##### 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 25, 2006
 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 1-04837
 TEKTRONIX, INC.
  OREGON(State or Other Jurisdiction of
    
    93-0343990Incorporation or Organization)
    
    (I.R.S. Employer Identification No.)14200 SW KARL BRAUN DRIVEBEAVERTON, OREGON
    
    97077(Address of Principal Executive Offices)
    
    (Zip Code)
 (503) 627-7111
 NOT APPLICABLE
 þ o
  Large accelerated filer þ
    
    Accelerated filer o
    
    Non-accelerated filer o
 o þ




---



##### 



TEKTRONIX, INC. AND SUBSIDIARIES   INDEX
 PAGE
NO.FORWARD-LOOKING STATEMENTS
    
    
    1PART
I.   FINANCIAL INFORMATIONItem 1.
  Financial Statements.Condensed Consolidated Statements of Operations (Unaudited) -
    
    
    2for the Fiscal quarter ended February 25, 2006and the Fiscal quarter ended February 26, 2005for the Three fiscal quarters ended February 25, 2006and the Three fiscal quarters ended February 26, 2005Condensed Consolidated Balance Sheets (Unaudited) -
    
    
    3at February 25, 2006 and May 28, 2005Condensed Consolidated Statements of Cash Flows (Unaudited) -
    
    
    4for the Three fiscal quarters ended February 25, 2006and the Three fiscal quarters ended February 26, 2005Notes to Condensed Consolidated Financial Statements (Unaudited)
    
    
    5Item 2.
  Managements Discussion and Analysis of Financial Condition and Results of Operations.
    
    
    18Item 3.
  Quantitative and Qualitative Disclosures About Market Risk.
    
    
    40Item 4.
  Controls and Procedures.
    
    
    41PART
II.   OTHER INFORMATIONItem 1.
  Legal Proceedings.
    
    
    41Item 2.
  Unregistered Sales of Equity Securities and Use of Proceeds.
    
    
    41Item 6.
  Exhibits.
    
    
    42SIGNATURES
    
    
    43EXHIBIT 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. 25, 2006
    
    
    Feb. 26, 2005
    
    
    Feb. 25, 2006
    
    
    Feb. 26, 2005Net sales
    
    $
    262,105
    
    
    $
    256,332
    
    
    $
    750,561
    
    
    $
    773,625Cost of sales
    
    
    103,003
    
    
    
    102,946
    
    
    
    303,277
    
    
    
    311,397Gross profit
    
    
    159,102
    
    
    
    153,386
    
    
    
    447,284
    
    
    
    462,228Research and development expenses
    
    
    44,566
    
    
    
    43,380
    
    
    
    133,844
    
    
    
    118,837Selling, general and administrative expenses
    
    
    76,347
    
    
    
    78,750
    
    
    
    218,015
    
    
    
    220,136Acquisition related costs and amortization
    
    
    1,418
    
    
    
    2,590
    
    
    
    6,949
    
    
    
    38,318Business realignment costs
    
    
    3,182
    
    
    
    382
    
    
    
    7,543
    
    
    
    2,665Loss (gain) on disposition of assets, net
    
    
    54
    
    
    
    754
    
    
    
    81
    
    
    
    (1,080
    )Operating income
    
    
    33,535
    
    
    
    27,530
    
    
    
    80,852
    
    
    
    83,352Interest income
    
    
    3,381
    
    
    
    3,798
    
    
    
    9,361
    
    
    
    13,164Interest expense
    
    
    (96
    )
    
    
    (113
    )
    
    
    (339
    )
    
    
    (531
    )Other non-operating income (expense), net
    
    
    (933
    )
    
    
    1,422
    
    
    
    (3,912
    )
    
    
    (1,869
    )Earnings before taxes
    
    
    35,887
    
    
    
    32,637
    
    
    
    85,962
    
    
    
    94,116Income tax expense
    
    
    10,949
    
    
    
    9,246
    
    
    
    26,978
    
    
    
    36,838Net earnings from continuing
operations
    
    
    24,938
    
    
    
    23,391
    
    
    
    58,984
    
    
    
    57,278Gain from discontinued operations,
net of income taxes
    
    
    1,575
    
    
    
    3,430
    
    
    
    1,510
    
    
    
    3,117Net earnings
    
    $
    26,513
    
    
    $
    26,821
    
    
    $
    60,494
    
    
    $
    60,395Earnings per share:Continuing operations  basic
    
    $
    0.30
    
    
    $
    0.26
    
    
    $
    0.71
    
    
    $
    0.66Continuing operations  diluted
    
    $
    0.30
    
    
    $
    0.26
    
    
    $
    0.70
    
    
    $
    0.65Discontinued operations  basic and
diluted
    
    $
    0.02
    
    
    $
    0.04
    
    
    $
    0.02
    
    
    $
    0.04Net earnings  basic
    
    $
    0.32
    
    
    $
    0.30
    
    
    $
    0.73
    
    
    $
    0.70Net earnings  diluted
    
    $
    0.32
    
    
    $
    0.30
    
    
    $
    0.72
    
    
    $
    0.68Weighted average shares outstanding:Basic
    
    
    82,174
    
    
    
    89,307
    
    
    
    83,203
    
    
    
    86,703Diluted
    
    
    83,319
    
    
    
    90,690
    
    
    
    84,065
    
    
    
    88,236Cash dividends declared per share
    
    $
    0.06
    
    
    $
    0.06
    
    
    $
    0.18
    
    
    $
    0.16
  2




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##### Table of Contents



Condensed Consolidated Balance Sheets (Unaudited)
 (In thousands)
    
    Feb. 25, 2006
    
    
    May 28, 2005ASSETSCurrent assets:Cash and cash equivalents
    
    $
    177,512
    
    
    $
    131,640Short-term marketable investments
    
    
    94,543
    
    
    
    120,881Trade accounts receivable, net of allowance for
doubtful accounts of $2,949 and $3,406, respectively
    
    
    167,951
    
    
    
    155,332Inventories
    
    
    139,138
    
    
    
    131,096Other current assets
    
    
    69,078
    
    
    
    80,177Total current assets
    
    
    648,222
    
    
    
    619,126Property, plant and equipment, net
    
    
    127,530
    
    
    
    120,546Long-term marketable investments
    
    
    115,699
    
    
    
    226,892Deferred tax assets
    
    
    52,022
    
    
    
