##### Table of Contents



UNITED STATES
 SECURITIES AND EXCHANGE COMMISSION
  
 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 November 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 001-04837
 TEKTRONIX, INC.
  OREGON
    
    93-0343990(State or Other Jurisdiction ofIncorporation 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




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##### Table of Contents



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 November 25, 2006
and the Fiscal quarter ended November 26, 2005for the Two fiscal quarters ended November 25, 2006
and the Two fiscal quarters ended November 26, 2005
    
    
    2Condensed Consolidated Balance Sheets (Unaudited) -
at November 25, 2006 and May 27, 2006
    
    
    3Condensed Consolidated Statements of Cash Flows (Unaudited) -
for the Two fiscal quarters ended November 25, 2006
and the Two fiscal quarters ended November 26, 2005
    
    
    4Notes to Condensed Consolidated Financial Statements (Unaudited)
    
    
    5Item 2. Managements Discussion and Analysis of Financial Condition and
Results of Operations.
    
    
    23Item 3. Quantitative and Qualitative Disclosures About Market Risk.
    
    
    45Item 4. Controls and Procedures.
    
    
    45PART II. OTHER INFORMATIONItem 1. Legal Proceedings.
    
    
    45Item 1A. Risk Factors.
    
    
    46Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
    
    
    50Item 6. Exhibits.
    
    
    50SIGNATURES
    
    
    51EXHIBIT 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
    
    
    Two fiscal quarters ended(In thousands, except per share amounts)
    
    Nov. 25, 2006
    
    
    Nov. 26, 2005
    
    
    Nov. 25, 2006
    
    
    Nov. 26, 2005Net sales
    
    $
    272,789
    
    
    $
    253,396
    
    
    $
    540,902
    
    
    $
    488,456Cost of sales
    
    
    113,493
    
    
    
    101,171
    
    
    
    218,256
    
    
    
    200,274Gross profit
    
    
    159,296
    
    
    
    152,225
    
    
    
    322,646
    
    
    
    288,182Research and development expenses
    
    
    49,012
    
    
    
    45,673
    
    
    
    99,881
    
    
    
    89,278Selling, general and administrative expenses
    
    
    84,164
    
    
    
    73,103
    
    
    
    164,037
    
    
    
    141,668Acquisition related costs and amortization
    
    
    1,369
    
    
    
    2,095
    
    
    
    2,840
    
    
    
    5,531Business realignment costs (credits)
    
    
    (227
    )
    
    
    1,880
    
    
    
    2,369
    
    
    
    4,361Loss (gain) on disposition of assets, net
    
    
    (33
    )
    
    
    23
    
    
    
    521
    
    
    
    27Operating income
    
    
    25,011
    
    
    
    29,451
    
    
    
    52,998
    
    
    
    47,317Interest income
    
    
    4,263
    
    
    
    2,888
    
    
    
    8,933
    
    
    
    5,980Interest expense
    
    
    (83
    )
    
    
    (146
    )
    
    
    (182
    )
    
    
    (243
    )Other non-operating expense, net
    
    
    (1,597
    )
    
    
    (1,993
    )
    
    
    (2,608
    )
    
    
    (2,979
    )Earnings before taxes
    
    
    27,594
    
    
    
    30,200
    
    
    
    59,141
    
    
    
    50,075Income tax expense
    
    
    7,997
    
    
    
    10,322
    
    
    
    19,431
    
    
    
    16,029Net earnings from continuing
operations
    
    
    19,597
    
    
    
    19,878
    
    
    
    39,710
    
    
    
    34,046Gain (loss) from discontinued operations,
net of income taxes
    
    
    (4
    )
    
    
    17
    
    
    
    3
    
    
    
    (65
    )Net earnings
    
    $
    19,593
    
    
    $
    19,895
    
    
    $
    39,713
    
    
    $
    33,981Earnings per share:Continuing operations  basic
    
    $
    0.24
    
    
    $
    0.24
    
    
    $
    0.49
    
    
    $
    0.41Continuing operations  diluted
    
    $
    0.24
    
    
    $
    0.24
    
    
    $
    0.48
    
    
    $
    0.40Discontinued operations  basic and
diluted
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Net earnings  basic
    
    $
    0.24
    
    
    $
    0.24
    
    
    $
    0.49
    
    
    $
    0.41Net earnings  diluted
    
    $
    0.24
    
    
    $
    0.24
    
    
    $
    0.48
    
    
    $
    0.40Weighted average shares outstanding:Basic
    
    
    81,535
    
    
    
    82,833
    
    
    
    81,791
    
    
    
    83,718Diluted
    
    
    83,151
    
    
    
    83,584
    
    
    
    83,379
    
    
    
    84,438Cash dividends declared per share
    
    $
    0.06
    
    
    $
    0.06
    
    
    $
    0.12
    
    
    $
    0.12
  2




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Condensed Consolidated Balance Sheets (Unaudited)
 (In thousands)
    
    Nov. 25, 2006
    
    
    May 27, 2006ASSETSCurrent assets:Cash and cash equivalents
    
    $
    155,918
    
    
    $
    215,587Short-term marketable investments
    
    
    115,035
    
    
    
    121,346Trade accounts receivable, net of allowance for
doubtful accounts of $3,709 and $3,079, respectively
    
    
    196,044
    
    
    
    174,599Inventories
    
    
    162,350
    
    
    
    156,351Other current assets
    
    
    77,499
    
    
    
    69,002Total current assets
    
    
    706,846
    
    
    
    736,885Property, plant and equipment, net
    
    
    128,891
    
    
    
    127,510Long-term marketable investments
    
    
    172,121
    
    
    
    103,839Goodwill, net
    
    
    306,978
    
    
    
    307,189Pension asset
    
    
    233,968
    
    
    
    239,128Other long-term assets
    
    
    101,963
    
    
    
    119,539Total assets
    
    $
    1,650,767
    
    
    $
    1,634,090LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Accounts payable and accrued liabilities
    
    $
    142,700
    
    
    $
    133,323Accrued compensation
    
    
    68,304
    
    
    
    71,718Deferred revenue
    
    
    89,033
    
    
    
    66,677Total current liabilities
    
    
    300,037
    
    
    
    271,718Deferred income taxes
    
    
    57,363
    
    
    
    65,935Long-term liabilities
    
    
    108,346
    
    
    
    108,868Shareholders equity:Common stock, no par value (authorized 200,000 shares;
issued and outstanding 82,370 and 83,719 shares
at November 25, 2006 and May 27, 2006, respectively)
    
    
    548,570
    
    
    
    540,718Retained earnings
    
    
    611,631
    
    
    
    620,465Accumulated other comprehensive income
    
    
    24,820
    
    
    
