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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.  20549

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FORM 10-Q

|x                                                                             |  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE   SECURITIES EXCHANGE ACT OF 1934 
|----------------------------------------------------------------------------- |  | ------------------------------------------------------------------------------------------
|                                                                              |  |                                                                                           
|For   the quarterly period ended November 27, 2004                           
|                                                                              |  |                                                                                           
|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.                                       
|--------------------------------------------------------
|(Exact   Name of Registrant as Specified in Its Charter)

|OREGON                                                                               |  | 93-0343990                            
|------------------------------------------------------------------------------------ |  | --------------------------------------
|(State or   Other Jurisdiction of Incorporation or Organization)                     |  | (I.R.S.   Employer Identification No.)
|                                                                                     |  |                                       
|14200   SW KARL BRAUN DRIVE   BEAVERTON, OREGON                                      |  | 97077                                 
|(Address   of Principal Executive Offices)                                           |  | (Zip Code)                            
|                                                                                    
|(503)   627-7111                                                                    
|Registrants   Telephone Number, Including Area Code                                
|                                                                                    
|NOT   APPLICABLE                                                                    
|(Former   Name, Former Address and Former Fiscal Year, if Changed Since Last Report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

|Yes
x | No
o
|----- | ----

Indicate by check mark whether the registrant is an accelerated filer (as defined in rule 12-b-2 of the Exchange Act).

|Yes
x | No
o
|----- | ----

AT DECEMBER 24, 2004 THERE WERE 89,375,154
  COMMON SHARES OF TEKTRONIX, INC. OUTSTANDING.

(Indicate the number of shares outstanding of each of the issuers classes of common stock, as of the latest practicable date.)

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TEKTRONIX, INC. AND SUBSIDIARIES INDEX

|                                    |                                                                                                                                                                                | PAGE NO.
|----------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | --------
|                                    |                                                                                                                                                                                |         
|FORWARD-LOOKING STATEMENTS          | 1                                                                                                                                                                             
|                                    |                                                                                                                                                                                |         
|PART   I.     FINANCIAL INFORMATION |                                                                                                                                                                               
|                                    |                                                                                                                                                                                |         
|Item 1.                             | Financial Statements.                                                                                                                                                          |         
|                                    |                                                                                                                                                                                |         
|                                    | Condensed Consolidated Statements   of Operations (Unaudited) -

        for the Fiscal quarter ended November 27, 2004 and the Fiscal quarter
        ended November 29, 2003 | 2       
|                                    |                                                                                                                                                                                |         
|                                    | for the Two fiscal quarters ended November 27, 2004   and the Two fiscal quarters ended November 29, 2003                                                                      |         
|                                    |                                                                                                                                                                                |         
|                                    | Condensed Consolidated Balance   Sheets  (Unaudited) at November 27, 2004 and May 29, 2004                                                                                    | 3       
|                                    |                                                                                                                                                                                |         
|                                    | Condensed Consolidated Statements   of Cash Flows (Unaudited) - for the Two fiscal quarters ended November 27,   2004 and the Two fiscal quarters ended November 29, 2003      | 4       
|                                    |                                                                                                                                                                                |         
|                                    | Notes to Condensed Consolidated   Financial Statements (Unaudited)                                                                                                             | 5       
|                                    |                                                                                                                                                                                |         
|Item 2.                             | Managements Discussion and   Analysis of Financial Condition and Results of Operations.                                                                                       | 21      
|                                    |                                                                                                                                                                                |         
|Item 3.                             | Quantitative and Qualitative   Disclosures About Market Risk.                                                                                                                  | 44      
|                                    |                                                                                                                                                                                |         
|Item 4.                             | Controls and
        Procedures.                                                                                                                                               | 45      
|                                    |                                                                                                                                                                                |         
|PART II.  OTHER INFORMATION         |                                                                                                                                                                               
|                                    |                                                                                                                                                                                |         
|Item 1.                             | Legal Proceedings.                                                                                                                                                             | 45      
|                                    |                                                                                                                                                                                |         
|Item 2.                             | Unregistered Sales of Equity   Securities and Use of Proceeds.                                                                                                                 | 45      
|                                    |                                                                                                                                                                                |         
|Item 6.                             | Exhibits.                                                                                                                                                                      | 46      
|                                    |                                                                                                                                                                                |         
|SIGNATURE                           | 47                                                                                                                                                                            



Forward-Looking Statements

Statements and information included in this Quarterly Report on Form 10-Q by Tektronix, Inc. (Tektronix) that are not purely historical are forward-looking statements within the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.  Forward-looking statements in this Quarterly Report on Form 10-Q include statements regarding Tektronix expectations, intentions, beliefs and strategies regarding the future, including statements regarding trends, cyclicality, seasonality and growth in the markets Tektronix sells into, strategic direction, expenditures in research and development, future effective tax rates, new product introductions, changes to manufacturing processes, liquidity position, ability to generate cash from continuing operations, expected growth, the potential impact of adopting new accounting pronouncements, financial results including
sales, earnings per share and gross margins, obligations under Tektronix retirement benefit plans, savings from business realignment programs, the integration of Inet Technologies, Inc., and the existence or length of an economic recovery.  These forward-looking statements involve risks and uncertainties.  Tektronix may make other forward-looking statements from time to time, including such statements in press releases and public conference calls and webcasts.  All forward-looking statements made by Tektronix are based on information available to Tektronix at the time such statements are made, and Tektronix assumes no obligation to update any forward-looking statements.  It is important to note that actual results are subject to a number of risks and uncertainties that could cause actual results to differ materially from those included in such forward-looking statements.  Some of these risks and uncertainties are discussed in the Risks and Uncertainties section of
Managements Discussion and Analysis of Financial Condition and Results of Operations.

1



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. 27, 2004                |         | Nov. 29, 2003                     |  
|                                                                  |  |                              |         |                                   |  
|Net
        sales                                                 |  | $                            | 266,828 |                                   | $
|Cost
        of sales                                             |  |                              | 106,505 |                                   |  
|                                                                  |  |                              |         |                                   |  
|Gross
        profit                                              |  |                              | 160,323 |                                   |  
|Research
        and development expenses                         |  |                              | 41,878  |                                   |  
|Selling,
        general and administrative expenses              |  |                              | 76,320  |                                   |  
|Acquisition
        related costs (credits) and amortization, net |  |                              | 34,941  |                                   |  
|Business
        realignment costs                                |  |                              | 244     |                                   |  
|Loss
        (gain) on disposition of assets, net                 |  |                              | 57      |                                   |  
|                                                                  |  |                              |         |                                   |  
|Operating
        income                                          |  |                              | 6,883   |                                   |  
|Interest
        income                                           |  |                              | 3,904   |                                   |  
|Interest
        expense                                          |  |                              | (335    | )                                 |  
|Other
        non-operating income (expense), net                 |  |                              | (1,067  | )                                 |  
|                                                                  |  |                              |         |                                   |  
|Earnings
        before taxes                                     |  |                              | 9,385   |                                   |  
|Income
        tax expense                                        |  |                              | 11,964  |                                   |  
|                                                                  |  |                              |         |                                   |  
|Net
        earnings (loss) from continuing operations            |  |                              | (2,579  | )                                 |  
|Loss
        from discontinued operations, net of income taxes    |  |                              | (255    | )                                 |  
|                                                                  |  |                              |         |                                   |  
|Net
        earnings (loss)                                       |  | $                            | (2,834  | )                                 | $
|                                                                  |  |                              |         |                                   |  
|Earnings
        (loss) per share:                                |  |                              |         |                                   |  
|Continuing
        operations  basic                             |  | $                            | (0.03   | )                                 | $
|Continuing
        operations  diluted                           |  | $                            | (0.03   | )                                 | $
|Discontinued
        operations  basic and diluted               |  | $                            |        |                                   | $
|Net
        earnings (loss)  basic                               |  | $                            | (0.03   | )                                 | $
|Net
        earnings (loss)  diluted                             |  | $                            | (0.03   | )                                 | $
|Weighted
        average shares outstanding:                      |  |                              |         |                                   |  
|Basic                                                             |  |                              | 87,020  |                                   |  
|Diluted                                                           |  |                              | 87,020  |                                   |  
|Cash
        dividends declared per share                         |  | $                            | 0.06    |                                   | $

The accompanying notes are an integral part of these condensed consolidated financial statements.

2



Condensed Consolidated Balance Sheets (Unaudited)

|(In thousands)                                                                                                                                                  |  | Nov. 27,   2004 |           | May 29,   2004 |  
|--------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------------- | --------- | -------------- | -
|                                                                                                                                                                |  |                 |           |                |  
|ASSETS                                                                                                                                                          |  |                 |           |                |  
|Current   assets:                                                                                                                                               |  |                 |           |                |  
|Cash and cash equivalents                                                                                                                                       |  | $               | 152,562   |                | $
|Short-term marketable investments                                                                                                                               |  |                 | 103,403   |                |  
|Trade accounts receivable, net of allowance for doubtful accounts of   $3,667 and $3,013, respectively                                                          |  |                 | 149,371   |                |  
|Inventories                                                                                                                                                     |  |                 | 122,860   |                |  
|Other current assets                                                                                                                                            |  |                 | 67,791    |                |  
|                                                                                                                                                                |  |                 |           |                |  
|Total current assets                                                                                                                                            |  |                 | 595,987   |                |  
|Property,   plant and equipment, net                                                                                                                            |  |                 | 117,247   |                |  
|Long-term   marketable investments                                                                                                                              |  |                 | 300,643   |                |  
|Deferred tax   assets                                                                                                                                           |  |                 | 63,718    |                |  
|Goodwill,   net                                                                                                                                                 |  |                 | 304,133   |                |  
|Other   long-term assets                                                                                                                                        |  |                 | 155,198   |                |  
|                                                                                                                                                                |  |                 |           |                |  
|Total assets                                                                                                                                                    |  | $               | 1,536,926 |                | $
|                                                                                                                                                                |  |                 |           |                |  
|LIABILITIES AND SHAREHOLDERS EQUITY                                                                                                                            |  |                 |           |                |  
|Current   liabilities:                                                                                                                                          |  |                 |           |                |  
|Accounts payable and accrued liabilities                                                                                                                        |  | $               | 152,377   |                | $
|Accrued compensation                                                                                                                                            |  |                 | 73,466    |                |  
|Deferred revenue                                                                                                                                                |  |                 | 43,737    |                |  
|                                                                                                                                                                |  |                 |           |                |  
|Total current liabilities                                                                                                                                       |  |                 | 269,580   |                |  
|Long-term   liabilities                                                                                                                                         |  |                 | 180,015   |                |  
|Shareholders   equity:                                                                                                                                         |  |                 |           |                |  
|Common stock, no par value (authorized 200,000 shares; issued and   outstanding 89,304 and 84,179 shares at November 27, 2004 and May 29, 2004,   respectively) |  |                 | 520,283   |                |  
|Retained earnings                                                                                                                                               |  |                 | 688,363   |                |  
|Accumulated other comprehensive loss                                                                                                                            |  |                 | (121,315  | )              |  
|                                                                                                                                                                |  |                 |           |                |  
|Total shareholders equity                                                                                                                                      |  |                 | 1,087,331 |                |  
|                                                                                                                                                                |  |                 |           |                |  
|Total liabilities and shareholders equity                                                                                                                      |  | $               | 1,536,926 |                | $
|                                                                                                                                                                |  |                 |           |                |  

The accompanying notes are an integral part of these condensed consolidated financial statements.

3



Condensed Consolidated Statements of Cash Flows (Unaudited)

|                                                                                      |  | Two fiscal   quarters ended |        
|------------------------------------------------------------------------------------- |  | --------------------------- | -------
|                                                                                      |  |                             |        
|(In thousands)                                                                        |  | Nov. 27,   2004             |        
|                                                                                      |  |                             |        
|CASH FLOWS   FROM OPERATING ACTIVITIES                                                |  |                             |        
|Net earnings                                                                          |  | $                           | 33,574 
|Adjustments to reconcile net earnings to net cash   provided by operating activities: |  |                             |        
|Write-off of in-process   research and development                                    |  |                             | 32,195 
|Amortization
        of acquisition related intangible assets                         |  |                             | 3,926  
|Loss from discontinued   operations                                                   |  |                             | 313    
|Gain on Japan pension   restructuring                                                 |  |                             |       
|Depreciation and   amortization expense                                               |  |                             | 13,878 
|Gain on disposition of   assets, net                                                  |  |                             | (1,834 
|Tax benefit of stock   option exercises                                               |  |                             | 3,285  
|Deferred income tax   expense (benefit)                                               |  |                             | (2,582 
|Changes in operating   assets and liabilities, net of effects of acquisition:         |  |                             |        
|Trade accounts   receivable, net                                                      |  |                             | 2,283  
|Inventories                                                                           |  |                             | (2,734 
|Other current assets                                                                  |  |                             | 866    
|Accounts payable and   accrued liabilities                                            |  |                             | 6,387  
|Accrued compensation                                                                  |  |                             | (19,762
|Deferred revenue                                                                      |  |                             | 2,715  
|Cash funding for   domestic pension plan                                              |  |                             | (46,516
|Other long-term assets   and liabilities, net                                         |  |                             | 10,631 
|                                                                                      |  |                             |        
|Net cash provided by continuing operating activities                                  |  |                             | 36,625 
|Net cash provided by discontinued operating   activities                              |  |                             |       
|                                                                                      |  |                             |        
|Net cash provided by operating activities                                             |  |                             | 36,625 
|CASH FLOWS   FROM INVESTING ACTIVITIES                                                |  |                             |        
|Cash paid for acquisition   of Inet, net of cash acquired                             |  |                             | (93,856
|Acquisition of property, plant and equipment                                          |  |                             | (14,504
|Proceeds from the disposition of property and   equipment                             |  |                             | 12,593 
|Proceeds from maturities and sales of marketable   investments                        |  |                             | 198,657
|Purchases of short-term and long-term marketable   investments                        |  |                             | (50,937
|                                                                                      |  |                             |        
|Net cash provided by investing activities                                             |  |                             | 51,953 
|CASH FLOWS   FROM FINANCING ACTIVITIES                                                |  |                             |        
|Net change in short-term debt                                                         |  |                             |       
|Repayment of long-term debt                                                           |  |                             | (228   
|Proceeds from employee stock plans                                                    |  |                             | 14,808 
|Repurchase of common stock                                                            |  |                             | (95,319
|Dividends paid                                                                        |  |                             | (8,771 
|                                                                                      |  |                             |        
|Net cash used in financing activities                                                 |  |                             | (89,510
|Effect of exchange rate changes on cash                                               |  |                             | 4,483  
|                                                                                      |  |                             |        
|Net increase (decrease) in cash and cash equivalents                                  |  |                             | 3,551  
|Cash and cash equivalents at beginning of period                                      |  |                             | 149,011
|                                                                                      |  |                             |        
|Cash and cash equivalents at end of period                                            |  | $                           | 152,562
|                                                                                      |  |                             |        

The accompanying notes are an integral part of these condensed consolidated financial statements.

4



Notes to Condensed Consolidated Financial Statements

1.        The Company

Tektronix,
  Inc. (Tektronix) manufactures, markets and services test, measurement
  and monitoring solutions to a wide variety of customers in many industries,
  including computing, communications, semiconductors, broadcast, education, government,
  military/aerospace, research, automotive and consumer electronics. Tektronix
  enables its customers to design, manufacture, deploy, monitor and service next-generation
  global communications networks, computing, and advanced and pervasive technologies. 
  Revenue is derived principally through the development, manufacturing and marketing
  of a broad range of products including: oscilloscopes; logic analyzers; network
  management and diagnostics equipment, including mobile protocol test and network
  monitoring solutions; video test equipment; signal sources; radio frequency
  test equipment, including wireless field test and spectrum analysis equipment;
  and related components, support services and accessories.  Tektronix maintains
  operations in four major geographies: the Americas, including the United States,
  Mexico, Canada and South America; Europe, including Europe, Russia, the Middle
  East and Africa; the Pacific, including China, India, Korea, and Singapore;
  and Japan.

2.        Financial Statement Presentation

The condensed consolidated financial statements and notes thereto have been prepared by Tektronix without audit. Certain information and footnote disclosures normally included in annual financial statements, prepared in accordance with accounting principles generally accepted in the United States of America, have been condensed or omitted as permitted by Article 10 of Regulation S-X.  The condensed consolidated financial statements include the accounts of Tektronix and its majority-owned subsidiaries.  Significant intercompany transactions and balances have been eliminated.  Certain prior period amounts have been reclassified to conform to the current periods presentation with no effect on previously reported earnings. Tektronix fiscal year is the 52 or 53 week period ending on the last Saturday in May.  Fiscal years 2005 and 2004 are both 52 weeks long.  The
first two quarters of fiscal years 2005 and 2004 were each 13 weeks long.

The
  presentation of financial statements in conformity with accounting principles
  generally accepted in the United States of America requires management to make
  estimates and assumptions.  These estimates and assumptions, including
  those used to record the results of discontinued operations, affect the reported
  amounts of assets and liabilities and disclosure of contingent assets and liabilities
  at the date of the consolidated financial statements and the revenues and expenses
  reported during the period.  Examples include revenue recognition; the
  allowance for doubtful accounts; product warranty accrual; estimates of contingencies;
  intangible asset valuation; inventory valuation; pension plan assumptions; determining
  when investment impairments are other-than-temporary; and the assessment of
  the valuation of deferred income taxes and income tax contingencies.  Actual
  results may differ from estimated amounts.  Management believes that the
  condensed consolidated financial statements include all necessary adjustments,
  which are of a normal and recurring nature and are adequate to fairly present
  the financial position, results of operations and cash flows for the interim
  periods.  The condensed consolidated financial statements should be read
  in conjunction with the consolidated financial statements and accompanying notes
  in Tektronix annual report on Form 10-K for the fiscal year ended May
  29, 2004.

Revenue
  Recognition

Tektronix
  recognizes product revenue when persuasive evidence of an arrangement exists,
  delivery has occurred, the sales price is fixed or determinable and collectibility
  is probable.  The majority of Tektronix products are sold in this manner. 
  These criteria are met at the time the product is shipped under FOB shipping
  point shipping terms. Upon shipment, Tektronix also provides for estimated costs
  that may be incurred for product warranties and sales returns.  When other
  significant obligations remain after products are delivered, revenue is recognized
  only after such obligations are fulfilled.

The
  majority of the contracts for network monitoring solution products, which were
  acquired in the Inet acquisition, contain multiple billing milestones, such
  as contract award, shipment, installation, ready for acceptance and acceptance,
  not all of which are associated with revenue recognition. Except as otherwise
  discussed below, revenues from these products and license fees are recognized
  in the period that Tektronix has completed all hardware manufacturing and/or
  software development to contractual specifications, factory testing has been
  completed, the product has been shipped to the customer, the fee is fixed and
  determinable and collection of the fee is considered probable.  Revenues
  from arrangements that include significant acceptance terms and/or provisions
  are recognized when acceptance has occurred.

Contracts
  for network monitoring solution products often involve multiple deliverables. 
  Tektronix determines the fair value of each of the contract deliverables using
  vendor-specific objective evidence, or VSOE.  VSOE for each element of
  the contract is based on the price for which Tektronix sells the element on
  a stand-alone basis.  Elements of the contracts include product support
  services, which include the correction of software problems, hardware replacement,
  telephone access to Tektronix technical personnel and the right to receive unspecified
  product updates, upgrades and enhancements, when and if they become available. 
  Revenues from these services, including post-contract support included in initial
  licensing fees, are recognized ratably over the service period.  Post-contract
  support included in the initial licensing fee is allocated from the total contract
  amount based on the fair value of these services determined using VSOE. 
  If Tektronix determines that it does not have VSOE on an undelivered element
  of an arrangement, Tektronix will not recognize revenue until all elements of
  the arrangement are delivered.  This occurrence could materially impact
  Tektronix financial results because of the significant dollar amount of many
  of its contracts and the significant portion of total revenues that a single
  contract may represent in any particular period.

Revenue
earned from service is recognized ratably over the contractual period or as the
services are performed. Shipping and handling costs are recorded as Cost of
sales on the Condensed Consolidated Statements of Operations.

Goodwill
  and Intangible Assets

Goodwill
  and intangible assets are accounted for in accordance with SFAS No. 141, Business
  Combinations, and SFAS No. 142, Goodwill and Other Intangible Assets. 
  Tektronix performed its annual goodwill impairment analysis during the second
  quarter of fiscal year 2005 and identified no impairment.  SFAS No. 142
  requires purchased intangible assets, other than goodwill, to be amortized over
  their estimated useful lives, unless an asset has an indefinite life. 
  Purchased intangible assets with definite useful lives are carried at cost less
  accumulated amortization.  Amortization expense is recognized over the
  estimated useful lives of the intangible assets, mostly over three to five years. 
  Amortization expense for intangible assets that are software-related developed
  technology is recorded as Cost of sales on the Condensed Consolidated Statements
  of Operations.

