| ☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
April 2, 2023
| ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Massachusetts | 04-2272148 | |
(State or Other Jurisdiction of Incorporation or Organization) | (I.R.S. Employer Identification No.) | |
600 Riverpark Drive, North Reading, Massachusetts | 01864 | |
(Address of Principal Executive Offices) | (Zip Code) | |
Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
Common Stock, par value $0.125 per share | TER | Nasdaq Stock Market LLC |
| Large accelerated filer | ☒ | Accelerated filer | ☐ | |||
Non-accelerated filer | ☐ | |||||
| Emerging | ☐ | |||||
| Smaller reporting company | ☐ | |||||
INDEX
| Page No. | ||||||
| PART I. FINANCIAL INFORMATION | ||||||
Item 1. | ||||||
Condensed Consolidated Balance Sheets as of | 1 | |||||
| 2 | ||||||
| 3 | ||||||
| 4 | ||||||
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 26 | ||||
Item 3. | 32 | |||||
Item 4. | 33 | |||||
| PART II. OTHER INFORMATION | ||||||
Item 1. | 33 | |||||
Item |
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Item | ||||||
Item 4. | ||||||
Item 6. | ||||||
Item 1: | Financial Statements |
(in thousands, except per share amount) Current assets: Cash and cash equivalents Marketable securities Accounts receivable, less allowance for doubtful accounts of $2,222 and $2,356 at October 1, 2017 and December 31, 2016, respectively Inventories, net Prepayments Other current assets Total current assets Property, plant and equipment, net Marketable securities Deferred tax assets Other assets Retirement plans assets Acquired intangible assets, net Goodwill Total assets Current liabilities: Accounts payable Accrued employees’ compensation and withholdings Deferred revenue and customer advances Other accrued liabilities Contingent consideration Accrued income taxes Total current liabilities Retirement plans liabilities Long-term deferred revenue and customer advances Deferred tax liabilities Long-term other accrued liabilities Long-term contingent consideration Long-term debt Total liabilities Commitments and contingencies (See Note P) Common stock, $0.125 par value, 1,000,000 shares authorized; 196,711 and 199,177 shares issued and outstanding at October 1, 2017 and December 31, 2016, respectively Additional paid-in capital Accumulated other comprehensive income (loss) Retained earnings Total shareholders’ equity Total liabilities and shareholders’ equity Annual Report on Form consolidated financial statements. October 1,
2017 December 31,
2016 ASSETS $ 418,677 $ 307,884 1,217,830 871,024 268,068 192,444 125,183 135,958 105,309 108,454 5,021 8,039 2,140,088 1,623,803 259,080 253,821 211,943 433,843 120,228 107,405 12,028 12,165 10,954 7,712 85,729 100,401 249,277 223,343 $ 3,089,327 $ 2,762,493 LIABILITIES $ 79,429 $ 95,362 113,634 109,944 111,506 84,478 62,611 51,382 21,818 1,050 42,377 30,480 431,375 372,696 114,316 106,938 31,686 23,463 10,543 12,144 11,604 28,642 17,311 37,282 362,595 352,669 979,430 933,834 SHAREHOLDERS’ EQUITY 24,589 24,897 1,631,106 1,593,684 16,001 (20,214 ) 438,201 230,292 2,109,897 1,828,659 $ 3,089,327 $ 2,762,493 Current assets: Cash and cash equivalents $ 649,208 $ 854,773 Marketable securities 92,895 39,612 Accounts receivable, less allowance for credit losses of $1,973 and $1,955 at April 2, 2023 and December 31, 2022, respectively 455,334 491,145 Inventories, net 352,058 325,019 Prepayments 549,114 532,962 Other current assets 13,367 14,404 Total current assets 2,111,976 2,257,915 Property, plant and equipment, net 432,381 418,683 74,939 73,734 Marketable securities 116,938 110,777 Deferred tax assets 148,527 142,784 Retirement plans assets 11,650 11,761 Other assets 27,922 28,925 Acquired intangible assets, net 49,246 53,478 Goodwill 409,828 403,195 Total assets $ 3,383,407 $ 3,501,252 Current liabilities: Accounts payable $ 142,382 $ 139,722 Accrued employees’ compensation and withholdings 119,433 212,266 Deferred revenue and customer advances 119,355 148,285 Other accrued liabilities 114,739 112,271 Operating lease liabilities 19,985 18,594 Income taxes payable 77,089 65,010 Current debt 35,109 50,115 Total current liabilities 628,092 746,263 Retirement plans liabilities 121,303 116,005 Long-term deferred revenue and customer advances 41,797 45,131 Long-term other accrued liabilities 16,211 15,981 Deferred tax liabilities 2,325 3,267 Long-term operating lease liabilities 65,082 64,176 Long-term incomes taxes payable 59,135 59,135 Total liabilities 933,945 1,049,958 Commitments and contingencies (Note P) Common stock, $0.125 par value, 1,000,000 shares authorized; 155,445 and 155,759 shares issued and outstanding at April 2, 2023 and December 31, 2022, respectively 19,431 19,470 1,772,352 1,755,963 Accumulated other comprehensive loss (36,466 ) (49,868 ) Retained earnings 694,145 725,729 Total shareholders’ equity 2,449,462 2,451,294 Total liabilities and shareholders’ equity $ 3,383,407 $ 3,501,252 2016,2022, are an integral part of the condensed
| For the Three Months Ended | For the Nine Months Ended | |||||||||||||||
| October 1, 2017 | October 2, 2016 | October 1, 2017 | October 2, 2016 | |||||||||||||
| (in thousands, except per share amount) | ||||||||||||||||
Revenues: | ||||||||||||||||
Products | $ | 412,854 | $ | 334,610 | $ | 1,396,413 | $ | 1,149,581 | ||||||||
Services | 90,524 | 75,865 | 260,778 | 223,680 | ||||||||||||
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Total revenues | 503,378 | 410,475 | 1,657,191 | 1,373,261 | ||||||||||||
Cost of revenues: | ||||||||||||||||
Cost of products | 169,744 | 148,266 | 591,880 | 531,616 | ||||||||||||
Cost of services | 38,848 | 34,850 | 114,373 | 101,084 | ||||||||||||
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Total cost of revenues (exclusive of acquired intangible assets amortization shown separately below) | 208,592 | 183,116 | 706,253 | 632,700 | ||||||||||||
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Gross profit | 294,786 | 227,359 | 950,938 | 740,561 | ||||||||||||
Operating expenses: | ||||||||||||||||
Selling and administrative | 86,244 | 78,794 | 260,282 | 239,393 | ||||||||||||
Engineering and development | 77,190 | 71,400 | 235,101 | 220,973 | ||||||||||||
Acquired intangible assets amortization | 7,028 | 8,487 | 23,145 | 44,725 | ||||||||||||
Restructuring and other | (4,407 | ) | 12,177 | 392 | 16,372 | |||||||||||
Goodwill impairment | — | — | — | 254,946 | ||||||||||||
Acquired intangible assets impairment | — | — | — | 83,339 | ||||||||||||
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Total operating expenses | 166,055 | 170,858 | 518,920 | 859,748 | ||||||||||||
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Income (loss) from operations | 128,731 | 56,501 | 432,018 | (119,187 | ) | |||||||||||
Non-operating (income) expense: | ||||||||||||||||
Interest income | (4,517 | ) | (2,892 | ) | (11,329 | ) | (6,201 | ) | ||||||||
Interest expense | 5,372 | 633 | 16,283 | 2,034 | ||||||||||||
Other (income) expense, net | 439 | (921 | ) | 735 | (1,075 | ) | ||||||||||
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Income (loss) before income taxes | 127,437 | 59,681 | 426,329 | (113,945 | ) | |||||||||||
Income tax provision (benefit) | 24,017 | (4,113 | ) | 62,713 | (4,178 | ) | ||||||||||
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Net income (loss) | $ | 103,420 | $ | 63,794 | $ | 363,616 | $ | (109,767 | ) | |||||||
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Net income (loss) per common share: | ||||||||||||||||
Basic | $ | 0.52 | $ | 0.32 | $ | 1.83 | $ | (0.54 | ) | |||||||
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Diluted | $ | 0.52 | $ | 0.31 | $ | 1.81 | $ | (0.54 | ) | |||||||
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Weighted average common shares—basic | 197,485 | 202,211 | 198,755 | 203,167 | ||||||||||||
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Weighted average common shares—diluted | 200,775 | 203,929 | 201,413 | 203,167 | ||||||||||||
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Cash dividend declared per common share | $ | 0.07 | $ | 0.06 | $ | 0.21 | $ | 0.18 | ||||||||
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For the Three Months Ended | ||||||||
April 2, | April 3, | |||||||
2023 | 2022 | |||||||
(in thousands, except per share amount) | ||||||||
| Revenues: | ||||||||
| Products | $ | 473,418 | $ | 625,875 | ||||
| Services | 144,111 | 129,495 | ||||||
| Total revenues | 617,529 | 755,370 | ||||||
| Cost of revenues: | ||||||||
| Cost of products | 198,665 | 243,016 | ||||||
| Cost of services | 62,444 | 57,421 | ||||||
| Total cost of revenues (exclusive of acquired intangible assets amortization shown separately below) | 261,109 | 300,437 | ||||||
| Gross profit | 356,420 | 454,933 | ||||||
| Operating expenses: | ||||||||
| Selling and administrative | 150,955 | 140,185 | ||||||
| Engineering and development | 105,762 | 108,116 | ||||||
| Acquired intangible assets amortization | 4,802 | 5,063 | ||||||
| Restructuring and other | 2,037 | 15,714 | ||||||
| Total operating expenses | 263,556 | 269,078 | ||||||
| Income from operations | 92,864 | 185,855 | ||||||
Non-operating (income) expense: | ||||||||
| Interest income | (5,258 | ) | (703 | ) | ||||
| Interest expense | 987 | 1,012 | ||||||
| Other (income) expense, net | 51 | 5,187 | ||||||
| Income before income taxes | 97,084 | 180,359 | ||||||
| Income tax provision | 13,553 | 18,431 | ||||||
| Net income | $ | 83,531 | $ | 161,928 | ||||
| Net income per common share: | ||||||||
| Basic | $ | 0.54 | $ | 1.00 | ||||
| Diluted | $ | 0.50 | $ | 0.92 | ||||
| Weighted average common shares—basic | 155,904 | 162,048 | ||||||
| Weighted average common shares—diluted | 166,308 | 175,575 | ||||||
Annual Report on Form
consolidated financial statements.
| For the Three Months Ended | For the Nine Months Ended | |||||||||||||||
| October 1, 2017 | October 2, 2016 | October 1, 2017 | October 2, 2016 | |||||||||||||
| (in thousands) | ||||||||||||||||
Net income (loss) | $ | 103,420 | $ | 63,794 | $ | 363,616 | $ | (109,767 | ) | |||||||
Other comprehensive income (loss), net of tax: | ||||||||||||||||
Foreign currency translation adjustments | 9,291 | 1,843 | 34,235 | 7,072 | ||||||||||||
Available-for-sale marketable securities: | ||||||||||||||||
Unrealized gains (losses) on marketable securities arising during period, net of tax of $481, $51, $1,666, $2,405, respectively | 950 | (336 | ) | 2,448 | 5,110 | |||||||||||
Less: Reclassification adjustment for gains included in net income (loss), net of tax of $(67), $(150), $(173), $(152), respectively | (87 | ) | (334 | ) | (264 | ) | (468 | ) | ||||||||
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| 863 | (670 | ) | 2,184 | 4,642 | ||||||||||||
Defined benefit pension and post-retirement plans: | ||||||||||||||||
Amortization of prior service (credit) cost included in net periodic pension and post-retirement expense/income, net of tax of $(38), $(46), $(115), $(139) respectively | (68 | ) | (81 | ) | (204 | ) | (244 | ) | ||||||||
Prior service income arising during the period, net of tax of $0, $0, $0, $34, respectively | — | — | — | 59 | ||||||||||||
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| (68 | ) | (81 | ) | (204 | ) | (185 | ) | |||||||||
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Other comprehensive income | 10,086 | 1,092 | 36,215 | 11,529 | ||||||||||||
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Comprehensive income (loss) | $ | 113,506 | $ | 64,886 | $ | 399,831 | $ | (98,238 | ) | |||||||
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For the Three Months Ended | ||||||||
April 2, | April 3, | |||||||
2023 | 2022 | |||||||
(in thousands) | ||||||||
| Net income | $ | 83,531 | $ | 161,928 | ||||
Other comprehensive income (loss) , net of tax: | ||||||||
| Foreign currency translation adjustment, net of tax of $0 and $0, respectively | 9,309 | (8,076 | ) | |||||
Available-for-sale | ||||||||
| Unrealized gains (losses) on marketable securities arising during period, net of tax of $503 and $(1,333), respectively | 2,294 | (5,388 | ) | |||||
| Less: Reclassification adjustment for losses (gains) included in net income, net of tax of $2 and $(18), respectively | 5 | (65 | ) | |||||
| 2,299 | (5,453 | ) | ||||||
| Cash flow hedges: | ||||||||
Unrealized gains arising during period, net of tax of $167, $0, respectively | 596 | — | ||||||
| Less: Reclassification adjustment for losses included in net income, net of tax of $338 and $0, respectively | 1,200 | — | ||||||
| 1,796 | — | |||||||
| Defined benefit post-retirement plan: | ||||||||
| Amortization of prior service credit, net of tax of $0 and $0, respectively | (2 | ) | (2 | ) | ||||
| Other comprehensive income (loss) | 13,402 | (13,531 | ) | |||||
| Comprehensive income | $ | 96,933 | $ | 148,397 | ||||
Annual Report on Form
consolidated financial statements.
CONVERTIBLE COMMON SHARES
| For the Nine Months Ended | ||||||||
| October 1, 2017 | October 2, 2016 | |||||||
| (in thousands) | ||||||||
Cash flows from operating activities: | ||||||||
Net income (loss) | $ | 363,616 | $ | (109,767 | ) | |||
Adjustments to reconcile net income (loss) to net cash provided by operating activities: | ||||||||
Depreciation | 49,243 | 48,437 | ||||||
Amortization | 32,313 | 46,275 | ||||||
Stock-based compensation | 25,620 | 23,012 | ||||||
Provision for excess and obsolete inventory | 7,154 | 15,148 | ||||||
Contingent consideration fair value adjustment | 1,847 | 10,451 | ||||||
Deferred taxes | (679 | ) | (42,568 | ) | ||||
Retirement plans actuarial gains | (2,504 | ) | (1,200 | ) | ||||
Gain on insurance recovery | (4,309 | ) | — | |||||
Tax benefit related to employee stock compensation awards | — | (3,399 | ) | |||||
Goodwill impairment | — | 254,946 | ||||||
Acquired intangible assets impairment | — | 83,339 | ||||||
Other | 429 | 151 | ||||||
Changes in operating assets and liabilities: | ||||||||
Accounts receivable | (75,623 | ) | 45,660 | |||||
Inventories | 23,770 | 48,601 | ||||||
Prepayments and other assets | 7,362 | (13,273 | ) | |||||
Accounts payable and other accrued expenses | 5,298 | (39,584 | ) | |||||
Deferred revenue and customer advances | 34,535 | 53,380 | ||||||
Retirement plans contributions | (4,858 | ) | (5,871 | ) | ||||
Income taxes | 15,808 | 4,227 | ||||||
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Net cash provided by operating activities | 479,022 | 417,965 | ||||||
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Cash flows from investing activities: | ||||||||
Purchases of property, plant and equipment | (73,247 | ) | (66,252 | ) | ||||
Purchases of available-for-sale marketable securities | (1,036,523 | ) | (875,837 | ) | ||||
Proceeds from sales of available-for-sale marketable securities | 443,169 | 466,744 | ||||||
Proceeds from maturities of available-for-sale marketable securities | 473,255 | 202,162 | ||||||
Proceeds from property insurance | 5,064 | 5,051 | ||||||
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Net cash used for investing activities | (188,282 | ) | (268,132 | ) | ||||
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Cash flows from financing activities: | ||||||||
Issuance of common stock under stock purchase and stock option plans | 24,462 | 20,085 | ||||||
Repurchase of common stock | (151,821 | ) | (85,092 | ) | ||||
Dividend payments | (41,730 | ) | (36,548 | ) | ||||
Payments related to net settlement of employee stock compensation awards | (12,584 | ) | (9,229 | ) | ||||
Payments of contingent consideration | (1,050 | ) | (11,697 | ) | ||||
Tax benefit related to employee stock compensation awards | — | 3,399 | ||||||
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Net cash used for financing activities | (182,723 | ) | (119,082 | ) | ||||
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Effects of exchange rate changes on cash and cash equivalents | 2,776 | 2,481 | ||||||
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Increase in cash and cash equivalents | 110,793 | 33,232 | ||||||
Cash and cash equivalents at beginning of period | 307,884 | 264,705 | ||||||
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Cash and cash equivalents at end of period | $ | 418,677 | $ | 297,937 | ||||
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Shareholders’ Equity | ||||||||||||||||||||||||||||
Convertible Common Shares Value | Common Stock Shares | Common Stock Par Value | Additional Paid-in Capital | Accumulated Other Comprehensive (Loss) Income | Retained Earnings | Total Shareholders’ Equity | ||||||||||||||||||||||
(in thousands) | ||||||||||||||||||||||||||||
For the Three Months Ended April 2, 2023 | ||||||||||||||||||||||||||||
| Balance, December 31, 2022 | $ | — | 155,759 | $ | 19,470 | $ | 1,755,963 | $ | (49,868 | ) | $ | 725,729 | $ | 2,451,294 | ||||||||||||||
| Net issuance of common stock under stock-based plans | 579 | 73 | (3,943 | ) | (3,870 | ) | ||||||||||||||||||||||
| Stock-based compensation expense | 20,332 | 20,332 | ||||||||||||||||||||||||||
| Repurchase of common stock | (893 | ) | (112 | ) | (97,936 | ) | (98,048 | ) | ||||||||||||||||||||
| Cash dividends ($0.11 per share) | (17,179 | ) | (17,179 | ) | ||||||||||||||||||||||||
| Settlements of convertible notes | 324 | 41 | (41 | ) | — | |||||||||||||||||||||||
| Exercise of convertible notes hedge call options | (324 | ) | (41 | ) | 41 | — | ||||||||||||||||||||||
| Net income | 83,531 | 83,531 | ||||||||||||||||||||||||||
| Other comprehensive income | 13,402 | 13,402 | ||||||||||||||||||||||||||
| Balance, April 2, 2023 | $ | — | 155,445 | $ | 19,431 | $ | 1,772,352 | $ | (36,466 | ) | $ | 694,145 | $ | 2,449,462 | ||||||||||||||
For the Three Months Ended April 3, 2022 | ||||||||||||||||||||||||||||
| Balance, December 31, 2021 | $ | 1,512 | 162,251 | $ | 20,281 | $ | 1,811,545 | $ | (5,948 | ) | $ | 736,566 | $ | 2,562,444 | ||||||||||||||
| Net issuance of common stock under stock-based plans | 552 | 70 | (14,644 | ) | (14,574 | ) | ||||||||||||||||||||||
| Stock-based compensation expense | 14,204 | 14,204 | ||||||||||||||||||||||||||
| Repurchase of common stock | (1,750 | ) | (219 | ) | (211,247 | ) | (211,466 | ) | ||||||||||||||||||||
| Cash dividends ($0.11 per share) | (17,908 | ) | (17,908 | ) | ||||||||||||||||||||||||
| Settlements of convertible notes | 509 | 64 | (157 | ) | (93 | ) | ||||||||||||||||||||||
| Exercise of convertible notes hedge call options | (509 | ) | (64 | ) | 64 | — | ||||||||||||||||||||||
| Cumulative-effect of change in accounting principle related to convertible debt | (1,512 | ) | (99,322 | ) | 92,850 | (6,472 | ) | |||||||||||||||||||||
| Net income | 161,928 | 161,928 | ||||||||||||||||||||||||||
| Other comprehensive loss | (13,531 | ) | (13,531 | ) | ||||||||||||||||||||||||
| Balance, April 3, 2022 | $ | — | 161,053 | $ | 20,132 | $ | 1,711,690 | $ | (19,479 | ) | $ | 762,189 | $ | 2,474,532 | ||||||||||||||
Annual Report on Form
consolidated financial statements.