    26,386Total shareholders equity
    
    
    1,185,021
    
    
    
    1,187,569Total liabilities and shareholders equity
    
    $
    1,650,767
    
    
    $
    1,634,090
  3




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Condensed Consolidated Statements of Cash Flows (Unaudited)
 Two fiscal quarters ended(In thousands)
    
    Nov. 25, 2006
    
    
    Nov. 26, 2005CASH FLOWS FROM OPERATING ACTIVITIESNet earnings
    
    $
    39,713
    
    
    $
    33,981Adjustments to reconcile net earnings to net cash provided by
operating activities:Depreciation and amortization expense
    
    
    14,542
    
    
    
    13,937Amortization of acquisition related intangible assets
    
    
    11,894
    
    
    
    11,850Share-based compensation expense
    
    
    9,877
    
    
    
    Net loss on disposition of assets, net
    
    
    521
    
    
    
    27Gain (loss) from discontinued operations
    
    
    (3
    )
    
    
    65Write-off of in-process research and development
    
    
    
    
    
    
    365Tax benefit of stock option exercises
    
    
    
    
    
    
    801Deferred income tax expense (benefit)
    
    
    (8,576
    )
    
    
    6,079Gain on sale of corporate equity securities
    
    
    (752
    )
    
    
    (90
    )Changes in operating assets and liabilities, net of effects of acquisition:Trade accounts receivable, net
    
    
    (21,445
    )
    
    
    (6,567
    )Inventories
    
    
    (5,005
    )
    
    
    1,010Other current assets
    
    
    (7,455
    )
    
    
    2,065Accounts payable and accrued liabilities
    
    
    7,536
    
    
    
    656Accrued compensation
    
    
    (3,414
    )
    
    
    (17,467
    )Deferred revenue
    
    
    22,356
    
    
    
    1,735Cash funding for defined benefit plans
    
    
    
    
    
    
    (38,400
    )Other long-term assets and liabilities, net
    
    
    1,897
    
    
    
    1,598Net cash provided by continuing operating activities
    
    
    61,686
    
    
    
    11,645Net cash used in discontinued operating activities
    
    
    (13
    )
    
    
    (65
    )Net cash provided by operating activities
    
    
    61,673
    
    
    
    11,580CASH FLOWS FROM INVESTING ACTIVITIESAcquisition of property, plant and equipment
    
    
    (13,876
    )
    
    
    (18,633
    )Proceeds from the disposition of property and equipment
    
    
    120
    
    
    
    520Proceeds from sale of corporate equity securities
    
    
    1,766
    
    
    
    90Proceeds from maturities and sales of marketable investments
    
    
    78,505
    
    
    
    117,548Purchases of short-term and long-term marketable investments
    
    
    (137,498
    )
    
    
    Acquisition of businesses, net of cash acquired
    
    
    
    
    
    
    (8,422
    )Net cash (used in) provided by investing activities
    
    
    (70,983
    )
    
    
    91,103CASH FLOWS FROM FINANCING ACTIVITIESProceeds from employee stock plans
    
    
    7,909
    
    
    
    10,379Repurchase of common stock
    
    
    (50,157
    )
    
    
    (95,979
    )Cash dividends paid
    
    
    (9,926
    )
    
    
    (10,088
    )Tax benefit of stock option exercise
    
    
    668
    
    
    
    Issuance of short-term debt
    
    
    
    
    
    
    456Repayment of long-term debt
    
    
    
    
    
    
    (188
    )Net cash used in financing activities
    
    
    (51,506
    )
    
    
    (95,420
    )Effect of exchange rate changes on cash
    
    
    1,147
    
    
    
    (2,888
    )Net (decrease) increase in cash and cash equivalents
    
    
    (59,669
    )
    
    
    4,375Cash and cash equivalents at beginning of period
    
    
    215,587
    
    
    
    131,640Cash and cash equivalents at end of period
    
    $
    155,918
    
    
    $
    136,015
  4




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




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3. Recent Accounting Pronouncements
    6




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4. Earnings Per Share
   Fiscal quarter ended
    
    
    Two fiscal quarters ended(In thousands, except per share amounts)
    
    Nov. 25, 2006
    
    
    Nov. 26, 2005
    
    
    Nov. 25, 2006
    
    
    Nov. 26, 2005Net earnings
    
    $
    19,593
    
    
    $
    19,895
    
    
    $
    39,713
    
    
    $
    33,981Weighted average shares used for
basic earnings per share
    
    
    81,535
    
    
    
    82,833
    
    
    
    81,791
    
    
    
    83,718Incremental dilutive shares
    
    
    1,616
    
    
    
    751
    
    
    
    1,588
    
    
    
    720Weighted average shares used for
diluted earnings per share
    
    
    83,151
    
    
    
    83,584
    
    
    
    83,379
    
    
    
    84,438Earnings per share:Net earnings  basic
    
    $
    0.24
    
    
    $
    0.24
    
    
    $
    0.49
    
    
    $
    0.41Net earnings  diluted
    
    $
    0.24
    
    
    $
    0.24
    
    
    $
    0.48
    
    
    $
    0.40
  7




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5. Share-Based Compensation
    Fiscal quarter ended
    
    
    Two fiscal quarters ended(In thousands, except per share amounts)
    
    Nov. 26, 2005
    
    
    Nov. 26, 2005Net earnings as reported
    
    $
    19,895
    
    
    $
    33,981Stock compensation cost included in
net earnings as reported, net of
tax expense of $273 and $511
    
    
    609
    
    
    
    1,167Stock compensation cost using the fair
value alternative, net of tax benefit
of $2,314 and $4,232
    
    
    (4,904
    )
    
    
    (9,669
    )Pro forma net earnings
    
    $
    15,600
    
    
    $
    25,479Earnings per share:Basic  as reported
    
    $
    0.24
    
    
    $
    0.41Basic  pro forma
    
    $
    0.19
    
    
    $
    0.30Diluted  as reported
    
    $
    0.24
    
    
    $
    0.40Diluted  pro forma
    
    $
    0.19
    
    
    $
    0.30
 Impact of the Adoption of SFAS No. 123R
  Fiscal quarter ended November 25, 2006
    
    
    Two fiscal quarters ended November 25, 2006Using
    
    
    Adjustment
    
    
    
    
    
    
    Using
    
    
    AdjustmentAPB
    
    
    for SFAS
    
    
    As
    
    
    APB
    
    
    for SFAS
    
    
    AsNo. 25
    
    
    No. 123R
    
    
    Reported
    
    
    No. 25
    
    
    No. 123R
    
    
    ReportedCost of sales
    
    $
    113,359
    
    
    $
    134
    
    
    $
    113,493
    
    
    $
    218,122
    
    
    $
    134
    
    
    $
    218,256Research and development
expenses
    
    
    47,882
    
    
    