3.       Recent Accounting Pronouncements

At the November 1213, 2003 meeting, the Emerging Issues Task Force (EITF) reached a consensus on Issue 03-1, The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments, that certain quantitative and qualitative disclosures should be required for debt and marketable equity securities classified as available-for-sale or held-to-maturity under Statement of Financial Accounting Standards (SFAS) No. 115, Accounting for Certain Investments in Debt and Equity Securities, that are impaired at the balance sheet date but for which an other-than-temporary impairment has not been recognized. Tektronix adopted the disclosure requirements in fiscal year 2004.  At the March 17-18, 2004 meeting, the EITF reached a consensus, which approved an impairment model for debt and equity securities.  However, on September 30, 2004, the
Financial Accounting Standards Board (FASB) decided to postpone the implementation of the impairment model for debt and equity securities.  Tektronix does not expect this consensus to have a significant effect on the consolidated financial statements upon adoption of the proposed impairment model for debt and equity securities.

5



In December 2003, the FASB issued SFAS No. 132 (revised 2003), Employers Disclosures about Pensions and Other Postretirement Benefits, an amendment of FASB Statements No. 87, 88, and 106, and a revision of FASB Statement No. 132 (SFAS No. 132R).  SFAS No. 132R revised employers disclosures about pension plans and other postretirement benefit plans. It does not change the measurement or recognition of those plans required by SFAS No. 87, Employers Accounting for Pensions, SFAS No. 88, Employers Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits, and SFAS No. 106, Employers Accounting for Postretirement Benefits Other Than Pensions. The new rules require additional disclosures about the assets, obligations, cash flows, and net periodic benefit
cost of defined benefit pension plans and other postretirement benefit plans.  The required information has been provided separately for pension plans and for other postretirement benefit plans.  Tektronix included the new disclosures in its fiscal year 2004 consolidated financial statements and interim disclosures beginning with the first quarter of fiscal year 2005.

In November 2004, the FASB issued SFAS No. 151, Inventory Costs, an amendment of ARB No. 43, Chapter 4.  SFAS No. 151 amends the guidance in ARB No. 43, Chapter 4, Inventory Pricing, to clarify the accounting for abnormal amounts of idle facility expense, freight, handling costs, and wasted material (spoilage). Paragraph 5 of ARB 43, Chapter 4, previously stated that . . . under some circumstances, items such as idle facility expense, excessive spoilage, double freight, and rehandling costs may be so abnormal as to require treatment as current period charges. . . .  SFAS No. 151 requires that those items be recognized as current-period charges regardless of whether they meet the criterion of so abnormal. In addition, SFAS No. 151 requires that allocation of fixed production overheads to the costs of conversion be based on the normal capacity of the
production facilities.  The provisions of SFAS No. 151 will apply to inventory costs beginning in fiscal year 2007.  The adoption of SFAS No. 151 is not expected to have a significant effect on the consolidated financial statements of Tektronix.

In
  December 2004, the FASB issued SFAS No. 153, Exchanges of Nonmonetary
  Assets, an Amendment of APB Opinion No. 29.   The guidance in
  Accounting Principles Board (APB) Opinion No. 29, Accounting
  for Nonmonetary Transactions, is based on the principle that exchanges
  of nonmonetary assets should be measured based on the fair value of the assets
  exchanged. The guidance in APB Opinion No. 29, however, included certain exceptions
  to that principle. SFAS No. 153 amends APB Opinion No. 29 to eliminate the exception
  for nonmonetary exchanges of similar productive assets and replaces it with
  a general exception for exchanges of nonmonetary assets that do not have commercial
  substance. A nonmonetary exchange has commercial substance if the future cash
  flows of the entity are expected to change significantly as a result of the
  exchange.  The provisions of SFAS No. 153 will be applied prospectively
  to nonmonetary asset exchange transactions beginning in the second quarter of
  fiscal year 2006.

In
  December 2004, the FASB issued SFAS No. 123 (Revised 2004), Share-Based
  Payment (SFAS No. 123R).  This new pronouncement requires
  compensation cost relating to share-based payment transactions be recognized
  in financial statements.  That cost will be measured based on the fair
  value of the equity or liability instruments issued.  SFAS No. 123R covers
  a wide range of share-based compensation arrangements including stock options,
  restricted stock plans, performance-based awards, stock appreciation rights,
  and employee stock purchase plans.  SFAS No. 123R replaces SFAS No. 123,
  Accounting for Stock-Based Compensation, and supersedes APB Opinion
  No. 25, Accounting for Stock Issued to Employees.  SFAS No.
  123, as originally issued in 1995, established as preferable a fair-value-based
  method of accounting for share-based payment transactions with employees. 
  However, SFAS No. 123 permitted entities the option of continuing to apply the
  guidance in APB Opinion No. 25, as long as the footnotes to financial statements
  disclosed what net income would have been had the preferable fair-value-based
  method been used.  Public entities (other than those filing as small business
  issuers) will be required to apply SFAS No. 123R as of the first interim or
  annual reporting period that begins after June 15, 2005.  Accordingly,
  Tektronix will be required to adopt the provisions of SFAS No. 123R in the second
  fiscal quarter of fiscal year 2006.  Management is currently evaluating
  the requirements of SFAS No. 123R.  The adoption of SFAS No. 123R is expected
  to have a significant effect on the consolidated financial statements of Tektronix. 
  See Note 4 for the pro forma impact on net earnings (loss) and earnings (loss)
  per share from calculating stock-related compensation costs under the fair value
  alternative of SFAS No. 123. However, the calculation of compensation cost for
  share-based payment transactions after the effective date of SFAS No. 123R may
  be different from the calculation of compensation cost under SFAS No. 123, but
  such differences have not yet been quantified.

6



In
  December 2004, the FASB issued two FASB staff positions (FSP): FSP
  FAS 109-1, Application of FASB Statement No. 109, Accounting for Income
  Taxes, for the Tax Deduction Provided to U.S.-Based Manufacturers by the American
  Jobs Creation Act of 2004; and FSP FAS 109-2, Accounting and Disclosure
  Guidance for the Foreign Earnings Repatriation Provision within the American
  Jobs Creation Act of 2004.  FSP FAS 109-1 clarifies that the tax
  deduction for domestic manufacturers under the American Jobs Creation Act of
  2004 (the Act) should be accounted for as a special deduction in
  accordance with SFAS No. 109, Accounting for Income Taxes. FSP FAS
  109-2 provides enterprises more time (beyond the financial-reporting period
  during which the Act took effect) to evaluate the Acts impact on the enterprises
  plan for reinvestment or repatriation of certain foreign earnings for purposes
  of applying SFAS No. 109. The FSPs went into effect upon being issued and did
  not have a significant effect on the consolidated financial statements of Tektronix.

4.       Earnings Per Share, Including Pro Forma Effects of Stock-Based Compensation

Basic earnings per share is calculated based on the weighted average number of common shares outstanding during each period.  Diluted earnings per share is calculated based on these same weighted average shares outstanding plus the effect of potential shares issuable upon assumed exercise of stock options based on the treasury stock method.  Potential shares issuable upon the exercise of stock options are excluded from the calculation of diluted earnings per share to the extent their effect would be antidilutive.

Earnings per share was calculated as follows:

|                                                               |  | Fiscal   quarter ended |        | Two fiscal   quarters ended |  
|-------------------------------------------------------------- |  | ---------------------- | ------ | --------------------------- | -
|                                                               |  |                        |        |                             |  
|(In thousands, except per share amounts)                       |  | Nov. 27,   2004        |        | Nov. 29,   2003             |  
|                                                               |  |                        |        |                             |  
|Net earnings (loss)                                            |  | $                      | (2,834 | )                           | $
|                                                               |  |                        |        |                             |  
|Weighted average shares used for basic earnings per   share    |  |                        | 87,020 |                             |  
|Incremental dilutive stock options                             |  |                        |       |                             |  
|                                                               |  |                        |        |                             |  
|Weighted average shares used for dilutive earnings   per share |  |                        | 87,020 |                             |  
|                                                               |  |                        |        |                             |  
|Earnings (loss) per share:                                     |  |                        |        |                             |  
|Net earnings (loss)    basic                                  |  | $                      | (0.03  | )                           | $
|Net earnings (loss)    diluted                                |  | $                      | (0.03  | )                           | $

Due to the net loss for the fiscal quarter ended November 27, 2004, incremental dilutive stock options to purchase 1,550,155 shares of common stock were excluded from the calculation of dilutive earnings per share for this quarter, as the impact would have been antidilutive.  In addition, options to purchase 4,894,864 and 1,985,075 shares of common stock were outstanding at November 27, 2004 and November 29, 2003, respectively, but were not included in the calculation of diluted net earnings per share because the exercise price of the options exceeded the average market price and their effect would have been antidilutive.

Tektronix accounts for stock options according to APB Opinion No. 25, Accounting for Stock Issued to Employees.  Under APB Opinion No. 25, no compensation expense is recognized in Tektronix consolidated financial statements upon issuance of employee stock options because the exercise price of the options equals the market price of the underlying stock on the date of grant.  Alternatively, under the fair value method of accounting provided for by SFAS No. 123, Accounting for Stock-Based Compensation, the measurement of compensation cost is based on the fair value of employee stock options at the grant date and requires the use of option pricing models to value the options.  The weighted average estimated fair values of options granted during the fiscal quarters ended November 27, 2004 and November 29, 2003 were $10.75 and $7.72 per share,
respectively.

7



The pro forma impact to both net earnings (loss) and earnings per share (EPS) from calculating stock-related compensation cost consistent with the fair value alternative of SFAS No. 123 is indicated below:

|                                                                                    |  | Fiscal   quarter ended |        | Two fiscal   quarters ended |  
|----------------------------------------------------------------------------------- |  | ---------------------- | ------ | --------------------------- | -
|                                                                                    |  |                        |        |                             |  
|(In thousands, except per share amounts)                                            |  | Nov. 27,   2004        |        | Nov. 29,   2003             |  
|                                                                                    |  |                        |        |                             |  
|Net earnings (loss) as   reported                                                   |  | $                      | (2,834 | )                           | $
|Stock compensation cost   included in net earnings as reported, net of income taxes |  |                        | 456    |                             |  
|Stock compensation cost   using the fair value alternative, net of income taxes     |  |                        | (4,472 | )                           |  
|                                                                                    |  |                        |        |                             |  
|Pro   forma net earnings (loss)                                                     |  | $                      | (6,850 | )                           | $
|                                                                                    |  |                        |        |                             |  
|Earnings (loss) per share:                                                          |  |                        |        |                             |  
|Basic EPS  as reported                                                             |  | $                      | (0.03  | )                           | $
|Basic EPS  pro forma                                                               |  |                        | (0.08  | )                           |  
|Diluted EPS  as   reported                                                         |  | $                      | (0.03  | )                           | $
|Diluted EPS  pro forma                                                             |  |                        | (0.08  | )                           |  

SFAS No. 123 Assumptions

The
  fair values of options were estimated as of the date of grant using a Black-Scholes
  option pricing model with the following weighted average assumptions:

|                                |  | Fiscal quarter
        ended |       | Two fiscal
        quarters ended | 
|------------------------------- |  | ---------------------------- | ----- | --------------------------------- | 
|                                |  |                              |       |                                   | 
|                                |  | Nov. 27, 2004                |       | Nov. 29, 2003                     | 
|                                |  |                              |       |                                   | 
|Expected
        life in years  |  |                              | 5.1   |                                   | 
|Risk-free
        interest rate |  |                              | 3.71  | %                                 | 
|Volatility                      |  |                              | 33.32 | %                                 | 
|Dividend
        yield          |  |                              | 0.78  | %                                 | 

5.       Acquisition of Inet Technologies, Inc.

On
  September 30, 2004, Tektronix acquired Inet Technologies, Inc. (Inet),
  a leading global provider of communications software solutions that enable network
  operators to more strategically and profitably operate their businesses. 
  Inets products address next-generation networks, including 2.5G and 3G
  mobile data and voice-over-packet (also referred to as voice over Internet protocol
  or VoIP) technologies, and traditional networks.  Inet had approximately
  500 employees worldwide and had sales of $104 million for the year ended December
  31, 2003.  Through the Inet acquisition, Tektronix gains significant expansion
  into network monitoring, which is a market that Tektronix had previously targeted
  for expansion.  Inets established network monitoring business, as
  well as its established customer base, is very complementary with Tektronix
  pre-acquisition mobile protocol test business.

Tektronix acquired all of Inets outstanding common stock for $12.50 per share consisting of $6.25 per share in cash and $6.25 per share in Tektronix common stock.  Prior to the close of the transaction on September 30, 2004, Inet had 39.6 million shares of common stock outstanding.  The final exchange ratio used to determine the number of shares of Tektronix common stock issued was 0.192, which resulted in the issuance of 7.6 million shares of Tektronix common stock in the transaction.  The 7.6 million shares were valued at $32.55 per share, based on the 5-day period ended September 29, 2004, because that was the earliest date that the final exchange ratio could be determined.  The fair values of the stock options and restricted share rights assumed were determined by using the Black-Scholes option pricing model.  The cash consideration of $247.6
million, the value of Tektronix common stock of

8



$247.5 million, and the fair values of stock options and restricted share rights assumed are included in the purchase price that was allocated to the underlying assets acquired and liabilities assumed based on their estimated fair values.  Analysis supporting the purchase price allocation includes a valuation of assets and liabilities as of the closing date, including a third party valuation of intangible items and a detailed review of the opening balance sheet to determine other significant adjustments required to recognize assets and liabilities at fair value.  The purchase price allocation is subject to further changes, including an analysis of the deductibility of transaction costs and finalization of the intangibles valuation.  The purchase price and resulting allocation to the underlying assets acquired, net of deferred income taxes, were as follows:

The following table presents the total purchase price (in thousands):

|Cash paid                         |  | $ | 247,561 |  
|--------------------------------- |  | - | ------- | -
|Stock issued                      |  |   | 247,543 |  
|Stock options assumed             |  |   | 9,658   |  
|Restricted share rights assumed   |  |   | 321     |  
|Transaction costs                 |  |   | 5,116   |  
|Unearned stock-based compensation |  |   | (3,403  | )
|Liabilities assumed               |  |   | 34,630  |  
|                                  |  |   |         |  
|Total purchase price              |  | $ | 541,426 |  
|                                  |  |   |         |  

The following table presents the allocation of the purchase price to the assets acquired, net of deferred income taxes, based on their fair values (in thousands):

|Cash and cash equivalents                             |  | $ | 158,821 |  
|----------------------------------------------------- |  | - | ------- | -
|Accounts receivable                                   |  |   | 17,565  |  
|Inventories                                           |  |   | 18,025  |  
|Other current assets                                  |  |   | 7,849   |  
|Property, plant, and equipment                        |  |   | 10,662  |  
|Intangible assets                                     |  |   | 121,630 |  
|Goodwill                                              |  |   | 219,535 |  
|Other long term assets                                |  |   | 811     |  
|In-process research and development                   |  |   | 32,195  |  
|Deferred income taxes                                 |  |   | (45,667 | )
|                                                      |  |   |         |  
|Total assets acquired,   net of deferred income taxes |  | $ | 541,426 |  
|                                                      |  |   |         |  

The following table presents the details of the intangible assets purchased in the Inet acquisition as of November 27, 2004:

|(In thousands)                      |  | (in years)   Weighted   Average   Useful Life |               | Cost |   | Accumulated   Amortization |  | Net |       
|----------------------------------- |  | --------------------------------------------- | ------------- | ---- | - | -------------------------- |  | --- | ------
|                                    |  |                                               |               |      |   |                            |  |     |       
|Developed technology                |  |                                               | 4.8           |      | $ | 86,926                     |  | $   | (3,080
|Customer relationships              |  |                                               | 4.8           |      |   | 22,552                     |  |     | (802  
|Covenants not to compete            |  |                                               | 4.0           |      |   | 1,000                      |  |     | (44   
|Tradename                           |  |                                               | Not amortized |      |   | 11,152                     |  |     |      
|                                    |  |                                               |               |      |   |                            |  |     |       
|Total intangible assets   purchased |  |                                               |               |      | $ | 121,630                    |  | $   | (3,926
|                                    |  |                                               |               |      |   |                            |  |     |       

Amortization
expense for intangible assets purchased in the Inet acquisition was $3.9 million
for the second quarter and first two quarters of fiscal year 2005. Amortization
expense for intangible assets purchased in the Inet acquisition has been
recorded in the Condensed Consolidated Statements of Operations as
follows:

|                                                            |  | Fiscal   quarter ended |       | Two fiscal   quarters ended |  
|----------------------------------------------------------- |  | ---------------------- | ----- | --------------------------- | -
|                                                            |  |                        |       |                             |  
|(In thousands)                                              |  | Nov. 27,   2004        |       | Nov. 29,   2003             |  
|                                                            |  |                        |       |                             |  
|Cost of sales                                               |  | $                      | 3,080 |                             | $
|Acquisition related costs   (credits) and amortization, net |  |                        | 846   |                             |  
|                                                            |  |                        |       |                             |  
|Total                                                       |  | $                      | 3,926 |                             | $
|                                                            |  |                        |       |                             |  

The
estimated amortization expense of intangible assets purchased in the Inet
acquisition for the current fiscal year, including amounts amortized to date,
and in future years is as follows:

|Fiscal Year |  | Amount   (in thousands) |        
|----------- |  | ----------------------- | -------
|            |  |                         |        
|2005        |  | $                       | 15,704 
|2006        |  |                         | 23,556 
|2007        |  |                         | 23,556 
|2008        |  |                         | 21,103 
|2009        |  |                         | 19,908 
|2010        |  |                         | 6,651  
|            |  |                         |        
|Total       |  | $                       | 110,478
|            |  |                         |        

9



The
  $32.2 million allocated to the in-process research and development (IPR&D)
  asset was written off at the date of the acquisition in accordance with FASB
  Interpretation No. 4, Applicability of FASB Statement No. 2 to Business
  Combinations Accounted for by the Purchase Method.  This write-off
  was included in acquisition related costs on the Condensed Consolidated Statements
  of Operations.  The fair value of IPR&D was based on the net present
  value of estimated future cash flows.  Significant assumptions used in
  the valuation of IPR&D included a risk adjusted discount rate of 10.2%,
  revenue and expense projections, development life cycle and future entry of
  products to the market.  As of the acquisition date, there were eight research
  and development projects in process that were approximately 87% complete. 
  The total estimated cost to complete these projects was approximately $0.8 million
  at the acquisition date.  As of November 27, 2004, the total estimated
  remaining cost for these substantially complete projects was not significant.

The
  Condensed Consolidated Statements of Operations include the results of operations
  of Inet since September 30, 2004. The following (unaudited) pro forma consolidated
  results of operations have been prepared as if the acquisition of Inet had occurred
  at June 1, 2003, the beginning of Tektronix fiscal year 2004.

|                                                 |  | Fiscal quarter
        ended |         | Two fiscal
        quarters ended |  
|------------------------------------------------ |  | ---------------------------- | ------- | --------------------------------- | -
|                                                 |  |                              |         |                                   |  
|(In
        thousands, except per share amounts) |  | Nov. 27, 2004                |         | Nov. 29, 2003                     |  
|                                                 |  |                              |         |                                   |  
|Sales                                            |  | $                            | 280,530 |                                   | $
|Net
        earnings                             |  |                              | 32,034  |                                   |  
|                                                 |  |                              |         |                                   |  
|Net
        earnings per share  basic           |  | $                            | 0.36    |                                   | $
|Net
        earnings per share  diluted         |  |                              | 0.35    |                                   |  

The write-off of IPR&D is excluded from the calculation of net earnings and net earnings per share in the table shown above.

The pro forma information is presented for informational purposes only and is not necessarily indicative of the results of operations that actually would have been achieved had the acquisition been consummated as of that time, nor is it intended to be a projection of future results.