    56,560Goodwill, net
    
    
    303,055
    
    
    
    301,934Other long-term assets
    
    
    125,441
    
    
    
    135,285Total assets
    
    $
    1,371,969
    
    
    $
    1,460,343LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Accounts payable and accrued liabilities
    
    $
    126,750
    
    
    $
    115,058Accrued compensation
    
    
    63,444
    
    
    
    78,938Deferred revenue
    
    
    64,235
    
    
    
    57,509Total current liabilities
    
    
    254,429
    
    
    
    251,505Long-term liabilities
    
    
    167,685
    
    
    
    223,015Shareholders equity:Common stock, no par value (authorized 200,000 shares;
issued and outstanding 82,870 and 85,144 shares
at February 25, 2006 and May 28, 2005, respectively)
    
    
    508,064
    
    
    
    501,886Retained earnings
    
    
    605,191
    
    
    
    639,720Accumulated other comprehensive loss
    
    
    (163,400
    )
    
    
    (155,783
    )Total shareholders equity
    
    
    949,855
    
    
    
    985,823Total liabilities and shareholders equity
    
    $
    1,371,969
    
    
    $
    1,460,343
  3




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##### Table of Contents



Condensed Consolidated Statements of Cash Flows (Unaudited)
 Three fiscal quarters ended(In thousands)
    
    Feb. 25, 2006
    
    
    Feb. 26, 2005CASH FLOWS FROM OPERATING ACTIVITIESNet earnings
    
    $
    60,494
    
    
    $
    60,395Adjustments to reconcile net earnings to net cash provided by
operating activities:Write-off of in-process research and development
    
    
    365
    
    
    
    32,237Amortization of acquisition related intangible assets
    
    
    18,031
    
    
    
    9,840Gain from discontinued operations
    
    
    (1,510
    )
    
    
    (3,117
    )Depreciation and amortization expense
    
    
    20,849
    
    
    
    21,513Loss (gain) on disposition of assets, net
    
    
    81
    
    
    
    (1,367
    )Tax benefit of stock option exercises
    
    
    3,184
    
    
    
    3,881Deferred income tax expense (benefit)
    
    
    2,656
    
    
    
    (4,422
    )Loss (gain) on sale of corporate equity securities
    
    
    90
    
    
    
    (2,101
    )Changes in operating assets and liabilities, net of effects of acquisition:Trade accounts receivable, net
    
    
    (12,100
    )
    
    
    (6,822
    )Inventories
    
    
    (8,040
    )
    
    
    (10,030
    )Other current assets
    
    
    10,706
    
    
    
    2,990Accounts payable and accrued liabilities
    
    
    11,127
    
    
    
    (5,456
    )Accrued compensation
    
    
    (15,507
    )
    
    
    (20,051
    )Deferred revenue
    
    
    6,651
    
    
    
    9,101Cash funding of defined benefit plans
    
    
    (48,339
    )
    
    
    (46,516
    )Other long-term assets and liabilities, net
    
    
    (2,227
    )
    
    
    10,055Net cash provided by continuing operating activities
    
    
    46,511
    
    
    
    50,130Net cash provided by discontinued operating activities
    
    
    1,510
    
    
    
    Net cash provided by operating activities
    
    
    48,021
    
    
    
    50,130CASH FLOWS FROM INVESTING ACTIVITIESAcquisition of businesses, net of cash acquired
    
    
    (8,015
    )
    
    
    (93,856
    )Acquisition of property, plant and equipment
    
    
    (29,449
    )
    
    
    (21,140
    )Proceeds from the disposition of property and equipment
    
    
    1,304
    
    
    
    19,750Proceeds from sale of corporate equity securities
    
    
    10
    
    
    
    3,348Proceeds from maturities and sales of marketable investments
    
    
    155,960
    
    
    
    239,684Purchases of short-term and long-term marketable investments
    
    
    (21,902
    )
    
    
    (90,750
    )Net cash provided by investing activities
    
    
    97,908
    
    
    
    57,036CASH FLOWS FROM FINANCING ACTIVITIESRepayment of long-term debt
    
    
    (280
    )
    
    
    (318
    )Proceeds from employee stock plans
    
    
    24,294
    
    
    
    20,217Repurchase of common stock
    
    
    (106,337
    )
    
    
    (114,788
    )Dividends paid
    
    
    (14,986
    )
    
    
    (14,131
    )Net cash used in financing activities
    
    
    (97,309
    )
    
    
    (109,020
    )Effect of exchange rate changes on cash
    
    
    (2,748
    )
    
    
    3,975Net increase in cash and cash equivalents
    
    
    45,872
    
    
    
    2,121Cash and cash equivalents at beginning of period
    
    
    131,640
    
    
    
    149,011Cash and cash equivalents at end of period
    
    $
    177,512
    
    
    $
    151,132
  4




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




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##### Table of Contents



4. Earnings Per Share, Including Pro Forma Effects of Stock-Based Compensation
   Fiscal quarter ended
    
    
    Three fiscal quarters ended(In thousands, except per share amounts)
    
    Feb. 25, 2006
    
    
    Feb. 26, 2005
    
    
    Feb. 25, 2006
    
    
    Feb. 26, 2005Net earnings
    
    $
    26,513
    
    
    $
    26,821
    
    
    $
    60,494
    
    
    $
    60,395Weighted average shares used for
basic earnings per share
    
    
    82,174
    
    
    
    89,307
    
    
    
    83,203
    
    
    
    86,703Incremental dilutive stock options
    
    
    1,145
    
    
    
    1,383
    
    
    
    862
    
    
    
    1,533Weighted average shares used for
dilutive earnings per share
    
    
    83,319
    
    
    
    90,690
    
    
    
    84,065
    
    
    
    88,236Earnings per share:Net earnings  basic
    
    $
    0.32
    
    
    $
    0.30
    
    
    $
    0.73
    
    
    $
    0.70Net earnings  diluted
    
    $
    0.32
    
    
    $
    0.30
    
    
    $
    0.72
    
    
    $
    0.68
 6




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Fiscal quarter ended
    
    
    Three fiscal quarters ended(In thousands, except per share amounts)
    
    Feb. 25, 2006
    
    
    Feb. 26, 2005
    
    
    Feb. 25, 2006
    
    
    Feb. 26, 2005Net earnings as reported
    
    $
    26,513
    
    
    $
    26,821
    
    
    $
    60,494
    
    
    $
    60,395Stock compensation cost included in
net earnings as reported, net of
income taxes
    