For the Three Months Ended | ||||||||
April 2, | April 3, | |||||||
2023 | 2022 | |||||||
(in thousands) | ||||||||
| Cash flows from operating activities: | ||||||||
| Net income | $ | 83,531 | $ | 161,928 | ||||
| Adjustments to reconcile net income from operations to net cash provided by operating activities: | ||||||||
| Depreciation | 22,680 | 22,503 | ||||||
| Stock-based compensation | 18,885 | 12,894 | ||||||
| Provision for excess and obsolete inventory | 5,610 | 1,590 | ||||||
| Amortization | 4,926 | 5,233 | ||||||
| Deferred taxes | (7,634 | ) | 11,288 | |||||
| (Gains) losses on investments | (2,238 | ) | 2,001 | |||||
| Other | 108 | 177 | ||||||
| Changes in operating assets and liabilities | ||||||||
| Accounts receivable | 37,204 | 208 | ||||||
| Inventories | (23,697 | ) | (9,480 | ) | ||||
| Prepayments and other assets | (15,380 | ) | (74,305 | ) | ||||
| Accounts payable and other accrued expenses | (83,208 | ) | (124,382 | ) | ||||
| Deferred revenue and customer advances | (32,705 | ) | 6,747 | |||||
| Retirement plan contributions | (1,234 | ) | (1,329 | ) | ||||
| Income taxes | 12,488 | (7,611 | ) | |||||
| Net cash provided by operating activities | 19,336 | 7,462 | ||||||
| Cash flows from investing activities: | ||||||||
| Purchases of property, plant and equipment | (41,444 | ) | (43,999 | ) | ||||
| Purchases of marketable securities | (69,276 | ) | (165,977 | ) | ||||
| Proceeds from sales of marketable securities | 7,929 | 30,581 | ||||||
| Proceeds from maturities of marketable securities | 7,468 | 96,682 | ||||||
| Proceeds from life insurance | 460 | — | ||||||
| Net cash used for investing activities | (94,863 | ) | (82,713 | ) | ||||
| Cash flows from financing activities: | ||||||||
| Issuance of common stock under stock purchase and stock option plans | 15,997 | 16,475 | ||||||
| Repurchase of common stock | (93,308 | ) | (201,465 | ) | ||||
| Payments related to net settlement of employee stock compensation awards | (19,870 | ) | (31,048 | ) | ||||
| Dividend payments | (17,165 | ) | (17,895 | ) | ||||
| Payments of convertible debt principal | (15,155 | ) | (20,694 | ) | ||||
| Net cash used for financing activities | (129,501 | ) | (254,627 | ) | ||||
| Effects of exchange rate changes on cash and cash equivalents | (537 | ) | 2,282 | |||||
| Decrease in cash and cash equivalents | (205,565 | ) | (327,596 | ) | ||||
| Cash and cash equivalents at beginning of period | 854,773 | 1,122,199 | ||||||
| Cash and cash equivalents at end of period | $ | 649,208 | $ | 794,603 | ||||
Non-cash investing activities: | ||||||||
| Capital expenditures incurred but not yet paid: | $ | 3,823 | $ | 2,500 | ||||
America generally accepted accounting principles (“U.S. GAAP”) for complete financial statements. The accompanying financial information should be read in conjunction with the consolidated financial statements and notes thereto contained in Teradyne’s Annual Report on Form
2022.
Stock-Based Compensation
In March 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-09,“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 benefitsestimates under different assumptions or tax deficiencies not previously recorded. The cumulative effect adjustment of $39 million was recorded 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 ASU 2016-09, these excess tax benefits or tax deficiencies were credited or charged to additional paid-in capital in Teradyne’s consolidated balance sheets. In accordance with ASU 2016-09, starting in the first quarter of 2017, these 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.
ASU 2016-09 requires companies to adopt the amendment related to accounting for excess tax benefits or tax deficiencies on a prospective basis. For the three and nine months ended October 1, 2017, Teradyne recognized a discrete tax benefit of $0.0 and $6.0 million, respectively, related to net excess tax benefit.
In addition, under ASU 2016-09, all excess tax benefits related to share-based payments are reported as cash flows from operating activities. Previously, excess tax benefits from share-based payments arrangements were reported as cash flows from financing activities. The classification amendment was applied prospectively. This ASU also clarifies that all cash payments made to taxing authorities on the employees’ behalf for withheld shares should be presented as financing activities on the statement of cash flows. Previously, Teradyne reported cash payments made to taxing authorities as operating activities on the statement of cash flows. This change was applied retrospectively.
Upon adoption of ASU 2016-09, Teradyne made an accounting policy election to continue accounting for forfeitures by applying an estimated forfeiture rate.
Contingencies and Litigation
Teradyne may be subject to certain legal proceedings, lawsuits and other claims as discussed in Note P. Teradyne accrues for a loss contingency, including legal proceedings, lawsuits, pending claims and other legal matters, when the likelihood of a loss is probable and the amount of the loss can be reasonably estimated. When the reasonable estimate of the loss is within a range of amounts, and no amount in the range constitutes a better estimate than any other amount, Teradyne accrues the amount at the low end of the range. Teradyne adjusts the accruals from time to time as additional information is received, but the loss incurred may be significantly greater than or less than the amount accrued. Loss contingencies are disclosed when they are material and there is at least a reasonable possibility that a loss has been incurred. Attorney fees related to legal matters are expensed as incurred.
conditions.
On March 10, 2017,
On January 26, 2017, the FASB issued ASU 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. Goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds 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 same 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 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. Teradyne is currently evaluating the impact of this ASU on its financial position, results of operations and statements of cash flows.
In October 2016, the FASB issued ASU 2016-16,“Accounting for Income Taxes: Intra-Entity Asset Transfers of Assets Other than Inventory.” Under current Generally Accepted Accounting Principles (“GAAP”), the tax effects of intra-entity asset transfers are deferred until the transferred asset is sold to a third party or otherwise recovered through use. The new guidance requires recognition of the tax expense from the sale of the asset in the seller’s tax jurisdiction when the transfer occurs, even though the pre-tax effects of that transaction are eliminated in consolidation. Any deferred tax asset that arises in the buyer’s jurisdiction would also be recognized at the time of the transfer. The new guidance does not apply to intra-entity transfers of inventory. The income tax consequences from the sale of inventory from one member of a consolidated entity to another will continue to be deferred until the inventory is sold to a third party. The new guidance will be effective in fiscal years beginning after December 15, 2017. Early adoption is permitted. The modified retrospective approach will be required for transition to the new guidance, with a cumulative-effect adjustment recorded in retained earnings as of the beginning of the period of adoption. Teradyne does not expect this ASUexpected to have, a material impact to Teradyne’s consolidated financial statements.
Semiconductor Test | Robotics | |||||||||||||||||||||||||||||||
System on- a-Chip | Memory | System Test | Universal Robots | Mobile Industrial Robots | Wireless Test | Corporate and Eliminations | Total | |||||||||||||||||||||||||
(in thousands) | ||||||||||||||||||||||||||||||||
For the Three Months Ended April 2, 2023 (1) | ||||||||||||||||||||||||||||||||
Timing of Revenue Recognition | ||||||||||||||||||||||||||||||||
| Point in Time | $ | 273,275 | $ | 61,258 | $ | 56,857 | $ | 70,029 | $ | 15,959 | $ | 35,363 | $ | — | $ | 512,741 | ||||||||||||||||
| Over Time | 73,559 | 6,917 | 17,774 | 2,008 | 1,218 | 3,312 | — | 104,788 | ||||||||||||||||||||||||
Total | $ | 346,834 | $ | 68,175 | $ | 74,631 | $ | 72,037 | $ | 17,177 | $ | 38,675 | $ | — | $ | 617,529 | ||||||||||||||||
Geographical Market | ||||||||||||||||||||||||||||||||
| Asia Pacific | $ | 283,259 | $ | 63,695 | $ | 39,590 | $ | 13,217 | $ | 1,502 | $ | 23,231 | $ | — | $ | 424,494 | ||||||||||||||||
| Americas | 41,568 | 2,944 | 28,980 | 20,447 | 11,806 | 12,846 | — | 118,591 | ||||||||||||||||||||||||
| Europe, Middle East and Africa | 22,007 | 1,536 | 6,061 | 38,373 | 3,869 | 2,598 | — | 74,444 | ||||||||||||||||||||||||
Total | $ | 346,834 | $ | 68,175 | $ | 74,631 | $ | 72,037 | $ | 17,177 | $ | 38,675 | $ | — | $ | 617,529 | ||||||||||||||||
For the Three Months Ended April 3, 2022 (1) | ||||||||||||||||||||||||||||||||
Timing of Revenue Recognition | ||||||||||||||||||||||||||||||||
| Point in Time | $ | 323,456 | $ | 88,723 | $ | 105,288 | $ | 83,182 | $ | 16,744 | $ | 48,429 | $ | (346 | ) | $ | 665,476 | |||||||||||||||
| Over Time | 63,129 | 7,033 | 13,380 | 2,102 | 1,161 | 3,089 | — | 89,894 | ||||||||||||||||||||||||
Total | $ | 386,585 | $ | 95,756 | $ | 118,668 | $ | 85,284 | $ | 17,905 | $ | 51,518 | $ | (346 | ) | $ | 755,370 | |||||||||||||||
Geographical Market | ||||||||||||||||||||||||||||||||
| Asia Pacific | $ | 340,741 | $ | 93,151 | $ | 73,784 | $ | 18,621 | $ | 2,592 | $ | 34,946 | $ | — | $ | 563,835 | ||||||||||||||||
| Americas | 29,714 | 2,046 | 36,608 | 28,148 | 8,564 | 9,687 | (346 | ) | 114,421 | |||||||||||||||||||||||
| Europe, Middle East and Africa | 16,130 | 559 | 8,276 | 38,515 | 6,749 | 6,885 | — | 77,114 | ||||||||||||||||||||||||
Total | $ | 386,585 | $ | 95,756 | $ | 118,668 | $ | 85,284 | $ | 17,905 | $ | 51,518 | $ | (346 | ) | $ | 755,370 | |||||||||||||||
| (1) | Includes $1.3 million and $2.3 million in 2023 and 2022, respectively, for leases of Teradyne’s systems recognized outside Accounting Standards Codification (“ASC”) 606 “Revenue from Contracts with Customers.” |
April 2, 2023 | December 31, 2022 | |||||||
(in thousands) | ||||||||
| Maintenance, service and training | $ | 70,609 | $ | 78,089 | ||||
| Extended warranty | 49,343 | 56,180 | ||||||
| Customer advances, undelivered elements and other | 41,200 | 59,147 | ||||||
| Total deferred revenue and customer advances | $ | 161,152 | $ | 193,416 | ||||
In February 2016, the FASB issued ASU 2016-02,“Leases (Topic 842).” The guidance in this ASU supersedes the lease recognition requirements in Accounting Standards Codification (“ASC”) Topic 840,“Leases.” The new standard establishes a right-of-use (“ROU”) model that requires a lessee to record an ROU asset and a lease liability on the balance sheet for all leases with terms longer than twelve months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the statements of operations. The new standard is effective for annual periods beginning after December 15, 2018 with early adoption permitted. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. Teradyne is currently evaluating the impact of this ASU on its financial position and results of operations.
In January 2016, the FASB issued ASU 2016-01,“Financial Instruments—Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities.” This ASU provides guidance for the recognition, measurement, presentation, and disclosure of financial instruments. The new pronouncement revises accounting related to equity investments and the presentation of certain fair value changes for financial liabilities measured at fair value. Among other things, it amends the presentation and disclosure requirements of equity securities that do not result in consolidation and are not accounted for under the equity method. Changes in the fair value of these equity securities will be recognized directly in net income. This pronouncement is effective for fiscal years beginning after December 15, 2017. Teradyne is currently evaluating the impact of this ASU on its financial position and results of operations.
In May 2014, the FASB issued ASU 2014-09,“Revenue from Contracts with Customers (Topic 606),” which will replace numerous requirements in U.S. GAAP, including industry-specific requirements, and provide companies with a single revenue recognition model for recognizing revenue from contracts with customers. The core principle of the new standard is that a company should recognize revenue to show the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be
entitled to in exchange for those goods or services. In August 2015, FASB issued ASU 2015-14, which deferred the effective date of the new revenue standard by one year. For Teradyne, the standard will be effective in the first quarter of 2018. The two permitted transition methods under the new standard are the full retrospective method, in which case the standard would be applied to each prior reporting period presented, or the modified retrospective method, in which case the cumulative effect of applying the standard would be recognized at the date of initial application. Teradyne has selected the modified retrospective transition method.
Teradyne has completed its preliminary assessment of the financial statement impact of the new standard and does not expect this ASU to have a material impact on its financial position or results of operations. This preliminary assessment is based on a review of the types and number of revenue arrangements currently in place including the review of individual customer contracts related to these revenue streams. The exact impact of the new standard will be dependent on facts and circumstances at adoption and could vary from quarter to quarter. Based on Teradyne’s preliminary assessment Teradyne does not expect any major changes to be made to existing accounting systems or internal controls. Teradyne will be required to record cumulative effect adjustments to retained earnings upon adopting the new standard in the first quarter of 2018.
D.
| October 1, 2017 | December 31, 2016 | |||||||
| (in thousands) | ||||||||
Raw material | $ | 64,550 | $ | 58,530 | ||||
Work-in-process | 17,189 | 22,946 | ||||||
Finished goods | 43,444 | 54,482 | ||||||
|
|
|
| |||||
| $ | 125,183 | $ | 135,958 | |||||
|
|
|
| |||||
2022:
April 2, 2023 | December 31, 2022 | |||||||
(in thousands) | ||||||||
| Raw material | $ | 264,035 | $ | 256,065 | ||||
Work-in-process | 43,987 | 37,982 | ||||||
| Finished goods | 44,036 | 30,972 | ||||||
| $ | 352,058 | $ | 325,019 | |||||
E.
Teradyne accounts for its investments in
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:
Teradyne uses the market and income approach techniques to value its financial instruments and there were no changes in valuation techniques during the three and nine months ended October 1, 2017 and October 2, 2016. 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.
Teradyne’s
Realized gains recorded in the three and nine months ended October 1, 2017 were $0.2 million and $0.7 million, respectively. Realized losses recorded in the three and nine months ended October 1, 2017 were $0.0 million and $0.3 million, respectively. Realized gains in the three and nine months ended October 2, 2016 were $0.7 million and $1.2 million, respectively. Realized losses recorded in the three and nine months ended October 2, 2016 were $0.1 million and $0.4 million, respectively. Realized gains are included in interest income and realized losses are included in interest expense. Unrealized gains and losses are included in accumulated other comprehensive income (loss). The cost of securities sold is based on the specific identification method.
Realized gains recorded in the three months ended April 2, 2023 and April 3, 2022 were $0.3 million and $0.4 million, respectively. Realized losses recorded in the three months ended April 2, 2023 and April 3, 2022 were $0.1 million and $0.2 million, respectively. Realized gains and losses are included in other (income) expense, net.
| October 1, 2017 | ||||||||||||||||
| Quoted Prices in Active Markets for Identical Instruments (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | Total | |||||||||||||
| (in thousands) | ||||||||||||||||
Assets | ||||||||||||||||
Cash | $ | 213,664 | $ | — | $ | — | $ | 213,664 | ||||||||
Cash equivalents | 166,803 | 38,210 | — | 205,013 | ||||||||||||
Available-for-sale securities: | ||||||||||||||||
U.S. Treasury securities | — | 942,250 | — | 942,250 | ||||||||||||
Commercial paper | — | 194,948 | — | 194,948 | ||||||||||||
Corporate debt securities | — | 118,487 | — | 118,487 | ||||||||||||
Certificates of deposit and time deposits | — | 95,469 | — | 95,469 | ||||||||||||
U.S. government agency securities | — | 55,938 | — | 55,938 | ||||||||||||
Equity and debt mutual funds | 22,104 | — | — | 22,104 | ||||||||||||
Non-U.S. government securities | — | 577 | — | 577 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
| 402,571 | 1,445,879 | — | 1,848,450 | |||||||||||||
Derivative assets | — | 157 | — | 157 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total | $ | 402,571 | $ | 1,446,036 | $ | — | $ | 1,848,607 | ||||||||
|
|
|
|
|
|
|
| |||||||||
Liabilities | ||||||||||||||||
Contingent consideration | $ | — | $ | — | $ | 39,129 | $ | 39,129 | ||||||||
Derivative liabilities | — | 190 | — | 190 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total | $ | — | $ | 190 | $ | 39,129 | $ | 39,319 | ||||||||
|
|
|
|
|
|
|
| |||||||||
2022.
April 2, 2023 | ||||||||||||||||
Quoted Prices in Active Markets for Identical Instruments (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | Total | |||||||||||||
(in thousands) | ||||||||||||||||
| Assets | ||||||||||||||||
| Cash | $ | 244,542 | $ | — | $ | — | $ | 244,542 | ||||||||
| Cash equivalents | 252,374 | 152,292 | — | 404,666 | ||||||||||||
Available-for-sale | ||||||||||||||||
| U.S. Treasury securities | — | 52,168 | — | 52,168 | ||||||||||||
| Corporate debt securities | — | 51,369 | — | 51,369 | ||||||||||||
| Commercial paper | — | 47,548 | — | 47,548 | ||||||||||||
| U.S. government agency securities | — | 7,394 | — | 7,394 | ||||||||||||
| Debt mutual funds | 6,800 | — | — | 6,800 | ||||||||||||
| Certificates of deposit and time deposits | — | 1,754 | — | 1,754 | ||||||||||||
Non-U.S. government securities | — | 554 | — | 554 | ||||||||||||
| Equity securities: | ||||||||||||||||
| Mutual funds | 42,246 | — | — | 42,246 | ||||||||||||
| Total | $ | 545,962 | $ | 313,079 | $ | — | $ | 859,041 | ||||||||
| Liabilities | ||||||||||||||||
| Derivative liabilities | $ | — | $ | 1,980 | $ | — | $ | 1,980 | ||||||||
| Total | $ | — | $ | 1,980 | $ | — | $ | 1,980 | ||||||||
| (Level 1) | (Level 2) | (Level 3) | Total | |||||||||||||
| (in thousands) | ||||||||||||||||
Assets | ||||||||||||||||
Cash and cash equivalents | $ | 380,467 | $ | 38,210 | $ | — | $ | 418,677 | ||||||||
Marketable securities | — | 1,217,830 | — | 1,217,830 | ||||||||||||
Long-term marketable securities | 22,104 | 189,839 | — | 211,943 | ||||||||||||
Prepayments | — | 157 | — | 157 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total | $ | 402,571 | $ | 1,446,036 | $ | — | $ | 1,848,607 | ||||||||
|
|
|
|
|
|
|
| |||||||||
Liabilities | . | |||||||||||||||
Other current liabilities | $ | — | $ | 190 | $ | — | $ | 190 | ||||||||
Contingent consideration | — | — | 21,818 | 21,818 | ||||||||||||
Long-term contingent consideration | — | — | 17,311 | 17,311 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total | $ | — | $ | 190 | $ | 39,129 | $ | 39,319 | ||||||||
|
|
|
|
|
|
|
| |||||||||
| December 31, 2016 | ||||||||||||||||
| Quoted Prices in Active Markets for Identical Instruments (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | Total | |||||||||||||
| (in thousands) | ||||||||||||||||
Assets | ||||||||||||||||
Cash | $ | 214,722 | $ | — | $ | — | $ | 214,722 | ||||||||
Cash equivalents | 37,458 | 55,704 | — | 93,162 | ||||||||||||
Available for sale securities: | ||||||||||||||||
U.S. Treasury securities | — | 902,800 | — | 902,800 | ||||||||||||
Commercial paper | — | 161,630 | — | 161,630 | ||||||||||||
Corporate debt securities | — | 100,153 | — | 100,153 | ||||||||||||
Certificates of deposit and time deposits | — | 82,133 | — | 82,133 | ||||||||||||
U.S. government agency securities | — | 39,252 | — | 39,252 | ||||||||||||
Equity and debt mutual funds | 18,171 | — | — | 18,171 | ||||||||||||
Non-U.S. government securities | — | 728 | — | 728 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
| 270,351 | 1,342,400 | — | 1,612,751 | |||||||||||||
Derivative assets | — | 1 | — | 1 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total | $ | 270,351 | $ | 1,342,401 | $ | — | $ | 1,612,752 | ||||||||
|
|
|
|
|
|
|
| |||||||||
Liabilities | ||||||||||||||||
Contingent consideration | $ | — | $ | — | $ | 38,332 | $ | 38,332 | ||||||||
Derivative liabilities | — | 131 | — | 131 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total | $ | — | $ | 131 | $ | 38,332 | $ | 38,463 | ||||||||
|
|
|
|
|
|
|
| |||||||||
(Level 1) | (Level 2) | (Level 3) | Total | |||||||||||||
(in thousands) | ||||||||||||||||
| Assets | ||||||||||||||||
| Cash and cash equivalents | $ | 496,916 | $ | 152,292 | $ | — | $ | 649,208 | ||||||||
| Marketable securities | — | 92,895 | — | 92,895 | ||||||||||||
| Long-term marketable securities | 49,046 | 67,892 | — | 116,938 | ||||||||||||
| Total | $ | 545,962 | $ | 313,079 | $ | — | $ | 859,041 | ||||||||
| Liabilities | ||||||||||||||||
| Other current liabilities | $ | — | $ | 1,980 | $ | — | $ | 1,980 | ||||||||
| Total | $ | — | $ | 1,980 | $ | — | $ | 1,980 | ||||||||
December 31, 2022 | ||||||||||||||||
Quoted Prices in Active Markets for Identical Instruments (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | Total | |||||||||||||
(in thousands) | ||||||||||||||||
| Assets | ||||||||||||||||
| Cash | $ | 632,417 | $ | — | $ | — | $ | 632,417 | ||||||||
| Cash equivalents | 161,767 | 60,589 | — | 222,356 | ||||||||||||
| Available for sale securities: | ||||||||||||||||
| Corporate debt securities | — | 50,856 | — | 50,856 | ||||||||||||
| U.S. Treasury securities | — | 39,649 | — | 39,649 | ||||||||||||
| Commercial paper | — | 7,159 | — | 7,159 | ||||||||||||
| Debt mutual funds | 6,580 | — | — | 6,580 | ||||||||||||
| U.S. government agency securities | — | 6,352 | — | 6,352 | ||||||||||||
| Certificates of deposit and time deposits | — | 1,740 | — | 1,740 | ||||||||||||
Non-U.S. government securities | — | 535 | — | 535 | ||||||||||||
| Equity securities: | ||||||||||||||||
| Mutual funds | 37,518 | — | — | 37,518 | ||||||||||||
| Total | $ | 838,282 | $ | 166,880 | $ | — | $ | 1,005,162 | ||||||||
| Derivative assets | — | 86 | — | 86 | ||||||||||||
| Total | $ | 838,282 | $ | 166,966 | $ | — | $ | 1,005,248 | ||||||||
| Liabilities | ||||||||||||||||
| Derivative liabilities | $ | — | $ | 4,215 | $ | — | $ | 4,215 | ||||||||
| Total | $ | — | $ | 4,215 | $ | — | $ | 4,215 | ||||||||
| (Level 1) | (Level 2) | (Level 3) | Total | |||||||||||||
| (in thousands) | ||||||||||||||||
Assets | ||||||||||||||||
Cash and cash equivalents | $ | 252,180 | $ | 55,704 | $ | — | $ | 307,884 | ||||||||
Marketable securities | — | 871,024 | — | 871,024 | ||||||||||||
Long-term marketable securities | 18,171 | 415,672 | — | 433,843 | ||||||||||||
Prepayments | — | 1 | — | 1 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total | $ | 270,351 | $ | 1,342,401 | $ | — | $ | 1,612,752 | ||||||||
|
|
|
|
|
|
|
| |||||||||
Liabilities | ||||||||||||||||
Other accrued liabilities | $ | — | $ | 131 | $ | — | $ | 131 | ||||||||
Contingent consideration | — | — | 1,050 | 1,050 | ||||||||||||
Long-term contingent consideration | — | — | 37,282 | 37,282 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total | $ | — | $ | 131 | $ | 38,332 | $ | 38,463 | ||||||||
|
|
|
|
|
|
|
| |||||||||
Changes in the fair value of Level 3 contingent consideration for the three and nine months ended October 1, 2017 and October 2, 2016 were as follows:
| For the Three Months Ended | For the Nine Months Ended | |||||||||||||||
| October 1, 2017 | October 2, 2016 | October 1, 2017 | October 2, 2016 | |||||||||||||
| (in thousands) | ||||||||||||||||
Balance at beginning of period | $ | 39,415 | $ | 24,914 | $ | 38,332 | $ | 37,436 | ||||||||
Payments (a) | — | — | (1,050 | ) | (15,000 | ) | ||||||||||
Fair value adjustment (b)(c) | (286 | ) | 7,973 | 1,847 | 10,451 | |||||||||||
|
|
|
|
|
|
|
| |||||||||
Balance at end of period | $ | 39,129 | $ | 32,887 | $ | 39,129 | $ | 32,887 | ||||||||
|
|
|
|
|
|
|
| |||||||||
The following table provides quantitative information associated with the fair value measurement of Teradyne’s Level 3 financial instruments:
Liability | October 1, 2017 Fair Value | Valuation Technique | Unobservable Inputs | Weighted Average | ||||||||||||||
| (in thousands) | ||||||||||||||||||
Contingent consideration (Universal Robots) | $21,818 | | Monte Carlo Simulation |
| Revenue for the period July 1, 2015—December 31, 2017 volatility | 11.5 | % | |||||||||||
| Discount rate | 2.6 | % | ||||||||||||||||
| $17,311 | | Monte Carlo Simulation |
| Revenue for the period July 1, 2015—December 31, 2018 volatility | 11.5 | % | ||||||||||||
| Discount rate | 2.6 | % | ||||||||||||||||
As of October 1, 2017, the significant unobservable inputs used in the Monte Carlo simulation to fair value the Universal Robots contingent consideration include forecasted revenue, revenue volatility and discount rate. Increases or decreases in the inputs would result in a higher or lower fair value measurement. The maximum payment for each of the two Universal Robots revenue earn-outs is $25.0 million.