10



6.       Discontinued Operations

Discontinued operations presented on the Condensed Consolidated Statements of Operations included the following:

|                                                                                                                                                      |  | Fiscal   quarter ended |      | Two fiscal   quarters ended |  
|----------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------------- | ---- | --------------------------- | -
|                                                                                                                                                      |  |                        |      |                             |  
|(In thousands)                                                                                                                                        |  | Nov. 27,   2004        |      | Nov. 29,   2003             |  
|                                                                                                                                                      |  |                        |      |                             |  
|Loss on sale of   VideoTele.com (less applicable income tax benefit of $8, $0, $9 and $3)                                                             |  | $                      | (14  | )                           | $
|Gain
        (loss) on sale of optical parametric test business (less applicable income
        tax expense (benefit) of ($45), $47, ($85) and ($89)) |  |                        | (86  | )                           |  
|Loss on sale of Gage (less   applicable income tax benefit of $83, $59, $75 and $515)                                                                 |  |                        | (155 | )                           |  
|Loss
        from operations of Gage (less applicable income tax benefit of $0, $0,
        $0 and $212)                                              |  |                        |     |                             |  
|                                                                                                                                                      |  |                        |      |                             |  
|Loss from discontinued   operations, net of income taxes                                                                                              |  | $                      | (255 | )                           | $
|                                                                                                                                                      |  |                        |      |                             |  

7.       Business Realignment Costs

Business realignment costs represent actions to realign Tektronix cost structure in response to significant events and primarily include restructuring actions and impairment of assets resulting from reduced business levels.  Business realignment actions taken were intended to reduce Tektronix worldwide cost structure across all major functions in response to the dramatic economic decline, which severely impacted markets into which Tektronix sells its products.  Major operations impacted include manufacturing, engineering, sales, marketing and administrative functions.  In addition to severance, Tektronix incurred other costs associated with restructuring its organization, which primarily represented facilities contracts and other exit costs associated with aligning the cost structure to appropriate levels.

Costs incurred during the current quarter primarily relate to restructuring actions Tektronix planned in prior years which were executed in the current quarter.  Many of the restructuring actions planned take significant time to execute, particularly if they are being conducted in countries outside the United States.

Business
  realignment costs of $0.2 million in the second quarter of fiscal year 2005
  primarily included severance and related costs of $0.2 million, largely in Japan,
  for 8 employees, $0.1 million for accelerated depreciation of assets and contractual
  obligations largely in Europe, offset by a $0.1 million credit from net accumulated
  currency translation gains.  For the first two fiscal quarters of fiscal
  year 2005, business realignment costs of $2.3 million included severance and
  related costs of $1.3 million for 29 employees, $0.8 million for contractual
  obligations, and $0.3 million for accelerated depreciation of assets, offset
  by a $0.1 million credit from net accumulated currency translation gains. 
  Business realignment costs in the first two quarters of fiscal year 2005 largely
  relate to residual activities for actions taken in Europe.  Expected future
  annual salary cost savings from actions taken in the first two quarters of fiscal
  year 2005 to reduce employee headcount is not significant.  At November
  27, 2004, the remaining liabilities for employee severance and related benefits
  were maintained for 33 employees.

11



Activity for the above described actions during the first two quarters of fiscal year 2005 was as follows:

|(In thousands)                             |  | Balance   May 29,   2004 |       | Cost   incurred |   | Cash   payments |   | Non-cash   adjustments |        | Balance    Nov. 27,   2004 |  
|------------------------------------------ |  | ------------------------ | ----- | --------------- | - | --------------- | - | ---------------------- | ------ | -------------------------- | -
|                                           |  |                          |       |                 |   |                 |   |                        |        |                            |  
|Fiscal   Year 2005 Actions:                |  |                          |       |                 |   |                 |   |                        |        |                            |  
|Employee severance and related benefits    |  | $                        |      |                 | $ | 1,608           |   | $                      | (932   | )                          | $
|Asset impairments                          |  |                          |      |                 |   | 289             |   |                        |       |                            |  
|Contractual obligations                    |  |                          |      |                 |   | 468             |   |                        | (463   | )                          |  
|Accumulated currency translation gain, net |  |                          |      |                 |   | (121            | ) |                        |       |                            |  
|                                           |  |                          |       |                 |   |                 |   |                        |        |                            |  
|Total                                      |  |                          |      |                 |   | 2,244           |   |                        | (1,395 | )                          |  
|                                           |  |                          |       |                 |   |                 |   |                        |        |                            |  
|Fiscal Year 2004 Actions:                  |  |                          |       |                 |   |                 |   |                        |        |                            |  
|Employee severance and related benefits    |  |                          | 5,335 |                 |   | (319            | ) |                        | (3,481 | )                          |  
|Contractual obligations                    |  |                          | 409   |                 |   | 379             |   |                        | (745   | )                          |  
|                                           |  |                          |       |                 |   |                 |   |                        |        |                            |  
|Total                                      |  |                          | 5,744 |                 |   | 60              |   |                        | (4,226 | )                          |  
|                                           |  |                          |       |                 |   |                 |   |                        |        |                            |  
|Fiscal Year 2003 Actions:                  |  |                          |       |                 |   |                 |   |                        |        |                            |  
|Employee severance and related benefits    |  |                          | 294   |                 |   | (19             | ) |                        | (269   | )                          |  
|Contractual obligations                    |  |                          | 1,240 |                 |   |                |   |                        | (220   | )                          |  
|                                           |  |                          |       |                 |   |                 |   |                        |        |                            |  
|Total                                      |  |                          | 1,534 |                 |   | (19             | ) |                        | (489   | )                          |  
|                                           |  |                          |       |                 |   |                 |   |                        |        |                            |  
|Fiscal Year 2002 Actions:                  |  |                          |       |                 |   |                 |   |                        |        |                            |  
|Employee severance and related benefits    |  |                          | 152   |                 |   | (2              | ) |                        | (41    | )                          |  
|Contractual obligations                    |  |                          | 54    |                 |   |                |   |                        | (15    | )                          |  
|                                           |  |                          |       |                 |   |                 |   |                        |        |                            |  
|Total                                      |  |                          | 206   |                 |   | (2              | ) |                        | (56    | )                          |  
|                                           |  |                          |       |                 |   |                 |   |                        |        |                            |  
|Total of all actions                       |  | $                        | 7,484 |                 | $ | 2,283           |   | $                      | (6,166 | )                          | $
|                                           |  |                          |       |                 |   |                 |   |                        |        |                            |  

8.       Marketable Investments

Marketable investments are recorded at fair value with the resulting unrealized gains and temporary losses included, net of tax, in Accumulated other comprehensive loss on the Condensed Consolidated Balance Sheets.  Realized gains and losses on sales of marketable investments were $0.9 million and $1.0 million, respectively, during the quarter ended November 27, 2004, and $1.3 million and $1.6 million, respectively, for the two quarters ended November 27, 2004.  Realized gains and losses on sales of marketable investments were $1.2 million and $0.8 million, respectively, during the quarter ended November 29, 2003, and $1.7 million and $1.7 million, respectively, for the two quarters ended November 29, 2003.  Realized gains and losses on sales of marketable investments are included in Other non-operating income (expense), net on the Condensed Consolidated Statements of Operations.

12



Short-term marketable investments held at November 27, 2004 consisted of:

|(In thousands)                      |  | Amortized   cost |         | Unrealized   gains |   | Unrealized   losses |  | Fair   value |     
|----------------------------------- |  | ---------------- | ------- | ------------------ | - | ------------------- |  | ------------ | ----
|                                    |  |                  |         |                    |   |                     |  |              |     
|Corporate notes and bonds           |  | $                | 40,847  |                    | $ | 46                  |  | $            | (183
|U.S. Treasuries                     |  |                  | 23,148  |                    |   | 15                  |  |              | (163
|U.S. Agency                         |  |                  | 17,765  |                    |   |                    |  |              | (90 
|Asset backed securities             |  |                  | 14,137  |                    |   |                    |  |              | (74 
|Mortgage backed securities          |  |                  | 8,074   |                    |   |                    |  |              | (119
|                                    |  |                  |         |                    |   |                     |  |              |     
|Short-term marketable   investments |  | $                | 103,971 |                    | $ | 61                  |  | $            | (629
|                                    |  |                  |         |                    |   |                     |  |              |     

Long-term marketable investments held at November 27, 2004 consisted of:

|(In thousands)                     |  | Amortized   cost |         | Unrealized   gains |   | Unrealized   losses |  | Fair   value |       
|---------------------------------- |  | ---------------- | ------- | ------------------ | - | ------------------- |  | ------------ | ------
|                                   |  |                  |         |                    |   |                     |  |              |       
|Mortgage backed securities         |  | $                | 87,550  |                    | $ | 269                 |  | $            | (1,002
|Corporate notes and bonds          |  |                  | 68,454  |                    |   | 414                 |  |              | (515  
|Asset backed securities            |  |                  | 66,458  |                    |   | 686                 |  |              | (231  
|U.S. Agency                        |  |                  | 64,260  |                    |   | 114                 |  |              | (911  
|U.S. Treasuries                    |  |                  | 15,170  |                    |   | 22                  |  |              | (95   
|                                   |  |                  |         |                    |   |                     |  |              |       
|Long-term marketable   investments |  | $                | 301,892 |                    | $ | 1,505               |  | $            | (2,754
|                                   |  |                  |         |                    |   |                     |  |              |       

Short-term marketable investments held at May 29, 2004 consisted of:

|(In thousands)                      |  | Amortized   cost |        | Unrealized   gains |   | Unrealized   losses |  | Fair   value |     
|----------------------------------- |  | ---------------- | ------ | ------------------ | - | ------------------- |  | ------------ | ----
|                                    |  |                  |        |                    |   |                     |  |              |     
|Corporate notes and bonds           |  | $                | 46,899 |                    | $ | 191                 |  | $            | (118
|U.S. Treasuries                     |  |                  | 5,313  |                    |   | 96                  |  |              |    
|U.S. Agency                         |  |                  | 2,972  |                    |   | 2                   |  |              |    
|Asset backed securities             |  |                  | 30,657 |                    |   | 1                   |  |              | (363
|Mortgage backed securities          |  |                  | 5,358  |                    |   |                    |  |              | (52 
|                                    |  |                  |        |                    |   |                     |  |              |     
|Short-term marketable   investments |  | $                | 91,199 |                    | $ | 290                 |  | $            | (533
|                                    |  |                  |        |                    |   |                     |  |              |     

Long-term marketable investments held at May 29, 2004 consisted of:

|(In thousands)                     |  | Amortized   cost |         | Unrealized   gains |   | Unrealized   losses |  | Fair   value |       
|---------------------------------- |  | ---------------- | ------- | ------------------ | - | ------------------- |  | ------------ | ------
|                                   |  |                  |         |                    |   |                     |  |              |       
|Mortgage backed securities         |  | $                | 176,266 |                    | $ | 715                 |  | $            | (2,684
|Corporate notes and bonds          |  |                  | 89,562  |                    |   | 817                 |  |              | (587  
|Asset backed securities            |  |                  | 76,052  |                    |   | 999                 |  |              | (261  
|U.S. Agency                        |  |                  | 79,878  |                    |   | 155                 |  |              | (962  
|U.S. Treasuries                    |  |                  | 44,166  |                    |   |                    |  |              | (238  
|                                   |  |                  |         |                    |   |                     |  |              |       
|Long-term marketable   investments |  | $                | 465,924 |                    | $ | 2,686               |  | $            | (4,732
|                                   |  |                  |         |                    |   |                     |  |              |       

13



Contractual maturities of long-term marketable investments at November 27, 2004 are as follows:

|(In thousands)                     |  | Amortized   Cost Basis |        
|---------------------------------- |  | ---------------------- | -------
|                                   |  |                        |        
|After 1 year through 5 years       |  | $                      | 214,342
|Mortgage backed securities         |  |                        | 87,550 
|                                   |  |                        |        
|Long-term marketable   investments |  | $                      | 301,892
|                                   |  |                        |        

Tektronix reviews investments in debt and equity securities for other than temporary impairment whenever the fair value of an investment is less than amortized cost and evidence indicates that an investments carrying amount is not recoverable within a reasonable period of time.  In the evaluation of whether an impairment is other-than-temporary, Tektronix considers the reasons for the impairment, its ability and intent to hold the investment until the market price recovers, compliance with its investment policy, the severity and duration of the impairment and expected future performance.  As Tektronix primarily invests in high quality debt securities, unrealized losses are largely driven by increased market interest rates.  These unrealized losses were not significant on an individual investment security basis.  Based on this evaluation, no impairment was considered to be
other-than-temporary.  The following table presents the fair value of marketable investments with unrealized losses at November 27, 2004:

|                           |  | 12 months   or more |        | Less than   12 months |   | Total      | 
|-------------------------- |  | ------------------- | ------ | --------------------- | - | ---------- | 
|                           |  |                     |        |                       |   |            | 
|(In thousands)             |  | Fair Value          |        | Unrealized   Losses   |   | Fair Value | 
|                           |  |                     |        |                       |   |            | 
|Corporate notes and bonds  |  | $                   | 7,283  |                       | $ | 68         | 
|Asset backed securities    |  |                     | 1,776  |                       |   | 38         | 
|Mortgage backed securities |  |                     | 4,469  |                       |   | 69         | 
|U.S. Agency                |  |                     | 7,420  |                       |   | 164        | 
|U.S. Treasuries            |  |                     |       |                       |   |           | 
|                           |  |                     |        |                       |   |            | 
|Total                      |  | $                   | 20,948 |                       | $ | 339        | 
|                           |  |                     |        |                       |   |            | 

Investments in corporate equity securities are classified as available-for-sale and reported at fair value and are included in Other long-term assets on the Condensed Consolidated Balance Sheets.  The related unrealized holding gains and temporary losses are excluded from earnings and included, net of tax, in Accumulated other comprehensive loss on the Condensed Consolidated Balance Sheets. Corporate equity securities classified as available-for-sale and the related unrealized holding gains at November 27, 2004 and May 29, 2004 were as follows:

|(In thousands)                                          |  | Nov. 27,   2004 |        | May 29,   2004 |  
|------------------------------------------------------- |  | --------------- | ------ | -------------- | -
|                                                        |  |                 |        |                |  
|Unamortized cost basis of corporate equity   securities |  | $               | 5,990  |                | $
|Gross unrealized holding gains                          |  |                 | 11,201 |                |  
|                                                        |  |                 |        |                |  
|Fair value of corporate equity securities               |  | $               | 17,191 |                | $
|                                                        |  |                 |        |                |  

14



9.       Inventories

Inventories are stated at the lower of cost or market.  Cost is determined based on a currently-adjusted standard basis, which approximates actual cost on a first-in, first-out basis.  Tektronix periodically reviews its inventory for obsolete or slow-moving items.  Inventories consisted of the following:

|(In thousands)  |  | Nov. 27,   2004 |         | May 29,   2004 |  
|--------------- |  | --------------- | ------- | -------------- | -
|                |  |                 |         |                |  
|Materials       |  | $               | 8,814   |                | $
|Work in process |  |                 | 48,680  |                |  
|Finished goods  |  |                 | 65,366  |                |  
|                |  |                 |         |                |  
|Inventories     |  | $               | 122,860 |                | $
|                |  |                 |         |                |  

10.     Other Current Assets

Other current assets consisted of the following:

|(In thousands)             |  | Nov. 27,   2004 |        | May 29,   2004 |  
|-------------------------- |  | --------------- | ------ | -------------- | -
|                           |  |                 |        |                |  
|Current deferred tax asset |  | $               | 36,930 |                | $
|Prepaid expenses           |  |                 | 10,820 |                |  
|Other receivables          |  |                 | 10,821 |                |  
|Held-for-sale assets       |  |                 | 8,490  |                |  
|Income taxes receivable    |  |                 |       |                |  
|Other current assets       |  |                 | 728    |                |  
|Notes receivable           |  |                 | 2      |                |  
|                           |  |                 |        |                |  
|Other current assets       |  | $               | 67,791 |                | $
|                           |  |                 |        |                |  

At November 27, 2004, held-for-sale assets included buildings and land located in Gotemba, Japan, which were acquired in the Sony/Tektronix redemption in fiscal year 2003.  During fiscal year 2004, Tektronix announced a plan to transfer manufacturing operations conducted in Japan to other facilities and to market the land and buildings located in Gotemba, Japan.  As such, these assets have been classified as held-for-sale.  The held-for-sale assets in Gotemba, Japan were sold in December 2004, subsequent to the second quarter of fiscal year 2005.

During the first quarter of fiscal year 2005, Tektronix completed the sale of property located in Nevada City, California, which had been classified as held-for-sale assets in fiscal year 2004.  Net proceeds of $9.9 million were received from the sale of the Nevada City assets with a carrying value of $7.7 million, resulting in a gain on sale of $2.2 million during the first quarter of fiscal year 2005.

11.     Property, Plant and Equipment, Net

Property, plant and equipment, net consisted of the following:

|(In thousands)                            |  | Nov. 27,   2004 |          | May 29,   2004 |  
|----------------------------------------- |  | --------------- | -------- | -------------- | -
|                                          |  |                 |          |                |  
|Land                                      |  | $               | 1,086    |                | $
|Buildings                                 |  |                 | 133,177  |                |  
|Machinery and equipment                   |  |                 | 275,103  |                |  
|Accumulated depreciation and amortization |  |                 | (292,119 | )              |  
|                                          |  |                 |          |                |  
|Property, plant and equipment, net        |  | $               | 117,247  |                | $
|                                          |  |                 |          |                |  

15



12.     Goodwill, Net

Goodwill and intangible assets are accounted for in accordance with SFAS No. 141, Business Combinations, and SFAS No. 142, Goodwill and Other Intangible Assets.  Accordingly, Tektronix does not amortize goodwill from acquisitions, but continues to amortize other acquisition-related intangibles.

Changes in goodwill during the two fiscal quarters ended November 27, 2004 were as follows (in thousands):

|Balance at May 29, 2004          |  | $ | 79,774  | 
|-------------------------------- |  | - | ------- | 
|Acquisition of Inet (see Note 5) |  |   | 219,535 | 
|Currency translation             |  |   | 4,824   | 
|                                 |  |   |         | 
|Balance at November 27, 2004     |  | $ | 304,133 | 
|                                 |  |   |         | 

13.     Other Long-Term Assets

Other long-term assets consisted of the following:

|(In thousands)              |  | Nov. 27,   2004 |         | May 29,   2004 |  
|--------------------------- |  | --------------- | ------- | -------------- | -
|                            |  |                 |         |                |  
|Other intangibles, net      |  | $               | 120,772 |                | $
|Corporate equity securities |  |                 | 17,191  |                |  
|Notes, contracts and leases |  |                 | 13,708  |                |  
|Other assets                |  |                 | 3,527   |                |  
|                            |  |                 |         |                |  
|Other long-term assets      |  | $               | 155,198 |                | $
|                            |  |                 |         |                |  

Intangible assets of $117.7 million as of November 27, 2004 resulted from the acquisition of Inet in the second quarter of fiscal year 2005, as described in Note 5.

14.     Long-Term Liabilities

Long-term liabilities consisted of the following:

|(In thousands)              |  | Nov. 27,   2004 |         | May 29,   2004 |  
|--------------------------- |  | --------------- | ------- | -------------- | -
|                            |  |                 |         |                |  
|Pension liability           |  | $               | 136,692 |                | $
|Postretirement benefits     |  |                 | 13,513  |                |  
|Deferred compensation       |  |                 | 16,758  |                |  
|Other                       |  |                 | 13,052  |                |  
|                            |  |                 |         |                |  
|Other long-term liabilities |  | $               | 180,015 |                | $
|                            |  |                 |         |                |  

Tektronix made a voluntary contribution of $46.5 million in the first quarter of fiscal year 2005 to the U.S. Cash Balance pension plan, which represents the expected funding for the fiscal year.  This contribution directly reduced the balance of pension liability.

16



15.     Pension and Other Postretirement Benefits

Components of net periodic benefit cost (credit) for defined benefit pension plans and other postretirement benefits were as follows:

|                                     |  | Pension   Benefits     |         | Other   Postretirement Benefits |  
|------------------------------------ |  | ---------------------- | ------- | ------------------------------- | -
|                                     |  |                        |         |                                 |  
|                                     |  | Fiscal   quarter ended |         | Fiscal   quarter ended          |  
|                                     |  |                        |         |                                 |  
|(In thousands)                       |  | Nov. 27,   2004        |         | Nov. 29,   2003                 |  
|                                     |  |                        |         |                                 |  
|Service cost                         |  | $                      | 1,561   |                                 | $
|Interest cost                        |  |                        | 9,620   |                                 |  
|Expected return on plan   assets     |  |                        | (12,568 | )                               |  
|Amortization of transition   asset   |  |                        | 29      |                                 |  
|Amortization of prior   service cost |  |                        | (556    | )                               |  
|Amortization of actuarial   net loss |  |                        | 3,340   |                                 |  
|                                     |  |                        |         |                                 |  
|Net periodic benefit cost   (credit) |  | $                      | 1,426   |                                 | $
|                                     |  |                        |         |                                 |  

|                                     |  | Pension Benefits            |         | Other Postretirement Benefits |  
|------------------------------------ |  | --------------------------- | ------- | ----------------------------- | -
|                                     |  |                             |         |                               |  
|                                     |  | Two fiscal   quarters ended |         | Two fiscal   quarters ended   |  
|                                     |  |                             |         |                               |  
|(In   thousands)                     |  | Nov. 27,   2004             |         | Nov. 29,   2003               |  
|                                     |  |                             |         |                               |  
|Service cost                         |  | $                           | 3,111   |                               | $
|Interest cost                        |  |                             | 19,199  |                               |  
|Expected return on plan   assets     |  |                             | (25,105 | )                             |  
|Amortization of transition   asset   |  |                             | 57      |                               |  
|Amortization of prior   service cost |  |                             | (1,113  | )                             |  
|Amortization of actuarial   net loss |  |                             | 6,669   |                               |  
|                                     |  |                             |         |                               |  
|Net periodic benefit cost   (credit) |  | $                           | 2,818   |                               | $
|                                     |  |                             |         |                               |  

16.     Contingencies

As of November 27, 2004, Tektronix had $19.5 million of contingencies recorded in Accounts payable and accrued liabilities on the Condensed Consolidated Balance Sheets, which included $10.4 million of contingencies relating to the sale of the Color Printer and Imaging division (CPID) in fiscal year 2000, $3.2 million for environmental exposures and $5.9 million for other contingent liabilities.  It is reasonably possible that managements estimates of these contingencies could change in the near term and that such changes could be material to Tektronix consolidated financial statements.

