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We are subject to legal proceedings, claims and investigations that arise in the ordinary course of business such as, but not limited to, patent, employment, commercial and environmental matters. We believe that we have meritorious defenses against all pending claims and intend to vigorously contest them. While it is not possible to predict or determine the outcomes of any pending claims or to provide possible ranges of losses that may arise, we believe the potential losses associated with all of these actions are unlikely to have a material adverse effect on our results of operations, financial condition or cash flows.
| Market for Registrant’sRegistrant s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities |
Our common stock is traded on the Nasdaq Global Select Market under the trading symbol “TER”.“TER.” As of February 16, 2021, there were approximately 1,362 holders of record of shares of our common stock. See “Item 7: Management’s Discussion and Analysis of Financial Condition and Results of Operations,” for information on the frequency and amounts of our quarterly cash dividends, equity compensation plans and performance graph. The following table includes information with respect to repurchases we made of our common stock during the three months ended December 31, 20192020 (in thousands except per share price): | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | September 30, 2019 – October 27, 2019 | | | | | | $ | | | | | | | | $ | | | October 28, 2019 – November 24, 2019 | | | | | | $ | | | | | | | | $ | | | November 25, 2019 – December 31, 2019 | | | | | | $ | | | | | | | | $ | | | | | | | | | | | | | | | | | | | | | | | | (1) | | $ | | (1) | | | | | | | | | | | | | | | | | | | | | | | | | |
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| | September 28, 2020 – October 25, 2020 | | | 1 | | | $ | 79.59 | | | | — | | | $ | 911,535 | | October 26, 2020 – November 22, 2020 | | | 2 | | | $ | 89.70 | | | | — | | | $ | 911,535 | | November 23, 2020 – December 31, 2020 | | | — | | | $ | 116.15 | | | | — | | | $ | 911,535 | | | | | | | | | | | | | | | | | | | | | | 3 | (1) | | $ | 90.74 | (1) | | | — | | | | | | | | | | | | | | | | | | | | | | |
(1) | Includes approximately three thousand shares at an average price of $60.44$90.74 withheld from employees for the payment of taxes. |
We satisfy U.S. federal and state minimum withholding tax obligations due upon the vesting and the conversion of restricted stock units into shares of our common stock, by automatically withholding from the shares being issued, a number of shares with an aggregate fair market value on the date of such vesting and conversion that would satisfy the minimum withholding amount due. Teradyne has early adopted the amendment to RegulationS-K | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | (dollars in thousands, except per share amounts) | | Consolidated Statement of Operations Data (1)(2)(3)(4)(5): | | | | | | | | | | | | | | | | | | | | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | | | | | | | | | | | | | | | | | | | | | | | $ | | | | $ | | | | $ | | | | $ | | ) | | $ | | | | | | | | | | | | | | | | | | | | | | | | Net income (loss) per common share-basic | | $ | | | | $ | | | | $ | | | | $ | | ) | | $ | | | | | | | | | | | | | | | | | | | | | | | | Net income (loss) per common share-diluted | | $ | | | | $ | | | | $ | | | | $ | | ) | | $ | | | | | | | | | | | | | | | | | | | | | | | | Cash dividend declared per common share | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | | | | | | | | | | | | | | | | | | | | | Consolidated Balance Sheet Data: | | | | | | | | | | | | | | | | | | | | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | | | | | | | | | | | | | | | | | | | | | Long-term debt obligations | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | | | | | | | | | | | | | | | | | | | | |
23Item 301, which became effective on February 10, 2021.
(1) | The year ended December 31, 2019 includes a $26.0 million tax benefit from the release of uncertain tax position reserves due to the IRS completion of its audit of our 2015 Federal tax return, a $15.0 million charge for the impairment of the investment in RealWear, $8.2 million of pension actuarial losses, and the results of operations of Lemsys and AutoGuide from January 30, 2019 and November 13, 2019, respectively. |
(2) | The year ended December 31, 2018 includes $49.5 million of tax benefit related to the finalization of the U.S. transition tax liability, $3.3 million of pension actuarial gains, and the results of operations of Mobile Industrial Robots and Energid from April 25, 2018 and February 26, 2018, respectively. |
(3) | The year ended December 31, 2017 includes $186.0 million of provisional tax expense related to the Tax Reform Act and $6.6 million of pension actuarial gains. |
(4) | The year ended December 31, 2016 includes a $254.9 million goodwill impairment charge and an $83.3 million acquired intangible assets impairment charge related to the Wireless Test segment, and $3.2 million of pension actuarial gains. |
(5) | The year ended December 31, 2015 includes $17.7 million of pension actuarial losses, a $5.4 million gain from the sale of an equity investment and the results of operations of Universal Robots from June 12, 2015. |
Item 7: | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
We are a leading global supplier of automation equipment for test and industrial applications. We design, develop, manufacture and sell automatic test systems used to test semiconductors, wireless products, data storage and complex electronics systems in themany industries including consumer electronics, wireless, automotive, industrial, computing, communications, and aerospace and defense industries. Our industrial automation products include collaborative robotic arms, autonomous mobile robots (“AMRs”) and advanced robotic control software used by global manufacturing, logistics and light industrial customers to improve quality, increase manufacturing and material handling efficiency and decrease manufacturing and logistics costs. Our automatic test equipment and industrial automation products and services include: semiconductor test (“Semiconductor Test”) systems; storage and system level test (“Storage Test”) systems, defense/aerospace (“Defense/Aerospace”) test instrumentation and systems, storage test (“Storage Test”) systems and circuit-board test and inspection (“Production Board Test”) systems (collectively these products represent “System Test”);
wireless test (“Wireless Test”) systems; and industrial automation (“Industrial Automation”) products; andproducts. wireless test (“Wireless Test”) systems.
We have a customer base which includes integrated device manufacturers (“IDMs”), outsourced semiconductor assembly and test providers (“OSATs”), original equipment manufacturers (“OEMs”), wafer foundries, fabless companies that design, but contract with others for the manufacture of integrated circuits (“ICs”), developers of wireless devices and consumer electronics, manufacturers of circuit boards, automotive suppliers, wireless product manufacturers, storage device manufacturers, aerospace and military contractors, and distributors that sell collaborative robots, autonomous mobile robots and wireless test systems. The sales of our products and services are dependent, to a large degree, on these customers who are subject to cyclical trends in the demand for their products. These cyclical periods have had, and will continue to have, a significant effect on our business because our customers often delay or accelerate purchases in reaction to changes in their businesses and to demand fluctuations in the semiconductor, electronics and industrial automation industries. Historically, these demand fluctuations have resulted in significant variations in our results of operations.
The market for our test products is concentrated with a limited number of significant customers accounting for a substantial portion of the purchases of test equipment. A few customers drive significant demand for our test products both through direct sales and sales to the customers’ supply partners. We expect that sales of our test products will continue to be concentrated with a limited number of significant customers for the foreseeable future. We have grown our Industrial Automation business through acquisitions, including Mobile Industrial Robots A/S (“MiR”), a leading maker of collaborative autonomous mobile robots (“AMRs”) for industrial applications, in 2018 and AutoGuide, LLC (“AutoGuide”), a maker of high payload AMRs, in 2019. The market for our industrial automation products is dependent on the adoption of new automation technologies by large manufacturers as well as small and medium enterprises (SMEs) throughout the world. In 2020, our Industrial Automation businesses were negatively impacted by the global industrial downturn as well as theCOVID-19
In 2019,2020, revenue in our test businesses exceeded our plan as a result of Semiconductor Test demand in China,by our largest customer, early 5G test investments and strength in our System Test businesses. The revenue growth of our Industrial Automation businessesbusiness was below our plan. In 2020,2021, we expect continued strong momentum in our test businesses and improvementreturn to growth for Industrial Automation. Our strategy is to focus on profitably growing market share in our test businesses the introduction of differentiated products that target growth ofsegments, and accelerating growth through continued investment in our Industrial Automation businesses. We plan to execute on our strategy while balancing capital allocations between returning capital to our shareholders through dividends and stock repurchases and using capital for with opportunistic acquisitions. On February 26, 2018,Impact of theCOVID-19 Pandemic on our Business The novel coronavirus(COVID-19) pandemic has resulted in government authorities implementing numerous measures in an effort to contain the spread of the virus, such as travel bans and restrictions, limitations on gatherings or social distancing requirements, quarantines,orders, and business limitations and shutdowns. These measures have impacted ouroperations and disrupted our business, workforce and operations, as well as the operations of our customers, contract manufacturers and suppliers. We are continuing to monitor the rapidly evolving situation regarding theCOVID-19 pandemic and the availability and impact of vaccinations. However, we acquired Energid Technologies Corporation (“Energid”) for a total purchase priceare unable to accurately predict the full impact of approximately $27.6 million. Energid’s technology enablesCOVID-19, which will depend on future developments that are highly uncertain and simplifiescannot be predicted with accuracy, including, but not limited to, any new surges in areas where we do business, the programmingavailability of complex robotic motions usedvaccinations, any further government actions to contain the virus or treat its impact, and how quickly and to what extent normal economic and operating conditions can resume. In response to theCOVID-19 pandemic, we have taken proactive, aggressive action to protect the health and safety of our employees, customers, contract manufacturers and suppliers and we have complied with all government orders around the globe. The spread ofCOVID-19 has caused us to modify our business practices, including implementing social distancing protocols, suspending employee travel, requiring most employees to work remotely, cancelling physical participation in a wide varietymeetings, and extensively and frequently disinfecting our workspaces. Around the world, the majority of end markets, rangingour employees are working from heavy industryhome. However, some of our engineering, operations, supply line and customer support teams must beon-site at our or our customers’
facilities. We are providing thoseon-site employees with the necessary protective resources and procedures to healthcare, utilizing both traditional robotsminimize their exposure risk. We may take further actions as may be required or recommended by government authorities or that we determine are in the best interests of our employees, customers, contract manufacturers and collaborative robots. Energid is includedsuppliers. We believe theCOVID-19 pandemic, and the numerous measures implemented by authorities in response, has adversely impacted our results of operations, including by increasing costs and decreasing demand in our Industrial Automation segment.businesses, but we cannot accurately estimate the amount of the impact to our 2020 financial results or to our future financial results. In addition, the pandemic has disrupted our contract manufacturers and suppliers, and has resulted in some instances in short-term cost increases to meet customer demand. While the duration and severity of the pandemic may further impact our workforce and operations, as well as those of our customers, contract manufacturers and suppliers, we expect that our manufacturing facilities will remain operational, at sufficient capacity to support production demand. We are monitoring our operations closely in an effort to avoid any potential productivity loss caused by responses to theCOVID-19 pandemic. We have not experienced any significant impacts or interruptions to our supply chain as a result of theCOVID-19 pandemic. However, our suppliers have faced and may continue to face difficulties maintaining operations in light of government-ordered restrictions, including social distancing requirements andmandates. Our supply chain team, and our suppliers, overcame numerous supply, production, and logistics obstacles in 2020, but there is no assurance we acquired Mobileor they will be able to do so in the future. Although we regularly monitor the financial health of companies in our supply chain, financial hardship on our suppliers orsub-suppliers caused by theCOVID-19 pandemic could disrupt our ability to obtain components required to manufacture our products, adversely affecting our operations and in some instances result in higher costs and delays, both for obtaining components and shipping finished goods to customers, which could harm our profitability, make our products less competitive, or cause our customers to seek alternative suppliers. TheCOVID-19 pandemic has significantly increased economic uncertainty in our markets. Demand for our Test products was strong throughout 2020. While there was incremental softening in the automotive sector in 2020, there was strengthening demand in mobility, 5G, and memory test. Our Industrial Robots ApS (“MiR”),Automation business, however, experienced a Danish limited liability company. MiR is a leading makersignificant decline in demand through first half of collaborative autonomous mobile robots (“AMRs”) for industrial applications.2020 due toCOVID-19 related shutdowns affecting global manufacturing but demand recovered in the second half of 2020 from the low point in the second quarter. The total purchase price was approximately $197.8 million, which included cash paid of approximately $145.2 million and $52.6 million in fair value of contingent consideration payable upon achievement of certain thresholds and targets for revenue and earnings before interest and taxes through 2020. Contingent consideration for 2018 was $30.8 million and was paid in March 2019. Contingent consideration for 2019 was $9.1 million and is expected to be paid in March 2020. The remaining maximum contingent considerationCOVID-19 pandemic could cause further global economic disruption that could be paid is $63.2 million. MiR is included incause demand for our Industrial Automation segment.products to decline, which would adversely affect our business. Although there is continued uncertainty related to the impact of theCOVID-19 pandemic on our future results, we believe our business model and our current cash reserves leave us well-positioned to manage our business through this crisis. We have a strong balance sheet as well as an operating model that we believe is capable of flexing up and down with extreme demand swings while still remaining profitable. Based on our December 31, 2019 goodwill impairment test,analysis, we believe our existing balances of cash and cash equivalents and our currently anticipated operating cash flows will be sufficient to meet our working capital needs and other capital and liquidity requirements for the MiR reporting unit’s estimated fair value exceeded its carrying value by 14%. The MiR goodwill amount is $123.6next twelve months. However, due to the uncertainty related to the future impact of theCOVID-19 pandemic,
in order to bolster our liquidity position, on May 1, 2020 we entered into a credit agreement providing for a three-year, senior secured revolving credit facility of $400 million as further described in Note J: “Debt.” As of December 31, 2019. Key assumptions inFebruary 22, 2020, we have not borrowed any funds under the goodwill valuation model are forecasted revenues, discount rate and earnings before interest and taxes. A change in any of these key assumptions could result in the reporting unit being impaired in a future period.credit facility. On January 30, 2019,We are continuing to monitor the evolving situation regarding theCOVID-19 pandemic, the availability of vaccinations where we acquired all ofdo business and guidance from government authorities around the issued and outstanding shares of Lemsys SA (“Lemsys”) for a total purchase price of approximately $9.1 million. Lemsys strengthensworld. In these circumstances, there may be developments outside our position in the electrification trends of vehicles, solar, wind, and industrial applications. Lemsys is included incontrol requiring us to adjust our Semiconductor Test segment.On June 3, 2019, we invested $15.0 million in RealWear, Inc. (“RealWear”). RealWear, a private company, develops and sells advanced wearable technology including industrial, hands-free, head-mounted augmented reality devices that make the workplace safer and more productive. On February 28, 2020, RealWear’s debt holder demanded repayment of its $25.0 million loan to RealWear.operating plan. As a result, given the uncertain nature of this situation, we are not able to accurately predict the full extent of the impact ofCOVID-19 on our business, financial condition, results of operations, liquidity, or cash flows in the fourth quarter of 2019, we recorded an impairment charge of $15.0 millionfuture. In addition, see Part II—Item 1A, “Risk Factors,” included herein for updates to reduce our investment in RealWear to zero as of December 31, 2019.risk factors regarding risks associated with theCOVID-19 pandemic.On November 13, 2019, we acquired 100% of the membership interests of AutoGuide, LLC (“AutoGuide”), a maker of high payload AMRs, an emerging and fast growing segment of the global forklift market. The total purchase price was approximately $81.7 million, which included cash paid of approximately $57.8 million and $24.0 million in fair value of contingent consideration payable upon achievement of certain performance targets, extending potentially through 2022. The maximum contingent consideration that could be paid is $106.9 million. AutoGuide’s AMRs are used for material transport of payloads up to 4,500 kg in manufacturing, warehouse and logistics applications. These products complement MiR’s lower payload products. AutoGuide is included in our Industrial Automation segment, which is a key component of our growth strategy.
We believe our recent acquisitions and investments have enhanced our opportunities for growth. We intend to continue to invest in our business, grow market share in our markets and further expand our addressable markets while tightly managing our costs.
Critical Accounting Policies and Estimates We have identified the policies discussed below as critical to understanding our business and our results of operations and financial condition. The impact and any associated risks related to these policies on our business operations is discussed throughout Management’s Discussion and Analysis of Financial Condition and Results of Operations where such policies affect our reported and expected financial results. Due tothe COVID-19 pandemic, there has been uncertainty and disruption in the global economy and our markets. We are not aware of any specific event or circumstance that would require an update to our estimates or judgments or a revision of the carrying value of our assets or liabilities as of February 22, 2021, the date of issuance of this Annual Report on These estimates may change, as new events occur, and additional information is obtained. Actual results could differ significantly from these estimates under different assumptions or conditions.
Revenue from Contracts with Customers In accordance with ASC 606, “ Revenue from Contracts with Customers” (“ASC 606”) , we recognize revenues, when or as control is transferred to a customer. Our determination of revenue is dependent upon a five step process outlined below. We account for a contract with a customer when there is written approval, the contract is committed, the rights of the parties, including payment terms, are identified, the contract has commercial substance and consideration is probable of collection. We periodically enter into contracts with customers in which a customer may purchase a combination of goods and services, such as products with extended warranty obligations. We determine performance obligations by assessing whether the products or services are distinct from the other elements of the contract. In order to be distinct, the product or service must perform either on its own or with readily available resources and must be separate within the context of the contract. We consider the amount stated on the face of the purchase order to be the transaction price. We do not have variable consideration which could impact the stated purchase price agreed to by us and the customer. Transaction price is allocated to each individual performance obligation based on the standalone selling price of that performance obligation. We use standalone transactions when available to value each performance obligation. If standalone transactions are not available, we will estimate the standalone selling price through market assessments or cost plus a reasonable margin analysis. Any discounts from standalone selling price are spread proportionally to each performance obligation.
In order to determine the appropriate timing for revenue recognition, we first determine if the transaction meets any of three criteria for over time recognition. If the transaction meets the criteria for over time recognition, we recognize revenue as the good or service is delivered. We use input variables such as hours or months utilized or costs incurred to determine the amount of revenue to recognize in a given period. Input variables are used as they best align consumption with benefit to the customer. For transactions that do not meet the criteria for over time recognition, we will recognize revenue at a point in time based on an assessment of the five criteria for transfer of control. We have concluded that revenue should be recognized when shipped or delivered based on contractual terms. Typically, acceptance of our products and services is a formality as we deliver similar systems, instruments and robots to standard specifications. In cases where acceptance is not deemed a formality, we will defer revenue recognition until customer acceptance. Translation of Non-U.S. Currencies The functional currency for all non-U.S. subsidiaries is the U.S. dollar, except for Universal Robots, MiR and Lemsys for which the local currency is its functional currency. All foreign currency denominated monetary assets and liabilities are remeasured on a monthly basis into the functional currency using exchange rates in effect at the end of the period. All foreign currency denominated non-monetary assets and liabilities are remeasured into the functional currency using historical exchange rates. Net foreign exchange gains and losses resulting from remeasurement are included in other (income) expense, net. For Universal Robots, MiR and Lemsys, assets and liabilities are translated into U.S. dollars using exchange rates in effect at the end of the period. Revenues and expense amounts are translated using an average of exchange rates in effect during the period. Translation adjustments are recorded within accumulated other comprehensive income (loss) on the balance sheet. Retirement and Postretirement Plans We recognize net actuarial gains and losses and the change in the fair value of the plan assets in our operating results in the year in which they occur or upon any interim remeasurement of the plans. We calculate
the expected return on plan assets using the fair value of the plan assets. Actuarial gains and losses are generally measured annually as of December 31 and, accordingly, recorded during the fourth quarter of each year or upon any interim remeasurement of the plans. In March 2017, the Financial Accounting Standards Board (“FASB”) issued ASU 2017-07, “Compensation—Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost .” We retrospectively adopted the new accounting guidance on presentation of net periodic pension costs and net periodic postretirement benefit costs in the first quarter of 2018. This guidance requires the service cost component of net benefit costs to be reported in the same line item in the consolidated statement of operations as other employee compensation costs. The non-service components of net benefit costs such as interest cost, expected return on assets, amortization of prior service cost, and actuarial gains or losses, are required to be reported separately outside of income or loss from operations. Following the adoption of this guidance, we continue to record the service cost component in the same line item as other employee compensation costs and the non-service components of net benefit costs such as interest cost, expected return on assets, amortization of prior service cost, and actuarial gains or losses are reported within other (income) expense, net. In 2017, the retrospective adoption of this standard decreased income from operations by $5.0 million, due to the reclass of net actuarial pension gains and increasednon-operating
(income) expense by the same amount with no impact to net income (loss).Inventories are stated at the lower of cost using a standard costing system which approximates cost based on a first-in, first-out basis or net realizable value. On a quarterly basis, we use consistent methodologies to evaluate all inventories for net realizable value. We record a provision for both excess and obsolete inventory when such
write-downs or write-offs are identified through the quarterly review process. The inventory valuation is based upon assumptions about future demand, product mix, and possible alternative uses. Equity Incentive and Stock Purchase Plans Stock-based compensation expense is based on the grant-date fair value estimated in accordance with the provisions of ASC 718, “ Compensation—Stock Compensation. ” Upon adoption of ASU 2016-09, “Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting,” in the first quarter of 2017, we made an accounting policy election to continue accounting for forfeitures by applying an estimated forfeiture rate and recognizing compensation costs only for those stock-basedstock- based compensation awards expected to vest. In accordance with ASU 2016-09, starting in the first quarter of 2017, excess tax benefits or tax deficiencies are recognized as a discrete tax benefit or discrete tax expense to the current income tax provision in our consolidated statements of operations and are reported as cash flows from operating activities. On January 1, 2017, a cumulative effect adjustment of $39.1 million for any prior year excess tax benefits or tax deficiencies not previously recorded was recorded as an increase to retained earnings and deferred tax assets. All cash payments made to taxing authorities on the employees’ behalf for withheld shares are presented as financing activities on the statement of cash flows. In 2020, 2019 2018 and 2017,2018, we recognized a discrete tax benefit of $9.6 million, $4.9 million $7.6 million and $6.3$7.6 million, respectively, related to net excess tax benefit. Deferred tax assets and liabilities are determined based on differences between financial reporting and tax basis of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. The measurement of deferred tax assets is reduced by a valuation allowance if it is more likely than not that some or all of the deferred tax assets will not be realized. We performed the required assessment of positive and negative evidence regarding the realization of the net deferred tax assets in accordance with ASC 740, “ Accounting for Income Taxes. ” This assessment included the evaluation of scheduled
reversals of deferred tax liabilities, estimates of projected future taxable income and tax-planning strategies. Although realization is not assured, based on our assessment, we concluded that it is more likely than not that such assets, net of the existing valuation allowance, will be realized. We account for our investments in debt and equity securities in accordance with the provisions of ASC 320-10, “ Investments—Debt and Equity Securities. ” On a quarterly basis, we review our investments to identify and evaluate those that have an indication of a potential other-than-temporary impairment. Factors considered in determining whether a loss is other-than-temporary include: The length of time and the extent to which the market value has been less than cost; The financial condition and near-term prospects of the issuer; and The intent and ability to retain the investment in the issuer for a period of time sufficient to allow for any anticipated recovery in market value. Investment in Other Companies We account for investments in other companies at cost and evaluate for impairment or an indication of changes in fair value resulting from observable price changes in orderly transactions for the identical or similar investment of the same issuer on a quarterly basis. Financial Assets and Financial Liabilities In January 2016, the FASB issued ASU 2016-01, “ Financial Instruments—Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. ” We adopted the new accounting
guidance in the first quarter of 2018 using the modified retrospective approach. This guidance requires that changes in fair value of equity marketable securities be accounted for directly in earnings. Previously, the changes in fair value of equity marketable securities were recorded in accumulated other comprehensive income on the balance sheet. We continue to record realized gains in interest income and realized losses in interest expense. The adoption of this new accounting guidance increased the January 1, 2018 retained earnings balance by $3.1 million and decreased the accumulated other comprehensive income balance by the same amount. In June 2016, the FASB issuedASU 2016-13, “Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” This standard introduced the expected credit losses methodology for the measurement of credit losses on financial assets that are not measured at fair value through net income and replaces the “incurred loss” model with an “expected credit loss” model that requires consideration of a broader range of information to estimate expected credit losses over the lifetime of the asset. We adopted this standard on January 1, 2020 on a modified retrospective basis. The adoption ofASU 2016-13 did not have a material impact on our consolidated statement of operations, balance sheets, cash flows, or earnings per share. Goodwill, Intangible and Long-Lived Assets On January 26, 2017, the Financial Accounting Standards Board (“FASB”) issuedASU 2017-04, “Intangibles—Goodwill and Other (Topic 350): Simplifying the Accounting for Goodwill Impairment.” The new guidance removes Step 2 of the goodwill impairment test, which requires a hypothetical purchase price allocation. We adopted this standard on January 1, 2020, on a prospective basis. The adoption ofASU 2017-04 did not have a material impact on the consolidated statement of operations, cash flows, or earnings per share. We assess goodwill for impairment at least annually in the fourth quarter, as of December 31, on a reporting unit basis, or more frequently, when events and circumstances occur indicating that the recorded goodwill may be impaired. IfUnderASU 2017-04, goodwill impairment will be the book value ofamount by which a reporting unitunit’s carrying value exceeds its fair value, the implied fair value of goodwill is compared withnot to exceed the carrying amount of goodwill. IfAll other goodwill impairment guidance will remain largely unchanged. Entities will continue to have the option to perform a qualitative assessment to determine if a quantitative impairment test is necessary. Thesame one-step impairment test will be applied to goodwill at all reporting units, even those with zero or negative carrying amounts. Entities will be required to disclose the amount of goodwill exceeds the implied fair value of goodwill, an impairment charge is recorded in an amount equal to that excess. at reporting units with zero or negative carrying amounts. No goodwill impairment was identified in 2020, 2019 2018 and 2017. Based on our December 31, 2019 goodwill impairment test, the MiR reporting unit’s estimated fair value exceeded its carrying value by 14%. The MiR goodwill amount is $123.6 million as of December 31, 2019. Key assumptions in the goodwill valuation model are forecasted revenues, discount rate and earnings before interest and taxes. A change in any of these key assumptions could result in the reporting unit being impaired in a future period.2018.
We assess the impairment of intangible and long-lived assets whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Factors we consider important in the determination of an impairment include significant underperformance relative to historical or projected future operating results, significant changes in the manner that we use the acquired asset and significant negative industry or economic trends.
We recognize the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values at the date of acquisition. The fair value of identifiable intangible assets is based on detailed cash flowflows valuations that use information and assumptions provided by management. We estimate the fair value of contingent consideration at the time of the acquisition using all pertinent information known to us at the time to assess the probability of payment of contingent amounts or through the use of a Monte Carlo simulation model. We allocate any excess purchase price over the fair value of the net tangible and intangible assets acquired and liabilities assumed to goodwill. The assumptions used in the valuations for our acquisitions may differ materially from actual results depending on performance of the acquired businesses and other factors. While we believe the
assumptions used were appropriate, different assumptions in the valuation of assets acquired and liabilities assumed could have a material impact on the timing and extent of impact on our statements of operations. Goodwill is assigned to reporting units as of the date of the related acquisition. Information pertaining to fiscal year 20172018 results of operations, including a comparison against fiscal year 2018,2019, was included in our Annual Report on Form 10-K for the year ended December 31, 20182019 under Part II, Item 7, “Management’s Discussion and Analysis of Financial Position and Results of Operations,” which was filed with the SEC on March 1, 2019.2, 2020. This information is incorporated by reference herein. The following table sets forth the percentage of total net revenues included in our consolidated statements of operations: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | % | | | | % | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total cost of revenues (exclusive of acquired intangible assets amortization shown separately below) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Selling and administrative | | | | | | | | | Engineering and development | | | | | | | | | Acquired intangible assets amortization | | | | | | | | | | | | | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Non-operating (income) expenses: | | | | | | | | | | | | | ) | | | | ) | | | | | | | | | | Other (income) expense, net | | | | | | | | | | | | | | | | | | Income before income taxes | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | % | | | | % | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 86.2 | % | | | 82.3 | % | | | | 13.8 | | | | 17.7 | | | | | | | | | | | | | | 100.0 | | | | 100.0 | | | | | | | | | | | | | | 37.1 | | | | 34.1 | | | | | 5.7 | | | | 7.5 | | | | | | | | | | | Total cost of revenues (exclusive of acquired intangible assets amortization shown separately below) | | | 42.8 | | | | 41.6 | | | | | | | | | | | | | | 57.2 | | | | 58.4 | | | | | | | | | | | Selling and administrative | | | 14.9 | | | | 19.0 | | Engineering and development | | | 12.0 | | | | 14.1 | | Acquired intangible assets amortization | | | 1.0 | | | | 1.7 | | | | | (0.4 | ) | | | (0.6 | ) | | | | | | | | | | | | | 27.5 | | | | 34.3 | | | | | | | | | | | | | | 29.7 | | | | 24.1 | | Non-operating (income) expenses: | | | | | | | | | | | | (0.2 | ) | | | (0.7 | ) | | | | 0.8 | | | | 1.0 | | Other (income) expense, net | | | 0.3 | | | | 1.0 | | | | | | | | | | | Income before income taxes | | | 28.9 | | | | 22.9 | | | | | 3.7 | | | | 2.5 | | | | | | | | | | | | | | 25.1 | % | | | 20.4 | % | | | | | | | | | |
Revenues for our reportable segments were as follows: | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | $ | 2,259.6 | | | $ | 1,552.6 | | | $ | 707.0 | | | | | 409.7 | | | | 287.5 | | | | 122.2 | | | | | 279.7 | | | | 298.1 | | | | (18.4 | ) | | | | 173.0 | | | | 157.3 | | | | 15.7 | | | | | (0.6 | ) | | | (0.5 | ) | | | (0.1 | ) | | | | | | | | | | | | | | | | $ | 3,121.5 | | | $ | 2,295.0 | | | $ | 826.5 | | | | | | | | | | | | | | |
The increase in Semiconductor Test revenues of $60.2$707.0 million, or 4%45.5%, from 2018 to 2019 was driven primarily by an increase in semiconductor testermobility test sales resulting from increased complexity of cell phone silicon which drives demand for 5G infrastructuretesters, and image sensors and higher service revenue, partially offset by a decrease in sales in the automotive and analog test segments. Thean increase in Industrial Automation revenuesmemory test sales of $36.6 million, or 14%, from 2018 to 2019 was primarily due to higher demand for collaborative robots. The MiR acquisition was completed in April 2018.
flash and DRAM testers. The increase in System Test revenues of $71.4$122.2 million, or 33%42.5%, from 2018 to 2019 was primarily due to higher sales in Storage Test of 3.5”system level and hard disk drive testers, and higher sales in Defense/Aerospace test instrumentation and systems, and higherpartially offset by lower sales in Production Board Test from higher 5Gdue to lower automotive electronics demand. The decrease in Industrial Automation revenues of $18.4 million, or 6.2%, was primarily due to lower demand for collaborative robotic arms in the automotive and manufacturing markets amplified by the impacts ofCOVID-19. The increase in Wireless Test revenues of $25.3$15.7 million, or 19%10.0%, from 2018 to 2019 was primarily due to higher demand for millimeter waveincreased sales of 5G, WiFi 6 and cellular test products driven by new wireless standards and 5G, partially offset by lower sales in connectivity test products and services.WiFi 6E testers. Our reportable segments accounted for the following percentages of consolidated revenues: | | | | | | | | | | | | | | | | | | | 72 | % | | | 68 | % | | | | 13 | | | | 13 | | | | | 9 | | | | 13 | | | | | 6 | | | | 7 | | | | | | | | | | | | | | 100 | % | | | 100 | % | | | | | | | | | |
Revenues by country as a percentage of total revenues were as follows (1): | | | | | | | | | | | | | | | | | | | 38 | % | | | 21 | % | | | | 15 | | | | 22 | | | | | 13 | | | | 10 | | | | | 10 | | | | 15 | | | | | 7 | | | | 10 | | | | | 5 | | | | 8 | | | | | 4 | | | | 4 | | | | | 2 | | | | 4 | | | | | 2 | | | | 3 | | | | | 2 | | | | 2 | | | | | 2 | | | | 2 | | | | | | | | | | | | | | 100 | % | | | 100 | % | | | | | | | | | |
(1) | Revenues attributable to a country are based on the location of the customer site. |
The breakout of product and service revenues was as follows: | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | $ | 2,690.9 | | | $ | 1,887.7 | | | $ | 803.2 | | | | | 430.6 | | | | 407.3 | | | | 23.3 | | | | | | | | | | | | | | | | | $ | 3,121.5 | | | $ | 2,295.0 | | | $ | 826.5 | | | | | | | | | | | | | | |
Our product revenues increased $158.1$803.2 million, or 9%42.5%, in 2019 from 2018 primarily due to higher sales in Semiconductor Test mobility test segment, higher sales of testers for 5G infrastructureflash and image sensors,DRAM testers, higher sales in Storage Test of 3.5”system level and hard disk drive testers, and higher demandsales in Industrial Automation,Wireless Test of 5G, WiFi 6 and WiFi 6E testers, partially offset by a decrease in sales in Semiconductor Test automotive and analog test segments.Industrial Automation. Service revenues increased $36.1$23.3 million or 10%5.7%. In 2020, revenues from Taiwan Semiconductor Manufacturing Company Ltd., a customer of our Semiconductor Test segment, accounted for 15% of our consolidated revenues. In 2019, and 2018, no single direct customer accounted for more than 10% of our consolidated revenues. In 20192020 and 2018,2019, our five largest direct customers in aggregate accounted for 27%36% and 27% of our consolidated revenues, respectively. We estimate consolidated revenues driven by one OEM customer, combining direct sales to that customer with sales to the customer’s OSATs, accounted for approximately 25% and 10% of our consolidated revenues in 2020 and 2019, respectively. We estimate consolidated revenues driven by Huawei Technologies Co. Ltd. (“Huawei”), combining direct sales to that customer with sales to the customer’s OSATs, accounted for approximately 11%3% and 4%11% of our consolidated revenues in 20192020 and 2018, respectively. We estimate consolidated revenues driven by another OEM customer, combining direct sales to that customer with sales to the customer’s OSATs, accounted for approximately 10% and 13% of our consolidated revenues in 2019, and 2018, respectively. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | $ | | | | $ | | | | $ | | | Percent of total revenues | | | | % | | | | % | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | $ | 1,785.7 | | | $ | 1,339.8 | | | $ | 445.9 | | Percent of total revenues | | | 57.2 | % | | | 58.4 | % | | | (1.2 | ) |
Gross profit as a percent of total revenues increased from 2018 to 2019decreased by 0.31.2 points, primarily due to favorable product mix in Semiconductor Test and Storage Test. The breakout of product and service gross profit was as follows: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | $ | | | | $ | | | | $ | | | Percent of product revenues | | | | % | | | | % | | | | | | | | | | | | | | | | | | | | $ | | | | $ | | | | $ | | | Percent of service revenues | | | | % | | | | % | | | | ) |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | $ | 1,533.4 | | | $ | 1,105.6 | | | $ | 427.8 | | Percent of product revenues | | | 57.0 | % | | | 58.6 | % | | | (1.6 | ) | | | | | | | $ | 252.3 | | | $ | 234.2 | | | $ | 18.1 | | Percent of service revenues | | | 58.6 | % | | | 57.5 | % | | | 1.1 | |
We assess the carrying value of our inventory on a quarterly basis by estimating future demand and comparing that demand against on-hand and on-order inventory positions. Forecasted revenues information is
obtained from the sales and marketing groups and incorporates factors such as backlog and future consolidated
revenues. This quarterly process identifies obsolete and excess inventory. Obsolete inventory, which represents items for which there is no demand, is fully reserved. Excess inventory, which represents inventory items that are not expected to be consumed during the next twelve quarters for our Semiconductor Test, Industrial Automation and System Test segments and next four quarters for our Wireless Test segment, is written-down to estimated net realizable value. During the year ended December 31, 2020, we recorded an inventory provision of $17.5 million included in cost of revenues, primarily due to downward revisions to previously forecasted demand levels for certain products. Of the $17.5 million of total excess and obsolete provisions, $11.0 million was related to Semiconductor Test, $4.8 million was related to Wireless Test, $0.9 million was related to System Test, and $0.8 million was related to Industrial Automation. During the year ended December 31, 2019, we recorded an inventory provision of $15.2 million included in cost of revenues, primarily due to downward revisions to previously forecasted demand levels for certain products. Of the $15.2 million of total excess and obsolete provisions, $8.7 million was related to Semiconductor Test, $4.0 million was related to Wireless Test, $2.0 million was related to System Test, and $0.5 million was related to Industrial Automation. During the year ended December 31, 2018, we recorded an inventory provision of $11.2 million included in cost of revenues, primarily due to downward revisions to previously forecasted demand levels for certain products. Of the $11.2 million of total excess and obsolete provisions, $6.8 million was related to Semiconductor Test, $2.5 million was related to Wireless Test, $1.2 million was related to System Test, and $0.7 million was related to Industrial Automation. During the years ended December 31, 20192020 and 2018,2019, we scrapped $9.2$7.7 million and $7.0$9.2 million of inventory, respectively, and sold $3.2$2.3 million and $6.7$3.2 million of previously written-down or written-off inventory, respectively. As of December 31, 2019,2020, we had inventory related reserves for amounts which had been written-down or written-off totaling $103.6$110.6 million. We have no pre-determined timeline to scrap the remaining inventory. Selling and Administrative Selling and administrative expenses were as follows: | | | | | | | | | | | | | | | | | | | | | | | | | | | Selling and administrative | | $ | | | | $ | | | | $ | | | Percent of total revenues | | | | % | | | | % | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | Selling and administrative | | $ | 464.8 | | | $ | 437.1 | | | $ | 27.7 | | Percent of total revenues | | | 14.9 | % | | | 19.0 | % | | | | |
The increase of $46.4$27.7 million in selling and administrative expenses from 2018was primarily due to 2019 was due primarily to higher spending in Industrial Automation from higher sales and marketing spending in Universal Robots and MiR, which was acquired on April 25, 2018, higher sales and marketing spending in Semiconductor Test and higher variable compensation. Engineering and Development Engineering and development expenses were as follows: | | | | | | | | | | | | | | | | | | | | | | | | | | | Engineering and development | | $ | | | | $ | | | | $ | | | Percent of total revenues | | | | % | | | | % | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | Engineering and development | | $ | 375.0 | | | $ | 322.8 | | | $ | 52.1 | | Percent of total revenues | | | 12.0 | % | | | 14.1 | % | | | | |
The increase of $21.3$52.1 million in engineering and development expenses from 2018 to 2019 was primarily due primarily to higher spending in Industrial Automation and Wireless Testvariable compensation and higher variable compensation.spending across all segments. 32Restructuring and Other During the year ended December 31, 2020, we recorded a $19.7 million gain for the decrease in the fair value of the AutoGuide contingent consideration liability, and a $3.5 million gain for the decrease in the fair
Restructuringvalue of the MiR contingent consideration liability, partially offset by a $4.0 million contract termination settlement charge, $2.5 million of acquisition related compensation and Other expenses, $2.3 million of severance charges primarily in Industrial Automation, and $1.2 million of other expenses.During the year ended December 31, 2019, we recorded a gain of $22.2 million fromgain for the decrease in the fair value of the MiR contingent consideration liability, partially offset by a $3.0 million gain for the increase in the fair value of the AutoGuide contingent consideration, $2.9 million of severance charges related to headcount reductions primarily in Semiconductor Test and Industrial Automation, and $2.5 million for acquisition related expenses and compensation. During the year ended December 31, 2018, we recorded an expense of $17.7 million for the increase in the fair value of the MiR contingent consideration liability, $8.7 million of severance charges related to headcount reductions primarily in Semiconductor Test, and $4.5 million for acquisition related expenses and compensation, partially offset by a gain of $16.7 million from the decrease in the fair value of the Universal Robots contingent consideration liability.
The remaining accrual for severance of $0.5 million is reflected in the accrued employees’ compensation and withholdings on the balance sheet and is expected to be paid by October 2020.March 2021. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | $ | | ) | | $ | | ) | | $ | | | | | | | | | | | | | | | ) | Other (income) expense, net | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | $ | (6.0 | ) | | $ | (17.0 | ) | | $ | 11.0 | | | | | 24.2 | | | | 22.2 | | | | 2.0 | | Other (income) expense, net | | | 9.2 | | | | 22.6 | | | | (13.5 | ) |
Interest income decreased by $1.9$11.0 million from 2018 to 2019primarily due primarily to lower cash and marketable securities balancesinterest rates in 2020 compared to 2019. Interest expense decreasedincreased by $8.2$2.0 million from 2018primarily due to 2019 due primarilyinterest expense related to unrealized losses on equity marketable securities recognized in 2018.our convertible senior notes and revolving credit facility costs. Other (income) expense, net increaseddecreased by $28.1$13.5 million from 2018 to 2019primarily due primarily to a $15.0 million charge for the impairment of the investment in RealWear and an $11.5in 2019, partially offset by a $2.1 million changeincrease in pension actuarial (gains) losses from a $3.3 million gain in 2018 to an $8.2 million losslosses in 2019.2019 to $10.3 million losses in 2020. Income (Loss) Before Income Taxes | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | $ | 739.7 | | | $ | 417.0 | | | $ | 322.7 | | | | | 152.1 | | | | 93.5 | | | | 58.6 | | | | | 42.0 | | | | 35.6 | | | | 6.4 | | | | | (24.0 | ) | | | (5.9 | ) | | | (18.1 | ) | | | | (8.7 | ) | | | (14.4 | ) | | | 5.7 | | | | | | | | | | | | | | | | | $ | 901.0 | | | $ | 525.8 | | | $ | 375.3 | | | | | | | | | | | | | | |
(1) | Included in Corporate and Other are the following:are: contingent consideration adjustments, investment impairment, pension and postretirement plans actuarial (gains) and losses,employee severance charges, interest (income) and expense, net foreign exchange (gains) and losses, pension and postretirement plan actuarial (gains) and losses and settlement charges, intercompany eliminations, and certain acquisition related charges.charges and compensation. |
The increase in income before income taxes in Semiconductor Test from 2018 to 2019 was driven primarily by an increase in semiconductor testermobility test sales resulting from increased complexity of cell phone silicon which drives demand for 5G infrastructuretesters, and image sensors, partially offset by a decreasean increase in memory test sales in the automotiveof flash and analog test segments.DRAM testers. The increase in income before income taxes in System Test from 2018 to 2019 was primarily due to higher sales in Storage Test of 3.5”system level and hard disk drive testers, and higher sales in Defense/Aerospace test of instrumentation and systems, and higherpartially offset by lower sales in Production Board Test
from higher 5Gdue to lower automotive electronics demand. The increase in income before income taxes in Wireless Test from 2018 to 2019 was primarily due to higher demand for millimeter waveincreased sales of 5G, WiFi 6 and cellular test products driven by new wireless standards and 5G partially offset by lower sales in connectivity test products and services.WiFi 6E testers. The decrease in income before income taxes in Industrial Automation from 2018was primarily due to 2019 was due primarily to higher saleslower demand for collaborative robotic arms in the automotive and marketing, and engineering spending.manufacturing markets amplified by the impacts ofCOVID-19.
