##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended August 27, 2005
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
 For
the transition period from to.
 Commission File Number 1-04837
 TEKTRONIX, INC.
  OREGON
    
    93-0343990(State or Other Jurisdiction ofIncorporation or Organization)
    
    (I.R.S. Employer Identification No.)14200 SW KARL BRAUN DRIVEBEAVERTON, OREGON
    
    97077(Address of Principal Executive Offices)
    
    (Zip Code)
 (503) 627-7111
 NOT APPLICABLE
 þ o
 þ o
 o þ




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TEKTRONIX, INC. AND SUBSIDIARIES
 INDEX
 PAGE NO.FORWARD-LOOKING STATEMENTS
    
    
    1PART I. FINANCIAL INFORMATIONItem 1. Financial Statements.Condensed Consolidated Statements of Operations (Unaudited)  for the Fiscal Quarter ended August 27, 2005 and the Fiscal Quarter ended August 28, 2004
    
    
    2Condensed Consolidated Balance Sheets (Unaudited)  at August 27, 2005 and May 28, 2005
    
    
    3Condensed Consolidated Statements of Cash Flows (Unaudited)  for the Fiscal Quarter ended August 27, 2005 and the Fiscal Quarter ended August 28, 2004
    
    
    4Notes to Condensed Consolidated Financial Statements (Unaudited)
    
    
    5Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations.
    
    
    22Item 3. Quantitative and Qualitative Disclosures About Market Risk.
    
    
    43Item 4. Controls and Procedures.
    
    
    44PART II. OTHER INFORMATIONItem 1. Legal Proceedings.
    
    
    44Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
    
    
    44Item 4. Submission of Matters to a Vote of Security Holders.
    
    
    45Item 6. Exhibits.
    
    
    45SIGNATURES
    
    
    46EXHIBIT 10.1EXHIBIT 10.2EXHIBIT 10.3EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32.1EXHIBIT 32.2




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Forward-Looking Statements
     1




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Part I. FINANCIAL INFORMATION
 
 Item 1. Financial Statements.
 
 Condensed Consolidated Statements of Operations (Unaudited)
 Fiscal quarter ended(In thousands, except per share amounts)
    
    Aug. 27, 2005
    
    
    Aug. 28, 2004Net sales
    
    $
    235,060
    
    
    $
    250,465Cost of sales
    
    
    99,103
    
    
    
    101,946Gross profit
    
    
    135,957
    
    
    
    148,519Research and development expenses
    
    
    43,605
    
    
    
    33,579Selling, general and administrative expenses
    
    
    68,565
    
    
    
    65,066Business realignment costs
    
    
    2,481
    
    
    
    2,039Acquisition related costs and amortization
    
    
    3,436
    
    
    
    787Loss (gain) on disposition of assets, net
    
    
    4
    
    
    
    (1,891
    )Operating income
    
    
    17,866
    
    
    
    48,939Interest income
    
    
    3,092
    
    
    
    5,462Interest expense
    
    
    (97
    )
    
    
    (83
    )Other non-operating expense, net
    
    
    (986
    )
    
    
    (2,224
    )Earnings before taxes
    
    
    19,875
    
    
    
    52,094Income tax expense
    
    
    5,707
    
    
    
    15,628Net earnings from continuing operations
    
    
    14,168
    
    
    
    36,466Loss from discontinued operations, net of income taxes
    
    
    (82
    )
    
    
    (58
    )Net earnings
    
    $
    14,086
    
    
    $
    36,408Earnings per share:Continuing operations  basic
    
    $
    0.17
    
    
    $
    0.44Continuing operations  diluted
    
    
    0.17
    
    
    
    0.43Discontinued operations  basic and diluted
    
    
    
    
    
    
    Net earnings  basic and diluted
    
    $
    0.17
    
    
    $
    0.43Weighted average shares outstanding:Basic
    
    
    84,603
    
    
    
    83,782Diluted
    
    
    85,297
    
    
    
    85,211Cash dividends declared per share
    
    $
    0.06
    
    
    $
    0.04
  2




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Condensed Consolidated Balance Sheets (Unaudited)
 (In thousands)
    
    Aug. 27, 2005
    
    
    May 28, 2005ASSETSCurrent assets:Cash and cash equivalents
    
    $
    95,002
    
    
    $
    131,640Short-term marketable investments
    
    
    111,477
    
    
    
    120,881Trade accounts receivable, net of allowance for
doubtful accounts of $3,745 and $3,406, respectively
    
    
    161,346
    
    
    
    155,332Inventories
    
    
    130,544
    
    
    
    131,096Other current assets
    
    
    86,657
    
    
    
    80,177Total current assets
    
    
    585,026
    
    
    
    619,126Property, plant and equipment, net
    
    
    122,062
    
    
    
    120,546Long-term marketable investments
    
    
    162,009
    
    
    
    226,892Deferred tax assets
    
    
    53,340
    
    
    
    56,560Goodwill, net
    
    
    303,166
    
    
    
    301,934Other long-term assets
    
    
    131,099
    
    
    
    135,285Total assets
    
    $
    1,356,702
    
    
    $
    1,460,343LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Accounts payable and accrued liabilities
    
    $
    108,582
    
    
    $
    115,058Accrued compensation
    
    
    55,411
    
    
    
    78,938Deferred revenue
    
    
    54,639
    
    
    
    57,509Total current liabilities
    
    
    218,632
    
    
    
    251,505Long-term liabilities
    
    
    189,855
    
    
    
    223,015Shareholders equity:Common stock, no par value (authorized 200,000 shares;
issued and outstanding 83,360 and 85,144 shares
at August 27, 2005 and May 28, 2005, respectively)
    
    
    496,848
    
    
    
    501,886Retained earnings
    
    
    608,987
    
    
    
    639,720Accumulated other comprehensive loss
    
    
    (157,620
    )
    
    
    (155,783
    )Total shareholders equity
    
    
    948,215
    
    
    