    
    883
    
    
    
    642
    
    
    
    2,050
    
    
    
    1,325Stock compensation cost using the fair
value alternative, net of income taxes
    
    
    (4,594
    )
    
    
    (4,389
    )
    
    
    (14,263
    )
    
    
    (12,266
    )Pro forma net earnings
    
    $
    22,802
    
    
    $
    23,074
    
    
    $
    48,281
    
    
    $
    49,454Earnings per share:Basic  as reported
    
    $
    0.32
    
    
    $
    0.30
    
    
    $
    0.73
    
    
    $
    0.70Basic  pro forma
    
    
    0.28
    
    
    
    0.26
    
    
    
    0.58
    
    
    
    0.57Diluted  as reported
    
    $
    0.32
    
    
    $
    0.30
    
    
    $
    0.72
    
    
    $
    0.68Diluted  pro forma
    
    
    0.27
    
    
    
    0.25
    
    
    
    0.57
    
    
    
    0.56
 SFAS No. 123 Assumptions
  Fiscal quarter ended
    
    Three fiscal quarters endedFeb. 25, 2006
    
    Feb. 26, 2005
    
    Feb. 25, 2006
    
    Feb. 26, 2005Expected life in years
    
    
    5.1
    
    
    
    5.1
    
    
    
    5.1
    
    
    
    5.1Risk-free interest rate
    
    
    4.20
    %
    
    
    3.67
    %
    
    
    4.18
    %
    
    
    3.68
    %Volatility
    
    
    31.42
    %
    
    
    32.70
    %
    
    
    31.55
    %
    
    
    32.76
    %Dividend yield
    
    
    0.82
    %
    
    
    0.83
    %
    
    
    0.85
    %
    
    
    0.82
    %
 7




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##### Table of Contents



5. Acquisition of Inet Technologies, Inc.
   Cash paid
    
    $
    247,561Stock issued
    
    
    247,543Stock options assumed
    
    
    9,658Restricted share rights assumed
    
    
    321Transaction costs
    
    
    5,224Unearned stock-based compensation
    
    
    (3,403
    )Liabilities assumed
    
    
    36,735Total purchase price
    
    $
    543,639
  Cash and cash equivalents
    
    $
    158,821Accounts receivable
    
    
    18,504Inventories
    
    
    18,025Tax benefits from transaction costs
    
    
    1,209Other current assets
    
    
    6,708Property, plant, and equipment
    
    
    10,662Intangible assets
    
    
    121,953Goodwill
    
    
    219,653Other long term assets
    
    
    811In-process research and development
    
    
    32,237Deferred income taxes
    
    
    (44,944
    )Total assets acquired, net of deferred income taxes
    
    $
    543,639
  (In years)WeightedAverage
    
    
    
    
    
    
    Accumulated(In thousands)
    
    Useful Life
    
    
    Cost
    
    
    Amortization
    
    
    NetDeveloped technology
    
    
    4.8
    
    
    $
    87,004
    
    
    $
    (26,202
    )
    
    $
    60,802Customer relationships
    
    
    4.8
    
    
    
    22,597
    
    
    
    (6,825
    )
    
    
    15,772Covenants not to compete
    
    
    4.0
    
    
    
    1,200
    
    
    
    (425
    )
    
    
    775Tradename
    
    Not amortized
    
    
    11,152
    
    
    
    
    
    
    
    11,152Total intangible assets purchased
    
    
    
    
    
    $
    121,953
    
    
    $
    (33,452
    )
    
    $
    88,501
 8




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##### Table of Contents



Fiscal quarter ended
    
    
    Three fiscal quarters ended(In thousands)
    
    Feb. 25, 2006
    
    
    Feb. 26, 2005
    
    
    Feb. 25, 2006
    
    
    Feb. 26, 2005Cost of sales
    
    $
    4,623
    
    
    $
    4,627
    
    
    $
    13,871
    
    
    $
    7,707Acquisition related costs and amortization
    
    
    1,280
    
    
    
    1,287
    
    
    
    3,838
    
    
    
    2,133Total
    
    $
    5,903
    
    
    $
    5,914
    
    
    $
    17,709
    
    
    $
    9,840
  AcquisitionRelated Costs
    
    
    TotalCost of
    
    
    and
    
    
    for the(In thousands)
    
    Sales
    
    
    Amortization
    
    
    Fiscal YearFiscal Year2006
    
    $
    18,495
    
    
    $
    5,117
    
    
    $
    23,6122007
    
    
    18,495
    
    
    
    5,117
    
    
    
    23,6122008
    
    
    16,670
    
    
    
    4,621
    
    
    
    21,2912009
    
    
    15,759
    
    
    
    4,174
    
    
    
    19,9332010
    
    
    5,256
    
    
    
    1,354
    
    
    
    6,610Total
    
    $
    74,675
    
    
    $
    20,383
    
    
    $
    95,058
  Three fiscal quarters ended(In thousands, except per share amounts)
    
    Feb. 26, 2005Pro formaNet sales
    
    $
    810,305Net earnings
    
    
    91,137Earnings per share:Basic
    
    $
    1.01Diluted
    
    
    0.99
   9




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##### Table of Contents



6. Discontinued Operations
  Fiscal quarter ended
    
    
    Three fiscal quarters ended(In thousands)
    
    Feb. 25, 2006
    
    
    Feb. 26, 2005
    
    
    Feb. 25, 2006
    
    
    Feb. 26, 2005Loss on sale of VideoTele.com in fiscal
year 2003 (less applicable income tax
benefit of $0, $3, $1 and $12)
    
    $
    
    
    
    $
    (7
    )
    
    $
    (3
    )
    
    $
    (22
    )Gain (loss) on sale of optical parametric
test business in fiscal year 2003 (less
applicable income tax benefit (expense) of
($491), $10, ($379) and $95)
    
    
    913
    
    
    
    (18
    )
    
    
    705
    
    
    
    (176
    )Gain (loss) on sale of Gage in fiscal year
2003 (less applicable income tax benefit
(expense) of ($326), $28, ($406) and $103)
    
    
    608
    
    
    
    (53
    )
    
    
    756
    
    
    
    (193
    )Gain on sale of Color Printing and Imaging
Division in fiscal year 2000 (less
applicable income tax expense of $29,
$1,889, $28 and $1,889)
    
