PART I

Item 1:

Financial Statements

TERADYNE, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

   March 31,
2019 December 31,
2018

(in thousands,
except per share amount)

ASSETS
Current assets:

Cash and cash equivalents
   $ 483,728 $ 926,752
Marketable securities
   421,088 190,096
Accounts receivable, less allowance for doubtful accounts of $1,675 and $1,673 at March 31, 2019 and December 31, 2018, respectively
   333,840 291,267
Inventories, net
   161,342 153,541
Prepayments and other current assets
   194,044 170,826


Total current assets
   1,594,042 1,732,482
Property, plant and equipment, net
   283,300 279,821
Operating leaseright-of-use assets, net
   50,733 —
Marketable securities
   91,926 87,731
Deferred tax assets
   69,687 70,848
Retirement plans assets
   16,791 16,883
Other assets
   11,279 11,509
Acquired intangible assets, net
   119,372 125,482
Goodwill
   379,513 381,850


Total assets
   $ 2,616,643 $ 2,706,606


LIABILITIES
Current liabilities:

Accounts payable
   $ 118,816 $ 100,688
Accrued employees’ compensation and withholdings
   89,089 148,566
Deferred revenue and customer advances
   84,764 77,711
Other accrued liabilities
   67,422 78,272
Contingent consideration
   22,803 34,865
Operating lease liabilities
   17,176 —
Income taxes payable
   41,898 36,185


Total current liabilities
   441,968 476,287
Retirement plans liabilities
   121,205 117,456
Long-term deferred revenue and customer advances
   32,843 32,750
Deferred tax liabilities
   19,614 20,662
Long-term other accrued liabilities
   9,732 37,547
Long-term contingent consideration
   15,510 35,678
Long-term operating lease liabilities
   38,062 —
Long-term incomes taxes payable
   83,891 83,891
Debt
   383,590 379,981


Total liabilities
   1,146,415 1,184,252


Commitments and contingencies (See Note S)

SHAREHOLDERS’ EQUITY
Common stock, $0.125 par value, 1,000,000 shares authorized; 172,353 and 175,522 shares issued and outstanding at March 31, 2019 and December 31, 2018, respectively
   21,544 21,940
Additionalpaid-in capital
   1,679,997 1,671,645
Accumulated other comprehensive loss
   (15,706 ) (13,040 )
Accumulated deficit
   (215,607 ) (158,191 )


Total shareholders’ equity
   1,470,228 1,522,354


Total liabilities and shareholders’ equity
   $ 2,616,643 $ 2,706,606


	September 29, 2019			December 31, 2018
	(in thousands, except per share amount)
ASSETS
Current assets:
Cash and cash equivalents	$	593,939		$	926,752
Marketable securities		342,538			190,096
Accounts receivable, less allowance for doubtful accounts of $1,770 and $1,673 at September 29, 2019 and December 31, 2018, respectively		357,886			291,267
Inventories, net		178,203			153,541
Prepayments and other current assets		182,013			170,826

Total current assets		1,654,579			1,732,482
Property, plant and equipment, net		307,567			279,821
Operating lease right-of-use assets, net		57,595			—
Marketable securities		103,558			87,731
Deferred tax assets		69,120			70,848
Other assets		22,724			11,509
Retirement plans assets		16,358			16,883
Acquired intangible assets, net		96,573			125,482
Goodwill		370,717			381,850

Total assets	$	2,698,791		$	2,706,606

LIABILITIES
Current liabilities:
Accounts payable	$	117,936		$	100,688
Accrued employees’ compensation and withholdings		127,912			148,566
Deferred revenue and customer advances		95,936			77,711
Other accrued liabilities		93,736			78,272
Operating lease liabilities		18,386			—
Contingent consideration		6,297			34,865
Income taxes payable		33,508			36,185