    985,823Total liabilities and shareholders equity
    
    $
    1,356,702
    
    
    $
    1,460,343
  3




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Condensed Consolidated Statements of Cash Flows (Unaudited)
 Fiscal quarter ended(In thousands)
    
    Aug. 27, 2005
    
    
    Aug. 28, 2004CASH FLOWS FROM OPERATING ACTIVITIESNet earnings
    
    $
    14,086
    
    
    $
    36,408Adjustments to reconcile net earnings to net cash used in
operating activities:Write-off of in-process research and development
    
    
    365
    
    
    
    Amortization of acquisition related intangible assets
    
    
    5,947
    
    
    
    Loss from discontinued operations
    
    
    82
    
    
    
    58Depreciation and amortization expense
    
    
    7,006
    
    
    
    6,678Net loss (gain) on the disposition of assets
    
    
    4
    
    
    
    (1,891
    )Tax benefit of stock option exercises
    
    
    204
    
    
    
    1,345Deferred income tax expense
    
    
    301
    
    
    
    1,694Changes in operating assets and liabilities:Trade accounts receivable, net
    
    
    (5,878
    )
    
    
    (1,224
    )Inventories
    
    
    552
    
    
    
    1,235Other current assets
    
    
    (4,009
    )
    
    
    (1,062
    )Accounts payable and accrued liabilities
    
    
    (6,489
    )
    
    
    (7,183
    )Accrued compensation
    
    
    (23,541
    )
    
    
    (31,996
    )Deferred revenue
    
    
    (2,945
    )
    
    
    (3,146
    )Cash funding for defined benefit plans
    
    
    (33,400
    )
    
    
    (46,516
    )Other long-term assets and liabilities, net
    
    
    3,117
    
    
    
    2,480Net cash used in continuing operating activities
    
    
    (44,598
    )
    
    
    (43,120
    )Net cash used in discontinued operating activities
    
    
    (82
    )
    
    
    Net cash used in operating activities
    
    
    (44,680
    )
    
    
    (43,120
    )CASH FLOWS FROM INVESTING ACTIVITIESAcquisition of businesses, net of cash acquired
    
    
    (2,122
    )
    
    
    Acquisition of property, plant and equipment
    
    
    (8,744
    )
    
    
    (7,506
    )Proceeds from the disposition of property and equipment
    
    
    230
    
    
    
    12,365Proceeds from maturities and sales of marketable investments
    
    
    72,409
    
    
    
    81,880Purchases of short-term and long-term marketable investments
    
    
    
    
    
    
    (28,921
    )Net cash provided by investing activities
    
    
    61,773
    
    
    
    57,818CASH FLOWS FROM FINANCING ACTIVITIESRepayment of long-term debt
    
    
    (95
    )
    
    
    (122
    )Proceeds from employee stock plans
    
    
    4,888
    
    
    
    8,963Repurchase of common stock
    
    
    (52,714
    )
    
    
    (61,764
    )Dividends paid
    
    
    (5,092
    )
    
    
    (3,363
    )Net cash used in financing activities
    
    
    (53,013
    )
    
    
    (56,286
    )Effect of exchange rate changes on cash
    
    
    (718
    )
    
    
    (744
    )Net decrease in cash and cash equivalents
    
    
    (36,638
    )
    
    
    (42,332
    )Cash and cash equivalents at beginning of period
    
    
    131,640
    
    
    
    149,011Cash and cash equivalents at end of period
    
    $
    95,002
    
    
    $
    106,679SUPPLEMENTAL DISCLOSURES OF CASH FLOWSIncome taxes paid, net
    
    $
    8,558
    
    
    $
    9,348Interest paid
    
    
    51
    
    
    
    49NON-CASH
TRANSACTIONS FROM OTHER ACQUISITIONCommon stock issued
    
    
    2,075
    
    
    
    
  4




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




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Goodwill and Intangible Assets
   6




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3. Recent Accounting Pronouncements
     7




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4. Earnings Per Share, Including Pro Forma Effects of Stock-Based Compensation
   Fiscal quarter ended(In thousands, except per share amounts)
    
    Aug. 27, 2005
    
    
    Aug. 28, 2004Net earnings
    
    $
    14,086
    
    
    $
    36,408Weighted average shares used for
basic earnings per share
    
    
    84,603
    
    
    
    83,782Incremental dilutive stock options
    
    
    694
    
    
    
    1,429Weighted average shares used for
dilutive earnings per share
    
    
    85,297
    
    
    
    85,211Earnings per share:Net earnings
 basic and diluted
    
    $
    0.17
    
    
    $
    0.43
   8




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Fiscal quarter ended(In thousands, except per share amounts)
    
    Aug. 27, 2005
    
    
    Aug. 28, 2004Net earnings as reported
    
    $
    14,086
    
    
    $
    36,408Stock compensation cost included in net
earnings as reported, net of income taxes
    
    
    558
    
    
    
    227Stock compensation cost using the fair
value alternative, net of income taxes
    
    
    (4,765
    )
    
    
    (3,405
    )Pro forma net earnings
    
    $
    9,879
    
    
    $
    33,230Earnings per share:Basic  as reported
    
    $
    0.17
    
    
    $
    0.43Basic  pro forma
    
    
    0.12
    
    
    
    0.40Diluted  as reported
    
    $
    0.17
    
    
    $
    0.43Diluted  pro forma
    
    
    0.12
    
    
    
    0.39
 SFAS No. 123 Assumptions
  Aug. 27, 2005
    
    
    Aug. 28, 2004Expected life in years
    
    
    5.1
    
    
    