    1,130
    
    
    
    49,012
    
    
    
    97,762
    
    
    
    2,119
    
    
    
    99,881Selling, general, and administrative
expenses
    
    
    81,569
    
    
    
    2,595
    
    
    
    84,164
    
    
    
    159,170
    
    
    
    4,867
    
    
    
    164,037Operating income
    
    
    28,870
    
    
    
    (3,859
    )
    
    
    25,011
    
    
    
    60,118
    
    
    
    (7,120
    )
    
    
    52,998Earnings before taxes
    
    
    31,453
    
    
    
    (3,859
    )
    
    
    27,594
    
    
    
    66,261
    
    
    
    (7,120
    )
    
    
    59,141Net earnings
    
    $
    22,339
    
    
    $
    (2,746
    )
    
    $
    19,593
    
    
    $
    44,585
    
    
    $
    (4,872
    )
    
    $
    39,713Earnings per share:Basic
    
    $
    0.27
    
    
    $
    (0.03
    )
    
    $
    0.24
    
    
    $
    0.55
    
    
    $
    (0.06
    )
    
    $
    0.49Diluted
    
    $
    0.27
    
    
    $
    (0.03
    )
    
    $
    0.24
    
    
    $
    0.53
    
    
    $
    (0.05
    )
    
    $
    0.48Cash flows from operating activities
    
    $
    23,633
    
    
    $
    (577
    )
    
    $
    23,056
    
    
    $
    62,341
    
    
    $
    (668
    )
    
    $
    61,673Cash flows from financing activities
    
    $
    (11,973
    )
    
    $
    577
    
    
    $
    (11,396
    )
    
    $
    (52,174
    )
    
    $
    668
    
    
    $
    (51,506
    )
 8




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Valuation Assumptions
   Fiscal quarter ended
    
    
    Two fiscal quarters endedNov. 25, 2006
    
    
    Nov. 26, 2005
    
    
    Nov. 25, 2006
    
    
    Nov. 26, 2005Expected life in years
    
    
    4.2
    
    
    
    5.1
    
    
    
    4.2
    
    
    
    5.1Risk-free interest rate
    
    
    4.60
    %
    
    
    4.13
    %
    
    
    4.68
    %
    
    
    4.10
    %Volatility
    
    
    31.55
    %
    
    
    31.91
    %
    
    
    31.61
    %
    
    
    31.96
    %Dividend yield
    
    
    0.81
    %
    
    
    0.95
    %
    
    
    0.82
    %
    
    
    0.96
    %
 Stock Plans
  9




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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 August 26, 2006
    
    
    11,769
    
    
    $
    29.02Granted
    
    
    77
    
    
    
    29.58Exercised
    
    
    (175
    )
    
    
    20.69Forfeited
    
    
    (123
    )
    
    
    40.81Expired
    
    
    
    
    
    
    Outstanding at November 25, 2006
    
    
    11,548
    
    
    $
    29.03
    
    
    
    6.32
    
    
    $
    59,433Exercisable at November 25, 2006
    
    
    7,382
    
    
    $
    29.46
    
    
    
    5.45
    
    
    $
    44,505
   WeightedNumber of
    
    
    AverageShares
    
    
    Grant Date(in thousands)
    
    
    Fair ValueNonvested shares at August 26, 2006
    
    
    942
    
    
    $
    29.61Granted
    
    
    37
    
    
    
    30.15Vested
    
    
    (6
    )
    
    
    25.17Forfeited
    
    
    (5
    )
    
    
    29.69Nonvested shares at November 25, 2006
    
    
    968
    
    
    $
    29.66
  Employee Stock Purchase Plan
  10




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6. Acquisition of Inet Technologies, Inc.
   (In years)WeightedAverage
    
    
    
    
    
    
    Accumulated(In thousands)
    
    Useful Life
    
    
    Cost
    
    
    Amortization
    
    
    NetDeveloped technology
    
    
    4.8
    
    
    $
    87,004
    
    
    $
    (40,071
    )
    
    $
    46,933Customer relationships
    
    
    4.8
    
    
    
    22,597
    
    
    
    (10,440
    )
    
    
    12,157Covenants not to compete
    
    
    4.0
    
    
    
    1,200
    
    
    
    (650
    )
    
    
    550Tradename
    
    Not amortized
    
    
    11,152
    
    
    
    
    
    
    
    11,152Total intangible assets purchased
    
    
    
    
    
    $
    121,953
    
    
    $
    (51,161
    )
    
    $
    70,792
  Fiscal quarter ended
    
    
    Two fiscal quarters ended(In thousands)
    
    Nov. 25, 2006
    
    
    Nov. 26, 2005
    
    
    Nov. 25, 2006
    
    
    Nov. 26, 2005Cost of sales
    
    $
    4,624
    
    
    $
    4,624
    
    
    $
    9,248
    
    
    $
    9,248Acquisition related costs and amortization
    
    
    1,279
    
    
    
    1,279
    
    
    
    2,558
    
    
    
    2,558Total
    
    $
    5,903
    
    
    $
    5,903
    
    
    $
    11,806
    
    
    $
    11,806
  AcquisitionRelatedCost of
    
    
    Costs and(In thousands)
    
    Sales
    
    
    Amortization
    
    
    TotalFiscal Year2007
    
    $
    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
 11




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7. Discontinued Operations
  Fiscal quarter ended
    
    
    Two fiscal quarters ended(In thousands)
    
    Nov. 25, 2006
    
    
    Nov. 26, 2005
    
    
    Nov. 25, 2006
    
    
    Nov. 26, 2005Loss on sale of VideoTele.com
in fiscal year 2003 (less applicable
income tax benefit of $1, $1, $1 and $1)
    
    $
    (1
    )
    
    $
    (2
    )
    
    $
    (1
    )
    
    $
    (3
    )Gain (loss) on sale of optical parametric
test business in fiscal year 2003
(less applicable income tax benefit (expense)
of $0, $76, ($9) and $112)
    
    
    
    
    
    
    (140
    )
    
    
    16
    
    
    
    (208
    )Gain (loss) on sale of Gage in fiscal year 2003
(less applicable income tax benefit (expense)
of $0, ($86), $0 and ($80))
    
    
    (1
    )
    
    
    159
    
    
    
    (1
    )
    
    
    148Loss on sale of Color Printing and Imaging
Division in fiscal year 2000 (less applicable
income tax benefit of $3, $0, $7 and $1)
    
    
    (2
    )
    
    
    
    
    
    
    (11
    )
    
    
    (2
    )Gain (loss) from discontinued operations,
net of income taxes
    
    $
    (4
    )
    