Total current liabilities		493,711			476,287
Retirement plans liabilities		121,340			117,456
Long-term deferred revenue and customer advances		42,592			32,750
Deferred tax liabilities		15,390			20,662
Long-term other accrued liabilities		9,803			37,547
Long-term contingent consideration		11,783			35,678
Long-term operating lease liabilities		46,813			—
Long-term income taxes payable		83,782			83,891
Debt		390,942			379,981

Total liabilities		1,216,156			1,184,252

Commitments and contingencies (See Note S)
SHAREHOLDERS’ EQUITY
Common stock, $0.125 par value, 1,000,000 shares authorized; 168,490 and 175,522 shares issued and outstanding at September 29, 2019 and December 31, 2018, respectively		21,061			21,940
Additional paid-in capital		1,712,185			1,671,645
Accumulated other comprehensive loss		(24,221	)		(13,040	)
Accumulated deficit		(226,390	)		(158,191	)

Total shareholders’ equity		1,482,635			1,522,354

Total liabilities and shareholders’ equity	$	2,698,791		$	2,706,606

The accompanying notes, together with the Notes to Consolidated Financial Statements included in Teradyne’s
Annual Report on Form

10-K

for the year ended December 31, 2018, are an integral part of the

condensed
consolidated financial statements.

Table of Contents

TERADYNE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF ~~OPERATIONS~~

COMPREHENSIVE INCOME

(Unaudited)

   For the Three Months
Ended
   March 31,
2019 April 1,
2018
   (in thousands, except per share amount)
Revenues:

Products
   $ 393,442 $ 403,925
Services
   100,657 83,542


Total revenues
   494,099 487,467
Cost of revenues:

Cost of products
   165,368 180,958
Cost of services
   41,096 36,677


Total cost of revenues (exclusive of acquired intangible assets amortization shown separately below)
   206,464 217,635


Gross profit
   287,635 269,832
Operating expenses:

Selling and administrative
   102,013 90,505
Engineering and development
   76,791 74,408
Acquired intangible assets amortization
   10,634 7,698
Restructuring and other
   5,112 (313 )


Total operating expenses
   194,550 172,298


Income from operations
   93,085 97,534
Non-operating (income) expense:

Interest income
   (8,052 ) (5,981 )
Interest expense
   5,713 6,890
Other (income) expense, net
   1,445 805


Income before income taxes
   93,979 95,820
Income tax (benefit) provision
   (15,159 ) 8,846


Net income
   $ 109,138 $ 86,974


Net income per common share:

Basic
   $ 0.63 $ 0.45


Diluted
   $ 0.62 $ 0.43


Weighted average common shares—basic
   173,532 195,255


Weighted average common shares—diluted
   176,972 203,484


	For the Three Months Ended						For the Nine Months Ended
	September 29, 2019			September 30, 2018			September 29, 2019			September 30, 2018
	(in thousands)
Net income	$	135,860		$	119,981		$	342,395		$	307,991
Other comprehensive income, net of tax:
Foreign currency translation adjustment, net of tax of $0		(18,002	)		7,213			(17,019	)		(11,568	)
Available-for-sale marketable securities:
Unrealized gains (losses) on marketable securities arising during period, net of tax of $507, $(62), $1,762, $(806), respectively		1,754			(66	)		6,391			(2,555	)
Less: Reclassification adjustment for (gains) losses included in net income, net of tax of $(99), $(17), $(125), $(6), respectively		(345	)		(57	)		(442	)		1,411

		1,409			(123	)		5,949			(1,144	)
Defined benefit pension and post-retirement plans:
Amortization of prior service benefit included in net periodic pension and post-retirement benefit, net of tax of $(11), $(18), $(32), $(53), respectively		(37	)		(61	)		(111	)		(184	)

Other comprehensive (loss) income		(16,630	)		7,029			(11,181	)		(12,896	)

Comprehensive income	$	119,230		$	127,010		$	331,214		$	295,095

The accompanying notes, together with the Notes to Consolidated Financial Statements included in Teradyne’s

Annual Report on Form

10-K

for the year ended December 31, 2018, are an integral part of the condensed

consolidated financial statements.

