic Communication Resources” discussed below).

Inventions and Patents

Intellectual property, such as inventions and ideas, represent valuable assets of the company and should be treated as confidential. It is important to identify and protect these assets to ensure a competitive advantage exists for Teradyne products and services. You should report inventions, innovations and patentable ideas relating to any Teradyne business immediately to your manager and the company’s Legal Department. Invention disclosure forms are available from the Legal Department or at http://eit.corp . Teradyne.com/gaa/treasury/legal/legal.html. Teradyne respects the intellectual property rights of others and expects others to respect our intellectual property rights at all times. If you suspect an infringement, misuse or misappropriation of a Teradyne or third party intellectual property right, you should immediately contact the Legal Department.

Civic and Political Contributions

Teradyne sometimes makes contributions to civic and charitable organizations. Suggestions for such contributions may be sent to your division manager or to the Vice President of Corporate Relations.

Teradyne funds or assets may not be used for political contributions. No one at the company is authorized to solicit or require any political contribution. Personal political contributions are not reimbursed by Teradyne.

Import and Export

Teradyne is an international manufacturer with a global supply and customer base. Imports and exports are made to destinations inside and outside the United States. Failure to comply with U.S. or foreign governmental import and export laws and regulations could seriously impact Teradyne’s ability to serve its customers, disrupt its supply chain and result in financial and criminal penalties. If you are involved with the import or export of materials, you must be familiar with the relevant laws and regulations and comply with them. Import and export laws can be complex, so when in doubt, seek expertise within your group, or contact Teradyne’s Corporate Compliance Group at importexport@teradyne.com .

Compliance with Laws, Rules and Regulations and Teradyne Policies and Procedures

All members of the Teradyne community, including employees, officers, directors and others doing business with Teradyne, such as customers and vendors, are expected to comply with all applicable laws, rules and regulations and to use good judgment and common sense in doing so. You should ask for advice prior to taking any action if you are uncertain about what to do.

You are also expected to act in accordance with Teradyne policies and procedures, such as these Standards of Business Conduct.

If you become aware of a violation of any law, rule or regulation by Teradyne or a member of the Teradyne community in their business conduct, you should promptly

report the matter to your manager or to Teradyne’s Legal Department. The Company will not discharge, demote, suspend, threaten, harass, discriminate or retaliate against anyone, who in good faith, reports a suspected violation.

Conclusion While this section describes several company policies, specific positions at Teradyne and particular situations may be subject to additional requirements. The company has the responsibility for educating employees, officers and directors and providing guidance in those cases. It is your responsibility to learn those requirements and follow them.

Making the Right Choices in the Workplace

Teradyne expects employees to conduct themselves as mature, responsible, and respectful individuals in all their dealings with co-workers. Maintaining a safe and productive workplace is a shared responsibility for all employees.

Environmental, Health, and Safety

Teradyne is committed to promoting, creating, and maintaining a safe and healthy workplace and to improving the environmental quality of our operations and surrounding communities. This effort begins with providing a safe physical plant and a working environment that promotes hazard-free working conditions. It also includes a commitment to minimize the environmental impact of our operations, products and services where possible.

We are committed to taking appropriate precautions to prevent injury and illness in the workplace and to providing safeguards, training and information on potential risks, including those involved in handling hazardous chemicals. Certain manufacturing functions at Teradyne are also subject to stringent government requirements for operations and record keeping. Employees who violate those requirements may face direct governmental sanctions. Teradyne’s Environmental Safety and Compliance Group provides support and assistance in this area to help prevent injuries and ensure a safe workplace environment.

Teradyne products are designed and manufactured to be safe through the use of appropriate safeguards, warning labels, and documentation as required by Teradyne Product Safety Guidelines. Our Product Safety Group is a resource for safety issues concerning our products.

We all share the responsibility for maintaining a safe workplace. For many employees this involves making decisions involving environmental, health and safety issues every day. These decisions should be made with full knowledge of and compliance with all environmental, health and safety laws and regulations. You should report any unsafe conditions and any environmental, health or safety issues or concerns to your manager or your local safety committee.