    
    54
    
    
    
    3,508
    
    
    
    52
    
    
    
    3,508Gain from discontinued operations,
net of income taxes
    
    $
    1,575
    
    
    $
    3,430
    
    
    $
    1,510
    
    
    $
    3,117
 7. Business Realignment Costs
    10




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##### Table of Contents



CostsBalance
    
    
    Incurred
    
    
    
    
    
    
    
    
    
    
    BalanceMay 28,
    
    
    and Other
    
    
    Cash
    
    
    Non-cash
    
    
    Feb. 25,(In thousands)
    
    2005
    
    
    Adjustments
    
    
    Payments
    
    
    Adjustments
    
    
    2006Fiscal Year 2006 Actions:Employee severance and
related benefits
    
    $
    
    
    
    $
    7,222
    
    
    $
    (4,438
    )
    
    $
    
    
    
    $
    2,784Contractual obligations
    
    
    
    
    
    
    163
    
    
    
    (163
    )
    
    
    
    
    
    
    Accumulated currency
translation loss, net
    
    
    
    
    
    
    (34
    )
    
    
    
    
    
    
    34
    
    
    
    Total
    
    
    
    
    
    
    7,351
    
    
    
    (4,601
    )
    
    
    34
    
    
    
    2,784Fiscal Year 2005 Actions:Employee severance and
related benefits
    
    
    568
    
    
    
    
    
    
    
    (536
    )
    
    
    
    
    
    
    32Contractual obligations
    
    
    103
    
    
    
    49
    
    
    
    (124
    )
    
    
    
    
    
    
    28Total
    
    
    671
    
    
    
    49
    
    
    
    (660
    )
    
    
    
    
    
    
    60Fiscal Year 2004 Actions:Employee severance and
related benefits
    
    
    681
    
    
    
    98
    
    
    
    (179
    )
    
    
    
    
    
    
    600Total
    
    
    681
    
    
    
    98
    
    
    
    (179
    )
    
    
    
    
    
    
    600Fiscal Year 2003 and 2002 Actions:Employee severance and
related benefits
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    3Contractual obligations
    
    
    926
    
    
    
    45
    
    
    
    (385
    )
    
    
    
    
    
    
    586Total
    
    
    928
    
    
    
    45
    
    
    
    (385
    )
    
    
    1
    
    
    
    589Total of all actions
    
    $
    2,280
    
    
    $
    7,543
    
    
    $
    (5,825
    )
    
    $
    35
    
    
    $
    4,033
 8. Inventories
   (In thousands)
    
    Feb. 25, 2006
    
    
    May 28, 2005Materials
    
    $
    6,527
    
    
    $
    7,015Work in process
    
    
    60,976
    
    
    
    63,091Finished goods
    
    
    71,635
    
    
    
    60,990Inventories
    
    $
    139,138
    
    
    $
    131,096
 11




---



##### Table of Contents



9. Other Current Assets
  (In thousands)
    
    Feb. 25, 2006
    
    
    May 28, 2005Current deferred tax asset
    
    $
    49,330
    
    
    $
    49,537Prepaid expenses
    
    
    14,083
    
    
    
    12,877Other receivables
    
    
    3,808
    
    
    
    7,401Income taxes receivable
    
    
    1,395
    
    
    
    9,928Notes receivable
    
    
    10
    
    
    
    18Other current assets
    
    
    452
    
    
    
    416Other current assets
    
    $
    69,078
    
    
    $
    80,177
 10. Property, Plant and Equipment, Net
  (In thousands)
    
    Feb. 25, 2006
    
    
    May 28, 2005Land
    
    $
    1,086
    
    
    $
    1,086Buildings
    
    
    133,047
    
    
    
    129,983Machinery and equipment
    
    
    258,968
    
    
    
    246,032Accumulated depreciation and amortization
    
    
    (265,571
    )
    
    
    (256,555
    )Property, plant and equipment, net
    
    $
    127,530
    
    
    $
    120,546
 11. Goodwill, Net
   Balance at May 28, 2005
    
    $
    301,934Inet purchase price adjustment
    
    
    (1,230
    )Other acquisitions
    
    
    7,391Currency translation
    
    
    (5,040
    )Balance at February 25, 2006
    
    $
    303,055
 12. Other Long-Term Assets
  (In thousands)
    
    Feb. 25, 2006
    
    
    May 28, 2005Other intangibles, net
    
    $
    93,282
    
    
    $
    107,652Notes, contracts and leases
    
    
    17,203
    
    
    
    12,377Corporate equity securities
    
    
    8,921
    
    
    
    8,285Pension asset
    
    
    822
    
    
    
    868Other long-term assets
    
    
    5,213
    
    
    
    6,103Other long-term assets
    
    $
    125,441
    
    
    $
    135,285
 12




---



##### Table of Contents



13. Accounts Payable and Accrued Liabilities
  (In thousands)
    
    Feb. 25, 2006
    
    
    May 28, 2005Trade accounts payable
    
    $
    40,440
    
    
    $
    36,407Other accounts payable
    
    
    41,332
    
    
    
    35,444Accounts payable
    
    
    81,772
    
    
    
    71,851Income taxes payable
    
    
    26,042
    
    
    
    17,348Contingent liabilities (see Note 16)
    
    
    8,791
    
    
    
    10,539Warranty reserve (see Note 19)
    
    
    5,638
    
    
    
    6,508Accrued expenses and other liabilities
    
    
    4,507
    
    
    
    8,812Accrued liabilities
    
    
    44,978
    
    
    
    43,207Accounts payable and accrued liabilities
    
    $
    126,750
    
    
    $
    115,058
 14. Long-Term Liabilities
  (In thousands)
    
    Feb. 25, 2006
    
    
    May 28, 2005Pension liability
    
    $
    126,706
    
    
    $
    174,841Deferred compensation
    
    
    14,526
    
    
    
    15,708Postretirement benefits
    
    
    12,235
    
    
    
    12,828Other long-term liabilities
    
    
    14,218
    
    
    
    19,638Long-term liabilities
    
    $
    167,685
    
    
    $
    223,015
  13




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##### Table of Contents



15. Pension and Other Postretirement Benefits
  Pension Benefits
    
    
    Other Postretirement BenefitsFiscal quarter ended
    
    
    Fiscal quarter ended(In thousands)
    