Table of Contents

TERADYNE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF ~~COMPREHENSIVE INCOME~~

SHAREHOLDERS’ EQUITY

(Unaudited)

   For the Three Months
Ended
   March 31,
2019 April 1,
2018
   (in thousands)
Net income
   $ 109,138 $ 86,974
Other comprehensive income, net of tax:

Foreign currency translation adjustment, net of tax of $0, $0, respectively
   (4,659 ) 10,541
Available-for-sale marketable securities:

Unrealized gains (losses) on marketable securities arising during period, net of tax of $577, $(718), respectively
   2,100 (2,687 )
Less: Reclassification adjustment for (gains) losses included in net income, net of tax of $(20), $78, respectively
   (70 ) 1,668


   2,030 (1,019 )
Defined benefit pension and post-retirement plans:

Amortization of prior service benefit included in net periodic pension and post-retirement benefit, net of tax of $(11), $(18), respectively
   (37 ) (61 )


Other comprehensive (loss) income
   (2,666 ) 9,461


Comprehensive income
   $ 106,472 $ 96,435


	Common Stock Shares Issued			Common Stock Par Value			Additional Paid-in Capital		Accumulated Other Comprehensive ( Loss ) Income			Accumulated Deficit			Total Shareholders’ Equity
	(in thousands)
For the Three Months Ended September 29, 2019
Balance, June 30, 2019		170,436		$	21,305		$	1,688,211	$	(7,591	)	$	(222,513	)	$	1,479,412
Net issuance of common stock under stock-based plans		377			46			14,041		—			—			14,087
Stock-based compensation expense		—			—			9,933		—			—			9,933
Repurchase of common stock		(2,323	)		(290	)		—		—			(124,473	)		(124,763	)
Cash dividends ($0.09 per share)		—			—			—		—			(15,264	)		(15,264	)
Net income		—			—			—		—			135,860			135,860
Other comprehensive loss		—			—			—		(16,630	)		—			(16,630	)

Balance, September 29 , 2019		168,490		$	21,061		$	1,712,185	$	(24,221	)	$	(226,390	)	$	1,482,635

For the Three Months Ended September 30, 2018
Balance, July 1, 2018		187,962		$	23,495		$	1,645,679	$	(3,504	)	$	74,270		$	1,739,940
Net issuance of common stock under stock-based plans		332			42			10,056		—			—			10,098
Stock-based compensation expense		—			—			8,833		—			—			8,833
Repurchase of common stock		(5,005	)		(626	)		—		—			(200,846	)		(201,472	)
Cash dividends ($0.09 per share)		—			—			—		—			(16,648	)		(16,648	)
Net income		—			—			—		—			119,981			119,981
Other comprehensive income		—			—			—		7,028			—			7,028

Balance, September 30, 2018		183,289		$	22,911		$	1,664,568	$	3,524		$	(23,243	)	$	1,667,760

For the Nine Months Ended September 29, 2019
Balance, December 31, 2018		175,522		$	21,940		$	1,671,645	$	(13,040	)	$	(158,191	)	$	1,522,354
Net issuance of common stock under stock-based plans		1,762			220			14,511		—			—			14,731
Stock-based compensation expense		—			—			26,029		—			—			26,029
Repurchase of common stock		(8,794	)		(1,099	)		—		—			(364,287	)		(365,386	)
Cash dividends ($0.09 per share)		—			—			—		—			(46,307	)		(46,307	)
Net income		—			—			—		—			342,395			342,395
Other comprehensive loss		—			—			—		(11,181	)		—			(11,181	)

Balance, September 29 , 2019		168,490		$	21,061		$	1,712,185	$	(24,221	)	$	(226,390	)	$	1,482,635