Sale of Color Printing and Imaging

On January 1, 2000, Tektronix sold substantially all of the assets of CPID.  Tektronix accounted for CPID as a discontinued operation in accordance with APB Opinion No. 30, Reporting the Results of Operations  Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions.  The sales price was $925.0 million in cash, with certain liabilities of the division assumed by the purchaser.  During fiscal year 2000, Tektronix recorded a net gain of $340.3 million on this sale.  The net gain was calculated as the excess of the proceeds received over the net book value of the assets transferred, $198.5 million in income tax expense, $60.0 million of contingencies related to the sale and $14.4 million in transaction and related costs.

In accordance with SFAS No. 5 Accounting for Contingencies, it is Tektronix policy to defer recognition of a gain where it is believed that contingencies exist that may result in that gain being recognized prior to realization.  Tektronix analyzes the amount of deferred gain in relation to

17



outstanding contingencies, and recognizes additional gain when persuasive objective evidence indicates that such contingencies are believed to be resolved.  With regard to the contingencies associated with the sale of CPID, persuasive objective evidence includes a) legal determinations resulting in the resolution of contingencies, including lapse of claim periods defined in the final sale agreement, b) the resolution of claims made by the purchaser, c) evidence that liabilities underlying current or probable future claims have been resolved and d) interactions with the purchaser on outstanding claims.  The $60.0 million of contingencies represents the deferral of a portion of the gain on sale that Tektronix management believed was not realizable due to certain contingencies contained in the final sale agreement and approximated the amount that management believed was the maximum exposure under the contingencies.  The specific nature of
these contingencies was specified in the final sale agreement.

The contingencies contained in the final sale agreement represented provisions designed to protect the purchaser in disputes over the net assets included in the closing balance sheet and breach of certain representations and warranties by Tektronix.  Tektronix viewed these exposures in terms of the following categories: balance sheet arbitration, liabilities subject to indemnity, 18 month indemnity for breach of certain representations and warranties and a 36 month indemnity for breach of certain representations and warranties.  Tektronix estimate of the maximum contingency, including anticipated costs and expenses to resolve these matters, was $60.0 million.  This estimate was based on certain limitations on purchase contingencies as defined in the final sale agreement as well as Tektronix estimates of other exposures not subject to these limitations.  As the maximum
exposure under these categories is measured in the aggregate by Tektronix and as there are many overlapping provisions between these categories, Tektronix review of these contingencies considered both the individual categories as well as the aggregate remaining exposures.

Subsequent to the close of the transaction, Tektronix and the purchaser entered into an arbitration process to determine settlement of certain disputes regarding the value of the net assets transferred at the closing date.  This arbitration process was provided to the purchaser under the terms of the final sale agreement.  This arbitration was resolved in the first quarter of fiscal year 2002, resulting in an $18.0 million payment by Tektronix to the purchaser.  This settlement directly reduced the $60.0 million previously deferred gain.

During fiscal year 2003, Tektronix recognized $25.0 million of the previously deferred gain as a result of the resolution of certain of the purchase contingencies related to the sale, in accordance with the accounting policy described above.  The $25.0 million of pre-tax gain was recognized in Discontinued operations.  Of the total $25.0 million recognized in fiscal year 2003, $20.0 million was recorded during the third quarter of fiscal year 2003.  Persuasive objective evidence supporting the recognition of $20.0 million included a) the expiration of the 36 month deadline for certain claims included in the final sale agreement, which passed without the receipt of claims from the purchaser, b) analysis of exposures underlying pending claims previously made by the purchaser, and c) the interactions with the purchaser regarding these pending claims, which included the fact that significant
time had lapsed since the purchaser had pursued these claims.  Tektronix recognized an additional $5.0 million of pre-tax gain in Discontinued operations during the fourth quarter of fiscal year 2003 based on persuasive objective evidence that certain previously identified exposures had been resolved without consequence to Tektronix.

Other payments and adjustments during fiscal years 2001, 2002 and 2003 reduced the balance of the contingencies by $4.6 million.  As of November 27, 2004 and May 29, 2004, the balance of the contingencies related to the CPID disposition was $10.4 million, a significant portion of which may take several years to resolve.  The continued deferral of this amount is associated with existing exposures for which Tektronix believes adequate evidence of resolution has not been obtained.  Tektronix continues to monitor the status of the CPID related contingencies based on information received.  If unforeseen events or circumstances arise subsequent to the balance sheet date, changes in the estimate of these contingencies would occur.  Tektronix, however, does not expect such changes to be material to the financial statements.

Environmental and Other

The $3.2 million for environmental exposures is specifically associated with the closure and cleanup of a licensed hazardous waste management facility at Tektronix Beaverton, Oregon campus.  Tektronix established the initial liability in 1998 and bases ongoing estimates on currently available facts and presently enacted laws and regulations.  Costs for tank removal and cleanup were incurred in

18



fiscal year 2001.  Costs
     currently being incurred primarily relate to ongoing monitoring and testing
     of the site.  Managements best estimate of the range of
     remaining reasonably possible cost associated with this environmental
     cleanup, testing and monitoring could be as high as $10.0 million. 
     Management believes that the recorded liability represents the low end of
     the range.  These costs are estimated to be incurred over the next
     several years. If events or circumstances arise that are unforeseen to Tektronix as of the
balance sheet date, actual costs could differ materially from this estimate.

The
  remaining $5.9 million of contingency accruals include amounts related to intellectual
  property and employment issues, as well as contingencies related to
  dispositions of assets other than CPID.  If events or circumstances arise
  that are unforeseen to Tektronix as of the balance sheet date, actual costs
  could differ materially from this estimate.

In the normal course of business, Tektronix and its subsidiaries are parties to various legal claims, actions and complaints, including matters involving patent infringement and other intellectual property claims and various other risks.  It is not possible to predict with certainty whether or not Tektronix will ultimately be successful in any of these legal matters or, if not, what the impact might be.  However, Tektronix management does not expect that the results of these legal proceedings will have a material adverse effect on its results of operations, financial position or cash flows.

17.     Shareholders Equity

Activity in shareholders equity for the first two quarters of fiscal year 2005 was as follows:

|                                                                                |  | Common   Stock |        | Retained   Earnings |   | Accumulated   Other   Comprehensive   Loss |   | Total |        
|------------------------------------------------------------------------------- |  | -------------- | ------ | ------------------- | - | ------------------------------------------ | - | ----- | -------
|                                                                                |  |               
|(In thousands)                                                                  |  | Shares         |        | Amount             
|                                                                                |  |                |        |                     |   |                                            |   |       |        
|Balance at May 29, 2004                                                         |  |                | 84,179 |                     | $ | 257,267                                    |   | $     | 748,381
|Net earnings                                                                    |  |                |       |                     |   |                                           |   |       | 33,574 
|Additional minimum pension   liability, net of income taxes                     |  |                |       |                     |   |                                           |   |       |       
|Foreign currency   translation adjustment, net of income taxes                  |  |                |       |                     |   |                                           |   |       |       
|Unrealized holding gain on   available-for-sale securities, net of income taxes |  |                |       |                     |   |                                           |   |       |       
|Dividends paid                                                                  |  |                |       |                     |   |                                           |   |       | (8,771 
|Shares issued                                                                   |  |                | 8,373  |                     |   | 262,676                                    |   |       |       
|Stock options and share   rights assumed from Inet acquisition                  |  |                |       |                     |   | 9,979                                      |   |       |       
|Unearned stock-based  compensation from Inet acquisition                        |  |                |       |                     |   | (3,403                                     | ) |       |       
|Tax benefit of stock option   exercises                                         |  |                |       |                     |   | 3,285                                      |   |       |       
|Amortization of unearned   stock-based compensation                             |  |                |       |                     |   | 977                                        |   |       |       
|Shares repurchased in open   market                                             |  |                | (3,248 | )                   |   | (10,498                                    | ) |       | (84,821
|                                                                                |  |                |        |                     |   |                                            |   |       |        
|Balance at November 27, 2004                                                    |  |                | 89,304 |                     | $ | 520,283                                    |   | $     | 688,363
|                                                                                |  |                |        |                     |   |                                            |   |       |        

Common
  stock increased by $254.1 million as a result of the Inet acquisition discussed
  in Note 5.  This amount includes $247.5 million for 7.6 million shares
  of common stock issued and $10.0 million for stock options and restricted share
  rights assumed, offset by $3.4 million of unearned stock-based compensation. 
  The $3.4 million of unearned stock-based compensation was related to the intrinsic
  value of in-the-money unvested stock options, restricted stock and restricted
  share rights resulting from the Inet acquisition.

In fiscal year 2000, the Board of Directors authorized the purchase of up to $550.0 million of Tektronix common stock on the open market or through negotiated transactions.  In September 2004, the Board of Directors authorized the repurchase of an incremental $400.0 million of Tektronix common stock.  During the first two quarters of fiscal year 2005, 3.2 million shares were repurchased for $95.3 million.  As of November 27, 2004, a total of 20.4 million shares have been repurchased at an average price of $23.75 per share totaling $484.1 million under this authorization.  The reacquired shares were immediately retired as required under Oregon corporate law.

19



On December 16, 2004, the Board of Directors declared a quarterly cash dividend of $0.06 per share.  The dividend is payable on January 24, 2005 to shareholders of record at the close of business on January 7, 2005.

Comprehensive income and its components, net of income taxes, were as follows:

|                                                                                                                                      |  | Fiscal   quarter ended |        | Two fiscal   quarters ended |  
|------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------------- | ------ | --------------------------- | -
|                                                                                                                                      |  |                        |        |                             |  
|(In thousands)                                                                                                                        |  | Nov. 27,   2004        |        | Nov. 29,   2003             |  
|                                                                                                                                      |  |                        |        |                             |  
|Net earnings (loss)                                                                                                                   |  | $                      | (2,834 | )                           | $
|Other comprehensive income (loss):                                                                                                    |  |                        |        |                             |  
|Net
change in additional minimum pension liability, net of income taxes
of ($329), $1,707, ($178) and $1,871, respectively            |  |                        | (749   | )                           |  
|Foreign currency translation adjustment, net of   income taxes of $8,218, $9,370, $7,623 and $5,856, respectively                     |  |                        | 12,853 |                             |  
|Unrealized holding gain on available- for-sale   securities, net of income taxes of $1,938, $4,785, $1,430 and $3,225,   respectively |  |                        | 3,030  |                             |  
|                                                                                                                                      |  |                        |        |                             |  
|Total comprehensive income                                                                                                            |  | $                      | 12,300 |                             | $
|                                                                                                                                      |  |                        |        |                             |  

Accumulated other comprehensive loss consisted of the following:

|(In thousands)                 |  | Foreign   currency   translation |        | Unrealized   holding   gains, net on   available-for-   sale securities |   | Additional   minimum   pension   liability |   | Accumulated   other   comprehensive   loss |         
|------------------------------ |  | -------------------------------- | ------ | ----------------------------------------------------------------------- | - | ------------------------------------------ | - | ------------------------------------------ | --------
|                               |  |                                  |        |                                                                         |   |                                            |   |                                            |         
|Balance at May 29, 2004        |  | $                                | 35,192 |                                                                         | $ | 3,488                                      |   | $                                          | (173,748
|First quarter activity         |  |                                  | (931   | )                                                                       |   | (794                                       | ) |                                            | 344     
|Second quarter activity        |  |                                  | 12,853 |                                                                         |   | 3,030                                      |   |                                            | (749    
|                               |  |                                  |        |                                                                         |   |                                            |   |                                            |         
|Balance at November 27,   2004 |  | $                                | 47,114 |                                                                         | $ | 5,724                                      |   | $                                          | (174,153
|                               |  |                                  |        |                                                                         |   |                                            |   |                                            |         

18.     Business Segments

Tektronix revenue is derived principally through the development and marketing of a range of test and measurement products in several operating segments that have similar economic characteristics as well as similar customers, production processes and distribution methods. It is impractical to report net sales by product group.  Accordingly, Tektronix reports as a single segment.  Inter-segment sales were not material and were included in net sales to external customers below.

|                                                          |  | Fiscal   quarter ended |         | Two fiscal   quarters ended |  
|--------------------------------------------------------- |  | ---------------------- | ------- | --------------------------- | -
|                                                          |  |                        |         |                             |  
|(In thousands)                                            |  | Nov. 27,   2004        |         | Nov. 29,   2003             |  
|                                                          |  |                        |         |                             |  
|Consolidated net sales to external   customers by region: |  |                        |         |                             |  
|The Americas:                                             |  |                        |         |                             |  
|United States                                             |  | $                      | 104,205 |                             | $
|Other Americas                                            |  |                        | 7,648   |                             |  
|Europe                                                    |  |                        | 56,463  |                             |  
|Pacific                                                   |  |                        | 56,573  |                             |  
|Japan                                                     |  |                        | 41,939  |                             |  
|                                                          |  |                        |         |                             |  
|Net sales                                                 |  | $                      | 266,828 |                             | $
|                                                          |  |                        |         |                             |  

20



19.     Product Warranty Accrual

Tektronix product warranty accrual, included in Accounts payable and accrued liabilities on the Condensed Consolidated Balance Sheets, reflects managements best estimate of probable liability under its product warranties.  Management determines the warranty accrual based on historical experience and other currently available evidence.

Changes in the product warranty accrual were as follows:

|                               |  | Two fiscal   quarters ended |       
|------------------------------ |  | --------------------------- | ------
|                               |  |                             |       
|(In thousands)                 |  | Nov. 27,   2004             |       
|                               |  |                             |       
|Balance at beginning of period |  | $                           | 8,959 
|Payments made                  |  |                             | (4,493
|Provision for warranty expense |  |                             | 4,186 
|                               |  |                             |       
|Balance at end of period       |  | $                           | 8,652 
|                               |  |                             |       

20.     Supplemental Cash Flow Information

|                                                               |  | Two fiscal
        quarters ended |         
|-------------------------------------------------------------- |  | --------------------------------- | --------
|                                                               |  |                                   |         
|(In
        thousands)                                         |  | Nov. 27, 2004                     |         
|                                                               |  |                                   |         
|Supplemental
        disclosure of cash flows:                 |  |                                   |         
|Income
        taxes paid, net                                 |  | $                                 | 15,132  
|Interest
        paid                                          |  |                                   | 69      
|                                                               |  |                                   |         
|Non-cash
        transactions from acquisition of Inet:        |  |                                   |         
|Common
        stock issued                                    |  | $                                 | 247,543 
|Stock
        options assumed                                  |  |                                   | 9,658   
|Restricted
        share rights assumed                        |  |                                   | 321     
|Unearned
        stock-based compensation                      |  |                                   | (3,403  
|Liabilities
        assumed                                    |  |                                   | 34,630  
|Non-cash
        assets acquired, net of deferred income taxes |  |                                   | (382,605
|                                                               |  |                                   |         
|Net
        cash paid                                          |  | $                                 | (93,856 
|                                                               |  |                                   |         

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

Introduction and Overview

Tektronix, Inc. (Tektronix) manufactures, markets and services test, measurement and monitoring solutions to a wide variety of customers in many industries, including computing, communications, semiconductors, broadcast, education, government, military/aerospace, research, automotive and consumer electronics.  Unless otherwise indicated by the context, Tektronix refers to Tektronix as the parent company or its majority-owned subsidiaries.  This managements discussion and analysis of financial condition and results of operations is intended to provide investors with an understanding of Tektronix operating performance and its financial condition.  A discussion of our business, including our strategy, products and competition is included in Part I of Tektronix Form 10-K for the fiscal year ended May 29, 2004.  Tektronix enables its customers to design,
manufacture, deploy, monitor and service next-generation global communications networks, computing, and advanced and pervasive technologies.  Revenue is derived principally through the development, manufacturing and marketing of a broad range of products including: oscilloscopes; logic analyzers; network management and diagnostics equipment, including mobile protocol test and network monitoring solutions; video test equipment; signal sources; radio frequency test equipment, including wireless field test and spectrum analysis equipment; and related components, support services and accessories.  Tektronix maintains operations in four major geographies: the Americas, including the United States, Mexico, Canada and South America; Europe, including Europe, Russia, the Middle East and Africa; the Pacific, including China, India, Korea, and Singapore; and Japan.

21



Tektronix results of operations and financial condition may be affected by a variety of factors.  In our opinion, the most significant of these factors include the economic strength of the technology markets into which we sell our products, our ability to develop compelling technology solutions and deliver these to the marketplace in a timely manner, and the actions of competitors.  These significant factors are discussed further below.

The markets that we serve are very diverse and include a cross-section of the technology industries.  Accordingly, our business is cyclical and tends to correlate to the overall performance of the technology sector.  During fiscal years 2000 and 2001, we experienced considerable growth and profitability resulting from the overall growth in the technology markets and successful new product introductions.  However, we began to experience weakening demand in the latter part of fiscal year 2001 and subsequently experienced a dramatic decline in demand during fiscal year 2002.  During fiscal year 2002, product orders declined 38% from fiscal year 2001.  The technology markets continued to be depressed into fiscal year 2003.  During the latter part of fiscal year 2003, we began to experience the stabilization of certain markets.  Fiscal year 2004 saw a more broad-based
recovery in the technology sector from the downturn of preceding years.  During the first half of fiscal year 2005, growth rates moderated as compared with the prior year, which management has partially attributed to excess demand in fiscal year 2004 resulting from customers deferring purchasing activity during the downturn years of 2001 to 2003 as well as the higher growth rates during fiscal year 2004 result in a higher basis for comparison to fiscal year 2005 results.

During fiscal years 2002 and 2003, Tektronix engaged in a variety of efforts to reduce the cost structure to better align with the lower sales levels.  The related business realignment costs continued to be incurred into fiscal year 2004 and to a lesser extent into the current fiscal year as many of the actions identified took considerable time to execute.  In addition to incurring costs to realign our cost structure during fiscal year 2003 and 2004, we also incurred costs to restructure the operations of the Japan subsidiary acquired through acquisition of Sony/Tektronix Corporation and also recognized certain costs and credits directly associated with the integration of this subsidiary.  Costs incurred in the first half of fiscal year 2005 largely relate to previously planned actions in Europe.

We face significant competition in many of the markets in which we sell our products.  Tektronix competes on many factors including product performance, technology, product availability and price.  To compete effectively, we must deliver compelling products to the market in a timely manner.  Accordingly, we make significant investments into the research and development of new products and the selling channels necessary to deliver products to the market.  Even during periods where economic conditions have reduced our revenues, such as those experienced in fiscal years 2002 and 2003, we continued to invest significantly in the development of new products and selling channels.  A discussion of our competitors and products is included in Item 1 of Tektronix Form 10-K for the fiscal year ended May 29, 2004.

A component of our strategy includes focusing investments in certain product categories to expand our existing market positions.  Expansion in these certain product categories may come through internal growth or from acquisitions.  On September 30, 2004 we acquired Inet Technologies, Inc. (Inet), a company that engages primarily in network monitoring.  The acquisition of Inet will further expand our network monitoring and diagnostics product offering.  The acquisition of Inet is described below in this Managements Discussion and Analysis.

For a discussion of risk factors affecting Tektronix, see the Risks and Uncertainties section below.

Acquisition of Inet Technologies, Inc.

During
  the current quarter Tektronix acquired Inet, a leading global provider of communications
  software solutions that enable network operators to more strategically and profitably
  operate their businesses. Inets products address next-generation networks,
  including 2.5G and 3G mobile data and voice-over-packet (also referred to as
  voice over Internet protocol or VoIP) technologies, and traditional networks. 
  Inet had approximately 500 employees worldwide and had sales of $104 million
  for the year ended December 31, 2003.  Through the Inet acquisition, Tektronix
  gains significant expansion into

22



network monitoring, which is a market
  that Tektronix had previously targeted for expansion.  Inets established
  network monitoring business, as well as its established customer base, is very
  complementary with our pre-acquisition mobile protocol test business. 
  When combined with our pre-existing mobile protocol test business, Tektronix
  will be one of the largest global providers of these solutions.  We anticipate
  that the acquisition will help us accelerate the delivery of products and solutions
  for network operators and equipment manufacturers seeking to implement next-generation
  technologies such as General Packet Radio Service (GPRS), Universal Mobile Telecommunications
  Systems (UMTS) and VoIP.  The product offerings of the acquired Inet business,
  along with our pre-existing mobile protocol test products, collectively comprise
  our network monitoring and diagnostics product offerings.