    5.1Risk-free interest rate
    
    
    3.94
    %
    
    
    3.80
    %Volatility
    
    
    32.18
    %
    
    
    32.47
    %Dividend yield
    
    
    0.98
    %
    
    
    0.54
    %
 5. Acquisition of Inet Technologies, Inc.
   9




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Cash paid
    
    $
    247,561Stock issued
    
    
    247,543Stock options assumed
    
    
    9,658Restricted share rights assumed
    
    
    321Transaction costs
    
    
    5,224Unearned stock-based compensation
    
    
    (3,403
    )Liabilities assumed
    
    
    38,006Total purchase price
    
    $
    544,910
  Cash and cash equivalents
    
    $
    158,821Accounts receivable
    
    
    18,504Inventories
    
    
    18,025Tax benefit from transaction costs
    
    
    1,209Other current assets
    
    
    6,910Property, plant, and equipment
    
    
    10,662Intangible assets
    
    
    121,953Goodwill
    
    
    220,226Other long term assets
    
    
    811In-process research and development
    
    
    32,237Deferred income taxes
    
    
    (44,448
    )Total assets acquired, net of deferred income taxes
    
    $
    544,910
  (in years)WeightedAverage
    
    
    
    
    
    
    Accumulated(In thousands)
    
    Useful Life
    
    
    Cost
    
    
    Amortization
    
    
    NetDeveloped technology
    
    
    4.8
    
    
    $
    87,004
    
    
    $
    (16,953
    )
    
    $
    70,051Customer relationships
    
    
    4.8
    
    
    
    22,597
    
    
    
    (4,418
    )
    
    
    18,179Covenants not to compete
    
    
    4.0
    
    
    
    1,200
    
    
    
    (275
    )
    
    
    925110,801
    
    
    
    (21,646
    )
    
    
    89,155Tradename
    
    Not amortized
    
    
    11,152
    
    
    
    
    
    
    
    11,152Total intangible assets purchased
    
    
    
    
    
    $
    121,953
    
    
    $
    (21,646
    )
    
    $
    100,307
 10




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Fiscal quarter ended(In thousands)
    
    Aug. 27, 2005
    
    
    Aug. 28, 2004Cost of sales
    
    $
    4,624
    
    
    $
    Acquisition related costs and amortization
    
    
    1,279
    
    
    
    Total
    
    $
    5,903
    
    
    $
    
  AcquisitionRelated Costs
    
    
    TotalCost of
    
    
    and
    
    
    for the(In thousands)
    
    Sales
    
    
    Amortization
    
    
    Fiscal YearFiscal Year2006
    
    $
    18,495
    
    
    $
    5,117
    
    
    $
    23,6122007
    
    
    18,495
    
    
    
    5,117
    
    
    
    23,6122008
    
    
    16,670
    
    
    
    4,621
    
    
    
    21,2912009
    
    
    15,759
    
    
    
    4,174
    
    
    
    19,9332010
    
    
    5,256
    
    
    
    1,354
    
    
    
    6,610Total
    
    $
    74,675
    
    
    $
    20,383
    
    
    $
    95,058
   Fiscal quarter ended(In thousands, except per share amounts)
    
    Aug. 28, 2004Pro formaNet sales
    
    $
    273,443Net earnings from continuing operations
    
    
    33,929Earnings per share:Continuing
operations  basic and diluted
    
    $
    0.37
   11




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6. Discontinued Operations
  Fiscal quarter ended(In thousands)
    
    Aug. 27, 2005
    
    
    Aug. 28, 2004Loss on sale of VideoTele.com
(less applicable income tax benefit of $1 and $1)
    
    $
    (1
    )
    
    $
    (1
    )Loss on sale of optical parametric test business
(less applicable income tax benefit of $36 and $40)
    
    
    (68
    )
    
    
    (72
    )Gain (loss) on sale of Gage (less applicable
income tax benefit (expense) of $6 and ($8))
    
    
    (11
    )
    
    
    15Loss on sale of Color Printing and Imaging Division
(less applicable income tax benefit of $1 and $0)
    
    
    (2
    )
    
    
    Loss from discontinued operations, net of income taxes
    
    $
    (82
    )
    
    $
    (58
    )
 7. Business Realignment Costs
    12




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CostBalance
    
    
    Incurred
    
    
    
    
    
    
    
    
    
    
    BalanceMay 28,
    
    
    and Other
    
    
    Cash
    
    
    Non-cash
    
    
    August 27,(In thousands)
    
    2005
    
    
    Adjustments
    
    
    Payments
    
    
    Adjustments
    
    
    2005Fiscal Year 2006 Actions:Employee severance and
related benefits
    
    $
    
    
    
    $
    2,444
    
    
    $
    (1,118
    )
    
    $
    
    
    
    $
    1,326Accumulated currency
translation loss, net
    
    
    
    
    
    
    3
    
    
    
    
    
    
    
    (3
    )
    
    
    Total
    
    
    
    
    
    
    2,447
    
    
    
    (1,118
    )
    
    
    (3
    )
    
    
    1,326Fiscal Year 2005 Actions:Employee severance and
related benefits
    
    
    568
    
    
    
    
    
    
    
    (365
    )
    
    
    
    
    
    
    203Contractual obligations
    
    
    103
    
    
    
    24
    
    
    
    (79
    )
    
    
    
    
    
    
    48Total
    
    
    671
    
    
    
    24
    
    
    
    (444
    )
    
    
    
    
    
    
    251Fiscal Year 2004 Actions:Employee severance and
related benefits
    
    
    681
    
    
    
    
    
    
    
    (136
    )
    
    
    
    
    
    
    545Total
    
    
    681
    
    
    
    
    
    
    
    (136
    )
    
    
    
    
    
    
    545Fiscal Year 2003 and 2002 Actions:Employee severance and
related benefits
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2Contractual obligations
    
    
    926
    
    
    
    10
    
    
    
    (101
    )
    
    
    
    
    
    
    835Total
    
    
    928
    
    
    
    10
    
    
    
    (101
    )
    
    
    
    
    
    
    837Total of all actions
    
    $
    2,280
    
    
    $
    2,481
    
    
    $
    (1,799
    )
    
    $
    (3
    )
    
    $
    2,959
 8. Marketable Investments
  13




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Amortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    Fair(In thousands)
    
    Cost
    
    
    Gains
    
    
    Losses
    
    
    ValueCorporate notes and bonds
    
    $
    40,007
    
    
    $
    3
    
    
    $
    (302
    )
    
    $
    39,708U.S. Agencies
    
    
    27,326
    
    
    
    
    