For the Nine Months Ended September 30, 2018
Balance, December 31, 2017		195,548		$	24,444		$	1,638,413	$	18,776		$	272,013		$	1,953,646
Net issuance of common stock under stock-based plans		1,584			197			1,813		—			—			2,010
Stock-based compensation expense		—			—			24,342		—			—			24,342
Repurchase of common stock		(13,843	)		(1,730	)		—		—			(566,930	)		(568,660	)
Cash dividends ($0.09 per share)		—			—			—		—			(51,352	)		(51,352	)
Net income		—			—			—		—			307,991			307,991
Other comprehensive loss		—			—			—		(12,896	)		—			(12,896	)
Reclassification of unrealized gains on equity securities		—			—			—		(3,125	)		3,125			—
Reclassification of tax effects resulting from the Tax Reform Act		—			—			—		769			(769	)		—
Cumulative effect of changes in accounting principle related to revenue recognition		—			—			—		—			12,679			12,679

Balance, September 30, 2018		183,289		$	22,911		$	1,664,568	$	3,524		$	(23,243	)	$	1,667,760

The accompanying notes, together with the Notes to Consolidated Financial Statements included in Teradyne’s

Annual Report on Form

10-K

for the year ended December 31, 2018, are an integral part of the

condensed
consolidated financial statements.

Table of Contents

TERADYNE, INC.

~~CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY~~

~~(Unaudited)~~

For the Three Months Ended March 31, 2019
Common
Stock Shares
Issued Common
Stock Par
Value Additional
Paid-in
Capital Accumulated
Other
Comprehensive
Loss Accumulated
Deficit Total
Shareholders’
Equity
(in thousands)
Balance, December 31, 2018
175,522 $ 21,940 $ 1,671,645 $ (13,040 ) $ (158,191 ) $ 1,522,354
Issuance of common stock to employees under benefit plans, net of shares withheld for payroll tax of $14,318
1,287 161 (210 ) (49 )
Stock-based compensation expense
8,562 8,562
Repurchase of common stock
(4,456 ) (557 ) (150,913 ) (151,470 )
Cash dividends ($0.09 per share)
(15,641 ) (15,641 )
Net income
109,138 109,138
Foreign currency translation adjustment
(4,659 ) (4,659 )
Unrealized gains on marketable securities:

Unrealized gains on marketable securities, net of tax of $577
2,100 2,100
Less: reclassification adjustment for gains included in net income, net of tax $(20)
(70 ) (70 )
Amortization of prior service benefit, net of tax of $(11)
(37 ) (37 )

Balance, March 31, 2019
172,353 $ 21,544 $ 1,679,997 $ (15,706 ) $ (215,607 ) $ 1,470,228

For the Three Months Ended April 1, 2018
Common
Stock Shares
Issued Common
Stock Par
Value Additional
Paid-in
Capital Accumulated
Other
Comprehensive
Income Retained
Earnings Total
Shareholders’
Equity
(in thousands)
Balance, December 31, 2017
195,548 $ 24,444 $ 1,638,413 $ 18,776 $ 272,013 $ 1,953,646
Issuance of common stock to employees under benefit plans, net of shares withheld for payroll tax of $19,629
1,199 150 (8,129 ) (7,979 )
Stock-based compensation expense
8,472 8,472
Repurchase of common stock
(2,939 ) (368 ) (140,304 ) (140,672 )
Cash dividends ($0.09 per share)
(17,598 ) (17,598 )
Net income
86,974 86,974
Foreign currency translation adjustment
10,541 10,541
Unrealized gains (losses) on marketable securities:

Unrealized losses on marketable securities, net of tax of $(718)
(2,687 ) (2,687 )
Less: reclassification adjustment for losses included in net income, net of tax $78
1,668 1,668
Reclassification of unrealized gains on equity securities, net of tax of $(902)
(3,125 ) 3,125 —
Amortization of prior service benefit, net of tax of $(18)
(61 ) (61 )
Reclassification of tax effects resulting from the Tax Reform Act, net of tax of $769
769 (769 ) —
Cumulative effect of changes in accounting principle related to revenue recognition
12,679 12,679

