##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended February 24, 2007
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
 For the transition period from  to .
 Commission File Number 001-04837
 TEKTRONIX, INC.
  OREGON
(State or Other Jurisdiction of 
Incorporation or Organization)
    
    93-0343990
(I.R.S. Employer Identification No.)14200 SW KARL BRAUN DRIVEBEAVERTON, OREGON
(Address of Principal Executive Offices)
    
    97077
(Zip Code)
 (503) 627-7111
 NOT APPLICABLE
 þ o
  Large accelerated filer þ
  
  Accelerated filer o
  
  Non-accelerated filer o o þ




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##### 



TEKTRONIX, INC. AND SUBSIDIARIES
 INDEX
 PAGE NO.FORWARD-LOOKING STATEMENTS
    
    1PART I. FINANCIAL INFORMATIONItem 1.
    
    Financial Statements.Condensed Consolidated Statements of Operations (Unaudited)  
for the Fiscal quarter ended February 24, 2007 and the Fiscal quarter ended February 25, 2006for the Three fiscal quarters ended February 24, 2007 
and the Three fiscal quarters ended February 25, 2006
    
    2Condensed Consolidated Balance Sheets (Unaudited)  at February 24, 2007 and May 27, 2006
    
    3Condensed Consolidated Statements of Cash Flows (Unaudited)  
for the Three fiscal quarters ended February 24, 2007 and the Three fiscal quarters ended February 25, 2006
    
    4Notes to Condensed Consolidated Financial Statements (Unaudited)
    
    5Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations.
    
    24Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk.
    
    44Item 4.
    
    Controls and Procedures.
    
    44PART II. OTHER INFORMATIONItem 1.
    
    Legal Proceedings.
    
    45Item 1A.
    
    Risk Factors.
    
    45Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds.
    
    49Item 6.
    
    Exhibits.
    
    49SIGNATURES
    
    50EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32.1EXHIBIT 32.2




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Forward-Looking Statements
     1




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Part I. FINANCIAL INFORMATION
 
 Item 1. Financial Statements.
 
 Condensed Consolidated Statements of Operations (Unaudited)
 Fiscal quarter ended
    
    
    Three fiscal quarters ended(In thousands, except per share amounts)
    
    Feb. 24, 2007
    
    
    Feb. 25, 2006
    
    
    Feb. 24, 2007
    
    
    Feb. 25, 2006Net sales
    
    $
    265,756
    
    
    $
    262,105
    
    
    $
    806,658
    
    
    $
    750,561Cost of sales
    
    
    108,674
    
    
    
    103,003
    
    
    
    326,930
    
    
    
    303,277Gross profit
    
    
    157,082
    
    
    
    159,102
    
    
    
    479,728
    
    
    
    447,284Research and development expenses
    
    
    49,422
    
    
    
    44,566
    
    
    
    149,303
    
    
    
    133,844Selling, general and administrative expenses
    
    
    83,715
    
    
    
    76,347
    
    
    
    247,752
    
    
    
    218,015Acquisition related costs and amortization
    
    
    3,223
    
    
    
    1,418
    
    
    
    6,063
    
    
    
    6,949Business realignment costs
    
    
    430
    
    
    
    3,182
    
    
    
    2,799
    
    
    
    7,543(Gain) loss on disposition of assets, net
    
    
    (40
    )
    
    
    54
    
    
    
    481
    
    
    
    81Operating income
    
    
    20,332
    
    
    
    33,535
    
    
    
    73,330
    
    
    
    80,852Interest income
    
    
    3,970
    
    
    
    3,381
    
    
    
    12,903
    
    
    
    9,361Interest expense
    
    
    (185
    )
    
    
    (96
    )
    
    
    (367
    )
    
    
    (339
    )Other non-operating expense, net
    
    
    (1,574
    )
    
    
    (933
    )
    
    
    (4,182
    )
    
    
    (3,912
    )Earnings before taxes
    
    
    22,543
    
    
    
    35,887
    
    
    
    81,684
    
    
    
    85,962Income tax expense
    
    
    3,021
    
    
    
    10,949
    
    
    
    22,452
    
    
    
    26,978Net earnings from continuing
operations
    
    
    19,522
    
    
    
    24,938
    
    
    
    59,232
    
    
    
    58,984Gain from discontinued operations,
net of income taxes
    
    
    3,229
    
    
    
    1,575
    
    
    
    3,232
    
    
    
    1,510Net earnings
    
    $
    22,751
    
    
    $
    26,513
    
    
    $
    62,464
    
    
    $
    60,494Earnings per share:Continuing operations  basic
    
    $
    0.24
    
    
    $
    0.30
    
    
    $
    0.73
    
    
    $
    0.71Continuing operations  diluted
    
    $
    0.24
    
    
    $
    0.30
    
    
    $
    0.72
    
    
    $
    0.70Discontinued operations  basic and
diluted
    
    $
    0.04
    
    
    $
    0.02
    
    
    $
    0.04
    
    
    $
    0.02Net earnings  basic
    
    $
    0.29
    
    
    $
    0.32
    
    
    $
    0.77
    
    
    $
    0.73Net earnings  diluted
    
    $
    0.28
    
    
    $
    0.32
    
    
    $
    0.76
    
    
    $
    0.72Weighted average shares outstanding:Basic
    
    
    79,795
    
    
    
    82,174
    
    
    
    81,108
    
    
    
    83,203Diluted
    
    
    81,301
    
    
    
    83,319
    
    
    
    82,720
    
    
    
    84,065Cash dividends declared per share
    
    $
    0.06
    
    
    $
    0.06
    
    
    $
    0.18
    
    
    $
    0.18
  2




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Condensed Consolidated Balance Sheets (Unaudited)
 (In thousands)
    
    Feb. 24, 2007
    
    
    May 27, 2006ASSETSCurrent assets:Cash and cash equivalents
    
    $
    124,379
    
    
    $
    215,587Short-term marketable investments
    
    
    61,632
    
    
    
    121,346Trade accounts receivable, net of allowance for
doubtful accounts of $3,097 and $3,079, respectively
    
    
    173,179
    
    
    
    174,599Inventories
    
    
    167,461
    
    
    
    156,351Other current assets
    
    
    80,198
    
    
    
    69,002Total current assets
    
    
    606,849
    
    
    
    736,885Property, plant and equipment, net
    
    
    129,663
    
    
    
    127,510Long-term marketable investments
    
    
    159,597
    
    
    
    103,839Goodwill, net
    
    
    325,409
    
    
    
    307,189Pension asset
    
    
    231,397
    
    
    
    239,128Other long-term assets
    
    
    110,732
    
    
    
    119,539Total assets
    
    $
    1,563,647
    
    
    $
    1,634,090LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Accounts payable and accrued liabilities
    
    $
    146,512
    
    
    $
    133,323Accrued compensation
    
    
    60,037
    
    
    
    71,718Deferred revenue
    
    
    93,612
    
    
    
    66,677Total current liabilities
    
    
    300,161
    
    
    
    271,718Deferred income taxes
    
    
    49,063
    
    
    
    65,935Long-term liabilities
    
    
    110,043
    
    
    
    108,868Shareholders equity:Common stock, no par value (authorized 200,000 shares;
issued and outstanding 79,303 and 83,719 shares
at February 24, 2007 and May 27, 2006, respectively)
    
    
    533,542
    
    
    
    540,718Retained earnings
    
    
    546,383
    
    
    
    620,465Accumulated other comprehensive income
    
    
    24,455
    
    
    
    26,386Total shareholders equity
    
    
    1,104,380
    
    
    