Tektronix
  acquired all of Inets outstanding common stock for $12.50 per share consisting
  of $6.25 per share in cash and $6.25 per share in Tektronix common stock.
  Prior to the close of the transaction on September 30, 2004, Inet had 39.6 million
  shares of common stock outstanding.  The final exchange ratio used to determine
  the number of shares of Tektronix common stock issued was 0.192, which
  resulted in the issuance of 7.6 million shares of Tektronix common stock
  in the transaction.  The 7.6 million shares were valued at $32.55 per share,
  based on the 5-day period ended September 29, 2004, because that was the earliest
  date that the final exchange ratio could be determined.  The fair values
  of the stock options and restricted share rights assumed were determined by
  using the Black-Scholes option pricing model.  The cash consideration of
  $247.6 million, the value of Tektronix common stock of $247.5 million,
  and the fair values of stock options and restricted share rights assumed are
  included in the purchase price that was allocated to the underlying assets acquired
  and liabilities assumed based on their estimated fair values.  Analysis
  supporting the purchase price allocation includes a valuation of assets and
  liabilities as of the closing date, including a third party valuation of intangible
  items and a detailed review of the opening balance sheet to determine other
  significant adjustments required to recognize assets and liabilities at fair
  value.  The purchase price allocation is subject to further changes, including
  an analysis of the deductibility of transaction costs and finalization of the
  intangibles valuation.  The purchase price and resulting allocation to
  the underlying assets acquired, net of deferred income taxes, were as follows:

The following table presents the total purchase price (in thousands):

|Cash paid                         |  | $ | 247,561 |  
|--------------------------------- |  | - | ------- | -
|Stock issued                      |  |   | 247,543 |  
|Stock options assumed             |  |   | 9,658   |  
|Restricted share rights assumed   |  |   | 321     |  
|Transaction costs                 |  |   | 5,116   |  
|Unearned stock-based compensation |  |   | (3,403  | )
|Liabilities assumed               |  |   | 34,630  |  
|                                  |  |   |         |  
|Total purchase price              |  | $ | 541,426 |  
|                                  |  |   |         |  

The following table presents the allocation of the purchase price to the assets acquired, net of deferred income taxes, based on their fair values (in thousands):

|Cash and cash equivalents                             |  | $ | 158,821 |  
|----------------------------------------------------- |  | - | ------- | -
|Accounts receivable                                   |  |   | 17,565  |  
|Inventories                                           |  |   | 18,025  |  
|Other current assets                                  |  |   | 7,849   |  
|Property, plant, and equipment                        |  |   | 10,662  |  
|Intangible assets                                     |  |   | 121,630 |  
|Goodwill                                              |  |   | 219,535 |  
|Other long term assets                                |  |   | 811     |  
|In-process research and development                   |  |   | 32,195  |  
|Deferred income taxes                                 |  |   | (45,667 | )
|                                                      |  |   |         |  
|Total assets acquired,   net of deferred income taxes |  | $ | 541,426 |  
|                                                      |  |   |         |  

23



The following table presents the details of the intangible assets purchased in the Inet acquisition as of November 27, 2004:

|(In thousands)                      |  | (in years)   Weighted   Average   Useful Life |               | Cost |   | Accumulated   Amortization |  | Net |       
|----------------------------------- |  | --------------------------------------------- | ------------- | ---- | - | -------------------------- |  | --- | ------
|                                    |  |                                               |               |      |   |                            |  |     |       
|Developed technology                |  |                                               | 4.8           |      | $ | 86,926                     |  | $   | (3,080
|Customer relationships              |  |                                               | 4.8           |      |   | 22,552                     |  |     | (802  
|Covenants not to compete            |  |                                               | 4.0           |      |   | 1,000                      |  |     | (44   
|Tradename                           |  |                                               | Not amortized |      |   | 11,152                     |  |     |      
|                                    |  |                                               |               |      |   |                            |  |     |       
|Total intangible assets   purchased |  |                                               |               |      | $ | 121,630                    |  | $   | (3,926
|                                    |  |                                               |               |      |   |                            |  |     |       

Amortization
expense for intangible assets purchased in the Inet acquisition was $3.9 million
for the second quarter and first two quarters of fiscal year 2005. Amortization
expense for intangible assets purchased in the Inet acquisition has been
recorded in the Condensed Consolidated Statements of Operations as
follows:

|                                                            |  | Fiscal   quarter ended |       | Two fiscal   quarters ended |  
|----------------------------------------------------------- |  | ---------------------- | ----- | --------------------------- | -
|                                                            |  |                        |       |                             |  
|(In thousands)                                              |  | Nov. 27,   2004        |       | Nov. 29,   2003             |  
|                                                            |  |                        |       |                             |  
|Cost of sales                                               |  | $                      | 3,080 |                             | $
|Acquisition related costs   (credits) and amortization, net |  |                        | 846   |                             |  
|                                                            |  |                        |       |                             |  
|Total                                                       |  | $                      | 3,926 |                             | $
|                                                            |  |                        |       |                             |  

The
  estimated amortization expense of intangible assets purchased in the Inet acquisition
  for the current fiscal year, including amounts amortized to date, and in future
  years is as follows :

|Fiscal
        Year |  | Amount 
        (in thousands) |        
|------------------- |  | ------------------------------ | -------
|                    |  |                                |        
|2005                |  | $                              | 15,704 
|2006                |  |                                | 23,556 
|2007                |  |                                | 23,556 
|2008                |  |                                | 21,103 
|2009                |  |                                | 19,908 
|2010                |  |                                | 6,651  
|                    |  |                                |        
|Total               |  | $                              | 110,478
|                    |  |                                |        

The
  $32.2 million allocated to the in-process research and development (IPR&D)
  asset was written off at the date of the acquisition in accordance with FASB
  Interpretation No. 4, Applicability of FASB Statement No. 2 to Business
  Combinations Accounted for by the Purchase Method.  This write-off
  was included in acquisition related costs on the Condensed Consolidated Statements
  of Operations.  The fair value of IPR&D was based on the net present
  value of estimated future cash flows.  Significant assumptions used in
  the valuation of IPR&D included a risk adjusted discount rate of 10.2%,
  revenue and expense projections, development life cycle and future entry of
  products to the market.  As of the acquisition date, there were eight research
  and development projects in process that were approximately 87% complete. 
  The total estimated cost to complete these projects was approximately $0.8 
  million at the acquisition date.  As of November 27, 2004, the total estimated
  remaining cost for these substantially complete projects was not significant.

The Condensed Consolidated Statements of Operations include the results of operations of Inet since September 30, 2004. The following (unaudited) pro forma consolidated results of operations have been prepared as if the acquisition of Inet had occurred at June 1, 2003, the beginning of Tektronix fiscal year 2004.

|                                                 |  | Fiscal quarter
        ended |         | Two fiscal
        quarters ended |  
|------------------------------------------------ |  | ---------------------------- | ------- | --------------------------------- | -
|                                                 |  |                              |         |                                   |  
|(In
        thousands, except per share amounts) |  | Nov. 27, 2004                |         | Nov. 29, 2003                     |  
|                                                 |  |                              |         |                                   |  
|Sales                                            |  | $                            | 280,530 |                                   | $
|Net
        earnings                             |  |                              | 32,034  |                                   |  
|                                                 |  |                              |         |                                   |  
|Net
        earnings per share  basic           |  | $                            | 0.36    |                                   | $
|Net
        earnings per share  diluted         |  |                              | 0.35    |                                   |  

The write-off of IPR&D is excluded from the calculation of net earnings and net earnings per share in the table shown above.

24



The pro forma information is presented for informational purposes only and is not necessarily indicative of the results of operations that actually would have been achieved had the acquisition been consummated as of that time, nor is it intended to be a projection of future results.

Business Realignment Costs

Business realignment costs represent actions to realign our cost structure in response to significant events and primarily include restructuring actions and impairment of assets resulting from reduced business levels.  Business realignment actions taken were intended to reduce our worldwide cost structure across all major functions in response to the dramatic economic decline, which severely impacted markets into which we sell our products.  Major operations impacted include manufacturing, engineering, sales, marketing and administrative functions.  In addition to severance, we incurred other costs associated with restructuring our organization, which primarily represented facilities contracts and other exit costs associated with aligning the cost structure to appropriate levels.  Actions taken have or are expected to result in reduced operating costs in periods following the period
in which the costs were incurred, primarily through reductions in labor costs.  Management believes that the restructuring actions implemented in recent fiscal years have resulted in the costs savings anticipated for those actions.

Costs incurred during the current quarter primarily relate to restructuring actions we planned in prior years which were executed in the current quarter.  Many of the restructuring actions planned take significant time to execute, particularly if they are being conducted in countries outside the United States.

Business
  realignment costs of $0.2 million in the second quarter of fiscal year 2005
  primarily included severance and related costs of $0.2 million, largely in Japan,
  for 8 employees, $0.1 million for accelerated depreciation of assets and contractual
  obligations largely in Europe, offset by a $0.1 million credit from net accumulated
  currency translation gains.  For the first two fiscal quarters of fiscal
  year 2005, business realignment costs of $2.3 million included severance and
  related costs of $1.3 million for 29 employees, $0.8 million for contractual
  obligations, and $0.3 million for accelerated depreciation of assets, offset
  by a $0.1 million credit from net accumulated currency translation gains. Business
  realignment costs in the first two quarters of fiscal year 2005 largely relate
  to residual activities for actions taken in Europe.  Expected future annual
  salary cost savings from actions taken in the first two quarters of fiscal year
  2005 to reduce employee headcount is not significant.  At November 27,
  2004, the remaining liabilities for employee severance and related benefits
  were maintained for 33 employees.

25



Activity for the above described actions during the first two quarters of fiscal year 2005 was as follows:

|(In thousands)                             |  | Balance   May 29,   2004 |       | Costs   incurred |   | Cash   payments |   | Non-cash   adjustments |        | Balance   Nov. 27,   2004 |  
|------------------------------------------ |  | ------------------------ | ----- | ---------------- | - | --------------- | - | ---------------------- | ------ | ------------------------- | -
|                                           |  |                          |       |                  |   |                 |   |                        |        |                           |  
|Fiscal Year 2005 Actions:                  |  |                          |       |                  |   |                 |   |                        |        |                           |  
|Employee severance and related benefits    |  | $                        |      |                  | $ | 1,608           |   | $                      | (932   | )                         | $
|Asset impairments                          |  |                          |      |                  |   | 289             |   |                        |       |                           |  
|Contractual obligations                    |  |                          |      |                  |   | 468             |   |                        | (463   | )                         |  
|Accumulated currency translation gain, net |  |                          |      |                  |   | (121            | ) |                        |       |                           |  
|                                           |  |                          |       |                  |   |                 |   |                        |        |                           |  
|Total                                      |  |                          |      |                  |   | 2,244           |   |                        | (1,395 | )                         |  
|                                           |  |                          |       |                  |   |                 |   |                        |        |                           |  
|Fiscal Year 2004 Actions:                  |  |                          |       |                  |   |                 |   |                        |        |                           |  
|Employee severance and related benefits    |  |                          | 5,335 |                  |   | (319            | ) |                        | (3,481 | )                         |  
|Contractual obligations                    |  |                          | 409   |                  |   | 379             |   |                        | (745   | )                         |  
|                                           |  |                          |       |                  |   |                 |   |                        |        |                           |  
|Total                                      |  |                          | 5,744 |                  |   | 60              |   |                        | (4,226 | )                         |  
|                                           |  |                          |       |                  |   |                 |   |                        |        |                           |  
|Fiscal Year 2003 Actions:                  |  |                          |       |                  |   |                 |   |                        |        |                           |  
|Employee severance and related benefits    |  |                          | 294   |                  |   | (19             | ) |                        | (269   | )                         |  
|Contractual obligations                    |  |                          | 1,240 |                  |   |                |   |                        | (220   | )                         |  
|                                           |  |                          |       |                  |   |                 |   |                        |        |                           |  
|Total                                      |  |                          | 1,534 |                  |   | (19             | ) |                        | (489   | )                         |  
|                                           |  |                          |       |                  |   |                 |   |                        |        |                           |  
|Fiscal Year 2002 Actions:                  |  |                          |       |                  |   |                 |   |                        |        |                           |  
|Employee severance and related benefits    |  |                          | 152   |                  |   | (2              | ) |                        | (41    | )                         |  
|Contractual obligations                    |  |                          | 54    |                  |   |                |   |                        | (15    | )                         |  
|                                           |  |                          |       |                  |   |                 |   |                        |        |                           |  
|Total                                      |  |                          | 206   |                  |   | (2              | ) |                        | (56    | )                         |  
|                                           |  |                          |       |                  |   |                 |   |                        |        |                           |  
|Total of all actions                       |  | $                        | 7,484 |                  | $ | 2,283           |   | $                      | (6,166 | )                         | $
|                                           |  |                          |       |                  |   |                 |   |                        |        |                           |  

Critical Accounting Estimates

Management
  has identified the critical accounting estimates, which are those
  that are most important to our portrayal of the financial condition and operating
  results and require difficult and subjective judgments, often as a result of
  the need to make estimates of matters that are inherently uncertain.  Significant
  estimates underlying the accompanying consolidated financial statements and
  the reported amount of net sales and expenses include revenue recognition, contingencies,
  intangible asset valuation, pension plan assumptions and the assessment of the
  valuation of deferred income taxes and income tax contingencies.

Revenue Recognition

Tektronix recognizes product revenue when persuasive evidence of an arrangement exists, delivery has occurred, the sales price is fixed or determinable and collectibility is probable.  The majority of our products are sold in this manner.  These criteria are met at the time the product is shipped under FOB shipping point shipping terms. Upon shipment, Tektronix also provides for estimated costs that may be incurred for product warranties and sales returns.  When other significant obligations remain after products are delivered, revenue is recognized only after such obligations are fulfilled.

26



The
  majority of the contracts for network monitoring solution products which
  were acquired in the Inet acquisition, contain multiple billing milestones,
  such as contract award, shipment, installation, ready for acceptance and acceptance,
  not all of which are associated with revenue recognition. Except as otherwise
  discussed below, revenues from these products and license fees are recognized
  in the period that we have completed all hardware manufacturing and/or software
  development to contractual specifications, factory testing has been completed,
  the product has been shipped to the customer, the fee is fixed and determinable
  and collection of the fee is considered probable. Revenues from arrangements
  that include significant acceptance terms and/or provisions are recognized when
  acceptance has occurred.

Contracts
  for our network monitoring solution products often involve multiple deliverables. 
  We determine the fair value of each of the contract deliverables using vendor-specific
  objective evidence, or VSOE.  VSOE for each element of the contract is
  based on the price for which we sell the element on a stand-alone basis. 
  Elements of the contracts include product support services, which include the
  correction of software problems, hardware replacement, telephone access to our
  technical personnel and the right to receive unspecified product updates, upgrades
  and enhancements, when and if they become available.  Revenues from these
  services, including post-contract support included in initial licensing fees,
  are recognized ratably over the service period.  Post-contract support
  included in the initial licensing fee is allocated from the total contract amount
  based on the fair value of these services determined using VSOE.  If we
  determine that we do not have VSOE on an undelivered element of an arrangement,
  we will not recognize revenue until all elements of the arrangement are delivered. 
  This occurrence could materially impact our financial results because of the
  significant dollar amount of many of our contracts and the significant portion
  of total revenues that a single contract may represent in any particular period.

Revenue
  earned from service is recognized ratably over the contractual period or as
  the services are performed.  Shipping and handling costs are recorded as
  Cost of sales on the Condensed Consolidated Statements of Operations.

Contingencies

Tektronix is subject to claims and litigation concerning intellectual property, environmental and employment issues, and settlement of contingencies related to prior dispositions of assets.  Accruals have been established based upon managements best estimate of the ultimate outcome of these matters.  We review the status of any claims, litigation and other contingencies on a regular basis, and adjustments are made as additional information becomes available.  As of November 27, 2004, $19.5 million of contingencies were recorded in Accounts payable and accrued liabilities on the Condensed Consolidated Balance Sheets, which included $10.4 million of contingencies relating to the sale of the Color Printing and Imaging division (CPID) described below, $3.2 million for environmental exposures and $5.9 million for other contingent liabilities.  It is reasonably possible
that our estimates of contingencies could change in the near term and that such changes could be material to the consolidated financial statements.

At the time
of the sale of CPID on January 1, 2000, we deferred the recognition of $60.0
million of gain on the sale and recorded contingencies of $60.0 million. 
In accordance with Statement of Financial Accounting Standards
(SFAS) No. 5, Accounting for Contingencies, our policy is
to defer recognition of a gain where we believe contingencies exist which may
result in that gain being recognized prior to realization.  We analyze the
amount of deferred gain in relation to outstanding contingencies and recognize
additional gain when objective evidence indicates that such contingencies are
believed to be resolved.  The $60.0 million of contingencies represents the
deferral of a portion of the gain on sale that we believed was not realizable
due to certain contingencies contained in the final sale agreement.  Of the
original $60.0 million of contingencies, $22.6 million has been utilized to
settle claims and $27.0 million was recognized in subsequent periods.  As
of November 27, 2004 and May 29, 2004, the balance of the contingencies related
to the CPID disposition was $10.4 million, a significant portion of which may
take several years to resolve.  We continue to monitor the status of the
CPID related contingencies based on information received.  If unforeseen
events or circumstances arise subsequent to the balance sheet date, changes in
the estimate of these contingencies could be material to the financial
statements.

27



Included in contingent liabilities is $3.2 million specifically associated with the closure and cleanup of a licensed hazardous waste management facility at our Beaverton, Oregon, campus.  The initial liability was established in 1998, and we base ongoing estimates on currently available facts and presently enacted laws and regulations.  Costs for tank removal and cleanup were incurred in fiscal year 2001.  Costs currently being incurred primarily relate to ongoing monitoring and testing of the site.  Our best estimate of the range of remaining reasonably possible cost associated with this environmental cleanup, testing and monitoring could be as high as $10.0 million. We believe that the recorded liability represents the low end of the range.  These costs are expected to be incurred over the next several years.  If events or circumstances arise that are unforeseen to us as
of the balance sheet date, actual costs could differ materially from this estimate.

The remaining $5.9 million of contingency accruals include amounts related to intellectual property and employment issues, as well as contingencies related to dispositions of assets other than CPID.  If events or circumstances arise that we did not foresee as of the balance sheet date, actual costs could differ materially from this estimate.

Goodwill
  and Intangible Assets

Goodwill
  and intangible assets are accounted for in accordance with SFAS No. 141, Business
  Combinations, and SFAS No. 142, Goodwill and Other Intangible Assets. 
  Accordingly, we do not amortize goodwill and intangible assets with indefinite
  useful lives from acquisitions, but we amortize other acquisition-related intangibles
  with definite useful lives.  As of November 27, 2004, the balance of goodwill,
  net was $304.1 million, which is recorded on the Condensed Consolidated Balance
  Sheets.

We performed our annual goodwill impairment analysis during the second quarter of fiscal year 2005 and identified no impairment.  The impairment analysis is based on a discounted cash flow approach that uses estimates of future market share and revenues and costs for the reporting units as well as appropriate discount rates.  The estimates used are consistent with the plans and estimates that we use to manage the underlying businesses.  However, if we fail to deliver new products for these reporting units, if the products fail to gain expected market acceptance, or if market conditions in the related businesses are unfavorable, revenue and cost forecasts may not be achieved, and we may incur charges for impairment of goodwill.

As
  of November 27, 2004, we had $120.8 million of non-goodwill intangible assets
  recorded in Other long-term assets on the Condensed Consolidated Balance Sheets,
  which includes intangible assets from the acquisition of Inet, patents and licenses
  for certain technology. For intangible assets with definite useful lives that
  are not software-related, we amortize the cost over the estimated useful lives
  and assess any impairment by estimating the future cash flow from the associated
  asset in accordance with SFAS No. 144, Accounting for the Impairment or
  Disposal of Long-Lived Assets.  If the estimated undiscounted cash
  flow related to these assets decreases in the future or the useful life is shorter
  than originally estimated, we may incur charges to impair these assets. 
  The impairment would be based on the estimated discounted cash flow associated
  with each asset.  Impairment could result if the underlying technology
  fails to gain market acceptance, we fail to deliver new products related to
  these technology assets, the products fail to gain expected market acceptance
  or if market conditions in the related businesses are unfavorable. For software-related
  intangible assets with definite useful lives, we amortize the cost over the
  estimated economic life of the software product and assess impairment in accordance
  with SFAS No. 86, Accounting for the Costs of Computer Software to Be Sold,
  Leased, or Otherwise Marketed. At each balance sheet date, the unamortized
  cost of the software-related intangible asset is compared to its net realizable
  value. The net realizable value is the estimated future gross revenues from
  the software product reduced by the estimated future costs of completing and
  disposing of that product, including the costs of performing maintenance and
  customer support. The excess of the unamortized cost over the net realizable
  value will be recognized as an impairment loss. For intangible assets with indefinite
  useful lives, we review these annually for impairment and more frequently if
  events or circumstances indicate that the asset may be impaired in accordance
  with SFAS No. 142. The impairment test for these assets is a comparison of the
  fair value of the intangible asset with its carrying value. Any excess of carrying
  value over fair value will be recognized as an impairment loss.