Balance, April 1, 2018
193,808 $ 24,226 $ 1,638,756 $ 25,881 $ 216,120 $ 1,904,983

~~The accompanying notes, together with the Notes to Consolidated Financial Statements included in Teradyne’s~~

~~Annual Report on Form10-K~~ ~~for the year ended December 31, 2018, are an integral part of the condensed~~

~~consolidated financial statements.~~

~~TERADYNE, INC.~~

~~CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS~~

~~(Unaudited)~~

   For the Three Months
Ended
   March 31,
2019 April 1,
2018
   (in thousands)
Cash flows from operating activities:

Net income
   $ 109,138 $ 86,974
Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation
   16,651 16,336
Amortization
   12,942 9,204
Stock-based compensation
   9,474 9,544
Deferred taxes
   1,206 8,696
Provision for excess and obsolete inventory
   2,397 3,522
Contingent consideration fair value adjustment
   2,970 (4,968 )
(Gains) losses on investments
   (2,828 ) 1,241
Other
   219 152
Changes in operating assets and liabilities, net of businesses acquired:

Accounts receivable
   (41,706 ) (140,747 )
Inventories
   (2,917 ) (21,017 )
Prepayments and other assets
   (18,648 ) (679 )
Accounts payable and other liabilities
   (53,323 ) (46,706 )
Deferred revenue and customer advances
   6,455 9,644
Retirement plans contributions
   (1,210 ) (1,020 )
Income taxes
   (22,804 ) (12,106 )


Net cash provided by (used for) operating activities
   18,016 (81,930 )


Cash flows from investing activities:

Purchases of property, plant and equipment
   (25,711 ) (34,797 )
Purchases of marketable securities
   (375,184 ) (490,324 )
Proceeds from sales of marketable securities
   5,440 800,671
Proceeds from maturities of marketable securities
   141,201 212,698
Proceeds from life insurance
   273 —
Acquisition of businesses, net of cash acquired
   (6,970 ) (25,356 )


Net cash (used for) provided by investing activities
   (260,951 ) 462,892


Cash flows from financing activities:

Issuance of common stock under stock purchase and stock option plans
   14,268 10,654
Repurchase of common stock
   (156,468 ) (134,276 )
Dividend payments
   (15,627 ) (17,588 )
Payments related to net settlement of employee stock compensation awards
   (14,318 ) (19,629 )
Payments of contingent consideration
   (27,615 ) (13,571 )


Net cash used for financing activities
   (199,760 ) (174,410 )


Effects of exchange rate changes on cash and cash equivalents
   (329 ) 1,478


(Decrease) increase in cash and cash equivalents
   (443,024 ) 208,030
Cash and cash equivalents at beginning of period
   926,752 429,843


Cash and cash equivalents at end of period
   $ 483,728 $ 637,873

~~The accompanying notes, together with the Notes to Consolidated Financial Statements included in Teradyne’s~~

~~Annual Report on Form10-K~~ ~~for the year ended December 31, 2018, are an integral part of the condensed~~

~~consolidated financial statements.~~

~~TERADYNE, INC.~~

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

A. THE COMPANY

Teradyne, Inc. (“Teradyne”) is a leading global supplier of automation equipment for test and industrial applications. Teradyne designs, develops, manufactures and sells automatic test systems used to test semiconductors, wireless products, data storage and complex electronics systems in the consumer electronics, wireless, automotive, industrial, computing, communications, and aerospace and defense industries. Teradyne’s industrial automation products include collaborative robotic arms, autonomous mobile robots, and advanced robotic control software used by global manufacturing and light industrial customers to improve quality, increase manufacturing and material handling efficiency and decrease manufacturing costs. Teradyne’s automatic test equipment and industrial automation products and services include:

semiconductor test (“Semiconductor Test”) systems;

industrial automation (“Industrial Automation”) products;

defense/aerospace (“Defense/Aerospace”) test instrumentation and systems, storage test (“Storage Test”) systems, and circuit-board test and inspection (“Production Board Test”) systems (collectively these products represent “System Test”); and

wireless test (“Wireless Test”) systems.