Equal Employment Opportunity

Teradyne will not discriminate in the employment of any person due to race, religion, color, sex, national origin, age, disability, veteran status, military service or application for military service, sexual orientation or any other category protected under applicable federal, state or foreign law. This applies to all personnel actions including hiring, promotions, terminations, transfers, compensation, and benefits. Equal opportunities are provided for all employees, and all employees are encouraged to advance within the company. For more detailed information regarding Teradyne’s commitment to equal employment opportunity and the prohibition on harassment and discrimination in the workplace, please contact your Human Resource Representative.

Direct Supervision of Relatives or Friends

Supervisors make decisions regarding opportunities for advancement, working conditions, or other matters affecting the employees who report to them. For that reason, Teradyne prohibits employees from directly supervising a relative or someone with whom they have a close personal relationship.

Inappropriate Conduct

All members of the Teradyne community are expected to treat each other with dignity and respect. We recognize that disagreements arise in daily dealings with others. Most of those disagreements can be and are handled appropriately and without incident. However, there are certain acts of misconduct that the company simply will not tolerate, such as: any type of harassment, discrimination, physical violence, unlawful actions, retaliation against co-workers, theft, gambling, and working under the influence of alcoholic beverages or illegal drugs. Such conduct may result in disciplinary action including immediate termination.

Use of Electronic Communications Resources

Teradyne provides employees tools and equipment to be used as resources in doing their jobs. Equipment such as telephones, networked computers, and Internet access lines are capable of being used for personal phone calls, e-mails, etc. Reasonable personal use is permitted on a limited basis, but the equipment and access lines remain the property of Teradyne and should be used primarily for Teradyne business. Information residing in the equipment or on the network is also the property of Teradyne and accordingly, Teradyne retains the right to access, monitor, search, review or block any files, emails, Internet usage, information and messages on these resources at any time, for any business purpose and without prior notice.

You should have no expectation of privacy in any information stored on or sent via Teradyne’s computer networks. You must not assume the information that you send over computer networks is private or confidential. Also, Teradyne equipment is subject to standard maintenance and audits, such as automatic monitoring of Internet usage, as well as reasonable cause searches without notice.

Teradyne does not allow improper or inappropriate use of Teradyne information resources. Use is inappropriate, for example, when it detracts from your job performance or ties up excessive bandwidth or data storage. Use is improper when it contains or constitutes harassing, abusive, graphic, obscene or illegal materials or behavior, such as accessing pornography, circulating hate mail, attempting to gain unauthorized access to a Teradyne system, network or database or downloading copyrighted music, movies or other works without permission of the copyright owner.

Those who violate any of these policies are subject to discipline including termination.

Making the Right Choices with Customers

Teradyne’s reputation as an ethical company is one of our most important assets. The manner, methods and style with which we do business with our customers determines our ability to retain that image. Consequently, all commercial dealings must be above board and conducted with the highest ethical standards. This section provides a general overview of the standards and rules that Teradyne employees should follow when dealing with customers.

Relations with Our Customers

It is Teradyne’s policy to treat our customers in an open and honest manner. In our relationship with customers, there are certain business practices that are prohibited:

As a general matter, you may not restrict the dealings of our customers by, for instance, requiring them to purchase equipment only from us or restricting them for purchasing the equipment of any given competitor.

Some of our customers are also suppliers or potential suppliers. The two relationships are distinct and should be treated independently. You may not hold the purchase of our products as a precondition of business for our suppliers.

Similarly, you may not engage in “tie-in” agreements. A tie-in agreement is an arrangement in which a customer is required to buy unwanted products or services in order to obtain a unique, distinct or highly desirable product or service which the customer wants. You may offer our customers package pricing for groups or products and services that are purchased together, (unless one of the products cannot be bought separately and is highly desirable or unique), promotional pricing and other customary discounts and promotion offers in the ordinary course of business.

Improper methods of competition or deceptive practices are prohibited by U.S. and foreign laws. Examples of such practices are:

Marketing used equipment as new.

Making false or deceptive comparisons with other products.

Misrepresenting Teradyne’s trademark or patent rights.