    1,187,569Total liabilities and shareholders equity
    
    $
    1,563,647
    
    
    $
    1,634,090
  3




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Condensed Consolidated Statements of Cash Flows (Unaudited)
 Three fiscal quarters ended(In thousands)
    
    Feb. 24, 2007
    
    
    Feb. 25, 2006CASH FLOWS FROM OPERATING ACTIVITIESNet earnings
    
    $
    62,464
    
    
    $
    60,494Adjustments to reconcile net earnings to net cash provided by
operating activities:Depreciation and amortization expense
    
    
    21,682
    
    
    
    20,849Amortization of acquisition related intangible assets
    
    
    18,207
    
    
    
    18,031Share-based compensation expense
    
    
    15,849
    
    
    
    Write-off of in-process research and development
    
    
    1,587
    
    
    
    365Loss on disposition of assets, net
    
    
    481
    
    
    
    81Tax benefit of stock option exercises
    
    
    
    
    
    
    3,184Deferred income tax (benefit) expense
    
    
    (17,360
    )
    
    
    2,656Gain from discontinued operations
    
    
    (3,232
    )
    
    
    (1,510
    )(Gain) loss on sale of corporate equity securities
    
    
    (815
    )
    
    
    90Changes in operating assets and liabilities, net of effects of acquisitions:Trade accounts receivable, net
    
    
    2,068
    
    
    
    (12,100
    )Inventories
    
    
    (9,951
    )
    
    
    (8,040
    )Other current assets
    
    
    (8,874
    )
    
    
    10,706Accounts payable and accrued liabilities
    
    
    14,808
    
    
    
    11,127Accrued compensation
    
    
    (11,705
    )
    
    
    (15,507
    )Deferred revenue
    
    
    26,685
    
    
    
    6,651Cash funding of defined benefit plans
    
    
    
    
    
    
    (48,339
    )Other long-term assets and liabilities, net
    
    
    (2,463
    )
    
    
    (2,227
    )Net cash provided by continuing operating activities
    
    
    109,431
    
    
    
    46,511Net cash (used in) provided by discontinued operating activities
    
    
    (34
    )
    
    
    1,510Net cash provided by operating activities
    
    
    109,397
    
    
    
    48,021CASH FLOWS FROM INVESTING ACTIVITIESAcquisition of businesses, net of cash acquired
    
    
    (28,192
    )
    
    
    (8,015
    )Acquisition of property, plant and equipment
    
    
    (22,098
    )
    
    
    (29,449
    )Proceeds from the disposition of property and equipment
    
    
    127
    
    
    
    1,304Proceeds from sale of corporate equity securities
    
    
    1,919
    
    
    
    10Proceeds from maturities and sales of marketable investments
    
    
    155,130
    
    
    
    155,960Purchases of short-term and long-term marketable investments
    
    
    (148,749
    )
    
    
    (21,902
    )Net cash (used in) provided by investing activities
    
    
    (41,863
    )
    
    
    97,908CASH FLOWS FROM FINANCING ACTIVITIESProceeds from employee stock plans
    
    
    11,298
    
    
    
    24,294Repurchase of common stock
    
    
    (159,281
    )
    
    
    (106,337
    )Dividends paid
    
    
    (14,799
    )
    
    
    (14,986
    )Repayment of long-term debt
    
    
    
    
    
    
    (280
    )Tax benefit of share-based compensation
    
    
    2,166
    
    
    
    Net cash used in financing activities
    
    
    (160,616
    )
    
    
    (97,309
    )Effect of exchange rate changes on cash
    
    
    1,874
    
    
    
    (2,748
    )Net (decrease) increase in cash and cash equivalents
    
    
    (91,208
    )
    
    
    45,872Cash and cash equivalents at beginning of period
    
    
    215,587
    
    
    
    131,640Cash and cash equivalents at end of period
    
    $
    124,379
    
    
    $
    177,512
  4




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Notes to Condensed Consolidated Financial Statements (Unaudited)
 1. The Company
    2. Financial Statement Presentation
    5




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##### Table of Contents



3. Recent Accounting Pronouncements
       6




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4. Earnings Per Share
   Fiscal quarter ended
    
    
    Three fiscal quarters ended(In thousands, except per share amounts)
    
    Feb. 24, 2007
    
    
    Feb. 25, 2006
    
    
    Feb. 24, 2007
    
    
    Feb. 25, 2006Net earnings
    
    $
    22,751
    
    
    $
    26,513
    
    
    $
    62,464
    
    
    $
    60,494Weighted average shares used for
basic earnings per share
    
    
    79,795
    
    
    
    82,174
    
    
    
    81,108
    
    
    
    83,203Incremental dilutive shares
    
    
    1,506
    
    
    
    1,145
    
    
    
    1,612
    
    
    
    862Weighted average shares used for
diluted earnings per share
    
    
    81,301
    
    
    
    83,319
    
    
    
    82,720
    
    
    
    84,065Earnings per share:Net earnings  basic
    
    $
    0.29
    
    
    $
    0.32
    
    
    $
    0.77
    
    
    $
    0.73Net earnings  diluted
    
    $
    0.28
    
    
    $
    0.32
    
    
    $
    0.76
    
    
    $
    0.72
   7




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5. Share-Based Compensation
    Fiscal quarter ended
    
    
    Three fiscal quarters ended(In thousands, except per share amounts)
    
    Feb. 25, 2006
    
    
    Feb. 25, 2006Net earnings as reported
    
    $
    26,513
    
    
    $
    60,494Stock compensation cost included in
net earnings as reported, net of
tax expense of $373 and $874
    
    
    883
    
    
    
    2,050Stock compensation cost using the fair
value alternative, net of tax benefit
of $1,927 and $6,083
    
    
    (4,594
    )
    
    
    (14,263
    )Pro forma net earnings
    
    $
    22,802
    
    
    $
    48,281Earnings per share:Basic  as reported
    
    $
    0.32
    
    
    $
    0.73Basic  pro forma
    
    $
    0.28
    
    
    $
    0.58Diluted  as reported
    
    $
    0.32
    
    
    $
    0.72Diluted  pro forma
    
    $
    0.27
    
    
    $
    0.57
 Impact of the Adoption of SFAS No. 123R
  Fiscal quarter ended February 24, 2007
    
    Three fiscal quarters ended February 24, 2007Using
    
    
    Adjustment
    
    
    
    
    
    
    Using
    
    
    AdjustmentAPB
    
    
    for SFAS
    
    
    As
    
    
    APB
    
    
    for SFAS
    
    
    AsNo. 25
    
    
    No. 123R
        

    Reported
    
    

    No. 25
    
    

    No. 123R
    
    

    ReportedCost of sales
    
    $
    108,251
    
    
    $
    423
    
    
    $
    108,674
    
    
    $
    326,373
    
    
    $
    557
    
    
    $
    326,930Research and development
expenses
    
    
    48,383
    
    
    
    1,039
    
    
    
    49,422
    
    
    
    146,145
    
    
    
    3,158
    
    
    
    149,303Selling, general, and administrative
expenses
    
    
    81,331
    
    
    
    2,384
    
    
    
    83,715
    
    
    
    240,501
    
    
    
    7,251
    
    
    
    247,752Operating income
    
    
    24,178
    
    
    
    (3,846
    )
    
    
    20,332
    
    
    
    84,296
    
    
    
    (10,966
    )
    
    
    73,330Earnings before taxes
    
    
    26,389
    
    
    
    (3,846
    )
    
    
    22,543
    
    
    
    92,650
    
    
    
    (10,966
    )
    