    $
    17
    
    
    $
    3
    
    
    $
    (65
    )
 8. Business Realignment Costs
     12




---



##### Table of Contents



CostsBalance
    
    
    Incurred
    
    
    
    
    
    
    
    
    
    
    BalanceMay 27,
    
    
    and Other
    
    
    Cash
    
    
    Non-cash
    
    
    Nov. 25,(In thousands)
    
    2006
    
    
    Adjustments
    
    
    Payments
    
    
    Adjustments
    
    
    2006Fiscal Year 2007 Actions:Employee severance and
related benefits
    
    $
    
    
    
    $
    2,109
    
    
    $
    (752
    )
    
    $
    26
    
    
    $
    1,383Contractual obligations
    
    
    
    
    
    
    302
    
    
    
    (301
    )
    
    
    
    
    
    
    1Accumulated currency
translation loss, net
    
    
    
    
    
    
    (5
    )
    
    
    
    
    
    
    5
    
    
    
    Total
    
    
    
    
    
    
    2,406
    
    
    
    (1,053
    )
    
    
    31
    
    
    
    1,384Fiscal Year 2006 Actions:Employee severance and
related benefits
    
    
    4,867
    
    
    
    149
    
    
    
    (3,274
    )
    
    
    
    
    
    
    1,742Total
    
    
    4,867
    
    
    
    149
    
    
    
    (3,274
    )
    
    
    
    
    
    
    1,742Fiscal Year 2005 Actions:Employee severance and
related benefits
    
    
    11
    
    
    
    
    
    
    
    (11
    )
    
    
    
    
    
    
    Total
    
    
    11
    
    
    
    
    
    
    
    (11
    )
    
    
    
    
    
    
    Fiscal Year 2004 Actions:Employee severance and
related benefits
    
    
    613
    
    
    
    33
    
    
    
    (228
    )
    
    
    
    
    
    
    418Total
    
    
    613
    
    
    
    33
    
    
    
    (228
    )
    
    
    
    
    
    
    418Fiscal Year 2003 Actions:Employee severance and
related benefits
    
    
    3
    
    
    
    (3
    )
    
    
    
    
    
    
    
    
    
    
    Contractual obligations
    
    
    511
    
    
    
    (216
    )
    
    
    (265
    )
    
    
    
    
    
    
    30Total
    
    
    514
    
    
    
    (219
    )
    
    
    (265
    )
    
    
    
    
    
    
    30Total of all actions
    
    $
    6,005
    
    
    $
    2,369
    
    
    $
    (4,831
    )
    
    $
    31
    
    
    $
    3,574
 13




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##### Table of Contents



9. Marketable Investments
    Amortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    Market(In thousands)
    
    Cost
    
    
    Gains
    
    
    Losses
    
    
    ValueAsset backed securities
    
    $
    38,248
    
    
    $
    67
    
    
    $
    (146
    )
    
    $
    38,169Corporate notes and bonds
    
    
    35,830
    
    
    
    25
    
    
    
    (14
    )
    
    
    35,841U.S. Agencies
    
    
    21,170
    
    
    
    
    
    
    
    (168
    )
    
    
    21,002Certificates of deposit
    
    
    7,692
    
    
    
    8
    
    
    
    (2
    )
    
    
    7,698Mortgage backed securities
    
    
    7,639
    
    
    
    
    
    
    
    (176
    )
    
    
    7,463Municipal bonds
    
    
    3,354
    
    
    
    
    
    
    
    
    
    
    
    3,354Commercial paper
    
    
    1,492
    
    
    
    
    
    
    
    
    
    
    
    1,492U.S. Treasuries
    
    
    16
    
    
    
    
    
    
    
    
    
    
    
    16Short-term marketable investments
    
    $
    115,441
    
    
    $
    100
    
    
    $
    (506
    )
    
    $
    115,035
  Amortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    Market(In thousands)
    
    Cost
    
    
    Gains
    
    
    Losses
    
    
    ValueMunicipal bonds
    
    $
    80,702
    
    
    $
    109
    
    
    $
    (34
    )
    
    $
    80,777Asset backed securities
    
    
    30,638
    
    
    
    
    
    
    
    (449
    )
    
    
    30,189Corporate notes and bonds
    
    
    26,726
    
    
    
    88
    
    
    
    (461
    )
    
    
    26,353Mortgage backed securities
    
    
    23,208
    
    
    
    
    
    
    
    (815
    )
    
    
    22,393U.S. Agencies
    
    
    7,060
    
    
    
    
    
    
    
    (156
    )
    
    
    6,904U.S. Treasuries
    
    
    5,638
    
    
    
    
    
    
    
    (133
    )
    
    
    5,505Long-term marketable investments
    
    $
    173,972
    
    
    $
    197
    
    
    $
    (2,048
    )
    
    $
    172,121
  Amortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    Market(In thousands)
    
    Cost
    
    
    Gains
    
    
    Losses
    
    
    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
 14




---



##### Table of Contents



Amortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    Market(In thousands)
    
    Cost
    
    
    Gains
    
    
    Losses
    
    
    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
    
    $
    150,764Mortgage backed securities
    
    
    23,208$
    173,972
   12 months or more
    
    
    Less than 12 months
    
    
    TotalGross
    
    
    
    
    
    
    Gross
    
    
    
    
    
    
    GrossEstimated
    
    
    Unrealized
    
    
    Estimated
    
    
    Unrealized
    
    
    Estimated
    
    
    Unrealized(In thousands)
    
    Market Value
    
    
    Losses
    
    
    Market Value
    
    
    Losses
    
    
    Market Value
    
    
    LossesAsset backed securities
    
    $
    45,229
    
    
    $
    (573
    )
    
    $
    11,232
    
    
    $
    (22
    )
    
    $
    56,461
    
    
    $
    (595
    )Mortgage backed securities
    
    
    24,011
    
    
    
    (793
    )
    
    
    5,844
    
    
    
    (199
    )
    
    
    29,855
    
    
    
    (992
    )Municipal bonds
    
    
    4,350
    
    
    
    (8
    )
    
    
    24,448
    
    
    
    (26
    )
    
    
    28,798
    
    
    
    (34
    )Corporate notes and bonds
    
    
    19,892
    
    
    
    (471
    )
    
    
    7,667
    
    
    
    (4
    )
    
    
    27,559
    
    
    
    (475
    )U.S. Agencies
    
    
    25,447
    
    
    
    (319
    )
    
    
    2,459
    
    
    
    (5
    )
    
    
    27,906
    
    
    
    (324
    )U.S. Treasuries
    
    
    5,522
    
    
    
    (132
    )
    
    
    
    
    
    
    
    
    
    
    5,522
    
    
    