(Level 1) | (Level 2) | (Level 3) | Total | |||||||||||||
(in thousands) | ||||||||||||||||
| Assets | ||||||||||||||||
| Cash and cash equivalents | $ | 794,184 | $ | 60,589 | $ | — | $ | 854,773 | ||||||||
| Marketable securities | — | 39,612 | — | 39,612 | ||||||||||||
| Long-term marketable securities | 44,098 | 66,679 | — | 110,777 | ||||||||||||
| Prepayments | — | 86 | — | 86 | ||||||||||||
| Total | $ | 838,282 | $ | 166,966 | $ | — | $ | 1,005,248 | ||||||||
| Liabilities | ||||||||||||||||
| Other current liabilities | $ | — | $ | 4,215 | $ | — | $ | 4,215 | ||||||||
| Total | $ | — | $ | 4,215 | $ | — | $ | 4,215 | ||||||||
| October 1, 2017 | December 31, 2016 | |||||||||||||||
| Carrying Value | Fair Value | Carrying Value | Fair Value | |||||||||||||
| (in thousands) | ||||||||||||||||
Assets | ||||||||||||||||
Cash and cash equivalents | $ | 418,677 | $ | 418,677 | $ | 307,884 | $ | 307,884 | ||||||||
Marketable securities | 1,429,773 | 1,429,773 | 1,304,867 | 1,304,867 | ||||||||||||
Derivative assets | 157 | 157 | 1 | 1 | ||||||||||||
Liabilities | ||||||||||||||||
Contingent consideration | 39,129 | 39,129 | 38,332 | 38,332 | ||||||||||||
Derivative liabilities | 190 | 190 | 131 | 131 | ||||||||||||
Convertible debt (1) | 362,595 | 613,238 | 352,669 | 486,754 | ||||||||||||
April 2, 2023 | December 31, 2022 | |||||||||||||||
Carrying Value | Fair Value | Carrying Value | Fair Value | |||||||||||||
(in thousands) | ||||||||||||||||
| Assets | ||||||||||||||||
| Cash and cash equivalents | $ | 649,208 | $ | 649,208 | $ | 854,773 | $ | 854,773 | ||||||||
| Marketable securities | 209,833 | 209,833 | 150,389 | 150,389 | ||||||||||||
Derivative assets | — | — | 86 | 86 | ||||||||||||
| Liabilities | ||||||||||||||||
Derivative liabilities | 1,980 | 1,980 | 4,215 | 4,215 | ||||||||||||
| Convertible debt | 35,109 | 119,586 | 50,115 | 139,007 | ||||||||||||
April 2, 2023 | ||||||||||||||||||||
Available-for-Sale | ||||||||||||||||||||
Cost | Unrealized Gain | Unrealized (Loss) | Fair Market Value | Fair Market Value of Investments with Unrealized Losses | ||||||||||||||||
(in thousands) | ||||||||||||||||||||
| U.S. Treasury securities | $ | 55,615 | $ | 38 | $ | (3,485 | ) | $ | 52,168 | $ | 49,669 | |||||||||
| Corporate debt securities | 56,040 | 41 | (4,712 | ) | 51,369 | 49,131 | ||||||||||||||
| Commercial paper | 47,225 | 337 | (14 | ) | 47,548 | 16,845 | ||||||||||||||
| U.S. government agency securities | 7,427 | 9 | (42 | ) | 7,394 | 4,419 | ||||||||||||||
| Debt mutual funds | 7,130 | — | (330 | ) | 6,800 | 3,312 | ||||||||||||||
| Certificates of deposit and time deposits | 1,754 | — | — | 1,754 | — | |||||||||||||||
Non-U.S. government securities | 554 | — | — | 554 | — | |||||||||||||||
| $ | 175,745 | $ | 425 | $ | (8,583 | ) | $ | 167,587 | $ | 123,376 | ||||||||||
Cost | Unrealized Gain | Unrealized (Loss) | Fair Market Value | Fair Market Value of Investments with Unrealized Losses | ||||||||||||||||
(in thousands) | ||||||||||||||||||||
| Marketable securities | $ | 92,915 | $ | 337 | $ | (357 | ) | $ | 92,895 | $ | 60,438 | |||||||||
| Long-term marketable securities | 82,830 | 88 | (8,226 | ) | 74,692 | 62,938 | ||||||||||||||
| $ | 175,745 | $ | 425 | $ | (8,583 | ) | $ | 167,587 | $ | 123,376 | ||||||||||
| October 1, 2017 | ||||||||||||||||||||
| Available-for-Sale | Fair Market Value of Investments with Unrealized Losses | |||||||||||||||||||
| Cost | Unrealized Gain | Unrealized (Loss) | Fair Market Value | |||||||||||||||||
| (in thousands) | ||||||||||||||||||||
U.S. Treasury securities | $ | 944,120 | $ | 64 | $ | (1,934 | ) | $ | 942,250 | $ | 936,195 | |||||||||
Commercial paper | 194,985 | 11 | (48 | ) | 194,948 | 140,562 | ||||||||||||||
Corporate debt securities | 116,687 | 2,046 | (246 | ) | 118,487 | 79,119 | ||||||||||||||
Certificates of deposit and time deposits | 95,447 | 29 | (7 | ) | 95,469 | 33,238 | ||||||||||||||
U.S. government agency securities | 55,936 | 20 | (18 | ) | 55,938 | 52,997 | ||||||||||||||
Equity and debt mutual funds | 18,202 | 3,923 | (21 | ) | 22,104 | 1,529 | ||||||||||||||
Non-U.S. government securities | 570 | 7 | — | 577 | — | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total | $ | 1,425,947 | $ | 6,100 | $ | (2,274 | ) | $ | 1,429,773 | $ | 1,243,640 | |||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
2022:
December 31, 2022 | ||||||||||||||||||||
Available-for-Sale | ||||||||||||||||||||
Cost | Unrealized Gain | Unrealized (Loss) | Fair Market Value | Fair Market Value of Investments with Unrealized Losses | ||||||||||||||||
(in thousands) | ||||||||||||||||||||
| Corporate debt securities | $ | 57,006 | $ | 3 | $ | (6,153 | ) | $ | 50,856 | $ | 50,667 | |||||||||
| U.S. Treasury securities | 44,030 | — | (4,381 | ) | 39,649 | 39,649 | ||||||||||||||
| Commercial paper | 7,089 | 70 | — | 7,159 | — | |||||||||||||||
| Debt mutual funds | 6,997 | — | (417 | ) | 6,580 | 3,095 | ||||||||||||||
| U.S. government agency securities | 6,442 | — | (90 | ) | 6,352 | 6,352 | ||||||||||||||
| Certificates of deposit and time deposits | 1,740 | — | — | 1,740 | — | |||||||||||||||
Non-U.S. government securities | 535 | — | — | 535 | — | |||||||||||||||
| $ | 123,839 | $ | 73 | $ | (11,041 | ) | $ | 112,871 | $ | 99,763 | ||||||||||
| Cost | Unrealized Gain | Unrealized (Loss) | Fair Market Value | Fair Market Value of Investments with Unrealized Losses | ||||||||||||||||
| (in thousands) | ||||||||||||||||||||
Marketable securities | $ | 1,218,752 | $ | 65 | $ | (987 | ) | $ | 1,217,830 | $ | 1,088,881 | |||||||||
Long-term marketable securities | 207,195 | 6,035 | (1,287 | ) | 211,943 | 154,759 | ||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total | $ | 1,425,947 | $ | 6,100 | $ | (2,274 | ) | $ | 1,429,773 | $ | 1,243,640 | |||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
| December 31, 2016 | ||||||||||||||||||||
| Available-for-Sale | Fair Market Value of Investments with Unrealized Losses | |||||||||||||||||||
| Cost | Unrealized Gain | Unrealized (Loss) | Fair Market Value | |||||||||||||||||
| (in thousands) | ||||||||||||||||||||
U.S. Treasury securities | $ | 904,737 | $ | 97 | $ | (2,034 | ) | $ | 902,800 | $ | 572,284 | |||||||||
Commercial paper | 161,672 | 24 | (66 | ) | 161,630 | 84,034 | ||||||||||||||
Corporate debt securities | 99,708 | 1,065 | (620 | ) | 100,153 | 53,642 | ||||||||||||||
Certificates of deposit and time deposits | 82,080 | 54 | (1 | ) | 82,133 | 7,760 | ||||||||||||||
U.S. government agency securities | 39,264 | 7 | (19 | ) | 39,252 | 13,461 | ||||||||||||||
Equity and debt mutual funds | 16,505 | 1,724 | (58 | ) | 18,171 | 1,661 | ||||||||||||||
Non-U.S. government securities | 745 | 6 | (23 | ) | 728 | 137 | ||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total | $ | 1,304,711 | $ | 2,977 | $ | (2,821 | ) | $ | 1,304,867 | $ | 732,979 | |||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Reported as follows:
| Cost | Unrealized Gain | Unrealized (Loss) | Fair Market Value | Fair Market Value of Investments with Unrealized Losses | ||||||||||||||||
| (in thousands) | ||||||||||||||||||||
Marketable securities | $ | 871,321 | $ | 134 | $ | (431 | ) | $ | 871,024 | $ | 423,128 | |||||||||
Long-term marketable securities | 433,390 | 2,843 | (2,390 | ) | 433,843 | 309,851 | ||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total | $ | 1,304,711 | $ | 2,977 | $ | (2,821 | ) | $ | 1,304,867 | $ | 732,979 | |||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Cost | Unrealized Gain | Unrealized (Loss) | Fair Market Value | Fair Market Value of Investments with Unrealized Losses | ||||||||||||||||
(in thousands) | ||||||||||||||||||||
| Marketable securities | $ | 39,950 | $ | 70 | $ | (408 | ) | $ | 39,612 | $ | 30,713 | |||||||||
| Long-term marketable securities | 83,889 | 3 | (10,633 | ) | 73,259 | 69,050 | ||||||||||||||
| $ | 123,839 | $ | 73 | $ | (11,041 | ) | $ | 112,871 | $ | 99,763 | ||||||||||
respectively. As of December 31, 2016,2022, the fair market value of investments with unrealized losses totaled $733.0 million. Of this value, $2.9 million had unrealized losses of $0.3 million for less than one year and greater than one year totaled $66.3 million and $730.1$33.4 million, had unrealized losses of $2.5 million for less than one year.
respectively.
| October 1, 2017 | ||||||||
| Cost | Fair Market Value | |||||||
| (in thousands) | ||||||||
Due within one year | $ | 1,218,752 | $ | 1,217,830 | ||||
Due after 1 year through 5 years | 136,081 | 135,889 | ||||||
Due after 5 years through 10 years | 14,129 | 13,818 | ||||||
Due after 10 years | 38,783 | 40,132 | ||||||
|
|
|
| |||||
Total | $ | 1,407,745 | $ | 1,407,669 | ||||
|
|
|
| |||||
April 2, 2023 | ||||||||
Cost | Fair Market Value | |||||||
(in thousands) | ||||||||
| Due within one year | $ | 92,915 | $ | 92,895 | ||||
| Due after 1 year through 5 years | 31,721 | 30,672 | ||||||
| Due after 5 years through 10 years | 5,022 | 4,612 | ||||||
| Due after 10 years | 38,957 | 32,608 | ||||||
| Total | $ | 168,615 | $ | 160,787 | ||||
revenues.
The notional amount of
Thesell
April 2, 2023 | December 31, 2022 | |||||||||||||||||||||||
Buy Position | Sell Position | Net Total | Buy Position | Sell Position | Net Total | |||||||||||||||||||
(in millions) | ||||||||||||||||||||||||
| Japanese Yen | $ | (57.7 | ) | $ | — | $ | (57.7 | ) | $ | (37.1 | ) | $ | — | $ | (37.1 | ) | ||||||||
| Taiwan Dollar | (38.3 | ) | — | (38.3 | ) | (29.2 | ) | — | (29.2 | ) | ||||||||||||||
| Korean Won | (3.1 | ) | — | (3.1 | ) | (6.4 | ) | — | (6.4 | ) | ||||||||||||||
| British Pound Sterling | (1.2 | ) | — | (1.2 | ) | (1.2 | ) | — | (1.2 | ) | ||||||||||||||
| Singapore Dollar | — | 35.7 | 35.7 | — | 33.5 | 33.5 | ||||||||||||||||||
| Euro | — | 24.3 | 24.3 | — | 38.4 | 38.4 | ||||||||||||||||||
| Philippine Peso | — | 2.5 | 2.5 | — | 2.7 | 2.7 | ||||||||||||||||||
| Chinese Yuan | — | 1.9 | 1.9 | — | 2.2 | 2.2 | ||||||||||||||||||
| Total | $ | (100.3 | ) | $ | 64.4 | $ | (35.9 | ) | $ | (73.9 | ) | $ | 76.8 | $ | 2.9 | |||||||||
| Balance Sheet Location | October 1, 2017 | December 31, 2016 | ||||||||||
| (in thousands) | ||||||||||||
Derivatives not designated as hedging instruments: | ||||||||||||
Foreign currency forward contracts assets | Prepayments | $ | 157 | $ | 1 | |||||||
Foreign currency forward contracts liabilities | Other current liabilities | (190 | ) | (131 | ) | |||||||
|
|
|
| |||||||||
Total | $ | (33 | ) | $ | (130 | ) | ||||||
|
|
|
| |||||||||
The following table summarizes the effect of derivative instruments recognized in the statement of operations during the three and nine months ended October 1, 2017 and October 2, 2016.
Location of (Gains) Losses Recognized in Statement of Operations | For the Three Months Ended | For the Nine Months Ended | ||||||||||||||||
| October 1, 2017 | October 2, 2016 | October 1, 2017 | October 2, 2016 | |||||||||||||||
| (in thousands) | ||||||||||||||||||
Derivatives not designated as hedging instruments: | ||||||||||||||||||
Foreign currency forward contracts | Other (income) expense, net | $ | (939 | ) | $ | 941 | $ | (1,514 | ) | $ | 11,140 | |||||||
|
|
|
|
|
|
|
| |||||||||||
Total | $ | (939 | ) | $ | 941 | $ | (1,514 | ) | $ | 11,140 | ||||||||
|
|
|
|
|
|
|
| |||||||||||
Unrealized gains |
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.
F.
April 2, 2023 | December 31, 2022 | |||||||||||||||||||||||
Buy Position | Sell Position | Net Total | Buy Position | Sell Position | Net Total | |||||||||||||||||||
(in millions) | ||||||||||||||||||||||||
| Japanese Yen | $ | (13.6 | ) | $ | 30.2 | $ | 16.6 | $ | (23.4 | ) | $ | 61.2 | $ | 37.8 | ||||||||||
| Taiwan Dollar | — | — | — | (5.5 | ) | 10.9 | 5.4 | |||||||||||||||||
| Total | $ | (13.6 | ) | $ | 30.2 | $ | 16.6 | $ | (28.9 | ) | $ | 72.1 | $ | 43.2 | ||||||||||
Balance Sheet Location | April 2, 2023 | December 31, 2022 | ||||||||||
(in thousands) | ||||||||||||
| Derivatives not designated as hedging instruments: | ||||||||||||
| Foreign exchange forward contracts | Prepayments | $ | — | $ | 86 | |||||||
| Foreign exchange forward contracts | Other current liabilities | (1,057 | ) | (990 | ) | |||||||
| Derivatives designated as hedging instruments: | ||||||||||||
| Foreign exchange option contracts | Other current liabilities | (923 | ) | (3,225 | ) | |||||||
| Total derivatives | $ | (1,980 | ) | $ | (4,129 | ) | ||||||
For the Three Months Ended | ||||||||||||
Location of Losses (Gains) Recognized in Statement of Operations | April 2, 2023 | April 3, 2022 | ||||||||||
(in thousands) | ||||||||||||
| Derivatives not designated as hedging instruments: | ||||||||||||
| Foreign exchange forward contracts | Other (income) expense, net | $ | 1,259 | $ | (1,752 | ) | ||||||
| Derivatives designated as hedging instruments: | ||||||||||||
| Foreign exchange option contracts | Revenue | 1,538 | — | |||||||||
| Total Derivatives | $ | 2,797 | $ | (1,752 | ) | |||||||
converted. The Notes bear interest from December 12, 2016 at a rate of 1.25% per year payable semi-annuallysemiannually in arrears on June 15 and December 15 of each year, beginning on June 15, 2017.