    
    
    (272
    )
    
    
    27,054U.S. Treasuries
    
    
    28,073
    
    
    
    
    
    
    
    (126
    )
    
    
    27,947Asset backed securities
    
    
    8,872
    
    
    
    
    
    
    
    (82
    )
    
    
    8,790Mortgage backed securities
    
    
    8,154
    
    
    
    
    
    
    
    (176
    )
    
    
    7,978Short-term marketable investments
    
    $
    112,432
    
    
    $
    3
    
    
    $
    (958
    )
    
    $
    111,477
  Amortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    Fair(In thousands)
    
    Cost
    
    
    Gains
    
    
    Losses
    
    
    ValueCorporate notes and bonds
    
    $
    28,943
    
    
    $
    
    
    
    $
    (506
    )
    
    $
    28,437U.S. Agencies
    
    
    25,691
    
    
    
    
    
    
    
    (589
    )
    
    
    25,102U.S. Treasuries
    
    
    5,629
    
    
    
    
    
    
    
    (110
    )
    
    
    5,519Asset backed securities
    
    
    61,586
    
    
    
    57
    
    
    
    (655
    )
    
    
    60,988Mortgage backed securities
    
    
    42,961
    
    
    
    10
    
    
    
    (1,008
    )
    
    
    41,963Long-term marketable investments
    
    $
    164,810
    
    
    $
    67
    
    
    $
    (2,868
    )
    
    $
    162,009
  Amortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    Market(In thousands)
    
    Cost
    
    
    Gains
    
    
    Losses
    
    
    ValueCorporate notes and bonds
    
    $
    48,245
    
    
    $
    14
    
    
    $
    (274
    )
    
    $
    47,985U.S. Agencies
    
    
    31,109
    
    
    
    
    
    
    
    (189
    )
    
    
    30,920U.S. Treasuries
    
    
    28,150
    
    
    
    
    
    
    
    (175
    )
    
    
    27,975Asset backed securities
    
    
    12,290
    
    
    
    
    
    
    
    (103
    )
    
    
    12,187Mortgage backed securities
    
    
    1,840
    
    
    
    
    
    
    
    (26
    )
    
    
    1,814Short-term marketable investments
    
    $
    121,634
    
    
    $
    14
    
    
    $
    (767
    )
    
    $
    120,881
  Amortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    Market(In thousands)
    
    Cost
    
    
    Gains
    
    
    Losses
    
    
    ValueCorporate notes and bonds
    
    $
    48,535
    
    
    $
    45
    
    
    $
    (555
    )
    
    $
    48,025U.S. Agencies
    
    
    42,962
    
    
    
    
    
    
    
    (718
    )
    
    
    42,244U.S. Treasuries
    
    
    13,491
    
    
    
    83
    
    
    
    (58
    )
    
    
    13,516Asset backed securities
    
    
    70,667
    
    
    
    238
    
    
    
    (418
    )
    
    
    70,487Mortgage backed securities
    
    
    53,622
    
    
    
    4
    
    
    
    (1,006
    )
    
    
    52,620Long-term marketable investments
    
    $
    229,277
    
    
    $
    370
    
    
    $
    (2,755
    )
    
    $
    226,892
 14




---



##### Table of Contents



(In thousands)
    
    Amortized Cost BasisAfter 1 year through 5 years
    
    $
    121,849Mortgage backed securities
    
    
    42,961$
    164,810
  12 Months or More
    
    
    Less Than 12 Months
    
    
    TotalUnrealized
    
    
    
    
    
    
    Unrealized
    
    
    
    
    
    
    Unrealized(In thousands)
    
    Fair Value
    
    
    Losses
    
    
    Fair Value
    
    
    Losses
    
    
    Fair Value
    
    
    LossesCorporate notes and bonds
    
    $
    31,848
    
    
    $
    (379
    )
    
    $
    33,215
    
    
    $
    (430
    )
    
    $
    65,063
    
    
    $
    (809
    )U.S. Agencies
    
    
    40,157
    
    
    
    (653
    )
    
    
    11,999
    
    
    
    (207
    )
    
    
    52,156
    
    
    
    (860
    )U.S. Treasuries
    
    
    19,217
    
    
    
    (68
    )
    
    
    14,249
    
    
    
    (168
    )
    
    
    33,466
    
    
    
    (236
    )Asset backed securities
    
    
    20,498
    
    
    
    (298
    )
    
    
    41,183
    
    
    
    (439
    )
    
    
    61,681
    
    
    
    (737
    )Mortgage backed securities
    
    
    37,386
    
    
    
    (1,013
    )
    
    
    9,491
    
    
    
    (171
    )
    
    
    46,877
    
    
    
    (1,184
    )Total
    
    $
    149,106
    
    
    $
    (2,411
    )
    
    $
    110,137
    
    
    $
    (1,415
    )
    
    $
    259,243
    
    
    $
    (3,826
    )
 9. Inventories
   (In thousands)
    
    Aug. 27, 2005
    
    
    May 28, 2005Materials
    
    $
    6,079
    
    
    $
    7,015Work in process
    
    
    56,957
    
    
    
    63,091Finished goods
    
    
    67,508
    
    
    
    60,990Inventories
    
    $
    130,544
    
    
    $
    131,096
 15




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10. Other Current Assets
  (In thousands)
    
    Aug. 27, 2005
    
    
    May 28, 2005Current deferred tax asset
    
    $
    52,009
    
    
    $
    49,537Prepaid expenses
    
    
    16,115
    
    
    
    12,877Income taxes receivable
    
    
    10,645
    
    
    
    9,928Other receivables
    
    
    7,390
    
    
    
    7,401Notes receivable
    
    
    19
    
    
    
    18Other current assets
    
    
    479
    
    
    
    416Other current assets
    
    $
    86,657
    
    
    $
    80,177
 11. Property, Plant and Equipment, Net
  (In thousands)
    
    Aug. 27, 2005
    
    
    May 28, 2005Land
    
    $
    1,086
    
    
    $
    1,086Buildings
    
    
    131,085
    
    
    