    (132
    )Certificates of deposit
    
    
    2,582
    
    
    
    (2
    )
    
    
    
    
    
    
    
    
    
    
    2,582
    
    
    
    (2
    )Total
    
    $
    127,033
    
    
    $
    (2,298
    )
    
    $
    51,650
    
    
    $
    (256
    )
    
    $
    178,683
    
    
    $
    (2,554
    )
 15




---



##### Table of Contents



10. Inventories
   (In thousands)
    
    Nov. 25, 2006
    
    
    May 27, 2006Materials
    
    $
    10,301
    
    
    $
    8,252Work in process
    
    
    68,851
    
    
    
    72,663Finished goods
    
    
    83,198
    
    
    
    75,436Inventories
    
    $
    162,350
    
    
    $
    156,351
 11. Other Current Assets
  (In thousands)
    
    Nov. 25, 2006
    
    
    May 27, 2006Current deferred tax asset
    
    $
    46,728
    
    
    $
    45,686Prepaid expenses
    
    
    17,537
    
    
    
    12,776Income taxes receivable
    
    
    1,770
    
    
    
    1,772Other receivables
    
    
    8,135
    
    
    
    8,343Notes receivable
    
    
    2,701
    
    
    
    12Other current assets
    
    
    628
    
    
    
    413Other current assets
    
    $
    77,499
    
    
    $
    69,002
 12. Property, Plant and Equipment, Net
  (In thousands)
    
    Nov. 25, 2006
    
    
    May 27, 2006Land
    
    $
    698
    
    
    $
    698Buildings
    
    
    138,679
    
    
    
    135,727Machinery and equipment
    
    
    265,949
    
    
    
    258,137Accumulated depreciation and amortization
    
    
    (276,435
    )
    
    
    (267,052
    )Property, plant and equipment, net
    
    $
    128,891
    
    
    $
    127,510
   13. Goodwill, Net
   Balance at May 27, 2006
    
    $
    307,189Currency translation
    
    
    (211
    )Balance at November 25, 2006
    
    $
    306,978
 16




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##### Table of Contents



14. Other Long-Term Assets
  (In thousands)
    
    Nov. 25, 2006
    
    
    May 27, 2006Intangibles, net
    
    $
    75,411
    
    
    $
    86,805Notes, contracts and leases
    
    
    17,133
    
    
    
    18,476Corporate equity securities
    
    
    3,764
    
    
    
    8,923Other long-term assets
    
    
    5,655
    
    
    
    5,335Other long-term assets
    
    $
    101,963
    
    
    $
    119,539
     15. Accounts Payable and Accrued Liabilities
  (In thousands)
    
    Nov. 25, 2006
    
    
    May 27, 2006Trade accounts payable
    
    $
    40,897
    
    
    $
    50,910Other accounts payable
    
    
    51,277
    
    
    
    44,719Accounts payable
    
    
    92,174
    
    
    
    95,629Income taxes payable
    
    
    23,153
    
    
    
    16,181Contingent liabilities (Note 18)
    
    
    11,176
    
    
    
    8,785Product warranty accrual (Note 21)
    
    
    5,997
    
    
    
    5,798Accrued expenses and other liabilities
    
    
    10,200
    
    
    
    6,930Accrued liabilities
    
    
    50,526
    
    
    
    37,694Accounts payable and accrued liabilities
    
    $
    142,700
    
    
    $
    133,323
  17




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##### Table of Contents



16. Long-Term Liabilities
  (In thousands)
    
    Nov. 25, 2006
    
    
    May 27, 2006Pension liability
    
    $
    67,629
    
    
    $
    66,147Deferred compensation
    
    
    15,947
    
    
    
    14,584Postretirement benefits
    
    
    11,686
    
    
    
    12,106Other long-term liabilities
    
    
    13,084
    
    
    
    16,031Long-term liabilities
    
    $
    108,346
    
    
    $
    108,868
  17. Pension and Other Postretirement Benefits
  Pension Benefits
    
    
    Other Postretirement BenefitsFiscal quarter ended
    
    
    Fiscal quarter ended(In thousands)
    
    Nov. 25, 2006
    
    
    Nov. 26, 2005
    
    
    Nov. 25, 2006
    
    
    Nov. 26, 2005Service cost
    
    $
    1,956
    
    
    $
    1,861
    
    
    $
    20
    
    
    $
    24Interest cost
    
    
    10,079
    
    
    
    9,630
    
    
    
    223
    
    
    
    214Expected return on plan assets
    
    
    (12,660
    )
    
    
    (12,732
    )
    
    
    
    
    
    
    Amortization of transition asset
    
    
    40
    
    
    
    28
    
    
    
    
    
    
    
    Amortization of prior service cost
    
    
    (546
    )
    
    
    (567
    )
    
    
    
    
    
    
    Amortization of unrecognized actuarial
net loss
    
    
    5,162
    
    
    
    5,448
    
    
    
    
    
    
    
    Net periodic benefit cost
    
    $
    4,031
    
    
    $
    3,668
    
    
    $
    243
    
    
    $
    238
 Pension Benefits
    
    
    Other Postretirement BenefitsTwo fiscal quarters ended
    
    
    Two fiscal quarters ended(In thousands)
    
    Nov. 25, 2006
    
    
    Nov. 26, 2005
    
    
    Nov. 25, 2006
    
    
    Nov. 26, 2005Service cost
    
    $
    3,892
    
    
    $
    3,701
    
    
    $
    40
    
    
    $
    48Interest cost
    
    
    20,124
    
    
    
    19,247
    
    
    
    447
    
    
    
    428Expected return on plan assets
    
    
    (25,298
    )
    
    
    (25,450
    )
    
    
    
    
    
    
    Amortization of transition asset
    
    
    80
    
    
    
    56
    
    
    
    
    
    
    
    Amortization of prior service cost
    
    
    (1,092
    )
    
    
    (1,134
    )
    
    
    
    
    
    
    Amortization of unrecognized actuarial
net loss
    
    
    10,317
    
    
    
    10,894
    
    
    
    
    
    
    
    Net periodic benefit cost
    
    $
    8,023
    
    
    $
    7,314
    
    
    $
    487
    
    
    $
    476
 18




---



##### Table of Contents



18. Contingencies
  Sale of Color Printing and Imaging
   Environmental and Other
      19




---



##### 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
    
    
    
    
    
    
    
    
    
    
    39,713
    
    
    
    
    
    
    
    39,713Additional minimum pension liability,
net of income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (521
    )
    
    
    (521
    )Foreign currency translation
adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    323
    
    
    
    323Unrealized holding loss on available-
for-sale securities, net of income
taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,368
    )
    