Income tax expense for 2020, 2019 and 2018 and 2017 totaled $116.9 million, $58.3 million $16.0 million and $266.7$16.0 million, respectively. The effective tax rate for 2020, 2019 and 2018 was 13.0%, 11.1% and 2017 was 11.1%, 3.4% and 50.9%, respectively. The increase in the effective tax rate from 20182019 to 20192020 is primarily attributable to a reduction in the benefit from releases of reserves for uncertain tax positions and a reduction in the benefit from foreign tax credits. These increases in expense associated with U.S. global intangiblelow-taxed
income and U.S.were partially offset by a decrease in the transition tax on the mandatory deemed repatriation of foreign earnings. Theseearnings and shift in the geographic distribution of income, which increases the income subject to taxation in expense were partially offset by increased benefit fromlower tax rate jurisdictions relative to higher tax rate jurisdictions.In the U.S. foreign derived intangible income deduction, foreign tax credits and a net reduction in reserves for uncertain tax positions. Wefourth quarter of 2017, we recorded $186.0 million of additional income tax expense in the fourth quarter of 2017 which represented our best estimate of the impact of the Tax Reform Act in accordance with our understanding of the Tax Reform Act and available guidance as of that date. The $186.0 million was primarily composed of expense of $161.0 million related to the one-time transition tax on the mandatory deemed repatriation of foreign earnings, $33.6 million of expense related to the remeasurement of certain deferred tax assets and liabilities based on the rates at which they are expected to reverse in the future, and benefit of $10.3 million associated with the impact of correlative adjustments on uncertain tax positions. In accordance with the requirements of SEC Staff Accounting Bulletin (“SAB”) No. 118, “Income Tax Accounting Implications of the Tax Cuts and Jobs Act”, in the fourth quarter of 2018, we completed our analysis of the effect of the Tax Reform Act based on the application of the guidance available as of December 31, 2018 and recorded $49.5 million of net income tax benefit. The net benefit consisted of $51.7 million of benefit resulting from a reduction in the estimate of the one-time transition tax on the mandatory deemed repatriation of foreign earnings and an expense of $2.2 million associated with the impact of correlative adjustments on uncertain tax positions. The changeincrease in the effective tax rate from 20172018 to 2018 was also impacted2019 is primarily attributable to increases in expense associated with U.S. global intangiblelow-taxed income and U.S. transition tax on the mandatory deemed repatriation of foreign earnings. These increases in expense were partially offset by a shift in the geographic distribution of income which increased income subject to taxation in the U.S. relative to lower tax rate jurisdictions, the benefit offrom the U.S. foreign derived intangible income deduction, and increasesan increase in discretethe benefit from non-taxable
foreign exchange gainstax credits and losses.the benefit from a net reduction in reserves for uncertain tax positions.We qualify for a tax holiday in Singapore by fulfilling the requirements of an agreement with the Singapore Economic Development Board under which certain headcount and spending requirements must be met. The tax savings attributable to the Singapore tax holiday for the years ended December 31, 2020, 2019 and 2018 and 2017 were $29.9 million or $0.16 per diluted share, $15.1 million or $0.08 per diluted share and $11.9 million or $0.06 per diluted share, and $24.8 million or $0.12 per diluted share, respectively. In November 2020, we entered into an agreement with the Singapore Economic Development Board which extended our Singapore tax holiday under substantially similar terms to the agreement which expired on December 31, 2020. The new tax holiday is scheduled to expire on December 31, 2020.2025.
The following table reflects our contractual obligations as of December 31, 2019:2020: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | | | | | | $ | | | | | | | | | | | | | | | | | | | Retirement plans contributions | | | | | | | | | | | | | | | | | | | | | | | | | Transition tax payable (1) | | | | | | | | | | | | | | | | | | | | | | | | | Operating lease obligations | | | | | | | | | | | | | | | | | | | | | | | | | Interest on long term debt | | | | | | | | | | | | | | | | | | | | | | | | | Fair value of contingent consideration | | | | | | | | | | | | | | | | | | | | | | | | | Other long-term liabilities reflected on the balance sheet under GAAP (2) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | |
| | |
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| | | | | | | | | | | $ | 603,464 | | | $ | 592,058 | | | $ | 11,406 | | | $ | — | | | $ | — | | | $ | — | | | | | 459,971 | | | | 37,397 | | | | 422,574 | | | | — | | | | — | | | | — | | Retirement plans contributions | | | 156,592 | | | | 5,551 | | | | 10,598 | | | | 10,426 | | | | 130,017 | | | | — | | Transition tax payable (1) | | | 82,820 | | | | 7,889 | | | | 15,795 | | | | 34,540 | | | | 24,596 | | | | — | | Operating lease obligations | | | 71,457 | | | | 22,631 | | | | 27,371 | | | | 13,839 | | | | 7,616 | | | | — | | Interest on long term debt | | | 15,928 | | | | 5,364 | | | | 10,564 | | | | — | | | | — | | | | — | | Fair value of contingent consideration | | | 7,227 | | | | — | | | | 7,227 | | | | — | | | | — | | | | — | | Other long-term liabilities reflected on the balance sheet under GAAP (2) | | | 88,532 | | | | — | | | | 51,165 | | | | 6,787 | | | | 407 | | | | 30,173 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | $ | 1,485,991 | | | $ | 670,890 | | | $ | 556,700 | | | $ | 65,592 | | | $ | 162,636 | | | $ | 30,173 | | | | | | | | | | | | | | | | | | | | | | | | | | |
(1) | Represents the transition tax liability associated with our accumulated foreign earnings as a result of enactment of the Tax Reform Act on December 22, 2017. |
(2) | Included in other long-term liabilities are liabilities for customer advances, extended warranty, uncertain tax positions, deferred tax liabilities and other obligations. For certain long-term obligations, we are unable to provide a reasonably reliable estimate of the timing of future payments relating to these obligations and therefore we included these amounts in the column marked “Other.” |
Liquidity and Capital Resources Our cash, cash equivalents and marketable securities balance decreasedincreased by $189$539 million in 2020 to $1,554 million. Operating activities during 2020 provided cash of $868.9 million. Changes in operating assets and liabilities used cash of $69.4 million. This was due to a $202.3 million increase in operating assets and a $132.9 million increase in operating liabilities. The increase in operating assets was due to a $129.5 million increase in accounts receivable due to increased sales, an $8.4 million increase in inventories, and a $64.4 million increase in prepayments and other assets. The increase in operating liabilities was due to a $54.7 million increase in accrued employee compensation, a $40.0 million increase in deferred revenue and customer advance payments, a $25.2 million increase in income taxes, a $12.8 million increase in other accrued liabilities, and a $5.7 million increase in accounts payable, partially offset by $5.4 million of retirement plan contributions. Investing activities during 2020 used cash of $569.8 million, due to $900.2 million used for purchases of marketable securities, and $185.0 million used for purchases of property, plant and equipment, partially offset by $480.0 million and $35.0 million in proceeds from maturities and sales of marketable securities, respectively, and proceeds from life insurance of $0.5 million related to the cash surrender value from the cancellation of Teradyne owned life insurance policy. Financing activities during 2020 used cash of $158.3 million, due to $88.5 million used for the repurchase of 1.5 million shares of common stock at an average price of $58.33 per share, $66.5 million used for dividend payments, $23.0 million used for payments related to net settlement of employee stock compensation awards, and $8.9 million used for payment related to MiR acquisition contingent consideration, partially offset by $28.5 million from 2018 to 2019 to $1,016 million.the issuance of common stock under employee stock purchase and stock option plans.
Operating activities during 2019 provided cash of $578.8 million. Changes in operating assets and liabilities used cash of $51.7 millionmillion. This was due to a $121.6 million increase in operating assets and a $69.9 million increase in operating liabilities. The increase in operating assets was due to a $70.4 million increase in accounts receivable due to increased sales, a $27.4 million increase in inventories, and a $23.8 million increase in prepayments and other assets. The increase in operating liabilities was due to a $39.3 million increase in deferred revenue and customer advance payments, a $24.8 million increase in accounts payable, a $15.3 million increase in accrued employee compensation and a $9.2 million increase in other accrued liabilities, partially offset by a $13.6 million decrease in income taxes, and $5.1 million of retirement plan contributions. Investing activities during 2019 used cash of $156.7 million, due to $662.7 million used for purchases of marketable securities, $134.6 million used for purchases of property, plant and equipment, $57.8 million, net of cash acquired, used for the acquisition of AutoGuide, $15.0 million used for an investment in RealWear, and $7.0 million, net of cash acquired, used for the acquisition of Lemsys, partially offset by $611.9 million and $105.6 million in proceeds from maturities and sales of marketable securities, respectively, and proceeds from life insurance of $2.9 million related to the cash surrender value from the cancellation of Teradyne owned life insurance policies. Financing activities during 2019 used cash of $574.3 million, due to $500.0 million used for the repurchase of 10.9 million shares of common stock at an average price of $45.89 per share, $61.3 million used for dividend
payments, $27.6 million used for payments related to MiR and Universal Robots acquisition contingent consideration and $14.7 million used for payments related to net settlement of employee stock compensation awards, partially offset by $29.3 million from the issuance of common stock under employee stock purchase and stock option plans. Operating activities during 2018 providedIn January 2020, May 2020, August 2020 and November 2020, our Board of Directors declared a quarterly cash dividend of $476.9 million. Changes in operating assets and liabilities used cash of $163.5 million. This was due to a $105.8 million increase in operating assets and a $57.7 million decrease in operating liabilities.
The increase in operating assets was due to a $58.4 million increase in prepayments and other assets due primarily to payments to our contract manufacturers, a $29.5 million increase in inventories, and a $17.9 million increase in accounts receivable due to higher sales in the fourth quarter of 2018.
The decrease in operating liabilities was due to a $80.4 million decrease in income taxes, primarily related to a decrease in our transitional tax liability associated with our accumulated foreign earnings under the U.S. Tax Reform Act, a $5.5 million decrease in other accrued liabilities and $4.3 million of retirement plans contributions, partially offset by a $13.4 million increase in customer advance payments and deferred revenue, a $12.9 million increase in accounts payable, and a $6.3 million increase in accrued employee compensation due primarily to variable compensation.
Investing activities during 2018 provided cash of $923.0 million, due to $1,270.4 million and $846.1 million in proceeds from maturities and sales of marketable securities, respectively, proceeds from a government subsidy of $7.9 million for property, plant and equipment, and proceeds from life insurance of $1.1 million related to the cash surrender value from the cancellation of a Teradyne owned life insurance policy, partially offset by $918.7 million used for purchase of marketable securities, $169.5 million used for the acquisitions of MiR and Energid, and $114.4 million used for purchases of property, plant and equipment.
Financing activities during 2018 used cash of $903.4 million, due to $823.5 million used for the repurchase of 21.6 million shares of common stock at an average price of $38.06$0.10 per share, $67.3 million used forshare. Total dividend payments $20.0 million used for payments related to net settlement of employee stock compensation awards, and $13.6 million used for a payment related to Universal Robots acquisition contingent consideration, partially offset by $21.0 million from the issuance of common stock under employee stock purchase and stock option plans.in 2020 were $66.5 million.
In January 2019, May 2019, August 2019 and November 2019, our Board of Directors declared a quarterly cash dividend of $0.09 per share. Total dividend payments in 2019 were $61.3 million. In January 2018, May 2018, August 2018 and November 2018, our Board of Directors declared a quarterly cash dividend of $0.09 per share. Total dividend payments in 2018 were $67.3 million. In January 2020,2021, our Board of Directors declared a quarterly cash dividend of $0.10 per share to be paid on March 20, 202019, 2021 to shareholders of record as of February 21, 2020.19, 2021. Payment of future cash dividends are subject to the discretion of our Board of Directors and will depend, among other things, upon our earnings, capital requirements and financial condition.
In January 2018, our Board of Directors cancelled the December 2016 stock repurchase program and authorized a new stock repurchase program for up to $1.5 billion of common stock. In 2019, we repurchased 10.9 million shares of common stock for $500.0 million at an average price per share of $45.89. In 2018, we repurchased 21.6 million shares of common stock for $823.5 million at an average price per share of $38.06. The cumulative repurchases as of December 31, 2019 totaled 32.5 million shares of common stock for $1,323.0 million at an average price per share of $40.68.
In January 2020, our Board of Directors cancelled the January 2018 stock repurchase program and approved a new stock repurchase program for up to $1.0 billion in common stock. On April 1, 2020, we suspended the share repurchase program. In 2020, we repurchased 1.5 million shares of common stock for $88.5 million at an average price per share of $58.33. In 2019, we repurchased 10.9 million shares of common stock for $500.0 million at an average price per share of $45.89. The cumulative repurchases as of December 31, 2019, for the 2018 stock repurchase program, totaled 32.5 million shares of common stock for $1,323.0 million at an average price per share of $40.68. In January 2021, our Board of Directors cancelled the January 2020 repurchase program and approved a new repurchase program for up to $2.0 billion of common stock. Unless terminated by resolution of our Board of Directors, the repurchase program will expire when we have repurchased all shares authorized for repurchase under the share repurchase program. We intend to repurchase a minimum of $250.0$600 million in 2020.2021.
While we declared a quarterly cash dividend and authorized a share repurchase program, we may reduce or eliminate the cash dividend or share repurchase program in the future. Future cash dividends and stock repurchases are subject to the discretion of our Board of Directors, which will consider, among other things, our earnings, capital requirements and financial condition.
On May 1, 2020, we entered into a credit agreement providing a three-year, senior secured revolving credit facility of $400 million. As of February 22, 2021, we have not borrowed any funds under the credit facility. We believe our cash, cash equivalents and marketable securities balance will be sufficient to pay our quarterly dividend execute our authorized share repurchase program and meet our working capital and expenditure needs for at least the next twelve months. Inflation has not had a significant long-term impact on earnings. At this time, theCOVID-19 pandemic has not had an impact on our liquidity, but there is no assurance that continued impacts resulting from the pandemic will not have an adverse effect in the future.ASC 715-20, “ Compensation—Retirement Benefits—Defined Benefit Plans, ” requires an employer with defined benefit plans or other postretirement benefit plans to recognize an asset or a liability on its balance sheet for the overfunded or underfunded status of the plans as defined by ASC 715-20. The pension asset or liability represents the difference between the fair value of the pension plan’splans’ assets and the projected benefit obligation as of December 31. For other postretirement benefit plans, the liability is the difference between the fair value of the plan’s assets and the accumulated postretirement benefit obligation as of December 31. For the year ended December 31, 2019,2020, our pension expense, which includes the U.S. Qualified Pension Plan (“U.S. Plan”), certain qualified plans for non-U.S. subsidiaries, and a U.S. Supplemental Executive Defined Benefit Plan, was approximately $11.6$13.9 million. Pension expense is calculated based upon a number of actuarial assumptions. Discount rate and expected return on assets are two assumptions which are important elements of pension plan expense and asset/liability measurement. We evaluate our discount rate and expected rate of return on assets assumptions annually on a plan and country specific basis. We evaluate other assumptions related to demographic factors, such as retirement age, mortality and turnover periodically, and update them to reflect our experience and expectations for the future. In developing the expected return on U.S. Plan assets assumption, we evaluated input from our investment manager and pension consultants, including their forecast of asset class return expectations. We believe that 4.25%3.0% was an appropriate rate of return on assets to use for 2019.2020. The December 31, 20192020 asset allocation for our U.S. Plan was 94% invested in fixed income securities, 5% invested in equity securities, and 1% invested in other securities. Our investment manager regularly reviews the actual asset allocation and periodically rebalances the portfolio to ensure alignment with our target allocations. We recognize net actuarial gains and losses and the change in the fair value of plansplan assets in our operating results in the year in which they occur or upon any interim remeasurement of the plans. We calculate the expected return on plan assets using the fair value of the plan assets. Actuarial gains and losses are generally measured annually as of December 31 and, accordingly, recorded during the fourth quarter of each year or upon any interim remeasurement of the plans. The discount rate that we utilized for determining future pension obligations for the U.S. Plan is based on the FTSE Pension Index adjusted for the U.S. Plan’s expected cash flows and was 3.10%2.3% at December 31, 2019,2020, down from 4.15%3.1% at December 31, 2018.2019. We estimate that in 20202021 we will recognize approximately $0.9 million of pension expense for the U.S. Plan. The U.S. Plan pension expense estimate for 20202021 is based on a 3.1%2.3% discount rate and a 3.0%2.4% return on assets. Future pension expense or income will depend on future investment performance, changes in future discount rates and various other factors related to the employee population participating in our pension plans.
As of December 31, 2019,2020, our pension plans had no unrecognized pension prior service cost. The assets of the U.S. Plan consist substantially of fixed income securities. U.S. Plan assets have increaseddecreased from $144.3 million at December 31, 2018 to $166.9 million at December 31, 2019 while the U.S. Plan’s liability increased from $127.4to $158.9 million at December 31, 2018 to2020, while the U.S. Plan’s
liability decreased from $148.5 million at December 31, 2019.2019 to $141.4 million at December 31, 2020. In 2019,2020, the increasedecrease in plan assets and plan liability was primarily due to a decrease in interest rates.retiree annuity purchase. In 2018,2020, the accrued pension obligations for approximately 1,700115 retiree participants were transferred to an insurance company and resulted in a $151.3$24.4 million reduction in the pension benefit obligation and pension assets. We recorded $2.2 million of pension actuarial loss and a settlement loss of $0.3$0.5 million related to the retiree group annuity transaction. Our funding policy is to make contributions to our pension plans in accordance with local laws and to the extent that such contributions are tax deductible. During 2019,2020, we made contributions of $2.8$3.1 million to the U.S. supplemental executive defined benefit pension plan, and $0.9$1.1 million to certain qualified plans for non-U.S. subsidiaries. In 2020,2021, we expect to contribute approximately $2.8$3.3 million to the U.S. supplemental executive defined benefit pension plan. Contributions to be made in 20202021 to certain qualified plans for non-U.S. subsidiaries are based on local statutory requirements and are estimated at approximately $1.0$1.1 million. Equity Compensation Plans In addition to our 1996 Employee Stock Purchase Plan discussed in Note Q: “Stock-Based Compensation” in Notes to Consolidated Financial Statements, we have a 2006 Equity and Cash Compensation Incentive Plan (the “2006 Equity Plan”) under which equity securities are authorized for issuance. The 2006 Equity Plan was initially approved by stockholders on May 25, 2006. At our annual meeting of stockholders held May 21, 2013, our stockholders approved an amendment to the 2006 Equity Plan to increase the number of shares issuable thereunder by 10.0 million, for an aggregate of 32.0 million shares issuable thereunder, and our stockholders also approved an amendment to our 1996 Employee Stock Purchase Plan to increase the number of shares issuable thereunder by 5.0 million, for an aggregate of 30.4 million shares issuable thereunder. At our annual meeting of stockholders held May 12, 2015, our stockholders approved an amendment to the 2006 Equity Plan to extend its term until May 12, 2025. The following table presents information about these plans as of December 31, 20192020 (share numbers in thousands): | | | | | | | | | | | | | | | | | | | | | Number of securities remaining available for future issuance under equity compensation plans (excluding securities | | Equity plans approved by shareholders | | | | (1) | | $ | | | | | | (2) | Equity plans not approved by shareholders (3) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | |
| | | Number of securities remaining
available for future issuance
under equity compensation
plans (excluding securities
| | Equity plans approved by shareholders | | | 1,943 | (1) | | $ | 37.31 | | | | 7,563 | (2) | Equity plans not approved by shareholders (3) | | | 6 | | | | 3.77 | | | | — | | | | | | | | | | | | | | | | | | 1,949 | | | | 37.21 | | | | 7,563 | | | | | | | | | | | | | | |
(1) | Includes 2,269,4261,789,217 shares of restricted stock units that are not included in the calculation of the weighted average exercise price. |
(2) | Consists of 6,719,9186,122,630 securities available for issuance under the 2006 Equity Plan and 1,822,7241,440,073 of securities available for issuance under the Employee Stock Purchase Plan. |
(3) | In connection with the 2011 acquisition of LitePoint Corporation (the “LitePoint Acquisition”), we assumed the options granted under the LitePoint Corporation 2002 Stock Plan (the “LitePoint Plan”). Upon the consummation of the LitePoint Acquisition, these options were converted automatically into options to purchase an aggregate of 2,828,344 shares of our common stock. No additional awards were granted under the LitePoint Plan. As of December 31, 2019,2020, there were outstanding options exercisable for an aggregate of |
| 46,518 6,125 shares of our common stock pursuant to the LitePoint Plan, with a weighted average exercise price of $2.89$3.77 per share. |
The purpose of the 2006 Equity Plan is to motivate employees, officers and directors by providing equity ownership and compensation opportunities in Teradyne. The aggregate number of shares available under the 2006 Equity Plan as of December 31, 20192020 was 6,719,9186,122,630 shares of our common stock. The 2006 Equity Plan authorizes the grant of stock-based awards in the form of (1) non-qualified and incentive stock options, (2) stock appreciation rights, (3) restricted stock awards and restricted stock unit awards, (4) phantom stock, and (5) other stock-based awards. Awards may be tied to time-based vesting schedules and/or performance-based vesting measured by reference to performance criteria chosen by the Compensation Committee of the Board of Directors, which administers the 2006 Equity Plan. Awards may be made to any employee, officer, consultant and advisor of Teradyne and our subsidiaries, as well as, to our directors. The maximum number of shares of stock-based awards that may be granted to one participant during any one fiscal year is 2,000,000 shares of common stock. As of December 31, 2019,2020, total unrecognized compensation expense related to non-vested restricted stock units and options was $45$44 million and is expected to be recognized over a weighted average period of 1.82.4 years. The following graph compares the change in our cumulative total shareholder return in our common stock with (i) the NYSE Composite Index and (ii) the Morningstar Semiconductor Equipment & Materials Industry Group (compiled by Morningstar, Inc.)., and (iii) the Standard & Poor’s 500 Index. The comparison assumes $100.00 was invested on December 31, 20142015 in our common stock and in each of the foregoing indices and assumes reinvestment of dividends, if any. Historic stock price performance is not necessarily indicative of future price performance. This is the last year that we will compare ourselves to the NYSE Composite Index. Going forward, we will compare ourselves to (i) Standard & Poor’s 500 Index, as a result of Teradyne being added, on September 21, 2020, to the Standard & Poor’s 500 Index, and (ii) the Morningstar Semiconductor Equipment & Materials Industry Group (compiled by Morningstar, Inc.) Recently Issued Accounting Pronouncements On January 26, 2017,In August 2020, the FASB issued ASU 2017-04,2020-06—“Debt—Debt
“Intangibles—Goodwillwith Conversion and Other (Topic 350): SimplifyingOptions and Derivatives and Hedging—Contracts in Entity’s Own Equity,” which simplifies the Accountingaccounting for Goodwill Impairment.”convertible
The new guidance removes Step 2 of the goodwill impairment test, which requires a hypothetical purchase price allocation. Goodwill impairment will be the
amountdebt instruments by whichreducing the number of accounting models and the number of embedded conversion features that could be recognized separately from the primary contract. This ASU requires a reporting unit’s carrying value exceedsconvertible debt instrument to be accounted for as a single liability measured at its fair value, notamortized cost, as long as no other features require bifurcation and recognition as derivatives. This ASU requires an entity to exceeduse the carrying amount of goodwill. All other goodwill impairment guidance will remain largely unchanged. Entities will continue to haveif-converted method in the option to perform a qualitative assessment to determine if a quantitative impairment test is necessary. The sameone-step
impairment testdiluted earnings per share calculation for convertible instruments. This ASU will be applied to goodwill at all reporting units, even those with zero or negative carrying amounts. Entities will be required to disclose the amount of goodwill at reporting units with zero or negative carrying amounts. The revised guidance will be applied prospectively, and is effective in 2020. Early adoption is permitted for any impairment tests performed afterTeradyne on January 1, 2017.2022, with early adoption permitted beginning on January 1, 2021. This pronouncementASU permits the use of either the modified retrospective or fully retrospective method of transition. Teradyne is not expected to have a material impactevaluating the timing and effects of the adoption of this ASU on ourits financial position, results of operations and statements of cash flows.statements. | Quantitative and Qualitative Disclosures about Market Risks |
Concentration of Credit Risk Financial instruments which potentially subject us to concentrations of credit risk consist principally of cash equivalents, marketable securities, forward currency contracts and accounts receivable. Our cash equivalents consist primarily of money market funds invested in U.S. Treasuries and government agencies. Our fixed income marketable securities have a minimum rating of AA by one or more of the major credit rating agencies. We place forward currency contracts with high credit-quality financial institutions in order to minimize credit risk exposure. Concentrations of credit risk with respect to accounts receivable are limited due to the large number of geographically dispersed customers. We perform ongoing credit evaluations of our customers’ financial condition and from time to time may require customers to provide a letter of credit from a bank to secure accounts receivable. As of December 31, 2020, a customer of our Semiconductor Test segment, JA Mitsui Leasing, Ltd., accounted for 25% of our accounts receivable balance. The balance was paid in full as of February 22, 2021. There were no customers who accounted for 10% or more of our accounts receivable balance as of December 31, 2019 or December 31, 2018.2019.In addition to market risks, we have an equity price risk related to the fair value of our convertible senior unsecured notes issued in December 2016. In December 2016, Teradyne issued $460 million aggregate principal amount of 1.25% convertible senior unsecured notes (the “Notes”) due December 15, 2023. As of December 31, 2019,2020, the Notes had a fair value of $1,010$1,740 million. The table below provides a sensitivity analysis of hypothetical 10% changes of Teradyne’s stock price as of the end of 20192020 and the estimated impact on the fair value of the Notes. The selected scenarios are not predictions of future events, but rather are intended to illustrate the effect such event may have on the fair value of the Notes. The fair value of the Notes is subject to equity price risk due to the convertible feature. The fair value of the Notes will generally increase as Teradyne’s common stock price increases and will generally decrease as the common stock price declines in value. The change in stock price affects the fair value of the convertible senior notes, but does not impact Teradyne’s financial position, cash flows or results of operations due to the fixed nature of the debt obligation. Additionally, we carry the Notes at face value less unamortized discount on our balance sheet, and we present the fair value for required disclosure purposes only. In connection with the offering of the Notes we also sold warrants to the option counterparties. These transactions have been accounted for as an adjustment to our shareholders’ equity. The convertible note hedge transactions are expected to reduce the potential equity dilution upon conversion of the Notes. The warrants along with any shares issuable upon conversion of the Notes will have a dilutive effect on our earnings per share to the extent that the average market price of our common stock for a given reporting period exceeds the applicable strike price or conversion price of the warrants or Notes, respectively. | | | | | | | | | | | | | Hypothetical Change in Teradyne Stock Price | | | | | Estimated change in fair value | | | Hypothetical percentage increase (decrease) in fair value | | | | $ | | | | $ | | | | | | % | | | | | | | | | | | | | | | | | | | | | | ) | | | | ) |
| | | | | | | | | | | | | Hypothetical Change in Teradyne Stock Price | | | | | Estimated change in fair value | | | Hypothetical percentage increase (decrease) in fair value | | | | $ | 1,917,955 | | | $ | 178,402 | | | | 10.3 | % | | | | 1,739,553 | | | | — | | | | — | | | | | 1,569,357 | | | | (170,196 | ) | | | (9.8 | ) |
See Note J: “Debt” for further information.
Exchange Rate Risk Management We regularly enter into foreign currency forward contracts to hedge the value of our monetary assets and liabilities in Japanese Yen, British Pound, Korean Won, Taiwan Dollar, Singapore Dollar, Euro, Philippine Peso and Chinese Yuan. These foreign currency forward contracts have maturities of approximately one month. These contracts are used to minimize the effect of exchange rate fluctuations associated with the remeasurement of monetary assets and liabilities. We do not engage in currency speculation. We performed a sensitivity analysis assuming a hypothetical 10% fluctuation in foreign exchange rates to the hedging contracts and the underlying exposures described above. As of December 31, 2019, 2018,2020 and 2017,2019, the analysis indicated that these hypothetical market movements would not have a material effect on our consolidated financial position, results of operations or cash flows. Interest Rate Risk Management We are exposed to potential losses due to changes in interest rates. Our interest rate exposure is primarily related to short-term and long-term marketable securities. In order to estimate the potential loss due to interest rate risk, a fluctuation in interest rates of 25 basis points was assumed. Market risk for the short and long-term marketable securities was estimated as the potential change in the fair value resulting from a hypothetical change in interest rates for securities contained in the investment portfolio. The potential change in the fair value from changes in interest rates is immaterial as of December 31, 20192020 and 2018.2019.
| Financial Statements and Supplementary Data |
Report of Independent Registered Public Accounting Firm To the Board of Directors and Shareholders of Teradyne, Inc. Opinions on the Financial Statements and Internal Control over Financial Reporting We have audited the accompanying consolidated balance sheets of Teradyne, Inc. and its subsidiaries (the “Company”) as of December 31, 20192020 and 2018,2019, and the related consolidated statements of operations, comprehensive income, convertible common shares and shareholders’ equity and cash flows for each of the three years in the period ended December 31, 2019,2020, including the related notes and schedule of valuation and qualifying accounts for each of the three years in the period ended December 31, 20192020 appearing under Item 15(c) (collectively referred to as the “consolidated financial statements”). We also have audited the Company’s internal control over financial reporting as of December 31, 2019,2020, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 20192020 and 2018,2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 20192020 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2019,2020, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO. Changes in Accounting Principles As discussed in Note B to the consolidated financial statements, the Company changed the manner in which it accounts for leases in 2019 and the manner in which it accounts for revenue from contracts with customers in 2018. The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Annual Report on Internal Control over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an
understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on
the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions. Definition and Limitations of Internal Control over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. The critical audit mattersmatter communicated below are mattersis a matter arising from the current period audit of the consolidated financial statements that werewas communicated or required to be communicated to the audit committee and that (i) relaterelates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit mattersmatter below, providing a separate opinionsopinion on the critical audit mattersmatter or on the accounts or disclosures to which they relate.it relates. Acquisition of AutoGuide, LLC - Valuation of Contingent Consideration and Developed Technology Intangible Assetpayable related to the acquisition of AutoGuide, LLC As described in Notes B, D, H and HO to the consolidated financial statements, the Company completed its acquisition of AutoGuide, LLC on November 13, 2019. The total purchase price was approximately $81.6 million, which included contingent consideration payable upon achievement of approximately $81.7certain performance targets, extending potentially through 2022. As of December 31, 2020, the maximum contingent consideration that could be paid is $100.2 million included $57.8 million of cash paid and $24.0 million inmanagement estimated the fair value of the contingent consideration which was determined by managementto be approximately $7.2 million based on forecasted results, after recording $19.7 million in restructuring and other expenses during the year ended December 31, 2020. The valuation of contingent consideration is remeasured at each financial reporting date from the acquisition date through the date of final settlement using the Monte Carlo simulation model. The valuation of the contingent considerationmodel, and it is dependent on the following assumptions: forecasted revenues, revenue volatility, earnings before interest and taxes, and discount rate. As part of the preliminary purchase price allocation, management recorded $24.6 million for the acquired developed technology intangible assetrate at fair value using the income approach. Management’s significant assumption utilized in the approach was the forecasted revenues.each reporting date. The principal considerations for our determination that performing procedures relating to the valuation of contingent consideration andpayable related to the acquired developed technology intangible asset in theacquisition of AutoGuide, LLC acquisition is a critical audit matter are (i) there was athe high degree of auditor judgment and subjectivity in applyingperforming procedures relating to the fair value measurement of the contingent consideration and the acquired developed technology intangible asset due to the significant amount of judgment by management when developing the fair value estimates,estimate; (ii) significant audit effort was required in evaluating the significant assumptions relatingrelated to the estimates, including forecasted revenues revenue volatility,and earnings before interest and taxes and discount rate forused in the contingent consideration, and the forecasted revenues for the acquired developed technology intangible asset,Monte Carlo simulation model; and (iii) the audit effort involved the use of professionals with specialized skill and knowledge to assist in performing procedures and evaluating the audit evidence obtained.knowledge.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to the acquisition accounting, including controls over management’s valuation of contingent consideration, including controls over the development of the forecasted revenues and earnings before interest and taxes used in the acquired developed technology intangible asset.valuation of the contingent consideration. These procedures also included, among others, (i) readingtesting management’s process for developing the purchase agreement,fair value estimate; (ii) evaluating the appropriateness of the approaches andMonte Carlo simulation model; (iii) evaluating the reasonableness of the significant assumptions used by management in developing the fair value for the contingent consideration and acquired developed technology intangible asset, including therelated to forecasted revenues revenue volatility,and earnings before interest and taxes,taxes; and discount rate for the contingent consideration and the forecasted revenues for the acquired developed technology intangible asset, and (iii)(iv) testing the completeness, accuracy and relevance of the underlying data used in the approaches.model. Evaluating management’s assumptions related to forecasted revenues and earnings before interest and taxes involved evaluating whether the significant assumptions used were reasonable involved evaluatingconsidering historical results and consistency with external industry and market data. Professionals with specialized skill and knowledge were used to assist in the evaluation of the appropriateness of management’sthe Monte Carlo simulation model, for the contingent consideration and the income approach for the acquired developed technology intangible asset, as well as the reasonableness of certain significant assumptions, including the discount rate. Goodwill Impairment Assessment – Mobile Industrial Robots Reporting Unit
As described in Notes B and L to the consolidated financial statements, the Company’s consolidated goodwill balance was $416.4 million as of December 31, 2019, and the goodwill associated with the Mobile Industrial Robots reporting unit was $123.6 million. Management assesses goodwill for impairment at least annually in the fourth quarter, as of December 31, on a reporting unit basis, or more frequently when events and circumstances occur indicating that the recorded goodwill may be impaired. As disclosed by management, if the book value of a reporting unit exceeds its fair value, the implied fair value of goodwill is compared with the carrying amount of goodwill. If the carrying amount of goodwill exceeds the implied fair value of goodwill, an impairment charge is recorded in an amount equal to that excess. Management determines the fair value of a reporting unit using the results derived from an income approach and a market approach, and weighting the fair value determined under each approach to determine an estimated fair value for a reporting unit. Management’s estimate of fair value for the Mobile Industrial Robots reporting unit, using the income approach, utilized the following significant assumptions: forecasted revenues, discount rate and earnings before interest and taxes. The determination of fair value of the Mobile Industrial Robots reporting unit using the market approach utilized the following significant assumptions: revenue multiples from comparable companies.
The principal considerations for our determination that performing procedures relating to the goodwill impairment assessment of the Mobile Industrial Robots reporting unit is a critical audit matter are (i) there was a high degree of auditor judgment and subjectivity in applying procedures relating to the fair value measurement of the reporting unit due to the significant judgment by management when developing the fair value measurement of the reporting unit, (ii) significant audit effort was required in performing procedures and evaluating the audit evidence obtained relating to management’s fair value estimate and significant assumptions, including forecasted revenues, discount rate, and earnings before interest and taxes for the income approach and revenue multiples from comparable companies for the market approach, and (iii) the audit effort involved the use of professionals with specialized skill and knowledge to assist in performing these procedures and evaluating the audit evidence obtained.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to management’s goodwill impairment assessment, including controls over the valuation of the Mobile Industrial Robots reporting unit. These procedures also included, among others, testing management’s process for developing the fair value estimate, evaluating the appropriateness of the income approach and market approach, including the weighting of estimated fair value between the two approaches, testing the completeness, accuracy and relevance of underlying data used in the valuation approaches and evaluating the significant assumptions used by management, including forecasted revenues, discount rate,
earnings before interest and taxes, and revenue multiples from comparable companies. Evaluating management’s assumptions related to the forecasted revenues and earnings before interest and taxes involved assessing whether the assumptions used by management were reasonable considering the past performance of the reporting unit and the consistency of the assumptions with evidence obtained in other areas of the audit. Evaluating the market approach involved assessing whether the revenue multiples used by management were reasonable by comparing to revenue multiples for comparable companies. Professionals with specialized skill and knowledge were used to assist in the evaluation of the Company’s income approach and market approach, including the weighting of estimated fair value between the two approaches and certain significant assumptions, including the discount rate.assumptions.
/s/ PricewaterhouseCoopers LLP March 2, 2020February 22, 2021
We have served as the Company’s auditor since 1968.
CONSOLIDATED BALANCE SHEETS | | | | | | | | | | | | | | | | | | (in thousands, except per | | | | | | | | | | | | | | | | | | | | Cash and cash equivalents | | $ | | | | $ | | | | | | | | | | | | Accounts receivable, less allowance for doubtful accounts of $1,736 and $1,673 in 2019 and 2018, respectively | | | | | | | | | | | | | | | | | | Prepayments and other current assets | | | | | | | | | | | | | | | | | | | | | | | | | | | Property, plant and equipment, net | | | | | | | | | Operating lease right-of-use assets, net | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Acquired intangible assets, net | | | | | | | | | | | | | | | | | | | | | | | | | | | | | $ | | | | $ | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | $ | | | | $ | | | Accrued employees’ compensation and withholdings | | | | | | | | | Deferred revenue and customer advances | | | | | | | | | Other accrued liabilities | | | | | | | | | Operating lease liabilities | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total current liabilities | | | | | | | | | Retirement plans liabilities | | | | | | | | | Long-term deferred revenue and customer advances | | | | | | | | | Long-term contingent consideration | | | | | | | | | | | | | | | | | | Long-term other accrued liabilities | | | | | | | | | Long-term operating lease liabilities | | | | | | | | | Long-term income taxes payable | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Commitments and contingencies (Note M) | | | | | | | | | | | | | | | | | | Common stock, $0.125 par value, 1,000,000 shares authorized, 166,410 and 175,522 shares issued and outstanding at December 31, 2019 and 2018, respectively | | | | | | | | | | | | | | | | | | Accumulated other comprehensive los s | | | | ) | | | | ) | | | | | ) | | | | ) | | | | | | | | | | Total shareholders’ equity | | | | | | | | | | | | | | | | | | Total liabilities and shareholders’ equity | | $ | | | | $ | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | (in thousands, except per | | | | | | | | | | | | | | | | | | Cash and cash equivalents | | $ | 914,121 | | | $ | 773,924 | | | | | 522,280 | | | | 137,303 | | Accounts receivable, less allowance for doubtful accounts of $2,034 and $1,736 in 2020 and 2019, respectively | | | 497,506 | | | | 362,368 | | | | | 222,189 | | | | 196,691 | | Prepayments and other current assets | | | 259,338 | | | | 188,598 | | | | | | | | | | | | | | 2,415,434 | | | | 1,658,884 | | Property, plant and equipment, net | | | 394,800 | | | | 320,216 | | Operating lease right-of-use assets, net | | | 54,569 | | | | 57,539 | | | | | 117,980 | | | | 104,490 | | | | | 87,913 | | | | 75,185 | | | | | 17,468 | | | | 18,457 | | | | | 9,384 | | | | 10,332 | | Acquired intangible assets, net | | | 100,939 | | | | 125,480 | | | | | 453,859 | | | | 416,431 | | | | | | | | | | | | | $ | 3,652,346 | | | $ | 2,787,014 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | $ | 133,663 | | | $ | 126,617 | | Accrued employees’ compensation and withholdings | | | 220,321 | | | | 163,883 | | Deferred revenue and customer advances | | | 134,662 | | | | 104,876 | | Other accrued liabilities | | | 77,581 | | | | 70,871 | | Operating lease liabilities | | | 20,573 | | | | 19,476 | | | | | — | | | | 9,106 | | | | | 80,728 | | | | 44,200 | | | | | 33,343 | | | | — | | | | | | | | | | | Total current liabilities | | | 700,871 | | | | 539,029 | | Retirement plans liabilities | | | 151,140 | | | | 134,471 | | Long-term deferred revenue and customer advances | | | 58,359 | | | | 45,974 | | Long-term contingent consideration | | | 7,227 | | | | 30,599 | | | | | 10,821 | | | | 14,070 | | Long-term other accrued liabilities | | | 19,352 | | | | 19,535 | | Long-term operating lease liabilities | | | 42,073 | | | | 45,849 | | Long-term income taxes payable | | | 74,930 | | | | 82,642 | | | | | 376,768 | | | | 394,687 | | | | | | | | | | | | | | 1,441,541 | | | | 1,306,856 | | | | | | | | | | | Commitments and contingencies (Note M) | 0 | | | | 0 | | | | | | | | | | | | | Convertible common shares | | | 3,787 | | | | — | | | | | | | | | Common stock, $0.125 par value, 1,000,000 shares authorized, 166,123 and 166,410 shares issued and outstanding at December 31, 2020 and 2019, respectively | | | 20,765 | | | | 20,801 | | Additional paid-in capital | | | 1,765,323 | | | | 1,720,129 | | Accumulated other comprehensive income (loss) | | | 33,516 | | | | (18,854 | ) | Retained earnings (accumulated deficit) | | | 387,414 | | | | (241,918 | ) | | | | | | | | | | Total shareholders’ equity | | | 2,207,018 | | | | 1,480,158 | | | | | | | | | | | Total liabilities, convertible common shares and shareholders’ equity | | $ | 3,652,346 | | | $ | 2,787,014 | | | | | | | | | | |
The accompanying notes are an integral part of the consolidated financial statements.