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 only during such calendar quarter), if the closing sale price of 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% of the conversion price on each applicable trading day; (2) during the five business day period after any five consecutive trading day period (the “measurement period”) in which the trading price (as defined in the Indenture) per $1,000 principal amount of Notes for each trading day of the measurement period was less than 98% of the product of the closing sale price of the 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 future conversion obligation by paying cash for the principal amount of the Notes and paying or delivering cash, shares of its common stock or a combination of cash and shares of its common stock, at Teradyne’s election. The conversion rateelection for the amount in excess of principal. On November 4, 2021, Teradyne made an irrevocable election under the Indenture to require the principal portion of the remaining Notes will initiallyto be 31.4102 shares per $1,000 principal amount, which is equivalent to an initialsettled in cash. As of April 2, 2023, the conversion price ofwas approximately $31.84$31.44 per share of Teradyne’s common stock. The conversion rate is subject to adjustment under certain circumstances.
As of May 5, 2023, one hundred and thirty debt holders had exercised the option to convert $427.2 million worth of notes.
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.
$31.44.
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.
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’s effective annual interest rate on
| October 1, 2017 | December 31, 2016 | |||||||
| (in thousands) | ||||||||
Debt principal | $ | 460,000 | $ | 460,000 | ||||
Unamortized discount | 97,405 | 107,331 | ||||||
|
|
|
| |||||
Net carrying amount of convertible debt | $ | 362,595 | $ | 352,669 | ||||
|
|
|
| |||||
| For the Three Months Ended | For the Nine Months Ended | |||||||
| October 1, 2017 | October 1, 2017 | |||||||
| (in thousands) | ||||||||
Contractual interest expense on the coupon | $ | 1,422 | $ | 4,297 | ||||
Amortization of the discount component and debt issue fees recognized as interest expense | 3,350 | 9,926 | ||||||
|
|
|
| |||||
Total interest expense on the convertible debt | $ | 4,772 | $ | 14,223 | ||||
|
|
|
| |||||
April 2, 2023 | December 31, 2022 | |||||||
(in thousands) | ||||||||
| Debt principal | $ | 35,109 | $ | 50,228 | ||||
| Unamortized debt issuance fees | — | 113 | ||||||
| Net carrying amount of convertible debt | $ | 35,109 | $ | 50,115 | ||||
For the Three Months Ended | ||||||||
April 2, 2023 | April 3, 2022 | |||||||
(in thousands) | ||||||||
| Contractual interest expense on the coupon | $ | 138 | $ | 311 | ||||
| Amortization of the issue fees recognized as interest expense | 113 | 66 | ||||||
| Total interest expense on the convertible debt | $ | 251 | $ | 377 | ||||
Proceeds from the Credit Facility may be used for general corporate purposes and working capital. Teradyne incurred $2.3greater of $200.0 million in costs related to the revolving credit facility. These costs are being amortized over the five-year termor 15% of the revolving credit facility and are included in interest expense in the statements of operations. As of November 9, 2017, Teradyne has not borrowed any funds under the Credit Facility.
consolidated EBIDTA. The interest ratesrate applicable to loans under the Credit Facility are, at Teradyne’s option, equal to either a base rate plus a margin ranging from 0.00% to 1.00%0.75% per annum or LIBORSOFR plus a margin ranging from 1.00%1.10% to 2.00%1.85% per annum, based on the Consolidated Leverage Ratioconsolidated leverage ratio of Teradyne and its Restricted Subsidiaries.Teradyne. In addition, Teradyne will pay a commitment fee on the unused portion of the commitments under the Credit Facility ranging from 0.125%0.15% to 0.350%0.25% 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 LIBORSOFR breakage costs.
G.
| October 1, 2017 | December 31, 2016 | |||||||
| (in thousands) | ||||||||
Contract manufacturer prepayments | $ | 78,293 | $ | 84,473 | ||||
Prepaid taxes | 9,658 | 4,664 | ||||||
Prepaid maintenance and other services | 6,685 | 7,676 | ||||||
Other prepayments | 10,673 | 11,641 | ||||||
|
|
|
| |||||
Total | $ | 105,309 | $ | 108,454 | ||||
|
|
|
| |||||
H. DEFERRED REVENUE AND CUSTOMER ADVANCES
Deferred revenue and customer advances consist of the following and are included in short and long-term deferred revenue and customer advances on the balance sheet:
| October 1, 2017 | December 31, 2016 | |||||||
| (in thousands) | ||||||||
Extended warranty | $ | 26,492 | $ | 28,200 | ||||
Customer advances, undelivered elements and other | 58,577 | 32,938 | ||||||
Maintenance and training | 58,123 | 46,803 | ||||||
|
|
|
| |||||
Total | $ | 143,192 | $ | 107,941 | ||||
|
|
|
| |||||
I.
April 2, 2023 | December 31, 2022 | |||||||
(in thousands) | ||||||||
| Contract manufacturer and supplier prepayments | $ | 494,849 | $ | 491,105 | ||||
| Prepaid taxes | 22,677 | 18,625 | ||||||
| Prepaid maintenance and other services | 16,591 | 14,545 | ||||||
| Other prepayments | 14,997 | 8,687 | ||||||
| Total prepayments | $ | 549,114 | $ | 532,962 | ||||
| For the Three Months Ended | For the Nine Months Ended | |||||||||||||||
| October 1, 2017 | October 2, 2016 | October 1, 2017 | October 2, 2016 | |||||||||||||
| (in thousands) | ||||||||||||||||
Balance at beginning of period | $ | 9,093 | $ | 8,784 | $ | 7,203 | $ | 6,925 | ||||||||
Accruals for warranties issued during the period | 2,734 | 3,248 | 11,049 | 11,626 | ||||||||||||
Adjustments related to pre-existing warranties | (35 | ) | (460 | ) | (499 | ) | (637 | ) | ||||||||
Settlements made during the period | (3,055 | ) | (3,249 | ) | (9,016 | ) | (9,591 | ) | ||||||||
|
|
|
|
|
|
|
| |||||||||
Balance at end of period | $ | 8,737 | $ | 8,323 | $ | 8,737 | $ | 8,323 | ||||||||
|
|
|
|
|
|
|
| |||||||||
liabilities.
For the Three Months Ended | ||||||||
April 2, 2023 | April 3, 2022 | |||||||
(in thousands) | ||||||||
| Balance at beginning of period | $ | 14,181 | $ | 24,577 | ||||
| Accruals for warranties issued during the period | 4,117 | 4,100 | ||||||
Accruals related to pre-existing warranties | (405 | ) | (2,758 | ) | ||||
| Settlements made during the period | (4,992 | ) | (5,814 | ) | ||||
| Balance at end of period | $ | 12,901 | $ | 20,105 | ||||
For the Three Months Ended | ||||||||
April 2, 2023 | April 3, 2022 | |||||||
(in thousands) | ||||||||
| Balance at beginning of period | $ | 56,180 | $ | 64,168 | ||||
| Deferral of new extended warranty revenue | 4,413 | 11,774 | ||||||
| Recognition of extended warranty deferred revenue | (11,250 | ) | (10,216 | ) | ||||
| Balance at end of period | $ | 49,343 | $ | 65,726 | ||||
| For the Three Months Ended | For the Nine Months Ended | |||||||||||||||
| October 1, 2017 | October 2, 2016 | October 1, 2017 | October 2, 2016 | |||||||||||||
| (in thousands) | ||||||||||||||||
Balance at beginning of period | $ | 29,377 | $ | 30,422 | $ | 28,200 | $ | 30,024 | ||||||||
Deferral of new extended warranty revenue | 2,636 | 4,638 | 17,126 | 17,036 | ||||||||||||
Recognition of extended warranty deferred revenue | (5,521 | ) | (5,030 | ) | (18,834 | ) | (17,030 | ) | ||||||||
|
|
|
|
|
|
|
| |||||||||
Balance at end of period | $ | 26,492 | $ | 30,030 | $ | 26,492 | $ | 30,030 | ||||||||
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|
|
|
|
|
| |||||||||
J. STOCK-BASED COMPENSATION
Retirement Agreement, Mr. Jagiela’s unvested time-based restricted stock units and stock options granted prior to his Retirement Date were modified to allow continued vesting; and any vested options or options that vest during that period may be exercised for the remainder of the applicable option term. During the three months ended April 2, 2023, Teradyne recorded a stock based compensation expense of $5.9 million related to the Retirement Agreement.
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.
Time-based
Commencing in January 2014, Teradyne granted performance-based
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.period or the period from the grant to the date described in the retirement provisions below. Compensation expense for executive officers meeting the retirement provisions prior to the grant date is recognized during the year 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 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.
In January 2017 and 2016, Teradyne
Beginning with PRSUs granted in January 2014, if the
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
| For the Nine Months Ended | ||||||||
| October 1, 2017 | October 2, 2016 | |||||||
Risk-free interest rate | 1.5 | % | 1.0 | % | ||||
Teradyne volatility-historical | 26.6 | % | 27.0 | % | ||||
NYSE Composite Index volatility-historical | 13.4 | % | 13.1 | % | ||||
Dividend yield | 1.0 | % | 1.2 | % | ||||
For the Three Months Ended | ||||||||
April 2, 2023 | April 3, 2022 | |||||||
| Risk-free interest rate | 3.9 | % | 1.4 | % | ||||
| Teradyne volatility-historical | 50.2 | % | 47.1 | % | ||||
| NYSE Composite Index volatility-historical | 24.8 | % | 22.7 | % | ||||
| Dividend yield | 0.4 | % | 0.4 | % | ||||
During the nine months ended October 1, 2017, Teradyne granted 0.8 million of service-based restricted stock unit awards to employees at a weighted average grant date fair value of $28.03, 0.1 million of service-based restricted stock unit awards to non-employee directors at a weighted average grant date fair value of $34.48, and 0.1 million of service-based stock options to executive officers at a weighted average grant date fair value of $7.13.
During the nine months ended October 2, 2016, Teradyne granted 0.1 million PBIT PRSUs with a grant date fair value of $18.71.
During the nine months ended October 2, 2016, Teradyne granted 1.2 million of service-based restricted stock unit awards to employees at a weighted average grant date fair value of $18.49, 0.1 million of service-based restricted stock unit awards to non-employee directors at a weighted average grant date fair value of $18.71$40.90 and 0.1 million of service-based stock options to executive officers at a weighted average grant date fair value of $5.30.
Restricted stock unit awards granted to employees vest in equal annual installments over four years. Stock options vest in equal annual installments over four years and have a term of seven years from the date of grant.
$39.01, respectively.
| For the Nine Months Ended | ||||||||
| October 1, 2017 | October 2, 2016 | |||||||
Expected life (years) | 5.0 | 5.0 | ||||||
Risk-free interest rate | 2.0 | % | 1.4 | % | ||||
Volatility-historical | 27.8 | % | 32.9 | % | ||||
Dividend yield | 1.0 | % | 1.2 | % | ||||
For the Three Months Ended | ||||||||
April 2, 2023 | April 3, 2022 | |||||||
| Expected life (years) | 4.0 | 4.0 | ||||||
| Risk-free interest rate | 3.7 | % | 1.6 | % | ||||
| Volatility-historical | 46.7 | % | 43.7 | % | ||||
| Dividend yield | 0.4 | % | 0.4 | % | ||||
K.
| Foreign Currency Translation Adjustment | Unrealized Gains (Losses) on Marketable Securities | Retirement Plans Prior Service Credit | Total | |||||||||||||
| (in thousands) | ||||||||||||||||
Nine Months Ended October 1, 2017 | ||||||||||||||||
Balance at December 31, 2016, net of tax of $0, $209, $(778), respectively | $ | (21,921 | ) | $ | (60 | ) | $ | 1,767 | $ | (20,214 | ) | |||||
Other comprehensive income before reclassifications, net of tax of $0, $1,666, $0, respectively | 34,235 | 2,448 | — | 36,683 | ||||||||||||
Amounts reclassified from accumulated other comprehensive income, net of tax of $0, $(173), $(115), respectively | — | (264 | ) | (204 | ) | (468 | ) | |||||||||
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|
|
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| |||||||||
Net current period other comprehensive income (loss), net of tax of $0, $1,493, $(115), respectively | 34,235 | 2,184 | (204 | ) | 36,215 | |||||||||||
|
|
|
|
|
|
|
| |||||||||
Balance at October 1, 2017, net of tax of $0, $1,702, $(893), respectively | $ | 12,314 | $ | 2,124 | $ | 1,563 | $ | 16,001 | ||||||||
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|
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|
| |||||||||
| Foreign Currency Translation Adjustments | Unrealized Gains (Losses) on Marketable Securities | Retirement Plans Prior Service Credit | Total | |||||||||||||
| (in thousands) | ||||||||||||||||
Nine Months Ended October 2, 2016 | ||||||||||||||||
Balance at December 31, 2015, net of tax of $0, $(459), $(622), respectively | $ | (8,759 | ) | $ | (1,414 | ) | $ | 2,029 | $ | (8,144 | ) | |||||
Other comprehensive income before reclassifications, net of tax of $0, $2,405, $34, respectively | 7,072 | 5,110 | 59 | 12,241 | ||||||||||||
Amounts reclassified from accumulated other comprehensive income (loss), net of tax of $0, $(152), $(139), respectively | — | (468 | ) | (244 | ) | (712 | ) | |||||||||
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|
|
|
|
|
|
| |||||||||
Net current period other comprehensive income (loss), net of tax of $0, $2,253, $(105), respectively | 7,072 | 4,642 | (185 | ) | 11,529 | |||||||||||
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|
|
|
|
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| |||||||||
Balance as October 2, 2016, net of tax of $0, $1,749, $(727), respectively | $ | (1,687 | ) | $ | 3,228 | $ | 1,844 | $ | 3,385 | |||||||
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| |||||||||
Foreign Currency Translation Adjustment | Unrealized (Losses) Gains on Marketable Securities | Unrealized (Losses) Gains on Cash Flow Hedges | Retirement Plans Prior Service Credit | Total | ||||||||||||||||
(in thousands) | ||||||||||||||||||||
Three Months Ended April 2, 2023 | ||||||||||||||||||||
| Balance at December 31, 2022, net of tax of $0, $(2,308), $(708), $(1,130), respectively | $ | (39,849 | ) | $ | (8,661 | ) | $ | (2,517 | ) | $ | 1,159 | $ | (49,868 | ) | ||||||
| Other comprehensive gain before reclassifications, net of tax of $0, $503, $167, $0, respectively | 9,309 | 2,294 | 596 | — | 12,199 | |||||||||||||||
| Amounts reclassified from accumulated other comprehensive income, net of tax of $0, $2, $338, $0, respectively | — | 5 | 1,200 | (2 | ) | 1,203 | ||||||||||||||
| Net current period other comprehensive gain (loss), net of tax of $0, $505, $505 $0, respectively | 9,309 | 2,299 | 1,796 | (2 | ) | 13,402 | ||||||||||||||
| Balance at April 2, 2023, net of tax of $0, $(1,803), $(203), $(1,130) respectively | $ | (30,540 | ) | $ | (6,362 | ) | $ | (721 | ) | $ | 1,157 | $ | (36,466 | ) | ||||||
Three Months Ended April 3, 2022 | ||||||||||||||||||||
| Balance at December 31, 2021, net of tax of $0, $1,055, $0, $(1,128), respectively | $ | (10,818 | ) | $ | 3,704 | $ | — | $ | 1,166 | $ | (5,948 | ) | ||||||||
| Other comprehensive loss before reclassifications, net of tax of $0, $(1,333), $0, $0, respectively | (8,076 | ) | (5,388 | ) | — | — | (13,464 | ) | ||||||||||||
| Amounts reclassified from accumulated other comprehensive income, net of tax of $0, $(18), $0, $0, respectively | — | (65 | ) | — | (2 | ) | (67 | ) | ||||||||||||
| Net current period other comprehensive loss, net of tax of $0, $(1,351), $0, $0, respectively | (8,076 | ) | (5,453 | ) | — | (2 | ) | (13,531 | ) | |||||||||||
| Balance at April 3, 2022, net of tax of $0, $(296), $0, $(1,128), respectively | $ | (18,894 | ) | $ | (1,749 | ) | $ | — | $ | 1,164 | $ | (19,479 | ) | |||||||
Details about Accumulated Other Comprehensive Income Components | For the Three Months Ended | For the Nine Months Ended | Affected Line Item in the Statements of Operations | |||||||||||||||
| October 1, 2017 | October 2, 2016 | October 1, 2017 | October 2, 2016 | |||||||||||||||
| (in thousands) | ||||||||||||||||||
Available-for-sale marketable securities: | ||||||||||||||||||
Unrealized gains, net of tax of $67, $150, $173, $152, respectively | $ | 87 | $ | 334 | $ | 264 | $ | 468 | Interest income | |||||||||
Defined benefit pension and postretirement plans: | ||||||||||||||||||
Amortization of prior service benefit, net of tax of $38, $46, $115, $139, respectively | 68 | 81 | 204 | 244 | (a) | |||||||||||||
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| |||||||||||
Total reclassifications, net of tax of $105, $196, $288, $291, respectively | $ | 155 | $ | 415 | $ | 468 | $ | 712 | Net income | |||||||||
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| |||||||||||
Details about Accumulated Other Comprehensive Income (Loss) Components | For the Three Months Ended | Affected Line Item in the Statements of Operations | ||||||||||
April 2, | April 3, | |||||||||||
2023 | 2022 | |||||||||||
(in thousands) | ||||||||||||
Available-for-sale | ||||||||||||
| Unrealized (losses) gains, net of tax of $(2) and $18, respectively | $ | (5 | ) | $ | 65 | Other (income) expense, net | | |||||
| Cash flow hedges: | ||||||||||||
| Unrealized losses, net of tax of $(338) and $0, respectively | (1,200 | ) | — | Revenue | ||||||||
| Defined benefit pension and postretirement plans: | ||||||||||||
| Amortization of prior service benefit, net of tax of $0 and $0, respectively | 2 | 2 | (a) | |||||||||
| Total reclassifications, net of tax of $(340) and $18, respectively | $ | (1,203 | ) | $ | 67 | Net income | ||||||
| (a) | The amortization of prior service credit is included in the computation of net periodic O : “Retirement Plans.” |
L.
In the second quarter of 2016, the Wireless Test reporting unit (which is Teradyne’s Wireless Test operating and reportable segment) reduced headcount by 11% as a result of a sharp decline in projected demand attributable to an estimated smaller future wireless test market. The decrease in projected demand was due to
lower forecasted buying from Teradyne’s largest Wireless Test segment customer (who had previously contributed between 51% and 73% of annual Wireless Test sales since the LitePoint acquisition in 2011) as a result of the customer’s numerous operational efficiencies; slower smartphone growth rates; and a slowdown of new wireless technology adoption. Teradyne considered the headcount reduction and sharp decline in projected demand to be a triggering event for an interim goodwill impairment test.
Teradyne used the income and market approaches to determine the fair value of the Wireless Test reporting unit for step 1 of the goodwill impairment test. With respect to the income approach, Teradyne used the discounted cash flow method, which included seven year future cash flow projections and an estimated terminal value. The cash flow projections were prepared using Teradyne’s forecast, which was based upon underlying estimates of the total market size, and Teradyne’s market share in the wireless test market developed using Teradyne and independent third party data. The estimated terminal value was calculated using the Gordon Growth model. The market approach used a revenue multiple to develop an estimate of fair value. The revenue multiple was estimated using enterprise value as a ratio of next twelve months revenue for comparable companies. Teradyne equally weighted the income and market approaches to determine the fair value of the Wireless Test reporting unit. The carrying amount of the Wireless Test reporting unit exceeded its fair value; therefore, the second step of the goodwill impairment test was performed to calculate implied goodwill and to measure the amount of the impairment loss.
Teradyne allocated the fair value of the Wireless Test reporting unit to all of its assets and liabilities (including unrecognized intangible assets). The net book value of raw materials inventory was estimated as an approximation of current replacement costs. The fair value of finished goods inventory was estimated at the present value of selling price less direct selling costs and profit on the selling effort. The selling price used in the inventory fair values was based upon the product gross margins included in Teradyne’s forecast. The fair value of the deferred revenue liability was estimated by assessing the costs required to service the obligation plus a reasonable profit margin. The fair value for personal property assets, which consisted of furniture and fixtures, machinery and equipment, computer equipment, software and leasehold improvements, was estimated using the replacement cost approach, which approximated carrying value. The fair value of intangible assets was estimated using the income approach and, in particular, developed technology and trademarks/trade names were valued using the relief-from-royalty method and customer relationships and customer backlog were valued using the discounted cash flow method. Royalty rates were estimated using rates applicable to wireless testing equipment and other similar technologies. Based upon this allocation, Teradyne determined that goodwill was valued at $8.0 million and recorded an impairment loss of $254.9 million in the second quarter of 2016.