    Feb. 25, 2006
    
    
    Feb. 26, 2005
    
    
    Feb. 25, 2006
    
    
    Feb. 26, 2005Service cost
    
    $
    1,848
    
    
    $
    1,589
    
    
    $
    24
    
    
    $
    21Interest cost
    
    
    9,558
    
    
    
    9,709
    
    
    
    214
    
    
    
    226Expected return on plan assets
    
    
    (12,673
    )
    
    
    (12,619
    )
    
    
    
    
    
    
    Amortization of transition asset
    
    
    26
    
    
    
    31
    
    
    
    
    
    
    
    Amortization of prior service cost
    
    
    (567
    )
    
    
    (556
    )
    
    
    
    
    
    
    Amortization of unrecognized actuarial
net loss
    
    
    5,425
    
    
    
    3,343
    
    
    
    
    
    
    
    Net periodic benefit cost
    
    $
    3,617
    
    
    $
    1,497
    
    
    $
    238
    
    
    $
    247
 Pension Benefits
    
    
    Other Postretirement BenefitsThree fiscal quarters ended
    
    
    Three fiscal quarters ended(In thousands)
    
    Feb. 25, 2006
    
    
    Feb. 26, 2005
    
    
    Feb. 25, 2006
    
    
    Feb. 26, 2005Service cost
    
    $
    5,549
    
    
    $
    4,700
    
    
    $
    72
    
    
    $
    63Interest cost
    
    
    28,805
    
    
    
    28,908
    
    
    
    642
    
    
    
    678Expected return on plan assets
    
    
    (38,123
    )
    
    
    (37,724
    )
    
    
    
    
    
    
    Amortization of transition asset
    
    
    82
    
    
    
    88
    
    
    
    
    
    
    
    Amortization of prior service cost
    
    
    (1,701
    )
    
    
    (1,670
    )
    
    
    
    
    
    
    Amortization of unrecognized actuarial
net loss
    
    
    16,319
    
    
    
    10,013
    
    
    
    
    
    
    
    Net periodic benefit cost
    
    $
    10,931
    
    
    $
    4,315
    
    
    $
    714
    
    
    $
    741
 16. Contingencies
  Sale of Color Printing and Imaging
   Environmental and Other
  14




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##### Table of Contents



17. Shareholders Equity
  AccumulatedOtherCommon Stock
    
    
    Retained
    
    
    Comprehensive(In thousands)
    
    Shares
    
    
    Amount
    
    
    Earnings
    
    
    Loss
    
    
    TotalBalance at May 28, 2005
    
    
    85,144
    
    
    $
    501,886
    
    
    $
    639,720
    
    
    $
    (155,783
    )
    
    $
    985,823Net earnings
    
    
    
    
    
    
    
    
    
    
    60,494
    
    
    
    
    
    
    
    60,494Additional minimum pension liability,
net of income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    783
    
    
    
    783Foreign currency translation
adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (8,111
    )
    
    
    (8,111
    )Unrealized holding loss on available-for-sale securities, net of income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (289
    )
    
    
    (289
    )Dividends paid
    
    
    
    
    
    
    
    
    
    
    (14,986
    )
    
    
    
    
    
    
    (14,986
    )Shares issued to employees, net
of forfeitures
    
    
    2,021
    
    
    
    24,294
    
    
    
    
    
    
    
    
    
    
    
    24,294Shares issued for acquisition
    
    
    87
    
    
    
    2,075
    
    
    
    
    
    
    
    
    
    
    
    2,075Tax benefit of stock option exercises
    
    
    
    
    
    
    3,184
    
    
    
    
    
    
    
    
    
    
    
    3,184Amortization of unearned stock-based compensation
    
    
    
    
    
    
    2,925
    
    
    
    
    
    
    
    
    
    
    
    2,925Shares repurchased in open
market
    
    
    (4,382
    )
    
    
    (26,300
    )
    
    
    (80,037
    )
    
    
    
    
    
    
    (106,337
    )Balance at February 25, 2006
    
    
    82,870
    
    
    $
    508,064
    
    
    $
    605,191
    
    
    $
    (163,400
    )
    
    $
    949,855
   15




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##### Table of Contents



Fiscal quarter ended
    
    
    Three fiscal quarters ended(In thousands)
    
    Feb. 25, 2006
    
    
    Feb. 26, 2005
    
    
    Feb. 25, 2006
    
    
    Feb. 26, 2005Net earnings
    
    $
    26,513
    
    
    $
    26,821
    
    
    $
    60,494
    
    
    $
    60,395Other comprehensive income (loss):Net change in additional minimum pension
liability, net of income taxes of ($99),
($124), $374 and ($302), respectively
    
    
    (215
    )
    
    
    (282
    )
    
    
    783
    
    
    
    (687
    )Foreign currency translation adjustment
    
    
    2,620
    
    
    
    (364
    )
    
    
    (8,111
    )
    
    
    11,558Unrealized
holding gain (loss) on available-for-sale securities, net of income taxes of $258, ($2,267), ($198) and ($838), respectively
    
    
    440
    
    
    
    (3,547
    )
    
    
    (289
    )
    
    
    (1,311
    )Total comprehensive income
    
    $
    29,358
    
    
    $
    22,628
    
    
    $
    52,877
    
    
    $
    69,955
  UnrealizedAdditional
    
    
    
    
    
    
    Holding Gain
    
    
    AccumulatedMinimum
    
    
    Foreign
    
    
    (Loss), Net on
    
    
    OtherPension
    
    
    Currency
    
    
    Available-for-
    
    
    Comprehensive(In thousands)
    
    Liability
    
    
    Translation
    
    
    Sales securities
    
    
    LossBalance as of May 28, 2005
    
    $
    (198,437
    )
    
    $
    42,127
    
    
    $
    527
    
    
    $
    (155,783
    )First quarter activity
    
    
    179
    
    
    
    (1,677
    )
    
    
    (339
    )
    
    
    (1,837
    )Second quarter activity
    
    
    819
    
    
    
    (9,054
    )
    
    
    (390
    )
    
    
    (8,625
    )Third quarter activity
    
    
    (215
    )
    
    
    2,620
    
    
    
    440
    
    
    
    2,845Balance as of February 25, 2006
    
    $
    (197,654
    )
    
    $
    34,016
    
    
    $
    238
    
    
    $
    (163,400
    )
 18. Business Segments
  Fiscal quarter ended
    
    
    Three fiscal quarters ended(In thousands)
    