    
    (1,368
    )Cash dividends paid
    
    
    
    
    
    
    
    
    
    
    (9,926
    )
    
    
    
    
    
    
    (9,926
    )Shares issued to employees, net
of forfeitures
    
    
    398
    
    
    
    8,052
    
    
    
    
    
    
    
    
    
    
    
    8,052Tax benefit of stock option exercises
    
    
    
    
    
    
    668
    
    
    
    
    
    
    
    
    
    
    
    668Amortization of unearned share-based
compensation
    
    
    
    
    
    
    10,668
    
    
    
    
    
    
    
    
    
    
    
    10,668Shares repurchased in open
market
    
    
    (1,747
    )
    
    
    (11,536
    )
    
    
    (38,621
    )
    
    
    
    
    
    
    (50,157
    )Balance at November 25, 2006
    
    
    82,370
    
    
    $
    548,570
    
    
    $
    611,631
    
    
    $
    24,820
    
    
    $
    1,185,021
    20




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##### Table of Contents



Fiscal quarter ended
    
    
    Two fiscal quarters ended(In thousands)
    
    Nov. 25, 2006
    
    
    Nov. 26, 2005
    
    
    Nov. 25, 2006
    
    
    Nov. 26, 2005Net earnings
    
    $
    19,593
    
    
    $
    19,895
    
    
    $
    39,713
    
    
    $
    33,981Other comprehensive income (loss):Net change in additional minimum pension
liability, net of income taxes of ($112),
$385, ($238) and $473, respectively
    
    
    (243
    )
    
    
    819
    
    
    
    (521
    )
    
    
    998Foreign currency translation adjustment
    
    
    1,859
    
    
    
    (9,054
    )
    
    
    323
    
    
    
    (10,731
    )Unrealized holding loss on available-
for-sale securities, net of income taxes
of ($256), ($239), ($804) and ($456),
respectively
    
    
    (434
    )
    
    
    (390
    )
    
    
    (1,368
    )
    
    
    (729
    )Total comprehensive income
    
    $
    20,775
    
    
    $
    11,270
    
    
    $
    38,147
    
    
    $
    23,519
  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
    )
    
    
    1,182Balance as of November 25, 2006
    
    $
    (11,998
    )
    
    $
    37,927
    
    
    $
    (1,109
    )
    
    $
    24,820
 20. Business Segments
  Fiscal quarter ended
    
    
    Two fiscal quarters ended(In thousands)
    
    Nov. 25, 2006
    
    
    Nov. 26, 2005
    
    
    Nov. 25, 2006
    
    
    Nov. 26, 2005Consolidated net sales to external customers by groups of similar products:Instruments Business
    
    $
    205,244
    
    
    $
    192,250
    
    
    $
    403,456
    
    
    $
    369,619Communications Business
    
    
    67,545
    
    
    
    61,146
    
    
    
    137,446
    
    
    
    118,837Net sales
    
    $
    272,789
    
    
    $
    253,396
    
    
    $
    540,902
    
    
    $
    488,456Consolidated net sales to external customers by region:The Americas:United States
    
    $
    89,378
    
    
    $
    92,079
    
    
    $
    187,357
    
    
    $
    176,482Other Americas
    
    
    9,479
    
    
    
    5,446
    
    
    
    15,909
    
    
    
    10,713Europe
    
    
    81,603
    
    
    
    68,582
    
    
    
    147,681
    
    
    
    131,329Pacific
    
    
    54,435
    
    
    
    46,641
    
    
    
    110,804
    
    
    
    91,063Japan
    
    
    37,894
    
    
    
    40,648
    
    
    
    79,151
    
    
    
    78,869Net sales
    
    $
    272,789
    
    
    $
    253,396
    
    
    $
    540,902
    
    
    $
    488,456
 21




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##### Table of Contents



21. Product Warranty Accrual
   Two fiscal quarters ended(In thousands)
    
    Nov. 25, 2006
    
    
    Nov. 26, 2005Balance at beginning of period
    
    $
    5,798
    
    
    $
    6,508Warranty parts and service provided
    
    
    (5,605
    )
    
    
    (5,135
    )Provision for warranty expense
    
    
    5,804
    
    
    
    4,284Balance at end of period
    
    $
    5,997
    
    
    $
    5,657
 22. Supplemental Cash Flow Information
 Two fiscal quarters ended(In thousands)
    
    Nov. 25, 2006
    
    
    Nov. 26, 2005Supplemental disclosure of cash flows:Income taxes paid, net
    
    $
    18,645
    
    
    $
    4,910Interest paid
    
    
    141
    
    
    
    149Non-cash transactions from acquisitions:Common stock issued
    
    $
    
    
    
    $
    2,075
 23. Subsequent Events
  22




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##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations.
 Introduction and Overview
  Business Overview
       23




---



##### Table of Contents



Acquisitions
     Inet Technologies, Inc.
  24




---



##### Table of Contents



(In years)WeightedAverage
    
    
    
    
    
    
    Accumulated(In thousands)
    
    Useful Life
    
    
    Cost
    
    
    Amortization
    
    
    NetDeveloped technology
    
    
    4.8
    
    
    $
    87,004
    
    
    $
    (40,071
    )
    
    $
    46,933Customer relationships
    
    
    4.8
    
    
    
    22,597
    
    
    
    (10,440
    )
    
    
    12,157Covenants not to compete
    
    
    4.0
    
    
    
    1,200
    
    
    
    (650
    )
    
    
    550Tradename
    
    Not amortized
    
    
    
    11,152
    
    
    
    
    
    
    
    11,152Total intangible assets purchased
    
    
    
    
    
    $
    121,953
    
    
    $
    (51,161
    )
    
    $
    70,792
  Fiscal quarter ended
    
    
    Two fiscal quarters ended(In thousands)
    
    Nov. 25, 2006
    
    
    Nov. 26, 2005
    
    
    Nov. 25, 2006
    
    
    Nov. 26, 2005Cost of sales
    
    $
    4,624
    
    
    $
    4,624
    
    
    $
    9,248
    
    
    $
    9,248Acquisition related costs and amortization
    
    
    1,279
    
    
    
    1,279
    
    
    
    2,558
    
    
    
    2,558Total
    
    $
    5,903
    
    
    $
    5,903
    
    
    $
    11,806
    
    
    $
    11,806
  AcquisitionRelatedCost of
    
    
    Costs and(In thousands)
    
    Sales
    
    
    Amortization
    
    
    TotalFiscal Year2007
    
    $
    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
 25




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##### Table of Contents



Business Realignment Costs
     26




---



##### Table of Contents



CostsBalance
    
    
    Incurred
    
    
    
    
    
    
    
    
    