CONSOLIDATED STATEMENTS OF OPERATIONS | | | | | | | | | | | | | | | | | | | | | | | | | | | | | (in thousands, except per share amounts) | | | | | | | | | | | | | | | | | $ | | | | $ | | | | $ | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total cost of revenues (exclusive of acquired intangible assets amortization shown separately below) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Selling and administrative | | | | | | | | | | | | | Engineering and development | | | | | | | | | | | | | Acquired intangible assets amortization | | | | | | | | | | | | | | | | | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Non-operating (income) expenses: | | | | | | | | | | | | | | | | | ) | | | | ) | | | | ) | | | | | | | | | | | | | | Other (income) expense, net | | | | | | | | | | | | ) | | | | | | | | | | | | | | Income before income taxes | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | $ | | | | $ | | | | $ | | | | | | | | | | | | | | | | Net income per common share: | | | | | | | | | | | | | | | $ | | | | $ | | | | $ | | | | | | | | | | | | | | | | | | $ | | | | $ | | | | $ | | | | | | | | | | | | | | | | Weighted average common shares—basic | | | | | | | | | | | | | | | | | | | | | | | | | | Weighted average common shares—diluted | | | | | | | | | | | | | | | | | | | | | | | | | | Cash dividend declared per common share | | $ | | | | $ | | | | $ | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | (in thousands, except per share amounts) | | | | | | | | | | | | | | | | | $ | 2,690,906 | | | $ | 1,887,674 | | | $ | 1,729,621 | | | | | 430,563 | | | | 407,291 | | | | 371,181 | | | | | | | | | | | | | | | | | | 3,121,469 | | | | 2,294,965 | | | | 2,100,802 | | | | | | | | | | | | | | | | | | 1,157,476 | | | | 782,047 | | | | 727,138 | | | | | 178,252 | | | | 173,089 | | | | 153,270 | | | | | | | | | | | | | | | Total cost of revenues (exclusive of acquired intangible assets amortization shown separately below) | | | 1,335,728 | | | | 955,136 | | | | 880,408 | | | | | | | | | | | | | | | | | | 1,785,741 | | | | 1,339,829 | | | | 1,220,394 | | | | | | | | | | | | | | | Selling and administrative | | | 464,769 | | | | 437,084 | | | | 390,669 | | Engineering and development | | | 374,964 | | | | 322,824 | | | | 301,505 | | Acquired intangible assets amortization | | | 30,803 | | | | 40,147 | | | | 39,191 | | | | | (13,202 | ) | | | (13,880 | ) | | | 15,232 | | | | | | | | | | | | | | | | | | 857,334 | | | | 786,175 | | | | 746,597 | | | | | | | | | | | | | | | | | | 928,407 | | | | 553,654 | | | | 473,797 | | Non-operating (income) expenses: | | | | | | | | | | | | | | | | (5,982 | ) | | | (16,990 | ) | | | (20,458 | ) | | | | 24,182 | | | | 22,224 | | | | 21,780 | | Other (income) expense, net | | | 9,192 | | | | 22,648 | | | | 4,674 | | | | | | | | | | | | | | | Income before income taxes | | | 901,015 | | | | 525,772 | | | | 467,801 | | | | | 116,868 | | | | 58,304 | | | | 16,022 | | | | | | | | | | | | | | | | | $ | 784,147 | | | $ | 467,468 | | | $ | 451,779 | | | | | | | | | | | | | | | Net income per common share: | | | | | | | | | | | | | | | $ | 4.72 | | | $ | 2.74 | | | $ | 2.41 | | | | | | | | | | | | | | | | | $ | 4.28 | | | $ | 2.60 | | | $ | 2.35 | | | | | | | | | | | | | | | Weighted average common shares—basic | | | 166,120 | | | | 170,425 | | | | 187,672 | | | | | | | | | | | | | | | Weighted average common shares—diluted | | | 183,042 | | | | 179,459 | | | | 192,605 | | | | | | | | | | | | | | |
The accompanying notes are an integral part of the consolidated financial statements.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | $ | | | | $ | | | | $ | | | Other comprehensive income, net of tax: | | | | | | | | | | | | | Foreign currency translation adjustment, net of tax of $0, $0, $0 | | | | ) | | | | ) | | | | | Available-for-sale marketable securities: | | | | | | | | | | | | | Unrealized (losses) on securities arising during period, net of tax of $1,659, $(722), $1,903, respectively | | | | | | | | ) | | | | | Less: Reclassification adjustment for (gains) included in net income, net of tax of $(192), $(21), $(297), respectively | | | | ) | | | | | | | | ) | | | | | | | | | | | | | | | | | | | | | | ) | | | | | Defined benefit pension and post-retirement plans: | | | | | | | | | | | | | Amortization of prior service benefit included in net periodic pension and post-retirement benefit , net of tax $(43), $(71), $(154), respectively | | | | ) | | | | ) | | | | ) | | | | | | | | | | | | | | Other comprehensive (loss) income | | | | ) | | | | ) | | | | | | | | | | | | | | | | | | | | $ | | | | $ | | | | $ | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | $ | 784,147 | | | $ | 467,468 | | | $ | 451,779 | | Other comprehensive income, net of tax: | | | | | | | | | | | | | Foreign currency translation adjustment, net of tax of $0, $0, $0 | | | 48,903 | | | | (10,991 | ) | | | (28,442 | ) | Available-for-sale marketable securities: | | | | | | | | | | | | | Unrealized gains (losses) on marketable securities arising during period, net of tax of $1,629, $1,659, $(722), respectively | | | 5,839 | | | | 6,015 | | | | (2,110 | ) | Less: Reclassification adjustment for (gains) losses included in net income, net of tax of $(665), $(192), $(21), respectively | | | (2,365 | ) | | | (690 | ) | | | 1,337 | | | | | | | | | | | | | | | | | | 3,474 | | | | 5,325 | | | | (773 | ) | Defined benefit pension and post-retirement plans: | | | | | | | | | | | | | Amortization of prior service benefit included in net periodic pension and post-retirement benefit, net of tax $(2), $(43), $(71), respectively | | | (7 | ) | | | (148 | ) | | | (245 | ) | | | | | | | | | | | | | | Other comprehensive income (loss) | | | 52,370 | | | | (5,814 | ) | | | (29,460 | ) | | | | | | | | | | | | | | | | $ | 836,517 | | | $ | 461,654 | | | $ | 422,319 | | | | | | | | | | | | | | |
The accompanying notes are an integral part of the consolidated financial statements.
CONSOLIDATED STATEMENTS OF CONVERTIBLE COMMON SHARES AND SHAREHOLDERS’ EQUITY | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | Accumulated Other Comprehensive Income (Loss) | | | Retained Earnings (Accumulated Deficit) | | | | | | | | | Year Ended December 31, 2017 | | | — | | | | | | | | | | | | | | | | | | | | | | | | | | Net issuance of common stock under stock-based plans | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Stock-based compensation expense | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Repurchase of common stock | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Reclassification of unrealized gains on equity securities | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Reclassification of tax effects resulting from the Tax Reform Act | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Cumulative effect of changes in accounting principle related to revenue recognition | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Year Ended December 31, 2018 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Net issuance of common stock under stock-based plans | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Stock-based compensation expense | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Repurchase of common stock | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Year Ended December 31, 2019 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Net issuance of common stock under stock-based plans | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Stock-based compensation expense | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Repurchase of common stock | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Convertible common shares | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Other comprehensive income | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Year Ended December 31, 2020 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
The accompanying notes are an integral part of the consolidated financial statements.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Accumulated Other Comprehensive (Loss) Income | | | Retained Earnings (Accumulated Deficit) | | | | | | | | | Year Ended December 31, 2016 | | | | | | $ | | | | $ | | | | $ | | ) | | $ | | | | $ | | | Net issuance of common stock under stock-based plans | | | | | | | | | | | | | | | | | | | | | | | | | Stock-based compensation expense | | | | | | | | | | | | | | | | | | | | | | | | | Repurchase of common stock | | | | ) | | | | ) | | | | | | | | | | | | ) | | | | ) | Tax benefit related to stock options and restricted stock units | | | | | | | | | | | | | | | | | | | | | | | | | Cash dividends ($0.07 per share) | | | | | | | | | | | | | | | | | | | | ) | | | | ) | | | | | | | | | | | | | | | | | | | | | | | | | | Other comprehensive income | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Year Ended December 31, 2017 | | | | | | | | | | | | | | | | | | | | | | | | | Net issuance of common stock under stock-based plans | | | | | | | | | | | | ) | | | | | | | | | | | | | Stock-based compensation expense | | | | | | | | | | | | | | | | | | | | | | | | | Repurchase of common stock | | | | ) | | | | ) | | | | | | | | | | | | ) | | | | ) | Cash dividends ($0.09 per share) | | | | | | | | | | | | | | | | | | | | ) | | | | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ) | | | | | | | | ) | Reclassification of unrealized gains on equity securities | | | | | | | | | | | | | | | | ) | | | | | | | | | Reclassification of tax effects resulting from the Tax Reform Act | | | | | | | | | | | | | | | | | | | | ) | | | | | Cumulative effect of changes in accounting principle related to revenue recognition | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Year Ended December 31, 2018 | | | | | | | | | | | | | | | | ) | | | | ) | | | | | Net issuance of common stock under stock-based plans | | | | | | | | | | | | | | | | | | | | | | | | | Stock-based compensation expense | | | | | | | | | | | | | | | | | | | | | | | | | Repurchase of common stock | | | | ) | | | | ) | | | | | | | | | | | | ) | | | | ) | Cash dividends ($0.09 per share) | | | | | | | | | | | | | | | | | | | | ) | | | | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ) | | | | | | | | ) | | | | | | | | | | | | | | | | | | | | | | | | | | Year Ended December 31, 2019 | | | | | | $ | | | | $ | | | | $ | | ) | | $ | | ) | | $ | | | | | | | | | | | | | | | | | | | | | | | | | | | |
The accompanying notes are an integral part of the consolidated financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Cash flows from operating activities: | | | | | | | | | | | | | | | | | | | | | | | | | | Adjustments to reconcile net income from operations to net cash provided by operating activities: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Provision for excess and obsolete inventory | | | | | | | | | | | | | | | | 15,000 | | | | — | | | | — | | Contingent consideration fair value adjustment | | | | | | | | | | | | | (Gains) losses on investments | | | | | | | | | | | | | Retirement plans actuarial losses ( gain | | | | | | | | | | | | | Property insurance recovery, net | | | | | | | | | | | | | | | | | | | | | | | | | | Changes in operating assets and liabilities, net of businesses acquired: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Prepayments and other assets | | | | | | | | | | | | | Accounts payable and other | | | | | | | | | | | | | Deferred revenue and customer advances | | | | | | | | | | | | | Retirement plan contributions | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Net cash provided by operating activities | | | | | | | | | | | | | | | | | | | | | | | | | | Cash flows from investing activities: | | | | | | | | | | | | | Purchases of property, plant and equipment | | | | | | | | | | | | | Proceeds from government subsidy for property, plant and equipment | | | | | | | | | | | | | Purchases of marketable securities | | | | | | | | | | | | | Proceeds from maturities of marketable securities | | | | | | | | | | | | | Proceeds from sales of marketable securities | | | | | | | | | | | | | | | | | | | | | | | | | | Purchase of investment and acquisition of businesses, net of cash acquired | | | | | | | | | | | | | | | | | | | | | | | | | | Net cash (used for) provided by investing activities | | | | | | | | | | | | | | | | | | | | | | | | | | Cash flows from financing activities: | | | | | | | | | | | | | Issuance of common stock under stock purchase and stock option plans | | | | | | | | | | | | | Repurchase of common stock | | | | | | | | | | | | | | | | | | | | | | | | | | Payments related to net settlement of employee stock compensation awards | | | | | | | | | | | | | Payments of contingent consideration | | | | | | | | | | | | | Net cash used for financing activities | | | | | | | | | | | | | Effects of exchange rate changes on cash and cash equivalents | | | | | | | | | | | | | (Decrease) Increase in cash and cash equivalents | | | | | | | | | | | | | Cash and cash equivalents at beginning of year | | | | | | | | | | | | | Cash and cash equivalents at end of year | | | | | | | | | | | | | Supplementary disclosure of cash flow information: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Cash flows from operating activities: | | | | | | | | | | | | | | | $ | 784,147 | | | $ | 467,468 | | | $ | 451,779 | | Adjustments to reconcile net income from operations to net cash provided by operating activities: | | | | | | | | | | | | | | | | 80,119 | | | | 70,834 | | | | 67,415 | | | | | 46,624 | | | | 49,821 | | | | 45,809 | | | | | 44,906 | | | | 37,897 | | | | 33,577 | | Provision for excess and obsolete inventory | | | 17,534 | | | | 15,244 | | | | 11,242 | | Retirement plans actuarial losses (gains) | | | 10,284 | | | | 8,176 | | | | (3,316 | ) | Contingent consideration fair value adjustment | | | (23,271 | ) | | | (19,257 | ) | | | 987 | | | | | (15,688 | ) | | | (9,456 | ) | | | 28,340 | | (Gains) losses on investments | | | (7,898 | ) | | | (6,033 | ) | | | 3,494 | | | | | — | | | | 15,000 | | | | — | | | | | 1,557 | | | | 766 | | | | 1,083 | | Changes in operating assets and liabilities, net of businesses acquired: | | | | | | | | | | | | | | | | (129,451 | ) | | | (70,440 | ) | | | (17,938 | ) | | | | (8,438 | ) | | | (27,408 | ) | | | (29,498 | ) | Prepayments and other assets | | | (64,418 | ) | | | (23,784 | ) | | | (58,402 | ) | Accounts payable and other accrued expenses | | | 73,167 | | | | 49,279 | | | | 13,693 | | Deferred revenue and customer advances | | | 39,974 | | | | 39,313 | | | | 13,379 | | Retirement plan contributions | | | (5,382 | ) | | | (5,086 | ) | | | (4,334 | ) | | | | 25,169 | | | | (13,584 | ) | | | (80,429 | ) | | | | | | | | | | | | | | Net cash provided by operating activities | | | 868,935 | | | | 578,750 | | | | 476,881 | | | | | | | | | | | | | | | Cash flows from investing activities: | | | | | | | | | | | | | Purchases of property, plant and equipment | | | (184,977 | ) | | | (134,642 | ) | | | (114,379 | ) | Proceeds from government subsidy for property, plant and equipment | | | | | | | | | | | 7,920 | | Purchases of marketable securities | | | (900,196 | ) | | | (662,701 | ) | | | (918,744 | ) | Proceeds from maturities of marketable securities | | | 479,678 | | | | 611,927 | | | | 1,270,439 | | Proceeds from sales of marketable securities | | | 35,006 | | | | 105,586 | | | | 846,122 | | | | | 546 | | | | 2,912 | | | | 1,126 | | Purchase of investment and acquisition of businesses, net of cash acquired | | | 149 | | | | (79,742 | ) | | | (169,474 | ) | | | | | | | | | | | | | | Net cash (used for) provided by investing activities | | | (569,794 | ) | | | (156,660 | ) | | | 923,010 | | | | | | | | | | | | | | | Cash flows from financing activities: | | | | | | | | | | | | | Issuance of common stock under stock purchase and stock option plans | | | 28,527 | | | | 29,312 | | | | 20,973 | | Repurchase of common stock | | | (88,465 | ) | | | (500,000 | ) | | | (823,478 | ) | | | | (66,482 | ) | | | (61,305 | ) | | | (67,322 | ) | Payments related to net settlement of employee stock compensation awards | | | (23,014 | ) | | | (14,741 | ) | | | (20,023 | ) | Payments of contingent consideration | | | (8,852 | ) | | | (27,615 | ) | | | (13,571 | ) | | | | | | | | | | | | | | Net cash used for financing activities | | | (158,286 | ) | | | (574,349 | ) | | | (903,421 | ) | | | | | | | | | | | | | | Effects of exchange rate changes on cash and cash equivalents | | | (658 | ) | | | (569 | ) | | | 439 | | Increase (decrease) in cash and cash equivalents | | | 140,197 | | | | (152,828 | ) | | | 496,909 | | Cash and cash equivalents at beginning of year | | | 773,924 | | | | 926,752 | | | | 429,843 | | | | | | | | | | | | | | | Cash and cash equivalents at end of year | | $ | 914,121 | | | $ | 773,924 | | | $ | 926,752 | | | | | | | | | | | | | | | Supplementary disclosure of cash flows information: | | | | | | | | | | | | | | | | | | | | | | | | | | | | $ | 6,435 | | | $ | 5,996 | | | $ | 6,205 | | | | $ | 106,577 | | | $ | 81,410 | | | $ | 72,811 | | Non-cash investing activities: | | | | | | | | | | | | | Capital expenditures incurred but not yet paid: | | $ | 3,666 | | | $ | 4,068 | | | $ | 2,537 | |
The accompanying notes are an integral part of the consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Teradyne, Inc. (“Teradyne”) is a leading global supplier of automation equipment for test and industrial applications. Teradyne designs, develops, manufactures and sells automatic test systems used to test semiconductors, wireless products, data storage and complex electronics systems in themany industries including consumer electronics, wireless, automotive, industrial, computing, communications, and aerospace and defense industries. Teradyne’s industrial automation products include collaborative robotic arms, autonomous mobile robots, and advanced robotic control software used by global manufacturing, logistics and light industrial customers to improve quality, increase manufacturing and material handling efficiency and decrease manufacturing and logistics costs. Teradyne’s automatic test equipment and industrial automation products and services include: semiconductor test (“Semiconductor Test”) systems; industrial automationstorage and system level test (“Industrial Automation”Storage Test”) products;
systems, defense/aerospace (“Defense/Aerospace”) test instrumentation and systems, storage test (“Storage Test”) systems, and circuit-board test and inspection (“Production Board Test”) systems (collectively these products represent “System Test”); and wireless test (“Wireless Test”) systems.systems; and industrial automation (“Industrial Automation”) products. On February 26, 2018, Teradyne acquired Energid Technologies Corporation (“Energid”) for a total purchase price of approximately $27.6 million. Energid’s technology enables and simplifies the programming of complex robotic motions used in a wide variety of end markets, ranging from heavy industry to healthcare, utilizing both traditional robots and collaborative robots. Energid was merged with Universal Robots which is included inpart of Teradyne’s Industrial Automation segment. On April 25, 2018, Teradyne acquired Mobile Industrial Robots ApS (“MiR”), a Danish limited liability companycompany. MiR is a leading maker of collaborative autonomous mobile robots (“AMRs”) for industrial applications. The total purchase price was approximately $197.68$197.8 million, which included cash paid approximately $145.2 milliona
nd
$52.6 $145.2 million and $52.6 million in fair value of contingent consideration payable upon achievement of certain thresholds and targets for revenue and earnings before interest and taxes through 2020. Contingent consideration for 2018 was $30.8 million and was paid in March 2019. Contingent consideration for 2019 was $9.1$8.9 million and is expected to bewas paid in March 2020. The maximum payment for the remaining MiR contingent consideration that could be paid is $63.2 million.Teradyne’s Teradyne’s Industrial Automation segment.
On January 30, 2019, Teradyne acquired all of the issued and outstanding shares of Lemsys SA (“Lemsys”) for a total purchase price of approximately $9.1 million. Lemsys strengthens Teradyne’s position in the electrification of vehicles, solar and wind power, and industrial applications. Lemsys is included in Teradyne’s Semiconductor Test segment. On June 3, 2019, Teradyne invested $15.0 million in RealWear, Inc. (“RealWear”). RealWear, a private company, develops and sells advanced wearable technology including industrial, hands-free, head-mounted augmented reality devices that make the workplace safer and more productive. On February 28, 2020, RealWear’s debt holder demanded repayment of its $25.0 million loan to RealWear. As a result, in the fourth quarter of 2019, Teradyne recorded an impairment charge of $15.0 million to reduce its investment in RealWear to 0 as of December 31, 2019. On November 13
,13, 2019, ,
Teradyne acquired 100% of the membership interests of AutoGuide, LLC (“AutoGuide”), a maker of high payload AMRs, an emerging and fast growing segment of the global forklift markethe total purchase price was approximately $81.7 million, which included cash paid of approximately
$57.8market. The total purchase price was approximately $81.6 million, which included cash paid of approximately $57.6 million and $24.0 million in fair value of contingent consideration payable upon achievement of certain performance targets, extending potentially through 2022. TheAt December 31, 2020, the maximum contingent consideration that could be paid is $106.9 $100.2 million. AutoGuide’s AMRs are used for material transport of payloads up to kg in manufacturing, warehouse and logistics applications. These products complement MiR’s lower payload products. AutoGuide is included in our Industrial Automation segment. The consolidated financial statements include the accounts of Teradyne and its wholly-owned subsidiaries. All significant intercompany balances and transactions are eliminated. Certain prior years’ amounts were reclassified to conform to the current year presentation. Preparation of Financial Statements and Use of Estimates The preparation of consolidated financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent liabilities. On an on-going basis, management evaluates its estimates, including those related to inventories, investments, goodwill, intangible and other long-lived assets, accounts receivable, income taxes, deferred tax assets and liabilities, pensions, warranties, contingent liabilities, and loss contingencies. Management bases its estimates on historical experience and on appropriate and customary assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Due to the COVID-19 pandemic, there has been uncertainty and disruption in the global economy and our markets. Management is not aware of any specific event or circumstance that would require an update to its estimates or judgments or a revision of the carrying value of its assets or liabilities as of February 22, 2021, the date of issuance of this Annual Report on Form 10-K. These estimates may change, as new events occur and additional information is obtained. Actual results may differ significantly from these estimates.estimates under different assumptions or conditions.Revenue from Contracts with Customers Teradyne adopted Accounting Standard Codification (“ASC”) 606 “Revenue“Revenue from Contracts with Customers”
on January 1, 2018 using the modified retrospective method for all contracts not completed as of the date of adoption. In accordance with ASC 606, Teradyne recognizes revenues, when or as control is transferred to a customer. Teradyne’s determination of revenue is dependent upon a five step process outlined below. | | | Teradyne accounts for a contract with a customer when there is written approval, the contract is committed, the rights of the parties, including payment terms, are identified, the contract has commercial substance and consideration is probable of collection. |
| | | Teradyne periodically enters into contracts with customers in which a customer may purchase a combination of goods and services, such as products with extended warranty obligations. Teradyne determines performance obligations by assessing whether the products or services are distinct from the other elements of the contract. In order to be distinct, the product or service must perform either on its own or with readily available resources and must be separate within the context of the contract. |
| | | Teradyne considers the amount stated on the face of the purchase order to be the transaction price. Teradyne does not have material variable consideration which could impact the stated purchase price agreed to by Teradyne and the customer. |
Teradyne periodically enters into contracts with customers in which a customer may purchase a combination of goods and services, such as products with extended warranty obligations. Teradyne determines performance obligations by assessing whether the products or services are distinct from the other elements of the contract. In order to be distinct, the product or service must perform either on its own or with readily available resources and must be separate within the context of the contract.
Teradyne considers the amount stated on the face of the purchase order to be the transaction price. Teradyne does not have material variable consideration which could impact the stated purchase price agreed to by Teradyne and the customer.
Transaction price is allocated to each individual performance obligation based on the standalone selling price of that performance obligation. Teradyne uses standalone transactions when available to value each performance obligation. If standalone transactions are not available, Teradyne will estimate the standalone selling price through market assessments or cost plus a reasonable margin analysis. Any discounts from standalone selling price are spread proportionally to each performance obligation.
In order to determine the appropriate timing for revenue recognition, Teradyne first determines if the transaction meets any of three criteria for over time recognition. If the transaction meets the criteria for over time recognition, Teradyne recognizes revenue as the good or service is delivered. Teradyne uses input variables such as hours or months utilized or costs incurred to determine the amount of revenue to recognize in a given period. Input variables are used as they best align consumption with benefit to the customer. For transactions that do not meet the criteria for over time recognition, Teradyne will recognize revenue at a point in time based on an assessment of the five criteria for transfer of control. Teradyne has concluded that revenue should be recognized when shipped or delivered based on contractual terms. Typically, acceptance of Teradyne’s products and services is a formality as Teradyne delivers similar systems, instruments and robots to standard specifications. In cases where acceptance is not deemed a formality, Teradyne will defer revenue recognition until customer acceptance. Teradyne products consist primarily of semiconductor test systems and instruments, defense/aerospace test instrumentation and systems, storage test systems and instruments, circuit-board test and inspection systems and instruments, wireless test systems and industrial automation products and wireless test systems.products. Teradyne’s hardware is recognized at a point in time upon transfer of control to the customer. Teradyne services consist of extended warranties, training and application support, service agreement,agreements, post contract customer support (“PCS”) and replacement parts. Each service is recognized based on relative standalone selling price. Extended warranty, training and support, service agreements and PCS are recognized over time based on the period of service. Replacement parts are recognized at a point in time upon transfer of control to the customer. Teradyne does not allow customer returns or provide refunds to customers for any products or services. Teradyne products include a standard 12-month warranty. This warranty is not considered a distinct performance obligation because it does not obligate Teradyne to provide a separate service to the customer and it cannot be purchased separately. Cost related to warranty are included in cost of revenues when product revenues are recognized. As of December 31, 20192020 and 2018,2019, deferred revenue and customer advances consisted of the following and are included in the short and long-term deferred revenue and customer advances: | | | | | | | | | | | | | | | | | | | | Maintenance , service and training | | $ | | | | $ | | | | | | | | | | | | Customer advances, undelivered elements and other | | | | | | | | | | | | | | | | | | Total deferred revenue and customer advances | | $ | | | | $ | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | Maintenance, service and training | | $ | 77,654 | | | $ | 63,815 | | Customer advances, undelivered elements and other | | | 63,438 | | | | 56,358 | | | | | 51,929 | | | | 30,677 | | | | | | | | | | | Total deferred revenue and customer advances | | $ | 193,021 | | | $ | 150,850 | | | | | | | | | | |
Teradyne generally provides a one-year warranty on its products, commencing upon installation, acceptance or shipment. A provision is recorded upon revenue recognition to cost of revenues for estimated warranty expense based on historical experience. Related costs are charged to the warranty accrual as incurred. Theincurred.The balance below is included in other accrued liabilities: | | | | | | | | | | | | | Balance at December 31, 2016 | | $ | | | Accruals for warranties issued during the period | | | | | Accruals related to pre-existing warranties | | | | ) | Settlements made during the period | | | | ) | | | | | | Balance at December 31, 2017 | | | | | | | | | | Accruals for warranties issued during the period | | | | | Accruals related to pre-existing warranties | | | | | Settlements made during the period | | | | ) | | | | | | Balance at December 31, 2018 | | | | | | | | | | Accruals for warranties issued during the period | | | | | Accruals related to pre-existing warranties | | | | | Settlements made during the period | | | | ) | | | | | | Balance at December 31, 2019 | | $ | | |
| | | | | | | | | | | | | Balance at December 31, 2017 | | $ | 8,200 | | | | | 41 | | Accruals for warranties issued during the period | | | 13,045 | | Accruals related to pre-existing warranties | | | 921 | | Settlements made during the period | | | (14,298 | ) | | | | | | Balance at December 31, 2018 | | | 7,909 | | | | | 14 | | Accruals for warranties issued during the period | | | 14,106 | | Accruals related to pre-existing warranties | | | 4,026 | | Settlements made during the period | | | (17,059 | ) | | | | | | Balance at December 31, 2019 | | | 8,996 | | Accruals for warranties issued during the period | | | 28,490 | | Accruals related to pre-existing warranties | | | 821 | | Settlements made during the period | | | (21,674 | ) | | | | | | Balance at December 31, 2020 | | $ | 16,633 | | | | | | |
When Teradyne receives revenue for extended warranties, beyond one year, it is deferred and recognized on a straight-line basis over the contract period. Related costs are expensed as incurred. The balance below is included in short and long-term deferred revenue and customer advances: | | | | | | | | | | | | | Balance at December 31, 2016 | | $ | | | Deferral of new extended warranty revenue | | | | | Recognition of extended warranty deferred revenue | | | | ) | | | | | | Balance at December 31, 2017 | | | | | Deferral of new extended warranty revenue | | | | | Recognition of extended warranty deferred revenue | | | | ) | | | | | | Balance at December 31, 2018 | | | | | Deferral of new extended warranty revenue | | | | | Recognition of extended warranty deferred revenue | | | | ) | | | | | | Balance at December 31, 2019 | | $ | | | | | | | |
| | | | | | | | | | | | | Balance at December 31, 2017 | | $ | 24,438 | | Deferral of new extended warranty revenue | | | 23,753 | | Recognition of extended warranty deferred revenue | | | (20,769 | ) | | | | | | Balance at December 31, 2018 | | | 27,422 | | Deferral of new extended warranty revenue | | | 23,271 | | Recognition of extended warranty deferred revenue | | | (20,016 | ) | | | | | | Balance at December 31, 2019 | | | 30,677 | | Deferral of new extended warranty revenue | | | 41,694 | | Recognition of extended warranty deferred revenue | | | (20,442 | ) | | | | | | Balance at December 31, 2020 | | $ | 51,929 | | | | | | |
Accounts Receivable and Allowance for Doubtful Accounts Trade accounts receivable are recorded at the invoiced amount and do not bear interest. The volatility of the industries that Teradyne serves can cause certain of its customers to experience shortages of cash flows, which can impact their ability to make required payments. Teradyne maintains allowances for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments. Estimated allowances for doubtful accounts are reviewed periodically taking into account the customer’s recent payment history, the customer’s current financial statements and other information regarding the customer’s credit worthiness. Account balances are written off against the allowance when it is determined the receivable will not be recovered.
Teradyne sells certain trade accounts receivables on a non-recourse basis to third-party financial institutions pursuant to factoring agreements. Teradyne accounts for these transactions as sales of receivables and presents cash proceeds as a cash provided by operating activities in the consolidated statements of cash flows. Total trade accounts receivable sold under the factoring agreements were $131.1 million and $143.6 million during 2020 and $52.2 million during 2019, and 2018, respectively. Factoring fees for the sales of receivables are recorded in interest expense and are not material. Inventories are stated at the lower of cost (first-in,
(first-in, first-out basis) or net realizable value. On a quarterly basis, Teradyne uses consistent methodologies to evaluate all inventories for net realizable value. Teradyne records a provision for both excess and obsolete inventory when such write-downs or write-offs are identified through the quarterly review process. The inventory valuation is based upon assumptions about future demand, product mix and possible alternative uses. Teradyne accounts for its investments in debt and equity securities in accordance with the provisions of ASC 320-10, “ Investments—Debt and Equity Securities .” ASC 320-10 requires that certain debt and equity securities be classified into one of three categories; trading, available-for-sale or held-to-maturity securities. On a quarterly basis, Teradyne reviews its investments to identify and evaluate those that have an indication of a potential other-than-temporary impairment. Factors considered in determining whether a loss is other-than-temporary include: The length of time and the extent to which the market value has been less than cost; The financial condition and near-term prospects of the issuer; and The intent and ability to retain the investment in the issuer for a period of time sufficient to allow for any anticipated recovery in market value. Teradyne uses the market and income approach techniques to value its financial instruments and there were no changes in valuation techniques during the twelve months ended December 31, 20192020 and 2018.2019. As defined in ASC 820-10, “ Fair Value Measurements and Disclosures, ” fair value is the price that would be received from the sale of an asset or paid to transfer a liability in an orderly transaction between market participants. ASC 820-10 requires that assets and liabilities carried at fair value be classified and disclosed in one of the following three categories: Level 1: Quoted prices in active markets for identical assets as of the reporting date; Level 2: Inputs other than Level 1, that are observable either directly or indirectly as of the reporting date. For example, a common approach for valuing fixed income securities is the use of matrix pricing. Matrix pricing is a mathematical technique used to value securities by relying on the securities’ relationship to other benchmark quoted prices, and is considered a Level 2 input; or Level 3: Unobservable inputs that are not supported by market data. Unobservable inputs are developed based on the best information available, which might include Teradyne’s own data. In accordance with ASC 820-10, Teradyne measures its debt and equity investments at fair value. Teradyne’s debt investments are classified as Level 2, and equity investments are classified as Level 1. Acquisition-related contingent consideration is classified as Level 3. Teradyne determines the fair value of acquisition-related contingent consideration using a Monte Carlo simulation model. Assumptions utilized in the model include forecasted revenues, revenue volatility, earnings before interest and taxes, and discount rate.
Financial Assets and Financial Liabilities In January 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-01, “ Financial Instruments—Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities .” Teradyne adopted the new accounting guidance in the first quarter of 2018 using the modified retrospective approach. This guidance requires that changes in fair value of equity securities be accounted for directly in earnings. Previously, the changes in fair value were recorded in accumulated other comprehensive income on the balance sheet. Teradyne continues to recordrecords realized gains in interest income and realized losses in interest expense.other (income) expense, net. The adoption of this new accounting guidance increased the January 1, 2018 retained earnings balance by $3.1 million and decreased the accumulated other comprehensive income balance by the same amount. Prepayments consist of the following and are included in prepayments and other current assets on the balance sheet: | | | | | | | | | | | | | | | | | | | | Contract manufacturer and supplier prepayments | | $ | 212,286 | | | $ | 143,392 | | | | | 9,361 | | | | 8,046 | | Prepaid maintenance and other services | | | 13,116 | | | | 8,503 | | | | | 15,329 | | | | 16,753 | | | | | | | | | | | | | $ | 250,092 | | | $ | 176,694 | | | | | | | | | | |
Retirement and Postretirement Plans Teradyne recognizes net actuarial gains and losses and the change in the fair value of the plan assets in its operating results in the year in which they occur or upon any interim remeasurement of the plans. Teradyne calculates the expected return on plan assets using the fair value of the plan assets. Actuarial gains and losses are generally measured annually as of December 31 and, accordingly, recorded during the fourth quarter of each year or upon any interim remeasurement of the plans. In March 2017, the FASB issued ASU 2017-07, “Compensation—Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost .” Teradyne retrospectively adopted the new accounting guidance on presentation of net periodic pension costs and net periodic postretirement benefit costs in the first quarter of 2018. This guidance requires the service cost component of net benefit costs to be reported in the same line item in the consolidated statement of operations as other employee compensation costs. The non-service components of net benefit costs such as interest cost, expected return on assets, amortization of prior service cost, and actuarial gains or losses, are required to be reported separately outside of income or loss from operations. Following the adoption of this guidance, Teradyne continues to record the service cost component in the same line item as other employee compensation costs and the non-service components of net benefit costs such as interest cost, expected return on assets, amortization of prior service cost, and actuarial gains or losses are reported within other (income) expense, net. Goodwill, Intangible and Long-Lived Assets Teradyne accounts for goodwill and intangible assets in accordance with ASC 350-10, “Intangibles-Goodwill and Other. ” Intangible assets are amortized over their estimated useful economic life and are carried at cost less accumulated amortization. Goodwill is assessed for impairment at least annually in the fourth quarter, as
of December 31, on a reporting unit basis, or more frequently when events and circumstances occur indicating that the recorded goodwill may be impaired. In accordance with ASC 350-10, Teradyne has the option to perform a qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If Teradyne determines this is the case, Teradyne is required to perform a quantitative goodwill impairment test to identify potential goodwill impairment and measure the amount of goodwill impairment loss to be recognized. If Teradyne determines that it is more likely than not that the fair value of the reporting unit is greater than its carrying amounts, a quantitative goodwill impairment test is not required. In accordance with ASC 360-10, “Impairment or Disposal of Long-Lived Assets, ” Teradyne reviews long-lived assets for impairment whenever events or changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverable or that the useful lives of these assets are no longer appropriate. Each impairment test is based on a comparison of the estimated undiscounted cash flows to the recorded value of the asset. If impairment is indicated, the asset is written down to its estimated fair value based on a discounted cash flows analysis. The cash flows estimates used to determine the impairment, if any, contain management’s best estimates using appropriate assumptions and projections at that time. Teradyne recognizes the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values at the date of acquisition. The fair value of identifiable intangible assets is based on detailed cash flows valuations that use information and assumptions provided by management. Teradyne estimates the fair value of contingent consideration at the time of the acquisition using all pertinent information known to us at the time to assess the probability of payment of contingent amounts or through the use of a Monte Carlo simulation model. Teradyne allocates any excess purchase price over the fair value of the net tangible and intangible assets acquired and liabilities assumed to goodwill. The assumptions used in the valuations for our acquisitions may differ materially from actual results depending on performance of the acquired businesses and other factors. While Teradyne believes the assumptions used were appropriate, different assumptions in the valuation of assets acquired and liabilities assumed could have a material impact on the timing and extent of impact on our statements of operations. Goodwill is assigned to reporting units as of the date of the related acquisition. Property, Plant and Equipment Property, plant and equipment are stated at cost and depreciated over the estimated useful lives of the assets. Leasehold improvements and major renewals are capitalized and included in property, plant and equipment accounts, while expenditures for maintenance and repairs and minor renewals are charged to expense. When assets are retired, the assets and related accumulated depreciation are removed from the accounts and any resulting gain or loss is reflected in the consolidated statements of operations. Teradyne provides for depreciation of its assets principally on the straight-line method with the cost of the assets being charged to expense over their useful lives as follows: | | | | | | | | | | | Lesser of lease term or 10 years | | | 10 years | Test systems manufactured internally | | | Machinery, equipment and software | | |
Test systems manufactured internally are used by Teradyne for customer evaluations and manufacturing and support of its customers. Teradyne depreciates the test systems manufactured internally over a six-year life to cost of revenues, engineering and development, and selling and administrative expenses. Teradyne often sells
internally manufactured test equipment to customers. Upon the sale of an internally manufactured test system, the net book value of the system is transferred to inventory and expensed as cost of revenues. The net book value of internally manufactured test systems sold in the years ended December 31, 2020, 2019, and 2018 was $7.3 million, $5.0 million, and $3.8 million, respectively. Teradyne adopted Accounting Standards Update (“ASU”) 2016-02, “” (“Topic 842”) and the related amendments (collectively “ASC 842”) on January 1, 2019 and utilized the modified retrospective approach provided by ASU 2018-11, “Leases (Topic 842): Targeted Improvements ,” that allowed for a cumulative effect adjustment in the period of adoption. Under ASC 842, a contract is or contains a lease when Teradyne has the right to control the use of an identified asset. Teradyne determines if an arrangement is a lease at inception of the contract, which is the date on which the terms of the contract are agreed to and the agreement creates enforceable rights and obligations. The commencement date of the lease is the date that the lessor makes an underlying asset available for use by Teradyne. As of December 31, 2020, Teradyne does not have material leases that have not yet commenced. Teradyne determines if the lease is an operating or finance lease at the lease commencement date based upon the terms of the lease and the nature of the asset. The lease term used to calculate the lease liability includes options to extend or terminate the lease when it is reasonably certain that the option will be exercised. For leases commencing after January 1, 2019, the lease liability is measured at the present value of future lease payments, discounted using the discount rate for the lease at the commencement date. As Teradyne is typically unable to determine the implicit rate, Teradyne uses an incremental borrowing rate based on the lease term and economic environment at commencement date. Teradyne initially measures payments based on an index by using the applicable rate at lease commencement. Variable payments that do not depend on an index are not included in the lease liability and are recognized as they are incurred. The ROU asset is initially measured as the amount of lease liability, adjusted for any initial lease costs, prepaid lease payments, and reduced by any lease incentives. Teradyne’s contracts often include non-lease components such as common area maintenance. Teradyne elected the practical expedient to account for the lease and non-lease components as a single lease component. For leases with a term of one year or less Teradyne has elected not to record the lease asset or liability. The lease payments are recognized in the consolidated statement of earnings on a straight-line basis over the lease term. Teradyne includes lease costs within cost of revenues and operating expenses. See Note I: “Leases.” Engineering and Development Costs Teradyne’s products are highly technical in nature and require a large and continuing engineering and development effort. Software development costs incurred prior to the establishment of technological feasibility are charged to expense. Software development costs incurred subsequent to the establishment of technological feasibility are capitalized until the product is available for release to customers. To date, the period between achieving technological feasibility and general availability of the product has been short and software development costs eligible for capitalization have not been material. Engineering and development costs are expensed as incurred and consist primarily of salaries, contractor fees including non-recurring engineering charges related to product design, allocated facility costs, depreciation, and tooling costs. Stock Compensation Plans and Employee Stock Purchase Plan Stock-based compensation expense is based on the grant-date fair value estimated in accordance with the provisions of ASC 718-10, “Compensation-Stock Compensation .” Excess tax benefits or tax deficiencies are recognized as a discrete tax benefit or discrete tax expense to the current income tax provision in Teradyne’s consolidated statements of operations, all excess tax benefits related
to share-based payments are reported as cash flows from operating activities, and all cash payments made to taxing authorities on the employees’ behalf for withheld shares are presented as financing activities on the statement of cash flows. Teradyne elects to account for forfeitures by applying an estimated forfeiture rate and recognizes compensation costs only for those stock-based compensation awards expected to vest. Under its stock compensation plans, Teradyne has granted stock options, restricted stock units and performance-based restricted stock units, and employees are eligible to purchase Teradyne’s common stock through its Employee Stock Purchase Plan (“ESPP”). Deferred tax assets and liabilities are determined based on differences between financial reporting and tax basis of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. The measurement of deferred tax assets is reduced by a valuation allowance if it is more likely than not that some or all of the deferred tax assets will not be realized. Teradyne performed the required assessment of positive and negative evidence regarding the realization of the net deferred tax assets in accordance with ASC 740,“Accounting for Income Taxes.” This assessment included the evaluation of scheduled reversals of deferred tax liabilities, estimates of projected future taxable income and tax-planning strategies. Although realization is not assured, based on its assessment, Teradyne concluded that it is more likely than not that such assets, net of the existing valuation allowance, will be realized. Teradyne expenses all advertising costs as incurred. Advertising costs were $12.8 million, $16.6 million and $15.4 million in 2020, 2019 and 2018, respectively. Translation of Non-U.S. Currencies The functional currency for all non-U.S. subsidiaries is the U.S. dollar, except for Universal Robots, MiR and Lemsys for which the local currency is its functional currency. All foreign currency denominated monetary assets and liabilities are remeasured on a monthly basis into the functional currency using exchange rates in effect at the end of the period. All foreign currency denominated non-monetary assets and liabilities are remeasured into the functional currency using historical exchange rates. Net foreign exchange gains and losses resulting from remeasurement are included in other (income) expense, net. For Universal Robots, MiR and Lemsys, assets and liabilities are translated into U.S. dollars using exchange rates in effect at the end of the period. Revenues and expense amounts are translated using an average of exchange rates in effect during the period. Translation adjustments are recorded within accumulated other comprehensive income (loss) on the balance sheet. Net foreign exchange gains and losses resulting from remeasurement are included in other (income) expense, net. For the years ended December 31, 2020, 2019, and 2018, losses (gains) from the remeasurement of the monetary assets and liabilities denominated in foreign currencies were $2.6 million, $(1.6) million, and $(2.5) million, respectively. These amounts do not reflect the corresponding (gains) losses from foreign exchange contracts. See Note H: “Financial Instruments” regarding foreign exchange contracts. Net Income (Loss) per Common Share Basic net income (loss) per common share is calculated by dividing net income (loss) by the weighted average number of common shares outstanding during the period. Except where the result would be anti-dilutive, diluted net income (loss) per common share is calculated by dividing net income (loss) by the sum of the weighted average number of common shares plus common stock equivalents, if applicable.
With respect to its convertible debt issued in 2016, Teradyne has determined that it has the ability and intent to settle the principal of the convertible debt in cash; accordingly, the principal amount is excluded from the determination of diluted earnings per share. As a result, Teradyne is accounting for the conversion spread using the treasury stock method. Comprehensive Income (Loss) Comprehensive income (loss) includes net income, unrealized pension and postretirement prior service costs and benefits, unrealized gains and losses on investments in debt marketable securities and foreign currency translation adjustment. Prior to 2018, comprehensive income (loss) included unrealized gains and losses on investments in equity marketable securities. C. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS In August 2020, the FASB issued ASU 2020-06— “Debt— Debt with Conversion and Other Options and Derivatives and Hedging— Contracts in Entity’s Own Equity,” which simplifies the accounting for convertible debt instruments by reducing the number of accounting models and the number of embedded conversion features that could be recognized separately from the primary contract. This ASU requires a convertible debt instrument to be accounted for as a single liability measured at its amortized cost, as long as no other features require bifurcation and recognition as derivatives. This ASU requires an entity to use the if-converted method in the diluted earnings per share calculation for convertible instruments. This ASU will be effective for Teradyne on January 1, 2022, with early adoption permitted beginning on January 1, 2021. This ASU permits the use of either the modified retrospective or fully retrospective method of transition. Teradyne is evaluating the timing and effects of the adoption of this ASU on its financial statements. D. ACQUISITIONS AND INVESTMENT IN OTHER COMPANY On November 13, 2019, Teradyne acquired 100% of the membership interests of AutoGuide, LLC (“AutoGuide”), a maker of high-payload AMRs, based in Chelmsford, MA, an emerging and fast growing segment of the global forklift market. The total purchase price was approximately $81.6 million, which included cash paid of approximately $57.6 million and $24.0 million in fair value of contingent consideration payable upon achievement of certain performance targets, extending potentially through 2022. At December 31, 2020, the maximum contingent consideration that could be paid is $100.2 million. The contingent consideration is payable upon achievement of certain thresholds and targets for revenue and earnings before interest and taxes for periods from January 1, 2019 to December 31, 2020, January 1, 2019 to December 31, 2021, and January 1, 2019 to December 31, 2022. The valuation of the contingent consideration is dependent on the following assumptions: forecasted revenues, revenue volatility, earnings before interest and taxes, and discount rate. These assumptions were estimated based on a review of the historical and projected results. The AutoGuide acquisition was accounted for as a business combination and, accordingly, the results have been included in Teradyne’s consolidated results of operations from the date of acquisition. AutoGuide’s AMRs are used for material transport of payloads up to 4,500 kg in manufacturing, warehouse and logistics applications. These products complement Mobile Industrial Robots A/S (“MiR”) lower payload products and expand the Industrial Automation segment, which is a key component of Teradyne’s growth strategy. The allocation of the total purchase price to AutoGuide’s net tangible assets and identifiable intangible assets was based on their fair values as of the acquisition date. The excess of the purchase price over the
identifiable intangible assets and net tangible assets in the amount of $41.2 million was allocated to goodwill, which is deductible for tax purposes. AutoGuide’s results have been included in Teradyne’s Industrial Automation segment from the date of acquisition. The following table represents the final allocation of the purchase price: | | | | | | | Purchase Price Allocation | | | | | | | | $ | 41,223 | | | | | 37,660 | | Tangible assets acquired and liabilities assumed: | | | | | | | | 3,661 | | | | | 1,227 | | Accounts payable and current liabilities | | | (1,223 | ) | Long-term other liabilities | | | (949 | ) | | | | | | | | $ | 81,599 | | | | | | |
Teradyne estimated the fair value of intangible assets using the income approach. Forecasted revenues is the key assumption for estimating the fair value. Acquired intangible assets are amortized on a straight-line basis over their estimated useful lives. Components of these intangible assets and their estimated useful lives at the acquisition date are as follows: | | | | | | | | | | | | | | | | | | | | | | | | | $ | 24,590 | | | | 6.0 | | | | | 7,360 | | | | 6.0 | | Trademarks and tradenames | | | 5,450 | | | | 7.0 | | | | | 260 | | | | 0.3 | | | | | | | | | | | | | $ | 37,660 | | | | 6.1 | | | | | | | | | | |
For the period from November 13, 2019 to December 31, 2019, AutoGuide contributed $1.4 million of revenues and had a $(0.9) million loss before income taxes. On January 30, 2019, Teradyne acquired all of the issued and outstanding shares of Lemsys SA (“Lemsys”) for a total purchase price of approximately $9.1 million. Lemsys strengthens Teradyne’s position in the electrification trends of vehicles, solar and wind power, and industrial applications. The Lemsys acquisition was accounted for as a business combination and, accordingly, the results have been included in Teradyne’s Semiconductor Test segment from the date of acquisition. Teradyne’s final allocation of the purchase price was goodwill of $1.4 million, which is not deductible for tax purposes, acquired intangible assets of $4.6 million with an average estimated useful life of 5.2 years, and $3.1 million of net tangible assets. The acquisition was not material to Teradyne’s consolidated financial statements. On April 25, 2018, Teradyne acquired all of the issued and outstanding shares of MiR, a Danish limited liability company located in Odense, Denmark. MiR is a leading maker of collaborative autonomous mobile robots for industrial applications.