    Feb. 25, 2006
    
    
    Feb. 26, 2005
    
    
    Feb. 25, 2006
    
    
    Feb. 26, 2005Consolidated net sales to external customers by region:The Americas:United States
    
    $
    92,599
    
    
    $
    86,170
    
    
    $
    269,081
    
    
    $
    296,139Other Americas
    
    
    7,542
    
    
    
    6,560
    
    
    
    18,255
    
    
    
    22,230Europe
    
    
    77,287
    
    
    
    72,298
    
    
    
    208,616
    
    
    
    176,312Pacific
    
    
    50,026
    
    
    
    51,122
    
    
    
    141,089
    
    
    
    151,974Japan
    
    
    34,651
    
    
    
    40,182
    
    
    
    113,520
    
    
    
    126,970Net sales
    
    $
    262,105
    
    
    $
    256,332
    
    
    $
    750,561
    
    
    $
    773,625
 16




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##### Table of Contents



19. Product Warranty Accrual
   Three fiscal quarters ended(In thousands)
    
    Feb. 25, 2006
    
    
    Feb. 26, 2005Balance at beginning of period
    
    $
    6,508
    
    
    $
    8,959Payments made
    
    
    (7,405
    )
    
    
    (7,498
    )Provision for warranty expense
    
    
    6,535
    
    
    
    6,243Balance at end of period
    
    $
    5,638
    
    
    $
    7,704
 20. Supplemental Cash Flow Information
 Three fiscal quarters ended(In thousands)
    
    Feb. 25, 2006
    
    
    Feb. 26, 2005Supplemental disclosure of cash flows:Income taxes paid, net
    
    $
    5,676
    
    
    $
    19,164Interest paid
    
    
    179
    
    
    
    86Non-cash transactions from acquisition of Inet:Common stock issued
    
    $
    
    
    
    $
    247,543Stock options assumed
    
    
    
    
    
    
    9,658Restricted share rights assumed
    
    
    
    
    
    
    321Unearned stock-based compensation
    
    
    
    
    
    
    (3,403
    )Liabilities assumed
    
    
    
    
    
    
    32,683Non-cash assets acquired, net of deferred income taxes
    
    
    
    
    
    
    (380,658
    )Net cash paid
    
    $
    
    
    
    $
    (93,856
    )Non-cash transactions from other acquisitions:Common stock issued
    
    $
    2,075
    
    
    $
    
 17




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##### Table of Contents



Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations.
 Introduction and Overview
         18




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##### Table of Contents



Acquisition of Inet Technologies, Inc.
    Cash paid
    
    $
    247,561Stock issued
    
    
    247,543Stock options assumed
    
    
    9,658Restricted share rights assumed
    
    
    321Transaction costs
    
    
    5,224Unearned stock-based compensation
    
    
    (3,403
    )Liabilities assumed
    
    
    36,735Total purchase price
    
    $
    543,639
 19




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##### Table of Contents



Cash and cash equivalents
    
    $
    158,821Accounts receivable
    
    
    18,504Inventories
    
    
    18,025Tax benefit from transaction costs
    
    
    1,209Other current assets
    
    
    6,708Property, plant, and equipment
    
    
    10,662Intangible assets
    
    
    121,953Goodwill
    
    
    219,653Other long term assets
    
    
    811In-process research and development
    
    
    32,237Deferred income taxes
    
    
    (44,944
    )Total assets acquired, net of deferred income taxes
    
    $
    543,639
  (In years)WeightedAverage
    
    
    
    
    
    
    Accumulated(In thousands)
    
    Useful Life
    
    
    Cost
    
    
    Amortization
    
    
    NetDeveloped technology
    
    
    4.8
    
    
    $
    87,004
    
    
    $
    (26,202
    )
    
    $
    60,802Customer relationships
    
    
    4.8
    
    
    
    22,597
    
    
    
    (6,825
    )
    
    
    15,772Covenants not to compete
    
    
    4.0
    
    
    
    1,200
    
    
    
    (425
    )
    
    
    775Tradename
    
    Not amortized
    
    
    11,152
    
    
    
    
    
    
    
    11,152Total intangible assets purchased
    
    
    
    
    
    $
    121,953
    
    
    $
    (33,452
    )
    
    $
    88,501
  Fiscal quarter ended
    
    
    Three fiscal quarters ended(In thousands)
    
    Feb. 25, 2006
    
    
    Feb. 26, 2005
    
    
    Feb. 25, 2006
    
    
    Feb. 26, 2005Cost of sales
    
    $
    4,623
    
    
    $
    4,627
    
    
    $
    13,871
    
    
    $
    7,707Acquisition related costs and amortization
    
    
    1,280
    
    
    
    1,287
    
    
    
    3,838
    
    
    
    2,133Total
    
    $
    5,903
    
    
    $
    5,914
    
    
    $
    17,709
    
    
    $
    9,840
  AcquisitionRelated Costs
    
    
    TotalCost of
    
    
    and
    
    
    for the(In thousands)
    
    Sales
    
    
    Amortization
    
    
    Fiscal YearFiscal Year2006
    
    $
    18,495
    
    
    $
    5,117
    
    
    $
    23,6122007
    
    
    18,495
    
    
    
    5,117
    
    
    
    23,6122008
    
    
    16,670
    
    
    
    4,621
    
    
    
    21,2912009
    
    
    15,759
    
    
    
    4,174
    
    
    
    19,9332010
    
    
    5,256
    
    
    
    1,354
    
    
    
    6,610Total
    
    $
    74,675
    
    
    $
    20,383
    
    
    $
    95,058
 20




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##### Table of Contents



Three fiscal quarters ended(In thousands, except per share amounts)
    
    Feb. 26, 2005Pro formaNet sales
    
    $
    810,305Net earnings
    
    
    91,137Earnings per share:Basic
    
    $
    1.01Diluted
    
    
    0.99
   Business Realignment Costs
    21




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##### Table of Contents



CostsBalance
    
    
    Incurred
    
    
    
    
    
    
    
    
    
    
    BalanceMay 28,
    
    
    and Other
    
    
    Cash
    
    
    Non-cash
    
    
    Feb. 25,(In thousands)
    
    2005
    
    
    Adjustments
    
    
    Payments
    
    
    Adjustments
    
    
    2006Fiscal Year 2006 Actions:Employee severance and
related benefits
    
    $
    
    
    
    $
    7,222
    
    
    $
    (4,438
    )
    