    
    BalanceMay 27,
    
    
    and Other
    
    
    Cash
    
    
    Non-cash
    
    
    Nov. 25,(In thousands)
    
    2006
    
    
    Adjustments
    
    
    Payments
    
    
    Adjustments
    
    
    2006Fiscal Year 2007 Actions:Employee severance and
related benefits
    
    $
    
    
    
    $
    2,109
    
    
    $
    (752
    )
    
    $
    26
    
    
    $
    1,383Contractual obligations
    
    
    
    
    
    
    302
    
    
    
    (301
    )
    
    
    
    
    
    
    1Accumulated currency
translation loss, net
    
    
    
    
    
    
    (5
    )
    
    
    
    
    
    
    5
    
    
    
    Total
    
    
    
    
    
    
    2,406
    
    
    
    (1,053
    )
    
    
    31
    
    
    
    1,384Fiscal Year 2006 Actions:Employee severance and
related benefits
    
    
    4,867
    
    
    
    149
    
    
    
    (3,274
    )
    
    
    
    
    
    
    1,742Total
    
    
    4,867
    
    
    
    149
    
    
    
    (3,274
    )
    
    
    
    
    
    
    1,742Fiscal Year 2005 Actions:Employee severance and
related benefits
    
    
    11
    
    
    
    
    
    
    
    (11
    )
    
    
    
    
    
    
    Total
    
    
    11
    
    
    
    
    
    
    
    (11
    )
    
    
    
    
    
    
    Fiscal Year 2004 Actions:Employee severance and
related benefits
    
    
    613
    
    
    
    33
    
    
    
    (228
    )
    
    
    
    
    
    
    418Total
    
    
    613
    
    
    
    33
    
    
    
    (228
    )
    
    
    
    
    
    
    418Fiscal Year 2003 Actions:Employee severance and
related benefits
    
    
    3
    
    
    
    (3
    )
    
    
    
    
    
    
    
    
    
    
    Contractual obligations
    
    
    511
    
    
    
    (216
    )
    
    
    (265
    )
    
    
    
    
    
    
    30Total
    
    
    514
    
    
    
    (219
    )
    
    
    (265
    )
    
    
    
    
    
    
    30Total of all actions
    
    $
    6,005
    
    
    $
    2,369
    
    
    $
    (4,831
    )
    
    $
    31
    
    
    $
    3,574
 27




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##### Table of Contents



Critical Accounting Estimates
  Share-based Compensation
  Revenue Recognition
    28




---



##### Table of Contents



Contingencies
        29




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##### Table of Contents



Goodwill and Intangible Assets
      30




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##### Table of Contents



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
    
    
    Two fiscal quarters endedNov. 25,
    
    
    Nov. 26,
    
    
    %
    
    
    Nov. 25,
    
    
    Nov. 26,
    
    
    %(In thousands, except per share amounts)
    
    2006
    
    
    2005
    
    
    Change
    
    
    2006
    
    
    2005
    
    
    ChangeOrders
    
    $
    302,193
    
    
    $
    256,910
    
    
    
    18
    %
    
    $
    557,592
    
    
    $
    502,425
    
    
    
    11
    %Net sales
    
    
    272,789
    
    
    
    253,396
    
    
    
    8
    %
    
    
    540,902
    
    
    
    488,456
    
    
    
    11
    %Cost of sales
    
    
    113,493
    
    
    
    101,171
    
    
    
    12
    %
    
    
    218,256
    
    
    
    200,274
    
    
    
    9
    %Gross profit
    
    
    159,296
    
    
    
    152,225
    
    
    
    5
    %
    
    
    322,646
    
    
    
    288,182
    
    
    
    12
    %Gross margin
    
    
    58.4
    %
    
    
    60.1
    %
    
    
    
    
    
    
    59.6
    %
    
    
    59.0
    %Research and development
expenses
    
    
    49,012
    
    
    
    45,673
    
    
    
    7
    %
    
    
    99,881
    
    
    
    89,278
    
    
    
    12
    %Selling, general and administrative
expenses
    
    
    84,164
    
    
    
    73,103
    
    
    
    15
    %
    
    
    164,037
    
    
    
    141,668
    
    
    
    16
    %Acquisition related costs and
amortization
    
    
    1,369
    
    
    
    2,095
    
    
    
    (35
    )%
    
    
    2,840
    
    
    
    5,531
    
    
    
    (49
    )%Business realignment costs (credits)
    
    
    (227
    )
    
    
    1,880
    
    
    
    *
    
    
    
    2,369
    
    
    
    4,361
    
    
    
    (46
    )%Loss (gain) on disposition of
assets, net
    
    
    (33
    )
    
    
    23
    
    
    
    *
    
    
    
    521
    
    
    
    27
    
    
    
    >100
    %Operating income
    
    
    25,011
    
    
    
    29,451
    
    
    
    (15
    )%
    
    
    52,998
    
    
    
    47,317
    
    
    
    12
    %Interest income
    
    
    4,263
    
    
    
    2,888
    
    
    
    48
    %
    
    
    8,933
    
    
    
    5,980
    
    
    
    49
    %Interest expense
    
    
    (83
    )
    
    
    (146
    )
    
    
    (43
    )%
    
    
    (182
    )
    
    
    (243
    )
    
    
    (25
    )%Other non-operating expense, net
    
    
    (1,597
    )
    
    
    (1,993
    )
    
    
    (20
    )%
    
    
    (2,608
    )
    
    
    (2,979
    )
    
    
    (12
    )%Earnings before taxes
    
    
    27,594
    
    
    
    30,200
    
    
    
    (9
    )%
    
    
    59,141
    
    
    
    50,075
    
    
    
    18
    %Income tax expense
    
    
    7,997
    
    
    
    10,322
    
    
    
    (23
    )%
    
    
    19,431
    
    
    
    16,029
    
    
    
    21
    %Net earnings from continuing
operations
    
    
    19,597
    
    
    
    19,878
    
    
    
    (1
    )%
    
    
    39,710
    
    
    
    34,046
    
    
    
    17
    %Gain (loss) from discontinued
operations, net of income taxes
    
    
    (4
    )
    
    
    17
    
    
    
    *
    
    
    
    3
    
    
    
    (65
    )
    
    
    *Net earnings
    
    $
    19,593
    
    
    $
    19,895
    
    
    
    (2
    )%
    
    $
    39,713
    
    
    $
    33,981
    
    
    
    17
    %xEarnings per share:Continuing operations  basic
    
    $
    0.24
    
    
    $
    0.24
    
    
    
    0
    %
    
    $
    0.49
    
    
    $
    0.41
    
    
    
    20
    %Continuing operations  diluted
    
    $
    0.24
    
    
    $
    0.24
    
    
    