This list does not include all the practices that would be deemed improper, but it should give you a general sense of the concerns in this area. At Teradyne, we adhere to all laws, rules and regulations on trade practices.

Confidential or Proprietary Information

In the normal course of business, we often share proprietary or confidential information with customers or receive confidential information from customers. This kind of information should be offered, accepted, or exchanged only after a written nondisclosure agreement covering the information to be disclosed has been signed by both parties. We recognize and honor our obligations to protect the confidential and proprietary information we receive. If a questionable situation arises with respect to confidential or proprietary information, you should immediately bring it to the attention of your supervisor and, if necessary, senior management and Teradyne’s Legal Department.

Government Procurement

Teradyne’s standards for business integrity are no different when the customer is the government, but the interpretation of those standards may be subject to special rules. If you are involved in government procurement and have questions regarding standards of conduct as they apply to a transaction with a government office or agency, please contact Teradyne’s Legal Department prior to taking any action.

Sales Commission Agreements

Teradyne establishes commission and fee arrangements only in writing and only with firms serving as bona fide commercial sales representatives, agents or consultants. Any commission or fees paid must be reasonable, consistent with the applicable written agreement, policy or plan and consistent with normal practices for our industry. Teradyne never makes payments in cash.

Making the Right Choices with Competitors

It’s just as important to act in an ethical and honest manner with our competitors as with our customers, suppliers and any other group. The choices an employee makes in these situations should be consistent with the guidelines described in this section.

Conduct Involving Competitors

You should be cautious when taking actions that in any way involve direct interaction with Teradyne’s competitors. As a general rule in evaluating potentially unethical conduct, you should ask yourself these questions: “If a competitor acted in a similar way against us, would we consider it improper? If we did something in cooperation with a competitor, would our customer consider it improper?” The guidelines below cover some typical problems; however, in any specific instance you should consult Teradyne’s Legal Department.

Antitrust Laws

You should not engage in discussions or share information with competitors regarding pricing. As a general rule, you need to be careful not to share business, or technical information that is confidential or proprietary to Teradyne with others outside Teradyne and especially with competitors.

Any agreement with one or more competitors regarding prices, terms of sale (e.g., credit, discounts, trade-ins), production volume, or market allocation (an agreement to divide up customers, types of products, geographic areas, or technology) is illegal. Boycotts, where two or more competitors agree not to deal with a particular customer or supplier, are also illegal. Informal understandings are as serious as formal documents. Exchanges of information between competitors must be treated carefully, since they could be interpreted as “signals” for anticompetitive conduct.

A distributor who purchases products from Teradyne and resells them for its own account is a customer and potentially a competitor. For that reason, there are special rules governing this type of relationship. For example, it is illegal in most countries to dictate the distributor’s price for reselling the product. Any arrangement with a distributor must be documented in writing and reviewed in advance by division management and Teradyne’s Legal Department.

Trade Associations

Trade associations and professional groups are legitimate and useful business forums. However, they pose a risk if topics discussed or agreements reached may be deemed anticompetitive. If you believe that topics or agreements discussed are or could be interpreted as anti-competitive, you should refuse to join in any conversation on the topic, leave the meeting if the discussion does not stop immediately and notify Teradyne management. If you have any questions or concerns regarding these issues, you should contact Teradyne’s Legal Department.

Confidential Material

Learning all available public information about competitors is an essential part of the selling process. But the process has limits. You should not accept or transmit any information about competitors where the circumstances lead you to believe it was obtained improperly or illegally. You may not obtain information through improper means, such as industrial espionage or paying a competitor’s employee to disclose confidential information.

If you have knowledge of trade secrets from prior employment with a competitor, that knowledge should not be used or disclosed at or within Teradyne. This obligation does not apply to your general skills and work experience.

Being Truthful in Selling Products

We sell our products on their merits and on the quality we provide as a supplier. Any statement about our products must be substantiated. Any statement about competitive products, quality, services, or the like must be complete and must be based on published or confirmed factual information.