The changes in the carrying amount of goodwill by reportable segments for the ninethree months ended October 1, 2017,April 2, 2023, were as follows:
| Industrial Automation | System Test | Wireless Test | Semiconductor Test | Total | ||||||||||||||||
| (in thousands) | ||||||||||||||||||||
Balance at December 31, 2016 | ||||||||||||||||||||
Goodwill | $ | 204,851 | $ | 158,699 | $ | 361,819 | $ | 260,540 | $ | 985,909 | ||||||||||
Accumulated impairment losses | — | (148,183 | ) | (353,843 | ) | (260,540 | ) | (762,566 | ) | |||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
| 204,851 | 10,516 | 7,976 | — | 223,343 | ||||||||||||||||
Foreign currency translation adjustment | 25,934 | — | — | — | 25,934 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Balance at October 1, 2017 | ||||||||||||||||||||
Goodwill | 230,785 | 158,699 | 361,819 | 260,540 | 1,011,843 | |||||||||||||||
Accumulated impairment losses | — | (148,183 | ) | (353,843 | ) | (260,540 | ) | (762,566 | ) | |||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
| $ | 230,785 | $ | 10,516 | $ | 7,976 | $ | — | $ | 249,277 | |||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Acquired
Robotics | Wireless Test | Semiconductor Test | System Test | Total | ||||||||||||||||
(in thousands) | ||||||||||||||||||||
| Balance at December 31, 2022 | ||||||||||||||||||||
| Goodwill | $ | 383,166 | $ | 361,819 | $ | 262,077 | $ | 158,699 | $ | 1,165,761 | ||||||||||
| Accumulated impairment losses | — | (353,843 | ) | (260,540 | ) | (148,183 | ) | (762,566 | ) | |||||||||||
| 383,166 | 7,976 | 1,537 | 10,516 | 403,195 | ||||||||||||||||
| Foreign currency translation adjustment | 6,609 | — | 24 | — | 6,633 | |||||||||||||||
| Balance at April 2, 2023 | ||||||||||||||||||||
| Goodwill | 389,775 | 361,819 | 262,101 | 158,699 | 1,172,394 | |||||||||||||||
| Accumulated impairment losses | — | (353,843 | ) | (260,540 | ) | (148,183 | ) | (762,566 | ) | |||||||||||
| $ | 389,775 | $ | 7,976 | $ | 1,561 | $ | 10,516 | $ | 409,828 | |||||||||||
| October 1, 2017 | ||||||||||||||||
| Gross Carrying Amount | Accumulated Amortization | Cumulative Foreign Currency Translation Adjustment | Net Carrying Amount | |||||||||||||
| (in thousands) | ||||||||||||||||
Developed technology | $ | 270,877 | $ | (221,051 | ) | $ | 1,057 | $ | 50,883 | |||||||
Customer relationships | 92,741 | (82,286 | ) | 111 | 10,566 | |||||||||||
Tradenames and trademarks | 50,100 | (26,171 | ) | 271 | 24,200 | |||||||||||
Non-compete agreement | 320 | (240 | ) | — | 80 | |||||||||||
|
|
|
|
|
|
|
| |||||||||
Total | $ | 414,038 | $ | (329,748 | ) | $ | 1,439 | $ | 85,729 | |||||||
|
|
|
|
|
|
|
| |||||||||
| December 31, 2016 | ||||||||||||||||
| Gross Carrying Amount | Accumulated Amortization | Cumulative Foreign Currency Translation Adjustment | Net Carrying Amount | |||||||||||||
| (in thousands) | ||||||||||||||||
Developed technology | $ | 270,877 | $ | (206,376 | ) | $ | (5,093 | ) | $ | 59,408 | ||||||
Customer relationships | 92,741 | (76,707 | ) | (538 | ) | 15,496 | ||||||||||
Tradenames and trademarks | 50,100 | (23,435 | ) | (1,308 | ) | 25,357 | ||||||||||
Non-compete agreement | 320 | (180 | ) | — | 140 | |||||||||||
|
|
|
|
|
|
|
| |||||||||
Total | $ | 414,038 | $ | (306,698 | ) | $ | (6,939 | ) | $ | 100,401 | ||||||
|
|
|
|
|
|
|
| |||||||||
Gross Carrying Amount | Accumulated Amortization | Foreign Currency Translation Adjustment | Net Carrying Amount | |||||||||||||
(in thousands) | ||||||||||||||||
| Balance at April 2, 2023 | ||||||||||||||||
| Developed technology | $ | 270,967 | $ | (237,269 | ) | $ | (5,560 | ) | $ | 28,138 | ||||||
| Customer relationships | 57,739 | (51,756 | ) | 184 | 6,167 | |||||||||||
| Tradenames and trademarks | 59,387 | (43,101 | ) | (1,345 | ) | 14,941 | ||||||||||
| Total intangible assets | $ | 388,093 | $ | (332,126 | ) | $ | (6,721 | ) | $ | 49,246 | ||||||
| Balance, December 31, 2022 | ||||||||||||||||
| Developed technology | $ | 270,967 | $ | (234,208 | ) | $ | (5,935 | ) | $ | 30,824 | ||||||
| Customer relationships | 57,739 | (51,186 | ) | 172 | 6,725 | |||||||||||
| Tradenames and trademarks | 59,387 | (41,930 | ) | (1,528 | ) | 15,929 | ||||||||||
| Total intangible assets | $ | 388,093 | $ | (327,324 | ) | $ | (7,291 | ) | $ | 53,478 | ||||||
Estimated acquired intangible assetsasset amortization expense for each of the five succeeding fiscal years and thereafter is as follows:
Year | Amortization Expense | |||
| (in thousands) | ||||
2017(remainder) | 7,348 | |||
2018 | 29,268 | |||
2019 | 25,295 | |||
2020 | 11,134 | |||
2021 | 3,703 | |||
Thereafter | 8,981 | |||
M.
Year | Amortization Expense | |||
(in thousands) | ||||
| 2023 | $ | 14,219 | ||
| 2024 | 18,749 | |||
| 2025 | 11,320 | |||
| 2026 | 2,371 | |||
| 2027 | 1,155 | |||
| Thereafter | 1,432 | |||
| For the Three Months Ended | For the Nine Months Ended | |||||||||||||||
| October 1, 2017 | October 2, 2016 | October 1, 2017 | October 2, 2016 | |||||||||||||
| (in thousands, except per share amounts) | ||||||||||||||||
Net income (loss) for basic and diluted net income (loss) per share | $ | 103,420 | $ | 63,794 | $ | 363,616 | $ | (109,767 | ) | |||||||
|
|
|
|
|
|
|
| |||||||||
Weighted average common shares-basic | 197,485 | 202,211 | 198,755 | 203,167 | ||||||||||||
Effect of dilutive potential common shares: | ||||||||||||||||
Restricted stock units | 1,832 | 1,282 | 1,663 | — | ||||||||||||
Incremental shares from assumed conversion of convertible note | 1,144 | — | 632 | — | ||||||||||||
Stock options | 306 | 421 | 337 | — | ||||||||||||
Employee stock purchase plan | 8 | 15 | 26 | — | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Dilutive potential common shares | 3,290 | 1,718 | 2,658 | — | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Weighted average common shares-diluted | 200,775 | 203,929 | 201,413 | 203,167 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Net income (loss) per common share-basic | $ | 0.52 | $ | 0.32 | $ | 1.83 | $ | (0.54 | ) | |||||||
|
|
|
|
|
|
|
| |||||||||
Net income (loss) per common share-diluted | $ | 0.52 | $ | 0.31 | $ | 1.81 | $ | (0.54 | ) | |||||||
|
|
|
|
|
|
|
| |||||||||
For the Three Months Ended | ||||||||
April 2, | April 3, | |||||||
2023 | 2022 | |||||||
(in thousands, except per share amounts) | ||||||||
| Net income for basic and diluted net income per share | $ | 83,531 | $ | 161,928 | ||||
| Weighted average common shares-basic | 155,904 | 162,048 | ||||||
| Effect of dilutive potential common shares: | ||||||||
| Convertible note hedge warrant shares (1) | 8,983 | 10,028 | ||||||
| Incremental shares from assumed conversion of convertible notes (2) | 914 | 2,541 | ||||||
| Restricted stock units | 453 | 875 | ||||||
| Stock options | 48 | 69 | ||||||
| Employee stock purchase plan | 6 | 14 | ||||||
| Dilutive potential common shares | 10,404 | 13,527 | ||||||
| Weighted average common shares-diluted | 166,308 | 175,575 | ||||||
| Net income per common share-basic | $ | 0.54 | $ | 1.00 | ||||
| Net income per common share-diluted | $ | 0.50 | $ | 0.92 | ||||
| (1) | Convertible notes hedge warrant shares were calculated using the difference between the average Teradyne stock price for the period and the warrant price, multiplied by the number of warrant 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. |
| (2) | Incremental shares from assumed conversion of the convertible notes |
The computation of diluted net income per common share for the three and nine months ended October 1, 2017 excludes the effect of the potential exercise of stock options to purchase approximately 0.1 million shares because the effect would have been anti-dilutive.
The computation of diluted net income per common share for the nine months ended October 2, 2016 excludes the effect of the potential exercise of all outstanding stock options and restricted stock units because Teradyne had a net loss and inclusion would be anti-dilutive.
N.
Test, Robotics and Corporate.
During the nine months ended October 1, 2017, Teradyne recorded $2.0 million for employee severance charges, primarily in Industrial Automation and Corporate, $1.8 million for the increase in the fair value of the Universal Robots contingent consideration liability, $0.9 million for a lease impairment of a Wireless Test facility in Sunnyvale, CA, which was terminated in September 2017, and $0.8 million of Japan earthquake related expenses, partially offset by $5.1 million of property insurance recovery related to the Japan earthquake.
During the nine months ended October 2, 2016,arbitration claim filed against Teradyne recorded $10.5 million for the increase in the fair value of contingent consideration liability, of which $9.9 million wasand AutoGuide related to Universal Robots and $0.6 millionan
O.$26.7 million.
obligation at December 31. Teradyne uses a December 31 measurement date for all of its plans.
, as well as unfunded qualified foreign plans.
In the nine months ended October 2, 2016, Teradyne contributed $1.9 million to the U.S. qualified pension plan, $1.9 million to the U.S. supplemental executive defined benefit pension plan and $1.5 million to certain qualified pension plans for non-U.S. subsidiaries.
For the three and nine months ended October 1, 2017April 2, 2023 and October 2, 2016,April 3, 2022, Teradyne’s net periodic pension cost (income) was comprised of the following:
| For the Three Months Ended | ||||||||||||||||
| October 1, 2017 | October 2, 2016 | |||||||||||||||
| United States | Foreign | United States | Foreign | |||||||||||||
| (in thousands) | ||||||||||||||||
Service cost | $ | 560 | $ | 215 | $ | 575 | $ | 208 | ||||||||
Interest cost | 3,288 | 186 | 3,407 | 209 | ||||||||||||
Expected return on plan assets | (3,002 | ) | (6 | ) | (3,458 | ) | (6 | ) | ||||||||
Amortization of prior service cost | 18 | — | 24 | — | ||||||||||||
Net actuarial loss | — | — | — | 662 | ||||||||||||
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|
|
| |||||||||
Total | $ | 864 | $ | 395 | $ | 548 | $ | 1,073 | ||||||||
|
|
|
|
|
|
|
| |||||||||
| For the Nine Months Ended | ||||||||||||||||
| October 1, 2017 | October 2, 2016 | |||||||||||||||
| United States | Foreign | United States | Foreign | |||||||||||||
| (in thousands) | ||||||||||||||||
Service cost | $ | 1,679 | $ | 606 | $ | 1,726 | $ | 614 | ||||||||
Interest cost | 9,863 | 527 | 10,222 | 614 | ||||||||||||
Expected return on plan assets | (9,006 | ) | (19 | ) | (10,373 | ) | (17 | ) | ||||||||
Amortization of prior service cost | 53 | — | 72 | — | ||||||||||||
Net Actuarial (gain) loss | (2,732 | ) | 243 | (1,848 | ) | 662 | ||||||||||
Settlement | — | — | — | (184 | ) | |||||||||||
|
|
|
|
|
|
|
| |||||||||
Total | $ | (143 | ) | $ | 1,357 | $ | (201 | ) | $ | 1,689 | ||||||
|
|
|
|
|
|
|
| |||||||||
For the Three Months Ended | ||||||||||||||||
April 2, 2023 | April 3, 2022 | |||||||||||||||
United States | Foreign | United States | Foreign | |||||||||||||
(in thousands) | ||||||||||||||||
| Service cost | $ | 272 | $ | 109 | $ | 397 | $ | 206 | ||||||||
| Interest cost | 1,711 | 262 | 1,222 | 118 | ||||||||||||
| Expected return on plan assets | (1,285 | ) | (9 | ) | (732 | ) | (20 | ) | ||||||||
| Total net periodic pension cost | $ | 698 | $ | 362 | $ | 887 | $ | 304 | ||||||||
| For the Three Months Ended | For the Nine Months Ended | |||||||||||||||
| October 1, 2017 | October 2, 2016 | October 1, 2017 | October 2, 2016 | |||||||||||||
| (in thousands) | ||||||||||||||||
Service cost | $ | 8 | $ | 9 | $ | 25 | $ | 28 | ||||||||
Interest cost | 50 | 54 | 151 | 163 | ||||||||||||
Amortization of prior service benefit | (124 | ) | (151 | ) | (372 | ) | (455 | ) | ||||||||
Actuarial gain | — | — | (15 | ) | (15 | ) | ||||||||||
|
|
|
|
|
|
|
| |||||||||
Total | $ | (66 | ) | $ | (88 | ) | $ | (211 | ) | $ | (279 | ) | ||||
|
|
|
|
|
|
|
| |||||||||
P.
For the Three Months Ended | ||||||||
April 2, | April 3, | |||||||
2023 | 2022 | |||||||
(in thousands) | ||||||||
| Service cost | $ | 9 | $ | 17 | ||||
| Interest cost | 61 | 44 | ||||||
| Amortization of prior service credit | (2 | ) | (2 | ) | ||||
| Total net periodic postretirement benefit cost | $ | 68 | $ | 59 | ||||
Q.institutions, purchase commitments to certain vendors and lease commitments to landlords.
The
The increase in the effective tax rate from the three and nine months ended October 2, 2016 to the three and nine months ended October 1, 2017 is primarily attributable to 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 effect of a U.S. non-deductible goodwill impairment charge and decreases in discrete tax benefits.
The effective tax rates for the three and nine months ended October 1, 2017 differed from the expected federal statutory rate of 35% primarily because of the favorable effect of statutory rates applicable to income earned outside the U.S. The tax rates for the three and nine months ended October 1, 2017 were also reduced by the benefit from U.S. research and development tax credits, partially offset by additions to the uncertain tax positions for transfer pricing, both of which are included in the projected annual effective tax rate.
Discrete tax items recorded in the three and nine months ended October 1, 2017 amounted to expense of $0.3 million and benefit of $6.1 million, respectively. The $0.3 million of discrete tax expense recorded in the three months ended October 1, 2017 was primarily composed of $0.8 million of expense related to non-taxable foreign exchange loss, $0.2 million of benefit from reductions in tax reserves and $0.2 million of benefit from stock based compensation. The $6.1 million of discrete tax benefit recorded in the nine months ended October 1, 2017 was primarily composed of $6.7 million of benefit from stock-based compensation, $1.0 million of expense related to actuarial gains, $0.7 million of benefit related to U.S. research and development tax credits, $0.5 million of benefit from reductions in tax reserves and $1.1 million of expense related to non-taxable foreign exchange loss.
The effective tax rates for the three and nine months ended October 2, 2016 differed from the expected federal statutory rate of 35% as a result of a non-deductible goodwill impairment charge, which reduced the benefit of the U.S. loss before income taxes, and increases in uncertain tax positions for transfer pricing, offset by the effect of lower statutory rates applicable to income earned outside the U.S. and the benefit of U.S. research and development tax credits, all of which were included in the projected annual effective tax rate.
Discrete tax benefits recorded in the three and nine months ended October 2, 2016 amounted to $6.4 million and $13.3 million respectively. The $6.4 million of discrete tax benefits recorded in the three months ended October 2, 2016 included $3.1 million from out-of-period adjustments, $1.6 million related to tax credit carryforwards, $0.7 million from non-taxable foreign exchange gains and $1.0 million of benefit from other discrete tax items. The $13.3 million of discrete tax benefits recorded in the nine months ended October 2, 2016 included $4.1 million from non-taxable foreign exchange gains, $3.1 million from out-of-period adjustments,
$2.6 million of tax reserve releases resulting from the settlement of a U.S. tax audit, $1.6 million related to tax credit carryforwards, $0.9 million related to marketable securities and $1.0 million of benefit from other discrete tax items.
During the three and nine months ended October 2, 2016, Teradyne recorded out-of-period adjustments of approximately $3.1 million to increase deferred tax assets and decrease income tax expense related to alternative minimum tax credits and capitalized inventory costs that should have been recognized previously. The out-of-period adjustments were not material to the relevant prior periods.
For the Three Months Ended | ||||||||
April 2, | April 3, | |||||||
2023 | 2022 | |||||||
| US statutory federal tax rate | 21.0 | % | 21.0 | % | ||||
Non-deductible officers’ compensation | 0.9 | 1.1 | ||||||
| Discrete benefit related to equity compensation | (3.3 | ) | (6.6 | ) | ||||
| International provisions of the U.S. Tax Cuts and Jobs Act of 2017 | (3.2 | ) | (1.3 | ) | ||||
| Tax credits | (2.5 | ) | (1.6 | ) | ||||
| Foreign taxes | (0.6 | ) | (3.4 | ) | ||||
| Other, net | 1.7 | 1.0 | ||||||
| Effective tax rate | 14.0 | % | 10.2 | % | ||||
development credits generated in the current year.
months because of a lapse of statutes of limitation. The estimated decrease relates to U.S. state research and development credits.
R.2025.