The total purchase price of $197.8 million included $145.2 million of cash paid and $52.6 million of contingent consideration measured at fair value. The contingent consideration is payable in Euros upon the achievement of certain thresholds and targets for revenue and earnings before interest and taxes for periods from January 1, 2018 to December 31, 2018; January 1, 2018 to December 31, 2019; and January 1, 2018 to December 31, 2020. Contingent consideration for the period from January 1, 2018 to December 31, 2018 was $31.0 million and was paid in March 2019. Contingent consideration for the period from January 1, 2018 to December 31, 2019 was $9.1 million, based on the results during the period and modification of the earn-out structure, and was paid in March 2020. NaN contingent consideration will be paid out against the period from December 31, 2018 through December 31, 2020. The valuation of the contingent consideration is dependent on the following assumptions: forecasted revenues, revenue volatility, earnings before interest and taxes, and discount rate. These assumptions were estimated based on a review of the historical and projected results. The MiR acquisition was accounted for as a business combination and, accordingly, the results have been included in Teradyne’s consolidated results of operations from the date of acquisition. MiR’s products will help expand the Industrial Automation segment, which is a key component of our growth strategy. The allocation of the total purchase price to MiR’s net tangible liabilities and identifiable intangible assets was based on their estimated fair values as of the acquisition date. The excess of the purchase price over the identifiable intangible assets and net tangible liabilities in the amount of $136.0 million was allocated to goodwill, which is not deductible for tax purposes. MiR’s results have been included in Teradyne’s Industrial Automation segment from the date of acquisition. The following table represents the final allocation of the purchase price: | | | | | | | Purchase Price Allocation | | | | | | | | $ | 135,976 | | | | | 80,670 | | Tangible assets acquired and liabilities assumed: | | | | | | | | 6,039 | | | | | 1,336 | | Accounts payable and current liabilities | | | (7,336 | ) | Long-term deferred tax liabilities | | | (18,007 | ) | Other long-term liabilities | | | (900 | ) | | | | | | | | $ | 197,778 | | | | | | |
Teradyne estimated the fair value of intangible assets using the income and cost approaches. Acquired intangible assets are amortized on a straight-line basis over their estimated useful lives. Components of these intangible assets and their estimated useful lives at the acquisition date are as follows: | | | | | | | | | | | | | | | | | | | | | | | | | $ | 58,900 | | | | 7.0 | | Trademarks and tradenames | | | 13,240 | | | | 11.0 | | | | | 8,500 | | | | 2.5 | | | | | 30 | | | | 0.2 | | | | | | | | | | | | | $ | 80,670 | | | | 7.2 | | | | | | | | | | |
Energid Technologies Corporation On February 26, 2018, Teradyne acquired all of the issued and outstanding shares of Energid for a total purchase price of approximately $27.6 million. Energid’s technology enables and simplifies the programming of complex robotic motions used in a wide variety of end markets, ranging from heavy industry to healthcare, utilizing both traditional robots and collaborative robots. The Energid acquisition was accounted for as a business combination and, accordingly, Energid’s results have been included in Teradyne’s Industrial Automation segment from the date of acquisition. As of the acquisition date, Teradyne’s purchase price allocation was goodwill of $14.4 million which is deductible for tax purposes, acquired intangible assets of $12.3 million with an average estimated useful life of 7.7 years, and $1.0 million of net tangible assets. The acquisition was not material to Teradyne’s consolidated financial statements. The following unaudited pro forma information gives effect to the acquisition of AutoGuide as if the acquisition occurred on January 1, 2018 and the acquisition of MiR as if the acquisition occurred on January 1, 2017. The unaudited pro forma results are not necessarily indicative of what actually would have occurred had the acquisition been in effect for the periods presented: | | | | | | | | | | | | | | | | | | (in thousands, except per | | | | $ | 2,303,737 | | | $ | 2,111,373 | | | | $ | 464,602 | | | $ | 442,082 | | Net income per common share: | | | | | | | | | | | $ | 2.73 | | | $ | 2.36 | | | | | | | | | | | | | $ | 2.59 | | | $ | 2.30 | | | | | | | | | | | Pro forma results for the year ended December 31, 2019 were adjusted to exclude $1.2 million of AutoGuide acquisition related costs and $0.1 million of AutoGuide non-recurring expense related to fair value adjustment to acquisition-date inventory. Pro forma results for the year ended December 31, 2018 were adjusted to include $1.2 million of AutoGuide acquisition related costs and $0.1 million of AutoGuide non-recurring expense related to fair value adjustment to acquisition-date inventory. Pro forma results for the year ended December 31, 2018 were adjusted to exclude $2.9 million of MiR acquisition related costs and $0.4 million of MiR non-recurring expense related to fair value adjustment to acquisition-date inventory. Investment in Other CompanyEngineering and Development Costs
Teradyne holds an investmentTeradyne’s products are highly technical in nature and require a private company that developslarge and sells advanced wearable technology. Teradyne does not havecontinuing engineering and development effort. Software development costs incurred prior to the abilityestablishment of technological feasibility are charged to exert significant influence overexpense. Software development costs incurred subsequent to the company. The investment was recorded at costestablishment of technological feasibility are capitalized until the product is available for release to customers. To date, the period between achieving technological feasibility and is evaluated for impairment or an indication of changes in fair value resulting from observable price changes in orderly transactions for the identical or a similar investmentgeneral availability of the same issuer on a quarterly basis. See Note D: “Acquisitionsproduct has been short and Investment in Other Company.”software development costs eligible for capitalization have not been material. Engineering and development costs are expensed as incurred and consist primarily of salaries, contractor fees including non-recurring engineering charges related to product design, allocated facility costs, depreciation, and tooling costs.
Stock Compensation Plans and Employee Stock Purchase Plan Stock-based compensation expense is based on the grant-date fair value estimated in accordance with the provisions of ASC 718-10, “PrepaymentsCompensation-Stock Compensation
.” Prepayments consistExcess tax benefits or tax deficiencies are recognized as a discrete tax benefit or discrete tax expense to the current income tax provision in Teradyne’s consolidated statements of the following and are included in prepayments and other current assets on the balance sheet:
| | | | | | | | | | | | | | | | | | | | Contract manufacturer and supplier prepayments | | $ | | | | $ | | | | | | | | | | | | Prepaid maintenance and other services | | | | | | | | | | | | | | | | | | | | | | | | | | | | | $ | | | | $ | | | | | | | | | | | |
Retirement and Postretirement Plans operations, all excess tax benefits relatedTeradyne recognizes net actuarial gains and losses and the change in the fair value of the plan assets in its operating results in the year in which they occur or upon any interim remeasurement of the plans. Teradyne calculates the expected return on plan assets using the fair value of the plan assets. Actuarial gains and losses are generally measured annually as of December 31 and, accordingly, recorded during the fourth quarter of each year or upon any interim remeasurement of the plans.
In March 2017, the FASB issued ASU2017-07,
“Compensation—Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost
.” Teradyne retrospectively adopted the new accounting guidance on presentation of net periodic pension costs and net periodic postretirement benefit costs in the first quarter of 2018. This guidance requires the service cost component of net benefit costs to be reported in the same line item in the consolidated statement of operations as other employee compensation costs. Thenon-service
components of net benefit costs such as interest cost, expected return on assets, amortization of prior service cost, and actuarial gains or losses, are required to be reported separately outside of income or loss from operations. Following the adoption of this guidance, Teradyne continues to record the service cost component in the same line item as other employee
to share-based payments are reported as cash flows from operating activities, and all cash payments made to taxing authorities on the employees’ behalf for withheld shares are presented as financing activities on the statement of cash flows. Teradyne elects to account for forfeitures by applying an estimated forfeiture rate and recognizes compensation costs only for those stock-based compensation awards expected to vest. Under its stock compensation plans, Teradyne has granted stock options, restricted stock units and the non-service
components of net benefit costs such as interest cost, expected return on assets, amortization of prior service cost,performance-based restricted stock units, and actuarial gains or lossesemployees are reported within other (income) expense, net. In the twelve months ended December 31, 2017,
the retrospective adoption of this standard decreased income from operations by $5.0million
, dueeligible to the removal of net actuarial pension gains and increased
non-operating
(income) expense by the same amount with no impact to net income.purchase Teradyne’s common stock through its Employee Stock Purchase Plan (“ESPP”).
Goodwill, Intangible and Long-Lived AssetsIncome Taxes Teradyne accounts for goodwillDeferred tax assets and intangibleliabilities are determined based on differences between financial reporting and tax basis of assets in accordance with ASC350-10,
“Intangibles-Goodwill and Other.
” Intangible assets are amortized over their estimated useful economic lifeliabilities and are carried at cost less accumulated amortization. Goodwillmeasured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. The measurement of deferred tax assets is assessed for impairment at least annually in the fourth quarter, as of December 31, onreduced by a reporting unit basis, or more frequently when events and circumstances occur indicating that the recorded goodwill may be impaired. In accordance with ASC350-10,
Teradyne has the option to perform a qualitative assessment to determine whethervaluation allowance if it is more likely than not that some or all of the fair valuedeferred tax assets will not be realized. Teradyne performed the required assessment of a reporting unitpositive and negative evidence regarding the realization of the net deferred tax assets in accordance with ASC 740,“Accounting for Income Taxes.” This assessment included the evaluation of scheduled reversals of deferred tax liabilities, estimates of projected future taxable income and tax-planning strategies. Although realization is less thannot assured, based on its carrying amount. Ifassessment, Teradyne determines this is the case, Teradyne is required to perform thetwo-step
goodwill impairment test to identify potential goodwill impairment and measure the amount of goodwill impairment loss to be recognized. If Teradyne determinesconcluded that it is more likely than not that the fair valuesuch assets, net of the reporting unit is greater than its carrying amounts, thetwo-step
goodwill impairment test is not required. In accordance with ASC360-10,
“Impairment or Disposal of Long-Lived Assets,
” Teradyne reviews long-lived assets for impairment whenever events or changes in business circumstances indicate that theamount of the assets may notexisting valuation allowance, will be fully recoverable or that the useful lives of these assets are no longer appropriate. Each impairment test is based on a comparison of the estimated undiscounted cash flows to the recorded value of the asset. If impairment is indicated, the asset is written down to its estimated fair value based on a discounted cash flow analysis. The cash flow estimates used to determine the impairment, if any, contain management’s best estimates using appropriate assumptions and projections at that time.realized.Business CombinationAdvertising Costs
Teradyne recognizes the tangibleexpenses all advertising costs as incurred. Advertising costs were $12.8 million, $16.6 million and intangible assets acquired$15.4 million in 2020, 2019 and liabilities assumed based on their estimated fair values at the date of acquisition. The fair value of identifiable intangible assets is based on detailed cash flow valuations that use information and assumptions provided by management. Teradyne estimates the fair value of contingent consideration at the time of the acquisition using all pertinent information known to us at the time to assess the probability of payment of contingent amounts or through the use of a Monte Carlo simulation model. Teradyne allocates any excess purchase price over the fair value of the net tangible and intangible assets acquired and liabilities assumed to goodwill. The assumptions used in the valuations for our acquisitions may differ materially from actual results depending on performance of the acquired businesses and other factors. While Teradyne believes the assumptions used were appropriate, different assumptions in the valuation of assets acquired and liabilities assumed could have a material impact on the timing and extent of impact on our statements of operations. Goodwill is assigned to reporting units as of the date of the related acquisition. 2018, respectively.Property, Plant and EquipmentTranslation of Non-U.S. Currencies
Property, plantThe functional currency for all non-U.S. subsidiaries is the U.S. dollar, except for Universal Robots, MiR and equipmentLemsys for which the local currency is its functional currency. All foreign currency denominated monetary assets and liabilities are statedremeasured on a monthly basis into the functional currency using exchange rates in effect at cost and depreciated over the estimated useful livesend of the assets. Leasehold improvementsperiod. All foreign currency denominated non-monetary assets and major renewalsliabilities are capitalizedremeasured into the functional currency using historical exchange rates. Net foreign exchange gains and losses resulting from remeasurement are included in property, plantother (income) expense, net. For Universal Robots, MiR and equipment accounts while expenditures for maintenance and repairs and minor renewals are charged to expense. When assets are retired, theLemsys, assets and relatedliabilities are translated into U.S. dollars using exchange rates in effect at the end of the period. Revenues and expense amounts are translated using an average of exchange rates in effect during the period. Translation adjustments are recorded within accumulated depreciationother comprehensive income (loss) on the balance sheet.
Net foreign exchange gains and losses resulting from remeasurement are removedincluded in other (income) expense, net. For the years ended December 31, 2020, 2019, and 2018, losses (gains) from the accountsremeasurement of the monetary assets and any resulting gain or loss is reflectedliabilities denominated in foreign currencies were $2.6 million, $(1.6) million, and $(2.5) million, respectively. These amounts do not reflect the consolidated statements of operations.corresponding (gains) losses from foreign exchange contracts. See Note H: “Financial Instruments” regarding foreign exchange contracts. Net Income (Loss) per Common Share Basic net income (loss) per common share is calculated by dividing net income (loss) by the weighted average number of common shares outstanding during the period. Except where the result would be anti-dilutive, diluted net income (loss) per common share is calculated by dividing net income (loss) by the sum of the weighted average number of common shares plus common stock equivalents, if applicable. 62
With respect to its convertible debt issued in 2016, Teradyne has determined that it has the ability and intent to settle the principal of the convertible debt in cash; accordingly, the principal amount is excluded from the determination of diluted earnings per share. As a result, Teradyne is accounting for the conversion spread using the treasury stock method. Comprehensive Income (Loss) Comprehensive income (loss) includes net income, unrealized pension and postretirement prior service costs and benefits, unrealized gains and losses on investments in debt marketable securities and foreign currency translation adjustment. Prior to 2018, comprehensive income (loss) included unrealized gains and losses on investments in equity marketable securities. C. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS In August 2020, the FASB issued ASU 2020-06— “Debt— Debt with Conversion and Other Options and Derivatives and Hedging— Contracts in Entity’s Own Equity,” which simplifies the accounting for convertible debt instruments by reducing the number of accounting models and the number of embedded conversion features that could be recognized separately from the primary contract. This ASU requires a convertible debt instrument to be accounted for as a single liability measured at its amortized cost, as long as no other features require bifurcation and recognition as derivatives. This ASU requires an entity to use the if-converted method in the diluted earnings per share calculation for convertible instruments. This ASU will be effective for Teradyne provideson January 1, 2022, with early adoption permitted beginning on January 1, 2021. This ASU permits the use of either the modified retrospective or fully retrospective method of transition. Teradyne is evaluating the timing and effects of the adoption of this ASU on its financial statements. D. ACQUISITIONS AND INVESTMENT IN OTHER COMPANY On November 13, 2019, Teradyne acquired 100% of the membership interests of AutoGuide, LLC (“AutoGuide”), a maker of high-payload AMRs, based in Chelmsford, MA, an emerging and fast growing segment of the global forklift market. The total purchase price was approximately $81.6 million, which included cash paid of approximately $57.6 million and $24.0 million in fair value of contingent consideration payable upon achievement of certain performance targets, extending potentially through 2022. At December 31, 2020, the maximum contingent consideration that could be paid is $100.2 million. The contingent consideration is payable upon achievement of certain thresholds and targets for depreciationrevenue and earnings before interest and taxes for periods from January 1, 2019 to December 31, 2020, January 1, 2019 to December 31, 2021, and January 1, 2019 to December 31, 2022. The valuation of its assets principallythe contingent consideration is dependent on the straight-line method with the costfollowing assumptions: forecasted revenues, revenue volatility, earnings before interest and taxes, and discount rate. These assumptions were estimated based on a review of the historical and projected results. The AutoGuide acquisition was accounted for as a business combination and, accordingly, the results have been included in Teradyne’s consolidated results of operations from the date of acquisition. AutoGuide’s AMRs are used for material transport of payloads up to 4,500 kg in manufacturing, warehouse and logistics applications. These products complement Mobile Industrial Robots A/S (“MiR”) lower payload products and expand the Industrial Automation segment, which is a key component of Teradyne’s growth strategy. The allocation of the total purchase price to AutoGuide’s net tangible assets being charged to expenseand identifiable intangible assets was based on their fair values as of the acquisition date. The excess of the purchase price over their useful lives as follows:the | | | | | | | | | | | | | | | | | | Lesser of lease term or 10 years
| | | | | | | Test systems manufactured internally
| | | | | Machinery,
equipment and software
| | | | |
Test systems manufactured internally are used by Teradyne for customer evaluations and manufacturing and support of its customers. Teradyne depreciates the test systems manufactured internally over asix-year63
life to cost of revenues, engineering and development, and selling and administrative expenses. Teradyne often sells internally manufactured test equipment to customers. Upon the sale of an internally manufactured test system, the net book value of the system is transferred to inventory and expensed as cost of revenues. The net book value of internally manufactured test systems sold in the years ended December 31, 2019, 2018, and 2017 was $5.0 million, $3.8 million, and $3.6 million, respectively.In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)2016-02,
(“Topic 842”), which requires a lessee to record aright-of-use
(“ROU”) asset and a lease liability on the balance sheet for operating leases with terms longer than twelve months. Teradyne adopted this standard and the related amendments (collectively “ASC 842”) on January 1, 2019 and utilized the modified retrospective approach provided by ASU2018-11,
“Leases (Topic 842): Targeted
that allowed for a cumulative effect adjustment in the period of adoption. Under this method of adoption, the comparative information in the consolidated financial statements has not been revised and continues to be reported under the previously applicable lease accounting guidance (ASC 840). Teradyne also utilized the package of practical expedients permitted under the transition guidance which included the carry-forward of historical lease classification. Adoption of ASC 842 resulted in recording ROU assets and lease liabilities of approximately $50.1 million and $54.3 million, respectively. Operating lease liabilities were calculated using the discount rate on January 1, 2019. The adoption of ASC 842 did not have a material impact on beginning retained earnings, the consolidated statement of operations, cash flows, or earnings per share.Under ASC 842, a contract is or contains a lease when Teradyne has the right to control the use of an identified asset. Teradyne determines if an arrangement is a lease at inception of the contract, which is the date on which the terms of the contract are agreed to and the agreement creates enforceable rights and obligations.The commencement date of the lease is the date that the lessor makes an underlying asset available for use by Teradyne. As of December 31, 2019, Teradyne does not have material leases that have not yet commenced.Teradyne determines if the lease isan
operating or financelease
at the lease commencement date based upon the terms of the lease and the nature of the asset. The lease term used to calculate the lease liability includes options to extend or terminate the lease when it is reasonably certain that the option will be exercised.For leases commencing after January 1, 2019, the lease liability is measured at the present value of future lease payments, discounted using the discount rate for the lease at the commencement date. As Teradyne is typically unable to determine the implicit rate, Teradyne uses an incremental borrowing rate based on the lease term and economic environment at commencement date. Teradyne initially measures payments based on an index by using the applicable rate at lease commencement. Variable payments that do not depend on an index are not included in the lease liability and are recognized as they are incurred. The ROU asset is initially measured as the amount of lease liability, adjusted for any initial lease costs, prepaid lease payments, and reduced by any lease incentives.
Teradyne’s contracts often includenon-lease
components such as common area maintenance. Teradyne elected the practical expedient to account for the leaseidentifiable intangible assets and non-lease
components as a single lease component. For leases with a term of one year or less Teradyne has elected not to record the lease asset or liability. The lease payments are recognized net tangible assets in the consolidated statementamount of earnings$41.2 million was allocated to goodwill, which is deductible for tax purposes. AutoGuide’s results have been included in Teradyne’s Industrial Automation segment from the date of acquisition.The following table represents the final allocation of the purchase price: | | | | | | | Purchase Price Allocation | | | | | | | | $ | 41,223 | | | | | 37,660 | | Tangible assets acquired and liabilities assumed: | | | | | | | | 3,661 | | | | | 1,227 | | Accounts payable and current liabilities | | | (1,223 | ) | Long-term other liabilities | | | (949 | ) | | | | | | | | $ | 81,599 | | | | | | |
Teradyne estimated the fair value of intangible assets using the income approach. Forecasted revenues is the key assumption for estimating the fair value. Acquired intangible assets are amortized on a straight-line basis over their estimated useful lives. Components of these intangible assets and their estimated useful lives at the lease term. Teradyne includes lease costs within costacquisition date are as follows: | | | | | | | | | | | | | | | | | | | | | | | | | $ | 24,590 | | | | 6.0 | | | | | 7,360 | | | | 6.0 | | Trademarks and tradenames | | | 5,450 | | | | 7.0 | | | | | 260 | | | | 0.3 | | | | | | | | | | | | | $ | 37,660 | | | | 6.1 | | | | | | | | | | |
For the period from November 13, 2019 to December 31, 2019, AutoGuide contributed $1.4 million of revenues and operating expenses. See Note I: “Leases.”had a $(0.9) million loss before income taxes. On January 30, 2019, Teradyne acquired all of the issued and outstanding shares of Lemsys SA (“Lemsys”) for a total purchase price of approximately $9.1 million. Lemsys strengthens Teradyne’s position in the electrification trends of vehicles, solar and wind power, and industrial applications. The Lemsys acquisition was accounted for as a business combination and, accordingly, the results have been included in Teradyne’s Semiconductor Test segment from the date of acquisition. Teradyne’s final allocation of the purchase price was goodwill of $1.4 million, which is not deductible for tax purposes, acquired intangible assets of $4.6 million with an average estimated useful life of 5.2 years, and $3.1 million of net tangible assets. The acquisition was not material to Teradyne’s consolidated financial statements. On April 25, 2018, Teradyne acquired all of the issued and outstanding shares of MiR, a Danish limited liability company located in Odense, Denmark. MiR is a leading maker of collaborative autonomous mobile robots for industrial applications.
The total purchase price of $197.8 million included $145.2 million of cash paid and $52.6 million of contingent consideration measured at fair value. The contingent consideration is payable in Euros upon the achievement of certain thresholds and targets for revenue and earnings before interest and taxes for periods from January 1, 2018 to December 31, 2018; January 1, 2018 to December 31, 2019; and January 1, 2018 to December 31, 2020. Contingent consideration for the period from January 1, 2018 to December 31, 2018 was $31.0 million and was paid in March 2019. Contingent consideration for the period from January 1, 2018 to December 31, 2019 was $9.1 million, based on the results during the period and modification of the earn-out structure, and was paid in March 2020. NaN contingent consideration will be paid out against the period from December 31, 2018 through December 31, 2020. The valuation of the contingent consideration is dependent on the following assumptions: forecasted revenues, revenue volatility, earnings before interest and taxes, and discount rate. These assumptions were estimated based on a review of the historical and projected results. The MiR acquisition was accounted for as a business combination and, accordingly, the results have been included in Teradyne’s consolidated results of operations from the date of acquisition. MiR’s products will help expand the Industrial Automation segment, which is a key component of our growth strategy. The allocation of the total purchase price to MiR’s net tangible liabilities and identifiable intangible assets was based on their estimated fair values as of the acquisition date. The excess of the purchase price over the identifiable intangible assets and net tangible liabilities in the amount of $136.0 million was allocated to goodwill, which is not deductible for tax purposes. MiR’s results have been included in Teradyne’s Industrial Automation segment from the date of acquisition. The following table represents the final allocation of the purchase price: | | | | | | | Purchase Price Allocation | | | | | | | | $ | 135,976 | | | | | 80,670 | | Tangible assets acquired and liabilities assumed: | | | | | | | | 6,039 | | | | | 1,336 | | Accounts payable and current liabilities | | | (7,336 | ) | Long-term deferred tax liabilities | | | (18,007 | ) | Other long-term liabilities | | | (900 | ) | | | | | | | | $ | 197,778 | | | | | | |
Teradyne estimated the fair value of intangible assets using the income and cost approaches. Acquired intangible assets are amortized on a straight-line basis over their estimated useful lives. Components of these intangible assets and their estimated useful lives at the acquisition date are as follows: | | | | | | | | | | | | | | | | | | | | | | | | | $ | 58,900 | | | | 7.0 | | Trademarks and tradenames | | | 13,240 | | | | 11.0 | | | | | 8,500 | | | | 2.5 | | | | | 30 | | | | 0.2 | | | | | | | | | | | | | $ | 80,670 | | | | 7.2 | | | | | | | | | | |
Energid Technologies Corporation On February 26, 2018, Teradyne acquired all of the issued and outstanding shares of Energid for a total purchase price of approximately $27.6 million. Energid’s technology enables and simplifies the programming of complex robotic motions used in a wide variety of end markets, ranging from heavy industry to healthcare, utilizing both traditional robots and collaborative robots. The Energid acquisition was accounted for as a business combination and, accordingly, Energid’s results have been included in Teradyne’s Industrial Automation segment from the date of acquisition. As of the acquisition date, Teradyne’s purchase price allocation was goodwill of $14.4 million which is deductible for tax purposes, acquired intangible assets of $12.3 million with an average estimated useful life of 7.7 years, and $1.0 million of net tangible assets. The acquisition was not material to Teradyne’s consolidated financial statements. The following unaudited pro forma information gives effect to the acquisition of AutoGuide as if the acquisition occurred on January 1, 2018 and the acquisition of MiR as if the acquisition occurred on January 1, 2017. The unaudited pro forma results are not necessarily indicative of what actually would have occurred had the acquisition been in effect for the periods presented: | | | | | | | | | | | | | | | | | | (in thousands, except per | | | | $ | 2,303,737 | | | $ | 2,111,373 | | | | $ | 464,602 | | | $ | 442,082 | | Net income per common share: | | | | | | | | | | | $ | 2.73 | | | $ | 2.36 | | | | | | | | | | | | | $ | 2.59 | | | $ | 2.30 | | | | | | | | | | | Pro forma results for the year ended December 31, 2019 were adjusted to exclude $1.2 million of AutoGuide acquisition related costs and $0.1 million of AutoGuide non-recurring expense related to fair value adjustment to acquisition-date inventory. Pro forma results for the year ended December 31, 2018 were adjusted to include $1.2 million of AutoGuide acquisition related costs and $0.1 million of AutoGuide non-recurring expense related to fair value adjustment to acquisition-date inventory. Pro forma results for the year ended December 31, 2018 were adjusted to exclude $2.9 million of MiR acquisition related costs and $0.4 million of MiR non-recurring expense related to fair value adjustment to acquisition-date inventory. Engineering and Development Costs Teradyne’s products are highly technical in nature and require a large and continuing engineering and development effort. Software development costs incurred prior to the establishment of technological feasibility are charged to expense. Software development costs incurred subsequent to the establishment of technological feasibility are capitalized until the product is available for release to customers. To date, the period between achieving technological feasibility and general availability of the product has been short and software development costs eligible for capitalization have not been material. Engineering and development costs are expensed as incurred and consist primarily of salaries, contractor fees including non-recurring engineering charges related to product design, allocated facility costs, depreciation, and tooling costs. Stock Compensation Plans and Employee Stock Purchase Plan Stock-based compensation expense is based on the grant-date fair value estimated in accordance with the provisions of ASC 718-10, “ Compensation-Stock Compensation .” In March 2016, the FASB issued ASU2016-09,
“Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting.”
Teradyne adopted this ASU in the first quarter of 2017. This ASU changes how Teradyne accounts for certain aspects of share-based payment awards to employees, including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classification in the statements of cash flows.Adoption of this ASU required recognition of a cumulative effect adjustment to retained earnings for any prior year excess tax benefits or tax deficiencies not previously recorded. The cumulative effect adjustment of $39 million was recorded in the first quarter of 2017 as an increase to retained earnings and deferred tax assets.
This ASU also required a change in how Teradyne recognizes the excess tax benefits or tax deficiencies related to stock-based compensation. Prior to adopting ASU2016-09,
these excess tax benefits or tax deficiencies were credited or charged to additionalpaid-in
capital in Teradyne’s consolidated balance sheets. In accordance with ASU2016-09,
starting in the first quarter of 2017, these excessExcess tax benefits or tax deficiencies are recognized as a discrete tax benefit or discrete tax expense to the current income tax provision in Teradyne’s consolidated statements of operations.ASU2016-09
requires companies to adopt the amendment related to accounting for excess tax benefits or tax deficiencies on a prospective basis. In 2019, 2018 and 2017, Teradyne recognized a discrete tax benefit of $4.9 million, $7.6 million and $6.3 million, respectively, related to net excess tax benefit.In addition, under ASU2016-09, operations, all excess tax benefits related
to share-based payments are reported as cash flows from operating activities. Previously, excess tax benefits from share-based payment arrangements were reported as cash flows from financing activities. The classification amendment was applied prospectively. This ASU also clarifies thatactivities, and all cash payments made to taxing authorities on the employees’ behalf for withheld shares should beare presented as financing activities on the statement of cash flows. Previously, Teradyne reported cash payments madeelects to taxing authorities as operating activities on the statement of cash flows. This change was applied retrospectively. Upon adoption of ASU2016-09,
Teradyne made an accounting policy election to continue accountingaccount for forfeitures by applying an estimated forfeiture rate and to continue to recognizerecognizes compensation costs only for those stock-based compensation awards expected to vest.
Under its stock compensation plans, Teradyne has granted stock options, restricted stock units and performance-based restricted stock units, and employees are eligible to purchase Teradyne’s common stock through its Employee Stock Purchase Plan (“ESPP”). Deferred tax assets and liabilities are determined based on differences between financial reporting and tax basis of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. The measurement of deferred tax assets is reduced by a valuation allowance if it is more likely than not that some or all of the deferred tax assets will not be realized. Teradyne performed the required assessment of positive and negative evidence regarding the realization of the net deferred tax assets in accordance with ASC 740, “Accounting for Income Taxes.” This assessment included the evaluation of scheduled reversals of deferred tax liabilities, estimates of projected future taxable income and tax-planning strategies. Although realization is not assured, based on its assessment, Teradyne concluded that it is more likely than not that such assets, net of the existing valuation allowance, will be realized. Teradyne expenses all advertising costs as incurred. Advertising costs were $12.8 million, $16.6 million and $15.4 million in 2020, 2019 and $9.1 million in 2019, 2018, and 2017, respectively. Translation of Non-U.S. Currencies CurrenciesThe functional currency for all non-U.S. subsidiaries is the U.S. dollar, except for Universal Robots, MiR and Lemsys for which the local currency is its functional currency. All foreign currency denominated monetary assets and liabilities are remeasured on a monthly basis into the functional currency using exchange rates in effect at the end of the period. All foreign currency denominated non-monetary assets and liabilities are remeasured into the functional currency using historical exchange rates. Net foreign exchange gains and losses resulting from remeasurement are included in other (income) expense, net. For Universal Robots, MiR and Lemsys, assets and liabilities are translated into U.S. dollars using exchange rates in effect at the end of the period. Revenues and expense amounts are translated using an average of exchange rates in effect during the period. Translation adjustments are recorded within accumulated other comprehensive income (loss) on the balance sheet. Net foreign exchange gains and losses resulting from remeasurement are included in other (income) expense, net. For the years ended December 31, 2020, 2019, and 2018, and 2017,losses (gains) losses from the remeasurement of the monetary assets and liabilities denominated in foreign currencies were $2.6 million, $(1.6) million, $(2.5) million, and $2.9$(2.5) million, respectively. These amounts do not reflect the corresponding (gains) losses from foreign exchange contracts. See Note H: “Financial Instruments” regarding foreign exchange contracts. Net Income (Loss) per Common Share Basic net income (loss) per common share is calculated by dividing net income (loss) by the weighted average number of common shares outstanding during the period. Except where the result would be anti-dilutive, diluted net income (loss) per common share is calculated by dividing net income (loss) by the sum of the weighted average number of common shares plus common stock equivalents, if applicable.
With respect to its convertible debt issued in 2016, Teradyne has determined that it has the ability and intent to settle the principal of the convertible debt in cash; accordingly, the principal amount is excluded from the determination of diluted earnings per share. As a result, Teradyne is accounting for the conversion spread using the treasury stock method.
Comprehensive Income (Loss) Comprehensive income (loss) includes net income, unrealized pension and postretirement prior service costs and benefits, unrealized gains and losses on investments in debt marketable securities and foreign currency translation adjustment. Prior to 2018, comprehensive income (loss) included unrealized gains and losses on investments in equity marketable securities. C. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS On January 26, 2017,In August 2020, the FASB issued ASU 2020-062017-04,—
“ Intangibles—GoodwillDebt— Debt with Conversion and Other (Topic 350): SimplifyingOptions and Derivatives and Hedging— Contracts in Entity’s Own Equity,” which simplifies the Accountingaccounting for Goodwill Impairment.”The new guidance removes Step 2convertible debt instruments by reducing the number of accounting models and the number of embedded conversion features that could be recognized separately from the primary contract. This ASU requires a convertible debt instrument to be accounted for as a single liability measured at its amortized cost, as long as no other features require bifurcation and recognition as derivatives. This ASU requires an entity to use the if-converted method in the diluted earnings per share calculation for convertible instruments. This ASU will be effective for Teradyne on January 1, 2022, with early adoption permitted beginning on January 1, 2021. This ASU permits the use of either the modified retrospective or fully retrospective method of transition. Teradyne is evaluating the timing and effects of the goodwill impairment test, which requires a hypothetical purchase price allocation. Goodwill impairment will now be the amount by which a reporting unit’s carrying value exceedsadoption of this ASU on its fair value, not to exceed the carrying amount of goodwill. All other goodwill impairment guidance will remain largely unchanged. Entities will continue to have the option to perform a qualitative assessment to determine if a quantitative impairment test is necessary. The sameone-step
impairment test will be applied to goodwill at all reporting units, even those with zero or negative carrying amounts. Entities will be required to disclose the amount of goodwill at reporting units with zero or negative carrying amounts. The revised guidance will be applied prospectively, and is effective in 2020. Early adoption is permitted for any impairment tests performed after January 1, 2017. This pronouncement is not expected to have a material impact on Teradyne’s financial position, results of operations and statements of cash flows.statements.D. ACQUISITIONS AND INVESTMENT IN OTHER COMPANY On November 13
,13, 2019, Teradyne acquired 100% of the membership membership interests
of AutoGuide, LLC (“AutoGuide”), a maker of high-payload AMRs, based in Chelmsford, MA, an emerging and fast growing segment of the global forklift marketmarket. The total purchase price was approximately $81.7$81.6 million, which included cash paid of approximately $57.8$57.6 million $
24.0in fair value of contingent consideration payable upon achievement of certain performance targets, extending potentially through 2022. At December 31, 2019,2020, the maximum contingent consideration that could be paid is $
106.9 $100.2 million. The contingent consideration is payable upon achievement o
f of certain thresholds and targets for revenue and earnings before interest and taxes for periods from January 1, 2019 to December 31, 2020, January 1, 2019 t
o to December 31, 2021
,2021, and January 1, 2019 to December 31, 2022
. 2022.The valuation of the contingent consideration is dependent on the following assumptions: forecasted revenues, revenue volatility, earnings before interest and taxes, and discount rate. These assumptions were estimated based on a review of the historical and projected results. The AutoGuide acquisition was accounted for as a business combination and, accordingly, the results have been included in Teradyne’s consolidated results of operations from the date of acquisition. AutoGuide’s AMRs are used for material transport of payloads up to 4,500 kg in manufacturing, warehouse and logistics applications. These products complement MiR’sMobile Industrial Robots A/S (“MiR”) lower payload products and expand the Industrial Automation segment, , which is a key componentcomponent of Teradyne
’
sTeradyne’s growth strategy.
strategy.The preliminary allocation of the total purchase price to AutoGuide’s net tangible assets and identifiable intangible assets was based on their estimated preliminary fair values as of the acquisition date. The excess of the purchase price over the
identifiable intangible assets and net tangible assets in the amount of $41.4$41.2 million was allocated to goodwill, which is deductible for tax purposes. AutoGuide’s results have been included in Teradyne’s Industrial Automation segment from the date of acquisition.
The following table represents the preliminaryfinal allocation of the purchase price: | | | | | | | Purchase Price Allocation | | | | | | | | $ | | | | | | | | Tangible assets acquired and liabilities assumed: | | | | | | | | | | | | | | | Accounts payable and current liabilities | | | | ) | Long-term other liabilities | | | | ) | | | | | | | | $ | | | | | | | |
| | | | | | | Purchase Price Allocation | | | | | | | | $ | 41,223 | | | | | 37,660 | | Tangible assets acquired and liabilities assumed: | | | | | | | | 3,661 | | | | | 1,227 | | Accounts payable and current liabilities | | | (1,223 | ) | Long-term other liabilities | | | (949 | ) | | | | | | | | $ | 81,599 | | | | | | |
Teradyne estimated the fair value of intangible assets using the income approach. Forecasted revenues is the key assumption for estimating the fair value. Acquired intangible assets are amortized on a straight-line basis over their estimated useful lives. Components of these intangible assets and their estimated useful lives at the acquisition date are as follows: | | | | | | | | | | | | | | | | | | | | | | | | | $ | | | | | | | | | | | | | | | | Trademarks and tradenames | | | | | | | | | | | | | | | | | | | | | | | | | | | | | $ | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | $ | 24,590 | | | | 6.0 | | | | | 7,360 | | | | 6.0 | | Trademarks and tradenames | | | 5,450 | | | | 7.0 | | | | | 260 | | | | 0.3 | | | | | | | | | | | | | $ | 37,660 | | | | 6.1 | | | | | | | | | | |
For the period from November 13, 2019 to December 31, 2019, AutoGuide contributed $1.4 $1.4 million of revenues and had a $(0.9) $(0.9) million loss before income taxes. On January 30, 2019, Teradyne acquired all of the issued and outstanding shares of Lemsys SA (“Lemsys”) for a total purchase price of approximately $9.1 $9.1 million. Lemsys strengthens Teradyne’s position in the electrification trends of vehicles, solar industrial applications. The Lemsys acquisition was accounted for as a business combination and, accordingly, the results have been included in Teradyne’s Semiconductor Test segment from the date of acquisition. Teradyne’s final allocation of the purchase price was goodwill of $1.4 $1.4 million, which is not deductible for tax purposes, acquired intangible assets of $4.6 $4.6 million with an average estimated useful life of 5.2 years, and $3.1 $3.1 million of net tangible assets. The acquisition was not material to Teradyne’s consolidated financial statements. On April 25, 2018, Teradyne acquired all of the issued and outstanding shares of MiR, a Danish limited liability company located in Odense, Denmark. MiR is a leading maker of collaborative autonomous mobile robots for industrial applications.