    129,983Machinery and equipment
    
    
    251,004
    
    
    
    246,032Accumulated depreciation and amortization
    
    
    (261,113
    )
    
    
    (256,555
    )Property, plant and equipment, net
    
    $
    122,062
    
    
    $
    120,546
 12. Goodwill, Net
   Balance at May 28, 2005
    
    $
    301,934Adjustment for acquisition of Inet
    
    
    (657
    )Other acquisition
    
    
    3,182Currency translation
    
    
    (1,293
    )Balance at August 27, 2005
    
    $
    303,166
 13. Other Long-Term Assets
  (In thousands)
    
    Aug. 27, 2005
    
    
    May 28, 2005Other intangibles, net
    
    $
    102,646
    
    
    $
    107,652Notes, contracts and leases
    
    
    13,287
    
    
    
    12,377Corporate equity securities
    
    
    8,346
    
    
    
    8,285Pension asset
    
    
    853
    
    
    
    868Other assets
    
    
    5,967
    
    
    
    6,103Other long-term assets
    
    $
    131,099
    
    
    $
    135,285
  16




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(In thousands)
    
    Aug. 27, 2005
    
    
    May 28, 2005Unamortized cost basis of corporate equity securities
    
    $
    4,282
    
    
    $
    4,282Gross unrealized holding gains
    
    
    4,064
    
    
    
    4,003Fair value of corporate equity securities
    
    $
    8,346
    
    
    $
    8,285
 14. Accounts Payable and Accrued Liabilities
  (In thousands)
    
    Aug. 27, 2005
    
    
    May 28, 2005Trade accounts payable
    
    $
    32,834
    
    
    $
    36,407Other accounts payable
    
    
    36,103
    
    
    
    35,444Accounts payable
    
    
    68,937
    
    
    
    71,851Income taxes payable
    
    
    14,612
    
    
    
    17,348Contingent liabilities (see Note 17)
    
    
    10,009
    
    
    
    10,539Warranty reserve
    
    
    5,844
    
    
    
    6,508Accrued expenses and other liabilities
    
    
    9,180
    
    
    
    8,812Accrued liabilities
    
    
    39,645
    
    
    
    43,207Accounts payable and accrued liabilities
    
    $
    108,582
    
    
    $
    115,058
 15. Long-Term Liabilities
  (In thousands)
    
    Aug. 27, 2005
    
    
    May 28, 2005Pension liability
    
    $
    142,933
    
    
    $
    174,841Deferred compensation
    
    
    17,051
    
    
    
    15,708Postretirement benefits
    
    
    12,741
    
    
    
    12,828Other liabilities
    
    
    17,130
    
    
    
    19,638Long-term liabilities
    
    $
    189,855
    
    
    $
    223,015
  17




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##### Table of Contents



16. Pension and Other Postretirement Benefits
  Pension Benefits
    
    
    Other Postretirement BenefitsFiscal quarter ended
    
    
    Fiscal quarter endedAug. 27,
    
    
    Aug. 28,
    
    
    Aug. 27,
    
    
    Aug. 28,(In thousands)
    
    2005
    
    
    2004
    
    
    2005
    
    
    2004Service cost
    
    $
    1,840
    
    
    $
    1,550
    
    
    $
    24
    
    
    $
    21Interest cost
    
    
    9,617
    
    
    
    9,579
    
    
    
    214
    
    
    
    226Expected return on
plan assets
    
    
    (12,718
    )
    
    
    (12,537
    )
    
    
    
    
    
    
    Amortization of transition
asset
    
    
    28
    
    
    
    28
    
    
    
    
    
    
    
    Amortization of prior
service cost
    
    
    (567
    )
    
    
    (557
    )
    
    
    
    
    
    
    Amortization of net loss
    
    
    5,446
    
    
    
    3,329
    
    
    
    
    
    
    
    Net periodic benefit costs
    
    $
    3,646
    
    
    $
    1,392
    
    
    $
    238
    
    
    $
    247
 17. Contingencies
  Sale of Color Printing and Imaging
    18




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Environmental and Other
  19




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##### Table of Contents



18. Shareholders Equity
  AccumulatedOtherCommon Stock
    
    
    Retained
    
    
    Comprehensive(In thousands)
    
    Shares
    
    
    Amount
    
    
    Earnings
    
    
    Loss
    
    
    TotalBalance at May 28, 2005
    
    
    85,144
    
    
    $
    501,886
    
    
    $
    639,720
    
    
    $
    (155,783
    )
    
    $
    985,823Net earnings
    
    
    
    
    
    
    
    
    
    
    14,086
    
    
    
    
    
    
    
    14,086Additional minimum pension liability,
net of income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    179
    
    
    
    179Foreign currency translation
adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,677
    )
    
    
    (1,677
    )Unrealized holding loss on available-for-sale securities, net of income
taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (339
    )
    
    
    (339
    )Dividends paid
    
    
    
    
    
    
    
    
    
    
    (5,092
    )
    
    
    
    
    
    
    (5,092
    )Shares issued to employees, net
of forfeitures
    
    
    306
    
    
    
    4,888
    
    
    
    
    
    
    
    
    
    
    
    4,888Shares issued for acquisition
    
    
    87
    
    
    
    2,075
    
    
    
    
    
    
    
    
    
    
    
    2,075Tax benefit of stock option exercises
    
    
    
    
    
    
    204
    
    
    
    
    
    
    
    
    
    
    
    204Amortization of unearned stock-based
compensation
    
    
    
    
    
    
    782
    
    
    
    
    
    
    
    
    
    
    
    782Shares repurchased in open
market
    
    
    (2,177
    )
    
    
    (12,987
    )
    
    
    (39,727
    )
    
    
    
    
    
    
    (52,714
    )Balance at August 27, 2005
    
    
    83,360
    
    
    $
    496,848
    
    
    $
    608,987
    
    
    $
    (157,620
    )
    
    $
    948,215
    20




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Fiscal quarter endedAug. 27,
    
    
    Aug. 28,(In thousands)
    