    $
    
    
    
    $
    2,784Contractual obligations
    
    
    
    
    
    
    163
    
    
    
    (163
    )
    
    
    
    
    
    
    Accumulated currency
translation loss, net
    
    
    
    
    
    
    (34
    )
    
    
    
    
    
    
    34
    
    
    
    Total
    
    
    
    
    
    
    7,351
    
    
    
    (4,601
    )
    
    
    34
    
    
    
    2,784Fiscal Year 2005 Actions:Employee severance and
related benefits
    
    
    568
    
    
    
    
    
    
    
    (536
    )
    
    
    
    
    
    
    32Contractual obligations
    
    
    103
    
    
    
    49
    
    
    
    (124
    )
    
    
    
    
    
    
    28Total
    
    
    671
    
    
    
    49
    
    
    
    (660
    )
    
    
    
    
    
    
    60Fiscal Year 2004 Actions:Employee severance and
related benefits
    
    
    681
    
    
    
    98
    
    
    
    (179
    )
    
    
    
    
    
    
    600Total
    
    
    681
    
    
    
    98
    
    
    
    (179
    )
    
    
    
    
    
    
    600Fiscal Year 2003 and 2002 Actions:Employee severance and
related benefits
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    3Contractual obligations
    
    
    926
    
    
    
    45
    
    
    
    (385
    )
    
    
    
    
    
    
    586Total
    
    
    928
    
    
    
    45
    
    
    
    (385
    )
    
    
    1
    
    
    
    589Total of all actions
    
    $
    2,280
    
    
    $
    7,543
    
    
    $
    (5,825
    )
    
    $
    35
    
    
    $
    4,033
 Critical Accounting Estimates
  Revenue Recognition
  22




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##### Table of Contents



Contingencies
      23




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##### Table of Contents



Goodwill and Intangible Assets
       24




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##### Table of Contents



Pension Plans
       25




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##### Table of Contents



Income Taxes
    26




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##### Table of Contents



Fiscal quarter ended
    
    
    Three fiscal quarters endedFeb. 25,
    
    
    Feb. 26,
    
    
    %
    
    
    Feb. 25,
    
    
    Feb. 26,
    
    
    %(In thousands, except per share amounts)
    
    2006
    
    
    2005
    
    
    Change
    
    
    2006
    
    
    2005
    
    
    ChangeProduct orders
    
    $
    287,373
    
    
    $
    252,037
    
    
    
    14
    %
    
    $
    758,572
    
    
    $
    691,943
    
    
    
    10
    %Net sales
    
    
    262,105
    
    
    
    256,332
    
    
    
    2
    %
    
    
    750,561
    
    
    
    773,625
    
    
    
    (3
    )%Cost of sales
    
    
    103,003
    
    
    
    102,946
    
    
    
    0
    %
    
    
    303,277
    
    
    
    311,397
    
    
    
    (3
    )%Gross profit
    
    
    159,102
    
    
    
    153,386
    
    
    
    4
    %
    
    
    447,284
    
    
    
    462,228
    
    
    
    (3
    )%Gross margin
    
    
    60.7
    %
    
    
    59.8
    %
    
    
    
    
    
    
    59.6
    %
    
    
    59.7
    %Research and development
expenses
    
    
    44,566
    
    
    
    43,380
    
    
    
    3
    %
    
    
    133,844
    
    
    
    118,837
    
    
    
    13
    %Selling, general and administrative
expenses
    
    
    76,347
    
    
    
    78,750
    
    
    
    (3
    )%
    
    
    218,015
    
    
    
    220,136
    
    
    
    (1
    )%Acquisition related costs and
amortization
    
    
    1,418
    
    
    
    2,590
    
    
    
    (45
    )%
    
    
    6,949
    
    
    
    38,318
    
    
    
    (82
    )%Business realignment costs
    
    
    3,182
    
    
    
    382
    
    
    
    >100
    %
    
    
    7,543
    
    
    
    2,665
    
    
    
    >100
    %Loss (gain) on disposition of
assets, net
    
    
    54
    
    
    
    754
    
    
    
    (93
    )%
    
    
    81
    
    
    
    (1,080
    )
    
    
    *Operating income
    
    
    33,535
    
    
    
    27,530
    
    
    
    22
    %
    
    
    80,852
    
    
    
    83,352
    
    
    
    (3
    )%Interest income
    
    
    3,381
    
    
    
    3,798
    
    
    
    (11
    )%
    
    
    9,361
    
    
    
    13,164
    
    
    
    (29
    )%Interest expense
    
    
    (96
    )
    
    
    (113
    )
    
    
    (15
    )%
    
    
    (339
    )
    
    
    (531
    )
    
    
    (36
    )%Other non-operating income
(expense), net
    
    
    (933
    )
    
    
    1,422
    
    
    
    *
    
    
    
    (3,912
    )
    
    
    (1,869
    )
    
    
    >100
    %Earnings before taxes
    
    
    35,887
    
    
    
    32,637
    
    
    
    10
    %
    
    
    85,962
    
    
    
    94,116
    
    
    
    (9
    )%Income tax expense
    
    
    10,949
    
    
    
    9,246
    
    
    
    18
    %
    
    
    26,978
    
    
    
    36,838
    
    
    
    (27
    )%Net earnings from continuing
operations
    
    
    24,938
    
    
    
    23,391
    
    
    
    7
    %
    
    
    58,984
    
    
    
    57,278
    
    
    
    3
    %Gain from discontinued
operations, net of income taxes
    
    
    1,575
    
    
    
    3,430
    
    
    
    (54
    )%
    
    
    1,510
    
    
    
    3,117
    
    
    
    (52
    )%Net earnings
    
    $
    26,513
    
    
    $
    26,821
    
    
    
    (1
    )%
    
    $
    60,494
    
    
    $
    60,395
    
    
    
    0
    %Earnings per share:Continuing operations  basic
    
    $
    0.30
    
    
    $
    0.26
    
    
    
    15
    %
    
    $
    0.71
    
    
    $
    0.66
    
    
    
    8
    %Continuing operations  diluted
    
    $
    0.30
    
    
    $
    0.26
    
    
    
    15
    %
    
    $
    0.70
    
    
    $
    0.65
    
    
    
    8
    %Discontinued operations 
basic and diluted
    
    $
    0.02
    
    
    $
    0.04
    
    
    