The total purchase price of $197.8 $197.8 million included $145.2 $145.2 million of cash paid and $52.6 $52.6 million of contingent consideration measured at fair value. The contingent consideration is payable in Euros upon the achievement of certain thresholds and targets for revenue and earnings before interest and taxes for periods from January 1, 2018 to December 31, 2018; January 1, 2018 to December 31, 2019; and January 1, 2018 to
Contingent consideration for the period from January 1, 2018 to December 31, 2018 was $31.0 million and was paid in March 2019. Contingent consideration for the period from January 1, 2018 2018 to December 31, 2019 was $
9.1
$9.1 million, , based on the results during the period and modificationmodification of the earn-
outthe earn-out structure, ,
and is expected to bewas paid in March 2020. At NaN contingent consideration will be paid out against the period from December 31, 2019, the remaining maximum amount of contingent consideration that could be paid is $63.2 million. 2018 through December 31, 2020.The valuation of the contingent consideration is dependent on the following assumptions: forecasted revenues, revenue volatility, earnings before interest and taxes, and discount rate. These assumptions were estimated based on a review of the historical and projected results. The MiR acquisition was accounted for as a business combination and, accordingly, the results have been included in Teradyne’s consolidated results of operations from the date of acquisition. MiR’s products will help expand the Industrial Automation segment, which is a key component of our growth strategy. The allocation of the total purchase price to MiR’s net tangible liabilities and identifiable intangible assets was based on their estimated fair values as of the acquisition date. The excess of the purchase price over the identifiable intangible assets and net tangible liabilities in the amount of $136.0 million was allocated to goodwill, which is not deductible for tax purposes. MiR’s results have been included in Teradyne’s Industrial Automation segment from the date of acquisition. The following table represents the final allocation of the purchase price: | | | | | | | Purchase Price Allocation | | | | | | | | $ | | | | | | | | Tangible assets acquired and liabilities assumed: | | | | | | | | | | | | | | | Accounts payable and current liabilities | | | | ) | Long-term deferred tax liabilities | | | | ) | Other long-term liabilities | | | | ) | | | | | | | | $ | | | | | | | |
| | | | | | | Purchase Price Allocation | | | | | | | | $ | 135,976 | | | | | 80,670 | | Tangible assets acquired and liabilities assumed: | | | | | | | | 6,039 | | | | | 1,336 | | Accounts payable and current liabilities | | | (7,336 | ) | Long-term deferred tax liabilities | | | (18,007 | ) | Other long-term liabilities | | | (900 | ) | | | | | | | | $ | 197,778 | | | | | | |
Teradyne estimated the fair value of intangible assets using the income and cost approaches. Acquired intangible assets are amortized on a straight-line basis over their estimated useful lives. Components of these intangible assets and their estimated useful lives at the acquisition date are as follows: | | | | | | | | | | | | | | | | | | | | | | | | | $ | | | | | | | Trademarks and tradenames | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | $ | | | | | | | | | | | | | | | |
For the period from April 25, 2018 to December 31, 2018, MiR contributed $24.1 million of revenues and had a $(7.6
) million loss before income taxes. | | | | | | | | | | | | | | | | | | | | | | | | | $ | 58,900 | | | | 7.0 | | Trademarks and tradenames | | | 13,240 | | | | 11.0 | | | | | 8,500 | | | | 2.5 | | | | | 30 | | | | 0.2 | | | | | | | | | | | | | $ | 80,670 | | | | 7.2 | | | | | | | | | | |
Energid Technologies Corporation On February 26, 2018, Teradyne acquired all of the issued and outstanding shares of Energid for a total purchase price of approximately $27.6 million. Energid’s technology enables and simplifies the programming of complex robotic motions used in a wide variety of end markets, ranging from heavy industry to healthcare, utilizing both traditional robots and collaborative robots. The Energid acquisition was accounted for as a business combination and, accordingly, Energid’s results have been included in Teradyne’s Industrial Automation segment from the date of acquisition. As of the acquisition date, Teradyne’s purchase price allocation was goodwill of $14.4 million which is deductible for tax purposes, acquired intangible assets of $12.3 million with an average estimated useful life of 7.7 years, and $1.0 million of net tangible assets. The acquisition was not material to Teradyne’s consolidated financial statements. The following unaudited pro forma information gives effect to the acquisition of AutoGuide as if the acquisition occurred on January 1, 2018 and the acquisition of MiR as if the acquisition occurred on January 1, 2017. The unaudited pro forma results are not necessarily indicative of what actually would have occurred had the acquisition been in effect for the periods presented: | | | | | | | | | | | | | | | | | | | | | | (in thousands, except per | | | | $ | | | | $ | | | | | $ | | | | $ | | | Net income per common share: | | | | | | | | | | | $ | | | | $ | | | | | | | | | | | | | | $ | | | | $ | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | (in thousands, except per | | | | $ | 2,303,737 | | | $ | 2,111,373 | | | | $ | 464,602 | | | $ | 442,082 | | Net income per common share: | | | | | | | | | | | $ | 2.73 | | | $ | 2.36 | | | | | | | | | | | | | $ | 2.59 | | | $ | 2.30 | | | | | | | | | | | Pro forma results for the year ended December 31, 2019 were adjusted to exclude $1.2 million of AutoGuide acquisition related costs and $0.1 million of AutoGuide non-recurring expense related to fair value adjustment to acquisition-date inventory. Pro forma results for the year ended December 31, 2018 were adjusted to include $1.2 million of AutoGuide acquisition related costs and $0.4$0.1 million of AutoGuide non-recurring expense related to fair value adjustment to acquisition-date inventory. Pro forma results for the year ended December 31, 2018 were adjusted to exclude $2.9 million of MiR acquisition related costs and $0.4 million of MiR non-recurring expense related to fair value adjustment to acquisition-date inventory. Investment in Other Company On June 3, 2019, Teradyne invested $15.0 million in RealWear, Inc. (“RealWear”). RealWear, a private company, develops and sells advanced wearable technology including industrial, hands-free, head-mounted augmented reality devices that make the workplace safer and more productive. The investment was recorded at cost and is evaluated for impairment or an indication of changes in fair value resulting from observable price changes in orderly transactions for the identical or similar investment of the same issuer on a quarterly basis. On February 28, 2020, RealWear’s debt holder demanded repayment of its $25.0 million loan to RealWear. As a result, in the fourth quarter of 2019, Teradyne recorded an impairment charge of $15.0 million to reduce its investment in RealWear to 0 as of December 31, 2019.
Disaggregation of Revenue The following table provides information about disaggregated revenue by timing of revenue recognition, primary geographical market, and major product lines. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | For the Year Ended December 31, 2019 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Timing of Revenue Recognition | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | ) | | $ | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | ) | | $ | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ) | | | | | Europe, Middle East and Africa | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | ) | | $ | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | For the Year Ended December 31, 2018 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Timing of Revenue Recognition | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | ) | | $ | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | ) | | $ | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ) | | | | | Europe, Middle East and Africa | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | ) | | $ | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | For the Year Ended December 31, 2020 (1) | | Timing of Revenue Recognition | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Europe, Middle East and Africa | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | For the Year Ended December 31, 2019 (1) | | Timing of Revenue Recognition | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Europe, Middle East and Africa | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | For the Year Ended December 31, 2018 (1) | | Timing of Revenue Recognition | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Europe, Middle East and Africa | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(1) | Includes $10.0 million, $8.4 million and $12.0 million in 2020, 2019 and 2018, respectively, for leases of Teradyne’s systems recognized outside of ASC 606: “Revenue from Contracts with Customers.” |
For the years years ended December 31, 2020, 2019 and 2018, Teradyne recognized $91.0 million, $65.6 million and $69.9 million, respectively, that,
that was previously included within the deferred revenue and customer advances balances.balances at the beginning of the period. This revenue primarily relates to undelivered hardware, extended warranties, training, application support, and post contract support. Each of these represents a distinct performance obligation. As of December 31, 2020,has $929.6 million of unsatisfied performance obligations. Teradyne
expects to recognize 70%92% of the remaining performance obligation in the next 12 months, 26%8% in 1-3 years, and the remainder thereafter.
Inventories, net consisted of the following at December 31, 20192020 and 2018:2019: | | | | | | | | | | | | | | | | | | | | | | $ | 114,133 | | | $ | 118,595 | | | | | 25,408 | | | | 32,695 | | | | | 82,648 | | | | 45,401 | | | | | | | | | | | | | $ | 222,189 | | | $ | 196,691 | | | | | | | | | | |
Inventory reserves for the years ended December 31, 2020 and 2019 were $110.6 million and 2018 were $103.6 million, and $100.8 million, respectively. G. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment, net consisted of the following at December 31, 20192020 and 2018:2019: | | | | | | | | | | | | | | | | | | | | | | $ | | | | $ | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Less: accumulated depreciation | | | | | | | | | | | | | | | | | | | | $ | | | | $ | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | $ | 17,207 | | | $ | 16,561 | | | | | 108,221 | | | | 107,282 | | Machinery, equipment and software | | | 956,035 | | | | 834,970 | | | | | 28,487 | | | | 29,157 | | | | | 61,276 | | | | 59,378 | | | | | 13,098 | | | | 2,537 | | | | | | | | | | | | | | 1,184,324 | | | | 1,049,885 | | Less: accumulated depreciation | | | 789,524 | | | | 729,669 | | | | | | | | | | | | | $ | 394,800 | | | $ | 320,216 | | | | | | | | | | |
Depreciation of property, plant and equipment for the years ended December 31, 2020, 2019, and 2018 and 2017 was $80.1 million, $70.8 million, $67.4 million, and $66.1$67.4 million, respectively. As of December 31, 20192020 and 2018,2019, the gross book value included in machinery and equipment for internally manufactured test systems being leased by customers was $5.4$23.4 million and $5.5$5.4 million, respectively. As of December 31, 20192020 and 2018,2019, the accumulated depreciation on these test systems was $5.1$7.5 million and $5.2$5.1 million, respectively. Teradyne considers all highly liquid investments with maturities of three months or less at the date of acquisition to be cash equivalents. Effective January 1, 2018, Teradyne adopted ASU2016-01,
“Financial Instruments—Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities,
” using the modified retrospective approach. This guidance requires that changes in fair value of equity securities be accounted for directly in earnings. Prior to 2018,recognizes the changes in fair value of equity securities were recordeddirectly in accumulated other comprehensive income (loss) on the balance sheet.earnings. Teradyne’s available-for-sale debt securities are classified as Level 2, and equity and debt mutual funds are classified as Level 1. Contingent consideration is classified as Level 3. The vast majority of Level 2 securities are fixed income
fixed income securities priced by third party pricing vendors. These pricing vendors utilize the most recent observable market information in pricing these securities or, if specific prices are not available, use other observable inputs like market transactions involving identical or comparable securities. During the years ended December 31, 20192020 and 2018,2019, there were no transfers in or out of Level 1, Level 2, or Level 3 financial instruments. Realized gains recorded in 2020, 2019, and 2018 and 2017 were $4.6 million, $1.3 million, $4.0 million, and $1.1$4.0 million, respectively. Realized losses recorded in 2020, 2019, and 2018 and 2017 were $0.3 million, $0.2 million, $1.6 million, and $0.3$1.6 million, respectively. Realized gains are included in interest income and realized losses are included in interest expense.other (income) expense, net. Unrealized gains on equity securities recorded during the years ended December 31, 2020 and 2019 and 2018 were $5.3$9.6 million and $1.4$5.3 million, respectively. Unrealized losses on equity securities recorded during the years ended December 31, 2020 and 2019 and 2018 were $0.4$6.0 million and $7.4$0.4 million, respectively. Unrealized gains and losses on equity securities are included in interest income and unrealized losses are included in interest expense.other (income) expense, net. Unrealized gains and losses on available-for-sale debt securities are included in accumulated other comprehensive income (loss) on the balance sheet. The cost of securities sold is based on the specific identificationfirst-in first out method. The following table sets forth by fair value hierarchy Teradyne’s financial assets and liabilities that were measured at fair value on a recurring basis as of December 31, 20192020 and 2018:2019: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | $ | | | | $ | | | | $ | | | | $ | | | | | | | | | | | | | | | | | | | | Available for sale securities: | | | | | | | | | | | | | | | | | Corporate debt securities | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | U.S. government agency securities | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Certificates of deposit and time deposits | | | | | | | | | | | | | | | | | Non-U.S. government securities | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | $ | | | | $ | | | | $ | | | | $ | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | $ | | | | $ | | | | $ | | | | $ | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | $ | | | | $ | | | | $ | | | | $ | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | $ | | | | $ | | | | $ | | | | $ | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
| | |
| | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | $ | 443,166 | | | $ | — | | | $ | — | | | $ | 443,166 | | | | | 347,768 | | | | 123,187 | | | | — | | | | 470,955 | | Available for sale securities: | | | | | | | | | | | | | | | | | | | | — | | | | 258,304 | | | | — | | | | 258,304 | | | | | — | | | | 254,413 | | | | — | | | | 254,413 | | Corporate debt securities | | | — | | | | 83,615 | | | | — | | | | 83,615 | | | | | 8,565 | | | | — | | | | — | | | | 8,565 | | U.S. government agency securities | | | — | | | | 4,339 | | | | — | | | | 4,339 | | Certificates of deposit and time deposits | | | — | | | | 979 | | | | — | | | | 979 | | Non-U.S. government securities | | | — | | | | 625 | | | | — | | | | 625 | | | | | | | | | | | | | | | | | | | | | | 29,420 | | | | — | | | | — | | | | 29,420 | | | | | | | | | | | | | | | | | | | | | $ | 828,919 | | | $ | 725,462 | | | $ | — | | | $ | 1,554,381 | | | | | — | | | | 95 | | | | — | | | | 95 | | | | | | | | | | | | | | | | | | | | | $ | 828,919 | | | $ | 725,557 | | | $ | — | | | $ | 1,554,476 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | $ | — | | | $ | — | | | $ | 7,227 | | | $ | 7,227 | | | | | — | | | | 504 | | | | — | | | | 504 | | | | | | | | | | | | | | | | | | | | | $ | — | | | $ | 504 | | | $ | 7,227 | | | $ | 7,731 | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Cash and cash equivalents | | $ | | | | $ | | | | $ | | | | $ | | | | | | | | | | | | | | | | | | | | Long-term marketable securities | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | $ | | | | $ | | | | $ | | | | $ | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Other current liabilities | | $ | | | | $ | | | | $ | | | | $ | | | | | | | | | | | | | | | | | | | | Long-term contingent consideration | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | $ | | | | $ | | | | $ | | | | $ | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | $ | | | | $ | | | | $ | | | | $ | | | | | | | | | | | | | | | | | | | | Available for sale securities: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Corporate debt securities | | | | | | | | | | | | | | | | | U.S. government agency securities | | | | | | | | | | | | | | | | | Certificates of deposit and time deposits | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Non-U.S. government securities | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | $ | | | | $ | | | | $ | | | | $ | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | $ | | | | $ | | | | $ | | | | $ | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | $ | | | | $ | | | | $ | | | | $ | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | $ | | | | $ | | | | $ | | | | $ | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Cash and cash equivalents | | $ | 790,934 | | | $ | 123,187 | | | $ | — | | | $ | 914,121 | | | | | — | | | | 522,280 | | | | — | | | | 522,280 | | Long-term marketable securities | | | 37,985 | | | | 79,995 | | | | — | | | | 117,980 | | Prepayments and other current assets | | | — | | | | 95 | | | | — | | | | 95 | | | | | | | | | | | | | | | | | | | | | $ | 828,919 | | | $ | 725,557 | | | $ | — | | | $ | 1,554,476 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Other current liabilities | | $ | — | | | $ | 504 | | | $ | — | | | $ | 504 | | Long-term contingent consideration | | | — | | | | — | | | | 7,227 | | | | 7,227 | | | | | | | | | | | | | | | | | | | | | $ | — | | | $ | 504 | | | $ | 7,227 | | | $ | 7,731 | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
| | |
| | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | $ | 311,975 | | | $ | — | | | $ | — | | | $ | 311,975 | | | | | 410,285 | | | | 51,664 | | | | — | | | | 461,949 | | Available for sale securities: | | | | | | | | | | | | | | | | | Corporate debt securities | | | — | | | | 97,307 | | | | — | | | | 97,307 | | | | | — | | | | 54,149 | | | | — | | | | 54,149 | | | | | — | | | | 42,382 | | | | — | | | | 42,382 | | U.S. government agency securities | | | — | | | | 9,952 | | | | — | | | | 9,952 | | | | | 6,888 | | | | — | | | | — | | | | 6,888 | | Certificates of deposit and time deposits | | | — | | | | 4,751 | | | | — | | | | 4,751 | | Non-U.S. government securities | | | — | | | | 592 | | | | — | | | | 592 | | | | | | | | | | | | | | | | | | | | | | 25,772 | | | | — | | | | — | | | | 25,772 | | | | | | | | | | | | | | | | | | | | | $ | 754,920 | | | $ | 260,797 | | | $ | — | | | $ | 1,015,717 | | | | | | | | | | | | | | | | | | | | | | — | | | | 528 | | | | — | | | | 528 | | | | | | | | | | | | | | | | | | | | | $ | 754,920 | | | $ | 261,325 | | | $ | — | | | $ | 1,016,245 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | $ | — | | | $ | — | | | $ | 39,705 | | | $ | 39,705 | | | | | — | | | | 203 | | | | — | | | | 203 | | | | | | | | | | | | | | | | | | | | | $ | — | | | $ | 203 | | | $ | 39,705 | | | $ | 39,908 | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Cash and cash equivalents | | $ | | | | $ | | | | $ | | | | $ | | | | | | | | | | | | | | | | | | | | Long-term marketable securities | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | $ | | | | $ | | | | $ | | | | $ | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Other current liabilities | | $ | | | | $ | | | | $ | | | | $ | | | | | | | | | | | | | | | | | | | | Long-term contingent consideration | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | $ | | | | $ | | | | $ | | | | $ | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Cash and cash equivalents | | $ | 722,260 | | | $ | 51,664 | | | $ | — | | | $ | 773,924 | | | | | — | | | | 137,303 | | | | — | | | | 137,303 | | Long-term marketable securities | | | 32,660 | | | | 71,830 | | | | — | | | | 104,490 | | Prepayments and other current assets | | | — | | | | 528 | | | | — | | | | 528 | | | | | | | | | | | | | | | | | | | | | $ | 754,920 | | | $ | 261,325 | | | $ | — | | | $ | 1,016,245 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Other current liabilities | | $ | — | | | $ | 203 | | | $ | — | | | $ | 203 | | | | | — | | | | — | | | | 9,106 | | | | 9,106 | | Long-term contingent consideration | | | — | | | | — | | | | 30,599 | | | | 30,599 | | | | | | | | | | | | | | | | | | | | | $ | — | | | $ | 203 | | | $ | 39,705 | | | $ | 39,908 | | | | | | | | | | | | | | | | | | |
Changes in the fair value of Level 3 contingent consideration for the years ended December 31, 20192020 and 20182019 were as follows: | | | | | | | | | | | | | Balance at December 31, 2017
| | $ | | | | | | | | | | | | ) | | | | | ) | Fair value adjustment (2
) | | | | | | | | | | Balance at December 31, 2018
| | | | | | | | | | | | | | ) | | | | | ) | Fair value adjustment (4)
| | | | ) | | | | | | Balance at December 31, 2019
| | $ | | |
| | | | | | | | | | | | | Balance at December 31, 2018 | | $ | 70,543 | | | | | 23,976 | | | | | (967 | ) | | | | (34,590 | ) | Fair value adjustment (2) | | | (19,257 | ) | | | | | | Balance at December 31, 2019 | | | 39,705 | | | | | (355 | ) | | | | (8,852 | ) | Fair value adjustment (4) | | | (23,271 | ) | | | | | | Balance at December 31, 2020 | | $ | 7,227 | | | | | | |
(1) | During the year ended December 31, 2018
, Teradyne paid $ million of contingent consideration for theearn-out
in connection with the acquisition of |
(2) | During the year ended December 31, 2018,2019, Teradyne paid $30.8 million and $3.8 million of contingent consideration for the earn-outs in connection with the acquisitions of MiR and Universal Robots A/S (“Universal Robots”), respectively. |
(2) | During the year ended December 31, 2019, the fair value of contingent consideration for the earn-out in connection with the acquisition of MiR was increaseddecreased by $17.7$22.2 million primarily due to an increasea decrease in forecasted revenues. During the year ended December 31, 2018, the fair value of contingent consideration for theearn-out
in connection with the acquisition of Universal Robots wasde
creased by $ million primarily due toa
de
crease in forecasted revenues. |
(3) | During the year ended December 31, 2019
, Teradyne paid $ millionand $3.8 million
of contingent consideration for thein connection with the acquisitions
ofUniversal Robots, respectively
. |
(4) | During the year ended December 31, 2019
, the fair value of contingent consideration for theearn-out
in connection with the acquisition of MiR wasde
creased by $22.2
million primarily due to ade
crease in forecasted revenues partially offset by the impact from modification of the earn-out structure. During the year ended December 31, 2019
,2019, the fair value of contingent consideration for theearn-out in connection with the acquisition of AutoGuide wasin
creased increased by $$3.0 million primarily due to aan increase in forecastedrevenues . |
(3) | During the year ended December 31, 2020, Teradyne paid $8.9 million of contingent consideration for the earn-out in connection with the acquisition of MiR. |
(4) | During the year ended December 31, 2020, the fair value of contingent consideration for the earn-out in connection with the acquisition of AutoGuide was decreased by $19.7 million primarily due to a decrease in forecasted revenuesand earnings before interest and taxes . Teradyne has received a letter from the sellers of AutoGuide alleging non-compliance with the earn-out provisions of the AutoGuide acquisition agreement. Teradyne disputes the allegation of non-compliance. The ultimate amount of contingent consideration for the earn-outs in connection with the acquisition of AutoGuide may be affected by the outcome of the dispute. During the year ended December 31, 2020, the fair value of contingent consideration for the earn-out in connection with the acquisition of MiR was decreased by $3.5 million primarily due to a decrease in forecasted revenues. |
The following table provides quantitative information associated with the fair value measurement of Teradyne’s Level 3 financial instrument: (1) | Contingent consideration related to MiR of $ | | | | | | | | | | | | | | |
| | |
| | | |
| | | | | | | | | | | | | | | $ | 7,227 | | | Monte Carlo simulation | | Revenue Volatility | | | 16.5% | | | | | | | | | | Discount Rate | | | 1.0% | |
9.1
million is expected to be paid in March 2020
. |
As of December 31, 2019,2020, the significant unobservable inputs used in the Monte Carlo simulation to fair value the AutoGuide and MiR contingent
consideration include forecasted revenues, revenue volatility, earnings before interest and taxes and discount rate. Increases or decreases in the inputs would result in a higher or lower fair value measurement. As of December 31, 2019,2020, the maximum amount of contingent consideration that could be paid in connection with the acquisition of AutoGuide is $ 106.9$100.2 million. million.No payment was made related to the period ending December 31, 2020. The
remaining earn-out periods end on December 31, 2020, December 31, 2021 and December 31, 20222022.
As of December 31, 2019, the remaining maximum amount of contingent consideration that could be paid in connection with the acquisition of MiR is $63.2 million. The
period ends
on December 31, 2020.
The carrying amounts and fair values of Teradyne’s financial instruments at December 31, 20192020 and 20182019 were as follows: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Cash and cash equivalents | | $ | | | | $ | | | | $ | | | | $ | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Cash and cash equivalents | | $ | 914,121 | | | $ | 914,121 | | | $ | 773,924 | | | $ | 773,924 | | | | | 640,260 | | | | 640,260 | | | | 241,793 | | | | 241,793 | | | | | 95 | | | | 95 | | | | 528 | | | | 528 | | | | | | | | | | | | | | | | | | | | | | 7,227 | | | | 7,227 | | | | 39,705 | | | | 39,705 | | | | | 504 | | | | 504 | | | | 203 | | | | 203 | | | | | 410,111 | | | | 1,739,553 | | | | 394,687 | | | | 1,010,275 | |
| The carrying value represents the bifurcated debt component only, while the fair value is based on quoted market prices for the convertible note which includes the equity conversion features. |
The fair values of accounts receivable, net and accounts payable approximate the carrying amount due to the short term nature of these instruments.
The following tables summarize the composition of available-for-sale marketable securities at December 31, 20192020 and 2018:2019: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Corporate debt securities | | $ | | | | $ | | | | $ | | ) | | $ | | | | $ | | | | | | | | | | | | | | | ) | | | | | | | | | | | | | | | | | | | | | ) | | | | | | | | | U.S. government agency securities | | | | | | | | | | | | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Certificates of deposit and time deposits | | | | | | | | | | | | | | | | | | | | | Non-U.S. government securities | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | $ | | | | $ | | | | $ | | ) | | $ | | | | $ | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | |
| | |
| | |
| | | | | | | | $ | 257,132 | | | $ | 1,330 | | | $ | (158 | ) | | $ | 258,304 | | | $ | 17,243 | | | | | 254,404 | | | | 10 | | | | (1 | ) | | | 254,413 | | | | 12,173 | | Corporate debt securities | | | 76,129 | | | | 7,539 | | | | (53 | ) | | | 83,615 | | | | 39,896 | | | | | 8,413 | | | | 152 | | | | — | | | | 8,565 | | | | — | | U.S. government agency securities | | | 4,294 | | | | 46 | | | | (1 | ) | | | 4,339 | | | | 1,106 | | Certificates of deposit and time deposits | | | 979 | | | | — | | | | — | | | | 979 | | | | — | | Non-U.S. government securities | | | 625 | | | | — | | | | — | | | | 625 | | | | — | | | | | | | | | | | | | | | | | | | | | | | | | $ | 601,976 | | | $ | 9,077 | | | $ | (213 | ) | | $ | 610,840 | | | $ | 70,418 | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | |
| |
| | |
| | | | | | | | | | | $ | | | | $ | | | | $ | | ) | | $ | | | | $ | | | | $ | 522,228 | | | $ | 92 | | | $ | (40 | ) | | $ | 522,280 | | | $ | 61,806 | | Long-term marketable securities | | | | | | | | | | | | ) | | | | | | | | | | | 79,748 | | | | 8,985 | | | | (173 | ) | | | 88,560 | | | | 8,612 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | $ | | | | $ | | | | $ | | ) | | $ | | | | $ | | | | $ | 601,976 | | | $ | 9,077 | | | $ | (213 | ) | | $ | 610,840 | | | $ | 70,418 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | $ | | | | $ | | | | $ | | ) | | $ | | | | $ | | | | | | | | | | | | | | | ) | | | | | | | | | Corporate debt securities | | | | | | | | | | | | ) | | | | | | | | | U.S. government agency securities | | | | | | | | | | | | ) | | | | | | | | | Certificates of deposit and time deposits | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Non-U.S. government securities | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | $ | | | | $ | | | | $ | | ) | | $ | | | | $ | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | |
| | |
| | |
| | | | | | Corporate debt securities | | $ | 93,267 | | | $ | 4,081 | | | $ | (41 | ) | | $ | 97,307 | | | $ | 2,009 | | | | | 54,124 | | | | 26 | | | | (1 | ) | | | 54,149 | | | | 1,391 | | | | | 42,167 | | | | 431 | | | | (216 | ) | | | 42,382 | | | | 17,556 | | U.S. government agency securities | | | 9,942 | | | | 14 | | | | (4 | ) | | | 9,952 | | | | 3,043 | | | | | 6,753 | | | | 135 | | | | — | | | | 6,888 | | | | — | | Certificates of deposit and time deposits | | | 4,751 | | | | — | | | | — | | | | 4,751 | | | | — | | Non-U.S. government securities | | | 592 | | | | — | | | | — | | | | 592 | | | | — | | | | | | | | | | | | | | | | | | | | | | | | | $ | 211,596 | | | $ | 4,687 | | | $ | (262 | ) | | $ | 216,021 | | | $ | 23,999 | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | $ | | | | $ | | | | $ | | ) | | $ | | | | $ | | | Long-term marketable securities | | | | | | | | | | | | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | $ | | | | $ | | | | $ | | ) | | $ | | | | $ | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | |
| | |
| | |
| | | | | | | | $ | 137,144 | | | $ | 160 | | | $ | (1 | ) | | $ | 137,303 | | | $ | 2,922 | | Long-term marketable securities | | | 74,452 | | | | 4,527 | | | | (261 | ) | | | 78,718 | | | | 21,077 | | | | | | | | | | | | | | | | | | | | | | | | | $ | 211,596 | | | $ | 4,687 | | | $ | (262 | ) | | $ | 216,021 | | | $ | 23,999 | | | | | | | | | | | | | | | | | | | | | | |
As of December 31, 2020, the fair market value of investments with unrealized losses less than one year totaled $70.4 million. As of December 31, 2019, the fair market value of investments with unrealized losses $23.6 million.As of December 31, 2018, the fair market value of investments with unrealized losses totaled $192.0 million. Of this value, $28.5 million had unrealized losses of $1.6 million greater less than one year and $163.5 million had unrealized losses of $1.4 million for less than one year.totaled $23.6 million.
Teradyne reviews its investments to identify and evaluate investments that have an indication of possible impairment. Based on this review, Teradyne determined that the unrealized losses related to these investments at December 31, 2020 and 2019, and 2018, not other than temporary. The contractual maturities of investments in available-for-sale marketable securities held at December 31, 20192020 were as follows: | | | | | | | | | | | | | | | | | | | | | | $ | | | | $ | | | Due after 1 year through 5 years | | | | | | | | | Due after 5 years through 10 years | | | | | | | | | | | | | | | | | | | | | | | | | | | | | $ | | | | $ | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | $ | 522,228 | | | $ | 522,280 | | Due after 1 year through 5 years | | | 24,829 | | | | 25,245 | | Due after 5 years through 10 years | | | 13,030 | | | | 14,183 | | | | | 33,476 | | | | 40,567 | | | | | | | | | | | | | $ | 593,563 | | | $ | 602,275 | |
Contractual maturities of investments in available-for-sale marketable securities held at December 31, 20192020 exclude $6.9 million of debt mutual funds with the fair market value of $8.6 million as they do not have a contractual maturity date. Teradyne conducts business in a number of foreign countries, with certain transactions denominated in local currencies. The purpose of Teradyne’s foreign currency management is to minimize the effect of exchange rate fluctuations on certain foreign currency denominated monetary assets and liabilities. Teradyne does not use derivative financial instruments for trading or speculative purposes. To minimize the effect of exchange rate fluctuations associated with the remeasurement of monetary assets and liabilities denominated in foreign currencies, Teradyne enters into foreign currency forward contracts. The change in fair value of these derivatives is recorded directly in earnings, and is used to offset the change in value of the monetary assets and liabilities denominated in foreign currencies. At December 31, 20192020 and 2018,2019, Teradyne had the following contracts to buy and sell non-U.S. currencies for U.S. dollars and other non-U.S. currencies with the following notional amounts: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | $ | | ) | | $ | | | | $ | | ) | | $ | | ) | | $ | | | | $ | | ) | | | | | ) | | | | | | | | ) | | | | ) | | | | | | | | ) | | | | | ) | | | | | | | | ) | | | | ) | | | | | | | | ) | | | | | ) | | | | | | | | ) | | | | ) | | | | | | | | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | $ | | ) | | $ | | | | $ | | | | $ | | ) | | $ | | | | $ | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | |
| | |
| | |
| | |
| | |
| | | | | | | | $ | (14.1 | ) | | $ | — | | | $ | (14.1 | ) | | $ | (29.3 | ) | | $ | — | | | $ | (29.3 | ) | | | | (27.9 | ) | | | — | | | | (27.9 | ) | | | (18.4 | ) | | | — | | | | (18.4 | ) | | | | (5.3 | ) | | | — | | | | (5.3 | ) | | | (10.7 | ) | | | — | | | | (10.7 | ) | | | | (1.0 | ) | | | — | | | | (1.0 | ) | | | (3.8 | ) | | | — | | | | (3.8 | ) | | | | — | | | | 52.3 | | | | 52.3 | | | | — | | | | 25.3 | | | | 25.3 | | | | | — | | | | 43.9 | | | | 43.9 | | | | — | | | | 47.8 | | | | 47.8 | | | | | — | | | | 5.0 | | | | 5.0 | | | | — | | | | 5.2 | | | | 5.2 | | | | | — | | | | 3.4 | | | | 3.4 | | | | — | | | | 4.4 | | | | 4.4 | | | | $ | (48.3 | ) | | $ | 104.6 | | | $ | 56.3 | | | $ | (62.2 | ) | | $ | 82.7 | | | $ | 20.5 | | | | | | | | | | | | | | | | | | | | | | | | | | |
The fair value of the outstanding contracts was a loss of $0.4 million and a gain of $0.3 million and a loss of $0.4 million, respectively, at December 31, 20192020 and 2018.2019.Gains and losses on foreign currency forward contracts and foreign currency remeasurement gains and losses on monetary assets and liabilities are included in other (income) expense, net. The following table summarizes the fair value of derivative instruments as of December 31, 20192020 and 2018:2019: | | | | | | | | | | | | | | | | | | | | | | | | | | Derivatives not designated as hedging instruments: | | | | | | | | | | | Foreign exchange contracts | | | | $ | | | | $ | | | Foreign exchange contracts | | Other current liabilities | | | | ) | | | | ) | | | | | | | | | | | | | | | | $ | | | | $ | | ) | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | |
| | | | | | | | Derivatives not designated as hedging instruments: | | | | | | | | | | | Foreign exchange contracts | | Prepayments | | $ | 95 | | | $ | 528 | | Foreign exchange contracts | | Other current liabilities | | | (504 | ) | | | (203 | ) | | | | | $ | (409 | ) | | $ | 325 | |
The following table summarizes the effect of derivative instruments in the statements of operations recognized for the years ended December 31, 2020, 2019, 2018, and 2017.2018. | | | | | | | | | | | | | | | | | | Location of (Gains) Losses | | | | | | | | | | | | | | | | Derivatives not designated as hedging instruments: | | | | | | | | | | | | | | | | Foreign exchange contracts | | | Other (income) expense, net | | $ | | | | $ | | | | $ | | ) |
| | | | | | | | | | | | | | | | | Location of (Gains) Losses | | | | | | | | | | | | | | | | Derivatives not designated as hedging instruments: | | | | | | | | | | | | | | | Foreign exchange contracts | | Other (income) expense, net | | $ | 3,515 | | | $ | 5,960 | | | $ | 7,386 | |
| The table does not reflect the corresponding gains and losses from the remeasurement of the monetary assets and liabilities denominated in foreign currencies. |
(2) | For the years ended December 31, 2020, net losses from remeasurement of monetary assets and liabilities denominated in foreign currencies were $2.6million. |
(3) | For the year ended December 31, 2019 and 2018, net gains from the remeasurement of monetary assets and liabilities denominated in foreign currencies were $1.6 $1.6 million and $2.5 $2.5 million, respectively. |
(3) | For the year ended December 31, 2017, net losses from the remeasurement of monetary assets and liabilities denominated in foreign currencies were $ million. |
See Note J: “Debt” regarding derivatives related to the convertible senior notes. Concentration of Credit Risk Financial instruments which potentially subject Teradyne to concentrations of credit risk consist principally of cash equivalents, marketable securities, forward currency contracts and accounts receivable. Teradyne’s cash equivalents consist primarily of money market funds invested in U.S. Treasuries and government agencies. Teradyne’s fixed income available-for-sale marketable securities have a minimum rating of AA by one or more of the major credit rating agencies. Teradyne places foreign currency forward contracts with high credit-quality financial institutions in order to minimize credit risk exposure. Concentrations of credit risk with respect to accounts receivable are limited due to the large number of geographically dispersed customers. Teradyne performs ongoing credit evaluations of its customers’ financial condition and from time to time may require customers to provide a letter of credit from a bank to secure accounts receivable. As of December 31, 2020, a customer of our Semiconductor Test segment, JA Mitsui Leasing, LTD, accounted for 25% of our accounts receivable balance. The balance was paid in full as of February 22, 2021. There were no customers who accounted for 10% or more of Teradyne’sour accounts receivable balance as of December 31, 2019 and 2018.2019.On January 1, 2019, Teradyne adopted ASC 842 using the modified retrospective approach. Under this method of adoption, the comparative information in the consolidated financial statements has not been revised
and continues to be reported under the previously applicable lease accounting guidance (ASC 840). Adoption of ASC 842 resulted in recording ROU assets and lease liabilities of approximately $50.1 million and $54.3 million, respectively. The adoption of ASC 842 did not have a material impact on beginning retained earnings, the consolidated statement of operations, cash flows, or earnings per share.
Teradyne has facility and auto leases, which are accounted for as operating leases. Teradyne’s facility leases are primarily used for administrative functions, research and development, manufacturing, and storage and distribution. Remaining lease terms range from less than one year to twelve years.
Total lease expense for the year ended December 31, 2020 was $38.5 million and included $12.1 million of variable lease costs and $3.4 million of costs related to short-term leases, which are not recorded on the consolidated balance sheets. Total lease expense for the year ended December 31, 2019 was $35.6 million and included $11.1 million of variable lease costs and $2.6 million of costs related to short-term leases, ,
which are not recorded on the consolidated balance sheets. At December 31, 2020, the weighted average remaining lease term and weighted average discount rate for operating leases was 4.2 years and 4.8%, respectively. At December 31, 2019, the weighted average remaining lease term and weighted average discount rate for operating leases was 4.5 years and 5.0%, respectively. Supplemental cash flowflows information related to leases was as follows: | | | | | | | | | | | | | | | | | Cash paid for amounts included in the measurement of lease liabilities included in operating cash flows | | $ | | | Right-of-use assets obtained in exchange for new lease obligations | | | | |
| | | | | | | For the Year Ended December 31, 2020 | | Cash paid for amounts included in the measurement of lease liabilities included in operating cash flows: | | $ | 24,136 | | Right-of-use assets obtained in exchange for new lease obligations | | | 14,801 | |
Maturities of lease liabilities as of December 31, 20192020 were as follows: As of December 31, 2018, futurenon-cancelable
rent obligations as determined under ASC 840 were as follows:
| | | | | | | | | | | | | | | $ | 22,451 | | | | | 16,798 | | | | | 9,727 | | | | | 7,215 | | | | | 5,715 | | | | | 6,149 | | | | | | | | | | 68,055 | | | | | (5,409 | ) | | | | | | | | $ | 62,646 | | | | | | |
On December 12, 2016, Teradyne completed a private offering of $460.0 million aggregate principal amount of 1.25% convertible senior unsecured notes (the “Notes”) due December 15, 2023 and received net proceeds, after issuance costs, of approximately $ 450.8$450.8 million, $ 33.0$33.0 million of which was used to pay the net cost of the convertible note hedge transactions and $ 50.1$50.1 million of which was used to repurchase 2.0 million shares of Teradyne’s Teradyne’s common stock under its existing stock repurchase program from purchasers of the Notes in privately negotiated transactions effected through one of the initial purchasers or its affiliates conducted concurrently with the pricing of the Note offering. The Notes will mature on December
15, ,
2023, , unless earlier repurchased or converted. The Notes bear interest at a rate of 1.25% 1.25% per year
payable semiannually in arrears on June 15 and December 15 of each year.year. The Notes will be convertible at the option of the
noteholders at any time prior to the close of business on the business day immediately preceding September 15, 2023, , only under the following circumstances:
(1) during any calendar quarter beginning after March 31, ,
2017 (and (and only during such calendar quarter), if the closing sale price of
Teradyne’s Teradyne’s common stock, for at least
20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter is greater than 130% 130% of the conversion price on each applicable trading day;
(2) during the 5 business day period after any 5 consecutive trading day period (the “measurement period”) in which the trading price (as defined in the Indenture) per $ 1,000$1,000 principal amount of Notes for each trading day of the measurement period was less than 98% 98% of the product of the closing sale price of the
Teradyne’s Teradyne’s common stock and the conversion rate on each such trading day; and
(3) upon the occurrence of specified corporate events. On or after September 15, ,
2023 until the close of business on the second scheduled trading day immediately preceding the maturity date, holders may convert their Notes at any time, regardless of the foregoing circumstances. Teradyne may satisfy its conversion obligation by paying or delivering cash, shares of its common stock or a combination of cash and shares of its common stock, at Teradyne’s Teradyne’s election. As of December
31, ,
2019, 2020, the conversion price was approximately $
31.62$31.56 per share of Teradyne’s Teradyne’s common stock. The conversion rate is subject to adjustment under certain circumstances. As of February 22, 2021, NaN holders had exercised the option to convert $51.0 million worth of notes.
Concurrent with the offering of the Notes, Teradyne entered into convertible note hedge transactions (the “Note Hedge Transactions”) with the initial purchasers or their affiliates (the “Option Counterparties”). The Note Hedge Transactions cover, subject to customary anti-dilution adjustments, the number of shares of the common stock that underlie the Notes, with a strike price equal to the conversion price of the Notes of $31.62.$31.56. The Note Hedge Transactions cover, subject to customary anti-dilution adjustments, approximately 14.514.6 million shares of Teradyne’s common stock. Separately and concurrent with the pricing of the Notes, Teradyne entered into warrant transactions with the Option Counterparties (the “Warrant Transactions”) in which it sold net-share-settled (or, (or, at its election subject to certain conditions, cash-settled) warrants to the Option Counterparties. The Warrant Transactions cover, subject to customary anti-dilution adjustments, approximately 14.514.6 million shares of common stock. As of December 31, 2019,2020, the strike price of the warrants was approximately $39.68$39.60 per share. The strike price is subject to adjustment under certain circumstances. The Warrant Transactions could have a dilutive effect to Teradyne’s common stock to the extent that the market price per share of Teradyne’s common stock, as measured under the terms of the Warrant Transactions, exceeds the applicable strike price of the warrants. The Note Hedge Transactions are expected to reduce the potential dilution to Teradyne’s common stock upon any conversion of the Notes. However, the Warrant Transactions could separately have a dilutive effect to the extent that the market value per share of Teradyne’s common stock exceeds the applicable strike price of the warrant. The net cost of the Note Hedge Transactions, after being partially offset by the proceeds from the sale of the warrants, was approximately $33.0 million. In connection with establishing their initial hedge of these convertible note hedge and warrant transactions, the Option Counterparties have entered into various derivative transactions with respect to Teradyne’s common
stock and/or purchased shares of Teradyne’s common stock or other securities, including the Notes, concurrent with, or shortly after, the pricing of the Notes. In addition, the Option Counterparties may modify their hedge positions by entering into or unwinding various derivative transactions with respect to Teradyne’s common stock or by selling Teradyne’s common stock or other securities, including the Notes, in secondary market transactions (and may do so during any observation period related to the conversion of the Notes). These activities could adversely affect the value of Teradyne’s common stock and the Notes. Teradyne considered the guidance of ASC 815-40, “Derivatives and Hedging—Contracts in Entity’s Own Equity,” and concluded that the convertible note hedge is both indexed to Teradyne’s stock and should be classified in stockholders’ equity in its statements of financial position. The convertible note hedge is considered indexed to Teradyne’s stock as the terms of the Note Hedge Transactions do not contain an exercise contingency and the settlement amount equals the difference between the fair value of a fixed number of Teradyne’s shares and a fixed strike price. Because the only variable that can affect the settlement amount is Teradyne’s stock price, which is an input to the fair value of a fixed-for-fixed option contract, the convertible note hedge is considered indexed to Teradyne’s stock.
Teradyne assessed whether the convertible note hedge should be classified as equity under ASC 815-40. In the Note Hedge Transactions contract the settlement terms permit net cash settlement or net share settlement, at the option of Teradyne. Therefore, the criteria as set forth in ASC 815-40 were evaluated by Teradyne. In reviewing the criteria, Teradyne noted the following: (1) the convertible note hedge does not require Teradyne to issue shares; (2) there is no requirement to net cash settle the convertible note hedge for failure to make timely filings with the SEC; (3) in the case of termination, the convertible note hedge is settled in the same consideration as the holders of the underlying stock; (4) the counterparty does not have rights that rank higher than those of a shareholder of the stock underlying the convertible note hedge; and (5) there is no requirement to post collateral. Based on its analysis of those criteria, Teradyne concluded that the convertible note hedge should be recorded in equity and no further adjustment should be made in future periods to adjust the value of the convertible note hedge. Teradyne analyzed the Warrant Transactions under ASC 815-40, “Derivatives and Hedging—Contracts in Entity’s Own Equity,” and other relevant literature, and determined that it met the criteria for classification as an equity transaction and is considered indexed to Teradyne’s stock. As a result, Teradyne recorded the proceeds from the warrants as an increase to additional paid-in capital. Teradyne does not recognize subsequent changes in fair value of the warrants in its financial statements. The provisions of ASC 470-20, “ Debt with Conversion and Other Options, ” are applicable to the Notes. ASC 470-20 requires Teradyne to separately account for the liability (debt) and equity (conversion feature) components of the Notes in a manner that reflects Teradyne’s nonconvertible debt borrowing rate at the date of issuance when interest cost is recognized in subsequent periods. Teradyne allocated $100.8 million of the $460.0 million principal amount of the Notes to the equity component, which represents a discount to the debt and will be amortized to interest expense using the effective interest method through December 2023. Accordingly, Teradyne’s effective annual interest rate on the Notes will be approximately 5.0%. The Notes are classified as long-term debt in on the balance sheet based on their December 15, 2023 maturity date. Debt issuance costs of approximately $7.2 million are being amortized to interest expense using the effective interest method over the seven-year term of the Notes. As of December 31, 2019,2020, debt issuance costs were approximately $4.3$3.3 million.