    2005
    
    
    2004Net earnings
    
    $
    14,086
    
    
    $
    36,408Other comprehensive income (loss):Additional minimum pension liability, net of
income taxes of $88 and $152, respectively
    
    
    179
    
    
    
    344Foreign currency translation adjustment
    
    
    (1,677
    )
    
    
    (931
    )Unrealized holding loss on available-for-sale securities, net of income taxes of
($217) and ($508), respectively
    
    
    (339
    )
    
    
    (794
    )Total comprehensive income
    
    $
    12,249
    
    
    $
    35,027
  UnrealizedAdditional
    
    
    
    
    
    
    Holding
    
    
    AccumulatedMinimum
    
    
    Foreign
    
    
    Gains, Net on
    
    
    OtherPension
    
    
    Currency
    
    
    Available-for-
    
    
    Comprehensive(In thousands)
    
    Liability
    
    
    Translation
    
    
    Sales securities
    
    
    LossBalance as of May 28, 2005
    
    $
    (198,437
    )
    
    $
    42,127
    
    
    $
    527
    
    
    $
    (155,783
    )First quarter activity
    
    
    179
    
    
    
    (1,677
    )
    
    
    (339
    )
    
    
    (1,837
    )Balance as of August 27, 2005
    
    $
    (198,258
    )
    
    $
    40,450
    
    
    $
    188
    
    
    $
    (157,620
    )
 19. Business Segments
  Fiscal quarter ended(In thousands)
    
    Aug. 27, 2005
    
    
    Aug. 28, 2004Consolidated net sales to external customers by region:The Americas:United States
    
    $
    84,403
    
    
    $
    105,764Other Americas
    
    
    5,267
    
    
    
    8,022Europe
    
    
    62,747
    
    
    
    47,550Pacific
    
    
    44,422
    
    
    
    44,279Japan
    
    
    38,221
    
    
    
    44,850Net sales
    
    $
    235,060
    
    
    $
    250,465
 21




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20. Product Warranty Accrual
   Fiscal quarter ended(In thousands)
    
    Aug. 27, 2005
    
    
    Aug. 28, 2004Balance at beginning of period
    
    $
    6,508
    
    
    $
    8,959Payments made
    
    
    (2,429
    )
    
    
    (2,290
    )Provision for warranty expense
    
    
    1,765
    
    
    
    2,295Balance at end of period
    
    $
    5,844
    
    
    $
    8,964
 
 Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations.
 Introduction and Overview
       22




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Acquisition of Inet Technologies, Inc.
   23




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Cash paid
    
    $
    247,561Stock issued
    
    
    247,543Stock options assumed
    
    
    9,658Restricted share rights assumed
    
    
    321Transaction costs
    
    
    5,224Unearned stock-based compensation
    
    
    (3,403
    )Liabilities assumed
    
    
    38,006Total purchase price
    
    $
    544,910
  Cash and cash equivalents
    
    $
    158,821Accounts receivable
    
    
    18,504Inventories
    
    
    18,025Tax benefit from transaction costs
    
    
    1,209Other current assets
    
    
    6,910Property, plant, and equipment
    
    
    10,662Intangible assets
    
    
    121,953Goodwill
    
    
    220,226Other long term assets
    
    
    811In-process research and development
    
    
    32,237Deferred income taxes
    
    
    (44,448
    )Total assets acquired, net of deferred income taxes
    
    $
    544,910
  (in years)WeightedAverage
    
    
    
    
    
    
    Accumulated(In thousands)
    
    Useful Life
    
    
    Cost
    
    
    Amortization
    
    
    NetDeveloped technology
    
    
    4.8
    
    
    $
    87,004
    
    
    $
    (16,953
    )
    
    $
    70,051Customer relationships
    
    
    4.8
    
    
    
    22,597
    
    
    
    (4,418
    )
    
    
    18,179Covenants not to compete
    
    
    4.0
    
    
    
    1,200
    
    
    
    (275
    )
    
    
    925110,801
    
    
    
    (21,646
    )
    
    
    89,155Tradename
    
    Not amortized
    
    
    
    11,152
    
    
    
    
    
    
    
    11,152Total intangible assets purchased
    
    
    
    
    
    $
    121,953
    
    
    $
    (21,646
    )
    
    $
    100,307
  Fiscal quarter ended(In thousands)
    
    Aug. 27, 2005
    
    
    Aug. 28, 2004Cost of sales
    
    $
    4,624
    
    
    $
    Acquisition related costs and amortization
    
    
    1,279
    
    
    
    Total
    
    $
    5,903
    
    
    $
    
 24




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AcquisitionRelated Costs
    
    
    TotalCost of
    
    
    and
    
    
    for the(In thousands)
    
    Sales
    
    
    Amortization
    
    
    Fiscal YearFiscal Year2006
    
    $
    18,495
    
    
    $
    5,117
    
    
    $
    23,6122007
    
    
    18,495
    
    
    
    5,117
    
    
    
    23,6122008
    
    
    16,670
    
    
    
    4,621
    
    
    
    21,2912009
    
    
    15,759
    
    
    
    4,174
    
    
    
    19,9332010
    
    
    5,256
    
    
    
    1,354
    
    
    
    6,610Total
    
    $
    74,675
    
    
    $
    20,383
    
    
    $
    95,058
   Fiscal quarter ended(In thousands, except per share amounts)
    
    Aug. 28, 2004Pro formaNet sales
    
    $
    273,443Net earnings from continuing operations
    
    
    33,929Earnings per share:Continuing
operations  basic and diluted
    
    $
    0.37
   Business Realignment Costs
  25




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Critical Accounting Estimates
  Revenue Recognition
    26




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Contingencies
      Goodwill and Intangible Assets
   27




---



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Pension plans
    28




---



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29




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Income Taxes
     30




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##### Table of Contents



RESULTS OF OPERATIONS
 Fiscal quarter endedAug. 27,
    
    
    Aug. 28,
    
    
    %(In millions, except per share amounts)
    