    
    81,684Net earnings
    
    $
    25,662
    
    
    $
    (2,911
    )
    
    $
    22,751
    
    
    $
    70,247
    
    
    $
    (7,783
    )
    
    $
    62,464Earnings per share:Basic
    
    $
    0.32
    
    
    $
    (0.03
    )
    
    $
    0.29
    
    
    $
    0.87
    
    
    $
    (0.10
    )
    
    $
    0.77Diluted
    
    $
    0.32
    
    
    $
    (0.04
    )
    
    $
    0.28
    
    
    $
    0.85
    
    
    $
    (0.09
    )
    
    $
    0.76Cash flows from operating activities
    
    $
    49,222
    
    
    $
    (1,498
    )
    
    $
    47,724
    
    
    $
    111,563
    
    
    $
    (2,166
    )
    
    $
    109,397Cash flows from financing activities
    
    $
    (110,608
    )
    
    $
    1,498
    
    
    $
    (109,110
    )
    
    $
    (162,782
    )
    
    $
    2,166
    
    
    $
    (160,616
    )
 8




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Valuation Assumptions
   Fiscal quarter ended
    
    Three fiscal quarters endedFeb. 24, 2007
    
    Feb. 25, 2006
    
    Feb. 24, 2007
    
    Feb. 25, 2006Expected life in years
    
    
    4.2
    
    
    
    5.1
    
    
    
    4.2
    
    
    
    5.1Risk-free interest rate
    
    
    4.76
    %
    
    
    4.20
    %
    
    
    4.75
    %
    
    
    4.18
    %Volatility
    
    
    30.75
    %
    
    
    31.42
    %
    
    
    30.86
    %
    
    
    31.55
    %Dividend yield
    
    
    0.84
    %
    
    
    0.82
    %
    
    
    0.83
    %
    
    
    0.85
    %
 Stock Plans
  9




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##### Table of Contents



Share-Based Payment Award Activity
  WeightedNumber of
    
    
    Weighted
    
    
    Average
    
    
    AggregateShares
    
    
    Average
    
    
    Remaining
    
    
    Intrinsic Value(in thousands)
    
    
    Exercise Price
    
    
    Life (in years)
    
    
    (in thousands)Outstanding at May 28, 2006
    
    
    11,934
    
    
    $
    29.06Granted
    
    
    764
    
    
    
    28.85Exercised
    
    
    (300
    )
    
    
    20.23Forfeited
    
    
    (370
    )
    
    
    36.40Expired
    
    
    
    
    
    
    Outstanding at February 24, 2007
    
    
    12,028
    
    
    $
    29.04
    
    
    
    6.28
    
    
    $
    40,254Exercisable at February 24, 2007
    
    
    8,903
    
    
    $
    28.93
    
    
    
    5.56
    
    
    $
    38,361
   WeightedNumber of
    
    
    AverageShares
    
    
    Grant Date(in thousands)
    
    
    Fair ValueNonvested shares at May 28, 2006
    
    
    948
    
    
    $
    29.62Granted
    
    
    673
    
    
    
    28.80Vested
    
    
    (220
    )
    
    
    29.59Forfeited
    
    
    (33
    )
    
    
    29.49Nonvested shares at February 24, 2007
    
    
    1,368
    
    
    $
    29.22
  Employee Stock Purchase Plan
   10




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##### Table of Contents



6. Acquisitions
 Inet Acquisition
    (In years)WeightedAverage
    
    
    
    
    
    
    Accumulated(In thousands)
    
    Useful Life
    
    
    Cost
    
    
    Amortization
    
    
    NetDeveloped technologies
    
    
    4.8
    
    
    $
    87,004
    
    
    $
    (44,695
    )
    
    $
    42,309Customer relationships
    
    
    4.8
    
    
    
    22,597
    
    
    
    (11,644
    )
    
    
    10,953Covenants not to compete
    
    
    4.0
    
    
    
    1,200
    
    
    
    (725
    )
    
    
    475Tradename
    
    Not amortized
    
    
    11,152
    
    
    
    
    
    
    
    11,152Total intangible assets purchased
    
    
    
    
    
    $
    121,953
    
    
    $
    (57,064
    )
    
    $
    64,889
  Fiscal quarter ended
    
    
    Three fiscal quarters ended(In thousands)
    
    Feb. 24, 2007
    
    
    Feb. 25, 2006
    
    
    Feb. 24, 2007
    
    
    Feb. 25, 2006Cost of sales
    
    $
    4,623
    
    
    $
    4,623
    
    
    $
    13,871
    
    
    $
    13,871Acquisition related costs and amortization
    
    
    1,280
    
    
    
    1,280
    
    
    
    3,838
    
    
    
    3,838Total
    
    $
    5,903
    
    
    $
    5,903
    
    
    $
    17,709
    
    
    $
    17,709
 11




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AcquisitionRelatedCost of
    
    
    Costs and(In thousands)
    
    Sales
    
    
    Amortization
    
    
    TotalYear2007
    
    $
    18,495
    
    
    $
    5,117
    
    
    $
    23,6122008
    
    
    16,670
    
    
    
    4,621
    
    
    
    21,2912009
    
    
    15,759
    
    
    
    4,174
    
    
    
    19,9332010
    
    
    5,256
    
    
    
    1,354
    
    
    
    6,610Total
    
    $
    56,180
    
    
    $
    15,266
    
    
    $
    71,446
 Minacom Acquisition
  7. Discontinued Operations
  Fiscal quarter ended
    
    
    Three fiscal quarters ended(In thousands)
    
    Feb. 24, 2007
    
    
    Feb. 25, 2006
    
    
    Feb. 24, 2007
    
    
    Feb. 25, 2006Loss on sale of VideoTele.com in 2003
less applicable income tax
benefit of $0, $0, $1 and $1)
    
    $
    
    
    
    $
    
    
    
    $
    (1
    )
    
    $
    (3
    )Gain on sale of optical parametric
test business in 2003 (less
applicable income tax expense of
$0, $491, $9 and $379)
    
    
    
    
    
    
    913
    
    
    
    16
    
    
    
    705Gain (loss) on sale of Gage in 2003
(less applicable income tax expense
of $0, $326, $0 and $406)
    
    
    
    
    
    
    608
    
    
    
    (1
    )
    
    
    756Gain on sale of Color Printing and Imaging
Division in 2000 (less applicable
income tax expense of $1,739,
$29, $1,732 and $28)
    
    
    3,229
    
    
    
    54
    
    
    
    3,218
    
    
    
    52Gain from discontinued operations,
net of income taxes
    
    $
    3,229
    
    
    $
    1,575
    
    
    $
    3,232
    
    
    $
    1,510
  12




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8. Business Realignment Costs
     13




---



##### Table of Contents



CostsBalance
    
    
    Incurred
    
    
    
    
    
    
    
    
    
    
    BalanceMay 27,
    
    
    and Other
    
    
    Cash
    
    
    Non-cash
    
    
    Feb. 24,(In thousands)
    
    2006
    
    
    Adjustments
    
    
    Payments
    
    
    Adjustments
    
    
    20072007 Actions:Employee severance and
related benefits
    
    $
    
    
    
    $
    2,487
    
    
    $
    (1,833
    )
    
    $
    26
    
    
    $
    680Contractual obligations
    
    
    
    
    
    
    303
    
    
    
    (303
    )
    
    
    
    
    
    
    Accumulated currency
translation loss, net
    
    
    
    
    
    
    4
    
    
    
    
    
    
    
    (4
    )
    
    
    Total
    
    
    
    
    