The below tables representsrepresent the key components of Teradyne’s convertible senior notes: | | | | | | | | | | | | | | | | | | | | | | $ | | | | $ | | | | | | | | | | | | | | | | | | | | | Net c arrying amount of convertible debt | | $ | | | | $ | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | $ | 459,971 | | | $ | 460,000 | | | | | 49,860 | | | | 65,313 | | | | | | | | | | | Net carrying amount of convertible debt | | $ | 410,111 | | | $ | 394,687 | | | | | | | | | | |
Reported as follows: | | | | | | | | | | | | | | | | | | | | | | $ | 33,343 | | | $ | — | | | | | 376,768 | | | | 394,687 | | | | | | | | | | | Net carrying amount of convertible debt | | $ | 410,111 | | | $ | 394,687 | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | Contractual interest expense on the coupon | | $ | | | | $ | | | Amortization of the discount component and debt issue fees recognized as interest expense | | | | | | | | | | | | | | | | | | Total interest expense on the convertible debt | | $ | | | | $ | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | Contractual interest expense on the coupon | | $ | 5,750 | | | $ | 5,750 | | Amortization of the discount component and debt issue fees recognized as interest expense | | | 15,454 | | | | 14,706 | | | | | | | | | | | Total interest expense on the convertible debt | | $ | 21,204 | | | $ | 20,456 | | | | | | | | | | |
As of December 31, 2019,2020, the unamortized discount was $65.3$49.9 million, which will be amortized over fourthree years using the effective interest rate method. The carrying amount of the equity component was $100.8 million. As of December 31, 2019,2020, the conversion price was approximately $31.62 $31.56 per share and if converted the value of the notes was $992.0$1,747.5 million. As of December 31, 2020, certain holders have elected to convert approximately $37 million of debt principal. Conversions will occur in the first quarter of 2021. The related liability component is included in current debt and the portion of the equity component is included in convertible common shares. Revolving Credit Facility On June 27, 2019, Teradyne terminated its credit agreement, which Teradyne entered into with Barclays Bank PLC on April 27, 2015. The terminated credit agreement, , which was undr
was undrawn at ter termination, provided for a five-year, senior secured revolving credit facility of up to $350 million. $
35077On May 1, 2020, Teradyne entered into a credit agreement (the “Credit Agreement”) with Truist Bank, as administrative agent and collateral agent, and the lenders party thereto. The Credit Agreement provides for a three-year, senior secured revolving credit facility of $400.0 million (the “Credit Facility”). The Credit Agreement further provides that, subject to customary conditions, Teradyne may seek to obtain from existing or new lenders incremental commitments under the Credit Facility in an aggregate principal amount not to exceed $150.0 million.The interest rate applicable to loans under the Credit Facility are, at Teradyne’s option, equal to either a base rate plus a margin ranging from 0.50% to 1.25% per annum or LIBOR, a minimum of 0.75%, plus a margin ranging from 1.50% to 2.25% per annum, based on the consolidated leverage ratio of Teradyne. In addition, Teradyne will pay a commitment fee on the unused portion of the commitments under the Credit Facility ranging from 0.25% to 0.40% per annum, based on the then applicable consolidated leverage ratio. Teradyne is not required to repay any loans under the Credit Facility prior to maturity, subject to certain customary exceptions. Teradyne is permitted to prepay all or any portion of the loans under the Credit Facility prior to maturity without premium or penalty, other than customary LIBOR breakage costs. The Credit Agreement contains customary events of default, representations, warranties and affirmative and negative covenants that, among other things, limit Teradyne’s ability to sell assets, grant liens on assets, incur other secured indebtedness and make certain investments and restricted payments, all subject to exceptions set forth in the Credit Agreement. The Credit Agreement also requires Teradyne to satisfy two financial ratios measured as of the end of each fiscal quarter; a consolidated leverage ratio and an interest coverage ratio. The Credit Facility is guaranteed by certain of Teradyne’s domestic subsidiaries and collateralized by assets of Teradyne and such subsidiaries, including a pledge of 65% of the capital stock of certain foreign subsidiaries. As of December 31, 2020, Teradyne was in compliance with all covenants under the Credit Agreement. K. ACCUMULATED OTHER COMPREHENSIVE (LOSS) INCOME Changes in accumulated other comprehensive (loss) income, which is presented net of tax, consist of the following: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Balance at December 31, 2017, net of tax of $0, $1,815, $(932) | | $ | | | | $ | | | | $ | | | | $ | | | | | | | | | | | | | | | | | | | | Other comprehensive loss before reclassifications, net of tax of $0, $(722), $0 | | | | ) | | | | ) | | | | | | | | ) | Amounts reclassified from accumulated other comprehensive income, net of tax of $0, $(21), $(71) | | | | | | | | | | | | ) | | | | | | | | | | | | | | | | | | | | | | Net current period other comprehensive loss , net of tax of $0, $(743), $(71) | | | | ) | | | | ) | | | | ) | | | | ) | | | | | | | | | | | | | | | | | | Reclassification of tax effects resulting f rom the Tax Reform Act, net of tax of $0, $(691), $(78), respectively (a) | | | | | | | | | | | | | | | | | Reclassification of unrealized gains on equity securities, net of tax of $0, $(902), $0, respectively, (b) | | | | | | | | ) | | | | | | | | ) | | | | | | | | | | | | | | | | | | Balance at December 31, 2018, net of tax of $0, $(521), $(1,081) | | | | ) | | | | ) | | | | | | | | ) | | | | | | | | | | | | | | | | | | Other comprehensive (loss) income before reclassifications, net of tax of $0, $1,659, $0 | | | | ) | | | | | | | | | | | | ) | Amounts reclassified from accumulated other comprehensive income, net of tax of $0, $(192), $(43) | | | | | | | | ) | | | | ) | | | | ) | | | | | | | | | | | | | | | | | | Net current period other comprehensive (loss) income, net of tax of $0, $1,467, $(43) | | | | ) | | | | | | | | ) | | | | ) | | | | | | | | | | | | | | | | | | Balance at December 31, 2019, net of tax of $0, $946, $(1,124) | | $ | | ) | | $ | | | | $ | | | | $ | | ) | | | | | | | | | | | | | | | | | |
(a) | In the year ended December 31, 2018, Teradyne early adopted ASU2018-02,
“Income Statement—Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income.”
As a result, the stranded tax effects resulting from the Tax Reform Act enacted in December 2017 were reclassified from accumulated other comprehensive income to retained earnings. |
(b) | In the year ended December 31, 2018, Teradyne adopted ASU2016-01,
“Financial Instruments—Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities
.” See Note B: “Accounting Policies.” |
| | | | | | | | | | | | | | | | | | |
| | |
| | |
| | | | | | | | | Balance at December 31, 2018, net of tax of $0, $(521), $(1,081) | | $ | (12,523 | ) | | $ | (1,845 | ) | | $ | 1,328 | | | $ | (13,040 | ) | | | | | | | | | | | | | | | | | | Other comprehensive (loss) income before reclassifications, net of tax of $0, $1,659, $0 | | | (10,991 | ) | | | 6,015 | | | | 0 | | | | (4,976 | ) | Amounts reclassified from accumulated other comprehensive income, net of tax of $0, $(192), $(43) | | | 0 | | | | (690 | ) | | | (148 | ) | | | (838 | ) | | | | | | | | | | | | | | | | | | Net current period other comprehensive (loss) income, net of tax of $0, $1,467, $(43) | | | (10,991 | ) | | | 5,325 | | | | (148 | ) | | | (5,814 | ) | | | | | | | | | | | | | | | | | | Balance at December 31, 2019, net of tax of $0, $946, $(1,124) | | $ | (23,514 | ) | | $ | 3,480 | | | $ | 1,180 | | | $ | (18,854 | ) | | | | | | | | | | | | | | | | | | Other comprehensive income before reclassifications, net of tax of $0, $1,629, $0 | | | 48,903 | | | | 5,839 | | | | 0 | | | | 54,742 | | Amounts reclassified from accumulated other comprehensive income, net of tax of $0, $(665), $(2) | | | 0 | | | | (2,365 | ) | | | (7 | ) | | | (2,372 | ) | | | | | | | | | | | | | | | | | | Net current period other comprehensive income (loss), net of tax of $0, $964, $(2) | | | 48,903 | | | | 3,474 | | | | (7 | ) | | | 52,370 | | | | | | | | | | | | | | | | | | | Balance at December 31, 2020, net of tax of $0, $1,910, $(1,126) | | $ | 25,389 | | | $ | 6,954 | | | $ | 1,173 | | | $ | 33,516 | | | | | | | | | | | | | | | | | | |
Reclassifications out of accumulated other comprehensive income to the statements of operations for the years ended December 31, 2020, 2019, 2018, and 2017,2018, were as follows: | | | | | | | | | | | | | | | | | Details about Accumulated Other Comprehensive Income | | | | | | | | | | | | | | | | | | | | | | | | | | | Available-for-sale marketable securities | | | | | | | | | | | | | | | | | Unrealized gains (losses), net of tax of $192, $21, $297 | | $ | | | | $ | | ) | | $ | | | | | Interest income (expense) | | Defined benefit pension and postretirement plans: | | | | | | | | | | | | | | | | | Amortization of prior service benefit, net of tax of $43, $71, $154 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total reclassifications, net of tax of $235, $92, $451 | | $ | | | | $ | | ) | | $ | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | Details about Accumulated Other Comprehensive Income | | | | |
| | | |
| | |
| | |
| | | | | | | | | | | | Available-for-sale marketable securities | | | | | | | | | | | | | | | | | Unrealized gains (losses), net of tax of $665, $192, $21 | | $ | 2,365 | | | $ | 690 | | | $ | (1,337 | ) | | | Interest income (expense) | | Defined benefit pension and postretirement plans: | | | | | | | | | | | | | | | | | Amortization of prior service benefit, net of tax of $2, $43, $71 | | | 7 | | | | 148 | | | | 245 | | | | (a) | | | | | | | | | | | | | | | | | | | Total reclassifications, net of tax of $667, $235, $92 | | $ | 2,372 | | | $ | 838 | | | $ | (1,092 | ) | | | Net income | | | | | | | | | | | | | | | | | | |
| The amortization of prior service credit is included in the computation of net periodic pension cost and postretirement benefit; see Note P: “Retirement Plans.” |
L. GOODWILL AND INTANGIBLE ASSETS Teradyne performs its annual goodwill impairment test as required under the provisions of ASC 350-10, “ Intangibles—Goodwill and Other, ” on December 31 of each fiscal year unless interim indicators of impairment exist. Goodwill is considered to be impaired when the net book value of a reporting unit exceeds its estimated fair value. Teradyne has the option to perform a qualitative assessment (“Step zero”) to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If Teradyne determines this is the case, Teradyne is required to perform thetwo-step a quantitative goodwill impairment test to identify potential goodwill impairment and measure the amount of goodwill impairment loss to be recognized. If Teradyne determines that it is more likely than not that the fair value of the reporting unit is greater than its carrying amounts, the two-step quantitative goodwill impairment test is not required. When performing thetwo-step
process, the first step involves a comparison of the estimated fair value of a reporting unit to its carrying amount, including goodwill. In performing the first step,quantitative goodwill impairment test, Teradyne determines the fair value of a reporting unit using the results derived from an income approach and a market approach, , weighting the fair value determined under each approach to determine an estimated fair value .reporting unit. The income approach is estimated through the discounted cash flowflows (“DCF”) analysis. Determining fair value requires the exercise of significant judgment, including judgments about appropriate discount rates, perpetual growth rates, and the amount and timing of expected future cash flows. Discount rates are based on a weighted average cost of capital (“WACC”), which represents the average rate a business must pay its providers of debt and equity, plus a risk premium. The WACC used to test goodwill is derived from a group of comparable companies. The cash flows employed in the DCF analysis are derived from internal forecasts and external market forecasts. The market approach estimates the fair value of the reporting unit by utilizing the market comparable method which is based on revenue and earnings multiples from comparable companies. If the estimated fair value of a reporting unit exceeds its carrying amount, goodwill of the reporting unit is not impaired and the second step of the impairment test is not necessary.impaired. If the carrying amount of a reporting unit exceeds its estimated fair value, then the second step of the goodwill impairment test must be performed. The second step of the goodwill impairment test compares the implied fair value of the reporting unit’s goodwill with its carrying amount of goodwill to measureis written down by the amount of impairment loss, if any. The implied fairthat carrying value of goodwill is determined in the same manner as the amount of goodwill recognized in a
business combination, whereby the estimated fair value of the reporting unit is allocated to all of the assets and
liabilities of that unit (including any unrecognized intangible assets) as if the reporting unit had been acquired ina business combination andexceeds the fair value of the reporting unit, wasbut not below zero.
On September 15, 2020, Teradyne announced the purchase price paid. Ifappointment of Gregory Smith as President of Teradyne’s Industrial Automation reportable segment effective October 1, 2020. With the carrying amountappointment of Gregory Smith, the Industrial Automation reportable segment, which includes UR, MiR and AutoGuide, is considered one operating segment and one reporting unit. Teradyne performed a goodwill impairment test at the time of the reporting unit’s goodwill exceedschange in operating segments, which indicated the implied fair value of that goodwill, an impairment loss is recognized in an amount equal to that excess. Teradyne’s reporting units exceeded their carrying values. In the fourth quarter of 2019
,2020, Teradyne performed the annual goodwill impairment test. Teradyne completed step one of thetwo-step
impairment test, for the Universal Robots, MiR and Energid
reportingunits
. Teradyne completed step zerocompleting a qualitative assessment for the Wireless Test, ,
Defense/Aerospace System Test, and AutoGuide Industrial Automation reporting units. There was no impairment as a result of the annual test performed in the fourth quarter of 20192020. Key assumptions in the goodwill valuation model are forecasted revenues, discount rate, earnings before interest and taxes, and revenue multiples from comparable companies. A change in any of these key assumptions could result in the reporting unit being impaired in a future period.
. Based on Teradyne’s December 31, 2019 goodwill impairment test, the MiR reporting unit’s estimated fair value exceeded its carrying value by 14%. The MiR goodwill amount is $123.6 million as of December 31, 2019. Key assumptions in the goodwill valuation model are forecasted revenues, discount rate, earnings before interest and taxes, and revenue multiples from comparable companies. A change in any of these key assumptions could result in the reporting unit being impaired in a future period. In the fourth quarter of 2018
,2018, Teradyne performed the annual goodwill impairment test. Teradyne completed step one of the two-step impairment test for the Universal Robots reporting unit. Teradyne completed step zero for the Wireless Test and Defense/Aerospace, , Energid reporting units. There was no impairment as a result of the annual test performed in the fourth quarter of 20182018.
.
The changes in the carrying amount of goodwill by reportable segments for the years ended December 31, 20192020 and 20182019 are as follows: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Balance at December 31, 2017: | | | | | | | | | | | | | | | | | | | | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | Accumulated impairment losses | | | | | | | | ) | | | | ) | | | | ) | | | | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Foreign currency translation adjustment | | | | ) | | | | | | | | | | | | | | | | ) | | | | | | | | | | | | | | | | | | | | | | Balance at December 31, 2018: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Accumulated impairment losses | | | | | | | | ) | | | | ) | | | | ) | | | | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Foreign currency translation adjustment | | | | ) | | | | | | | | | | | | | | | | ) | | | | | | | | | | | | | | | | | | | | | | Balance at December 31, 2019: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Accumulated impairment losses | | | | | | | | ) | | | | ) | | | | ) | | | | ) | | | | | | | | | | | | | | | | | | | | | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
| | |
| | |
| | |
| | | | | | | | | Balance at December 31, 2018: | | | | | | | | | | | | | | | | | | | | | | | $ | 363,358 | | | $ | 361,819 | | | $ | 260,540 | | | $ | 158,699 | | | $ | 1,144,416 | | Accumulated impairment losses | | | — | | | | (353,843 | ) | | | (260,540 | ) | | | (148,183 | ) | | | (762,566 | ) | | | | | | | | | | | | | | | | | | | | | | | | | 363,358 | | | | 7,976 | | | | — | | | | 10,516 | | | | 381,850 | | | | | — | | | | — | | | | 1,428 | | | | — | | | | 1,428 | | | | | 41,372 | | | | — | | | | — | | | | — | | | | 41,372 | | Foreign currency translation adjustment | | | (8,247 | ) | | | — | | | | 28 | | | | — | | | | (8,219 | ) | | | | | | | | | | | | | | | | | | | | | | Balance at December 31, 2019: | | | | | | | | | | | | | | | | | | | | | | | | 396,483 | | | | 361,819 | | | | 261,996 | | | | 158,699 | | | | 1,178,997 | | Accumulated impairment losses | | | — | | | | (353,843 | ) | | | (260,540 | ) | | | (148,183 | ) | | | (762,566 | ) | | | | | | | | | | | | | | | | | | | | | | | | | 396,483 | | | | 7,976 | | | | 1,456 | | | | 10,516 | | | | 416,431 | | | | | (149 | ) | | | — | | | | — | | | | — | | | | (149 | ) | Foreign currency translation adjustment | | | 37,418 | | | | — | | | | 159 | | | | — | | | | 37,577 | | | | | | | | | | | | | | | | | | | | | | | Balance at December 31, 2020: | | | | | | | | | | | | | | | | | | | | | | | | 433,752 | | | | 361,819 | | | | 262,155 | | | | 158,699 | | | | 1,216,425 | | Accumulated impairment losses | | | — | | | | (353,843 | ) | | | (260,540 | ) | | | (148,183 | ) | | | (762,566 | ) | | | | | | | | | | | | | | | | | | | | | | | | $ | 433,752 | | | $ | 7,976 | | | $ | 1,615 | | | $ | 10,516 | | | $ | 453,859 | | | | | | | | | | | | | | | | | | | | | | |
Teradyne reviews long-lived assets for impairment whenever events or changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverable or that the useful lives of these assets are no longer appropriate. There were no events or circumstances indicating that the carrying value of intangible and long-lived assets may not be recoverable in 2020, 2019 , 2018
and 2017
. 2018.Amortizable intangible assets consist of the following and are included in intangible assets, net on the balance sheets: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Foreign Currency Translation Adjustment | | | | | | | | | | | $ | | | | $ | | ) | | $ | | ) | | $ | | | | | | | | | | | ) | | | | ) | | | | | Tradenames and trademarks | | | | | | | | ) | | | | ) | | | | | | | | | | | | | ) | | | | | | | | | | | $ | | | | $ | | ) | | $ | | ) | | $ | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | Foreign Currency Translation Adjustment | | | | | | | | | | | $ | | | | $ | | ) | | $ | | ) | | $ | | | | | | | | | | | ) | | | | ) | | | | | Tradenames and trademarks | | | | | | | | ) | | | | ) | | | | | | | | | | | | | ) | | | | | | | | | | | | | | | | | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | $ | | | | $ | | ) | | $ | | ) | | $ | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
| | |
| | | Foreign Currency Translation Adjustment | | |
| | | | | | | | $ | 272,547 | | | $ | (210,479 | ) | | $ | (1,610 | ) | | $ | 60,458 | | | | | 66,239 | | | | (54,524 | ) | | | 305 | | | | 12,020 | | Tradenames and trademarks | | | 70,120 | | | | (42,344 | ) | | | 685 | | | | 28,461 | | | | | | | | | | | | | | | | | | | | | $ | 408,906 | | | $ | (307,347 | ) | | $ | (620 | ) | | $ | 100,939 | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
| | |
| | | Foreign Currency Translation Adjustment | | |
| | | | | | | | $ | 361,787 | | | $ | (279,000 | ) | | $ | (5,709 | ) | | $ | 77,078 | | | | | 75,669 | | | | (59,077 | ) | | | (455 | ) | | | 16,137 | | Tradenames and trademarks | | | 70,120 | | | | (36,671 | ) | | | (1,184 | ) | | | 32,265 | | | | | 260 | | | | (260 | ) | | | — | | | | — | | | | | | | | | | | | | | | | | | | | | $ | 507,836 | | | $ | (375,008 | ) | | $ | (7,348 | ) | | $ | 125,480 | | | | | | | | | | | | | | | | | | |
(1) | Includes intangible assets acquired in 2019, $37.7 million from the AutoGuide
acquisition and $4.6 million from the Lemsys
acquisition. |
(2) | In 2019, $32.72020, $98.9 million of amortizable intangible assets became fully amortized and have been eliminated from the gross carrying amount and accumulated amortization. |
Aggregate intangible assets amortization expense for the years ended December 31, 2020, 2019, and 2018, and 2017, was $30.8 million, $40.1 million, $39.2 million, and $30.5$39.2 million, respectively. Estimated intangible assets amortization expense for each of the five succeeding fiscal years is as follows:
| | | | | | | | | | | | | | | $ | 21,893 | | | | | 21,000 | | | | | 20,504 | | | | | 20,192 | | | | | 11,922 | | | | | 5,428 | |
M. COMMITMENTS AND CONTINGENCIES As of December 31, 2019,2020, Teradyne had entered into non-cancelable purchase commitments for certain components and materials. The purchase commitments covered by the agreements aggregate to approximately $415.6$603.5 million, of which $412.9$592.1 million is for less than one year. Teradyne is subject to legal proceedings, claims and investigations that arise in the ordinary course of business such as, but not limited to, patent, employment, commercial and environmental matters. Teradyne believes that it has meritorious defenses against all pending claims and intends to vigorously contest them. While it is not possible to predict or determine the outcomes of any pending claims or to provide possible ranges of losses that may arise, Teradyne believes the potential losses associated with all of these actions are unlikely to have a material adverse effect on its business, financial position or results of operations. Guarantees and Indemnification Obligations Teradyne provides indemnification, to the extent permitted by law, to its officers, directors, employees and agents for liabilities arising from certain events or occurrences, while the officer, director, employee, or agent, is or was serving, at Teradyne’s request in such capacity. Teradyne has enteredmay enter into indemnification agreements with certain of its officers and directors. With respect to acquisitions, Teradyne provides indemnifications to or assumes indemnification obligations for the current and former directors, officers and employees of the acquired companies in accordance with the acquired companies’ by-laws and charter. As a matter of practice, Teradyne has maintained directors’ and officers’ liability insurance coverage including coverage for directors and officers of acquired companies.
Teradyne enters into agreements in the ordinary course of business with customers, resellers, distributors, integrators and suppliers. Most of these agreements require Teradyne to defend and/or indemnify the other party against intellectual property infringement claims brought by a third party with respect to Teradyne’s products. From time to time, Teradyne also indemnifies customers and business partners for damages, losses and liabilities they may suffer or incur relating to personal injury, personal property damage, product liability, breach of confidentiality obligations and environmental claims relating to the use of Teradyne’s products and services or resulting from the acts or omissions of Teradyne, its employees, authorized agents or subcontractors. On occasion, Teradyne has also provided guarantees to customers regarding the delivery and performance of its products in addition to the warranty described below. As a matter of ordinary course of business, Teradyne warrants that its products will substantially perform in accordance with its standard published specifications in effect at the time of delivery. Most warranties have a one-year one-year duration commencing from installation. A provision is recorded upon revenue recognition to cost of revenue for estimated warranty expense based upon historical experience. When Teradyne receives revenue for extended warranties beyond the standard duration, the revenue is deferred and recognized on a straight-
linestraight-line basis over the contract period. Related costs are expensed as incurred. As of December 31, 2020, and 2019, and 2018,
Teradyne had a product warranty accrual of $9.0$16.6 million and $7.9$9.0 million, respectively, included in other accrued liabilities, and revenue deferrals related to extended warranties of $30.7$51.9 million and $27.4$30.7 million, respectively, included in short and long-term deferred revenue and customer advances. In addition, in the ordinary course of business, Teradyne provides minimum purchase guarantees to certain vendors to ensure continuity of supply against the market demand. Although some of these guarantees provide penalties for cancellations and/or modifications to the purchase commitments as the market demand decreases, most of the guarantees do not. Therefore, as the market demand decreases, Teradyne re-evaluates these guarantees and determines what charges, if any, should be recorded.
With respect to its agreements covering product, business or entity divestitures and acquisitions, Teradyne provides certain representations, warranties and covenants to purchasers and agrees to indemnify and hold such purchasers harmless against breaches of such representations, warranties and covenants. Many of the indemnification claims have a definite expiration date while some remain in force indefinitely. With respect to its acquisitions, Teradyne may, from time to time, assume the liability for certain events or occurrences that took place prior to the date of acquisition. As a matter of ordinary course of business, Teradyne occasionally guarantees certain indebtedness obligations of its subsidiary companies, limited to the borrowings from financial institutions, purchase commitments to certain vendors, and lease commitments to landlords. Based on historical experience and information known as of December 31, 2019,2020, and 2018,2019, except for product warranty, Teradyne has not recorded any liabilities for these guarantees and obligations because the amount would be immaterial.
N. NET INCOME PER COMMON SHARE The following table sets forth the computation of basic and diluted net income per common share: | | | | | | | | | | | | | | | | | | | | | | | | | (in thousands, except per share amounts) | | Net income for basic and diluted net income per share | | $ | | | | $ | | | | $ | | | | | | | | | | | | | | | | Weighted average common shares-basic | | | | | | | | | | | | | Effect of dilutive potential common shares: | | | | | | | | | | | | | Incremental shares from assumed conversion of convertible notes (1) | | | | | | | | | | | | | Convertible note hedge warrant shares (2) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Employee stock purchase rights | | | | | | | | | | | | | | | | | | | | | | | | | | Dilutive potential common shares | | | | | | | | | | | | | | | | | | | | | | | | | | Weighted average common shares-diluted | | | | | | | | | | | | | | | | | | | | | | | | | | Net income per common share-basic | | $ | | | | $ | | | | $ | | | | | | | | | | | | | | | | Net income per common share-diluted | | $ | | | | $ | | | | $ | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | (in thousands, except per share amounts) | | | | | | Net income for basic and diluted net income per share | | $ | 784,147 | | | $ | 467,468 | | | $ | 451,779 | | | | | | | | | | | | | | | Weighted average common shares-basic | | | 166,120 | | | | 170,425 | | | | 187,672 | | Effect of dilutive potential common shares: | | | | | | | | | | | | | Incremental shares from assumed conversion of convertible notes (1) | | | 8,528 | | | | 4,909 | | | | 2,749 | | Convertible note hedge warrant shares (2) | | | 6,989 | | | | 2,698 | | | | 485 | | | | | 1,264 | | | | 1,236 | | | | 1,385 | | | | | 131 | | | | 178 | | | | 278 | | Employee stock purchase rights | | | 10 | | | | 13 | | | | 36 | | | | | | | | | | | | | | | Dilutive potential common shares | | | 16,922 | | | | 9,034 | | | | 4,933 | | | | | | | | | | | | | | | Weighted average common shares-diluted | | | 183,042 | | | | 179,459 | | | | 192,605 | | | | | | | | | | | | | | | Net income per common share-basic | | $ | 4.72 | | | $ | 2.74 | | | $ | 2.41 | | | | | | | | | | | | | | | Net income per common share-diluted | | $ | 4.28 | | | $ | 2.60 | | | $ | 2.35 | | | | | | | | | | | | | | |
(1) | Incremental shares from the assumed conversion of the convertible notes was calculated using the difference between the average Teradyne stock price for the period and the conversion price of $31.62,$31.56, multiplied by 14.514.6 million shares. The result of this calculation, representing the total intrinsic value of the convertible debt, was divided by the average Teradyne stock price for the period. |
(2) | Convertible notes hedge warrant shares were calculated using the difference between the average Teradyne stock price for the period and the warrant price of $39.68,$39.60, multiplied by 14.514.6 million shares. The result of this calculation, representing the total intrinsic value of the warrant, was divided by the average Teradyne stock price for the period. |
The computation of diluted net income per common share for 20182020 excludes the effect of the potential exercise of stock options to purchase approximately 0.1 million shares and restricted stock units to purchase approximately 0.50.1 million shares because the effect would have been anti-dilutive. The computation of diluted net income per common share for 20172018 excludes the effect of the potential exercise of restricted stock optionsunits to purchase approximately 0.10.5 million shares because the effect would have been anti-dilutive.
O. RESTRUCTURING AND OTHER During the year ended December 31, 2020, Teradyne recorded a $19.7 million gain for the decrease in the fair value of the AutoGuide contingent consideration liability, and a $3.5 million gain for the decrease in the fair value of the MiR contingent consideration liability, partially offset by a $4.0 million contract termination settlement charge, $2.5 million of acquisition related compensation and expenses, $2.3 million of severance charges primarily in Industrial Automation, and $1.2 million of other expenses. During the year ended December 31, 2019, Teradyne recorded a $22.2 million gain of $ in the fair value of the MiR contingent consideration liability, , parti partially offset by a lly offset by
a $3.0 million increase in the fair valueof the AutoGuide contingent consideration liability
,
$2.9 million of severance charges related to headcount reductions primarily in Semiconductor Test andIndustrial Automation, and $2.5
million for acquisition related expenses and compensation.
During the year ended December 31, 2018, Teradyne recorded an expense of $17.7 million gain for the increase in the fair value of the MiRAutoGuide contingent consideration, liability, $8.7$2.9 million of severance charges related to headcount reductions primarily in Semiconductor Test and $4.5Industrial Automation, and $2.5 million for acquisition related expenses and compensation, partially offset by a gaincompensation.
The remaining accrual for severance of $16.7 $0.5 million for the decreaseis reflected in the fair value ofaccrued employees’ compensation and withholdings on the Universal Robots contingent consideration liability.balance sheet and is expected to be paid by March 2021. During the year ended December 31, 2017, Teradyne recorded an expense
P. RETIREMENT PLANSPLANS ASC 715 “ Compensation—Retirement Benefits, ” requires an employer with defined benefit plans or other postretirement benefit plans to recognize an asset or a liability on its balance sheet for the overfunded or underfunded status of the plans as defined by ASC 715. The pension asset or liability represents a difference between the fair value of the pension plan’s assets and the projected benefit obligation at December 31. Teradyne uses a December 31 measurement date for all of its plans. Defined Benefit Pension Plans Teradyne has defined benefit pension plans covering a portion of domestic employees and employees of certain non-U.S. subsidiaries. Benefits under these plans are based on employees’ years of service and compensation. Teradyne’s funding policy is to make contributions to the plans in accordance with local laws and to the extent that such contributions are tax deductible. The assets of these plans consist primarily of fixed income and equity securities. In addition, Teradyne has an unfunded supplemental executive defined benefit plan in the United States to provide retirement benefits in excess of levels allowed by the Employment Retirement Income Security Act (“ERISA”) and the Internal Revenue Code (the “IRC”), as well as unfunded qualified foreign plans. During 2018, Teradyne purchasedIn 2020, Teradyne’s projected benefit obligations increased primarily due to actuarial losses of approximately $27.6 million across all pension plans from decreases in discount rates, and approximately $4.0 million from unfavorable foreign exchange effects for the German plan, partially offset by a group annuity contract for its retiree participants in the U.S. qualified pension plan. Under the group annuity, the accrued pensiontransfer of obligations for approximately 1,700115 retiree participants were transferred to an insurance company. Thecompany which resulted in a $24.4 million reduction in the pensionprojected benefit obligationobligations and pension assets was $151.3 million. During 2018, Teradyneassets. We also recorded a settlement loss of $0.3$0.5 million related to the retiree group annuity transaction.
In 2019, Teradyne’s projected benefit obligations increased primarily due to actuarial losses of approximately $29.0 million across all pension plans from decreases in discount rates.
The December 31 balances of these defined benefit pension plans assets and obligations are shown below: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Change in benefit obligation: | | | | | | | | | | | | | | | | | Projected benefit obligation: | | | | | | | | | | | | | | | | | | | $ | | | | $ | | | | $ | | | | $ | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ) | | | | | | | | | ) | | | | ) | | | | ) | | | | ) | | | | | | | | | | | | | ) | | | | | Liability loss due to settlement | | | | | | | | | | | | | | | | | Non-U.S. currency movement | | | | | | | | ) | | | | | | | | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Fair value of plan assets: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Actual return on plan assets | | | | | | | | | | | | ) | | | | | | | | | ) | | | | ) | | | | ) | | | | ) | | | | | | | | | | | | | ) | | | | | Non-U.S. currency movement | | | | | | | | | | | | | | | | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | $ | | ) | | $ | | ) | | $ | | ) | | $ | | ) | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Change in benefit obligation: | | | | | | | | | | | | | | | | | Projected benefit obligation: | | | | | | | | | | | | | | | | | | | $ | 203,791 | | | $ | 43,952 | | | $ | 178,237 | | | $ | 39,146 | | | | | 1,773 | | | | 907 | | | | 1,608 | | | | 751 | | | | | 5,770 | | | | 516 | | | | 7,189 | | | | 691 | | | | | 24,671 | | | | 2,951 | | | | 24,447 | | | | 4,520 | | | | | (9,844 | ) | | | (1,299 | ) | | | (7,690 | ) | | | (836 | ) | | | | (24,379 | ) | | | 0 | | | | — | | | | — | | Liability loss due to settlement | | | 451 | | | | 0 | | | | — | | | | — | | Non-U.S. currency movement | | | 0 | | | | 3,961 | | | | — | | | | (320 | ) | | | | | | | | | | | | | | | | | | | | | 202,233 | | | | 50,988 | | | | 203,791 | | | | 43,952 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Fair value of plan assets: | | | | | | | | | | | | | | | | | | | | 166,932 | | | | 1,586 | | | | 144,301 | | | | 1,400 | | Actual return on plan assets | | | 23,048 | | | | 67 | | | | 27,516 | | | | 64 | | | | | 3,098 | | | | 1,079 | | | | 2,805 | | | | 923 | | | | | (9,844 | ) | | | (988 | ) | | | (7,690 | ) | | | (836 | ) | | | | (24,379 | ) | | | 0 | | | | — | | | | — | | Non-U.S. currency movement | | | 0 | | | | 112 | | | | — | | | | 35 | | | | | | | | | | | | | | | | | | | | | | 158,855 | | | | 1,856 | | | | 166,932 | | | | 1,586 | | | | | | | | | | | | | | | | | | | | | $ | (43,378 | ) | | $ | (49,132 | ) | | $ | (36,859 | ) | | $ | (42,366 | ) | | | | | | | | | | | | | | | | | |
The following table provides amounts recorded within the account line items of the statements of financial position as of December 31: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | $ | | | | $ | | | | $ | | | | $ | | | Accrued employees’ compensation and withholdings | | | | ) | | | | ) | | | | ) | | | | ) | Retirement plans liabilities | | | | ) | | | | ) | | | | ) | | | | ) | | | | | | | | | | | | | | | | | | | | $ | | ) | | $ | | ) | | $ | | ) | | $ | | ) | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | $ | 17,468 | | | $ | 0 | | | $ | 18,457 | | | $ | — | | Accrued employees’ compensation and withholdings | | | (3,273 | ) | | | (1,019 | ) | | | (2,826 | ) | | | (922 | ) | Retirement plans liabilities | | | (57,573 | ) | | | (48,113 | ) | | | (52,490 | ) | | | (41,444 | ) | | | | | | | | | | | | | | | | | | | | $ | (43,378 | ) | | $ | (49,132 | ) | | $ | (36,859 | ) | | $ | (42,366 | ) | | | | | | | | | | | | | | | | | |
The following table provides amounts recognized in accumulated other comprehensive income as of December 31: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Deferred taxes related to prior service cost recognized in other comprehensive income | | $ | | | | $ | | | | $ | | | | $ | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Deferred taxes related to prior service cost recognized in other comprehensive income | | $ | 560 | | | $ | 0 | | | $ | 560 | | | $ | — | | | | | | | | | | | | | | | | | | |
The accumulated benefit obligation for the United States defined benefit pension plans was $198.2$196.7 million and $172.8$198.2 million at December 31, 20192020 and 2018,2019, respectively. The accumulated benefit obligation for foreign defined benefit pension plans was $39.9$46.5 million and $35.6$39.9 million at December 31, 2020 and 2019, and 2018, respectively.
Information for pension plans with an accumulated benefit obligation in excess of plan assets as of DecemberDecembe r 31: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Projected benefit obligation | | $ | | | | $ | | | | $ | | | | $ | | | Accumulated benefit obligation | | | | | | | | | | | | | | | | | Fair value of plan assets | | | | | | | | | | | — | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Projected benefit obligation | | $ | 60.8 | | | $ | 51.0 | | | $ | 55.3 | | | $ | 44.0 | | Accumulated benefit obligation | | | 58.5 | | | | 46.5 | | | | 53.2 | | | | 39.9 | | Fair value of plan assets | | | 0 | | | | 1.9 | | | | — | | | | 1.6 | |
For the years ended December 31, 2020, 2019, 2018, and 2017,2018, Teradyne’s net periodic pension cost (income) was comprised of the following: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Components of Net Periodic Pension Cost (Income): | | | | | | | | | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | | | | | | | | | | | | | | | | | | | | | | | | | Expected return on plan assets | | | | ) | | | | ) | | | | ) | | | | ) | | | | ) | | | | ) | Amortization of prior service cost | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ) | | | | | | | | ) | | | | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total net periodic pension cost (income) | | $ | | | | $ | | | | $ | | ) | | $ | | | | $ | | ) | | $ | | | | | | | | | | | | | | | | | | | | | | | | | | | | Changes in Plan Assets and Benefit Obligations Recognized in Other Comprehensive Income: | | | | | | | | | | | | | | | | | | | | | | | | | Reversal of amortization items: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ) | | | | | | | | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total recognized in other comprehensive income | | | | | | | | | | | | ) | | | | | | | | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total recognized in net periodic pension cost (income) and other comprehensive income | | $ | | | | $ | | | | $ | | ) | | $ | | | | $ | | ) | | $ | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | |
| | | | | |
| | | | | | | | | Components of Net Periodic Pension Cost (Income): | | | | | | | | | | | | | | | $ | 1,773 | | | $ | 907 | | | $ | 1,608 | | | $ | 751 | | | $ | 2,196 | | | $ | 786 | | | | | 5,770 | | | | 516 | | | | 7,189 | | | | 691 | | | | 8,940 | | | | 687 | | Expected return on plan assets | | | (4,840 | ) | | | (65 | ) | | | (6,042 | ) | | | (29 | ) | | | (9,049 | ) | | | (19 | ) | Amortization of prior service cost | | | — | | | | — | | | | — | | | | — | | | | 58 | | | | — | | Net actuarial loss (gain) | | | 6,463 | | | | 2,949 | | | | 2,973 | | | | 4,485 | | | | (4,429 | ) | | | 743 | | | | | 451 | | | | 0 | | | | — | | | | — | | | | 345 | | | | — | | | | | | | | | | | | | | | | | | | | | | | | | | | Total net periodic pension cost (income) | | $ | 9,617 | | | $ | 4,307 | | | $ | 5,728 | | | $ | 5,898 | | | $ | (1,939 | ) | | $ | 2,197 | | | | | | | | | | | | | | | | | | | | | | | | | | | Changes in Plan Assets and Benefit Obligations Recognized in Other Comprehensive Income: | | | | | | | | | | | | | | | | | | | | | | | | | Reversal of amortization items: | | | | | | | | | | | | | | | | | | | | | | | | | | | | — | | | | 0 | | | | — | | | | — | | | | (58 | ) | | | — | | | | | | | | | | | | | | | | | | | | | | | | | | | Total recognized in other comprehensive income | | | — | | | | 0 | | | | — | | | | — | | | | (58 | ) | | | — | | | | | | | | | | | | | | | | | | | | | | | | | | | Total recognized in net periodic pension cost (income) and other comprehensive income | | $ | 9,617 | | | $ | 4,307 | | | $ | 5,728 | | | $ | 5,898 | | | $ | (1,997 | ) | | $ | 2,197 | | | | | | | | | | | | | | | | | | | | | | | | | | |
Weighted Average Assumptions to Determine Net Periodic Pension Cost at January 1: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | % | | | | % | | | | % | | | | % | | | | % | | | | % | Expected return on plan assets | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 2.8 | % | | | 1.1 | % | | | 4.1 | % | | | 1.8 | % | | | 3.4 | % | | | 1.8 | % | Expected return on plan assets | | | 3.0 | | | | 3.8 | | | | 4.3 | | | | 2.0 | | | | 4.3 | | | | 1.5 | | | | | 2.6 | | | | 2.5 | | | | 2.3 | | | | 2.5 | | | | 2.3 | | | | 2.7 | |
Weighted Average Assumptions to Determine Pension Obligations at December 31: 86
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 2.2 | % | | | 0.7 | % | | | 3.0 | % | | | 1.1 | % | | | | 2.4 | | | | 2.3 | | | | 2.6 | | | | 2.5 | |
In developing the expected return on plan assets assumption, Teradyne evaluates input from its investment manager and pension consultants, including their forecast of asset class return expectations. Teradyne believes that 4.25%3.0% was an appropriate rate to use for fiscal 20192020 for the U.S. Qualified Pension Plan (“U.S. Plan”). Teradyne recognizes net actuarial gains and losses and the change in the fair value of the plan assets in its operating results in the year in which they occur or upon any interim remeasurement of the plans. Teradyne calculates the expected return on plan assets using the fair value of the plan assets. Actuarial gains and losses are generally measured annually as of December 31 and, accordingly, recorded during the fourth quarter of each year or upon any interim remeasurement of the plans.
The discount rate utilized to determine future pension obligations for the U.S. Plan is based on FTSE Pension Index adjusted for the plan’s expected cash flows and was 2.3% at December 31, 2020, down from 3.10% at December 31, 2019,down
from 4.15% at December 31, 2018.2019.As of December 31, 2019,2020, the fair value of Teradyne’s pension plans’ assets totaled $168.5$160.7 million of which $166.9$158.9 million was related to the U.S. Plan and $1.6$1.9 million was related to the Taiwan defined benefit pension plan. Substantially all of Teradyne’s pension plans’ assets are held in individual trusts, which were established for the investment of assets of Teradyne’s sponsored retirement plans. The following table provides weighted average pension asset allocation by asset category at December 31, 20192020 and 2018:2019: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 94.0 | % | | | — | % | | | 94.0 | % | | | — | % | | | | 5.0 | | | | — | | | | 5.0 | | | | — | | | | | 1.0 | | | | 100.0 | | | | 1.0 | | | | 100.0 | | | | | | | | | | | | | | | | | | | | | | 100.0 | % | | | 100.0 | % | | | 100.0 | % | | | 100.0 | % | | | | | | | | | | | | | | | | | |
The assets of the U.S. Plan are overseen by the Teradyne Fiduciary Committee which is comprised of members of senior management drawn from appropriate diversified levels of the management team. The Fiduciary Committee is responsible for setting the policy that provides the framework for management of the U.S. Plan assets. In accordance with its responsibilities, the Fiduciary Committee meets on a regular basis to review the performance of the U.S. Plan assets and compliance with the investment policy. The policy sets forth an investment structure for managing U.S. Plan assets, including setting the asset allocation ranges, which are expected to provide an appropriate level of overall diversification required to maximize the long-term return on plan assets for a prudent and reasonable level of risk given prevailing market conditions, total investment return over the long term, and preservation of capital, while maintaining sufficient liquidity to pay the benefits of the U.S. Plan. The investment portfolio will not, at any time, have a direct investment in Teradyne stock. It may have indirect investment in Teradyne stock, if one of the funds selected by the investment manager invests in Teradyne stock. In developing the asset allocation ranges, third party asset allocation studies are periodically performed that consider the current and expected positions of the plan assets and funded status. Based on this study and other appropriate information, the Fiduciary Committee establishes asset allocation ranges taking into account acceptable risk targets and associated returns. The investment return objectives are to avoid excessive volatility and produce a rate of return that at least matches the Policy Index identified below. The manager’s investment performance is reviewed at least annually. Results for the total portfolio and for each major category of assets are evaluated in comparison with appropriate market indices and the Policy Index.