Segment information for the three and nine months ended October 1, 2017April 2, 2023 and October 2, 2016April 3, 2022 is as follows:
| Semiconductor Test | Industrial Automation | System Test | Wireless Test | Corporate and Eliminations | Consolidated | |||||||||||||||||||
| (in thousands) | ||||||||||||||||||||||||
Three Months Ended October 1, 2017 | ||||||||||||||||||||||||
Revenues | $ | 396,881 | $ | 40,063 | $ | 35,569 | $ | 30,865 | $ | — | $ | 503,378 | ||||||||||||
Income (loss) before income taxes (1)(2) | 116,836 | 3,373 | (3,344 | ) | 7,461 | 3,111 | 127,437 | |||||||||||||||||
Total assets (3) | 598,925 | 508,943 | 100,083 | 61,206 | 1,820,170 | 3,089,327 | ||||||||||||||||||
Three Months Ended October 2, 2016 | ||||||||||||||||||||||||
Revenues | $ | 322,021 | $ | 23,505 | $ | 37,030 | $ | 27,919 | $ | — | $ | 410,475 | ||||||||||||
Income (loss) before income taxes (1)(2) | 67,710 | (4,695 | ) | 1,550 | 1,049 | (5,933 | ) | 59,681 | ||||||||||||||||
Total assets (3) | 522,529 | 340,030 | 90,713 | 65,953 | 1,346,462 | 2,365,687 | ||||||||||||||||||
Nine Months Ended October 1, 2017 | ||||||||||||||||||||||||
Revenues | $ | 1,345,560 | $ | 115,672 | $ | 112,147 | $ | 83,812 | $ | — | $ | 1,657,191 | ||||||||||||
Income (loss) before income taxes (1)(2) | 426,081 | (279 | ) | (11,795 | ) | 13,508 | (1,186 | ) | 426,329 | |||||||||||||||
Total assets (3) | 598,925 | 508,943 | 100,083 | 61,206 | 1,820,170 | 3,089,327 | ||||||||||||||||||
Nine Months Ended October 2, 2016 | ||||||||||||||||||||||||
Revenues | $ | 1,097,608 | $ | 65,353 | $ | 139,640 | $ | 70,660 | $ | — | $ | 1,373,261 | ||||||||||||
Income (loss) before income taxes (1)(2) | 262,127 | (16,364 | ) | 20,033 | (375,596 | ) | (4,145 | ) | (113,945 | ) | ||||||||||||||
Total assets (3) | 522,529 | 340,030 | 90,713 | 65,953 | 1,346,462 | 2,365,687 | ||||||||||||||||||
Semiconductor Test | System Test | Robotics | Wireless Test | Corporate and Eliminations | Consolidated | |||||||||||||||||||
(in thousands) | ||||||||||||||||||||||||
Three Months Ended April 2, 2023 | ||||||||||||||||||||||||
| Revenues | $ | 415,009 | $ | 74,631 | $ | 89,214 | $ | 38,675 | $ | — | $ | 617,529 | ||||||||||||
| Income (loss) before income taxes (1)(2) | 96,185 | 15,275 | (18,490 | ) | 9,352 | (5,238 | ) | 97,084 | ||||||||||||||||
| Total assets (3) | 1,386,851 | 173,669 | 676,092 | 87,875 | 1,058,920 | 3,383,407 | ||||||||||||||||||
Three Months Ended April 3, 2022 | ||||||||||||||||||||||||
| Revenues | $ | 482,341 | $ | 118,668 | $ | 103,189 | $ | 51,518 | $ | (346 | ) | $ | 755,370 | |||||||||||
| Income (loss) before income taxes (1)(2) | 149,705 | 41,322 | (5,098 | ) | 18,619 | (24,189 | ) | 180,359 | ||||||||||||||||
| Total assets (3) | 1,296,070 | 187,283 | 675,560 | 113,821 | 1,336,420 | 3,609,154 | ||||||||||||||||||
| (1) | Included in Corporate and Eliminations are: |
| (2) | Included in income (loss) before |
| (3) | Total assets are attributable to each segment. Corporate assets consist of cash and cash equivalents, marketable securities, and certain other assets. |
| For the Three Months Ended | For the Nine Months Ended | |||||||||||||||
| October 1, 2017 | October 2, 2016 | October 1, 2017 | October 2, 2016 | |||||||||||||
| (in thousands) | ||||||||||||||||
Cost of revenues—inventory charge | $ | 743 | $ | 2,351 | $ | 3,686 | $ | 8,270 | ||||||||
Restructuring and other—employee severance | 375 | 2,047 | 242 | 2,798 | ||||||||||||
Included in the Industrial Automation segment are charges in the following line items in the statements of operations:
| For the Three Months Ended | For the Nine Months Ended | |||||||||||||||
| October 1, 2017 | October 2, 2016 | October 1, 2017 | October 2, 2016 | |||||||||||||
| (in thousands) | ||||||||||||||||
Cost of revenues—inventory charge | $ | 130 | $ | — | $ | 130 | $ | — | ||||||||
Restructuring and other—employee severance | 206 | 532 | 1,150 | 532 | ||||||||||||
Included in the System Testeach segment are charges and credits in the following line items in the statements of operations:
| For the Three Months Ended | For the Nine Months Ended | |||||||||||||||
| October 1, 2017 | October 2, 2016 | October 1, 2017 | October 2, 2016 | |||||||||||||
| (in thousands) | ||||||||||||||||
Cost of revenues—inventory charge | $ | 251 | $ | 121 | $ | 1,609 | $ | 441 | ||||||||
Restructuring and other—employee severance | — | (48 | ) | — | (48 | ) | ||||||||||
Included in the Wireless Test segment are charges and credits in the following line items in the statements of operations:
| For the Three Months Ended | For the Nine Months Ended | |||||||||||||||
| October 1, 2017 | October 2, 2016 | October 1, 2017 | October 2, 2016 | |||||||||||||
| (in thousands) | ||||||||||||||||
Cost of revenues—inventory charge | $ | 735 | $ | 561 | $ | 1,729 | $ | 6,437 | ||||||||
Restructuring and other—lease impairment | (393 | ) | — | 900 | — | |||||||||||
Goodwill impairment | — | — | — | 254,946 | ||||||||||||
Acquired intangible assets impairment | — | — | — | 83,339 | ||||||||||||
Restructuring and other—employee severance | — | 1,672 | 31 | 2,639 | ||||||||||||
Included in Corporate and Eliminations are charges and credits in the following line items in the statements of operations:
| For the Three Months Ended | For the Nine Months Ended | |||||||||||||||
| October 1, 2017 | October 2, 2016 | October 1, 2017 | October 2, 2016 | |||||||||||||
| (in thousands) | ||||||||||||||||
Cost of revenues—pension actuarial losses (gains) | $ | — | $ | 364 | $ | (664 | ) | $ | (250 | ) | ||||||
Selling and administrative—pension actuarial losses (gains) | — | 192 | (1,094 | ) | (441 | ) | ||||||||||
Engineering and development—pension actuarial losses (gains) | — | 106 | (746 | ) | (509 | ) | ||||||||||
Restructuring and other—Universal Robots contingent consideration adjustment | (286 | ) | 7,973 | 1,847 | 9,902 | |||||||||||
Restructuring and other—property insurance recovery | (5,064 | ) | — | (5,064 | ) | (5,051 | ) | |||||||||
Restructuring and other—expenses related to Japan earthquake and impairment of fixed assets | 755 | — | 755 | 5,051 | ||||||||||||
Restructuring and other—employee severance | — | — | 530 | — | ||||||||||||
Restructuring and other—AIT contingent consideration adjustment | — | — | — | 550 | ||||||||||||
S.
For the Three Months Ended | ||||||||
April 2, | April 3, | |||||||
2023 | 2022 | |||||||
(in thousands) | ||||||||
Semiconductor Test: | ||||||||
| Cost of revenues—inventory charge | $ | 3,768 | $ | — | ||||
| Restructuring and other—employee severance | 794 | — | ||||||
System Test: | ||||||||
| Cost of revenues—inventory charge | $ | 675 | — | |||||
Robotics: | ||||||||
| Cost of revenues—inventory charge | $ | 782 | $ | — | ||||
Wireless: | ||||||||
| Cost of revenues—inventory charge | $ | — | $ | 877 | ||||
Corporate and Other: | ||||||||
| Selling and administrative - equity modification charge | $ | 5,889 | $ | — | ||||
| Restructuring and other—employee severance | 659 | — | ||||||
| Restructuring and other—legal settlement charge | — | 14,700 | ||||||
the cost basis of the shares acquired.
share.
In January 2016, May 2016 and August 2016, Teradyne’s Board of Directors declared a quarterly cash dividend of $0.06 per share. Dividend payments for the three and nine months ended October 2, 2016 were $12.1 million and $36.5 million, respectively.
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.
| Item 2: | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
Statements in this Quarterly Report on Form 10-Q which are not historical facts, so called “forward-looking statements,” are made pursuant to the safe harbor provisions of Section 21E of the Securities Exchange Act of 1934, as amended. Investors are cautioned that all forward-looking statements involve risks and uncertainties, including those detailed in our filings with the Securities and Exchange Commission. See also Part II, Item 1A of this Quarterly Report on Form 10-Q and Part I, Item 1A “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2016.2022. Readers are cautioned not to place undue reliance on these forward-looking statements which reflect management’s analysis only as of the date hereof. We assume no obligation to update these forward-looking statements to reflect actual results or changes in factors or assumptions affecting forward-looking statements, except as may be required by law.
Overview
We are a leading global supplier of automationautomated test equipment for test and industrial applications.robotics solutions. We design, develop, manufacture and sell automatic test systems and robotics products. Our automatic test systems are used to test semiconductors, wireless products, data storage and complex electronics systems in many industries including the consumer electronics, wireless, automotive, industrial, computing, communications, and aerospace and defense industries. Our industrial automationrobotics products include collaborative robotic arms and autonomous mobile robots (“AMRs”) 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 automationrobotics 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”);
We have a customer base which includes integrated device manufacturers
robotics (“IDMs”Robotics”), 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. products.
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. One customer drivesA few customers drive significant demand for our test products both through direct sales and sales to the customer’scustomers’ 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.
In 2015,the first quarter of 2023, the demand in the mobility and compute segments of our Semiconductor Test business was lower due to end market slowdown in these segments as well as a slower technology transition in one of our largest end-markets. While the depth of the slowdown and the timing of the recovery are uncertain, we acquiredexpect the ramp of 3 nanometer process technology followed by gate-all-around process technology, increasing multichip packaging, additional device complexity and unit growth will drive additional demand for test over our four year forecast period.
Our Robotics segment consists of Universal Robots A/S (“Universal Robots”UR”), thea leading supplier of collaborative robotsrobotic arms and Mobile Industrial Robots A/S (“MiR”), a leading maker of AMRs for industrial automation. The market for our Robotics segment products is dependent on the adoption of new automation technologies by large manufacturers as well as small and medium enterprises (“SMEs”) throughout the world. We expect Robotics sales channel expansion combined with new products to drive growth in the second half of 2023.
In the first quarter of 2023 we met customer demand, in part, through faster than expected recoveries from supply chain constraints. Both our test and robotics businesses may still be influenced by supply constraints during the remainder of 2023, which are low-cost, easy-to-deploycould impact our revenue and simple-to-program robots that work side by side with production workers to improve quality, increase manufacturing efficiency and decrease manufacturing costs. Universal Robots is a separate operating and reportable segment, Industrial Automation. The acquisition of Universal Robots provides a growth engine to our business and complements our existing System Test and Wireless Test segments. The total purchase price for Universal Robots wasOur second quarter 2023 forecast excludes approximately $315$25 million which included cash paid of approximately $284 million and $32 million in fair value of contingent consideration payable upon achievement of revenue, and earnings targets through 2018. Contingent consideration paid for 2015 was $15 million. The remaining maximum contingent consideration that could be paid is $50 million.
We believe our recent acquisition has enhanced our opportunities for growth. We intend to continue to investprimarily in our business, growtest businesses, due to these continued supply chain constraints. In the first quarter of 2023, inflation had minimal effects on our results.
Our financial statements are denominated in U.S. dollars. While the majority of our revenues are in U.S. dollars, approximately 70 percent of our Robotics revenue is denominated in foreign currencies. In 2022, the strengthening of the U.S. dollar was a factor in lower than forecasted revenues in our Robotics segment. Continued strengthening of the U.S. dollar would negatively affect Robotics revenue growth in 2023.
Our corporate strategy continues to focus on profitably gaining market share in our marketstest businesses through the introduction of differentiated products that target expanding segments and expand furtheraccelerating growth through continued investment in our addressable marketsRobotics businesses. We plan to execute on our strategy while tightly managingbalancing capital allocations between returning capital to our costs.shareholders through stock repurchases and dividends and using capital for opportunistic acquisitions.
26
Impact of the COVID-19 Pandemic on our Business
The salesnovel coronavirus (COVID-19) pandemic 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, shelter-in-place orders, vaccination and testing mandates, and business limitations and shutdowns. These measures impacted our day-to-day operations and disrupted our business, workforce and operations, as well as the operations of our productscustomers, contract manufacturers and services are dependent, to a large degree, on customers who are subject to cyclical trends insuppliers. In the demand for their products. These cyclical periods havefirst quarter of 2023 the COVID-19 pandemic had and will continue to have, a significant effectsignificantly less impact on our business because our customers often delaythan in prior quarters since the start of the pandemic in 2020. However, we are unable to accurately predict the future impact of COVID-19, which will depend on future developments that are highly uncertain and cannot be predicted with accuracy, including, but not limited to, any new surges or accelerate purchasesnew strains or variants of the virus in reactionareas where we do business.
Due to changes in their businessesthe COVID-19 pandemic, there has been uncertainty and to demand fluctuationsdisruption in the semiconductorglobal economy and electronics industries. Historically, these demand fluctuations have resultedour 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 May 5, 2023, the date of issuance of this Quarterly Report on Form 10-Q.
We believe the COVID-19 pandemic and the numerous measures implemented by authorities in significant variations inresponse, adversely impacted our results of operations. operations, including by increasing costs, but we cannot accurately estimate the amount of the impact to our financial results. In addition, the pandemic disrupted our contract manufacturers and suppliers, and resulted in supply constraints and in short-term cost increases to meet customer demand.
Supply Chain Constraints and Inflationary Pressures
The sharp swingsglobal supply shortage of electrical components, including semiconductor chips, continued to impact our supply chain in the semiconductorfirst quarter of 2023. As a result, we experienced, and electronics industries have generally affected the semiconductorexpect to continue to experience, increases in our lead times and electronics test equipment and services industries more significantly than the overall capital equipment sector.
For several years, this cyclical demand became an even/odd year trend where demand increased in even years and decreased in odd years due principally to demand swings in the mobility marketcosts for certain components for certain of our Semiconductor Test business. We expectproducts. In addition, while not material, inflationary pressures contributed to increased costs for product components and wage inflation, impacting our cost of products, gross margin and profit for the even/odd year demand trendquarter. Our supply chain team, and our suppliers, continue to manage numerous supply, production, and logistics obstacles. While not material through the first quarter of 2023, in the mobility marketan effort to lessenmitigate these risks, in 2017 and future yearssome cases, we have incurred higher costs due to slower smart phone unit growth, alonginvestment in supply chain resiliency and to secure available inventory or have extended or placed non-cancellable purchase commitments with rising device complexitysemiconductor suppliers, which introduces inventory risk if our forecasts and assumptions prove inaccurate. We have also sourced components from additional suppliers and multi-sourced and pre-ordered components and finished goods inventory in some cases in an effort to reduce the reduced impact of parallel testthe adverse supply chain conditions we have experienced. There is no assurance that these efforts will be successful. Our second quarter 2023 forecast excludes approximately $25 million of revenue, primarily in our Semiconductor Test business.
In the second quarter of 2016, the Wireless Test reporting unit (which is our Wireless Test operating and reportable segment) reduced headcount by 11% as a result of a sharp decline in projected demand attributable to an estimated smaller future wireless test market. The decrease in projected demand wasbusinesses, due to lower forecasted buying fromthese continued supply chain constraints.
See Part II—Item 1A, “Risk Factors,” included in our largest Wireless Test segment customer (who had previously contributed between 51% and 73% of annual Wireless Test sales since the LitePoint acquisition in 2011) as a result of the customer’s numerous operational efficiencies; slower smartphone growth rates; and a slowdown of new wireless technology adoption. We considered the headcount reduction and sharp decline in projected demand to be a triggering event for an interim goodwill impairment test. Following the interim goodwill impairment test, we recorded a goodwill impairment charge of $254.9 million, with approximately $8.0 million of goodwill remaining, and $83.3 millionAnnual Report on Form 10-K for the impairment of acquired intangible assetsfiscal year ended December 31, 2022 for our risk factors regarding risks associated with approximately $4.0 million of acquired intangible assets remaining.both the COVID-19 pandemic and international conflicts.
Critical Accounting Policies and Estimates
We have identified the policies which are critical to understanding our business and our results of operations. There have been no significant changes during the three and nine months ended October 1, 2017April 2, 2023 to the items disclosed as our critical accounting policies and estimates in Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the fiscal year ended December 31, 2016.2022, except as noted below.
Critical accounting estimates are complex and may require significant judgment by management. Changes to the underlying assumptions may have a material impact on our financial condition and results of operations. 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.
Preparation of Financial Statements and Use of Estimates
The preparation of consolidated financial statements requires management to make estimates and judgments that affect the amounts reported in the financial statements. Actual results may differ significantly from these estimates under different assumptions or conditions.
27
SELECTED RELATIONSHIPS WITHIN THE CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS
| For the Three Months Ended | ||||||||||||||||||||||||
| April 2, | April 3, | |||||||||||||||||||||||
| For the Three Months Ended | For the Nine Months Ended | 2023 | 2022 | |||||||||||||||||||||
| October 1, 2017 | October 2, 2016 | October 1, 2017 | October 2, 2016 | |||||||||||||||||||||
Percentage of revenues: | ||||||||||||||||||||||||
Revenues: | ||||||||||||||||||||||||
Products | 82 | % | 82 | % | 84 | % | 84 | % | 77 | % | 83 | % | ||||||||||||
Services | 18 | 18 | 16 | 16 | 23 | 17 | ||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||
Total revenues | 100 | 100 | 100 | 100 | 100 | 100 | ||||||||||||||||||
Cost of revenues: | ||||||||||||||||||||||||
Cost of products | 34 | 36 | 36 | 39 | 32 | 32 | ||||||||||||||||||
Cost of services | 8 | 8 | 7 | 7 | 10 | 8 | ||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||
Total cost of revenues (exclusive of acquired intangible assets amortization shown separately below) | 41 | 45 | 43 | 46 | 42 | 40 | ||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||
Gross profit | 59 | 55 | 57 | 54 | 58 | 60 | ||||||||||||||||||
Operating expenses: | ||||||||||||||||||||||||
Selling and administrative | 17 | 19 | 16 | 17 | 24 | 19 | ||||||||||||||||||
Engineering and development | 15 | 17 | 14 | 16 | 17 | 14 | ||||||||||||||||||
Acquired intangible assets amortization | 1 | 2 | 1 | 3 | 1 | 1 | ||||||||||||||||||
Restructuring and other | (1 | ) | 3 | — | 1 | — | 2 | |||||||||||||||||
Goodwill impairment | — | — | — | 19 | ||||||||||||||||||||
Acquired intangible assets impairment | — | — | — | 6 | ||||||||||||||||||||
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Total operating expenses | 33 | 42 | 31 | 63 | 43 | 36 | ||||||||||||||||||
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Income (loss) from operations | 26 | 14 | 26 | (9 | ) | |||||||||||||||||||
Income from operations | 15 | 25 | ||||||||||||||||||||||
Non-operating (income) expense: | ||||||||||||||||||||||||
Interest income | (1 | ) | (1 | ) | (1 | ) | — | (1 | ) | — | ||||||||||||||
Interest expense | 1 | — | 1 | — | — | — | ||||||||||||||||||
Other (income) expense, net | — | — | — | — | — | 1 | ||||||||||||||||||
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Income (loss) before income taxes | 25 | 15 | 26 | (8 | ) | |||||||||||||||||||
Income tax provision (benefit) | 5 | (1 | ) | 4 | — | |||||||||||||||||||
Income before income taxes | 16 | 24 | ||||||||||||||||||||||
Income tax provision | 2 | 2 | ||||||||||||||||||||||
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Net income (loss) | 21 | % | 16 | % | 22 | % | (8 | )% | ||||||||||||||||
Net income | 14 | % | 21 | % | ||||||||||||||||||||
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Results of Operations
ThirdFirst Quarter 20172023 Compared to ThirdFirst Quarter 20162022
Book to Bill Ratio
Book to bill ratio is calculated as net bookings divided by net sales. Book to bill ratio by reportable segment was as follows:
| For the Three Months Ended | ||||||||
| October 1, 2017 | October 2, 2016 | |||||||
Semiconductor Test | 0.7 | 0.8 | ||||||
Industrial Automation | 1.0 | 1.0 | ||||||
System Test | 1.2 | 2.1 | ||||||
Wireless Test | 1.1 | 1.0 | ||||||
Total Company | 0.8 | 0.9 | ||||||
Revenues
Revenues by our four reportable segments were as follows:
| For the Three Months Ended | ||||||||||||||||||||||||
| April 2, | April 3, | Dollar | ||||||||||||||||||||||
| For the Three Months Ended | 2023 | 2022 | Change | |||||||||||||||||||||
| October 1, 2017 | October 2, 2016 | Dollar Change | ||||||||||||||||||||||
| (in millions) | (in millions) | |||||||||||||||||||||||
Semiconductor Test | $ | 396.9 | $ | 322.0 | $ | 74.9 | $ | 415.0 | $ | 482.3 | $ | (67.3 | ) | |||||||||||
Industrial Automation | 40.1 | 23.5 | 16.6 | |||||||||||||||||||||
System Test | 35.6 | 37.0 | (1.4 | ) | 74.6 | 118.7 | (44.1 | ) | ||||||||||||||||
Robotics | 89.2 | 103.2 | (14.0 | ) | ||||||||||||||||||||
Wireless Test | 30.9 | 27.9 | 3.0 | 38.7 | 51.5 | (12.8 | ) | |||||||||||||||||
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| $ | 503.4 | $ | 410.5 | $ | 92.9 | $ | 617.5 | $ | 755.4 | $ | (137.9 | ) | ||||||||||||
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The increasedecrease in Semiconductor Test revenues of $74.9$67.3 million, or 23.3%14.0%, was driven primarily by increasedlower tester sales in automotive safety, power management, image sensor, flashhigh performance compute processor and mobile applications and lower memory and microcontroller test segments, and an increase in service revenue. The increase in Industrial Automation revenuessales of $16.6 million, or 70.6%, was due to higher demand for collaborative robots.DRAM memory testers. The decrease in System Test revenues of $1.4$44.1 million, or 3.8%37.2%, was primarily due to lower sales in Storage Test of 3.5”system level and hard disk drive testers and lower sales in Defense/Aerospace. The decrease in Robotics revenues of $14.0 million, or 13.6%, was driven primarily by lower demand for cloud storage.collaborative robotic arms and autonomous mobile robots. The increasedecrease in Wireless Test revenues of $3.0$12.8 million, or 10.8%24.9%, was primarily due to higher demand for cellulara decrease in connectivity test systems and increased service revenue.products.
28
Revenues by country as a percentage of total revenues were as follows (1):
| For the Three Months Ended | For the Three Months Ended | |||||||||||||||
| October 1, 2017 | October 2, 2016 | April 2, 2023 | April 3, 2022 | |||||||||||||
Taiwan | 31 | % | 42 | % | 18 | % | 18 | % | ||||||||
China | 14 | 10 | ||||||||||||||
United States | 13 | 10 | 18 | 15 | ||||||||||||
Korea | 9 | 7 | 12 | 13 | ||||||||||||
Europe | 8 | 7 | 12 | 10 | ||||||||||||
Malaysia | 6 | 6 | ||||||||||||||
China | 10 | 19 | ||||||||||||||
Japan | 6 | 5 | 9 | 6 | ||||||||||||
Singapore | 4 | 4 | 8 | 4 | ||||||||||||
Philippines | 4 | 4 | 5 | 2 | ||||||||||||
Malaysia | 3 | 5 | ||||||||||||||
Thailand | 2 | 2 | 3 | 5 | ||||||||||||
Rest of World | 3 | 3 | 2 | 3 | ||||||||||||
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| 100 | % | 100 | % | 100 | % | 100 | % | |||||||||
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| (1) | Revenues attributable to a country are based on location of customer site. |
Gross Profit
Our gross profit was as follows:
| For the Three Months Ended | Dollar/ Point Change | |||||||||||
| October 1, 2017 | October 2, 2016 | |||||||||||
| (in millions) | ||||||||||||
Gross profit | $ | 294.8 | $ | 227.4 | $ | 67.4 | ||||||
Percent of total revenues | 58.6 | % | 55.4 | % | 3.2 | |||||||
| For the Three Months Ended | ||||||||||||
| April 2, 2023 | April 3, 2022 | Dollar/Point Change | ||||||||||
| (in millions) | ||||||||||||
Gross profit | $ | 356.4 | $ | 454.9 | $ | (98.5 | ) | |||||
Percent of total revenues | 57.7 | % | 60.2 | % | (2.5 | ) | ||||||
Gross profit as a percent of revenue increaseddecreased by 3.22.5 points, as a result of a 1.9 point increase relatedprimarily due to favorablelower volume and product mix in Semiconductor Test and 1.3 points due to higher sales primarily in Semiconductor Test and Industrial Automation.inventory reserves.