B. ACCOUNTING POLICIES

Basis of Presentation

The consolidated interim financial statements include the accounts of Teradyne and its wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated. These interim financial statements are unaudited and reflect all normal recurring adjustments that are, in the opinion of management, necessary for the fair statement of such interim financial statements. Certain prior year amounts were reclassified to conform to the current year presentation. The December 31, 2018 condensed consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America.

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

10-K,

filed with the U.S. Securities and Exchange Commission (“SEC”) on March 1, 2019, for the year ended December 31, 2018.

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.

Investment in Other Company

Teradyne holds an investment in a private company that develops and sells advanced wearable technology. Teradyne does not have the ability to exert significant influence over the company. The investment was recorded at cost and is evaluated for impairment or an indication of changes in fair value resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer on a quarterly basis. See Note D: “Acquisitions and Investment in Other Company.”

Leases

In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)

2016-02,

“Leases (Topic 842)” (“

(“Topic 842”), which requires a lessee to record a

right-of-use

(“ROU”) asset and a lease liability on the balance sheet for operating leases with terms longer than twelve months. Teradyne adopted this standard and the related amendments (collectively “ASC 842”) on January 1, 2019 and utilized the modified retrospective approach provided by ASU

2018-11,

“Leases (Topic 842): Targeted

Improvements,”

that allowed for a cumulative effect adjustment in the period of adoption. Under this method of adoption, the comparative information in the consolidated financial statements has not been revised and continues to be reported under the previously applicable lease accounting guidance (ASC 840). Teradyne also utilized the package of practical expedients permitted under the transition guidance which included the carry-forward of historical lease classification. Adoption of ASC 842 resulted in recording ROU assets and lease liabilities of approximately $50.1 million and $54.3 million, respectively. Operating lease liabilities were calculated using the discount rate on January 1, 2019. The adoption of ASC 842 did not have a material impact on beginning retained earnings, the consolidated statement of operations, cash flows, or earnings per share.

Table of Contents

Under ASC 842, a contract is or contains a lease when Teradyne has the right to control the use of an identified asset. Teradyne determines if an arrangement is a lease at inception of the contract, which is the date on which the terms of the contract are agreed to and the agreement creates enforceable rights and obligations. The commencement date of the lease is the date that the lessor makes an underlying asset available for use by Teradyne. As of ~~March 31,~~September 29, 2019, Teradyne does not have material leases that have not yet commenced.

Teradyne determines if the lease is operating or finance at the lease commencement date based upon the terms of the lease and the nature of the asset. The lease term used to calculate the lease liability includes options to extend or terminate the lease when it is reasonably certain that the option will be exercised.

For leases commencing after January 1, 2019, the lease liability is measured at the present value of future lease payments, discounted using the discount rate for the lease at the commencement date. As Teradyne is typically unable to determine the implicit rate, Teradyne uses an incremental borrowing rate based on the lease term and economic environment at commencement date. Teradyne initially measures payments based on an index by using the applicable rate at lease commencement. Variable payments that do not depend on an index are not included in the lease liability and are recognized as they are incurred. The ROU asset is initially measured as the amount of lease liability, adjusted for any initial lease costs, prepaid lease payments, and reduced by any lease incentives.

Teradyne’s contracts often include

non-lease

components such as common area maintenance. Teradyne elected the practical expedient to account for the lease and

non-lease

components as a single lease component. For leases with a term of one year or less Teradyne has elected not to record the lease asset or liability. The lease payments are recognized in the consolidated statement of earnings on a straight-line basis over the lease term. Teradyne includes lease costs within cost of revenues and operating expenses. See ~~Note:~~Note H: “Leases.”

C. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

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 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.