    2005
    
    
    2004
    
    
    ChangeProduct orders
    
    $
    230.4
    
    
    $
    204.3
    
    
    
    13
    %Net sales
    
    $
    235.1
    
    
    $
    250.5
    
    
    
    (6
    )%Cost of sales
    
    
    99.1
    
    
    
    102.0
    
    
    
    (3
    )%Gross profit
    
    
    136.0
    
    
    
    148.5
    
    
    
    (8
    )%Gross margin
    
    
    57.8
    %
    
    
    59.3
    %Research and development expenses
    
    
    43.6
    
    
    
    33.6
    
    
    
    30
    %Selling, general and administrative expenses
    
    
    68.6
    
    
    
    65.1
    
    
    
    5
    %Business realignment costs
    
    
    2.5
    
    
    
    2.0
    
    
    
    22
    %Acquisition related costs and amortization
    
    
    3.4
    
    
    
    0.8
    
    
    
    >100
    %Loss (gain) on disposition of assets, net
    
    
    
    
    
    
    (1.9
    )
    
    
    (100
    )%Operating income
    
    
    17.9
    
    
    
    48.9
    
    
    
    (63
    )%Interest income
    
    
    3.1
    
    
    
    5.5
    
    
    
    (43
    )%Interest expense
    
    
    (0.1
    )
    
    
    (0.1
    )
    
    
    17
    %Other non-operating expense, net
    
    
    (1.0
    )
    
    
    (2.2
    )
    
    
    (56
    )%Earnings before taxes
    
    
    19.9
    
    
    
    52.1
    
    
    
    (62
    )%Income tax expense
    
    
    5.7
    
    
    
    15.6
    
    
    
    (63
    )%Net earnings from continuing operations
    
    
    14.2
    
    
    
    36.5
    
    
    
    (61
    )%Loss from discontinued operations, net of income taxes
    
    
    (0.1
    )
    
    
    (0.1
    )
    
    
    41
    %Net earnings
    
    $
    14.1
    
    
    $
    36.4
    
    
    
    (61
    )%Earnings per share:Continuing operations  basic
    
    $
    0.17
    
    
    $
    0.44
    
    
    
    (61
    )%Continuing operations  diluted
    
    $
    0.17
    
    
    $
    0.43
    
    
    
    (60
    )%Discontinued operations  basic and diluted
    
    $
    
    
    
    $
    
    
    
    
    Net earnings  basic and diluted
    
    $
    0.17
    
    
    $
    0.43
    
    
    
    (60
    )%
 First Quarter of Fiscal Year 2006 Compared to the First Quarter of Fiscal Year 2005
 Economic Conditions
    31




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Acquisition of Inet Technologies, Inc.
  Discontinuation of Rohde and Schwarz Distribution Agreement
  Product Orders
  Fiscal quarter endedAug. 27,
    
    
    Aug. 28
    
    
    %(In millions)
    
    2005
    
    
    2004
    
    
    ChangeConsolidated product orders:Tektronix products
    
    $
    185.6
    
    
    $
    204.4
    
    
    
    (9
    )%Inet products
    
    
    44.8
    
    
    
    
    
    
    
    >100
    %R&S distributed products
    
    
    
    
    
    
    (0.1
    )
    
    
    (100
    )%Total product orders
    
    $
    230.4
    
    
    $
    204.3
    
    
    
    13
    %
   32




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##### Table of Contents



Fiscal quarter endedAug. 27,
    
    
    Aug. 28,
    
    
    %(In millions)
    
    2005
    
    
    2004
    
    
    ChangeThe Americas:United States
    
    $
    76.4
    
    
    $
    64.2
    
    
    
    19
    %Other Americas
    
    
    4.2
    
    
    
    4.3
    
    
    
    (2
    )%Europe
    
    
    67.9
    
    
    
    41.5
    
    
    
    64
    %Pacific
    
    
    41.2
    
    
    
    46.2
    
    
    
    (11
    )%Japan
    
    
    40.7
    
    
    
    48.1
    
    
    
    (15
    )%Total product orders
    
    $
    230.4
    
    
    $
    204.3
    
    
    
    13
    %Product orders, excluding Inet and R&S
    
    $
    185.6
    
    
    $
    204.4
    
    
    
    (9
    )%
   Net Sales
  Fiscal quarter endedAug. 27,
    
    
    Aug. 28,
    
    
    %(In millions)
    
    2005
    
    
    2004
    
    
    ChangeConsolidated net sales:Tektronix other sales
    
    $
    203.3
    
    
    $
    229.3
    
    
    
    (11
    )%Inet sales
    
    
    31.8
    
    
    
    
    
    
    
    >100
    %R&S distributed products sales
    
    
    
    
    
    
    21.2
    
    
    
    (100
    )%Total net sales
    
    $
    235.1
    
    
    $
    250.5
    
    
    
    (6
    )%
    33




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##### Table of Contents



Fiscal quarter endedAug. 27,
    
    
    Aug. 28,
    
    
    %(In millions)
    
    2005
    
    
    2004
    
    
    ChangeThe Americas:United States
    
    $
    84.4
    
    
    $
    105.8
    
    
    
    (20
    )%Other Americas
    
    
    5.3
    
    
    
    8.0
    
    
    
    (34
    )%Europe
    
    
    62.7
    
    
    
    47.5
    
    
    
    32
    %Pacific
    
    
    44.5
    
    
    
    44.3
    
    
    
    Japan
    
    
    38.2
    
    
    
    44.9
    
    
    
    (15
    )%Total net sales
    
    $
    235.1
    
    
    $
    250.5
    
    
    
    (6
    )%Net sales, excluding Inet and R&S
    
    $
    203.3
    
    
    $
    229.3
    
    
    
    (11
    )%
  Gross Profit and Gross Margin
     34




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Operating Expenses
        35




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##### Table of Contents



Non-Operating Income / Expense
    Income Taxes
  Net Earnings
  Earnings Per Share
  36




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##### Table of Contents



Financial Condition, Liquidity and Capital Resources
 Sources and Uses of Cash
 Cash Flows.
 (In thousands)
    