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 revenue information is obtained from sales and marketing groups and incorporates factors such as backlog and future revenue demand. 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, System Test and Industrial Automation segments and the next four quarters for our Wireless Test segment, is written-down to estimated net realizable value.
During the three months ended October 1, 2017, we recorded an inventory provision of $1.9 million included in cost of revenues primarily due to downward revisions to previously forecasted demand levels for certain products. Of the $1.9 million of total excess and obsolete provisions, $0.7 million was related to Semiconductor Test, $0.7 million was related to Wireless Test, $0.3 million was related to System Test, and $0.1 million was related to Industrial Automation.
During the three months ended October 2, 2016, we recorded an inventory provision of $3.0 million included in cost of revenues primarily due to downward revisions to previously forecasted demand levels for certain products. Of the $3.0 million of total excess and obsolete provisions, $2.3 million was related to Semiconductor Test, $0.6 million was related to Wireless Test, and $0.1 million was related to System Test.
During the three months ended October 1, 2017 and October 2, 2016, we scrapped $1.2 million and $4.6 million of inventory, respectively. During the three months ended October 1, 2017 and October 2, 2016, we sold $3.1 million and $1.8 million of previously written-down or written-off inventory, respectively. As of October 1, 2017, we had inventory related reserves for inventory which had been written-down or written-off totaling $112.2 million. We have no pre-determined timeline to scrap the remaining inventory.
Selling and Administrative
Selling and administrative expenses were as follows:
| For the Three Months Ended | ||||||||||||||||||||||||
| For the Three Months Ended | April 2, 2023 | April 3, 2022 | Dollar Change | |||||||||||||||||||||
| October 1, 2017 | October 2, 2016 | Dollar Change | ||||||||||||||||||||||
| (in millions) | (in millions) | |||||||||||||||||||||||
Selling and administrative | $ | 86.2 | $ | 78.8 | $ | 7.4 | $ | 151.0 | $ | 140.2 | $ | 10.8 | ||||||||||||
Percent of total revenues | 17.1 | % | 19.2 | % | 24.4 | % | 18.6 | % | ||||||||||||||||
The increase of $7.4$10.8 million in selling and administrative expenses was primarily due primarily to higher variable compensationthe charge of $5.9 million recorded in the three months ended April 2, 2023, related to the modification of Teradyne’s chief executive officer’s outstanding equity awards in connection with his retirement and higher spending in Industrial Automation.Robotics, Semiconductor Test and System Test, partially offset by lower variable compensation.
29
Engineering and Development
Engineering and development expenses were as follows:
| For the Three Months Ended | ||||||||||||
| October 1, 2017 | October 2, 2016 | Dollar Change | ||||||||||
| (in millions) | ||||||||||||
Engineering and development | $ | 77.2 | $ | 71.4 | $ | 5.8 | ||||||
Percent of total revenues | 15.3 | % | 17.4 | % | ||||||||
| For the Three Months Ended | ||||||||||||
| April 2, 2023 | April 3, 2022 | Dollar Change | ||||||||||
| (in millions) | ||||||||||||
Engineering and development | $ | 105.8 | $ | 108.1 | $ | (2.3 | ) | |||||
Percent of total revenues | 17.1 | % | 14.3 | % | ||||||||
The increasedecrease of $5.8$2.3 million in engineering and development expenses was primarily due to higherlower variable compensation, andpartially offset by higher spending in System Test and Industrial Automation, partially offset by lower spending in Wireless Test.Robotics.
Acquired Intangible Assets Amortization
Acquired intangible assets amortization expense was as follows:
| For the Three Months Ended | ||||||||||||
| October 1, 2017 | October 2, 2016 | Dollar Change | ||||||||||
| (in millions) | ||||||||||||
Acquired intangible assets amortization | $ | 7.0 | $ | 8.5 | $ | (1.5 | ) | |||||
Percent of total revenues | 1.4 | % | 2.1 | % | ||||||||
Acquired intangible assets amortization expense decreased primarily in the Industrial Automation segment due to intangible assets that became fully amortized in June, 2017.
Restructuring and Other
During the three months ended October 1, 2017,April 2, 2023, we recorded $5.1$2.0 million of property insurance recoveryseverance charges related to the Japan earthquake, a $0.4 million credit related to previously impaired lease terminationheadcount reduction of a Wireless Test facility in Sunnyvale, CA, and a $0.3 million credit for the decrease in the fair value of the Universal Robots contingent consideration liability, partially offset by $0.8 million of Japan earthquake related expenses, and $0.6 million recorded for employee severance charges,67 people primarily in Semiconductor Test.Test, Robotics and Corporate.
During the three months ended October 2, 2016,April 3, 2022, we recorded $8.0a charge of $14.7 million related to the arbitration claim filed against Teradyne and AutoGuide related to an earn-out dispute, which was settled on March 25, 2022 for the increase in the fair value of the Universal Robots contingent consideration liability, and $4.2 million for employee severance charges, primarily in Semiconductor Test and Wireless Test.$26.7 million.
Interest and Other
| For the Three Months Ended | ||||||||||||||||||||||||
| For the Three Months Ended | April 2, 2023 | April 3, 2022 | Dollar Change | |||||||||||||||||||||
| October 1, 2017 | October 2, 2016 | Dollar Change | ||||||||||||||||||||||
| (in millions) | (in millions) | |||||||||||||||||||||||
Interest income | $ | (4.5 | ) | $ | (2.9 | ) | $ | (1.6 | ) | $ | (5.3 | ) | $ | (0.7 | ) | $ | (4.6 | ) | ||||||
Interest expense | 5.4 | 0.6 | 4.8 | 1.0 | 1.0 | — | ||||||||||||||||||
Other (income) expense, net | 0.4 | (0.9 | ) | 1.3 | 0.1 | 5.2 | (5.1 | ) | ||||||||||||||||
Interest income increased by $1.6$4.6 million primarily due primarily to higher cash and marketable securities balances and higher interest rates in the third quarter of 2017. Interest expense increased by $4.8 million due primarily to interest expense related to our convertible senior notes.2023. Other (income) expense, net included net foreign exchange decreased by $5.1 million primarily due to changes in unrealized gains/losses on equity securities, from a $2.2 million loss in the third quarter of 2017 and net foreign exchange gains2022 to a $2.0 million gain in the third quarter of 2016.
Income (Loss) Before Income Taxes
| For the Three Months Ended | ||||||||||||||||||||||||
| For the Three Months Ended | April 2, 2023 | April 3, 2022 | Dollar Change | |||||||||||||||||||||
| October 1, 2017 | October 2, 2016 | Dollar Change | ||||||||||||||||||||||
| (in millions) | (in millions) | |||||||||||||||||||||||
Semiconductor Test | $ | 116.8 | $ | 67.7 | $ | 49.1 | $ | 96.2 | $ | 149.7 | $ | (53.5 | ) | |||||||||||
System Test | 15.3 | 41.3 | (26.0 | ) | ||||||||||||||||||||
Wireless Test | 7.5 | 1.1 | 6.4 | 9.4 | 18.6 | (9.2 | ) | |||||||||||||||||
Industrial Automation | 3.4 | (4.7 | ) | 8.1 | ||||||||||||||||||||
System Test | (3.3 | ) | 1.6 | (4.9 | ) | |||||||||||||||||||
Corporate (1) | 3.1 | (6.0 | ) | 9.1 | ||||||||||||||||||||
Robotics | (18.5 | ) | (5.1 | ) | (13.4 | ) | ||||||||||||||||||
Corporate and Other (1) | (5.2 | ) | (24.2 | ) | 19.0 | |||||||||||||||||||
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Total | $ | 127.4 | $ | 59.7 | $ | 67.7 | ||||||||||||||||||
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| $ | 97.1 | $ | 180.4 | $ | (83.3 | ) | |||||||||||||||
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| (1) | Included in Corporate |
The increasedecrease in income before income taxes in Semiconductor Test was driven primarily by increasedlower revenues in compute processor and mobile applications and lower memory test sales and higher gross margin due to favorable product mix. The increase in income before income taxes in Wireless Test was primarily due to lower intangible assets amortization, lower operating expenses and higher demand for cellular test systems in the third quarter of 2017. The increase in income before income taxes in Industrial Automation was primarily due to higher demand for collaborative robots.DRAM memory testers. The decrease in income before income taxes
30
in System Test was primarily due to lower sales in Storage Test of 3.5”system level and hard disk drive testerstesters. The decrease in income before taxes in Wireless Test was driven primarily by a decrease in sales of connectivity test products. The decrease in income before taxes in Robotics was driven primarily by lower demand for cloud storagecollaborative robotic arms and increased spendingautonomous mobile robots. The decrease in loss before income taxes in Corporate and Eliminations was primarily due to legal settlement charges in 2022 related to litigation for new product development.the earn-out dispute in connection with the AutoGuide acquisition.
Income Taxes
The effective tax rate for the three months ended October 1, 2017April 2, 2023 and October 2, 2016April 3, 2022 was 18.8%14.0% and (6.9%)10.2%, respectively. The increase in the effective tax rate isfrom the three months ended April 3, 2022 to the three months ended April 2, 2023 was primarily attributable to a projected shift in the geographic distribution of income, which increasedincreases the income subject to taxation in the U.S.higher tax rate jurisdictions relative to lower tax rate jurisdictions the effect ofand a U.S. non-deductible goodwill impairment charge and decreases in discrete tax benefits.
Nine Months 2017 Compared to Nine Months 2016
Revenues
Revenues by our four reportable segments were as follows:
| For the Nine Months Ended | ||||||||||||
| October 1, 2017 | October 2, 2016 | Dollar Change | ||||||||||
| (in millions) | ||||||||||||
Semiconductor Test | $ | 1,345.6 | $ | 1,097.6 | $ | 248.0 | ||||||
Industrial Automation | 115.7 | 65.4 | 50.3 | |||||||||
System Test | 112.1 | 139.6 | (27.5 | ) | ||||||||
Wireless Test | 83.8 | 70.7 | 13.1 | |||||||||
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Total | $ | 1,657.2 | $ | 1,373.3 | $ | 283.9 | ||||||
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The increase in Semiconductor Test revenues of $248.0 million, or 22.6%, was driven primarily by increased sales in the microcontroller, power management, automotive safety and flash memory test segments
and an increase in service revenue. The increase in Industrial Automation revenues of $50.3 million, or 76.9%, was due to higher demand for collaborative robots. The decrease in System Test revenues of $27.5 million, or 19.7%, was primarily due to lower salesbenefit from equity compensation. These increases in Storage Test of 3.5” hard disk drive testers for cloud storage. The increase in Wireless Test revenues of $13.1 million, or 18.5%, was primarily due to higher demand for cellular and connectivity test systems and increased service revenue.
Revenues by country as a percentage of total revenuesexpense were as follows (1):
| For the Nine Months Ended | ||||||||
| October 1, 2017 | October 2, 2016 | |||||||
Taiwan | 38 | % | 44 | % | ||||
United States | 11 | 11 | ||||||
China | 11 | 9 | ||||||
Japan | 7 | 7 | ||||||
Europe | 7 | 6 | ||||||
Korea | 7 | 6 | ||||||
Malaysia | 6 | 5 | ||||||
Singapore | 5 | 4 | ||||||
Philippines | 5 | 3 | ||||||
Thailand | 2 | 2 | ||||||
Rest of World | 1 | 3 | ||||||
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Gross Profit
Our gross profit was as follows:
| For the Nine Months Ended | Dollar/ Point Change | |||||||||||
| October 1, 2017 | October 2, 2016 | |||||||||||
| (in millions) | ||||||||||||
Gross profit | $ | 950.9 | $ | 740.6 | $ | 210.3 | ||||||
Percent of Total Revenues | 57.4 | % | 53.9 | % | 3.5 | |||||||
Gross profit as a percent of revenue increased by 3.5 points, as a result of a 2.3 point increase related to favorable product mix in Semiconductor Test and 1.2 points due to higher sales primarily in Semiconductor Test and Industrial Automation.
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 revenue information is obtained from sales and marketing groups and incorporates factors such as backlog and future revenue demand. 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, System Test and Industrial Automation segments and the next four quarters for our Wireless Test segment, is written-down to estimated net realizable value.
During the nine months ended October 1, 2017, we recorded an inventory provision of $7.2 million included in cost of revenues primarily due to downward revisions to previously forecasted demand levels for certain
products. Of the $7.2 million of total excess and obsolete provisions, $3.7 million was related to Semiconductor Test, $1.7 million was related to Wireless Test, $1.6 million was related to System Test, and $0.1 million was related to Industrial Automation.
During the nine months ended October 2, 2016, we recorded an inventory provision of $15.1 million included in cost of revenues primarily due to downward revisions to previously forecasted demand levels for certain products. Of the $15.1 million of total excess and obsolete provisions, $8.3 million was related to Semiconductor Test, $6.4 million was related to Wireless Test, and $0.4 million was related to System Test.
During the nine months ended October 1, 2017 and October 2, 2016, we scrapped $4.1 million and $6.8 million of inventory, respectively. During the nine months ended October 1, 2017 and October 2, 2016, we sold $6.4 million and $8.0 million of previously written-down or written-off inventory, respectively. As of October 1, 2017, we had inventory related reserves for inventory which had been written-down or written-off totaling $112.2 million. We have no pre-determined timeline to scrap the remaining inventory.
Selling and Administrative
Selling and administrative expenses were as follows:
| For the Nine Months Ended | ||||||||||||
| October 1, 2017 | October 2, 2016 | Dollar Change | ||||||||||
| (in millions) | ||||||||||||
Selling and administrative | $ | 260.3 | $ | 239.4 | $ | 20.9 | ||||||
Percent of Total Revenues | 15.7 | % | 17.4 | % | ||||||||
The increase of $20.9 million in selling and administrative expenses was due primarily to higher variable compensation and higher spending in Industrial Automation, partially offset by lower spendingincreases in Wireless Test.
Engineering and Development
Engineering and development expenses were as follows:
| For the Nine Months Ended | ||||||||||||
| October 1, 2017 | October 2, 2016 | Dollar Change | ||||||||||
| (in millions) | ||||||||||||
Engineering and development | $ | 235.1 | $ | 221.0 | $ | 14.1 | ||||||
Percent of Total Revenues | 14.2 | % | 16.1 | % | ||||||||
The increase of $14.1 million in engineering and development expenses was primarily due to higher variable compensation and higher spending in System Test and Industrial Automation, partially offset by lower spending in Wireless Test.
Acquired Intangible Assets Amortization
Acquired intangible assets amortization expense was as follows:
| For the Nine Months Ended | ||||||||||||
| October 1, 2017 | October 2, 2016 | Dollar Change | ||||||||||
| (in millions) | ||||||||||||
Acquired intangible assets amortization | $ | 23.1 | $ | 44.7 | $ | (21.6 | ) | |||||
Percent of Total Revenues | 1.4 | % | 3.3 | % | ||||||||
Acquired intangible assets amortization expense decreased primarily inbenefit from the Wireless Test segment due to the impairment of acquired intangible assets in the second quarter of 2016 and in the Industrial Automation segment due to intangible assets that became fully amortized in June, 2017.
Goodwill Impairment
We assess goodwill for impairment at least annually, in the fourth quarter, as of December 31, or on an interim basis between annual tests when events or circumstances indicate that it is more-likely-than-not that the fair value of a reporting unit is less than its carrying value. In the second quarter of 2016, the Wireless Test reporting unit (which is our Wireless Test operating and reportable segment) reduced headcount by 11% as a result of a sharp decline in projected demand attributable to an estimated smaller future wireless test market. The decrease in projected demand was due to lower forecasted buying from our largest Wireless Test segment customer (who had previously contributed between 51% and 73% of annual Wireless Test sales since the LitePoint acquisition in 2011) as a resultinternational provisions of the customer’s numerous operational efficiencies; slower smartphone growth rates;U.S. Tax Cuts and a slowdownJobs Act of new wireless technology adoption. We considered the headcount reduction and sharp decline in projected demand to be a triggering event for an interim goodwill impairment test. Following the interim goodwill impairment test, we recorded a goodwill impairment charge of $254.9 million in the second quarter of 2016.
Acquired Intangible Assets Impairment
We review 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. As a result of the Wireless Test segment goodwill impairment review in the second quarter of 2016, we performed an impairment test of the Wireless Test segment’s intangible and long-lived assets based on a comparison of the estimated undiscounted cash flows to the recorded value of the assets. If undiscounted cash flows for the asset are less than the carrying amount, 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 contain management’s best estimates using appropriate assumptions and projections at that time. As a result of the analysis, we recorded an $83.3 million impairment charge in the second quarter of 2016.
Restructuring and Other
During the nine months ended October 1, 2017, we recorded $2.0 million for employee severance charges, primarily in Industrial Automation and Corporate, $1.8 million for the increase in the fair value of the Universal Robots contingent consideration liability, $0.9 million for a lease impairment of a Wireless Test facility in Sunnyvale, CA, which was terminated in September 2017 and $0.8 million of Japan earthquake related expenses, partially offset by $5.1 million of property insurance recovery related to the Japan earthquake.
During the nine months ended October 2, 2016, we recorded $10.5 million for the increase in the fair value of contingent consideration liability, of which $9.9 million was related to Universal Robots and $0.6 million was related to AIT, $5.9 million for employee severance charges, primarily in Semiconductor Test and Wireless Test, $4.2 million for an impairment of fixed assets, and $0.9 million for Japan earthquake related expenses, partially offset by $5.1 million of property insurance recovery related to the Japan earthquake.
Interest and Other
| For the Nine Months Ended | ||||||||||||
| October 1, 2017 | October 2, 2016 | Dollar Change | ||||||||||
| (in millions) | ||||||||||||
Interest income | $ | (11.3 | ) | $ | (6.2 | ) | $ | (5.1 | ) | |||
Interest expense | 16.3 | 2.0 | 14.3 | |||||||||
Other (income) expense, net | 0.7 | (1.1 | ) | 1.8 | ||||||||
Interest income increased by $5.1 million due primarily to higher cash and marketable securities balances and higher interest rates in 2017. Interest expense increased by $14.3 million due primarily to interest expense related to our convertible senior notes. Other (income) expense, net included net foreign exchange losses in the nine months ended October 1, 2017 and net foreign exchange gains in the nine months ended October 2, 2016.
Income (Loss) Before Income Taxes
| For the Nine Months Ended | ||||||||||||
| October 1, 2017 | October 2, 2016 | Dollar Change | ||||||||||
| (in millions) | ||||||||||||
Semiconductor Test | $ | 426.1 | $ | 262.2 | $ | 163.9 | ||||||
Wireless Test | 13.5 | (375.6 | ) | 389.1 | ||||||||
Industrial Automation | (0.3 | ) | (16.4 | ) | 16.1 | |||||||
System Test | (11.8 | ) | 20.0 | (31.8 | ) | |||||||
Corporate (1) | (1.2 | ) | (4.1 | ) | 2.9 | |||||||
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Total | $ | 426.3 | $ | (113.9 | ) | $ | 540.2 | |||||
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The increase in income before income taxes in Semiconductor Test was driven primarily by increased sales and higher gross margin due to favorable product mix. The increase in income before income taxes in Wireless Test was primarily due to goodwill and intangible assets impairment charges in 2016 and lower intangible assets amortization, lower operating expenses and higher demand for cellular and connectivity test systems in 2017. The increase in income before income taxes in Industrial Automation was due to higher demand for collaborative robots. The decrease in income before income taxes in System Test was primarily due to lower sales in Storage Test of 3.5” hard disk drive testers for cloud storage and increased spending for new product development.
Income Taxes
The effective tax rate for the nine months ended October 1, 2017 and October 2, 2016 was 14.7% and 3.7%, respectively. The increase in the effective tax rate is primarily attributable to 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 effect of a U.S. non-deductible goodwill impairment charge and decreases in discrete tax benefits.credits.