    0
    %
    
    $
    0.48
    
    
    $
    0.40
    
    
    
    20
    %Discontinued operations 
basic and diluted
    
    $
    
    
    
    $
    
    
    
    
    
    
    
    $
    
    
    
    $
    
    
    
    
    Net earnings  basic
    
    $
    0.24
    
    
    $
    0.24
    
    
    
    0
    %
    
    $
    0.49
    
    
    $
    0.41
    
    
    
    20
    %Net earnings  diluted
    
    $
    0.24
    
    
    $
    0.24
    
    
    
    0
    %
    
    $
    0.48
    
    
    $
    0.40
    
    
    
    20
    %
 
 *
    
    not meaningful 34




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##### Table of Contents



Second Quarter and First Two Quarters of Fiscal Year 2007 Compared to the Second Quarter and
First Two Quarters of Fiscal Year 2006
 Executive Summary
  Orders
  Fiscal quarter ended
    
    
    Two fiscal quarters endedNov. 25,
    
    
    Nov. 26,
    
    
    %
    
    
    Nov. 25,
    
    
    Nov. 26,
    
    
    %(In thousands)
    
    2006
    
    
    2005
    
    
    Change
    
    
    2006
    
    
    2005
    
    
    ChangeInstruments business
    
    $
    248,096
    
    
    $
    206,484
    
    
    
    20
    %
    
    $
    446,375
    
    
    $
    381,255
    
    
    
    17
    %Communications business
    
    
    54,097
    
    
    
    50,426
    
    
    
    7
    %
    
    
    111,217
    
    
    
    121,170
    
    
    
    (8
    )%Total orders
    
    $
    302,193
    
    
    $
    256,910
    
    
    
    18
    %
    
    $
    557,592
    
    
    $
    502,425
    
    
    
    11
    %
     Instruments Business
  35




---



##### Table of Contents



Communications Business
    Orders by Region
  Fiscal quarter ended
    
    
    Two fiscal quarters endedNov. 25,
    
    
    Nov. 26,
    
    
    %
    
    
    Nov. 25,
    
    
    Nov. 26,
    
    
    %(In thousands)
    
    2006
    
    
    2005
    
    
    Change
    
    
    2006
    
    
    2005
    
    
    ChangeUnited States
    
    $
    116,879
    
    
    $
    95,723
    
    
    
    22
    %
    
    $
    213,073
    
    
    $
    181,854
    
    
    
    17
    %International
    
    
    185,314
    
    
    
    161,187
    
    
    
    15
    %
    
    
    344,519
    
    
    
    320,571
    
    
    
    7
    %Total orders
    
    $
    302,193
    
    
    $
    256,910
    
    
    
    18
    %
    
    $
    557,592
    
    
    $
    502,425
    
    
    
    11
    %
  36




---



##### Table of Contents



Net Sales
       37




---



##### Table of Contents



Gross Profit and Gross Margin
     Operating Expenses
     38




---



##### Table of Contents



Non-Operating Income / Expense
    39




---



##### Table of Contents



Income Taxes
   Discontinued Operations
  Net Earnings
   Earnings Per Share
  40




---



##### Table of Contents



Financial Condition, Liquidity and Capital Resources
 Sources and Uses of Cash
 Cash Flows.
 Two fiscal quarters ended(In thousands)
    
    Nov. 25, 2006
    
    Nov. 26, 2005Cash provided by (used in):Operating activities
    
    $
    61,673
    
    
    $
    11,580Investing activities
    
    
    (70,983
    )
    
    
    91,103Financing activities
    
    
    (51,506
    )
    
    
    (95,420
    )
 Operating Activities.
    Investing Activities.
  41




---



##### Table of Contents



Financing Activities
       42




---



##### Table of Contents



Working Capital
  (In thousands)
    
    Nov. 25, 2006
    
    
    May 27, 2006Current assets:Cash and cash equivalents
    
    $
    155,918
    
    
    $
    215,587Short-term marketable investments
    
    
    115,035
    
    
    
    121,346Trade accounts receivable, net of allowance for
doubtful accounts of $3,709 and $3,079, respectively
    
    
    196,044
    
    
    
    174,599Inventories
    
    
    162,350
    
    
    
    156,351Other current assets
    
    
    77,499
    
    
    
    69,002Total current assets
    
    
    706,846
    
    
    
    736,885Current liabilities:Accounts payable and accrued liabilities
    
    
    142,700
    
    
    
    133,323Accrued compensation
    
    
    68,304
    
    
    
    71,718Deferred revenue
    
    
    89,033
    
    
    
    66,677Total current liabilities
    
    
    300,037
    
    
    
    271,718Working capital
    
    $
    406,809
    
    
    $
    465,167
     43




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##### Table of Contents



Recent Accounting Pronouncements
      44




---



##### Table of Contents



Item 3. Quantitative and Qualitative Disclosures About Market Risk.
 Financial Market Risk
    
 Item 4. Controls and Procedures.
   
 Part II. OTHER INFORMATION
 
 Item 1. Legal Proceedings.
   45




---



##### Table of Contents



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.
  46




---



##### 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.
    Changes or delays in the implementation or customer acceptance of our products could harm our
financial results.
  47




---



##### Table of Contents



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.
  48




---



##### 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.
   49




---



##### Table of Contents



Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
  CumulativeNumberof Shares
    
    
    Maximum DollarTotal
    
    
    Average
    
    
    
    
    
    
    Purchased as
    
    
    Value of SharesNumber
    
    
    Price
    
    
    Total
    
    
    Part of Publicly
    
    
    that Mayof Shares
    
    
    Paid Per
    
    
    Amount
    
    
    Announced Plans
    
    
    Yet BeFiscal Period
    
    Purchased
    
    
    Share
    
    
    Paid
    
    
    or Programs
    
    
    PurchasedAugust 27, 2006 to
September 23, 2006
    
    
    57,600
    
    
    $
    28.15
    
    
    $
    1,621,632
    
    
    
    31,244,079
    
    
    $
    490,627,556September 24, 2006 to
October 21, 2006
    
    
    85,600
    
    
    
    29.17
    
    
    
    2,497,268
    
    
    
    31,329,679
    
    
    
    488,130,288October 22, 2006 to
November 25, 2006
    
    
    207,500
    
    
    
    30.44
    
    
    
    6,315,669
    
    
    
    31,537,179
    
    
    $
    481,814,619Total
    
    
    350,700
    
    
    $
    29.75
    
    
    $
    10,434,569
  
 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.
 50




---



##### Table of Contents



SIGNATURES
  January 3, 2007
    TEKTRONIX, INC.By

/s/
COLIN L. SLADEColin L. SladeSenior Vice President and
Chief Financial Officer 51




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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.