Pension Plans

Tektronix offers defined benefit pension plan benefits to employees in certain countries.  The Cash Balance plan in the United States is our largest defined benefit pension plan.  Employees hired after July 31, 2004 do not participate in the U.S. Cash Balance pension plan.  We maintain less significant defined benefit plans in other countries including the United Kingdom, Germany, Holland and Taiwan.

Pension plans are a significant cost of doing business and the related obligations are expected to be settled far in the future.  Accounting for defined benefit pension plans results in the current recognition of liabilities and net periodic pension cost over employees expected service periods based on the terms of the plans and the impact of our investment and funding decisions.  The measurement of pension obligations and recognition of liabilities and costs require significant assumptions, such as the discount rate and the expected long-term rate of return on the assets of the plan.

28



Discount rate assumptions are used to measure pension obligations for the recognition of a net pension liability on the balance sheet and the service cost and interest cost components of net periodic pension cost.  We estimate discount rates to reflect the rates at which the pension benefits could be effectively settled.  In making those estimates, we evaluate rates of return on high-quality fixed-income investments currently available and expected to be available during the settlement of future pension benefits.  The weighted average of discount rates used in determining our pension obligation as of May 29, 2004 was 6.1%.

The long-term rate of return on plan assets assumption is applied to the market related value of plan assets to estimate income from return on plan assets.  This income from return on plan assets offsets the various cost components of net periodic pension cost.  The various cost components of net periodic pension cost primarily include interest cost on accumulated benefits, service cost for benefits earned during the period, and amortization of unrecognized gains and losses.  The amount of net pension expense recognized has increased from prior periods due primarily to our beginning to amortize previously unrecognized losses on the decline in value of plan assets, decline in the return on plan assets assumption, and reduction in the market related value of plan assets.  Cumulative income recognized from the long-term rate of return on plan assets assumption has differed materially from
the actual returns on plan assets.  This has resulted in a net unrecognized loss on plan assets that contributed a significant portion of the additional minimum pension liability described below.  To the extent this unrecognized loss is not offset by future unrecognized gains, there will continue to be a negative impact to net earnings as this amount is amortized as a cost component of net periodic pension cost.

Our estimated weighted average long-term rate of return on plan assets for fiscal year 2005 is approximately 8.4%.  A one percent change in the estimated long-term rate of return on plan assets would result in a change in operating income of $5.9 million for fiscal year 2005.

We
  will continue to assess assumptions for the expected long-term rate of return
  on plan assets and discount rate based on relevant market conditions as prescribed
  by accounting principles generally accepted in the United States of America
  and will make adjustments to the assumptions as appropriate.  Net pension
  expense was $1.4 million and $2.8 million, respectively, in the second quarter
  and first two quarters of fiscal year 2005, which included the effect of the
  recognition of service cost, interest cost, the assumed return on plan assets
  and amortization of a portion of the unrecognized loss noted above.  Net
  pension expense was allocated to Cost of sales, Research and development and
  Selling, general and administrative expenses in the Condensed Consolidated Statements
  of Operations.

We measure pension obligations, fair value of plan assets, and the impact of significant assumptions at the end of each fiscal year.  At May 29, 2004, the accumulated benefit obligation exceeded the fair value of plan assets for certain pension plans, resulting in an unfunded accumulated benefit obligation for those plans.  In accordance with SFAS No. 87, Employers Accounting for Pensions, we recognized an additional minimum pension liability due to the unfunded accumulated benefit obligation.  Recognition of an additional minimum liability was required since an unfunded accumulated benefit obligation exists and an asset has been recognized as prepaid pension cost.  Since the additional minimum liability exceeded unrecognized prior service cost, the excess (which would represent a net loss not yet recognized as net periodic pension cost) has been reported as a
component of Accumulated other comprehensive loss, net of applicable income tax benefit.  As of May 29, 2004, the cumulative additional minimum pension charge included in Accumulated other comprehensive loss was $173.7 million, net of income tax benefit of $107.9 million.  The implication of the additional minimum pension liability is that it may reduce net income in future years by reducing the market related value of plan assets, thereby reducing the asset base upon which we recognize a return.  We may find it necessary to fund additional pension assets, which would increase the market related value of plan assets upon which we recognize a return but would reduce operating cash and future interest earnings on that cash.  In the first quarter of fiscal year 2005, we made a voluntary contribution of $46.5 million to the U.S. Cash Balance pension plan, which represents the expected funding for the fiscal year.

Income Taxes

We are subject to taxation from federal, state and international jurisdictions.  Our annual provision for income taxes and the determination of the resulting deferred tax assets and liabilities involve a significant amount of management judgment and are based on the best information available at the time. The actual income tax liabilities to the jurisdictions with respect to any fiscal year are ultimately determined long after the financial statements have been published.  We maintain reserves for

29



estimated tax exposures in jurisdictions of operation.  These tax jurisdictions include federal, state and various international tax jurisdictions.  Significant income tax exposures include potential challenges of research and experimentation credits, export-related tax benefits, disposition transactions and intercompany pricing.  Exposures are settled primarily through the settlement of audits within these tax jurisdictions, but can also be affected by changes in applicable tax law or other factors, which could cause our management to believe a revision of past estimates is appropriate.  Management believes that an appropriate liability has been established for estimated exposures; however, actual results may differ materially from these estimates.  The liabilities are frequently reviewed for their adequacy and appropriateness.  As of November 27, 2004, we were subject to income tax audits for fiscal years 2001, 2002 and 2003. 
The liabilities associated with these years will ultimately be resolved when events such as the completion of audits by the taxing jurisdictions occur.  To the extent the audits or other events result in a material adjustment to the accrued estimates, the effect would be recognized in Income tax expense in the Consolidated Statements of Operations in the period of the event.

Judgment is also applied in determining whether deferred tax assets will be realized in full or in part.  When it is more likely than not that all or some portion of specific deferred tax assets such as foreign tax credit carryovers or net operating loss carryforwards will not be realized, a valuation allowance must be established for the amount of the deferred tax assets that are determined not to be realizable.  As of November 27, 2004, we maintained a valuation allowance against deferred tax assets, primarily foreign tax credit carryforwards.  We have not established valuation allowances against other deferred tax assets based on tax strategies planned to mitigate the risk of impairment to these assets.  Accordingly, if our facts or financial results were to change thereby impacting the likelihood of realizing the deferred tax assets, judgment would have to be applied to determine
changes to the amount of the valuation allowance required to be in place on the financial statements in any given period.  We continually evaluate strategies that could allow the future utilization of our deferred tax assets.

30



RESULTS OF OPERATIONS

|                                                                  |  | Fiscal quarter
        ended |       | Two fiscal
        quarters ended |  
|----------------------------------------------------------------- |  | ---------------------------- | ----- | --------------------------------- | -
|                                                                  |  |                              |       |                                   |  
|(In
        millions, except per share amounts)                   |  | Nov. 27,
        2004        |       | Nov. 29,
        2003             |  
|                                                                  |  |                              |       |                                   |  
|Product
        orders                                            |  | $                            | 234.9 |                                   | $
|                                                                  |  |                              |       |                                   |  
|Net
        sales                                                 |  |                              | 266.8 |                                   |  
|Cost
        of sales                                             |  |                              | 106.5 |                                   |  
|                                                                  |  |                              |       |                                   |  
|Gross
        profit                                              |  |                              | 160.3 |                                   |  
|                                                                  |  |                              |       |                                   |  
|Gross
        margin                                              |  |                              | 60.1  | %                                 |  
|                                                                  |  |                              |       |                                   |  
|Research
        and development expenses                         |  |                              | 41.9  |                                   |  
|Selling,
        general and administrative expenses              |  |                              | 76.3  |                                   |  
|Acquisition
        related costs (credits) and amortization, net |  |                              | 34.9  |                                   |  
|Business
        realignment costs                                |  |                              | 0.2   |                                   |  
|Loss
        (gain) on disposition of assets, net                 |  |                              | 0.1   |                                   |  
|                                                                  |  |                              |       |                                   |  
|Operating
        income                                          |  |                              | 6.9   |                                   |  
|Interest
        income                                           |  |                              | 3.9   |                                   |  
|Interest
        expense                                          |  |                              | (0.3  | )                                 |  
|Other
        non-operating income (expense), net                 |  |                              | (1.1  | )                                 |  
|                                                                  |  |                              |       |                                   |  
|Earnings
        before taxes                                     |  |                              | 9.4   |                                   |  
|Income
        tax expense                                        |  |                              | 12.0  |                                   |  
|                                                                  |  |                              |       |                                   |  
|Net
        earnings (loss) from continuing operations            |  |                              | (2.6  | )                                 |  
|Loss
        from discontinued operations, net of income taxes    |  |                              | (0.2  | )                                 |  
|                                                                  |  |                              |       |                                   |  
|Net
        earnings (loss)                                       |  | $                            | (2.8  | )                                 | $
|                                                                  |  |                              |       |                                   |  
|Earnings
        (loss) per share:                                |  |                              |       |                                   |  
|Continuing
        operations  basic                             |  | $                            | (0.03 | )                                 | $
|Continuing
        operations  diluted                           |  | $                            | (0.03 | )                                 | $
|Discontinued
        operations  basic and diluted               |  | $                            |      |                                   | $
|Net
        earnings (loss)  basic                               |  | $                            | (0.03 | )                                 | $
|Net
        earnings (loss)  diluted                             |  | $                            | (0.03 | )                                 | $

Second Quarter and First Two Quarters of Fiscal Year 2005 Compared to the Second Quarter and First Two Quarters of Fiscal Year 2004

Economic Conditions

Beginning in the second half of fiscal year 2001, and continuing through fiscal year 2002, economic conditions had a significant negative impact on many markets into which Tektronix sold products including, but not limited to, optical design and manufacturing, mobile handset manufacturing, automated test equipment, telecommunications and semiconductor design and manufacturing.  During fiscal year 2003, these economic conditions continued to affect many of the markets into which Tektronix sold products, although the impact was less severe than in prior years and certain markets appeared to begin to stabilize towards the end of that fiscal year.  From a geographical perspective, we began to see the economic environment stabilize in the United States and Japan.

31



The stabilization of certain markets that began at the end of fiscal year 2003 continued into fiscal year 2004.  During fiscal year 2004, we continued to experience a phased recovery of our end markets, with growth across all regions and most product lines throughout the fiscal year.  We continued to see growth in demand broadly across the business during the first two quarters of fiscal year 2005.  From a regional standpoint, we saw the strongest demand for our products in Japan and the Pacific.  There can be no assurance that our underlying end markets will continue to improve or that the recent increased levels of business activity will continue as a trend into the future.

In response to the reduced level of orders and associated sales in fiscal year 2002 and 2003, we incurred significant business realignment costs.  We continued to incur business realignment costs during fiscal year 2004 to further reduce Tektronix cost structure in order to provide an amount of operating income that we believed was appropriate at the current sales levels.  In addition to incurring costs to realign Tektronix cost structure during fiscal year 2003 and 2004, we also incurred costs to restructure the operations of the Japan subsidiary acquired through the acquisition of Sony/Tektronix Corporation and also recognized certain costs and credits directly associated with the integration of this subsidiary.  Many of the costs incurred during fiscal year 2004 and the first two quarters of fiscal year 2005 were associated with actions that were identified during prior
fiscal years, but for which sufficient action had not yet been taken to support the recognition of the associated expense.  Many of the business realignment actions that we identified take significant time to execute, particularly if they are being conducted in countries outside the United States.

Acquisition of Inet Technologies, Inc.

We completed the acquisition of Inet on September 30, 2004.  Accordingly, the results of operations for the second quarter of fiscal year 2005 include two months of activity from this business.  As there is no Inet related activity in the prior year comparative periods, an understanding of the impact from the acquisition of Inet is an important component to understanding the current year results of operations.  In our description of the results of operations that follow, we will quantify the impact of the Inet acquisition where meaningful.

Discontinuation of Rohde and Schwarz Distribution Agreement

On March 18, 2004, we announced the discontinuation of an existing distribution agreement with Rohde and Schwarz (R&S), under which Tektronix served as the exclusive distributor for R&S communication test products in the United States and Canada.  The discontinuation of this distribution agreement was effective June 1, 2004.  Tektronix had served in this distribution role for R&S since October 1993.  As we had anticipated, substantially all product backlog related to R&S distributed product at the end of fiscal year 2004 was shipped and recognized as revenue during the first quarter of fiscal year 2005.  Accordingly, we will not derive significant revenue from the shipment of R&S products in quarters after the first quarter of fiscal year 2005.  During the second quarter of fiscal years 2005 and 2004, we generated revenue of $1.8 million and
$16.5 million, respectively, from R&S distributed products.  During the first two quarters of fiscal years 2005 and 2004, we generated revenue of $23.0 million and $33.6 million, respectively, from R&S distributed products.  As Tektronix was merely a distributor of these products, the corresponding sales generated lower gross margins compared to sales of products manufactured by Tektronix.  During the second quarter of fiscal year 2005 and 2004, gross margins on these distribution sales were 7.9% and 24.0%, respectively.  During the first two quarters of fiscal year 2005 and 2004, gross margins on these distribution sales were 27.6% and 23.1%, respectively.

32



Product Orders

|                               |  | Fiscal   quarter ended |       | Two fiscal   quarters ended |  
|------------------------------ |  | ---------------------- | ----- | --------------------------- | -
|                               |  |                        |       |                             |  
|(In millions)                  |  | Nov. 27,   2004        |       | Nov. 29,   2003             |  
|                               |  |                        |       |                             |  
|Consolidated   product orders: |  |                        |       |                             |  
|Tektronix products             |  | $                      | 213.9 |                             | $
|Inet products                  |  |                        | 20.9  |                             |  
|R&S distributed products       |  |                        | 0.1   |                             |  
|                               |  |                        |       |                             |  
|Total product orders           |  | $                      | 234.9 |                             | $
|                               |  |                        |       |                             |  

Product orders consist of cancelable commitments to sell currently produced products to customers with deliveries scheduled generally within six months of being recorded.  During the second quarter of fiscal year 2005, product orders increased by $10.7 million, or 5%, from the same quarter last year. Product orders during the first two quarters of fiscal year 2005 increased by $5.5 million, or 1%, from the same period last year.

During the second quarter of fiscal year 2005, the increase in product orders was attributable to the net effect of additional orders of $20.9 million from the acquisition of Inet, offset by a decrease in orders from the discontinuation of the R&S distribution agreement, and growth in our other product categories, primarily driven by growth in our general purpose instruments products.  Growth in general purpose instruments products was primarily attributable to good acceptance of new products, particularly our oscilloscope and logic analyzer products.

During
  the first two quarters of fiscal year 2005 product orders increased 1%, the
  net effect of 6% growth in product orders before considering the impact from
  Inet or the discontinuation of the R&S distribution agreement, the addition
  of $20.9 million from the Inet acquisition and a $38.6 million decline from
  discontinuing the R&S distribution agreement.  The 6% growth in Tektronix
  produced products before considering Inet was primarily attributable to growth
  in our general instruments products, primarily oscilloscopes and logic analyzers.

Growth in our general purpose instruments during both the second quarter and the first two quarters of fiscal year 2005 was attributable to a number of factors including growth in the underlying technology markets into which we sell these products, good acceptance of new products and certain regional economic growth discussed below.

|                                         |  | Fiscal   quarter ended |       | Two fiscal   quarters ended |  
|---------------------------------------- |  | ---------------------- | ----- | --------------------------- | -
|                                         |  |                        |       |                             |  
|(In   millions)                          |  | Nov. 27,   2004        |       | Nov. 29,   2003             |  
|                                         |  |                        |       |                             |  
|Consolidated product orders by   region: |  |                        |       |                             |  
|The Americas:                            |  |                        |       |                             |  
|United States                            |  | $                      | 85.0  |                             | $
|Other Americas                           |  |                        | 7.2   |                             |  
|Europe                                   |  |                        | 58.2  |                             |  
|Pacific                                  |  |                        | 47.7  |                             |  
|Japan                                    |  |                        | 36.8  |                             |  
|                                         |  |                        |       |                             |  
|Total product orders                     |  | $                      | 234.9 |                             | $
|                                         |  |                        |       |                             |  

Geographically, product orders increased by 14% internationally in the second quarter of fiscal year 2005 as compared with the same quarter last year, but decreased 9% in the United States.  During the first two quarters of fiscal year 2005, product orders increased by 16% internationally, but decreased by 18% in the United States.

33



We
  experienced growth in Europe, Japan and the Pacific regions during both the
  second quarter and first two quarters of fiscal year 2005.  Growth in Europe
  was primarily attributable to the acquisition of Inet, which has significant
  large customers in that region.  In addition, Europe was favorably impacted
  by fluctuations in the foreign exchange rate of the Euro against the US Dollar. 
  Growth in Japan was favorably impacted by the continued economic recovery in
  that region as well as strong acceptance of new products.  Japan was also
  favorably impacted by fluctuations in the foreign exchange rate of the Yen against
  the US Dollar.  Growth in the Pacific region was primarily associated with
  the continued economic recovery in certain countries and the continued economic
  expansion in China.

The
  decline in the United States was primarily attributable to the discontinuation
  of the R&S distribution agreement discussed above.  The decline in
  R&S orders was almost entirely in the United States.  Excluding the
  decline associated with R&S orders and the orders attributable to Inet,
  the United States increased 4% and decreased 6%, for the second quarter and
  first two quarters of fiscal year 2005, respectively.  The increase in
  the United States during the second quarter was attributable to growth in the
  technology markets and good acceptance of new products.  The decline for
  the first two quarters of the current fiscal year was attributable to the high
  order growth level in the prior year that was associated with economic recovery
  in the United States that resulted in some excess demand from some customers
  deferring capital purchases during the extreme downturn of 2002 and 2003. 
  In addition, we experienced certain large order activity in the first half of
  the prior year which did not, and was not expected to, repeat in the current
  year.

The
  favorable impact of foreign currency exchange rates accounted for total year
  over year growth of approximately 2% and 3% for the second quarter and first
  two quarters of fiscal year 2005, respectively.  As noted above, the favorable
  impact was mostly due to currency fluctuation in Europe and Japan.

Net Sales

Net sales during the second quarter of fiscal year 2005 increased by $48.9
million, or 22%, over the same period last year. Sales for the first two
quarters of fiscal year 2005 increased $97.9 million, or 23%, over the same
period last year.  The overall increase in net sales for both the second quarter
and first two quarters of fiscal year 2005 reflects a combination of factors
including the addition of Inet sales of $20.7 million during the current fiscal
year second quarter and backlog reductions in the second quarter and first two
quarters of the current fiscal year. These factors that increased net sales were
partially offset by a reduction in sales due to the discontinuation of the R&S
distribution agreement.

In the current quarter product backlog was reduced by $12.9 million as compared
  with an increase in product backlog of $19.6 million in the prior year second
  quarter, resulting in a net increase to sales of $32.5 million.  This reduction
  in backlog has the impact of increasing net sales relative to the change in
  product orders.  In addition, our net sales included $20.7 million as a
  result of the acquisition of Inet. These increases were partially offset by
  the impact from the discontinuation of the R&S distribution agreement. 
  In the prior year second quarter, we had net sales of $16.5 million from R&S
  distribution product as compared with only $1.8 million of sales of R&S
  product in the current quarter.

In the first two quarters of the current fiscal year product backlog was
reduced by $37.2 million as compared with an increase in product backlog of
$39.5 million in the prior year second quarter, resulting in a net increase to
sales of $76.7 million. In addition, our net sales included $20.7 million as a
result of the acquisition of Inet. These increases were partially offset by the
impact from the discontinuation of the R&S distribution agreement.  In the first
two quarters of the prior year, we had net sales of $33.6 million from R&S
distribution product as compared with $23.0 million of sales in the first two
quarters of the current fiscal year.

In addition to product sales, net sales also include service revenues and sales from Maxtek, our wholly-owned components manufacturing subsidiary that produces components for third party customers as well as for Tektronix.  As we increase or decrease the level of product backlog within any given fiscal period, the direct correlation between product orders and product sales may vary.