    
    2,794
    
    
    
    (2,136
    )
    
    
    22
    
    
    
    6802006 Actions:Employee severance and
related benefits
    
    
    4,867
    
    
    
    117
    
    
    
    (3,909
    )
    
    
    (85
    )
    
    
    990Total
    
    
    4,867
    
    
    
    117
    
    
    
    (3,909
    )
    
    
    (85
    )
    
    
    9902005 Actions:Employee severance and
related benefits
    
    
    11
    
    
    
    
    
    
    
    (11
    )
    
    
    
    
    
    
    Total
    
    
    11
    
    
    
    
    
    
    
    (11
    )
    
    
    
    
    
    
    2004 Actions:Employee severance and
related benefits
    
    
    613
    
    
    
    107
    
    
    
    (296
    )
    
    
    
    
    
    
    424Total
    
    
    613
    
    
    
    107
    
    
    
    (296
    )
    
    
    
    
    
    
    4242003 Actions:Employee severance and
related benefits
    
    
    3
    
    
    
    (3
    )
    
    
    
    
    
    
    
    
    
    
    Contractual obligations
    
    
    511
    
    
    
    (216
    )
    
    
    (278
    )
    
    
    
    
    
    
    17Total
    
    
    514
    
    
    
    (219
    )
    
    
    (278
    )
    
    
    
    
    
    
    17Total of all actions
    
    $
    6,005
    
    
    $
    2,799
    
    
    $
    (6,630
    )
    
    $
    (63
    )
    
    $
    2,111
 14




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##### Table of Contents



9. Marketable Investments
    (In thousands)
    
    Amortized Cost
    
    
    Unrealized Gains
    
    
    Unrealized Losses
    
    
    Market ValueAsset backed securities
    
    $
    25,514
    
    
    $
    56
    
    
    $
    (149
    )
    
    $
    25,421U.S. Agencies
    
    
    9,134
    
    
    
    
    
    
    
    (58
    )
    
    
    9,076Municipal bonds
    
    
    8,047
    
    
    
    
    
    
    
    (3
    )
    
    
    8,044Certificates of deposit
    
    
    7,797
    
    
    
    3
    
    
    
    (1
    )
    
    
    7,799Mortgage backed securities
    
    
    6,286
    
    
    
    2
    
    
    
    (133
    )
    
    
    6,155Corporate notes and bonds
    
    
    5,130
    
    
    
    
    
    
    
    (28
    )
    
    
    5,102U.S. Treasuries
    
    
    35
    
    
    
    
    
    
    
    
    
    
    
    35Short-term marketable investments
    
    $
    61,943
    
    
    $
    61
    
    
    $
    (372
    )
    
    $
    61,632
  (In thousands)
    
    Amortized Cost
    
    
    Unrealized Gains
    
    
    Unrealized Losses
    
    
    Market ValueMunicipal bonds
    
    $
    85,751
    
    
    $
    79
    
    
    $
    (142
    )
    
    $
    85,688Asset backed securities
    
    
    25,633
    
    
    
    
    
    
    
    (380
    )
    
    
    25,253Mortgage backed securities
    
    
    22,270
    
    
    
    
    
    
    
    (744
    )
    
    
    21,526Corporate notes and bonds
    
    
    17,085
    
    
    
    
    
    
    
    (414
    )
    
    
    16,671U.S. Agencies
    
    
    7,054
    
    
    
    
    
    
    
    (157
    )
    
    
    6,897U.S. Treasuries
    
    
    3,657
    
    
    
    
    
    
    
    (95
    )
    
    
    3,562Long-term marketable investments
    
    $
    161,450
    
    
    $
    79
    
    
    $
    (1,932
    )
    
    $
    159,597
  (In thousands)
    
    Amortized Cost
    
    
    Unrealized Gains
    
    
    Unrealized Losses
    
    
    Market ValueAsset backed securities
    
    $
    40,071
    
    
    $
    6
    
    
    $
    (241
    )
    
    $
    39,836U.S. Agencies
    
    
    27,340
    
    
    
    
    
    
    
    (328
    )
    
    
    27,012Corporate notes and bonds
    
    
    23,841
    
    
    
    9
    
    
    
    (67
    )
    
    
    23,783Commercial paper
    
    
    21,568
    
    
    
    
    
    
    
    
    
    
    
    21,568Mortgage backed securities
    
    
    6,802
    
    
    
    
    
    
    
    (187
    )
    
    
    6,615Certificates of deposit
    
    
    2,517
    
    
    
    
    
    
    
    (2
    )
    
    
    2,515U.S. Treasuries
    
    
    17
    
    
    
    
    
    
    
    
    
    
    
    17Short-term marketable investments
    
    $
    122,156
    
    
    $
    15
    
    
    $
    (825
    )
    
    $
    121,346
 15




---



##### Table of Contents



(In thousands)
    
    Amortized Cost
    
    
    Unrealized Gains
    
    
    Unrealized Losses
    
    
    Market ValueAsset backed securities
    
    $
    37,595
    
    
    $
    
    
    
    $
    (901
    )
    
    $
    36,694U.S. Agencies
    
    
    13,561
    
    
    
    
    
    
    
    (340
    )
    
    
    13,221Corporate notes and bonds
    
    
    20,223
    
    
    
    
    
    
    
    (686
    )
    
    
    19,537Mortgage backed securities
    
    
    30,252
    
    
    
    
    
    
    
    (1,305
    )
    
    
    28,947U.S. Treasuries
    
    
    5,634
    
    
    
    
    
    
    
    (194
    )
    
    
    5,440Long-term marketable investments
    
    $
    107,265
    
    
    $
    
    
    
    $
    (3,426
    )
    
    $
    103,839
  (In thousands)
    
    Amortized Cost BasisAfter 1 year through 5 years
    
    $
    139,180Mortgage backed securities
    
    
    22,270$
    161,450
   12 months or more
    
    
    Less than 12 months
    
    
    TotalGross Estimated
    
    
    Unrealized
    
    
    Gross Estimated
    
    
    Unrealized
    
    
    Gross Estimated
    
    
    Unrealized(In thousands)
    
    Market Value
    
    
    Losses
    
    
    Market Value
    
    
    Losses
    
    
    Market Value
    
    
    LossesAsset backed
securities
    
    $
    40,598
    
    
    $
    (526
    )
    
    $
    2,771
    
    
    $
    (3
    )
    
    $
    43,369
    
    
    $
    (529
    )Mortgage backed
securities
    
    
    26,006
    
    
    
    (855
    )
    
    
    1,676
    
    
    
    (22
    )
    
    
    27,682
    
    
    
    (877
    )Municipal bonds
    
    
    
    
    
    
    
    
    
    
    70,226
    
    
    
    (146
    )
    
    
    70,226
    
    
    
    (146
    )Corporate notes and
bonds
    
    
    21,773
    
    
    
    (441
    )
    
    
    
    
    
    
    
    
    
    
    21,773
    
    
    
    (441
    )U.S. Agencies
    
    
    15,973
    
    
    
    (215
    )
    
    
    
    
    
    
    
    
    
    
    15,973
    
    
    
    (215
    )U.S. Treasuries
    
    
    3,597
    
    
    
    (95
    )
    
    
    
    
    
    
    
    
    
    
    3,597
    
    
    
    (95
    )Certificates of
deposit
    
    
    2,616
    
    
    
    (1
    )
    
    
    
    
    
    
    
    
    
    
    2,616
    
    
    
    (1
    )Total
    
    $
    110,563
    
    
    $
    (2,133
    )
    