Making the Right Choices with Suppliers

Teradyne bases its purchasing decisions on objective criteria such as price, quality, the financial stability and reputation of the supplier, technical requirements, service, and the overall business relationship with the supplier. As an important part of the Teradyne community, suppliers are critical to our success and deserve to be treated in a respectful and cooperative manner.

Conduct Involving Suppliers

We legally negotiate the best terms and conditions with our suppliers. You should not ask suppliers to restrict the sale of their products to anyone, except when a supplier’s product is based on a Teradyne-owned design or a joint relationship. We do not require a supplier to buy from Teradyne in order to obtain our business. Conversely, we do not buy from suppliers simply because they purchase our products. Close relationships with suppliers will often require Teradyne to share confidential information. Teradyne’s standard purchase orders and purchase agreements require suppliers to respect Teradyne’s confidential and proprietary information. You should not accept confidential or proprietary information from a supplier unless a written agreement governing use and disclosure has been signed. Contact the Teradyne Legal Department for procedures to create or review confidentiality agreements.

It is our responsibility to inform suppliers of all relevant sections of these Standards of Business Conduct including our policy against accepting gratuities described under the section “Gratuities from Third Parties” so that unintentional violations can be prevented. Please make sure you communicate the relevant policies to suppliers if you interact with them in the course of your employment.

Discounts

You should never misuse Teradyne’s buying power for personal gain. All discounts for products and services that might be offered by a supplier must be openly and readily available to all employees. You should not, for instance, get a discount on building materials for your home because you have used a certain supplier at Teradyne.

Using Copyrighted or Licensed Material

It is our policy to comply with copyright laws and licensing agreements for all material obtained from third parties, such as software, open source code, user and maintenance manuals, documentation and design schematics. Downloading copyrighted material from a Teradyne network or an outside network is not allowed unless we have the appropriate license.

Making the Right Choices with Shareholders

Shareholders are an integral part of the Teradyne community. Shareholders are like customers, but their investment is in Teradyne itself. Employees, officers and directors must not use their position and access to information unfairly against the interests of the investment community.

Inside Information

Shareholders share in Teradyne’s success, similar to others in the Teradyne community. They are entitled to accurate, timely financial and other information about the company and to know that trading in Teradyne’s stock is conducted with integrity and fairness.

If you have information about Teradyne that is both material and non-public, also called “material inside information,” it is illegal for you to trade in Teradyne stock, engage in any action to take advantage of such information, disclose such information to others, or recommend to others that they buy or sell Teradyne stock.

Information is “material” if it would influence a reasonable person to buy or sell stock or to refrain from buying or selling stock. Examples include: undisclosed booking or earnings information; trends in orders, sales or profitability; impending announcements of major new products; acquisitions or equity investments; and important project, product, or litigation developments.

Information is “non-public” if it has not been the subject of a Teradyne press release or a filing with the U.S. Securities and Exchange Commission (“SEC”) or is not generally known outside Teradyne. If you possess material inside information about Teradyne, you must wait to trade Teradyne stock until a reasonable time, usually 24 hours, after public disclosure of that information. Trading in Teradyne stock includes buying or selling any type of Teradyne security in the open market. These include exchange-traded options and other derivative securities, as well as common stock.

Certain material inside information that is related to Teradyne’s business may not affect the stock price, but may affect the stock price of another company or the value of other investments. This type of inside information would include a planned investment in another company by Teradyne or the award of a significant contract by Teradyne to a supplier. It would also include information regarding orders, contracts or products of another company. You may not use this material inside information to gain a personal financial benefit.

Teradyne’s Vice President of Investor Relations is the proper contact for shareholders, financial analysts, and others seeking information about the company’s finances and business. All requests from these groups should be directed to the Vice President of Investor Relations. You may obtain a copy of the full text of Teradyne’s insider trading policy by contacting Teradyne’s Legal Department.

Another Company’s Inside Information

If you learn material inside information about another company while performing your Teradyne duties, you also may be considered an insider of that company and are subject to the same trading restrictions in that company’s stock.

Short Sales

Officers and directors are prohibited, by U.S. securities law, from making short sales of Teradyne securities. All employees should be aware that short sales and derivative transactions, such as buying or selling put and call options, carry the potential of placing their personal financial interests in conflict with the interests of Teradyne and its shareholders. Employees should therefore carefully evaluate the risks before entering into such a transaction.