Contractual Obligations
The following table reflectsThere have been no changes outside of the ordinary course of business to our contractual obligations as of October 1, 2017:disclosed in our Annual Report on Form 10-K for the year ended December 31, 2022.
| Payments Due by Period | ||||||||||||||||||||||||
| Total | Less than 1 year | 1-3 years | 3-5 years | More than 5 years | Other | |||||||||||||||||||
| (in thousands) | ||||||||||||||||||||||||
Convertible debt | $ | 460,000 | $ | — | $ | — | $ | — | $ | 460,000 | $ | — | ||||||||||||
Purchase obligations | 234,228 | 226,280 | 7,948 | — | — | — | ||||||||||||||||||
Retirement plans contributions | 118,263 | 4,019 | 8,060 | 8,791 | 97,393 | — | ||||||||||||||||||
Operating lease obligations | 66,788 | 16,862 | 26,463 | 15,337 | 8,126 | — | ||||||||||||||||||
Interest on long-term debt | 37,375 | 5,750 | 11,500 | 11,500 | 8,625 | — | ||||||||||||||||||
Fair value of contingent consideration | 39,129 | 21,818 | 17,311 | — | — | — | ||||||||||||||||||
Other long-term liabilities reflected on the balance sheet under GAAP (1) | 53,833 | — | 31,686 | — | — | 22,147 | ||||||||||||||||||
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Total | $ | 1,009,616 | $ | 274,729 | $ | 102,968 | $ | 35,628 | $ | 574,144 | $ | 22,147 | ||||||||||||
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Liquidity and Capital Resources
Our cash, cash equivalents and marketable securities balances increaseddecreased by $235.7$146.1 million in the ninethree months ended October 1, 2017April 2, 2023 to $1,848$859.0 million.
InOperating activities during the ninethree months ended October 1, 2017, changesApril 2, 2023 provided cash of $19.3 million. Changes in operating assets and liabilities providedused cash of $6.3 million. This was$106.5 million due to a $44.5$1.9 million increase in operating assets partially offset byand a $50.8$104.7 million increasedecrease in operating liabilities.
The increase in operating assets was primarily due to a $75.6$23.7 million increase in accounts receivableinventories, a $15.4 million increase in prepayments and other assets due to higher sales,prepayments to our contract manufacturers, partially offset by a $23.8$37.2 million decrease in inventories and a $7.4 million decrease in prepayments and other assets.accounts receivable.
The increasedecrease in operating liabilities was due to a $20.5$93.1 million increase in other accrued liabilities, a $15.8 million increase in income taxes, a $3.0 million increasedecrease in accrued employee compensation, due primarily to variable compensation, and a $34.5$32.7 million increasedecrease in deferred revenue and customer advance payments, partially offset by an $18.1 million decrease in accounts payable and $4.9$1.2 million of retirement plan contributions.contributions, partially offset by a $12.5 million increase in income taxes, a $9.6 million increase in other accrued liabilities, and a $0.3 million increase in accounts payable.
Investing activities during the ninethree months ended October 1, 2017,April 2, 2023 used cash of $188.3$94.9 million due to $1,036.5$69.3 million used for purchases of marketable securities, and $73.2$41.4 million used for purchases of property, plant and equipment, partially offset by $473.3$7.9 million and $443.2$7.4 million in proceeds from maturitiessales and salesmaturities of marketable securities, respectively, and $0.5 million in proceeds from propertythe cancellation of Teradyne owned life insurance of $5.1 millionpolicies related to the Japan earthquake.cash surrender value.
Financing activities during the ninethree months ended October 1, 2017,April 2, 2023 used cash of $182.7$129.5 million due to $151.8$93.3 million used for the repurchase of 4.60.9 million shares of common stock at an average price of $32.66$104.88 per share, $41.7 million used for dividend payments, $12.6$19.9 million used for payment related to net settlementsettlements of employee stock compensation awards, and $1.1$17.2 million used for a payment related to AIT acquisition contingent consideration,dividend payments, and $15.2 million used for payments of convertible debt principal, partially offset by $24.5$16.0 million from the issuance of common stock under employee stock purchase and stock option plans.
InOperating activities during the ninethree months ended October 2, 2016, changesApril 3, 2022 provided cash of $7.5 million. Changes in operating assets and liabilities providedused cash of $93.1$210.2 million. This was due to an $81.0$83.6 million decreaseincrease in operating assets and a $12.1$126.6 million increasedecrease in operating liabilities.
The decreaseincrease in operating assets was due to a $45.7$74.3 million decreaseincrease in accounts receivableprepayments and other assets due to increased collections andprepayments to our contract manufacturers, a $48.6$9.5 million decreaseincrease in inventories, partially offset by a $13.3$0.2 million increasedecrease in prepayments and other assets. accounts receivable.
The increasedecrease in operating liabilities was due to a $53.4$114.0 million decrease in accrued employee compensation, a $13.8 million decrease in other accrued liabilities, a $7.6 million decrease in income taxes, and $1.3 million of retirement plan contributions, partially offset by a $6.7 million increase in deferred revenue and customer advance payments, and a $15.4$3.4 million increase in other accrued liabilities and a $4.2 million increase in accrued income taxes, partially offset by a $24.2 million decrease in accrued employee compensation due primarily to variable compensation, a $30.8 million decrease in accounts payable, and $5.9 million of retirement plan contributions.payable.
Investing activities during the ninethree months ended October 2, 2016April 3, 2022 used cash of $268.1$82.7 million due to $875.8$166.0 million used for purchases of marketable securities and $66.3$44.0 million used for purchases of property, plant and equipment, partially offset by $466.7$96.7 million and $202.2$30.6 million in proceeds from salesmaturities and maturitiessales of marketable securities, respectively, and proceeds from property insurance of $5.1 million related to the Japan earthquake.respectively.
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Financing activities during the ninethree months ended October 2, 2016April 3, 2022 used cash of $119.1$254.6 million due to $85.1$201.5 million used for the repurchase of 4.31.8 million shares of common stock at an average price of $19.69$115.12 per share, $36.5 million used for dividend payments, $11.7 million used for a payment related to the Universal Robots acquisition contingent consideration, and $9.2$31.0 million used for payment related to net settlementsettlements of employee stock compensation awards, $20.7 million used for payments of convertible debt principal, $17.9 million used for dividend payments, partially offset by $20.1$16.5 million from the issuance of common stock under employee stock purchase and stock option plans and $3.4 million from the tax benefit related to employee stock compensation awards.plans.
In January 2017, May 2017 and August 2017, our2022, Teradyne’s Board of Directors declared a 10% increase in the quarterly cash dividend to $0.11 per share. Dividend payments for the three months ended April 3, 2022 were $17.9 million. In January 2021, Teradyne’s Board of Directors declared a quarterly cash dividend of $0.07$0.10 per share. InDividend payments for the ninethree months ended October 1, 2017, dividend paymentsApril 4, 2021 were $41.7$16.7 million.
In January 2016, May 2016, and August 2016,2023, our Board of Directors declared a quarterly cash dividend of $0.06 per share. Incancelled the nine months ended October 2, 2016, dividend payments were $36.5 million.
In December 2016, the Board of Directors2021 repurchase program and approved a $500 million sharenew repurchase authorization which commenced on January 1, 2017.program for up to $2.0 billion of common stock. We intend to repurchase at least $200up to $500.0 million of common stock in 2017. 2023 subject to market conditions.
During the ninethree months ended October 1, 2017,April 2, 2023, we repurchased 4.60.9 million shares of common stock for $93.3 million at an average price of $32.66$104.88 per share, for a total price of $151.8 million. The total price includes commissions and is recorded as a reduction to retained earnings.
share. During the ninethree months ended October 2, 2016,April 3, 2022, we repurchased 4.31.8 million shares of common stock for $201.5 million at an average price of $19.69, for a total cost of $85.1 million.$115.12 per share.
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. On December 10, 2021, the credit agreement was amended to extend the senior secured revolving credit facility to December 10, 2026. On October 5, 2022, the credit agreement was amended to increase the amount of the credit facility to $750.0 million from $400.0 million. As of May 5, 2023, 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. The amount of cash, cash equivalents and marketable securities in the U.S. and our operations in the U.S. provide sufficient liquidity to fund our business activities in the U.S. We have $1,106 million of cash, cash equivalents and marketable securities outside the U.S. that if repatriated would incur additional taxes. Determination of the additional taxes that would be incurred is not
practicable due to uncertainty regarding the remittance structure, the mix of earnings and earnings and profit pools in the year of remittance, and overall complexity of the calculation. Inflation has not had a significant long-term impact on earnings. At this time, the COVID-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.
Equity Compensation Plans
As discussed in Note O: “Stock Based Compensation” inIn addition to our 2016 Form 10-K, we have a 1996 Employee Stock Purchase Plan andProgram as discussed in Note Q: “Stock-Based Compensation” in our 2022 Annual Report on Form 10-K, we have a 2006 Equity and Cash Compensation Incentive Plan (the “2006 Equity Plan”).
The purpose of the 1996 Employee Stock Purchase Plan is to encourage stock ownership by all eligible employees of Teradyne. The purpose of the 2006 Equity Plan is to provide equity ownership and compensation opportunities in Teradyne to our employees, officers directors, consultants and/or advisors.and directors. Both plans were approved by our shareholders.
Recently Issued Accounting Pronouncements
On March 10, 2017,For the FASBthree months ended April 2, 2023, there were no recently issued ASU 2017-07, “Compensation—Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost.” This ASU provides guidance on presentation of net periodic pension cost and net periodic postretirement benefit cost. The new standard requires the service cost component to be presented in the same line item as other employee compensation costs arising from services rendered during the period. The other components of net benefit cost such as interest cost, amortization of prior service cost, and actuarial gainsaccounting pronouncements that had, or losses, are required to be presented separately outside of income or loss from operations. The presentation of service cost should be applied retrospectively. The guidance is effective for fiscal years beginning after December 15, 2017. Early adoption is permitted. This guidance will impact the presentation of our consolidated financial statements. Upon adoption of the new standard, we will present interest cost, amortization of prior service cost, and actuarial gains or losses within other (income) expense, net.
On January 26, 2017, the FASB issued ASU 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. Goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds 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 same 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 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. We are currently evaluating the impact of this ASU on our financial position, results of operations and statements of cash flows.
In October 2016, the FASB issued ASU 2016-16,“Accounting for Income Taxes: Intra-Entity Asset Transfers of Assets Other than Inventory.” Under current Generally Accepted Accounting Principles (“GAAP”), the tax effects of intra-entity asset transfers are deferred until the transferred asset is sold to a third party or otherwise recovered through use. The new guidance requires recognition of the tax expense from the sale of the asset in the seller’s tax jurisdiction when the transfer occurs, even though the pre-tax effects of that transaction are eliminated in consolidation. Any deferred tax asset that arises in the buyer’s jurisdiction would also be recognized at the time of the transfer. The new guidance does not apply to intra-entity transfers of inventory. The income tax consequences from the sale of inventory from one member of a consolidated entity to another will continue to be deferred until the inventory is sold to a third party. The new guidance will be effective in fiscal years beginning after December 15, 2017. Early adoption is permitted. The modified retrospective approach will be required for transition to the new guidance, with a cumulative-effect adjustment recorded in retained earnings as of the beginning of the period of adoption. We do not expect this ASUexpected to have, a material impact onto our financial position, results of operations and statements of cash flows.
In February 2016, the FASB issued ASU 2016-02,“Leases (Topic 842).” The guidance in this ASU supersedes the lease recognition requirements in Accounting Standards Codification (“ASC”) Topic 840,“Leases.” The new standard establishes a right-of-use (“ROU”) model that requires a lessee to record an ROU asset and a lease liability on the balance sheet for all leases with terms longer than twelve months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the statements of operations. The new standard is effective for annual periods beginning after December 15, 2018 with early adoption permitted. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in theconsolidated financial statements. We are currently evaluating the impact of this ASU on our financial position and results of operations.
In January 2016, the FASB issued ASU 2016-01,“Financial Instruments—Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities.” This ASU provides guidance for the recognition, measurement, presentation, and disclosure of financial instruments. The new pronouncement revises accounting related to equity investments and the presentation of certain fair value changes for financial liabilities measured at fair value. Among other things, it amends the presentation and disclosure requirements of equity securities that do not result in consolidation and are not accounted for under the equity method. Changes in the fair value of these equity securities will be recognized directly in net income. This pronouncement is effective for fiscal years beginning after December 15, 2017. We are currently evaluating the impact of this ASU on our financial position and results of operations.
In May 2014, the FASB issued ASU 2014-09,“Revenue from Contracts with Customers (Topic 606),” which will replace numerous requirements in U.S. GAAP, including industry-specific requirements, and provide companies with a single revenue recognition model for recognizing revenue from contracts with customers. The core principle of the new standard is that a company should recognize revenue to show the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled to in exchange for those goods or services. In August 2015, FASB issued ASU 2015-14, which deferred the effective date of the new revenue standard by one year. For us, the standard will be effective in the first quarter of 2018. The two permitted transition methods under the new standard are the full retrospective method, in which case the standard would be applied to each prior reporting period presented, or the modified retrospective method, in which case the cumulative effect of applying the standard would be recognized at the date of initial application. We have selected the modified retrospective transition method.
We have completed our preliminary assessment of the financial statement impact of the new standard and do not expect this ASU to have a material impact on our financial position or results of operations. This preliminary assessment is based on a review of the types and number of revenue arrangements currently in place including the review of individual customer contracts related to these revenue streams. The exact impact of the new standard will be dependent on facts and circumstances at adoption and could vary from quarter to quarter. Based on our preliminary assessment we do not expect any major changes to be made to existing accounting systems or internal controls. We will be required to record cumulative effect adjustments to retained earnings upon adopting the new standard in the first quarter of 2018.
| Item 3: | Quantitative and Qualitative Disclosures about Market Risks |
For “Quantitative and Qualitative Disclosures about Market Risk” affecting Teradyne, see Part 2 Item 7a,7A, “Quantitative and Qualitative Disclosures about Market Risks,” in our Annual Report on Form 10-K filed with the SEC on March 1, 2017.February 22, 2023. There were no material changes in our exposure to market risk from those set forth in our Annual Report on Form 10-Kfor the fiscal year ended December 31, 2016.2022.
In addition to market risks described in our Annual Report on Form 10-K, 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” “Notes”) due December 15, 2023. As of October 1, 2017,April 2, 2023, $35.1 million of principal remained outstanding and the Notes had a fair value of $613.2$119.6 million. The table below provides a sensitivity analysis of hypothetical 10% changes of Teradyne’s stock price as of the end of the thirdfirst quarter of 20172022 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,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,
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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 | Fair Value | Estimated Change in Fair Value | Hypothetical Percentage Increase (Decrease) in Fair Value | |||||||||
10% Increase | $ | 655,362 | $ | 42,124 | 6.9 | % | ||||||
No Change | 613,238 | — | — | |||||||||
10% Decrease | 573,327 | (39,911 | ) | (6.5 | ) | |||||||
See Note F: “Debt” for further information.
Hypothetical Change in Teradyne Stock Price | Fair Value | Estimated change in fair value | Hypothetical percentage increase (decrease) in fair value | |||||||||
10% Increase | $ | 131,584 | $ | 11,998 | 10.0 | % | ||||||
No Change | 119,586 | — | — | |||||||||
10% Decrease | 107,588 | (11.998 | ) | (10.0 | ) | |||||||
| Item 4: | Controls and Procedures |
As of the end of the period covered by this report, our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures pursuant to Rule 13a-15(b) or Rule 15d-15(f) promulgated under the Exchange Act. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer 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 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 Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
There have been no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the three months ended April 2, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
| Item 1: | Legal Proceedings |
We are subject to various legal proceedings and claims which have arisen in the ordinary course of business. Inbusiness 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 opinionoutcomes of management,any pending claims or to provide possible ranges of losses that may arise, Teradyne believes the ultimate dispositionpotential losses associated with all of these matters will notactions are unlikely to have a material adverse effect on ourits business, financial position or results of operations, financial conditionoperations.
On March 8, 2021, Industrial Automation LLC submitted a demand for arbitration against Teradyne and AutoGuide in Wilmington, Delaware alleging that Teradyne and AutoGuide breached certain provisions of the Membership Interests Purchase Agreement (the “Purchase Agreement”), dated as of October 18, 2019, among Industrial Automation LLC, Teradyne and AutoGuide. The arbitration demand sought full acceleration of the maximum earn-out amount payable under the Purchase Agreement, or cash flows.$106.9 million, for the alleged breach of the earn-out provisions of the Purchase Agreement. On March 25, 2022, the arbitration claim was settled for $26.7 million. As a result, Teradyne has no remaining earn-out obligations.
| Item 1A: | Risk Factors |
In addition to other information set forth in this Form 10-Q, including the risk discussed below, you should carefully consider the factors discussed in Part I, “Item 1A: Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2016,2022, which could materially affect our business, financial condition or future results. The risk factors described in our Annual Report on Form 10-K remain applicable to our business.business and many of these risks could be further increased due to the COVID-19 pandemic.
The risks described in our Annual Report on Form 10-K are not the only risks that we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.
Adverse developments affecting the financial services industry, including events or risks involving liquidity, defaults or non-performance by financial institutions, could have a material adverse effect on our business, financial condition or results of operations.
On March 10, 2023, Silicon Valley Bank (SVB), who is a lender in our revolving credit facility and where we maintain certain accounts and cash deposits, was placed into receivership with the Federal Deposit Insurance Corporation (FDIC), which resulted in all funds held at SVB being temporarily inaccessible by SVB’s customers. As of March 13, 2023, access to our cash and cash equivalents at SVB was fully restored. Although our cash balances at SVB are insignificant and we do not expect further developments at SVB to have a material impact on our cash and cash equivalents, we do hold cash balances in several large financial institutions significantly in excess of FDIC and global insurance limits. If other banks and financial institutions with whom we have banking relationships enter receivership or become insolvent in the future, we may be unable to access, and we may lose, some or all of our existing cash, cash equivalents and investments to the extent those funds are not insured or otherwise protected by the FDIC.
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| Item 2: | Unregistered Sales of Equity Securities and Use of Proceeds |
In December 2016, theJanuary 2023, Teradyne’s Board of Directors cancelled our 2021 repurchase program and approved a $500 million sharenew repurchase authorization which commenced on January 1, 2017. We intendprogram for up to repurchase at least $200 million in 2017.$2.0 billion of common stock. During the ninethree months ended October 1, 2017,April 2, 2023, we repurchased 4.60.9 million shares of common stock for a total cost of $93.7 million at an average price of $32.66$104.88 per share. We record share for a total price of $151.8 million. The total pricerepurchases at cost, which includes broker commissions and is recorded as a reduction to retained earnings.
related excise taxes. During the ninethree months ended October 2, 2016,April 3, 2022, we repurchased 4.31.8 million shares of common stock for $201.5 million at an average price of $19.69, for a total cost of $85.1 million.$115.12 per share.
The following table includes information with respect to repurchases we made of our common stock during the three months ended October 1, 2017April 2, 2023 (in thousands except per share price):
Period | (a) Total Number of Shares (or Units) Purchased | (b) Average Price Paid per Share (or Unit) | (c) Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs | (d) Maximum Number (or Approximate Dollar Value) of Shares (or Units) that may Yet Be Purchased Under the Plans or Programs | ||||||||||||||||||||
July 3, 2017 – July 30, 2017 | 524 | $ | 32.68 | 522 | $ | 388,600 | ||||||||||||||||||
July 31, 2017 – August 27, 2017 | 528 | $ | 34.08 | 527 | $ | 370,641 | ||||||||||||||||||
August 28, 2017 – October 1, 2017 | 632 | $ | 35.62 | 631 | $ | 348,178 | ||||||||||||||||||
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Total | 1,684 | (1 | ) | $ | 34.22 | (1 | ) | 1,680 | ||||||||||||||||
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Period | Total Number of Shares (or Units) Purchased | Average Price Paid per Share (or Unit) | Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs | Maximum Number (or Approximate Dollar Value) of Shares (or Units) that may Yet Be Purchased Under the Plans or Programs (2) | ||||||||||||
January 1, 2023 - January 29, 2023 | 147 | $ | 103.09 | — | $ | 2,000,000 | ||||||||||
January 30, 2023 – February 26, 2023 | 414 | $ | 105.18 | 369 | $ | 1,960,941 | ||||||||||
February 27, 2023 – April 2, 2023 | 526 | $ | 104.25 | 524 | $ | 1,906,292 | ||||||||||
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| 1,087 | (1) | $ | 104.44 | (1) | 893 | |||||||||||
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| (1) | Includes |
| (2) | As of January 1, 2023, share repurchases net of share issuances are subject to a 1% excise tax under the Inflation Reduction Act. Excise tax incurred is included as part of the cost basis of shares repurchased in the Condensed Consolidated Statements of Convertible Common Shares and Stockholders’ Equity. |
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.
| Item 4: | Mine Safety Disclosures |
Not Applicable
| Item 6: | Exhibits |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| TERADYNE, INC. |
| Registrant |
/s/ S |
Vice President, Chief Financial Officer and Treasurer (Duly Authorized Officer and Principal Financial Officer) |
May 5, 2023 |
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