The target asset allocation and the index for each asset category for the U.S. Plan, per the investment policy, are as follows: | | | | | | | | | | | | | U.S. corporate fixed income | | Bloomberg Barclays U.S. Corporate A or Better Index | | | | % | | | MSCI World Minimum Volatility Index | | | | | U.S. government fixed income | | Bloomberg Barclays U.S. Long Government Bond Index | | | | | | | Bloomberg Barclays U.S. Corporate High Yield 2% Issuer Cap Index | | | | | | | Citigroup Three Month U.S. Treasury Bill Index | | | | |
Teradyne’s U.S. Plan invests primarily in common trust funds. Units held in the common trust funds are valued at the unit price as reported by the investment manager based on the asset value of the underlying investments; underlying investments in equity securities are valued at the last reported sales price, and underlying investments in fixed-income securities are generally valued using methods based upon market transactions for comparable securities. In 2017, the U.K. defined benefit pension was terminated and the obligations and assets of the plan were transferred to an insurance company.
During the yearyears ended December 31, 2020 and December 31, 2019, there were no transfers of pension assets in or out of Level 1, Level 2, and Level 3. During the year ended December 31, 2018, $2.7 million of pension assets were transferred out of Level 3 to Level 2. The fair value of pension plan assets by asset category and by level at December 31, 20192020 and December 31, 20182019 were as follows: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Corporate debt securities | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | U.S. government securities | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Cash and cash equivalents | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Corporate debt securities | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | U.S. government securities | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Cash and cash equivalents | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Corporate debt securities | | $ | 0 | | | $ | 127,098 | | | $ | 0 | | | $ | 127,098 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | U.S. government securities | | | 0 | | | | 22,250 | | | | 0 | | | | 22,250 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | | 0 | | | | 7,925 | | | | 0 | | | | 7,925 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 1,856 | | | | 0 | | | | 1,856 | | Cash and cash equivalents | | | 1,582 | | | | 0 | | | | 0 | | | | 1,582 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | $ | 1,582 | | | $ | 157,273 | | | $ | 0 | | | $ | 158,855 | | | $ | 0 | | | $ | 1,856 | | | $ | 0 | | | $ | 1,856 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Corporate debt securities | | $ | — | | | $ | 133,792 | | | $ | — | | | $ | 133,792 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | U.S. government securities | | | — | | | | 23,186 | | | | — | | | | 23,186 | | | | — | | | | — | | | | — | | | | — | | | | | — | | | | 8,344 | | | | — | | | | 8,344 | | | | — | | | | — | | | | — | | | | — | | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 1,586 | | | | — | | | | 1,586 | | Cash and cash equivalents | | | 1,610 | | | | — | | | | — | | | | 1,610 | | | | — | | | | — | | | | — | | | | — | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | $ | 1,610 | | | $ | 165,322 | | | $ | — | | | $ | 166,932 | | | $ | — | | | $ | 1,586 | | | $ | — | | | $ | 1,586 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Changes in the fair value of Level 3 group annuity insurance contracts for the year ended December 31, 2018were
as follows: | | | | | | | Group Annuity Insurance Contracts | | | | | | Balance at December 31, 2017 | | $ | | | | | | | ) | | | | | ) | Interest and market value adjustments | | | | | | | | | ) | | | | | ) | | | | | | Balance at December 31, 2018 | | $ | | | | | | | |
Teradyne’s funding policy is to make contributions to the plans in accordance with local laws and to the extent that such contributions are tax deductible. During 2020, Teradyne contributed $3.1 million to the U.S. supplemental executive defined benefit pension plan and $1.1 million to certain qualified plans for non-U.S. subsidiaries. During 2019, Teradyne contributed $2.8 million to the U.S. supplemental executive defined benefit pension plan and $0.9 million to certain qualified plans for non-U.S. subsidiaries. During 2018, Teradyne contributed $2.6 million to the U.S supplemental executive defined benefit pension plan and $0.8 million to certain qualified plans fornon-U.S.
subsidiaries. In 2020
, 2021, contributions to the U.S. supplemental executive defined benefit pension plan and certain qualified plans from non-U.S. subsidiaries will be approximately $2.8$3.3 million and $1.0$1.1 million, respectively.
Expected Future Pension Benefit Payments Future benefit payments are expected to be paid as follows: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | $ | | | | $ | | | | | | | | | | | | | | $ | 8,902 | | | $ | 1,058 | | | | | | | | | | | | | 8,782 | | | | 1,063 | | | | | | | | | | | | | 9,189 | | | | 1,313 | | | | | | | | | | | | | 9,815 | | | | 1,192 | | | | | | | | | | | | | | | | 10,374 | | | | 1,140 | | | | | | 54,145 | | | | 7,053 | |
Postretirement Benefit Plans In addition to receiving pension benefits, U.S. Teradyne employees who meet early retirement eligibility requirements as of their termination dates may participate in Teradyne’s Welfare Plan, which includes medical and dental benefits up to age 65. Death benefits provide a fixed sum to retirees’ survivors and are available to all retirees. Substantially all of Teradyne’s current U.S. employees could become eligible for these benefits, and the existing benefit obligation relates primarily to those employees.
The December 31 balances of the postretirement assets and obligations are shown below: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Change in benefit obligation: | | | | | | | | | | | | | | Projected benefit obligation: | | | | | | | | | | | | | | | | $ | | | | $ | | | | $ | 9,003 | | | $ | 9,256 | | | | | | | | | | | | | 57 | | | | 41 | | | | | | | | | | | | | 240 | | | | 347 | | | | | | | | | | | | | 421 | | | | 717 | | Benefits paid | | | | ) | | | | ) | | | (1,205 | ) | | | (1,358 | ) | Special termination benefits | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 8,515 | | | | 9,003 | | | | | | | | | | | | | | | | | | | | | | | | | | Fair value of plan assets: | | | | | | | | | | | | | | | | | | | | | | | | | 0 | | | | — | | | | | | | | | | | | | 1,205 | | | | 1,358 | | | | | | ) | | | | ) | | | (1,205 | ) | | | (1,358 | ) | | | | | | | | | | | | | | | | | | | | | | 0 | | | | — | | | | | | | | | | | | | | $ | | ) | | $ | | ) | | $ | (8,515 | ) | | $ | (9,003 | ) | | | | | | | | | | |
The following table provides amounts recorded within the account line items of financial position as of December 31: | | | | | | | | | | | | | | | | | | | | Accrued employees’ compensation and withholdings | | $ | | ) | | $ | | ) | Retirement plans liability | | | | ) | | | | ) | | | | | | | | | | | | $ | | ) | | $ | | ) | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | Accrued employees’ compensation and withholdings | | $ | (1,161 | ) | | $ | (1,231 | ) | Retirement plans liability | | | (7,354 | ) | | | (7,772 | ) | | | | | | | | | | | | $ | (8,515 | ) | | $ | (9,003 | ) | | | | | | | | | |
The following table provides amounts recognized in accumulated other comprehensive income as of December 31: | | | | | | | | | | | | | | | | | | | | Prior service credit, before tax | | $ | | ) | | $ | | ) | | | | | ) | | | | ) | | | | | | | | | | Total recognized in other comprehensive income, net of tax | | $ | | ) | | $ | | ) | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | Prior service credit, before tax | | $ | (49 | ) | | $ | (58 | ) | | | | (1,686 | ) | | | (1,684 | ) | | | | | | | | | | Total recognized in other comprehensive income, net of tax | | $ | (1,735 | ) | | $ | (1,742 | ) | | | | | | | | | |
For the years ended December 31, 2020, 2019, 2018, and 2017,2018, Teradyne’s net periodic postretirement benefit cost (income) was comprised of the following: | | | | | | | | | | | | | | | | | | | | | | | | | | | Components of Net Periodic Postretirement Benefit | | | | | | | | | | | | | | | $ | | | | $ | | | | $ | | | | | | | | | | | | | | | | Amortization of prior service credit | | | | ) | | | | ) | | | | ) | | | | | | | | | | | | | | Special termination benefits | | | | | | | | | | | | | | | | | | | | | | | | | | Total net periodic postretirement benefit cost | | | | | | | | | | | | | | | | | | | | | | | | | | Changes in Plan Assets and Benefit Obligations Recognized in Other Comprehensive Income: | | | | | | | | | | | | | | | | | | | | | | | | | | Reversal of amortization items: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total recognized in other comprehensive income | | | | | | | | | | | | | | | | | | | | | | | | | | Total recognized in net periodic postretirement cost and other comprehensive income | | $ | | | | $ | | | | $ | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | Components of Net Periodic Postretirement Benefit Cost (income): | | | | | | | | | | | | | | | $ | 57 | | | $ | 41 | | | $ | 39 | | | | | 240 | | | | 347 | | | | 196 | | Amortization of prior service credit | | | (9 | ) | | | (191 | ) | | | (373 | ) | | | | 421 | | | | 717 | | | | 25 | | Special termination benefits | | | 0 | | | | — | | | | 3,708 | | | | | | | | | | | | | | | Total net periodic postretirement benefit cost | | | 709 | | | | 914 | | | | 3,595 | | | | | | | | | | | | | | | Changes in Plan Assets and Benefit Obligations Recognized in Other Comprehensive Income: | | | | | | | | | | | | | Reversal of amortization items: | | | | | | | | | | | | | | | | 9 | | | | 191 | | | | 373 | | | | | | | | | | | | | | | Total recognized in other comprehensive income | | | 9 | | | | 191 | | | | 373 | | | | | | | | | | | | | | | Total recognized in net periodic postretirement cost and other comprehensive income | | $ | 718 | | | $ | 1,105 | | | $ | 3,968 | | | | | | | | | | | | | | |
Weighted Average Assumptions to Determine Net Periodic Postretirement Benefit Income as of January 1: | | | | | | | | | | | | | | | | | | | | | | | | | | | % | | | | % | | | | % | Initial health care cost trend rate | | | | | | | | | | | | | Ultimate health care cost trend rate | | | | | | | | | | | | | Year in which ultimate health care cost trend rate is reached | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | 3.0 | % | | | 4.0 | % | | | 3.4 | % | Initial health care cost trend rate | | | 7.1 | | | | 7.5 | | | | 7.9 | | Ultimate health care cost trend rate | | | 4.5 | | | | 4.5 | | | | 4.5 | | Year in which ultimate health care cost trend rate is reached | | | 2026 | | | | 2026 | | | | 2026 | |
Weighted Average Assumptions to Determine Postretirement Benefit Obligation as of December 31: | | | | | | | | | | | | | | | | | | | | | | | | | | | % | | | | % | | | | % | | | | | | | | | | | | | | Ultimate health care trend | | | | | | | | | | | | | Medical cost trend rate decrease to ultimate rate in year | | | | | | | | | | | | |
Assumed health care trend rates could have a significant effect on the amounts reported for health care plans. A one percentage point change in the assumed health care cost trend rates for the year ended December 31, 2019 would have the following effects: | | | | | | | | | | | | | | | | | | | | Effect on total service and interest cost components | | $ | | | | $ | | ) | Effect on postretirement benefit obligations | | | | | | | | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | 2.2 | % | | | 3.0 | % | | | 4.0 | % | | | | 7.3 | | | | 7.1 | | | | 7.5 | | Ultimate health care trend | | | 4.5 | | | | 4.5 | | | | 4.5 | | Medical cost trend rate decrease to ultimate rate in year | | | 2029 | | | | 2026 | | | | 2026 | |
Expected Future Benefit Payments Future benefit payments are expected to be paid as follows: | | | | | | | | | | | | | | | $ | 1,161 | | | | | 961 | | | | | 786 | | | | | 646 | | | | | 533 | | | | | 1,601 | |
Q. STOCK-BASED COMPENSATION On July 17, 2019 (the “Retirement Date”), former Chief Financial Officer Gregory Beecher retired as Vice President and Senior Advisor of Teradyne, and Teradyne entered into an agreement (the “Retirement Agreement”) with Mr. Beecher. Under the Retirement Agreement, Mr. Beecher’s unvested time-based restricted stock units and stock options granted prior to 2019 were modified to allow continued vesting; unvested time-based restricted stock units and stock options granted in 2019 were modified to allow continued vesting through January 31, 2023 (the “Non-Competition “Non-Competition Period”) in a pro-rated amount based on the number of days that Mr. Beecher was employed during 2019; unvested, performance-based restricted stock units awarded in 2019 will vest on the date the amount of shares underlying the performance-based restricted stock units are determined in a pro-rated amount of shares based on the number of days that Mr. Beecher was employed during 2019; vested options or options that vest during the Non-Competition Period may be exercised for the remainder of the applicable option term. During 2019, Teradyne recorded a stock basedstock-based compensation expense of $2.1 million related to the Retirement Agreement. Under Teradyne’s stock compensation plans, Teradyne grants restricted stock units, performance-based restricted stock units, options and employees are eligible to purchase Teradyne’s common stock through its Employee Stock Purchase Plan (“ESPP”). Time-based restricted stock unit awards granted to employees vest in equal annual installments over four years. Restricted stock unit awards granted to directors vest on the earlier of (a) the first anniversary of the grant date or (b) the date of the following year’s Annual Meeting of Shareholders. Teradyne expenses the cost of the restricted stock unit awards subject to time-
basedtime-based vesting, which is determined to be the fair market value of the shares at the date of grant, ratably over the period during which the restrictions lapse. P
erformance-
basedPerformance-based restricted stock units (“PRSUs”) granted to Teradyne’s executive officers a performance metric based on relative total shareholder return (“TSR”). Teradyne’s three-yearthree-year TSR performance is measured against the New York Stock Exchange (“NYSE”) Composite Index. The final number of TSR PRSUs that vest will vary based upon the level of performance achieved from 200% to 0% of the target shares capped at four times the grant date value for grants prior to 2019. The TSR PRSUs will vest upon the three-year anniversary of the grant date. The TSR PRSUs are valued using a Monte Carlo simulation model. The number of units expected to be earned, based upon the achievement of the TSR market condition, is factored into the grant date Monte Carlo valuation. Compensation expense is recognized on a straight-line basis over the shorter of the three-year service period or the period from the grant to the date described in the retirement provisions below. Compensation expense for employeesexecutive officers meeting the retirement provisions prior to the grant date will beis recognized in full onduring the date ofyear following the grant. Compensation expense is recognized regardless of the eventual number of units that are earned based upon the market condition, provided the executive officer remains an employee at the end
employee at the end of the three-year period. Compensation expense is reversed if at any time during the three-year service period the executive officer is no longer an employee, subject to the retirement and termination eligibility provisions noted below. PRSUs granted to executive officers may also have a performance metric based on three-year cumulative non-GAAP profit before interest and tax (“PBIT”) as a percent of Teradyne’s revenue. Non-GAAP PBIT is a financial measure equal to GAAP income from operations less restructuring and other, net; amortization of acquired intangible assets; acquisition and divestiture related charges or credits; pension actuarial gains and losses; non-cash convertible debt interest expense; and other non-recurring gains and charges. The final number of PBIT PRSUs that vest will vary based upon the level of performance achieved from 200%0% to 0%200% of the target shares. The PBIT PRSUs will vest upon the three-year anniversary of the grant date. Compensation expense is recognized on a straight-line basis over the shorter of the three-year service period or the period from the grant date to the date described in the retirement provisions below. Compensation expense for employees meeting the retirement provisions prior to the grant date will be recognized in full on the date of grant .grant. Compensation expense is recognized based on the number of units that are earned based upon the three-year Teradyne PBIT as a percent of Teradyne’s revenue, provided the executive officer remains an employee at the end of the three-year period subject to the retirement and termination eligibility provisions noted below. If a PRSU recipient’s employment ends prior to the determination of the performance percentage due to (1) permanent disability or death or (2) retirement or termination other than for cause, after attaining both at least age sixty and at least ten years of service, then all or a portion of the recipient’s PRSUs (based on the actual performance percentage achieved on the determination date) will vest on the date the performance percentage is determined. Except as set forth in the preceding sentence, no PRSUs will vest if the executive officer is no longer an employee at the end of the three-year period. Stock options to purchase Teradyne’s common stock at 100% of the fair market value on the grant date vest in equal annual installments over four years from the grant date and have a maximum term of seven years. During 2020, 2019 2018 and 2017,2018, Teradyne granted 0.4 million, 0.8 million 0.6 million and 0.80.6 million of service-based restricted stock unit awards to employees at a weighted average grant date fair value of $71.31, $37.65, and $45.92, and $28.19, respectively. During 2020, 2019 2018 and 2017,2018, Teradyne granted 0.1 million of service-based restricted stock unit awards to non-employee directors at a weighted average grant date fair value of $66.56, $48.03, $35.81 and $34.48,$35.81, respectively. During 2020, 2019 2018 and 2017,2018, Teradyne granted 0.1 million TSR PRSUs, with a grant date fair value of $89.93, $51.51, $54.85 and $35.66$54.85, respectively. The fair value was estimated using the Monte Carlo simulation model with the following assumptions: | | | | | | | | | | | | | | | | | | | | | | | | | | | % | | | | % | | | | % | Teradyne volatility-historical | | | | % | | | | % | | | | % | NYSE Composite Index volatility-historical | | | | % | | | | % | | | | % | | | | | % | | | | % | | | | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | 1.5 | % | | | 2.6 | % | | | 2.2 | % | Teradyne volatility-historical | | | 34.9 | % | | | 31.9 | % | | | 26.8 | % | NYSE Composite Index volatility-historical | | | 11.4 | % | | | 11.9 | % | | | 12.4 | % | | | | 0.6 | % | | | 1.0 | % | | | 0.8 | % |
Expected volatility was based on the historical volatility of Teradyne’s stock and the NYSE Composite Index for each of the 2020, 2019 2018 and 20172018 grants over the most recent three-year period. The risk-free interest rate was determined using the U.S. Treasury yield curve in effect at the time of each of the grants .grants. Dividend yield was based upon an estimated annual dividend amount of $0.40 per share for 2020 and $0.36 per share for 2019
and 2018, and $0.28 per share for 2017,
divided by Teradyne’s stock price on the grant date of $72.10 for the 2020 grants, $37.95 for the 2019 grants , and $47.70 for the 2018 grants.
grants
and $28.56 for 2017
grants
.
During 2020, 2019 2018 and 2017,2018, Teradyne granted 0.1 million of PBIT PRSUs with a grant date fair value of $70.94, $36.88 $46.62 and $27.72,$46.62, respectively. During 2020, 2019 , and 2018, and
2017,
Teradyne granted 0.1 million of service-based stock options to executive officers at a weighted average grant date fair value of $ 10.64,
$
12.17$20.93, $10.64, and $ 7.13,$12.17, respectively.
The fair value of stock options was estimated using the Black-Scholes option-pricing model with the following assumptions: | | | | | | | | | | | | | | | | | | | | | | | | | | 5.0 | | | | 5.0 | | | | 5.0 | | | | | 1.5 | % | | | 2.5 | % | | | 2.4 | % | | | | 32.0 | % | | | 30.1 | % | | | 26.4 | % | | | | 0.5 | % | | | 1.0 | % | | | 0.8 | % |
Teradyne determined the stock options’ expected life based upon historical exercise data for executive officers, the age of the executive officers and the terms of the stock option grant
. grant. Volatility was determined using historical volatility for a period equal to the expected life. The
interest rate was determined using the U.S. Treasury yield curve in effect at the time of grant. Dividend yield was based upon an estimated annual dividend amount of $0.36$0.40 per share divided by Teradyne’s stock price on the grant date of $72.61 for the 2020 grants, $37.95 for the 2019 grants and $47.70 for the 2018 grants and $28.56 for the 2017 grants. Stock compensation plan activity for the years 2020, 2019, 2018, and 2017,2018, is as follows: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ) | | | | ) | | | | ) | | | | | ) | | | | ) | | | | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ) | | | | ) | | | | ) | | | | | ) | | | | | | | | | | | | | ) | | | | | | | | ) | | | | | | | | | | | | | | Outstanding at December 31 | | | | | | | | | | | | | | | | | | | | | | | | | | Vested and expected to vest at December 31 | | | | | | | | | | | | | | | | | | | | | | | | | | Exercisable at December 31 | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 2,269 | | | | 2,454 | | | | 3,174 | | | | | 616 | | | | 1,139 | | | | 790 | | | | | (1,028 | ) | | | (1,237 | ) | | | (1,382 | ) | | | | (68 | ) | | | (87 | ) | | | (128 | ) | | | | | | | | | | | | | | Non-vested at December 31 | | | 1,789 | | | | 2,269 | | | | 2,454 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 319 | | | | 506 | | | | 531 | | | | | 56 | | | | 102 | | | | 69 | | | | | (159 | ) | | | (280 | ) | | | (94 | ) | | | | — | | | | (7 | ) | | | — | | | | | — | | | | (2 | ) | | | — | | | | | | | | | | | | | | | Outstanding at December 31 | | | 216 | | | | 319 | | | | 506 | | | | | | | | | | | | | | | Vested and expected to vest at December 31 | | | 216 | | | | 319 | | | | 506 | | | | | | | | | | | | | | | Exercisable at December 31 | | | 27 | | | | 85 | | | | 256 | | | | | | | | | | | | | | |
Total shares available for the years 2020, 2019, 2018, and 2017:2018: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Available for grant at January 1 | | | | | | | | | | | | | | | | | ) | | | | ) | | | | ) | | | | 7 | | | | — | | | | — | | Restricted stock units awarded | | | | ) | | | | ) | | | | ) | Restricted stock units forfeited | | | | | | | | | | | | | | | | | | | | | | | | | | Available for grant at December 31 | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Available for grant at January 1 | | | 6,727 | | | | 7,874 | | | | 8,605 | | | | | (56 | ) | | | (102 | ) | | | (69 | ) | | | | — | | | | 7 | | | | | | Restricted stock units awarded | | | (616 | ) | | | (1,139 | ) | | | (790 | ) | Restricted stock units forfeited | | | 68 | | | | 87 | | | | 128 | | | | | | | | | | | | | | | Available for grant at December 31 | | | 6,123 | | | | 6,727 | | | | 7,874 | | | | | | | | | | | | | | |
Weighted average restricted stock unit award date fair value information for the years 2020, 2019, and 2018, and 2017,
is as follows: | | | | | | | | | | | | | | | | | | | | | | | | | $ | 35.58 | | | $ | 29.22 | | | $ | 21.71 | | | | | 72.76 | | | | 39.08 | | | | 45.99 | | | | | 31.53 | | | | 23.59 | | | | 20.20 | | | | | 45.36 | | | | 35.60 | | | | 24.67 | | Non-vested at December 31 | | $ | 47.84 | | | $ | 35.58 | | | $ | 29.22 | |
Restricted stock unit awards aggregate intrinsic value information at December 31 for the years 2020, 2019, 2018,
and 20172018 is as follows: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | $ | 71,582 | | | $ | 46,110 | | | $ | 63,688 | | | | | 214,509 | | | | 154,752 | | | | 77,015 | | | | | 210,301 | | | | 152,374 | | | | 77,187 | |
Restricted stock units weighted average remaining contractual terms (in years) information at December 31 for the years 2020, 2019, and 2018 2017 is as follows: | | | | | | | | | | | | | | | | | | | | | | | | | | 0.96 | | | | 1.02 | | | | 0.92 | | | | | 0.96 | | | | 1.02 | | | | 0.91 | |
Weighted average stock options exercise price information for the year ended December 31, 20192020 is as follows: | | | | | | | | | | | $ | | | | | | | | | | | | | | | | | | | | | | | Outstanding at December 31 | | | | | Exercisable at December 31 | | | | |
| | | | | | | | | | | $ | 29.91 | | | | | 72.61 | | | | | 23.77 | | | | | 0— | | | | | 0— | | Outstanding at December 31 | | | 45.59 | | Exercisable at December 31 | | | 23.51 | |
The total cash received from employees as a result of employee stock options exercises during the years ended December 31, 2020, 2019, and 2018, and 2017, was $3.8 million, $3.7 million, $1.0 million and $6.8$1.0 million, respectively. In connection with these exercises, the tax benefit realized by Teradyne for the years ended December 31, 2020, 2019, and 2018, and 2017, was $1.5 million, $2.0 million, $0.4 million, and $2.5$0.4 million, respectively.
Stock option aggregate intrinsic value information for the years ended December 31, 2020, 2019, 2018, and 20172018 is as follows: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | $ | | | | $ | | | | $ | | | | | | | | | | | | | | | | Vested and expected to vest | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | $ | 9,682 | | | $ | 9,232 | | | $ | 2,960 | | | | | 16,083 | | | | 12,218 | | | | 7,359 | | Vested and expected to vest | | | 13,499 | | | | 7,701 | | | | 7,359 | | | | | 2,584 | | | | 4,517 | | | | 5,905 | |
Stock options weighted average remaining contractual terms (in years) information at December 31, for the years 2020, 2019, 2018, and 20172018 is as follows: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Vested and expected to vest | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | 4.6 | | | | 4.2 | | | | 3.6 | | Vested and expected to vest | | | 4.9 | | | | 5.0 | | | | 3.6 | | | | | 2.5 | | | | 2.1 | | | | 2.4 | |
As of December 31, 2019,2020, total unrecognized expense related to non-vested restricted stock unit awards and stock options was $45$44 million and is expected to be recognized over a weighted average period of 1.82.4 years. Employee Stock Purchase Plan Under the ESPP, eligible employees may purchase shares of common stock through regular payroll deductions of up to 10% of their compensation, to a maximum of shares with a fair market value of $25,000 per calendar year, not to exceed 6,000 shares. Under the plan, the price paid for the common stock is equal to 85% of the stock price on the last business day of the six-month purchase period. In July 2020, 0.2 million shares of common stock were issued to employees who participated in the plan during the first half of 2020 at the price of $71.83 per share. In January 2021, Teradyne issued 0.1 million shares of common stock to employees who participated in the plan during the second half of 2020 at the price of $101.91 per share. In July 2019, 0.3 million shares of common stock were issued to employees who participated in the plan during the first half of 2019 at the price of $40.72 per share. In January 2020, Teradyne issued 0.2 million shares of common stock to employees who participated in the plan during the second half of 2019 at the price of $57.96 per share. In July 2018, 0.3 million shares of common stock were issued to employees who participated in the plan during the first half of 2018 at the price of $32.36 per share. In January 2019, Teradyne issued 0.4 million shares of common stock to employees who participated in the plan during the second half of 2018 at the price of $26.67 per share. In July 2017, 0.3 million shares of common stock were issued to employees who participated in the plan during the first half of 2017 at the price of $25.53 per share. In January 2018, Teradyne issued 0.3 million shares of common stock to employees who participated in the plan during the second half of 2017 at the price of $35.59 per share.
As of December 31, 2019,2020, there were 1.81.4 million shares available for grant under the ESPP.
The following table provides the effect to income from operations for recording stock-based compensation for the years ended December 31, 2020, 2019, 2018, and 2017:2018: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | $ | | | | $ | | | | $ | | | Engineering and development | | | | | | | | | | | | | Selling and administrative | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ) | | | | ) | | | | ) | | | | | | | | | | | | | | Total stock-based compensation expense after income taxes | | $ | | | | $ | | | | $ | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | $ | 4,227 | | | $ | 3,480 | | | $ | 3,129 | | Engineering and development | | | 12,039 | | | | 9,913 | | | | 9,181 | | Selling and administrative | | | 28,640 | | | | 24,504 | | | | 21,267 | | | | | | | | | | | | | | | | | | 44,906 | | | | 37,897 | | | | 33,577 | | | | | (13,060 | ) | | | (8,360 | ) | | | (12,036 | ) | | | | | | | | | | | | | | Total stock-based compensation expense after income taxes | | $ | 31,846 | | | $ | 29,537 | | | $ | 21,541 | | | | | | | | | | | | | | |
Teradyne sponsors a defined contribution employee retirement savings plan (“Savings Plan”) covering substantially all U.S. employees. Under the Savings Plan, employees may contribute up to 20% of their compensation (subject to Internal Revenue Service limitations). The Savings Plan provides for a discretionary employer match that is determined each year. In 2020, 2019 2018 and 2017,2018, Teradyne matched 100% of eligible employee contributions up to 4% of their compensation for employees not accruing benefits in the U.S. Qualified Pension Plan. There was no match for employees still actively accruing benefits in the U.S. Qualified Pension Plan. Teradyne’s contributions vest 25% per year for the first four years of employment, and contributions for those employees with four years of service vest immediately. In addition, Teradyne sponsors an unfunded U.S. Supplemental Savings Plan to provide savings benefits in excess of those allowed by the Employee Retirement Income Security Act of 1974 and the Internal Revenue Code. The provisions of this plan are the same as the Savings Plan. The liability for the U.S. Supplemental Savings Plan at December 31, 2020 and 2019, and 2018, was $32.7$38.0 million and $24.4$32.7 million, respectively, and is included in retirement plan liabilities. Teradyne contributes to defined contributions savings plans for its foreign employees. Under Teradyne’s savings plans, amounts charged to the statements of operations for the years ended December 31, 2020, 2019, and 2018 and 2017 were $21.7 million, $20.9 million, and $19.4 million, and $16.8 million, respectively.
The components of income (loss) before income taxes and the provision (benefit) for income taxes as shown in the consolidated statements of operations were as follows: | | | | | | | | | | | | | | | | | | | | | | | | | | | Income before income taxes | | | | | | | | | | | | | | | $ | | | | $ | | | | $ | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | $ | | | | $ | | | | $ | | | | | | | | | | | | | | | | Provision (benefit) for income taxes | | | | | | | | | | | | | | | | | | | | | | | | | | | | $ | | | | $ | | ) | | $ | | | | | | | | | | | | | | | | | | | | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ) | | | | | | | | | | | | | ) | | | | ) | | | | ) | | | | | | | | | | | | | ) | | | | | | | | | | | | | | | | | | ) | | | | | | | | | | | | | | | | | | | | | | Total provision for income taxes | | $ | | | | $ | | | | $ | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | Income before income taxes: | | | | | | | | | | | | | | | $ | 312,153 | | | $ | 192,442 | | | $ | 189,691 | | | | | 588,862 | | | | 333,330 | | | | 278,110 | | | | | | | | | | | | | | | | | $ | 901,015 | | | $ | 525,772 | | | $ | 467,801 | | | | | | | | | | | | | | | Provision (benefit) for income taxes: | | | | | | | | | | | | | | | | | | | | | | | | | | | | $ | 58,678 | | | $ | 19,297 | | | $ | (59,122 | ) | | | | 75,193 | | | | 52,810 | | | | 45,083 | | | | | (1,315 | ) | | | (4,347 | ) | | | 1,721 | | | | | | | | | | | | | | | | | | 132,556 | | | | 67,760 | | | | (12,318 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | (12,604 | ) | | | (4,522 | ) | | | 29,252 | | | | | (5,127 | ) | | | (8,007 | ) | | | (1,243 | ) | | | | 2,043 | | | | 3,073 | | | | 331 | | | | | | | | | | | | | | | | | | (15,688 | ) | | | (9,456 | ) | | | 28,340 | | | | | | | | | | | | | | | Total provision for income taxes: | | $ | 116,868 | | | $ | 58,304 | | | $ | 16,022 | | | | | | | | | | | | | | |
Income tax expense for 2020, 2019 , and 2018 totaled $116.9 million, $58.3 million, and 2017 totaled $58.3 million
, $16.0 million
and $266.7 million, respectively. The effective tax rate for 2020, 2019 and 2018 was 13.0%, 11.1% and 2017 was 11.1%, 3.4% and 50.9%, respectively. On December 22, 2017, the U.S. enacted the Tax Cuts and Jobs Act of 2017 (the “Tax Reform Act”), making significant changes to the Internal Revenue Code. The Tax Reform Act has significant direct and indirect implications for accounting for income taxes under ASC 740, “Accounting for Income Taxes” some of which could not be calculated with precision until further clarification and guidance was made available from tax authorities, regulatory bodies or the FASB. In light of this uncertainty, on December 22, 2017 the SEC issued
Staff Accounting Bulletin (“SAB”) No. 118, “Income Tax Accounting Implications of the Tax Cuts and Jobs Act,” to address uncertainty in the application of U.S. GAAP when the registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the Tax Reform Act. In accordance with SAB 118, Teradyne recorded $186.0 million of additional income tax expense in the fourth quarter of 2017 which represented Teradyne’s best estimate of the impact of the Tax Reform Act in accordance with Teradyne’s understanding of the Tax Reform Act and available guidance as of that date. The $186.0 million was primarily composed of expense of $161.0 million related to the one-time transition tax on the mandatory deemed repatriation of foreign earnings, $33.6 million of expense related to the remeasurement of certain deferred tax assets and liabilities based on the rates at which they are expected to reverse in the future, and a benefit of $10.3 million associated with the impact of correlative adjustments on uncertain tax positions. In accordance with the requirements of SAB 118, in the fourth quarter of 2018, ,
Teradyne completed its analysis of the effect of the Tax Reform Act based on the application of the most recently available guidance as of December 31, 2018 and recorded $49.5 million of net income tax benefit. The net benefit consisted of $51.7 million of benefit resulting from a reduction in the estimate of the one-time transition tax on the mandatory deemed repatriation of foreign earnings and an expense of $2.2 million associated with the impact of correlative adjustments on uncertain tax positions. Teradyne has made an accounting policy election to account for GILTIglobal intangible low-taxed income (“GILTI”) as a component of tax expense in the period in which Teradyne is subject to the rules and therefore did not provide any deferred tax impacts of GILTI in its consolidated financial statements.
The increase in the effective tax rate from 20182019 to 20192020 is primarily attributable to a reduction in the benefit from releases of reserves for uncertain tax positions and a reduction in the benefit from foreign tax credits. These increases in expense associated with GILTI andwere partially offset by a decrease in the transition tax on the mandatory deemed repatriation of foreign earnings. Theseearnings and shift in the geographic distribution of income, which increases the income subject to taxation in expense were partially offset by increased benefit from the U.S. foreign derived intangible income deduction, foreignlower tax credits and a net reduction of reserves for uncertainrate jurisdictions relative to higher tax positions. rate jurisdictions.On July 27, 2015, in Altera Corp. (“Altera”) v. Commissioner, the U.S. Tax Court issued an opinion invalidating the regulations relating to the treatment of stock-based compensation expense in an intercompany cost-sharing arrangement. A final decision was issued by the Tax Court in December 2015. The IRS appealed the decision in June 2016. On July 24, 2018, the U.S. Court of Appeals for the Ninth Circuit (“Ninth Circuit”) issued a decision that was subsequently withdrawn and a reconstituted panel conferred on the appeal. On June 7, 2019, the Ninth Circuit upheld the cost-sharing regulations. On November 12, 2019 the Ninth Circuit denied Altera’s petition for rehearing of its case. As a result, duringAltera’s application for certiorari to the Supreme Court was declined on June 22, 2020. In the fourth quarter of 2019 and 2020, Teradyne recognized a tax expense of approximately $6.3 million and $2.3 million, respectively, related to the inclusion of stock-based compensation in its intercompany cost-sharing arrangement. The decreaseincrease in the effective tax rate from 20172018 to 2018 was2019 is primarily attributable to the $186.0 million of income taxincreases in expense recorded in the fourth quarter of 2017the impact of the Tax Reform Actassociated with GILTI and the $51.7 million of income tax benefit recorded in the fourth quarter of 2018 resulting from a reduction in the estimate of theone-time
transition tax on the mandatory deemed repatriation of foreign earnings and anearnings. These increases in expense of $2.2 million associated with the impact of correlative adjustments on uncertain tax positions. The change in the effective tax ratewere partially offset by increased benefit from 2017 to 2018 was also impacted by a shift in the geographic distribution of income which increased income subject to taxation in the U.S. relative to lower tax rate jurisdictions, the benefit of the U.S. foreign derived intangible income deduction, foreign tax credits and increases in discrete benefit froma net reduction of reserves for uncertain tax positions.non-taxableforeign exchange gains and losses.
A reconciliation of the effective tax rate for the years 2020, 2019 2018 and 20172018 is as follows: | | | | | | | | | | | | | | | | | | | | | | | U.S. statutory federal tax rate | | | | % | | | | % | | | | % | U.S. global intangible low-taxed income | | | | | | | | | | | | | | | | | | | | | ) | | | | | State income taxes, net of federal tax benefit | | | | | | | | | | | | ) | | | | | ) | | | | ) | | | | ) | | | | | ) | | | | | | | | | | | | (4.0 | ) | | | (2.0 | ) | | | (16.3 | ) | U.S. foreign derived intangible income | | | (2.6 | ) | | | (1.8 | ) | | | | | U.S. research and development credit | | | | ) | | | | ) | | | | ) | | | | | ) | | | | ) | | | | ) | Impact of rate change on deferred taxes | | | | | | | 0.3 | | | | 6.9 | | Domestic production activities deduction | | | | | | | | | | | (0.3 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 11.1 | % | | | 3.4 | % | | | 50.9 | % | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | U.S. statutory federal tax rate | | | 21.0 | % | | | 21.0 | % | | | 21.0 | % | U.S. global intangible low-taxed income | | | 5.7 | | | | 6.2 | | | | 0.3 | | State income taxes, net of federal tax benefit | | | 0.3 | | | | 0.5 | | | | 0.1 | | | | | (5.6 | ) | | | (4.0 | ) | | | (2.0 | ) | | | | (4.8 | ) | | | (5.9 | ) | | | (2.2 | ) | U.S. foreign derived intangible income | | | (2.2 | ) | | | (2.6 | ) | | | (1.8 | ) | U.S. research and development credit | | | (1.3 | ) | | | (1.8 | ) | | | (2.2 | ) | | | | (0.6 | ) | | | (0.7 | ) | | | (1.2 | ) | | | | (0.1 | ) | | | (4.3 | ) | | | 1.0 | | | | | | | | | 1.9 | | | | (10.5 | ) | Impact of rate change on deferred taxes | | | | | | | | | | | 0.3 | | | | | 0.6 | | | | 0.8 | | | | 0.6 | | | | | | | | | | | | | | | | | | 13.0 | % | | | 11.1 | % | | | 3.4 | % | | | | | | | | | | | | | |
Teradyne qualifies for a tax holiday in Singapore by fulfilling the requirements of an agreement with the Singapore Economic Development Board under which certain headcount and spending requirements must be met. The tax savings attributable to the Singapore tax holiday for the years ended December 31, 2020, 2019 and 2018 and 2017 were $29.9 million or $0.16 per diluted share, $15.1 million or $0.08 $0.08 per diluted share $11.9 and $11.9 million or $0.06 per diluted share, and $24.8 million or $0.12 per diluted share, respectively. In November 2020, Teradyne entered into an agreement with the Singapore Economic Development Board which extended our Singapore tax holiday under substantially similar terms to the agreement which expired on December 31, 2020. The new tax holiday is scheduled to expire on December 31, 20202025. .
Significant components of Teradyne’s deferred tax assets (liabilities) as of December 31, 20192020 and 20182019 were as follows: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | $ | | | | $ | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 3,292 | | | | — | | Net operating loss carryforwards | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Gross deferred tax assets | | | | | | | | | Less: valuation allowance | | | | ) | | | | ) | | | | | | | | | | Total deferred tax assets | | $ | | | | $ | | | | | | | | | | | | Deferred tax liabilities: | | | | | | | | | | | $ | | ) | | $ | | ) | | | | | ) | | | | ) | | | | (1,601 | ) | | | | | | | | | | | | | | Total deferred tax liabilities | | $ | | ) | | $ | | ) | | | | | | | | | | | | $ | | | | $ | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | $ | 87,595 | | | $ | 79,480 | | | | | 33,156 | | | | 25,424 | | | | | 28,348 | | | | 24,459 | | | | | 18,427 | | | | 18,572 | | | | | 12,627 | | | | 13,093 | | | | | 9,235 | | | | 7,622 | | | | | 6,543 | | | | 7,042 | | | | | 5,890 | | | | 4,768 | | | | | 3,292 | | | | 3,292 | | Net operating loss carryforwards | | | 1,823 | | | | 2,705 | | | | | 626 | | | | 187 | | | | | | | | | | | Gross deferred tax assets | | | 207,562 | | | | 186,644 | | Less: valuation allowance | | | (84,962 | ) | | | (77,177 | ) | | | | | | | | | | Total deferred tax assets | | $ | 122,600 | | | $ | 109,467 | | | | | | | | | | | Deferred tax liabilities: | | | | | | | | | | | $ | (14,525 | ) | | $ | (18,238 | ) | | | | (12,726 | ) | | | (16,705 | ) | | | | (10,688 | ) | | | (11,197 | ) | | | | (3,515 | ) | | | — | | | | | (3,344 | ) | | | (1,601 | ) | | | | (710 | ) | | | (611 | ) | | | | | | | | | | Total deferred tax liabilities | | $ | (45,508 | ) | | $ | (48,352 | ) | | | | | | | | | | | | $ | 77,092 | | | $ | 61,115 | | | | | | | | | | |
As of December 31, 20192020 and 2018,2019, Teradyne evaluated the likelihood that it would realize deferred income taxes to offset future taxable income and concluded that it is more likely than not that a substantial majority of its deferred tax assets will be realized through consideration of both the positive and negative evidence. At December 31, 20192020 and 2018,2019, Teradyne maintained a valuation allowance for certain deferred tax assets of $77.2$85.0 million and $69.9$77.2 million, respectively, primarily related to state net operating losses and state tax credit carryforwards, due to the uncertainty regarding their realization. Adjustments could be required in the future if Teradyne estimates that the amount of deferred tax assets to be realized is more or less than the net amount recorded. At December 31, 2019,2020, Teradyne had operating loss carryforwards that expire in the following years:
| | | | | | | | | | |
| | |
| | | | | | | | $ | 333 | | | $ | — | | | | | 2,203 | | | | — | | | | | 3,368 | | | | — | | | | | 812 | | | | — | | | | | 191 | | | | — | | | | | 7,452 | | | | — | | | | | 2,147 | | | | 68 | | | | | 73 | | | | — | | | | | 870 | | | | 3,923 | | | | | | | | | | | | | $ | 17,449 | | | $ | 3,991 | | | | | | | | | | |
Teradyne has approximately $108.4$116.3 million of tax credit carryforwards including federal business tax credits of approximately $2.1$1.9 million which expire in 2028 through 2030, and state tax credits of $106.3$114.3 million, of which $59.7$63.8 million do not expire and the remainder expires in the years 20202021 through 2039.2040. Teradyne’s gross unrecognized tax benefits for the years ended December 31, 2020, 2019 2018 and 20172018 were as follows: | | | | | | | | | | | | | | | | | | | | | | | | | | | Beginning balance, as of January 1 | | $ | | | | $ | | | | $ | | | | | | | | | | | | | | | | Tax positions for current year | | | | | | | | | | | | | Tax positions for prior years | | | | | | | | | | | | | | | | | | | | | | | | | | Tax positions for prior years | | | | ) | | | | ) | | | | ) | | | | | ) | | | | ) | | | | ) | Settlements with tax authorities | | | | | | | | | | | | ) | | | | | | | | | | | | | | Ending balance as of December 31 | | $ | | | | $ | | | | $ | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | Beginning balance as of January 1 | | $ | 21,180 | | | $ | 43,395 | | | $ | 36,263 | | | | | | | | | | | | | | | Tax positions for current year | | | 1,082 | | | | 1,322 | | | | 4,716 | | Tax positions for prior years | | | 66 | | | | 8,043 | | | | 2,626 | | | | | | | | | | | | | | | Tax positions for prior years | | | (2,989 | ) | | | (31,397 | ) | | | (153 | ) | | | | (1,436 | ) | | | (183 | ) | | | (57 | ) | | | | | | | | | | | | | | Ending balance as of December 31 | | $ | 17,903 | | | $ | 21,180 | | | $ | 43,395 | | | | | | | | | | | | | | |
Current year additions relate to federal and state research credits. Prior year additions primarily relate to stock-based compensation .compensation. Prior year reductions are primarily composed of federal and state reserves related to transfer pricing and research credits and resulted from the completion of the 2015 U.S. federal audit in the first quarter of 2019.