Non-Trading Period

Directors, officers, and certain other employees of the company who have regular access to sensitive financial information are prohibited from buying or selling the company’s securities during the company’s official non-trading period, also called “blackout period,” as published by the Legal Department.

Trading by Family Members

The restrictions on trading described above apply not only to you, but also to your spouse, minor children, other persons living in your home or who are your dependents, and any other person or entity who holds stock over which you do or may have some control. Insiders responsible for compliance by such persons should review the company policy and the prohibitions on insider trading with them.

Who to Contact If You Have Questions About Stock Trades

If you are uncertain about the constraints on your purchase or sale of any Teradyne securities or the securities of any other company that you are familiar with by virtue of your relationship with Teradyne, you should consult with Teradyne’s General Counsel before making any such purchase or sale.

Enforcement

If you violate insider trading laws, you and Teradyne may be subject to serious and substantial civil and criminal penalties. Those found guilty of insider trading under the U.S. Insider Trading Sanctions Act of 1984 can be fined up to three times the profit gained or loss avoided by use of material inside information.

These laws apply to all members of the Teradyne community throughout the world. The U.S. SEC enforces insider trading laws and is aggressive in monitoring and prosecuting insider trading violations even where high-profile employees or significant profits are not involved. Violations of insider trading laws and this policy by an employee may also result in disciplinary action, including termination of employment.

Making the Right Choices In Reporting Business Transactions

Teradyne employees are obligated to report honestly and accurately all business transactions and must report concerns regarding questionable accounting, auditing and internal control matters.

Accuracy of Books and Records and Public Reports and Document Retention

Employees must honestly and accurately report all business transactions. You are responsible for the accuracy of your business records, reports and accounts and you should retain records in accordance with Teradyne’s legal obligations.

All Teradyne books, records and accounts must be kept and maintained in accordance with all applicable laws, regulations and standards and must accurately reflect the true nature of the transactions they record. In addition, Teradyne’s financial statements must conform to U.S. generally accepted accounting principles (U.S. GAAP) and Teradyne’s accounting policies. No undisclosed or unrecorded account or fund may be established for any purpose. No false or misleading entries may be made in Teradyne’s books or records for any reason, and no disbursement of corporate funds or other corporate property may be made without adequate supporting documentation. For example, all employees must keep and maintain truthful, accurate and complete expense reports. All sales employees must keep and maintain truthful, accurate and complete paperwork relating to sales transactions.

As a public company, Teradyne must file reports and documents with the U.S. SEC and make other public communications. These filings and communications must provide accurate, complete and timely information, including our financial results and financial condition. As an employee or officer of the company, you must fully meet your responsibilities to ensure that Teradyne’s financial reports and records comply with all applicable laws, generally accepted accounting principles and Teradyne policies. If you are a member of Teradyne’s Finance and Accounting Department or are otherwise involved with Teradyne’s financial reporting, these responsibilities are especially important.

Concerns Regarding Accounting, Accounting Controls or Auditing Matters

Concerns regarding accounting, accounting controls or auditing matters may be reported to the Audit Committee of Teradyne’s Board of Directors on a confidential basis in any one of the following ways: (i) by mail to Teradyne, Inc. Audit Committee, P.O. Box 120188, Boston, MA 02112, USA; (ii) by telephone hotline at 1-800-224-8113; or (iii) by e-mail to AuditCommittee@teradyne.com . Reports submitted by regular mail to the Audit Committee or by telephone to the above hotline number may be made on an anonymous basis. You may also submit your concerns to Teradyne’s Chief Executive Officer, Chief Financial Officer, Vice President of Human Resources or General Counsel or any individual member of the Audit Committee of Teradyne’s Board of Directors. Even if you submit concerns other than anonymously, the company will use its best efforts to protect your privacy and confidentiality. You will not be penalized or retaliated against for reporting a concern (unless you knowingly and willfully make a false report).