Net
  sales in the United States increased by 9% in the second quarter of fiscal year
  2005 as compared with the same quarter last year, while international net sales
  increased by 33%.  During the first two quarters of fiscal year 2005, net
  sales in the United States increased by 17% compared to the same period last
  year, while international net sales increased by 28%.  The increase in
  net sales in the United States in the second quarter of fiscal year 2005 was
  primarily attributable to the addition of sales from the Inet acquisition. For
  the first two quarters of fiscal year 2005, net sales in the United States included
  the shipment of substantially all backlog related to R&S distributed product. 
  The increase in international net sales was generally associated with the geographical
  mix of orders received, reflecting the increased order demand in Japan and the
  Pacific region, as well as international sales from the Inet acquisition beginning
  in the second quarter of fiscal year 2005.

34



Gross
  Profit and Gross Margin

Gross
  profit for the second quarter of fiscal year 2005 was $160.3 million, an increase
  of $38.5 million or 32%, from gross profit of $121.8 million for the same quarter
  last year.  For the first two quarters of fiscal year 2005, gross profit
  was $308.8 million, an increase of $77.9 million, or 34%, from gross profit
  of $230.9 for the same period last year.  The increase in gross profit
  was attributable to the increase in sales volume described above during the
  current fiscal year as well as the increase in gross margin on those sales.

Gross
  margin is the measure of gross profit as a percentage of net sales.  Gross
  margin for the second quarter of fiscal year 2005 was 60.1%, an increase of
  4.2% points over gross margin of 55.9% in the same quarter last year. 
  Gross margin for the first two quarters of fiscal year 2005 was 59.7%, an increase
  of 4.6% points over gross margin of 55.1% in the same period last year. 
  Gross margin is typically affected by a variety of factors including, among
  other items, sales volumes, mix of product shipments, product pricing, inventory
  impairments and other costs such as warranty repair and sustaining engineering.

The
  improvement in gross margin during both the second quarter of the current year
  and the first two quarters of the current fiscal year was primarily attributable
  to higher sales volumes, which spread additional revenue over a partially fixed
  manufacturing cost structure, and favorable mix resulting from the shipment
  of higher margin products.  Our favorable mix has primarily resulted from
  two factors.  First, we continue to introduce new products that have been
  well received in the market.  Typically, new products tend to yield higher
  gross margins, and we have experienced this on our recently introduced new oscilloscope
  products.  Second, the discontinuation of the R&S distribution agreement
  has favorably impacted gross margin.  As we were merely the distributor
  of those products, the associated gross margin was lower than margins we typically
  experience for Tektronix manufactured product.  In addition to sales volumes
  and favorable mix, the positive impact of our explicit program to increase gross
  margin, whereby we reviewed all cost drivers within gross margin and created
  a focused effort on reducing these costs where appropriate also contributed
  to the year over year increase.  The improvements in gross margin were
  partially offset by amortization of intangible assets of $3.1 million and the
  non-cash expense of $1.6 million from inventory step up to fair value from the
  Inet acquisition.  For additional information on the amortization of intangibles
  see the Acquisition of Inet Technologies, Inc. section above in this Managements
  Discussion and Analysis.

During
  the second quarter of fiscal years 2005 and 2004, gross margins on R&S distribution
  sales were 7.9% and 24.0%, respectively.  During the first two quarters
  of fiscal year 2005 and 2004, gross margins on R&S distribution sales were
  27.6% and 23.1%, respectively.

Operating Expenses

In the current fiscal period, operating expenses included research and development expenses, selling general and administrative expenses, business realignment costs, acquisition related costs, amortization of acquisition related items and gains and losses from the sale of fixed assets.  Each of these categories of operating expenses is discussed further below.  It should be noted that although a portion of operating expenses is variable and therefore will fluctuate with operating levels, many costs are fixed in nature and are therefore subject to increase due to inflation and annual labor cost increases.  Additionally, we must continue to invest in the development of new products and the infrastructure to market and sell those products even during periods where operating results reflect only nominal growth, are flat or declining.  Accordingly, as we make cost reductions in response to
changes in business levels or other specific business events, these reductions can be partially or wholly offset by these other increases to the fixed cost structure.

35



Research and development (R&D) expenses are incurred for the design and testing of new products, technologies and processes, including pre-production prototypes, models and tools.  Such costs include labor and employee benefits, contract services, materials, equipment and facilities.  R&D expenses increased $10.5 million, or 33%, during the second quarter of fiscal year 2005 as compared with the same quarter last year, and increased by $15.0 million, or 25% during the first two quarters of fiscal year 2005 as compared with the same period last year.  Approximately half of the increase in the current quarter was due to the inclusion of R&D expenses from the Inet acquisition.  The remaining increase in the current quarter and first two quarters of the current fiscal year was primarily attributable to increased spending on new product development and higher labor
related expense.  We continuously invest in the development of new products and technologies, and the timing of these costs varies depending on the stage of the development process.  During the current quarter and first two quarters of the current fiscal year we incurred higher expenses associated with engineering materials as a result of the current projects stages of development.  Labor related spending in the current quarter and first two quarters of the current fiscal year, excluding the impact of the Inet acquisition, increased approximately $2.9 million and $4.7 million, respectively, most of which was associated with annual salary increases, and increased variable incentive expense due to the relatively strong operating results that we experienced in the current quarter.  As Tektronix was a distributor of R&S products, there was no R&D expense associated with the sale of those products.

Selling, general and administrative (SG&A) expenses increased
$8.0 million, or 12% in the current quarter as compared with the same quarter
last year, and increased by $10.6 million, or 8% during the first two quarters
of fiscal year 2005 as compared with the same period last year.  More than
half of the increase in the current quarter was due to the inclusion of SG&A
expenses from the Inet acquisition.  The remaining increase in SG&A was
largely attributable to increased labor related expense, spending on our project
to comply with the provisions of Section 404 of the Sarbanes-Oxley Act of 2002
and less significant increases in other general spending categories including
travel, partly offset by savings from headcount reductions taken in the prior
year.  The increase in labor related expense was largely attributable to
annual salary increases, pension expense and higher variable incentives
expense.  In addition, the timing of program execution has an impact on the
ultimate level of SG&A expense.  During the first quarter of fiscal
year 2005, we did not execute a number of planned programs that would result in
higher SG&A expense.  Therefore, we would have expected to incur higher
SG&A expense in the normal course of business.  Many of these programs
will be executed in following quarters and accordingly, we anticipate higher
SG&A expenses in these future quarters.  Additionally, in each future
quarter we will include a full three months of expenses associated with the
Inet operations, while only two months are included in the second quarter of
fiscal year 2005.

Acquisition
  related costs (credits) and amortization, net are incurred as a direct result
  of the integration of significant acquisitions.  The acquisition related
  costs of $34.9 million for the second quarter of fiscal year 2005 primarily
  relate to the acquisition of Inet, which was completed in this quarter. 
  The largest item of these costs was the $32.2 million write-off of IPR&D
  in the current quarter. Other costs incuded $0.8 million for amortization of
  intangible assets and $0.2 million for amortization of unearned stock-based
  compensation, which represent amortization of items in the purchase price and
  the allocation of the purchase price discussed in the Acquisition of Inet Technologies,
  Inc. section above in this Management Discussion and Analysis.  Also included
  in the current quarter are transition expenses of $1.0 million, which represent
  incremental expenses to integrate the operations of Inet, and $0.7 million related
  to our acquisition of Sony/Tektronix in fiscal year 2003 mostly to accrue for
  voluntary retention bonuses to certain employees in Gotemba, Japan as an incentive
  to remain with Tektronix through August 2005 while we complete our plan to transition
  manufacturing operations to other locations.  Accordingly, Tektronix will
  recognize a liability for retention bonuses for 48 employees totaling $3.7 million
  that is being accrued ratably over 18 months through August 2005.  
  In the second quarter of the prior fiscal year, the net acquisition related
  credit of $35.7 million was largely attributable to a $36.7 million gain on
  pension restructuring which resulted from the substantial settlement of the
  defined benefit pension plans in Japan.

Business
  realignments costs represent actions to realign our cost structure in response
  to dramatic changes in operating levels or a significant acquisition or divestiture. 
  These costs primarily comprise severance costs for reductions in employee headcount
  and costs associated with the closure of facilities and subsidiaries. 
  In recent years, business realignment costs have primarily been associated with
  the realignment of our cost structure in response to the dramatic economic decline
  experienced in the technology sector beginning during fiscal years 2001, and
  continuing into fiscal year 2003, as well as restructuring costs associated
  with the acquisition of Sony/Tektronix.  In many cases, and especially
  in foreign countries, these actions may take significant time to execute. Accordingly,
  we have continued to experience business realignment costs in fiscal year 2005

36



for actions planned in response to
  the reductions in operating levels experienced in previous fiscal years. 
  During the second quarter of fiscal year 2005 we incurred business realignment
  costs of $0.2 million, a reduction from expense of $11.7 million in the same
  quarter last year.  During the first two quarters of fiscal year 2005 we
  incurred business realignment costs of $2.3 million, a reduction from expense
  of $16.3 million in the same period last year.  The reduction from the
  prior year is the result of the previously planned actions being executed and
  recognized with fewer additional actions needing to be planned as business levels
  stabilized.  For a full description of the components of business realignment
  costs please refer to the Business Realignment Costs section above in this Management
  Discussion and Analysis.

The net gain on disposition of assets for the first two quarters of fiscal year 2005 was primarily due to the sale of property located in Nevada City, California.  Net proceeds of $9.9 million were received from the sale of the Nevada City assets with a carrying value of $7.7 million, resulting in a gain on sale of $2.2 million.

Non-Operating Income / Expense

Interest income during the second quarter and first two quarters of fiscal year 2005 decreased $1.3 million and $1.8 million, respectively, as compared with the same periods last year.  The decrease in interest income was due to a lower average balance of invested cash as well as lower yields on invested cash.

Interest expense during second quarter and first two quarters of fiscal year 2005 decreased $0.3 million and $1.4 million, respectively, as compared with the same periods last year.  The decrease in interest expense was largely due to the retirement of $56.3 million of outstanding bond debt in the first quarter of fiscal year 2004 and repayment of the outstanding principal balance in full on the TIBOR+1.75% debt facility during the third and fourth quarters of fiscal year 2004.

Other non-operating expense, net of $1.1 million and $3.3 million during the second quarter and first two quarters of fiscal year 2005, respectively, was largely attributable to legal expenses for litigation not related to our current operations and the impairment of a non-operating asset.

Income Taxes

Income tax expense for the second quarter and first two quarters of fiscal year 2005 was $12.0 million and $27.6 million, respectively.  Income tax expense exceeded taxable income in the current quarter because there was no tax benefit recognized for the $32.2 million write-off of IPR&D from the Inet acquisition.  In addition, the impact of purchase accounting adjustments from the Inet acquisition, such as the amortization of acquisition related items and non-cash expense for the inventory step up to fair value, were tax effected at the statutory rate.  Excluding the impact of the write-off of IPR&D and purchase accounting adjustments, the effective tax rate for the current quarter and first two quarters of the current fiscal year was 30%.  The increase in the effective tax rate from 28% in the prior fiscal year to 30% during the current fiscal year was primarily due to higher
estimated taxable income in the current fiscal year.  The effective tax rate was impacted by a variety of estimates, including the amount of income during the remainder of fiscal year 2005, the mix of that income between foreign and domestic sources and expected utilization of tax credits which have a full valuation allowance.  In addition, current IRS audits of fiscal years 2001, 2002 and 2003 may be completed in the near future.  To the extent our estimates and other amounts or circumstances change, the effective tax rate may change accordingly.

Discontinued Operations

During
  the fourth quarter of fiscal year 2003, Tektronix management approved
  and initiated an active plan for the sale of Gage Applied Sciences (Gage),
  a wholly-owned subsidiary of Tektronix.  Gage was located in Montreal,
  Canada and produced PC-based instruments products.  The divestiture of
  this entity was consistent with our strategy of concentrating Tektronix
  resources in core product areas and de-emphasizing products which are determined
  to be less strategic.  This business has been accounted for as a discontinued
  operation in accordance with SFAS No. 144.  During the first quarter of
  fiscal year 2004, we sold the operations of Gage to a third party.  We
  recorded an after-tax loss of $0.8 million during the first quarter of fiscal
  year 2004 to reflect adjustments to the previously estimated after-tax loss
  of $2.2 million on the disposition of this discontinued operation which was
  recorded during the fourth quarter of fiscal year 2003 to write-down the net
  assets of Gage, primarily for goodwill, to net realizable value less estimated
  selling costs.  Losses in the second quarter of fiscal year 2005 and 2004
  included additional settlement expenses arising after the sale of the business.

37



Loss
  from discontinued operations in the second quarter and first two quarters of
  the current fiscal year also included additional losses from the sale of the
  optical parametric test business and VideoTele.com due to settlement of additional
  costs arising after the sale of these businesses in fiscal year 2003.

Net Earnings

For
  the second quarter of fiscal year 2005, Tektronix recognized a net loss of $2.8
  million, a decrease of $39.3 million from net earnings of $36.5 million for
  the same quarter last year.  For the first two quarters of fiscal year
  2005, we recognized consolidated net earnings of $33.6 million, a decrease of
  $12.8 million from net earnings of $46.4 million for the first two quarters
  of the same period last year.  These decreases were largely due to impact
  of the Inet acquisition which included the write-off of IPR&D and amortization
  of acquisition related items.  In addition, the impact of the significant
  increases in sales and gross profit in the current quarter and first two quarters
  of the current fiscal year were significantly offset by the Japan pension gain
  recognized in the same quarter last year.

Earnings Per Share

The decrease in earnings per share is a result of the decreased net earnings discussed above, and to a lesser extent, increased weighted average shares outstanding in the current year as a result of shares issued to acquire Inet, offset by shares repurchased by Tektronix in the open market.

Financial Condition, Liquidity and Capital Resources

Sources and Uses of Cash

Cash Flows.  The following table is a summary of our Condensed Consolidated Statements of Cash Flows:

|                              |  | Two fiscal   quarters ended |        
|----------------------------- |  | --------------------------- | -------
|                              |  |                             |        
|(In thousands)                |  | Nov. 27,   2004             |        
|                              |  |                             |        
|Cash   provided by (used in): |  |                             |        
|Operating activities          |  | $                           | 36,625 
|Investing activities          |  |                             | 51,953 
|Financing activities          |  |                             | (89,510

Operating Activities.Cash
  provided by operating activities of $36.6 million for the first two quarters
  of fiscal year 2005 increased by $3.1 million as compared with the same period
  last year.  The impact of higher net sales and gross profit in the first
  two quarters of fiscal year 2005 were offset by higher cash payments in the
  first quarter of $46.5 million for a cash contribution to the U.S. Cash Balance
  pension plan and $29.8 million for annual incentive compensation accrued during
  fiscal year 2004, compared to payments in the first quarter last year of $30.0
  million for a cash contribution to the U.S. Cash Balance pension plan and $5.8
  million for annual incentive compensation accrued during fiscal year 2003. 
  Other adjustments to reconcile net earnings to net cash provided by operating
  activities, such as the write-off of IPR&D and amortization of acquisition
  related items in the current fiscal year are presented in the Condensed Consolidated
  Statements of Cash Flows.

As noted above, we made a cash contribution of $46.5 million to the U.S. Cash Balance pension plan in the first quarter of fiscal year 2005.  This funding reduced Other long-term liabilities on the Condensed Consolidated Balance Sheets. Depending on the future market performance of the pension plan assets, we may make additional large cash contributions to the plan in the future.

Investing Activities.Cash
  provided by investing activities of $52.0 million for the first two quarters
  of fiscal year 2005 increased by $35.2 million as compared with the same period
  last year.  The increase in net cash inflow provided by investing activities
  was largely attributable to net sales of marketable investments.  The reduced
  investment in these securities was a result of cash needed to fund the net cash
  portion of $93.9 million for the Inet acquisition in the second quarter of fiscal
  year 2005 and the contribution to the U.S. Cash Balance pension plan in the
  first quarter as discussed above.  We spent $14.5 million for capital expenditures
  and realized $12.6 million of proceeds on sales of fixed assets in the first
  two quarters of the current fiscal year.  Sales of fixed assets in the
  first two quarters of fiscal year 2005 included proceeds of $9.9 million from
  the sale of the Nevada City property in the first quarter.

38



Financing Activities.Cash
  used in financing activities of $89.5 million for the first two quarters of
  fiscal year 2005 increased by $20.6 million as compared with the same period
  last year.  During the first two quarters of fiscal year 2005, we paid
  $95.3 million to repurchase 3.2 million shares of Tektronix common stock
  at an average price of $29.35 per share, compared to $22.6 million in the same
  period last year.  We paid dividends of $8.8 million to shareholders in
  the first two quarters of fiscal year 2005, compared with $3.4 million in the
  same period last year.  We increased the cash dividend per share by 50%
  in the second quarter of fiscal year 2005 to $0.06 from $0.04 in the first quarter. 
  We started paying cash dividends of $0.04 per share in the second quarter of
  last year.  Financing activities in the first two quarters of fiscal year
  2004 included the August 1, 2003 scheduled 7.5% notes repayment of $56.3 million. 
  These cash outflows were partially offset by proceeds from employee stock plans
  of $14.8 million in the first two quarters of fiscal year 2005, an increase
  from proceeds of $12.7 million in the same period last year.  The increase
  in proceeds from employee stock plans was largely due to increased option exercise
  activity in the first two quarters of fiscal year 2005 compared with the same
  period last year.

The above noted repurchases of common stock were made under an authorization approved by the Board of Directors.  In fiscal year 2000, the Board of Directors authorized the purchase of up to $550.0 million of Tektronix common stock on the open market or through negotiated transactions.  In September 2004, the Board of Directors authorized an incremental $400.0 million to repurchase shares of Tektronix common stock.  As of November 27, 2004, we had repurchased a total of 20.4 million shares at an average price of $23.75 per share totaling $484.1 million under these authorizations.  The reacquired shares were immediately retired, in accordance with Oregon corporate law.  On December 16, 2004, the Board of Directors declared a quarterly cash dividend of $0.06 per share. The dividend is payable on January 24, 2005 to shareholders of record at the close of business on
January 7, 2005.

At November 27, 2004, we maintained unsecured bank credit facilities totaling $58.7 million, of which $55.3 million was unused.

Cash on hand, cash flows from operating activities and current borrowing capacity are expected to be sufficient to fund operations, acquisitions and potential acquisitions, capital expenditures and contractual obligations for the next twelve months.

Working Capital

The following table summarizes working capital as of November 27, 2004 and May 29, 2004:

|(In thousands)                                                                                           |  | Nov. 27,   2004 |         | May 29,   2004 |  
|-------------------------------------------------------------------------------------------------------- |  | --------------- | ------- | -------------- | -
|                                                                                                         |  |                 |         |                |  
|Current assets:                                                                                          |  |                 |         |                |  
|Cash   and cash equivalents                                                                              |  | $               | 152,562 |                | $
|Short-term   marketable investments                                                                      |  |                 | 103,403 |                |  
|Trade   accounts receivable, net of allowance for doubtful accounts of $3,667 and   $3,013, respectively |  |                 | 149,371 |                |  
|Inventories                                                                                              |  |                 | 122,860 |                |  
|Other   current assets                                                                                   |  |                 | 67,791  |                |  
|                                                                                                         |  |                 |         |                |  
|Total   current assets                                                                                   |  |                 | 595,987 |                |  
|Current liabilities:                                                                                     |  |                 |         |                |  
|Accounts   payable and accrued liabilities                                                               |  |                 | 152,377 |                |  
|Accrued   compensation                                                                                   |  |                 | 73,466  |                |  
|Deferred   revenue                                                                                       |  |                 | 43,737  |                |  
|                                                                                                         |  |                 |         |                |  
|Total   current liabilities                                                                              |  |                 | 269,580 |                |  
|                                                                                                         |  |                 |         |                |  
|Working capital                                                                                          |  | $               | 326,407 |                | $
|                                                                                                         |  |                 |         |                |  

Working
  capital increased in the current year by $29.9 million.  Current assets
  increased in the current year by $51.0 million, largely as a result of $43.4
  million of non-cash current assets received in the Inet acquisition in the second
  quarter of fiscal year 2005.  Current liabilities increased in the current

39



year by $21.1 million, largely as a result of the acquisition of Inet where we assumed $34.6 million in liabilities, accrual of current year annual incentive compensation, offset by the cash payment of annual incentive compensation in the first quarter of fiscal year 2005 that was accrued in fiscal year 2004 as described in the Sources and Uses of Cash section above.  Significant changes in cash and cash equivalents and marketable investments are discussed in the Sources and Uses of Cash section above.