Of the $21.2$17.9 million of unrecognized tax benefits as of December 31, 2019, $12.72020, $12.0 million would impact the consolidated income tax rate if ultimately recognized. The remaining $8.5$5.9 million would impact deferred taxes if recognized. Teradyne
does not anticipate a material change in
As of December 31, 2020, Teradyne estimates that it is reasonably possible that the balance of unrecognized tax benefits as of December 31, 2019 may decrease approximately $1.6 million in the next twelve months . as a result of a lapse of statutes of limitation. The estimated decrease relates to loss carryforwards, research credits and U.S. manufacturing activities deductions.
Teradyne records all interest and penalties related to income taxes as a component of income tax expense. Accrued interest and penalties related to income tax items at December 31, 20192020 and 20182019 amounted to $1.4 $1.2 million and $0.3$1.4 million, respectively. For the years ended December 31, 2020, 2019 and 2018, and 2017,benefit of $0.2 million, expense of $1.1 million, expense of $0.1 million and benefit of $0.1 million, respectively, was recorded for interest and penalties related to income tax items. Teradyne is subject to U.S. federal income tax, as well as income tax in multiple state, local and foreign jurisdictions. As of December 31, 2019,2020, all material state and local income tax matters have been concluded through 2013,2015, all material federal income tax matters have been concluded through 2015 2016 and all material foreign income tax matters have been concluded through 2011
. 2012. However, in some jurisdictions, including the United States, operating losses and tax credits may be subject to adjustment until such time as they are utilized and the year of utilization is closed to adjustment. As of December 31, 2019,2020, Teradyne is not permanently reinvested with respect to the unremitted earnings of non-U.S. subsidiaries to the extent that those earnings exceed local statutory and operational requirements. Remittance of those earnings is not expected to result in material income tax. T. OPERATING SEGMENT, GEOGRAPHIC AND SIGNIFICANT CUSTOMER INFORMATION Teradyne has 4 reportable segments (Semiconductor Test, Industrial AutomationSystem Test, Wireless Test and Wireless Test)Industrial Automation). Each of the Semiconductor Test, System Test, and Wireless Test segments is alsoreportable segment represents an individual
operating segment. TheOn September 15, 2020, Teradyne announced the appointment of Gregory Smith as President of Teradyne’s Industrial Automation reportable segment consistseffective October 1, 2020. With the appointment of operating segments with discrete financial information, which have been combined into oneGregory Smith, the Industrial Automation reportable segment as they share similar economic characteristics, types of products, production processes, distribution channels,is considered one operating segment and currency risks.one reporting unit. The Semiconductor Test segment includes operations related to the design, manufacturing and marketing of semiconductor test products and services. The System Test segment includes operations related to the design, manufacturing and marketing of products and services for storage and system level test, defense/aerospace instrumentation test, storage test and circuit-board test. The Wireless Test segment includes operations related to the design, manufacturing and marketing of wireless test products and services. The Industrial Automation segment includes operations related to the design, manufacturing and marketing of collaborative robotic arms, autonomous mobile robots and advanced robotic control software. The Wireless Test segment includes operations related to the design, manufacturing and marketing of wireless test products and services. Teradyne evaluates performance based on several factors, of which the primary financial measure is business segment income (loss) before income taxes. The accounting policies of the business segments are the same as those described in Note B: “Accounting Policies.”
Segment information for the years ended December 31, 2020, 2019, 2018, and 20172018 is as follows: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | ) | | $ | | | Income (loss) before taxes (1)(2) | | | | | | | | ) | | | | | | | | | | | | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Depreciation and amortization expense | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | ) | | $ | | | Income (loss) before taxes (1)(2) | | | | | | | | | | | | | | | | | | | | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Depreciation and amortization expense | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | Income (loss) before taxes (1)(2) | | | | | | | | | | | | | | | | | | | | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Depreciation and amortization expense | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Income (loss) before taxes (1)(2) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | — | | | | | | Depreciation and amortization expense | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Income (loss) before taxes (1)(2) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | — | | | | | | Depreciation and amortization expense | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Income (loss) before taxes (1)(2) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | — | | | | | | Depreciation and amortization expense | | | | | | | | | | | | | | | | | | | | | | | | |
| Included in Corporate and Other are: contingent consideration adjustments, pension and postretirement plans actuarial gains (losses), severance charges, related to the Japan earthquake, interest income, interest expense, net foreign exchange gains (losses), intercompany eliminations and acquisition related charges. |
| Included in income (loss) before taxes are charges and credits related to restructuring and other, and inventory charges. |
| Total assets are attributable to each segment. Corporate assets consist of cash and cash equivalents, marketable securities and certain other assets. |
Included in each segment are charges and credits in the following line items in the statements of operations
:operations: | | | | | | | | | | | | | | | For the Year Ended December 31, | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Cost of revenues—inventory charge | | $ | | | | $ | | | | $ | | | Restructuring and other—employee severance | | | | | | | | | | | | | Restructuring and other—impairment of fixed assets | | | | | | | | | | | | | | | | | | | | | | | | | | Restructuring and other—employee severance | | $ | | | | $ | | | | $ | 1,414 | | Restructuring and other—acquisition related expenses and compensation | | | | | | | 1,163 | | | | | | Cost of revenues—inventory charge | | | | | | | | | | | | | | | | | | | | | | | | | | Cost of revenues—inventory charge | | $ | | | | $ | | | | $ | | | | | | | | | | | | | | | | Cost of revenues—inventory charge | | $ | | | | $ | | | | $ | | | Restructuring and other—lease impairment | | | | | | | | | | | | | | | | | | | | | | | | | | Restructuring and other—MiR contingent consideration adjustment | | $ | | ) | | $ | | | | $ | | | Other (income) expense, net—investment impairment charge | | | 15,000 | | | | — | | | | — | | Restructuring and other—AutoGuide contingent consideration adjustment | | | 2,976 | | | | — | | | | — | | Selling and administrative—equity modification charge | | | | | | | | | | | | | Restructuring and other—acquisition related expenses and compensation | | | | | | | | | | | | | Restructuring and other—Universal Robots contingent consideration adjustment | | | | | | | | ) | | | | | Restructuring and other—property insurance recovery related to Japan earthquake | | | | | | | | | | | | ) |
| | For the Year Ended December 31, | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Cost of revenues—inventory charge | | | | | | | | | | | | | Contract termination settlement fee | | | | | | | — | | | | — | | Restructuring and other—employee severance | | | — | | | | | | | | | | | | | | | | | | | | | | | Cost of revenues—inventory charge | | | | | | | | | | | | | | | | | | | | | | | | | | Restructuring and other—acquisition related expenses and compensation | | | | | | | | | | | | | Cost of revenues—inventory charge | | | | | | | | | | | | | Restructuring and other—employee severance | | | | | | | | | | | — | | | | | | | | | | | | | | | Cost of revenues—inventory charge | | | | | | | | | | | | | | | | | | | | | | | | | | Restructuring and other—AutoGuide contingent consideration adjustment | | | | | | | | | | | — | | Restructuring and other—MiR contingent consideration adjustment | | | | | | | | | | | | | Restructuring and other—acquisition related expenses and compensation | | | | | | | | | | | | | Other (income) expense, net—investment impairment charge | | | — | | | | | | | | — | | Selling and administrative—equity modification charge | | | | | | | | | | | — | | Restructuring and other—Universal Robots contingent consideration adjustment | | | — | | | | — | | | | | |
Information as to Teradyne’s revenues by country is as follows: | | | | | | | | | | | | | | | | | | | | | | | | | | | Revenues from customers (1): | | | | | | | | | | | | | | | $ | | | | $ | | | | $ | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | $ | | | | $ | | | | $ | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | Revenues from customers (1): | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Revenues attributable to a country are based on location of customer site. |
In 2020, revenues from Taiwan Semiconductor Manufacturing Company Ltd., a customer of Teradyne’s Semiconductor Test segment, accounted for 15% of Teradyne’s consolidated revenues. In 2019 and 2018, 0 single customer accounted for more than 10% of Teradyne’
Teradyne’s consolidated revenues. In 2017, revenues from Taiwan Semiconductor Manufacturing Company Ltd. accounted for 13% ofits
revenues
. Taiwan Semiconductor Manufacturing Company Ltd. is a customer ofTeradyne’s Semiconductor Test segment. Teradyne estimates consolidated revenues driven by Huawei Technologies Co.
Ltd. (“Huawei”), combining direct sales to that customer with sales to the customer’s OSATs,
accounted for approximately 11% and 4%ofconsolidated revenues in 2019 and 2018, respectively. Teradyne estimates consolidated revenues driven by anotherone OEM customer, combining direct sales to that customer with sales to the customer’s OSATs (which include Taiwan Semiconductor Manufacturing Company Ltd.), accounted for approximately
10%,
13% and
22% of
approximately 25%, 10% and 13% of its consolidated revenues in 2020, 2019 and 2018, respectively. Teradyne
estimates consolidated revenues driven by Huawei Technologies Co., Ltd. (“Huawei”), combining direct sales to that customer with sales to the customer’s OSATs, accounted for approximately 3% and 2017,11% of its consolidated revenues in 2020 and 2019, respectively. Long-lived assets by geographic area: | As of December 31, 20192020 and 2018,2019, long-lived assets attributable to Singapore were $35.2 $62.5 million and $19.4$35.2 million, respectively. |
U. STOCK REPURCHASE PROGRAM In December 2016, Teradyne’s Board of Directors approved a $500.0 million share repurchase authorization which commenced on January 1, 2017. The cumulative repurchases as of December 31, 2017 totaled 5.82018, Teradyne repurchased 21.6 million shares of common stock for $200.0$823.5 million at an average price per share of $34.30.$38.06. In January 2018, Teradyne’s Board of Directors cancelled the December 2016 stock repurchase program and authorized a new stock repurchase program for up to $1.5 billion of common stock. In 2019, Teradyne repurchased 10.9 million shares of common stock for $500.0 million at an average price per share of $45.89. In 2018, Teradyne repurchased 21.6 million shares of common stock for $823.5 million at an average price per share of $38.06. The cumulative repurchases as of December 31, 2019, for the 2018 stock repurchase program, totaled 32.5 million shares of common stock for $1,323.0 million at an average price per share of $40.68.
In January 2020, Teradyne’s Board of Directors cancelled the January 2018 repurchase program and approved a new stock repurchase program for up to $1.0 billion of common stock. On April 1, 2020, Teradyne suspended its share repurchase program. In 2020, Teradyne repurchased 1.5 million shares of common stock for $88.5 million at an average price of $58.33 per share. In January 2021, Teradyne’s Board of Directors cancelled the January 2020 repurchase program and approved a new repurchase program for up to $2.0 billion of common stock. Teradyne intends to repurchase a minimum of $250.0$600 million in 2020.2021.
In January 2020
, 2021, Teradyne’s Board of Directors declared a quarterly cash dividend of $0.10 per share to be paid on March 20, 2020 19, 2021 to shareholders of record as of February 21, 202019, 2021. .While Teradyne declared a quarterly cash dividend and authorized a share repurchase program, it may reduce or eliminate the cash dividend or share repurchase program in the future. Future cash dividends and stock repurchases are subject to the discretion of Teradyne’s Board of Directors which will consider, among other things, Teradyne’s earnings, capital requirements and financial condition. On February 28, 2020, RealWear’s debt holder demanded repayment of its $25.0 million loan to RealWear. As a result, in the fourth quarter of 2019, Teradyne recorded an impairment charge of $15.0 million to reduce its investment in RealWear to 0 as of December 31, 2019.
SUPPLEMENTARY INFORMATION The following sets forth certain unaudited consolidated quarterly statements of operations data for each of Teradyne’s last eight quarters. In management’s opinion, this quarterly information reflects all adjustments, consisting only of normal recurring adjustments, necessary for a fair statement for the periods presented. Such quarterly results are not necessarily indicative of future results of operations and should be read in conjunction with the audited consolidated financial statements of Teradyne and the notes thereto included elsewhere herein. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | (in thousands, except per share amounts) | | | | | | | | | | | | | | | | | | | | | $ | | | | $ | | | | $ | | | | $ | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total cost of revenues (exclusive of acquired intangible assets amortization shown separately below) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Selling and administrative | | | | | | | | | | | | | | | | | Engineering and development | | | | | | | | | | | | | | | | | Acquired intangible assets amortization | | | | | | | | | | | | | | | | | | | | | | | | | ) | | | | ) | | | | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Non-operating (income) expense: | | | | | | | | | | | | | | | | | | | | | ) | | | | ) | | | | ) | | | | ) | | | | | | | | | | | | | | | | | | Other (income) expense, net | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Income before income taxes | | | | | | | | | | | | | | | | | Income tax (benefit) provision | | | | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | $ | | | | $ | | | | $ | | | | $ | | | | | | | | | | | | | | | | | | | | Net income per common share—basic | | $ | | | | $ | | | | $ | | | | $ | | | | | | | | | | | | | | | | | | | | Net income per common share—diluted | | $ | | | | $ | | | | $ | | | | $ | | | | | | | | | | | | | | | | | | | | Cash dividend declared per common share | | $ | | | | $ | | | | $ | | | | $ | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | (in thousands, except per share amounts) | | | | | | | | | | | | | | | | | | | | | $ | 610,906 | | | $ | 734,630 | | | $ | 697,745 | | | $ | 647,625 | | | | | 93,449 | | | | 104,031 | | | | 121,739 | | | | 111,343 | | | | | | | | | | | | | | | | | | | | | | 704,355 | | | | 838,661 | | | | 819,484 | | | | 758,968 | | | | | | | | | | | | | | | | | | | | | | 259,996 | | | | 322,732 | | | | 300,174 | | | | 274,574 | | | | | 38,809 | | | | 44,456 | | | | 60,382 | | | | 34,605 | | | | | | | | | | | | | | | | | | | Total cost of revenues (exclusive of acquired intangible assets amortization shown separately below) | | | 298,805 | | | | 367,188 | | | | 360,556 | | | | 309,179 | | | | | | | | | | | | | | | | | | | | | | 405,550 | | | | 471,473 | | | | 458,928 | | | | 449,789 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Selling and administrative | | | 111,388 | | | | 113,259 | | | | 115,840 | | | | 124,279 | | Engineering and development | | | 85,159 | | | | 94,102 | | | | 94,909 | | | | 100,795 | | Acquired intangible assets amortization | | | 9,891 | | | | 8,941 | | | | 6,219 | | | | 5,752 | | | | | (7,606 | ) | | | 37,222 | | | | (27,701 | ) | | | (15,117 | ) | | | | | | | | | | | | | | | | | | | | | 198,832 | | | | 253,524 | | | | 189,267 | | | | 215,709 | | | | | | | | | | | | | | | | | | | | | | 206,718 | | | | 217,949 | | | | 269,661 | | | | 234,080 | | Non-operating (income) expense: | | | | | | | | | | | | | | | | | | | | (2,751 | ) | | | (1,368 | ) | | | (1,071 | ) | | | (793 | ) | | | | 5,551 | | | | 6,043 | | | | 6,237 | | | | 6,351 | | Other (income) expense, net | | | 6,849 | | | | (4,017 | ) | | | 764 | | | | 5,597 | | | | | | | | | | | | | | | | | | | Income before income taxes | | | 197,069 | | | | 217,291 | | | | 263,731 | | | | 222,925 | | | | | 20,878 | | | | 28,383 | | | | 41,013 | | | | 26,595 | | | | | | | | | | | | | | | | | | | | | $ | 176,191 | | | $ | 188,908 | | | $ | 222,718 | | | $ | 196,330 | | | | | | | | | | | | | | | | | | | Net income per common share—basic | | $ | 1.06 | | | $ | 1.14 | | | $ | 1.34 | | | $ | 1.18 | | | | | | | | | | | | | | | | | | | Net income per common share—diluted | | $ | 0.97 | | | $ | 1.05 | | | $ | 1.21 | | | $ | 1.05 | | | | | | | | | | | | | | | | | | | Cash dividend declared per common share | | $ | 0.10 | | | $ | 0.10 | | | $ | 0.10 | | | $ | 0.10 | | | | | | | | | | | | | | | | | | |
(1) | Restructuring and other includes a $10.0 million gain for the decrease in the fair value of the AutoGuide and MiR contingent consideration liabilities, partially offset by $1.4 million of acquisition related compensation and expenses and $0.7 million of severance charges related to headcount reductions primarily in Industrial Automation and Semiconductor Test. |
(2) | Restructuring and other includes a $29.9 million charge for the increase in the fair value of the AutoGuide contingent consideration liability, a $4.0 million contract termination settlement charge, $3.1 million of |
| acquisition related compensation and expense and $0.8 million of other expenses, partially offset by a $0.6 million gain for the decrease in the fair value of MiR contingent consideration liability. |
(3) | Restructuring and other includes a $27.2 million gain for the decrease in the fair value of AutoGuide contingent consideration liability, and a $1.1 million gain for the decrease in acquisition related compensation liability, partially offset by $0.5 million recorded for employee severance charges primarily in Industrial Automation. |
(4) | Restructuring and other includes a $15.3 million gain for the decrease in the fair value adjustment to the AutoGuide acquisition contingent consideration liability, and a $0.9 million gain for the decrease in acquisition related compensation liability, partially offset by $1.1 million of employee severance charges primarily in Industrial Automation. |
(5) | Teradyne recorded pension and post retirement net actuarial (gains) losses of $(0.1) million, $2.7 million, $7.7 million for the second, third and fourth quarter in 2020, respectively. See Note B: “Accounting Policies” for a discussion of Teradyne’s accounting policy. |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | (in thousands, except per share amounts) | | | | | | | | | | | | | | | | | | | | | $ | 393,442 | | | $ | 457,511 | | | $ | 488,170 | | | $ | 548,552 | | | | | 100,657 | | | | 106,667 | | | | 93,868 | | | | 106,098 | | | | | | | | | | | | | | | | | | | | | | 494,099 | | | | 564,178 | | | | 582,038 | | | | 654,650 | | | | | | | | | | | | | | | | | | | | | | 165,368 | | | | 193,299 | | | | 197,196 | | | | 226,184 | | | | | 41,096 | | | | 46,961 | | | | 39,804 | | | | 45,228 | | | | | | | | | | | | | | | | | | | Total cost of revenues (exclusive of acquired intangible assets amortization shown separately below) | | | 206,464 | | | | 240,260 | | | | 237,000 | | | | 271,412 | | | | | | | | | | | | | | | | | | | | | | 287,635 | | | | 323,918 | | | | 345,038 | | | | 383,238 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Selling and administrative | | | 102,013 | | | | 108,811 | | | | 109,166 | | | | 117,092 | | Engineering and development | | | 76,791 | | | | 81,434 | | | | 77,804 | | | | 86,794 | | Acquired intangible assets amortization | | | 10,634 | | | | 10,083 | | | | 9,647 | | | | 9,784 | | | | | 5,112 | | | | (10,404 | ) | | | (6,500 | ) | | | (2,088 | ) | | | | | | | | | | | | | | | | | | | | | 194,550 | | | | 189,924 | | | | 190,117 | | | | 211,582 | | | | | | | | | | | | | | | | | | | | | | 93,085 | | | | 133,994 | | | | 154,921 | | | | 171,656 | | Non-operating (income) expense: | | | | | | | | | | | | | | | | | | | | (4,989 | ) | | | (4,384 | ) | | | (4,433 | ) | | | (3,185 | ) | | | | 5,520 | | | | 5,800 | | | | 5,463 | | | | 5,441 | | Other (income) expense, net | | | (1,425 | ) | | | 1,401 | | | | 2,158 | | | | 20,514 | | | | | | | | | | | | | | | | | | | Income before income taxes | | | 93,979 | | | | 131,177 | | | | 151,733 | | | | 148,886 | | Income tax provision (benefit) | | | (15,159 | ) | | | 33,780 | | | | 15,873 | | | | 23,811 | | | | | | | | | | | | | | | | | | | | | $ | 109,138 | | | $ | 97,397 | | | $ | 135,860 | | | $ | 125,075 | | | | | | | | | | | | | | | | | | | Net income per common share—basic | | $ | 0.63 | | | $ | 0.57 | | | $ | 0.80 | | | $ | 0.75 | | | | | | | | | | | | | | | | | | | Net income per common share—diluted | | $ | 0.62 | | | $ | 0.55 | | | $ | 0.75 | | | $ | 0.69 | | | | | | | | | | | | | | | | | | | Cash dividend declared per common share | | $ | 0.09 | | | $ | 0.09 | | | $ | 0.09 | | | $ | 0.09 | | | | | | | | | | | | | | | | | | |
(1) | Restructuring and other includes a $3.0 million fair value adjustment to increase the MiR acquisition contingent consideration, $1.3$1.3 million of acquisition related expenses and compensation and $0.8 million of employee severance charges. |
(2) | Restructuring and other includes a $11.7 million gain for the decrease in the fair value of the MiR contingent consideration liability, partially offset by $0.8 million of employee severance charges and $0.5 million of acquisition related expenses and compensation. |
(3) | Restructuring and other includes a $7.8 $7.8 million gain for the decrease in the fair value of MiR contingent consideration liability, partially offset by $0.8 $0.8 million of employee severance charges and $0.5 $0.5 million of acquisition related expenses and compensat
ionand compensation.. |
(4) | Restructuring and other includes a $5.8 million gain for the decrease in the fair value adjustment to the MiR acquisition contingent consideration, partially offset by a $3.0 million fair value adjustment to increase the AutoGuide acquisition contingent consideration, $0.5 million of employee severance charges and $0.2 million of acquisition related expenses and compensationcompensation. . |
(5) | Teradyne recorded pension and post retirement net actuarial losses of $7.7 million for the fourth quarter in 2019. See Note B: “Accounting Policies” for a discussion of Teradyne’s accounting policy. |
(6) | Other (income) expense, net includes a $15.0 million charge for the impairment of the investment in RealWear. |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | (in thousands, except per share amounts) | | | | | | | | | | | | | | | | | | | | | $ | | | | $ | | | | $ | | | | $ | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total cost of revenues (exclusive of acquired intangible assets amortization shown separately below) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Selling and administrative | | | | | | | | | | | | | | | | | Engineering and development | | | | | | | | | | | | | | | | | Acquired intangible assets amortization | | | | | | | | | | | | | | | | | | | | | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Non-operating (income) expense: | | | | | | | | | | | | | | | | | | | | | ) | | | | ) | | | | ) | | | | ) | | | | | | | | | | | | | | | | | | Other (income) expense, net | | | | | | | | | | | | | | | | ) | | | | | | | | | | | | | | | | | | Income before income taxes | | | | | | | | | | | | | | | | | Income tax provision (benefit) | | | | | | | | | | | | | | | | ) | | | | | | | | | | | | | | | | | | | | $ | | | | $ | | | | $ | | | | $ | | | | | | | | | | | | | | | | | | | | Net income per common share—basic | | $ | | | | $ | | | | $ | | | | $ | | | | | | | | | | | | | | | | | | | | Net income per common share—diluted | | $ | | | | $ | | | | $ | | | | $ | | | | | | | | | | | | | | | | | | | | Cash dividend declared per common share | | $ | | | | $ | | | | $ | | | | $ | | | | | | | | | | | | | | | | | | | |
(1) | Restructuring and other includes a $3.5 million gain for the decrease in the fair value of the Universal Robots contingent consideration liability, partially offset by $2.5 million of acquisition related expenses and compensation and $2.4 million of employee severance charges. |
(2) | Restructuring and other includes a $5.0 million gain for the decrease in the fair value of the Universal Robots contingent consideration liability, partially offset by $3.9 million of employee severance charges and $0.8 million of acquisition related expenses and compensation. |
(3) | Restructuring and other includes $1.7 million of employee severance charges, $0.8 million of acquisition related expenses and compensation, partially offset by a $0.8 million gain for the decrease in the fair value of the Universal Robots contingent consideration liability. |
(4) | Restructuring and other includes a $17.7 million fair value adjustment to increase the MiR acquisition contingent consideration, $0.8 million of employee severance charges, and $0.5 million acquisition related expenses and compensation, partially offset by a $7.4 million gain for the decrease in the fair value of the Universal Robots contingent consideration liability. |
(5) | Teradyne recorded pension and post retirement net actuarial gains of $3.5 million for the fourth quarter in 2018. See Note B: “Accounting Policies” for a discussion of Teradyne’s accounting policy. |
| Changes in and disagreements with accountants on accounting and financial disclosure |
Disclosure Controls and Procedures As of the end of the period covered by this report, our management, with the participation of our CEO and CFO, evaluated the effectiveness of our disclosure controls and procedures pursuant to Rule 13a-15(b) promulgated under the Exchange Act. Based upon that evaluation, our CEO and CFO concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were effective in ensuring that material information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, including ensuring that such material information is accumulated and communicated to our management, including our CEO and CFO, as appropriate to allow timely decisions regarding required disclosure. Changes in Internal Control over Financial Reporting There was no change in our internal control over financial reporting during the fourth fiscal quarter ended December 31, 20192020 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. Management’s Annual Report on Internal Control over Financial Reporting Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). Under the supervision and with the participation of our management, including our CEO and CFO, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our evaluation under the framework in Internal Control—Integrated Framework (2013) , our management concluded that our internal control over financial reporting was effective as of December 31, 2019.2020.
The effectiveness of our internal control over financial reporting as of December 31, 20192020 has been audited by PricewaterhouseCoopers LLP, our independent registered public accounting firm, as stated in their report which is included under Item 8 of this Annual Report. Inherent Limitations on Effectiveness of Controls Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
| Directors, Executive Officers and Corporate Governance |
Certain information relating to our directors and executive officers, committee information, reports and charters, executive compensation, security ownership of certain beneficial owners and management and related stockholder matters, and certain relationships and related transactions is incorporated by reference herein from our definitive proxy statement in connection with our Annual Meeting of Shareholders to be held on May 8, 2020.7, 2021. The proxy statement will be filed with the SEC not later than 120 days after the close of the fiscal year. For this purpose, the Compensation Committee Report included in such proxy statement is specifically not incorporated herein. Also see “Item 1: Business—Our Executive Officers.” Certain information relating to our directors and executive officers, executive compensation, security ownership of certain beneficial owners and management and related stockholder matters, and certain relationships and related transactions is incorporated by reference herein from our definitive proxy statement in connection with our Annual Meeting of Shareholders to be held on May 8, 2020.7, 2021. The proxy statement will be filed with the SEC not later than 120 days after the close of the fiscal year. For this purpose, the Compensation Committee Report included in such proxy statement is specifically not incorporated herein. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters |
Certain information relating to our directors and executive officers, executive compensation, security ownership of certain beneficial owners and management and related stockholder matters, and certain relationships and related transactions is incorporated by reference herein from our definitive proxy statement in connection with our Annual Meeting of Shareholders to be held May 8, 2020.7, 2021. The proxy statement will be filed with the SEC not later than 120 days after the close of the fiscal year. For this purpose, the Compensation Committee Report included in such proxy statement is specifically not incorporated herein. Also see “Item 7: Management’s Discussion and Analysis of Financial Condition and Results of Operations—Equity Compensation Plans.” | Certain Relationships and Related Transactions, and Director Independence |
Certain information relating to our directors and executive officers, executive compensation, security ownership of certain beneficial owners and management and related stockholder matters, and certain relationships and related transactions is incorporated by reference herein from our definitive proxy statement in connection with our Annual Meeting of Shareholders to be held on May 8, 2020.7, 2021. The proxy statement will be filed with the SEC not later than 120 days after the close of the fiscal year. For this purpose, the Compensation Committee Report included in such proxy statement is specifically not incorporated herein. | Principal Accountant Fees and Services |
Certain information relating to audit fees and other of Teradyne’s independent registered public accounting firm is incorporated by reference herein from our definitive proxy statement in connection with our Annual Meeting of Shareholders to be held on May 8, 2020.7, 2021. The proxy statement will be filed with the SEC not later than 120 days after the close of the fiscal year. For this purpose, the Audit Committee Report included in such proxy statement is specifically not incorporated herein.
| Exhibits and Financial Statement Schedule |
15(a)(1) Financial Statements The following consolidated financial statements are included in Item 8:
15(a)(2) Financial Statement Schedule The following consolidated financial statement schedule is included in Item 15(c): Schedule II—Valuation and Qualifying Accounts Schedules other than those listed above have been omitted since they are either not required or information is otherwise included. 15(a)(3) Listing of Exhibits The Exhibits which are filed with this report or which are incorporated by reference herein are set forth in the Exhibit Index. 15(c) Financial Statement Schedules
SCHEDULE II—VALUATION AND QUALIFYING ACCOUNTS | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Valuation reserve deducted in the balance sheet from the asset to which it applies: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 2019 Allowance for doubtful account | | $ | | | | $ | | | | $ | | | | $ | 52 | | | $ | | | | | | | | | | | | | | | | | | | | | | | | 2018 Allowance for doubtful account | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | | | | | | | | | | | | | | | | | | | | | 2017 Allowance for doubtful accounts | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | | | | | | | | | | | | | | | | | | | | |
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| | | | | | Valuation reserve deducted in the balance sheet from the asset to which it applies: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 2020 Allowance for doubtful account | | $ | 1,736 | | | $ | 356 | | | $ | 32 | | | $ | 90 | | | $ | 2,034 | | | | | | | | | | | | | | | | | | | | | | | 2019 Allowance for doubtful account | | $ | 1,673 | | | $ | 87 | | | $ | 28 | | | $ | 52 | | | $ | 1,736 | | | | | | | | | | | | | | | | | | | | | | | 2018 Allowance for doubtful account | | $ | 2,219 | | | $ | 0 | | | $ | 20 | | | $ | 566 | | | $ | 1,673 | | | | | | | | | | | | | | | | | | | | | | |
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| | | | | | Valuation reserve deducted in the balance sheet from the asset to which it applies: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | $ | 103,556 | | | $ | 17,534 | | | $ | (521 | ) | | $ | 9,982 | | | $ | 110,587 | | | | | | | | | | | | | | | | | | | | | | | | | $ | 100,779 | | | $ | 15,244 | | | $ | (85 | ) | | $ | 12,382 | | | $ | 103,556 | | | | | | | | | | | | | | | | | | | | | | | | | $ | 102,896 | | | $ | 11,242 | | | $ | 368 | | | $ | 13,727 | | | $ | 100,779 | | | | | | | | | | | | | | | | | | | | | | |
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| | | | | | Valuation reserve deducted in the balance sheet from the asset to which it applies: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | $ | 77,177 | | | $ | 7,785 | | | $ | 0 | | | $ | 0 | | | $ | 84,962 | | | | | | | | | | | | | | | | | | | | | | | | | $ | 69,852 | | | $ | 7,325 | | | $ | — | | | $ | — | | | $ | 77,177 | | | | | | | | | | | | | | | | | | | | | | | | | $ | 63,919 | | | $ | 6,333 | | | $ | 0 | | | $ | 400 | | | $ | 69,852 | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Valuation reserve deducted in the balance sheet from the asset to which it applies: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | $ | | | | $ | | | | $ | | ) | | $ | | | | $ | | | | | | | | | | | | | | | | �� | | | | | | | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | | | | | | | | | | | | | | | | | | | | | | | $ | | | | $ | | | | $ | | ) | | $ | | | | $ | | | | | | | | | | | | | | | | | | | | | | | |
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The following designated exhibits are, as indicated below, either filed herewith or have heretofore been filed with the Securities and Exchange Commission and are referred to and incorporated by reference to such filings. | | | | | | | | | | | | | | | | | | | | | | | | | | Share Sale and Purchase Agreement to and among Teradyne Robotics Holdings Denmark ApS, Teradyne, Inc. and the shareholders of Mobile Industrial Robots ApS dated April 25, 2018. | | | | | | | | | | | | | | Amendment No. 1 dated as of October 10, 2019 to Share Sale and Purchase Agreement by and among Teradyne Robotics Holdings Denmark ApS, Teradyne, Inc. and the former shareholders of Mobile Industrial Robots ApS.
| | | | | | | | | | | | | | Restated Articles of Organization. | | | | | | | | | | 3.2 | | | | | Amended and Restated By-laws, as amended. | | | | | | | | | | | | | | Indenture dated as of December 12, 2016, between Teradyne Inc. and Wilmington Trust, National Association, as trustee. | | | | | | | | | | | | | | Description of Teradyne, Inc. Securities Registered under Section 12 of the Exchange Act. | | | | | | | | | | | | | | Standard Manufacturing Agreement entered into as of November 24, 2003 by and between Teradyne and Solectron. | | | | | | | | | | | | | | Second Amendment to Standard Manufacturing Agreement, dated as of August 27, 2007, by and between Teradyne and Solectron. | | | | | | | | | | | | | | Sixth Amendment to Standard Manufacturing Agreement, dated as of July 27, 2009, by and between Teradyne and Flextronics Corporation. | | | | | | | | | | | | | | Addendum to Standard Manufacturing Agreement (Authorized Purchase Agreement)—Revised July 1, 2010. | | | | | | | | | | | | | | Eighth Amendment to Standard Manufacturing Agreement, dated as of April 13, 2012, by and between Teradyne and Flextronics Sales & Marketing North Asia (L) LTD. | | |
| | | | | | | | | | | | | | | | | | | | | | | | Ninth Amendment to Standard Manufacturing Agreement, dated as of September 17, 2012, by and between Teradyne and Flextronics Sales & Marketing North Asia (L) LTD. | | | | | | | | | | | | | | 2006 Equity and Cash Compensation Incentive Plan, as amended.* | | |
| | | | | | | | | | | | | | | | 10.8 | | Danish Sub-Plan to the 2006 Equity and Cash Compensation Incentive Plan. | | | | | | | | | | | | | | Form of Performance-Based Restricted Stock Unit Agreement for Executive Officers under 2006 Equity and Cash Compensation Incentive Plan.* | | | | | | | | | | | | | | Form of Time-Based Restricted Stock Unit Agreement for Executive Officers under 2006 Equity and Cash Compensation Incentive Plan.* | | | | | | | | | | | | | | Form of Executive Officer Stock Option Agreement under 2006 Equity and Cash Compensation Incentive Plan, as amended.* | | | | | | | | | | | | | | Form of Restricted Stock Unit Agreement for Directors under 2006 Equity and Cash Compensation Incentive Plan.* | | | | | | | | | | | | | | 1996 Employee Stock Purchase Plan, as amended.* | | | | | | | | | | | | | | Danish Sub-Plan to the 1996 Employee Stock Purchase Plan for participants located in the European Union /European Economic Area. | | | | | | | | | | | | | | DanishSub-Plan
to the 1996 Employee Stock Purchase Plan. | | | | | | | | | | 10.15 | | | | | Deferral Plan for Non-Employee Directors, as amended.* | | | | | | | | | | | | 10.16 | | Supplemental Savings Plan, as amended and restated.* | | | | | | | | | | | | 10.17 | | Supplemental Executive Retirement Plan, as restated.* | | | | | | | | | | | | 10.18 | | Agreement Regarding Termination Benefits dated January 22, 2014 between Teradyne and Mark Jagiela.* | | |
| | | | | | | | | | | | | | | 10.19 | | Employment Agreement dated May 7, 2004 between Teradyne and Mark Jagiela.* | | | | | | | | | | | | 10.20 | | Executive Officer Retirement Agreement dated July 17, 2019 between Teradyne and Gregory R. Beecher.* | | | | | | | | | | | | 10.21 | | Executive Officer Change in Control Agreement dated January 22, 2014 between Teradyne and Mark Jagiela, as amended.* | | |
| | | | | | | | | | | | | | | 10.22 | | Amended and Restated Executive Officer Change in Control Agreement dated May 26, 2009 between Teradyne and Charles J. Gray, as amended.* | | | | | | | | | | | | 10.23 | | Employment Agreement dated July 24, 2009 between Teradyne and Charles J. Gray.* | | | | | | | | | | | | 10.24 | | Amended and Restated Executive Officer Change in Control Agreement dated June 30, 2012 between Teradyne and Walter G. Vahey, as amended.* | | | | | | | | | | | | 10.25 | | Employment Agreement dated February 6, 2013 between Teradyne and Walter G. Vahey.* | | | | | | | | | | | | 10.26 | | Executive Officer Change in Control Agreement dated September 1, 2014 between Teradyne, Inc. and Bradford Robbins.* | | | | | | | | | | | | 10.27 | | Employment Agreement dated September 1, 2014 between Teradyne, Inc. and Bradford Robbins.* | | | | | | | | | | | | 10.28 | | Executive Change in Control Agreement dated February 8, 2016 between Teradyne, Inc. and Greg Smith.* | | | | | | | | | | | | 10.29 | | Employment Agreement dated February 8, 2016 between Teradyne, Inc. and Greg Smith.* | | | | | | | | | | | | 10.30 | | Teradyne Offer of Employment dated February 8, 2019 for Sanjay Mehta.* | | | | | | | | | | | | 10.31 | | Executive Officer Change in Control Agreement dated April 25, 2019 between Teradyne, Inc. and Sanjay Mehta.* | | | | | | | | | | | | 10.32 | | Employment Agreement dated April 25, 2019 between Teradyne, Inc. and Sanjay Mehta.* | | | | | | | | | | | | 10.33 | | Agreement Regarding Termination Benefits dated April 25, 2019 between Teradyne, Inc. and Sanjay Mehta.* | | |
| | | | | | | | 10.34 | | Description Executive Officer Change in Control Agreement dated October 1, 2020 between Teradyne, Inc. and Richard Burns.* | | | | | | | | | | 10.35 | | 10.35Employment Agreement dated October 1, 2020 between Teradyne, Inc. and Richard Burns.*
| | | | | | 10.36 | | Time-Based Restricted Stock Unit Agreement dated May 1, 2019 for Sanjay Mehta under 2006 Equity and Cash Compensation Plan.* | | |
| | | | | | | | | | | | | | | | | | | 10.37 | | Form of Indemnification Agreement.* | | | | | | | | | | | | 10.38 | | LitePoint Corporation 2002 Stock Plan. | | | | | | | | | | | | 10.39 | | Letter Agreement, dated December 6, 2016, between Barclays Bank PLC and Teradyne, Inc., regarding the Base Warrants. | | | | | | | | | | | | 10.40 | | Letter Agreement, dated December 6, 2016, between Bank of America, N.A., and Teradyne, Inc. regarding the Base Warrants. | | | | | | | | | | | | 10.41 | | Letter Agreement, dated December 6, 2016, between Wells Fargo Bank, National Association and Teradyne, Inc. regarding the Base Warrants. | | | | | | | | | | | | 10.42 | | Letter Agreement, dated December 6, 2016, between Barclays Bank PLC and Teradyne, Inc. regarding the Base Call Option Transaction. | | | | | | | | | | | | 10.43 | | Letter Agreement, dated December 6, 2016, between Bank of America, N.A. and Teradyne, Inc. regarding the Base Call Option Transaction. | | | | | | | | | | | | 10.44 | | Letter Agreement, dated December 6, 2016, between Wells Fargo Bank, National Association and Teradyne, Inc. regarding the Base Call Option Transaction. | | | | | | | | | | | | 10.45 | | Letter Agreement, dated December 9, 2016, between Barclays Bank PLC and Teradyne, Inc., regarding the Additional Warrants | | | | | | | | | | | | 10.46 | | Letter Agreement, dated December 9, 2016, between Bank of America, N.A., and Teradyne, Inc. regarding the Additional Warrants. | | | | | �� | | | | | | | 10.47 | | Letter Agreement, dated December 9, 2016, between Wells Fargo Bank, National Association and Teradyne, Inc. regarding the Additional Warrants. | | | | | | | | | | | | 10.48 | | Letter Agreement, dated December 9, 2016, between Barclays Bank PLC and Teradyne, Inc. regarding the Additional Call Option Transaction. | | |
| | | | | | | | | | | | | | | | | | | | | | 10.49 | | Letter Agreement, dated December 9, 2016, between Bank of America, N.A. and Teradyne, Inc. regarding the Additional Call Option Transaction | | |
| | | | | | | | | | | | | | | 10.50 | | Letter Agreement, dated December 9, 2016, between Wells Fargo Bank, National Association and Teradyne, Inc. regarding the Additional Call Option Transaction. | | | | | | | | | | 10.51 | | 21.1Credit Agreement dated May 1, 2020 among Teradyne, Inc., Truist Bank, as the administrative agent, issuing bank and swingline lender, and other lenders party thereto.
| | | | | | 21.1 | | Subsidiaries of Teradyne. | | | | | | | | | | | | | | Consent of PricewaterhouseCoopers LLP. | | | | | | | | | | 31.1 | | | | | Rule 13a-14(a) Certification of Principal Executive Officer. | | | | | | | | | | 31.2 | | | | | Rule 13a-14(a) Certification of Principal Financial Officer. | | | | | | | | | | | | | | Section 1350 Certification of Principal Executive Officer. | | | | | | | | | | | | | | Section 1350 Certification of Principal Financial Officer. | | | | | | 101 | | | | | | | | | | | The following financial information from Teradyne, Inc.’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019,2020, formatted in Inline XBRL (eXtensible Business Reporting Language): (i) Consolidated Balance Sheets as of December 31, 20192020 and December 31, 2018,2019, (ii) Consolidated Statements of Operations for the years ended December 31, 2020, 2019 2018 and 2017,2018, (iii) Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 2020, 2019 2018 and 20172018 (iv) Consolidated Statements of Shareholders’ Equity for the years ended December 31, 2020, 2019 2018 and 2017,2018, (v) Consolidated Statements of Cash Flows for the years ended December 31, 2020, 2019 2018 and 2017,2018, and (vi) the Notes to Consolidated Financial Statements. | | | | | | 104 | | | | | | | | | | | The cover page of the Annual Report on Form 10-
K 10-K formatted in Inline XBRL (included in Exhibit 101). | | |
† | -Confidential treatment granted. |
* | -Management contract or compensatory plan. |
Pursuant to the requirements of Section 13 or 15(d) 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 this 2nd22nd day of March, 2020.February, 2021. | | | TERADYNE, INC. | | | By: | | | | | | | | | / s S/ Sanjay Mehta SANJAY MEHTA | | | | | | Vice President, Chief Financial Officer and |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. | | | | | | | | | | | | | | | / s S/ RoyROY A. Vallee VALLEE | | | | February 22, 2021 | | | | | | / s S/ MarkMARK E. Jagiela JAGIELA | | Chief Executive Officer (Principal Executive Officer) and Director | | February 22, 2021 | | | | | | / s S/ Sanjay Mehta SANJAY MEHTA | | Vice President, Chief Financial Officer and Treasurer (Principal Financial and Accounting Officer) | | February 22, 2021 | | | | | | / s S/ MichaelMICHAEL A. Bradley BRADLEY | | | | | Director | | February 22, 2021 | | | | / s S/ EdwinEDWIN J. Gillis GILLIS | | | | | Director | | February 22, 2021 | | | | / s S/ TimothyTIMOTHY E. Guertin GUERTIN | | Director | | February 22, 2021 | | | | Director/S/ PETER HERWECK
| | | Director | | February 22, 2021 | | | | / s S/ Mercedes Johnson MERCEDES JOHNSON | | | | | Director | | February 22, 2021 | | | | / s S/ Marilyn Matz MARILYN MATZ | | | | | Director | | February 22, 2021 | | | | /s/ PaulS/ PAUL J. Tufano TUFANO | | | | Director | | February 22, 2021 |
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