    $
    74,673
    
    
    $
    (171
    )
    
    $
    185,236
    
    
    $
    (2,304
    )
 16




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##### Table of Contents



10. Inventories
   (In thousands)
    
    Feb. 24, 2007
    
    
    May 27, 2006Materials
    
    $
    60,213
    
    
    $
    58,237Work in process
    
    
    23,447
    
    
    
    22,678Finished goods
    
    
    83,801
    
    
    
    75,436Inventories
    
    $
    167,461
    
    
    $
    156,351
 11. Other Current Assets
  (In thousands)
    
    Feb. 24, 2007
    
    
    May 27, 2006Current deferred tax asset
    
    $
    47,358
    
    
    $
    45,686Prepaid expenses
    
    
    15,057
    
    
    
    12,776Other receivables
    
    
    11,072
    
    
    
    8,343Notes receivable
    
    
    4,106
    
    
    
    12Income taxes receivable
    
    
    2,276
    
    
    
    1,772Other current assets
    
    
    329
    
    
    
    413Other current assets
    
    $
    80,198
    
    
    $
    69,002
 12. Property, Plant and Equipment, Net
  (In thousands)
    
    Feb. 24, 2007
    
    
    May 27, 2006Land
    
    $
    698
    
    
    $
    698Buildings
    
    
    139,706
    
    
    
    135,727Machinery and equipment
    
    
    267,913
    
    
    
    258,137Accumulated depreciation and amortization
    
    
    (278,654
    )
    
    
    (267,052
    )Property, plant and equipment, net
    
    $
    129,663
    
    
    $
    127,510
   17




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##### Table of Contents



13. Goodwill, Net
   Balance at May 27, 2006
    
    $
    307,189Acquisitions
    
    
    18,775Currency translation
    
    
    (555
    )Balance at February 24, 2007
    
    $
    325,409
  14. Other Long-Term Assets
  (In thousands)
    
    Feb. 24, 2007
    
    
    May 27, 2006Intangibles, net
    
    $
    76,444
    
    
    $
    86,805Notes, contracts and leases
    
    
    19,105
    
    
    
    18,476Corporate equity securities
    
    
    3,623
    
    
    
    8,923Other long-term assets
    
    
    11,560
    
    
    
    5,335Other long-term assets
    
    $
    110,732
    
    
    $
    119,539
     18




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##### Table of Contents



15. Accounts Payable and Accrued Liabilities
  (In thousands)
    
    Feb. 24, 2007
    
    
    May 27, 2006Trade accounts payable
    
    $
    44,001
    
    
    $
    50,910Other accounts payable
    
    
    46,517
    
    
    
    44,719Accounts payable
    
    
    90,518
    
    
    
    95,629Income taxes payable
    
    
    33,782
    
    
    
    16,181Contingent liabilities (Note 18)
    
    
    8,208
    
    
    
    8,785Product warranty accrual (Note 21)
    
    
    6,487
    
    
    
    5,798Accrued expenses and other liabilities
    
    
    7,517
    
    
    
    6,930Accrued liabilities
    
    
    55,994
    
    
    
    37,694Accounts payable and accrued liabilities
    
    $
    146,512
    
    
    $
    133,323
  16. Long-Term Liabilities
  (In thousands)
    
    Feb. 24, 2007
    
    
    May 27, 2006Pension liability
    
    $
    67,346
    
    
    $
    66,147Deferred compensation
    
    
    17,964
    
    
    
    14,584Postretirement benefits
    
    
    11,508
    
    
    
    12,106Other long-term liabilities
    
    
    13,225
    
    
    
    16,031Long-term liabilities
    
    $
    110,043
    
    
    $
    108,868
  17. Pension and Other Postretirement Benefits
  Pension Benefits
    
    
    Other Postretirement BenefitsFiscal quarter ended
    
    
    Fiscal quarter ended(In thousands)
    
    Feb. 24, 2007
    
    
    Feb. 25, 2006
    
    
    Feb. 24, 2007
    
    
    Feb. 25, 2006Service cost
    
    $
    1,969
    
    
    $
    1,848
    
    
    $
    19
    
    
    $
    24Interest cost
    
    
    9,497
    
    
    
    9,558
    
    
    
    224
    
    
    
    214Expected return on plan assets
    
    
    (12,063
    )
    
    
    (12,673
    )
    
    
    
    
    
    
    Amortization of transition asset
    
    
    42
    
    
    
    26
    
    
    
    
    
    
    
    Amortization of prior service cost
    
    
    (545
    )
    
    
    (567
    )
    
    
    
    
    
    
    Amortization of unrecognized actuarial
net loss
    
    
    5,171
    
    
    
    5,425
    
    
    
    
    
    
    
    Settlement gain
    
    
    (1,517
    )
    
    
    
    
    
    
    
    
    
    
    Net periodic benefit cost
    
    $
    2,554
    
    
    $
    3,617
    
    
    $
    243
    
    
    $
    238
 19




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##### Table of Contents



Pension Benefits
    
    
    Other Postretirement BenefitsThree fiscal quarters ended
    
    
    Three fiscal quarters ended(In thousands)
    
    Feb. 24, 2007
    
    
    Feb. 25, 2006
    
    
    Feb. 24, 2007
    
    
    Feb. 25, 2006Service cost
    
    $
    5,861
    
    
    $
    5,549
    
    
    $
    59
    
    
    $
    72Interest cost
    
    
    29,621
    
    
    
    28,805
    
    
    
    671
    
    
    
    642Expected return on plan assets
    
    
    (37,361
    )
    
    
    (38,123
    )
    
    
    
    
    
    
    Amortization of transition asset
    
    
    122
    
    
    
    82
    
    
    
    
    
    
    
    Amortization of prior service cost
    
    
    (1,637
    )
    
    
    (1,701
    )
    
    
    
    
    
    
    Amortization of unrecognized actuarial
net loss
    
    
    15,488
    
    
    
    16,319
    
    
    
    
    
    
    
    Settlement gain
    
    
    (1,517
    )
    
    
    
    
    
    
    
    
    
    
    Net periodic benefit cost
    
    $
    10,577
    
    
    $
    10,931
    
    
    $
    730
    
    
    $
    714
 18. Contingencies
  Sale of Color Printing and Imaging
  Environmental and Other
     20




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##### Table of Contents



19. Shareholders Equity
  AccumulatedOtherCommon Stock
    
    
    Retained
    
    
    Comprehensive(In thousands)
    
    Shares
    
    
    Amount
    
    
    Earnings
    
    
    Income
    
    
    TotalBalance at May 27, 2006
    
    
    83,719
    
    
    $
    540,718
    
    
    $
    620,465
    
    
    $
    26,386
    
    
    $
    1,187,569Net earnings
    
    
    
    
    
    
    
    
    
    
    62,464
    
    
    
    
    
    
    
    62,464Additional minimum pension liability,
net of income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (974
    )
    
    
    (974
    )Foreign currency translation
adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    302
    
    
    
    302Unrealized holding loss on available
for-sale securities, net of income
taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,259
    )
    
    
    (1,259
    )Cash dividends paid
    
    
    
    
    
    
    
    
    
    
    (14,799
    )
    
    
    
    
    
    
    (14,799
    )Shares issued to employees, net
of forfeitures
    
    
    1,163
    
    
    
    11,457
    
    
    
    
    
    
    
    
    
    
    
    11,457Tax benefit of share-based
compensation
    
    
    
    
    
    
    2,166
    
    
    
    
    
    
    
    
    
    
    
    2,166Amortization of unearned share-based
compensation
    
    
    