Recent Accounting Pronouncements

At the November 1213, 2003 meeting, the Emerging Issues Task Force (EITF) reached a consensus on Issue 03-1, The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments, that certain quantitative and qualitative disclosures should be required for debt and marketable equity securities classified as available-for-sale or held-to-maturity under Statement of Financial Accounting Standards (SFAS) No. 115, Accounting for Certain Investments in Debt and Equity Securities, that are impaired at the balance sheet date but for which an other-than-temporary impairment has not been recognized. Tektronix adopted the disclosure requirements in fiscal year 2004. At the March 17-18, 2004 meeting, the EITF reached a consensus, which approved an impairment model for debt and equity securities.  However, on September 30, 2004, the
Financial Accounting Standards Board (FASB) decided to postpone the implementation of the impairment model for debt and equity securities.  Tektronix does not expect this consensus to have a material effect on the consolidated financial statements upon adoption of the proposed impairment model for debt and equity securities.

In December 2003, the FASB issued SFAS No. 132 (revised 2003), Employers Disclosures about Pensions and Other Postretirement Benefits, an amendment of FASB Statements No. 87, 88, and 106, and a revision of FASB Statement No. 132 (SFAS No. 132R).  SFAS No. 132R revised employers disclosures about pension plans and other postretirement benefit plans. It does not change the measurement or recognition of those plans required by SFAS No. 87, Employers Accounting for Pensions, SFAS No. 88, Employers Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits, and SFAS No. 106, Employers Accounting for Postretirement Benefits Other Than Pensions. The new rules require additional disclosures about the assets, obligations, cash flows, and net periodic benefit
cost of defined benefit pension plans and other postretirement benefit plans.  The required information has been provided separately for pension plans and for other postretirement benefit plans.  Tektronix included the new disclosures in its fiscal year 2004 consolidated financial statements and interim disclosures beginning with the first quarter of fiscal year 2005.

In November 2004, the FASB issued SFAS No. 151, Inventory Costs, an amendment of ARB No. 43, Chapter 4.  SFAS No. 151 amends the guidance in ARB No. 43, Chapter 4, Inventory Pricing, to clarify the accounting for abnormal amounts of idle facility expense, freight, handling costs, and wasted material (spoilage).  Paragraph 5 of ARB 43, Chapter 4, previously stated that . . . under some circumstances, items such as idle facility expense, excessive spoilage, double freight, and rehandling costs may be so abnormal as to require treatment as current period charges. . . .  SFAS No. 151 requires that those items be recognized as current-period charges regardless of whether they meet the criterion of so abnormal.  In addition, SFAS No. 151 requires that allocation of fixed production overheads to the costs of conversion be based on the normal
capacity of the production facilities.  The provisions of SFAS No. 151 will apply to inventory costs beginning in fiscal year 2007.  The adoption of SFAS No. 151 is not expected to have a significant effect on the consolidated financial statements of Tektronix.

In
  December 2004, the FASB issued SFAS No. 153, Exchanges of Nonmonetary
  Assets, an Amendment of APB Opinion No. 29.   The guidance in
  Accounting Principles Board (APB) Opinion No. 29, Accounting
  for Nonmonetary Transactions, is based on the principle that exchanges
  of nonmonetary assets should be measured based on the fair value of the assets
  exchanged.  The guidance in APB Opinion No. 29, however, included certain
  exceptions to that principle. SFAS No. 153 amends APB Opinion No. 29 to eliminate
  the exception for nonmonetary exchanges of similar productive assets and replaces
  it with a general exception for exchanges of nonmonetary assets that do not
  have commercial substance.  A nonmonetary exchange has commercial substance
  if the future cash flows of the entity are expected to change significantly
  as a result of the exchange.  The provisions of SFAS No. 153 will be applied
  prospectively to nonmonetary asset exchange transactions beginning the second
  quarter of fiscal year 2006.

40



In
  December 2004, the FASB issued SFAS No. 123 (Revised 2004), Share-Based
  Payment (SFAS No. 123R).  This new pronouncement requires
  compensation cost relating to share-based payment transactions be recognized
  in financial statements.  That cost will be measured based on the fair
  value of the equity or liability instruments issued.  SFAS No. 123R covers
  a wide range of share-based compensation arrangements including stock options,
  restricted stock plans, performance-based awards, stock appreciation rights,
  and employee stock purchase plans.  SFAS No. 123R replaces SFAS No. 123,
  Accounting for Stock-Based Compensation, and supersedes APB Opinion
  No. 25, Accounting for Stock Issued to Employees. SFAS No. 123,
  as originally issued in 1995, established as preferable a fair-value-based method
  of accounting for share-based payment transactions with employees. However,
  SFAS No. 123 permitted entities the option of continuing to apply the guidance
  in APB Opinion No. 25, as long as the footnotes to financial statements disclosed
  what net income would have been had the preferable fair-value-based method been
  used.  Public entities (other than those filing as small business issuers)
  will be required to apply SFAS No. 123R as of the first interim or annual reporting
  period that begins after June 15, 2005.  Accordingly, Tektronix will be
  required to adopt the provisions of SFAS No. 123R in the second fiscal quarter
  of fiscal year 2006.  Management is currently evaluating the requirements
  of SFAS No. 123R.  The adoption of SFAS No. 123R is expected to have a
  significant effect on the consolidated financial statements of Tektronix. See
  Note 4 to the Condensed Consolidated Financial Statements for the pro forma
  impact on net earnings (loss) and earnings (loss) per share from calculating
  stock-related compensation cost under the fair value alternative of SFAS No.
  123. However, the calculation of compensation cost for share-based payment transactions
  after the effective date of SFAS No. 123R may be different from the calculation
  of compensation cost under SFAS No. 123, but such differences have not yet been
  quantified.

In
  December 2004, the FASB issued two FASB staff positions (FSP): FSP FAS 109-1,
  Application of FASB Statement No. 109, Accounting for Income Taxes, for
  the Tax Deduction Provided to U.S.-Based Manufacturers by the American Jobs
  Creation Act of 2004; and FSP FAS 109-2, Accounting and Disclosure
  Guidance for the Foreign Earnings Repatriation Provision within the American
  Jobs Creation Act of 2004.  FSP FAS 109-1 clarifies that the tax
  deduction for domestic manufacturers under the American Jobs Creation Act of
  2004 (the Act) should be accounted for as a special deduction in
  accordance with SFAS No. 109, Accounting for Income Taxes. FSP FAS
  109-2 provides enterprises more time (beyond the financial-reporting period
  during which the Act took effect) to evaluate the Acts impact on the enterprises
  plan for reinvestment or repatriation of certain foreign earnings for purposes
  of applying SFAS No. 109. The FSPs went into effect upon being issued and did
  not have a significant effect on the consolidated financial statements of Tektronix.

Risks and Uncertainties

Described below are some of the risks and uncertainties that could cause actual results to differ materially from the results contemplated by the forward-looking statements contained in this Quarterly Report.  See Forward-Looking Statements which precedes Part I of this Form 10-Q.

Market Risk and Cyclical Downturns in the Markets in Which Tektronix Competes

Our business depends on capital expenditures of manufacturers in a wide range of industries, including the telecommunications, semiconductor, and computer industries.  Each of these industries has historically been very cyclical and has experienced periodic downturns, which have had a material adverse impact on the industries demand for equipment, including test and measurement equipment manufactured and marketed by us. In particular, the telecommunications industry, including but not limited to the optical segment, has experienced more dramatic declines than other industries.  In addition, the severity and length of any downturn may also affect overall access to capital, which could adversely affect our customers across many industries.  During periods of reduced and declining demand, we may need to rapidly align our cost structure with prevailing market conditions while at the same
time motivating and retaining key employees.  While the economy had recovered by fiscal year 2004, no assurance can be given regarding the length or extent of the recovery, and no assurance can be given that our net sales and operating results will not be adversely impacted by the reversal of any current trends or any future downturns or slowdowns in the rate of capital investment in these industries.

41



Timely Delivery of Competitive Products

We sell our products to customers that participate in rapidly changing high technology markets, which are characterized by short product life cycles.  Our ability to deliver a timely flow of competitive new products and market acceptance of those products, as well as the ability to increase production or to develop and maintain effective sales channels, is essential to growing the business.  Because we sell test and measurement products that enable our customers to develop new technologies, we must accurately anticipate the ever-evolving needs of those customers and deliver appropriate products and new technologies at competitive prices to meet customer demands.  Our ability to deliver such products could be affected by engineering or other development program delays as well as the availability of parts and supplies from third party providers on a timely basis and at reasonable
prices.  Failure to deliver competitive products in a timely manner and at a reasonable price could have an adverse effect on our results of operations, financial condition or cash flows.

There are additional product risks associated with sales of the network monitoring products, which were acquired in the Inet acquisition.  Sales of these products are typically recognized upon the completion of system installation or customer acceptance.  Changes or delays in the implementation or customer acceptance of our products could harm our financial results.  Sales of our network monitoring products are made predominantly to a small number of large communications carriers and involve significant capital expenditures as well as lengthy sales cycles and implementation processes, which could harm our financial results.  We rely upon software licensed from third parties such as Oracle Corporation, Cognos Incorporated and others.  If we are unable to maintain these software licenses on commercially reasonable terms, our business, financial condition and results of operations
could be harmed.

In addition, we expect third party carrier spending for traditional networks to
continue to decrease, which requires that we continue to develop products and
applications for networks based on emerging next-generation wireless and
packet-based technologies and standards.  We may not successfully develop
or acquire additional competitive products for these emerging technologies and
standards.

Further, we have included security features in some of the network monitoring products that are intended to protect the privacy and integrity of customer data.  Despite the existence of these security features, these products may be vulnerable to breaches in security due to unknown defects in the security mechanisms, as well as vulnerabilities inherent in the operating system or hardware platform on which the product runs and/or the networks linked to that platform.  Security vulnerabilities, regardless of origin, could jeopardize the security of information stored in and transmitted through the computer systems of our customers.  Any security problem may require significant capital expenditures to solve and could materially harm our reputation and product acceptance.

Competition

We compete with a number of companies in specialized areas of other test and measurement products and one large broad line measurement products supplier, Agilent Technologies.  Other competitors include Acterna Corporation, Anritsu Corporation, Catapult Communications, LeCroy Corporation, Rohde & Schwarz, Yokogawa Electric Corporation and many other smaller companies.  In general, the test and measurement industry is a highly competitive market based primarily on product performance, technology, customer service, product availability and price.  Some of our competitors may have greater resources to apply to each of these factors and in some cases have built significant reputations with the customer base in each market in which we compete.  We face pricing pressures that may have an adverse impact on our earnings.  If we are unable to compete effectively on these and other
factors, it could have a material adverse affect on our results of operations, financial condition or cash flows.  In addition, we enjoy a leadership position in certain core product categories, and continually develop and introduce new products designed to maintain that leadership, as well as to penetrate new markets.  Failure to develop and introduce new products that maintain a leadership position or which fail to penetrate new markets may adversely affect operating results.

42



Supplier Risks

Our manufacturing operations are dependent on the ability of suppliers to deliver quality components, subassemblies and completed products in time to meet critical manufacturing and distribution schedules.  We periodically experience constrained supply of certain component parts in some product lines as a result of strong demand in the industry for those parts.  Such constraints, if persistent, may adversely affect operating results until alternate sourcing can be developed.  There is increased risk of supplier constraints in periods where we are increasing production volume to meet customer demands.  Volatility in the prices of these component parts, an inability to secure enough components at reasonable prices to build new products in a timely manner in the quantities and configurations demanded or, conversely, a temporary oversupply of these parts, could adversely affect our future
operating results.  In addition, we use certain sole sourced components, which are integral to a variety of products.  Disruption in key sole sourced suppliers could have a significant adverse effect on our results of operations.

Worldwide Economic and Market Conditions

We
  maintain operations in four major geographies: the Americas, including the United
  States, Mexico, Canada and South America; Europe, including Europe, Russia,
  the Middle East and Africa; the Pacific, including China, India, Korea and Singapore;
  and Japan.  During the last fiscal year, more than half of our revenues
  were from international sales.  In addition, some of our manufacturing
  operations and key suppliers are located in foreign countries, including China,
  where we expect to further expand our operations.  As a result, the business
  is subject to the worldwide economic and market conditions risks generally associated
  with doing business globally, such as fluctuating exchange rates, the stability
  of international monetary conditions, tariff and trade policies, domestic and
  foreign tax policies, foreign governmental regulations, political unrest, wars
  and acts of terrorism, epidemic disease or other health concerns and changes
  in other economic or political conditions.  These factors, among others,
  could influence our ability to sell in global markets, as well as our ability
  to manufacture products or procure supplies.  Our pension plan obligations
  are affected by changes in market interest rates and the majority of plan assets
  are invested in publicly traded debt and equity securities which are affected
  by market risks.   A significant downturn in the global economy or
  a particular region could adversely affect our results of operations, financial
  position or cash flows.

Intellectual Property Risks

As a technology-based company, our success depends on developing and protecting our intellectual property.  We rely generally on patent, copyright, trademark and trade secret laws in the United States and abroad. Electronic equipment as complex as most of our products, however, is generally not patentable in its entirety.  We also license intellectual property from third parties and rely on those parties to maintain and protect their technology.  We cannot be certain that actions we take to establish and protect proprietary rights will be adequate, particularly in countries (including China) where intellectual property rights are not highly developed or protected.  If we are unable to adequately protect our technology, or if we are unable to continue to obtain or maintain licenses for protected technology from third parties, it could have a material adverse affect on our results of
operations, financial position or cash flows.  From time to time in the usual course of business, we receive notices from third parties regarding intellectual property infringement or take action against others with regard to intellectual property rights.  Even where we are successful in defending or pursuing such claims, we may incur significant costs.  In the event of a successful claim against us, we could lose our rights to needed technology or be required to pay license fees for the infringed rights, either of which could have an adverse impact on our business.

Environmental Risks

We are subject to a variety of federal, state, local and foreign environmental regulations relating to the use, storage, discharge and disposal of our hazardous chemicals used during our manufacturing process. We have closed a licensed hazardous waste management facility at our Beaverton, Oregon, campus and have entered into a consent order with the Oregon Department of Environmental Quality requiring certain remediation actions (see Part I, Item 1, Environment of Form 10-K).  If we fail to comply with the consent order or any present or future regulations, we could be subject to future liabilities or the suspension of production.  In addition, such regulations could restrict our ability to expand our facilities or could require us to acquire costly equipment, or to incur other significant expenses to comply with environmental regulations.

43



Possible Volatility of Stock Price

The price of our common stock may be subject to wide, rapid fluctuations.  Such fluctuations may be due to factors specific to us, such as changes in operating results or changes in analysts estimates regarding earnings.  Fluctuations in the stock price may also be due to factors relating to the telecommunications, semiconductor, and computer industries or to the securities markets in general.  Fluctuations in stock prices have often been unrelated to the operating performance of the specific companies whose stocks are traded.  Shareholders should be willing to incur the risk of such fluctuations.

Integration of Inet, Technologies, Inc.

On September 30, 2004, we acquired all of the outstanding common stock of Inet.  Following the close of this transaction, we must integrate the operations of Inet into Tektronix.  The successful integration of the Inet business is subject to a number of risk factors which could materially adversely affect our consolidated results of operations, financial condition and cash flows.  These risks include the necessity of coordinating geographically separated organizations, integrating personnel with diverse business backgrounds, integrating Inets technology and products, combining different corporate cultures, retaining key employees, maintaining customer satisfaction and current bid processes, maintaining product development schedules, coordinating sales and marketing activities and preserving important distribution relationships; diversion of managements attention with consequent
negative impact upon our execution of our overall strategy; and failure to realize upon expected cost savings and other synergies from the merger.

Other Risk Factors

Other risk factors include but are not limited to changes in the mix of products sold, regulatory and tax legislation, changes in effective tax rates, inventory risks due to changes in market demand or our business strategies, potential litigation and claims arising in the normal course of business, credit risk of customers, the fact that a substantial portion of our sales are generated from orders received during each quarter, significant modifications to existing information systems and other risk factors.

Item 3.   Quantitative and Qualitative Disclosures about Market Risk.

Financial Market Risk

We are exposed to financial market risks, including interest rate, equity price and foreign currency exchange rate risks.

We maintain a short-term and long-term investment portfolio consisting of fixed rate commercial paper, corporate notes and bonds, U.S. Treasury and agency notes, asset backed securities and mortgage securities.  The weighted average maturity of the portfolio, excluding mortgage securities, was two years or less.  Mortgage securities may have a weighted average life of less than seven years and are managed consistent with the Lehman Mortgage Index.  An increase in interest rates of similar instruments would decrease the value of certain of these investments.  A 10% rise in interest rates as of November 27, 2004 would reduce the market value by $2.1 million, which would be reflected in Accumulated other comprehensive loss on the Consolidated Balance Sheets until sold.

We are exposed to equity price risk primarily through our marketable equity securities portfolio, primarily including investments in Merix Corporation and Tut Systems, Inc.  We have not entered into any hedging programs to mitigate equity price risk. An adverse change of 20% in the value of these securities would reduce the market value by $3.4 million, which would likely be reflected in Accumulated other comprehensive loss on the Condensed Consolidated Balance Sheets until sold.  If the adverse change results in an impairment that is considered to be other-than-temporary, the loss on impairment would be charged to net earnings on the Condensed Consolidated Statements of Operations.

We are exposed to foreign currency exchange rate risk primarily through commitments denominated in foreign currencies.  When appropriate, we utilize derivative financial instruments, primarily forward foreign currency exchange contracts, generally with maturities of one to three months,

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to mitigate this risk where natural hedging strategies cannot be employed.  Our policy is to only enter into derivative transactions when we have an identifiable exposure to risk, thus not creating additional foreign currency exchange rate risk.  At November 27, 2004, there were no forward foreign currency exchange contracts.

Item 4.   Controls and Procedures.

(a)   Our management has evaluated, under the supervision and with the participation of, the chief executive officer and chief financial officer, the effectiveness of the our disclosure controls and procedures as of the end of the period covered by this report pursuant to Rule 13a-15(b) under the Securities Exchange Act of 1934.  Based on that evaluation, the chief executive officer and chief financial officer have concluded that our disclosure controls and procedures are effective in ensuring that information required to be disclosed is recorded, processed, summarized and reported in a timely manner, and that information was accumulated and communicated to our management, including the chief executive officer and chief financial officer, to allow timely decisions regarding required disclosure.

(b)   There has been no change in our internal control over financial reporting, other than changes arising from the Inet acquisition, that occurred during the last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Part II.   OTHER INFORMATION

Item 1.   Legal Proceedings.

Tektronix is involved in various other litigation matters, claims and investigations that occur in the normal course of business, including but not limited to patent, commercial, personnel and environmental matters.  While the results of such matters cannot be predicted with certainty, management believes that their final outcome will not have a material adverse impact on our business, results of operations, financial condition or cash flows.

Item 2.   Unregistered Sales of Equity Securities and Use of Proceeds.

Purchases of Tektronix common stock during the second quarter ended November 27, 2004 were as follows:

|Fiscal Period                          |  | Total   Number    of Shares |           | Average   Price   Paid Per   Share |   | Total   Amount   Paid |  | Total   Number   of Shares   Purchased as   Part of Publicly   Announced Plans   or Programs |            | Maximum   Dollar    Value of Shares   that May    Yet Be   Purchased | 
|-------------------------------------- |  | --------------------------- | --------- | ---------------------------------- | - | --------------------- |  | -------------------------------------------------------------------------------------------- | ---------- | -------------------------------------------------------------------- | 
|                                       |  |                             |           |                                    |   |                       |  |                                                                                              |            |                                                                      | 
|August 29, 2004 to September 25, 2004  |  |                             | 162,000   |                                    | $ | 29.59                 |  | $                                                                                            | 4,793,822  |                                                                      | 
|September 26, 2004 to October 23, 2004 |  |                             | 764,800   |                                    |   | 30.04                 |  |                                                                                              | 22,973,604 |                                                                      | 
|October 24, 2004 to November 27, 2004  |  |                             | 192,600   |                                    |   | 30.05                 |  |                                                                                              | 5,787,685  |                                                                      | 
|                                       |  |                             |           |                                    |   |                       |  |                                                                                              |            |                                                                      | 
|Total                                  |  |                             | 1,119,400 |                                    | $ | 29.98                 |  | $                                                                                            | 33,555,111 |                                                                      | 
|                                       |  |                             |           |                                    |   |                       |  |                                                                                              |            |                                                                      | 

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Item 6.     Exhibits.

| | (a) | Exhibits |                                                                                                           
| | --- | -------- | ----------------------------------------------------------------------------------------------------------
| |     |          |                                                                                                           
| | +   | (10) (i) | Master form of stock   option agreement for executive officers under the Tektronix Stock Incentive   Plan.
| |     |          |                                                                                                           
| |     | (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.                                                             

| |                                     
| | ------------------------------------
| | + Compensatory Plan or   Arrangement

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SIGNATURE

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

|January 5, 2005 | TEKTRONIX, INC.
|--------------- | ---------------
|                |                
|                | By             
|                |                
|                |                

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