    Aug. 27, 2005
    
    
    Aug. 28, 2004Cash provided by (used in):Operating activities
    
    $
    (44,680
    )
    
    $
    (43,120
    )Investing activities
    
    
    61,773
    
    
    
    57,818Financing activities
    
    
    (53,013
    )
    
    
    (56,286
    )
 Operating Activities.
  Investing Activities
 Financing Activities.
  37




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##### Table of Contents



Working Capital
  (In thousands)
    
    Aug. 27, 2005
    
    
    May 28, 2005Current assets:Cash and cash equivalents
    
    $
    95,002
    
    
    $
    131,640Short-term marketable investments
    
    
    111,477
    
    
    
    120,881Trade accounts receivable, net of allowance for
doubtful accounts of $3,745 and $3,406, respectively
    
    
    161,346
    
    
    
    155,332Inventories
    
    
    130,544
    
    
    
    131,096Other current assets
    
    
    86,657
    
    
    
    80,177Total current assets
    
    
    585,026
    
    
    
    619,126Current liabilities:Accounts payable and accrued liabilities
    
    
    108,582
    
    
    
    115,058Accrued compensation
    
    
    55,411
    
    
    
    78,938Deferred revenue
    
    
    54,639
    
    
    
    57,509Total current liabilities
    
    
    218,632
    
    
    
    251,505Working capital
    
    $
    366,394
    
    
    $
    367,621
   Recent Accounting Pronouncements
   38




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##### Table of Contents



39




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##### Table of Contents



Risks and Uncertainties
  We compete in a cyclical market.
  The industries we serve experience rapid changes in technology.
     40




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##### Table of Contents



Competition is intense, may intensify and could result in increased downward pricing pressure,
reduced margins and the loss of market share.
  We obtain various key components and services from sole and limited source suppliers.
   Changes or delays in the implementation or customer acceptance of our products could harm our
financial results.
  A significant portion of our revenues have come from international customers, and, as a result, our
business may be harmed by political and economic conditions in foreign markets and the challenges
associated with operating internationally.
  41




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##### Table of Contents



Our success depends on our ability to maintain and protect our intellectual property and the
intellectual property licensed from others.
  We are subject to environmental regulations.
  Our stock price can be volatile.
  42




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##### Table of Contents



The integration of Inet Technologies, Inc. is subject to risks.
  Our defined benefit pension plans are subject to financial market risks.
  We face other risk factors.
   
 Item 3. Quantitative and Qualitative Disclosures About Market Risk.
 Financial Market Risk
    43




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##### Table of Contents



Item 4. Controls and Procedures.
   
 Part II. OTHER INFORMATION
 
 Item 1. Legal Proceedings.
   
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
  Total Numberof Shares
    
    
    Maximum DollarAverage
    
    
    
    
    
    
    Purchased as
    
    
    Value of SharesTotal
    
    
    Price
    
    
    Total
    
    
    Part of Publicly
    
    
    that MayNumber
    
    
    Paid Per
    
    
    Amount
    
    
    Announced Plans
    
    
    Yet BeFiscal Period
    
    of Shares
    
    
    Share
    
    
    Paid
    
    
    or Programs
    
    
    PurchasedMay 29, 2005 to
June 25, 2005
    
    
    100,300
    
    
    $
    22.84
    
    
    $
    2,291,187
    
    
    
    25,062,479
    
    
    $
    350,474,635June 26, 2005 to
July 23, 2005
    
    
    887,400
    
    
    
    24.09
    
    
    
    21,374,312
    
    
    
    25,949,879
    
    
    
    329,100,323July 24, 2005 to
August 27, 2005
    
    
    1,189,100
    
    
    
    24.43
    
    
    
    29,048,748
    
    
    
    27,138,979
    
    
    $
    300,051,575Total
    
    
    2,176,800
    
    
    $
    24.22
    
    
    $
    52,714,247
 44




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##### Table of Contents



Item 4. Submission of Matters to a Vote of Security Holders.
   For
    
    
    WithheldPauline Lo Alker
    
    
    76,112,734
    
    
    
    1,811,139A. Gary Ames
    
    
    76,548,208
    
    
    
    1,375,665Gerry B. Cameron
    
    
    76,107,680
    
    
    
    1,816,193David N. Campbell
    
    
    76,093,106
    
    
    
    1,830,767Frank C. Gill
    
    
    76,115,141
    
    
    
    1,808,732Merrill A. McPeak
    
    
    76,032,107
    
    
    
    1,891,766Robin L. Washington
    
    
    76,532,512
    
    
    
    1,391,361Richard H. Wills
    
    
    76,242,312
    
    
    
    1,681,561Cyril J. Yansouni
    
    
    76,542,750
    
    
    
    1,381,123
  Broker Non-For
    
    Against
    
    Abstain
    
    Votes76,248,865
    
    386,148
    
    1,288,860
    
    
  Broker Non-For
    
    Against
    
    Abstain
    
    Votes55,400,033
    
    14,552,473
    
    518,608
    
    7,452,759
  Broker Non-For
    
    Against
    
    Abstain
    
    Votes69,111,196
    
    859,130
    
    500,788
    
    7,452,759
 
 Item 6. Exhibits.
 +(10.1)
    
    2001 Non-Employee Directors Compensation Plan, as amended.+(10.2)
    
    Deferred Compensation Plan (2005 Restatement).+(10.3)
    
    Stock Deferral Plan (2005 Restatement).(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 45




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##### Table of Contents



SIGNATURES
  October 5, 2005
    
    TEKTRONIX, INC.By
    
    /s/ COLIN L. SLADEColin L. Slade
Senior Vice President and
Chief Financial Officer
 46




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##### Table of Contents



EXHIBIT INDEX
 Exhibits No.
    
    Exhibit Description+ (10.1)
    
    2001 Non-Employee Directors Compensation Plan, as amended.+ (10.2)
    
    Deferred Compensation Plan (2005 Restatement).+ (10.3)
    
    Stock Deferral Plan (2005 Restatement).(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