Dealings with Independent Auditors

Employees, officers and directors must not, directly, indirectly, or by omission, make or cause to be made a materially false or misleading statement to an accountant in connection with any audit, review or examination of Teradyne’s financial statements or the preparation or filing of any document or report with any U.S. regulatory agency such as the SEC. No employee shall, directly or indirectly, take any action to coerce, manipulate, mislead or fraudulently influence any independent public or certified public accountant engaged in the performance of an audit or review of Teradyne’s financial statements.

Waivers, Reporting and Compliance Procedures and Dissemination and Amendment

This section describes the procedures for seeking a waiver from these Standards of Business Conduct, your duty to report violations and to whom you should make that report, the process for ensuring that employees are familiar with these standards and where the standards themselves can be accessed electronically.

Waivers of These Standards of Business Conduct

The policies contained in these Standards of Business Conduct must be followed unless a special exception is granted. Special exceptions will be granted only if a compelling reason exists. If you are an employee and you believe that an exception to any of these policies is appropriate, you should first contact your manager. If your manager agrees that an exception is appropriate, the approval of Teradyne’s General Counsel must be sought.

Only the Board of Directors may waive any provision of these Standards of Business Conduct with respect to company officers and directors. A request for any such waiver

should be submitted in writing to the Board of Directors, or a committee of the Board of Directors designated for this purpose. The Board of Directors will promptly disclose to investors, by means of a posting on Teradyne’s website, any waiver granted to an officer or a director, including the justification for the waiver.

Teradyne’s General Counsel will maintain a record of all requests for exceptions to any of these policies and the disposition of such requests.

Reporting and Compliance Procedures

Every employee, officer and director should ask questions, seek guidance, report suspected violations and express concerns regarding compliance with these Standards of Business Conduct. If you know or believe that another employee or representative of Teradyne has engaged or is engaging in Teradyne-related conduct that violates applicable law or these Standards of Business Conduct, you should report the situation to your manager or to Teradyne’s General Counsel, as described below. You may report such conduct openly or anonymously without fear of retaliation. Teradyne will not discriminate or retaliate, and will not tolerate discrimination or retaliation against any person who reports suspected violations (unless it is determined that the report was made with knowledge that it was false) or who cooperates in any investigation or inquiry regarding possible violations. Any supervisor who receives a report of a violation of the policies described in these Standards of Business Conduct must immediately inform Teradyne’s General Counsel.

You may report violations on a confidential or anonymous basis, by contacting Teradyne’s Ethics Office at: 321 Harrison Avenue, Boston, Massachusetts, 02118, Attention: Ethics Office. In addition, Teradyne has established a toll-free telephone number (1-800-224-8113) where you can leave a recorded message about any violation or suspected violation of these Standards of Business Conduct. While Teradyne prefers that you identify yourself when reporting violations to enable us to follow up with you (if necessary), you may leave messages anonymously if you wish.

Failure to comply with these standards may result in disciplinary action including, but not limited to, reprimands, warnings, discharge and restitution. Certain violations of these Standards of Business Conduct may require Teradyne to refer the matter to appropriate governmental or regulatory authorities for investigation or prosecution. Moreover, any supervisor who directs or approves any violation of these standards, or who has knowledge of a violation and does not immediately report it, also will be subject to disciplinary action, including possible discharge.

Dissemination and Amendment

These Standards of Business Conduct will be distributed to each new Teradyne employee, officer and director upon commencement of his or her relationship with Teradyne. Current employees holding managerial, financial or other sensitive positions with Teradyne and directors will be required to certify on an annual basis that they: (1)

are familiar with such standards and have not violated any provision thereof; (2) are not aware of any violation of the standards by anyone else; (3) will comply with such standards; and (4) will report to Teradyne’s General Counsel any actual or suspected violation of these Standards of Business Conduct of which they become aware. Teradyne reserves the right to amend, alter or terminate these standards at any time for any reason without prior notice. The most current version of these Standards of Business Conduct can be found on Teradyne’s Legal Department Intranet Website under “Ethics – Teradyne Business Conduct Standards” or at https://direct link.corp.teradyne.com/MyCompany/standards. asp . These Standards of Business Conduct may also be obtained on Teradyne’s external website (www.teradyne.com) by clicking on the “Investor” link and then clicking on the “Corporate Governance” link and finally clicking on the “Code of Conduct” link.