    
    
    
    16,735
    
    
    
    
    
    
    
    
    
    
    
    16,735Shares repurchased in open
market
    
    
    (5,579
    )
    
    
    (37,534
    )
    
    
    (121,747
    )
    
    
    
    
    
    
    (159,281
    )Balance at February 24, 2007
    
    
    79,303
    
    
    $
    533,542
    
    
    $
    546,383
    
    
    $
    24,455
    
    
    $
    1,104,380
    21




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##### Table of Contents



Fiscal quarter ended
    
    
    Three fiscal quarters ended(In thousands)
    
    Feb. 24, 2007
    
    
    Feb. 25, 2006
    
    
    Feb. 24, 2007
    
    
    Feb. 25, 2006Net earnings
    
    $
    22,751
    
    
    $
    26,513
    
    
    $
    62,464
    
    
    $
    60,494Other comprehensive income (loss):Net change in additional minimum pension
liability, net of income taxes of ($209),
($99), ($446) and $374, respectively
    
    
    (453
    )
    
    
    (215
    )
    
    
    (974
    )
    
    
    783Foreign currency translation adjustment
    
    
    (21
    )
    
    
    2,620
    
    
    
    302
    
    
    
    (8,111
    )Unrealized holding gain (loss) on available-for-sale
securities, net of income taxes
of $64, $258, ($740) and ($198),
respectively
    
    
    109
    
    
    
    440
    
    
    
    (1,259
    )
    
    
    (289
    )Total comprehensive income
    
    $
    22,386
    
    
    $
    29,358
    
    
    $
    60,533
    
    
    $
    52,877
  UnrealizedHolding Gain(Loss) Net on
    
    
    AccumulatedAdditional
    
    
    Foreign
    
    
    Available-for-
    
    
    OtherPension
    
    
    Currency
    
    
    Sale
    
    
    Comprehensive(In thousands)
    
    Liability
    
    
    Translation
    
    
    Securities
    
    
    IncomeBalance as of May 27, 2006
    
    $
    (11,477
    )
    
    $
    37,604
    
    
    $
    259
    
    
    $
    26,386First quarter activity
    
    
    (278
    )
    
    
    (1,536
    )
    
    
    (934
    )
    
    
    (2,748
    )Second quarter activity
    
    
    (243
    )
    
    
    1,859
    
    
    
    (434
    )
    
    
    1,182Third quarter activity
    
    
    (453
    )
    
    
    (21
    )
    
    
    109
    
    
    
    (365
    )Balance as of February 24, 2007
    
    $
    (12,451
    )
    
    $
    37,906
    
    
    $
    (1,000
    )
    
    $
    24,455
 20. Business Segments
  Fiscal quarter ended
    
    
    Three fiscal quarters ended(In thousands)
    
    Feb. 24, 2007
    
    
    Feb. 25, 2006
    
    
    Feb. 24, 2007
    
    
    Feb. 25, 2006Consolidated net sales to external customers by groups of similar products:Instruments Business
    
    $
    201,251
    
    
    $
    201,815
    
    
    $
    604,707
    
    
    $
    571,434Communications Business
    
    
    64,505
    
    
    
    60,290
    
    
    
    201,951
    
    
    
    179,127Net sales
    
    $
    265,756
    
    
    $
    262,105
    
    
    $
    806,658
    
    
    $
    750,561Consolidated net sales to external customers by region:The Americas:United States
    
    $
    98,024
    
    
    $
    92,599
    
    
    $
    285,381
    
    
    $
    269,081Other Americas
    
    
    6,860
    
    
    
    7,542
    
    
    
    22,769
    
    
    
    18,255Europe
    
    
    72,899
    
    
    
    77,287
    
    
    
    220,580
    
    
    
    208,616Pacific
    
    
    53,051
    
    
    
    50,026
    
    
    
    163,855
    
    
    
    141,089Japan
    
    
    34,922
    
    
    
    34,651
    
    
    
    114,073
    
    
    
    113,520Net sales
    
    $
    265,756
    
    
    $
    262,105
    
    
    $
    806,658
    
    
    $
    750,561
 22




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##### Table of Contents



21. Product Warranty Accrual
   Three fiscal quarters ended(In thousands)
    
    Feb. 24, 2007
    
    
    Feb. 25, 2006Balance at beginning of period
    
    $
    5,798
    
    
    $
    6,508Warranty parts and service provided
    
    
    (8,553
    )
    
    
    (7,405
    )Provision for warranty expense
    
    
    9,242
    
    
    
    6,535Balance at end of period
    
    $
    6,487
    
    
    $
    5,638
 22. Supplemental Cash Flow Information
 Three fiscal quarters ended(In thousands)
    
    Feb. 24, 2007
    
    
    Feb. 25, 2006Supplemental disclosure of cash flows:Income taxes paid, net
    
    $
    20,705
    
    
    $
    5,676Interest paid
    
    
    238
    
    
    
    179Non-cash transactions from acquisitions:Common stock issued
    
    $
    
    
    
    $
    2,075
 23




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##### Table of Contents



Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations.
  Basis of Presentation
  Business Overview
       24




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##### Table of Contents



Acquisitions
     Inet Technologies, Inc.
   (In years)WeightedAverage
    
    
    
    
    
    
    Accumulated(In thousands)
    
    Useful Life
    
    
    Cost
    
    
    Amortization
    
    
    NetDeveloped technologies
    
    
    4.8
    
    
    $
    87,004
    
    
    $
    (44,695
    )
    
    $
    42,309Customer relationships
    
    
    4.8
    
    
    
    22,597
    
    
    
    (11,644
    )
    
    
    10,953Covenants not to compete
    
    
    4.0
    
    
    
    1,200
    
    
    
    (725
    )
    
    
    475Tradename
    
    Not amortized
    
    
    11,152
    
    
    
    
    
    
    
    11,152Total intangible assets purchased
    
    
    
    
    
    $
    121,953
    
    
    $
    (57,064
    )
    
    $
    64,889
 25




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##### Table of Contents



Fiscal quarter ended
    
    
    Three fiscal quarters ended(In thousands)
    
    Feb. 24, 2007
    
    
    Feb. 25, 2006
    
    
    Feb. 24, 2007
    
    
    Feb. 25, 2006Cost of sales
    
    $
    4,623
    
    
    $
    4,623
    
    
    $
    13,871
    
    
    $
    13,871Acquisition related costs and amortization
    
    
    1,280
    
    
    
    1,280
    
    
    
    3,838
    
    
    
    3,838Total
    
    $
    5,903
    
    
    $
    5,903
    
    
    $
    17,709
    
    
    $
    17,709
  AcquisitionRelatedCost of
    
    
    Costs and(In thousands)
    
    Sales
    
    
    Amortization
    
    
    TotalYear2007
    
    $
    18,495
    
    
    $
    5,117
    
    
    $
    23,6122008
    
    
    16,670
    
    
    
    4,621
    
    
    
    21,2912009
    
    
    15,759
    
    
    
    4,174
    
    
    
    19,9332010
    
    
    5,256
    
    
    
    1,354
    
    
    
    6,610Total
    
    $
    56,180
    
    
    $
    15,266
    
    
    $
    71,446
 Business Realignment Costs
     26




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##### Table of Contents



Activity for the above described actions during the first three quarters of 2007 was as follows: CostsBalance
    
    
    Incurred
    
    
    
    
    
    
    
    
    
    
    BalanceMay 27,
    
    
    and Other
    
    
    Cash
    
    
    Non-cash
    
    
    Feb. 24,(In thousands)
    