    (50
    )%
    
    $
    0.02
    
    
    $
    0.04
    
    
    
    (50
    )%Net earnings  basic
    
    $
    0.32
    
    
    $
    0.30
    
    
    
    7
    %
    
    $
    0.73
    
    
    $
    0.70
    
    
    
    4
    %Net earnings  diluted
    
    $
    0.32
    
    
    $
    0.30
    
    
    
    7
    %
    
    $
    0.72
    
    
    $
    0.68
    
    
    
    6
    %
 
 *
    
    not meaningful 27




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##### Table of Contents



Third Quarter and First Three Quarters of Fiscal Year 2006 Compared to the Third Quarter and
First Three Quarters of Fiscal Year 2005
 Executive Summary
      Product Orders
  Fiscal quarter ended
    
    
    Three fiscal quarters endedFeb. 25,
    
    
    Feb. 26,
    
    
    %
    
    
    Feb. 25,
    
    
    Feb. 26,
    
    
    %(In thousands)
    
    2006
    
    
    2005
    
    
    Change
    
    
    2006
    
    
    2005
    
    
    ChangeProduct orders:Instruments business
    
    $
    193,390
    
    
    $
    179,482
    
    
    
    8
    %
    
    $
    543,040
    
    
    $
    547,121
    
    
    
    (1
    )%Communications business
    
    
    93,983
    
    
    
    72,555
    
    
    
    30
    %
    
    
    215,532
    
    
    
    144,822
    
    
    
    49
    %Total product orders
    
    $
    287,373
    
    
    $
    252,037
    
    
    
    14
    %
    
    $
    758,572
    
    
    $
    691,943
    
    
    
    10
    %
  28




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##### Table of Contents



Fiscal quarter ended
    
    
    Three fiscal quarters endedFeb. 25,
    
    
    Feb. 26,
    
    
    %
    
    
    Feb. 25,
    
    
    Feb. 26,
    
    
    %(In thousands)
    
    2006
    
    
    2005
    
    
    Change
    
    
    2006
    
    
    2005
    
    
    ChangeProduct orders by region:United States
    
    $
    89,116
    
    
    $
    78,669
    
    
    
    13
    %
    
    $
    250,655
    
    
    $
    228,324
    
    
    
    10
    %International
    
    
    198,257
    
    
    
    173,368
    
    
    
    14
    %
    
    
    507,917
    
    
    
    463,619
    
    
    
    10
    %Total product orders
    
    $
    287,373
    
    
    $
    252,037
    
    
    
    14
    %
    
    $
    758,572
    
    
    $
    691,943
    
    
    
    10
    %
 29




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##### Table of Contents



Net Sales
    Gross Profit and Gross Margin
     30




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##### Table of Contents



Operating Expenses
        31




---



##### Table of Contents



Non-Operating Income / Expense
    32




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##### Table of Contents



Income Taxes
   Discontinued Operations
  Net Earnings
   Earnings Per Share
  33




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##### Table of Contents



Financial Condition, Liquidity and Capital Resources
 Sources and Uses of Cash
 Cash Flows.
 Three fiscal quarters ended(In thousands)
    
    Feb. 25, 2006
    
    
    Feb. 26, 2005Cash provided by (used in):Operating activities
    
    $
    48,021
    
    
    $
    50,130Investing activities
    
    
    97,908
    
    
    
    57,036Financing activities
    
    
    (97,309
    )
    
    
    (109,020
    )
 Operating Activities.
 Investing Activities
  Financing Activities.
  34




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##### Table of Contents



Working Capital
  (In thousands)
    
    Feb. 25, 2006
    
    
    May 28, 2005Current assets:Cash and cash equivalents
    
    $
    177,512
    
    
    $
    131,640Short-term marketable investments
    
    
    94,543
    
    
    
    120,881Trade accounts receivable, net of allowance for
doubtful accounts of $2,949 and $3,406, respectively
    
    
    167,951
    
    
    
    155,332Inventories
    
    
    139,138
    
    
    
    131,096Other current assets
    
    
    69,078
    
    
    
    80,177Total current assets
    
    
    648,222
    
    
    
    619,126Current liabilities:Accounts payable and accrued liabilities
    
    
    126,750
    
    
    
    115,058Accrued compensation
    
    
    63,444
    
    
    
    78,938Deferred revenue
    
    
    64,235
    
    
    
    57,509Total current liabilities
    
    
    254,429
    
    
    
    251,505Working capital
    
    $
    393,793
    
    
    $
    367,621
  35




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##### Table of Contents



Recent Accounting Pronouncements
    36




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##### Table of Contents



Risks and Uncertainties
  We compete in a cyclical market.
  The industries we serve experience rapid changes in technology.
  Competition is intense, may intensify and could result in increased downward pricing pressure,
reduced margins and the loss of market share.
  37




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##### Table of Contents



We obtain various key components, services and licenses from sole and limited source suppliers.
    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.
  38




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##### Table of Contents



A significant portion of our revenues are 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.
  Our success depends on our ability to maintain and protect our intellectual property and the
intellectual property licensed from others.
  We are subject to environmental regulations.
   Our defined benefit pension plans are subject to financial market risks.
  Our reported results of operations will be materially and adversely affected by our adoption of
SFAS 123R.
  39




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##### Table of Contents



We face other risk factors.
   
 Item 3. Quantitative and Qualitative Disclosures about Market Risk.
 Financial Market Risk
    40




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##### Table of Contents



Item 4. Controls and Procedures.
   
 Part II. OTHER INFORMATION
 
 Item 1. Legal Proceedings.
   
 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 27, 2005 to
December 24, 2005
    
    
    323,800
    
    
    $
    25.77
    
    
    $
    8,344,330
    
    
    
    29,276,379
    
    
    $
    248,442,789December 25, 2005 to
January 21, 2006
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    29,276,379
    
    
    
    248,442,789January 22, 2006 to
February 25, 2006
    
    
    67,900
    
    
    
    29.66
    
    
    
    2,013,711
    
    
    
    29,344,279
    
    
    $
    246,429,078Total
    
    
    391,700
    
    
    $
    26.44
    
    
    $
    10,358,041
  41




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##### Table of Contents



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.
 42




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##### Table of Contents



SIGNATURES
  April 5, 2006
    
    TEKTRONIX, INC.By
    
    /s/ COLIN L. SLADEColin L. SladeSenior Vice President and
Chief Financial Officer
 43




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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.