May 2004

CERTIFICATION FOR NEWLY HIRED EMPLOYEES

I, do hereby certify that:

(Print Name Above)

I have received and carefully read the Making the Right Choices: Standards of Business Conduct and Ethics (“Code of Ethics”) of Teradyne, Inc. (“Teradyne”) dated May 2004.

I understand the Code of Ethics.

I will comply with the terms of the Code of Ethics and applicable laws, rules and regulations.

In the event I become aware of or suspect any violation of or inconsistency with the Code of Ethics, I will report it to either my manager, the Ethics Office, Teradyne’s General Counsel or, if appropriate, the Audit Committee of the Board of Directors.

I understand that Teradyne expressly prohibits any employee, officer or director from retaliating against any person for reporting suspected violations of the Code of Ethics or of any laws, rules or regulations.

I am familiar with all the resources that are available if I have questions about specific conduct, Teradyne policies or applicable laws, rules or regulations.


Date:

Signature:

EACH NEW EMPLOYEE IS REQUIRED TO SIGN, DATE AND RETURN THIS CERTIFICATION TO THE HUMAN RESOURCES DEPARTMENT WITHIN 60 DAYS OF THE FIRST DAY OF EMPLOYMENT.

CERTIFICATION FOR DIRECTORS AND EXISTING EMPLOYEES

I, do hereby certify that:

(Print Name Above)

I have received and carefully read the Making the Right Choices: Standards of Business Conduct and Ethics (“Code of Ethics”) of Teradyne, Inc. (“Teradyne”) dated May 2004.

I understand the Code of Ethics.

I have complied and will continue to comply with the terms of the Code of Ethics and applicable laws, rules and regulations.

I am not aware of any violation of the Code of Ethics by anyone else. In the event I become aware of or suspect any violation of or inconsistency with the Code of Ethics, I will report it to either my manager, the Ethics Office, Teradyne’s General Counsel or, if appropriate, the Audit Committee of the Board of Directors. I understand that Teradyne expressly prohibits any employee, officer or director from retaliating against any person for reporting suspected violations of the Code of Ethics or of any laws, rules or regulations.

I am familiar with all the resources that are available if I have questions about specific conduct, Teradyne policies or applicable laws, rules or regulations.


Date:
Signature:

EACH EMPLOYEE IS REQUIRED TO SIGN, DATE AND RETURN THIS CERTIFICATION TO THE HUMAN RESOURCES DEPARTMENT WITHIN 30 DAYS OF REQUEST.

Exhibit 31.1

CERTIFICATIONS

I, Michael A. Bradley, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Teradyne, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) [Paragraph omitted in accordance with SEC transition instructions contained in SEC Release 34-47986.];

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent function):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 13, 2004

By:

/s/ M ICHAEL A. B RADLEY

Michael A. Bradley

Chief Executive Officer

Exhibit 31.2

CERTIFICATIONS

I, Gregory R. Beecher, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Teradyne, Inc.;

b) [Paragraph omitted in accordance with SEC transition instructions contained in SEC Release 34-47986.];

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 13, 2004

By:

/s/ G REGORY R. B EECHER

Gregory R. Beecher

Chief Financial Officer

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Teradyne, Inc. (the “Company”) on Form 10-Q for the period ending July 4, 2004 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Michael A. Bradley, Chief Executive Officer of the Company, certify pursuant to 18 U.S.C (S)1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of the dates and for the periods expressed in the Report.

/s/ M ICHAEL A. B RADLEY

Michael A. Bradley

Chief Executive Officer

August 13, 2004

Exhibit 32.2

CERTIFICATION PURSUANT TO

18 U.S.C SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Teradyne, Inc. (the “Company”) on Form 10-Q for the period ending July 4, 2004 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Gregory R. Beecher, Chief Financial Officer of the Company, certify pursuant to 18 U.S.C (S)1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

/s/ Gregory R. Beecher

Gregory R. Beecher

Chief Financial Officer

August 13, 2004