    2006
    
    
    Adjustments
    
    
    Payments
    
    
    Adjustments
    
    
    20072007 Actions:Employee severance and
related benefits
    
    $
    
    
    
    $
    2,487
    
    
    $
    (1,833
    )
    
    $
    26
    
    
    $
    680Contractual obligations
    
    
    
    
    
    
    303
    
    
    
    (303
    )
    
    
    
    
    
    
    Accumulated currency
translation loss, net
    
    
    
    
    
    
    4
    
    
    
    
    
    
    
    (4
    )
    
    
    Total
    
    
    
    
    
    
    2,794
    
    
    
    (2,136
    )
    
    
    22
    
    
    
    6802006 Actions:Employee severance and
related benefits
    
    
    4,867
    
    
    
    117
    
    
    
    (3,909
    )
    
    
    (85
    )
    
    
    990Total
    
    
    4,867
    
    
    
    117
    
    
    
    (3,909
    )
    
    
    (85
    )
    
    
    9902005 Actions:Employee severance and
related benefits
    
    
    11
    
    
    
    
    
    
    
    (11
    )
    
    
    
    
    
    
    Total
    
    
    11
    
    
    
    
    
    
    
    (11
    )
    
    
    
    
    
    
    2004 Actions:Employee severance and
related benefits
    
    
    613
    
    
    
    107
    
    
    
    (296
    )
    
    
    
    
    
    
    424Total
    
    
    613
    
    
    
    107
    
    
    
    (296
    )
    
    
    
    
    
    
    4242003 Actions:Employee severance and
related benefits
    
    
    3
    
    
    
    (3
    )
    
    
    
    
    
    
    
    
    
    
    Contractual obligations
    
    
    511
    
    
    
    (216
    )
    
    
    (278
    )
    
    
    
    
    
    
    17Total
    
    
    514
    
    
    
    (219
    )
    
    
    (278
    )
    
    
    
    
    
    
    17Total of all actions
    
    $
    6,005
    
    
    $
    2,799
    
    
    $
    (6,630
    )
    
    $
    (63
    )
    
    $
    2,111
 27




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Critical Accounting Estimates
  Share-based Compensation
  Revenue Recognition
    28




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Contingencies
       29




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Goodwill and Intangible Assets
     30




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Pension Plans
      31




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##### Table of Contents



Income Taxes
    32




---



##### Table of Contents



33




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##### Table of Contents



RESULTS OF OPERATIONS
 Fiscal quarter ended
    
    
    Three fiscal quarters endedFeb. 24,
    
    
    Feb. 25,
    
    
    %
    
    
    Feb. 24,
    
    
    Feb. 25,
    
    
    %(In thousands, except per share amounts)
    
    2007
    
    
    2006
    
    
    Change
    
    
    2007
    
    
    2006
    
    
    ChangeOrders
    
    $
    297,454
    
    
    $
    303,680
    
    
    
    (2
    )%
    
    $
    855,046
    
    
    $
    806,105
    
    
    
    6
    %Net sales
    
    
    265,756
    
    
    
    262,105
    
    
    
    1
    %
    
    
    806,658
    
    
    
    750,561
    
    
    
    7
    %Cost of sales
    
    
    108,674
    
    
    
    103,003
    
    
    
    6
    %
    
    
    326,930
    
    
    
    303,277
    
    
    
    8
    %Gross profit
    
    
    157,082
    
    
    
    159,102
    
    
    
    (1
    )%
    
    
    479,728
    
    
    
    447,284
    
    
    
    7
    %Gross margin
    
    
    59.1
    %
    
    
    60.7
    %
    
    
    
    
    
    
    59.5
    %
    
    
    59.6
    %Research and development
expenses
    
    
    49,422
    
    
    
    44,566
    
    
    
    11
    %
    
    
    149,303
    
    
    
    133,844
    
    
    
    12
    %Selling, general and administrative
expenses
    
    
    83,715
    
    
    
    76,347
    
    
    
    10
    %
    
    
    247,752
    
    
    
    218,015
    
    
    
    14
    %Acquisition related costs and
amortization
    
    
    3,223
    
    
    
    1,418
    
    
    
    >100
    %
    
    
    6,063
    
    
    
    6,949
    
    
    
    (13
    )%Business realignment costs
    
    
    430
    
    
    
    3,182
    
    
    
    (86
    )%
    
    
    2,799
    
    
    
    7,543
    
    
    
    (63
    )%(Gain) loss on disposition of
assets, net
    
    
    (40
    )
    
    
    54
    
    
    
    *
    
    
    
    481
    
    
    
    81
    
    
    
    >100
    %Operating income
    
    
    20,332
    
    
    
    33,535
    
    
    
    (39
    )%
    
    
    73,330
    
    
    
    80,852
    
    
    
    (9
    )%Interest income
    
    
    3,970
    
    
    
    3,381
    
    
    
    17
    %
    
    
    12,903
    
    
    
    9,361
    
    
    
    38
    %Interest expense
    
    
    (185
    )
    
    
    (96
    )
    
    
    93
    %
    
    
    (367
    )
    
    
    (339
    )
    
    
    8
    %Other non-operating expense, net
    
    
    (1,574
    )
    
    
    (933
    )
    
    
    69
    %
    
    
    (4,182
    )
    
    
    (3,912
    )
    
    
    7
    %Earnings before taxes
    
    
    22,543
    
    
    
    35,887
    
    
    
    (37
    )%
    
    
    81,684
    
    
    
    85,962
    
    
    
    (5
    )%Income tax expense
    
    
    3,021
    
    
    
    10,949
    
    
    
    (72
    )%
    
    
    22,452
    
    
    
    26,978
    
    
    
    (17
    )%Net earnings from continuing
operations
    
    
    19,522
    
    
    
    24,938
    
    
    
    (22
    )%
    
    
    59,232
    
    
    
    58,984
    
    
    
    0
    %Gain from discontinued
operations, net of income taxes
    
    
    3,229
    
    
    
    1,575
    
    
    
    >100
    %
    
    
    3,232
    
    
    
    1,510
    
    
    
    >100
    %Net earnings
    
    $
    22,751
    
    
    $
    26,513
    
    
    
    (14
    )%
    
    $
    62,464
    
    
    $
    60,494
    
    
    
    3
    %Earnings per share:Continuing operations  basic
    
    $
    0.24
    
    
    $
    0.30
    
    
    
    (20
    )%
    
    $
    0.73
    
    
    $
    0.71
    
    
    
    3
    %Continuing operations  diluted
    
    $
    0.24
    
    
    $
    0.30
    
    
    
    (20
    )%
    
    $
    0.72
    
    
    $
    0.70
    
    
    
    3
    %Discontinued operations 
basic and diluted
    
    $
    0.04
    
    
    $
    0.02
    
    
    
    100
    %
    
    $
    0.04
    
    
    $
    0.02
    
    
    
    100
    %Net earnings  basic
    
    $
    0.29
    
    
    $
    0.32
    
    
    
    (9
    )%
    
    $
    0.77
    
    
    $
    0.73
    
    
    
    5
    %Net earnings  diluted
    
    $
    0.28
    
    
    $
    0.32
    
    
    
    (13
    )%
    
    $
    0.76
    
    
    $
    0.72
    
    
    
    6
    %
 
 *
    
    not meaningful 34




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##### Table of Contents



Third Quarter and First Three Quarters of 2007 Compared to the Third Quarter and First Three
Quarters of 2006
 Executive Summary
   Orders
  Fiscal quarter ended
    
    
    Three fiscal quarters endedFeb. 24,
    
    
    Feb. 25,
    
    
    %
    
    
    Feb. 24,
    
    
    Feb. 25,
    
    
    %(In thousands)
    
    2007
    
    
    2006
    
    
    Change
    
    
    2007
    
    
    2006
    
    
    ChangeInstruments Business
    
    $
    231,684
    
    
    $
    209,855
    
    
    
    10
    %
    
    $
    678,059
    
    
    $
    591,110
    
    
    
    15
    %Communications Business
    
    
    65,770
    
    
    
    93,825
    
    
    
    (30
    )%
    
    
    176,987
    
    
    
    214,995
    
    
    
    (18
    )%Total orders
    
    $
    297,454
    
    
    $
    303,680
    
    
    
    (2
    )%
    
    $
    855,046
    
    
    $
    806,105
    
    
    
    6
    %
    Instruments Business
  35




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##### Table of Contents



Communications Business
    Orders by Region
  Fiscal quarter ended
    
    
    Three fiscal quarters endedFeb. 24,
    
    
    Feb. 25,
    
    
    %
    
    
    Feb. 24,
    
    
    Feb. 25,
    
    
    %(In thousands)
    
    2007
    
    
    2006
    
    
    Change
    
    
    2007
    
    
    2006
    
    
    ChangeUnited States
    
    $
    106,517
    
    
    $
    99,961
    
    
    
    7
    %
    
    $
    319,590
    
    
    $
    281,815
    
    
    
    13
    %International
    
    
    190,937
    
    
    
    203,719
    
    
    
    (6
    )%
    
    
    535,456
    
    
    
    524,290
    
    
    
    2
    %Total orders
    
    $
    297,454
    
    
    $
    303,680
    
    
    
    (2
    )%
    
    $
    855,046
    
    
    $
    806,105
    
    
    
    6
    %
   36




---



##### Table of Contents



Net Sales
       Gross Profit and Gross Margin
     37




---



##### Table of Contents



Operating Expenses
         38




---



##### Table of Contents



Non-Operating Income / Expense
    Income Taxes
    Discontinued Operations
  Net Earnings
   39




---



##### Table of Contents



Earnings Per Share
  Financial Condition, Liquidity and Capital Resources
 Sources and Uses of Cash
 Cash Flows.
 Three fiscal quarters ended(In thousands)
    
    Feb. 24, 2007
    
    Feb. 25, 2006Cash provided by (used in):Operating activities
    
    $
    109,397
    
    
    $
    48,021Investing activities
    
    
    (41,863
    )
    
    
    97,908Financing activities
    
    
    (160,616
    )
    
    
    (97,309
    )
 Operating Activities.
    Investing Activities.
  40




---



##### Table of Contents



Financing Activities
       41




---



##### Table of Contents



Working Capital
  (In thousands)
    
    Feb. 24, 2007
    
    
    May 27, 2006Current assets:Cash and cash equivalents
    
    $
    124,379
    
    
    $
    215,587Short-term marketable investments
    
    
    61,632
    
    
    
    121,346Trade accounts receivable, net of allowance for
doubtful accounts of $3,097 and $3,079, respectively
    
    
    173,179
    
    
    
    174,599Inventories
    
    
    167,461
    
    
    
    156,351Other current assets
    
    
    80,198
    
    
    
    69,002Total current assets
    
    
    606,849
    
    
    
    736,885Current liabilities:Accounts payable and accrued liabilities
    
    
    146,512
    
    
    
    133,323Accrued compensation
    
    
    60,037
    
    
    
    71,718Deferred revenue
    
    
    93,612
    
    
    
    66,677Total current liabilities
    
    
    300,161
    
    
    
    271,718Working capital
    
    $
    306,688
    
    
    $
    465,167
     42




---



##### Table of Contents



Recent Accounting Pronouncements
        43




---



##### Table of Contents



Item 3. Quantitative and Qualitative Disclosures About Market Risk.
 Financial Market Risk
    
 Item 4. Controls and Procedures.
   44




---



##### Table of Contents



Part II. OTHER INFORMATION
 
 Item 1. Legal Proceedings.
   
 Item 1A. Risk Factors.
  We compete in a cyclical market and a decrease in capital expenditures by our customers could
adversely impact demand for our products.
  Rapid changes in technology require timely competitive products and failure to anticipate the
changes and produce competitive products could adversely affect our operations and financial
condition.
  45




---



##### Table of Contents



Competition is intense, may intensify and could result in the loss of market share, reduced
margins, and increased downward pricing pressure.
  We obtain various key components, services and licenses from sole and limited source suppliers that
could result in failure to meet critical product and delivery schedules and adversely affect our
results of operations.
    Failure of information technology systems may negatively impact our operating results .
  46




---



##### Table of Contents



Cancellations, changes, or delays in the implementation or customer acceptance of our products
could harm our financial results.
   Our network management business and reputation could suffer if we do not prevent security breaches.
  A significant portion of our revenue is from international customers, and, as a result, our
business may be harmed by political and economic conditions in foreign markets and the challenges
associated with operating internationally.
  Failure to maintain and protect our intellectual property and the intellectual property licensed
from others could adversely affect our operations and financial condition.
  47




---



##### Table of Contents



Failure to comply with environmental regulations could result in suspension of production and could
restrict our ability to expand facilities.
   Our defined benefit pension plans are subject to financial market risks and significant changes in
market interest rates could adversely impact our operating results.
  Our reported results of operations will be materially and adversely affected by our adoption of
SFAS No. 123R.
  We face other risk factors.
   48




---



##### Table of Contents



Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
  Total Numberof Shares
    
    
    Maximum DollarAverage
    
    
    
    
    
    
    Purchased as
    
    
    Value of SharesTotal
    
    
    Price
    
    
    Total
    
    
    Part of Publicly
    
    
    that MayNumber
    
    
    Paid Per
    
    
    Amount
    
    
    Announced Plans
    
    
    Yet BeFiscal Period
    
    of Shares
    
    
    Share
    
    
    Paid
    
    
    or Programs
    
    
    PurchasedNovember 26, 2006 to
December 23, 2006
    
    
    661,500
    
    
    $
    28.49
    
    
    $
    18,845,823
    
    
    
    32,198,679
    
    
    $
    462,968,796December 24, 2006 to
January 20, 2007
    
    
    1,410,000
    
    
    
    28.83
    
    
    
    40,650,850
    
    
    
    33,608,679
    
    
    
    422,317,946January 21, 2007 to
February 24, 2007
    
    
    1,759,700
    
    
    
    28.20
    
    
    
    49,627,439
    
    
    
    35,368,379
    
    
    $
    372,690,507Total
    
    
    3,831,200
    
    
    $
    28.48
    
    
    $
    109,124,112
  
 Item 6. Exhibits.
 (31.1)
    
    302 Certification, Chief Executive Officer.(31.2)
    
    302 Certification, Chief Financial Officer.(32.1)
    
    906 Certification, Chief Executive Officer.(32.2)
    
    906 Certification, Chief Financial Officer.
 49




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##### Table of Contents



SIGNATURES
  April 4, 2007
    TEKTRONIX, INC.By
    
    /s/ COLIN L. SLADEColin L. SladeSenior Vice President and
Chief Financial Officer 50




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##### Table of Contents



EXHIBIT INDEX
 Exhibits No.
    
    Exhibit Description(31.1)
    
    302 Certification, Chief Executive Officer.(31.2)
    
    302 Certification, Chief Financial Officer.(32.1)
    
    906 Certification, Chief Executive Officer.(32.2)
    
    906 Certification, Chief Financial Officer.