D. ACQUISITIONS

AND INVESTMENT IN OTHER COMPANY

Acquisitions

Lemsys SA

On January 30, 2019, Teradyne acquired all of the issued and outstanding shares of Lemsys SA (“Lemsys”) for a total purchase price of approximately $9.1 million. Lemsys strengthens Teradyne’s position in the electrification trends of vehicles, solar, wind, and industrial applications. The Lemsys acquisition was accounted for as a business combination and, accordingly, the results have been included in Teradyne’s Semiconductor Test segment from the date of acquisition. AsTeradyne’s final allocation of the ~~acquisition date, Teradyne’s preliminary~~ purchase price ~~allocation~~ was goodwill of ~~$1.2~~$1.4 million, which is not deductible for tax purposes, acquired intangible assets of ~~$5.5~~$4.6 million with an average estimated useful life of ~~4.9~~5.2 years, and ~~$2.4~~$3.1 million of net tangible assets. The acquisition was not material to Teradyne’s condensed consolidated financial statements.

Mobile Industrial Robots

On April 25, 2018, Teradyne acquired all of the issued and outstanding shares of Mobile Industrial Robots Aps (“MiR”), a Danish limited liability company located in Odense, Denmark. MiR is the leading maker of collaborative autonomous mobile robots for industrial applications. MiR is part of Teradyne’s Industrial Automation segment.

Table of Contents

The total purchase price of $197.8 million included $145.2 million of cash paid and $52.6 million of contingent consideration measured at fair value. The contingent consideration is payable in Euros upon the achievement of certain thresholds and targets for revenue and earnings before interest and taxes for periods from January 1, 2018 to December 31, 2018; January 1, 2018 to December 31, 2019; and January 1, 2018 to December 31, 2020. The contingent consideration related to revenue for the period from January 1, 2018 to December 31, 2018 in the amount of $30.8 million was paid in March 2019. The remaining maximum contingent consideration that could be paid is ~~$83.2~~$81.0 million.

The valuation of the contingent consideration is dependent on the following assumptions: forecasted revenues, revenue volatility, earnings before interest and taxes, and discount rate. These assumptions were estimated based on a review of the historical and projected results.

The MiR acquisition was accounted for as a business combination and, accordingly, the results have been included in Teradyne’s consolidated results of operations from the date of acquisition. MiR’s products will help expand the Industrial Automation segment, which is a key component of Teradyne’s growth strategy. The allocation of the total purchase price to MiR’s net tangible liabilities and identifiable intangible assets was based on their estimated fair values as of the acquisition date. The excess of the purchase price over the identifiable intangible assets and net tangible liabilities in the amount of $136.0 million was allocated to goodwill, which is not deductible for tax purposes. MiR’s results have been included in Teradyne’s Industrial Automation segment from the date of acquisition.

The following table represents the final allocation of the purchase price:

   Purchase Price Allocation
   (in thousands)
Goodwill
   $ 135,976
Intangible assets
   80,670
Tangible assets acquired and liabilities assumed:

Current assets
   6,039
Non-current assets
   1,336
Accounts payable and current liabilities
   (7,336 )
Long-term deferred tax liabilities
   (18,007 )
Other long-term liabilities
   (900 )


Total purchase price
   $ 197,778


	Purchase Price Allocation
	(in thousands)
Goodwill	$	135,976
Intangible assets		80,670
Tangible assets acquired and liabilities assumed:
Current assets		6,039
Non-current assets		1,336
Accounts payable and current liabilities		(7,336	)
Long-term deferred tax liabilities		(18,007	)
Other long-term liabilities		(900	)

Total purchase price	$	197,778

Teradyne estimated the fair value of intangible assets using the income and cost approaches. Acquired intangible assets are amortized on a straight-line basis over their estimated useful lives. Components of these intangible assets and their estimated useful lives at the acquisition date are as follows:

   Fair Value    Estimated Useful Life
   (in thousands)    (in years)
Developed technology
   $ 58,900    7.0
Trademarks and tradenames
   13,240    11.0
Customer relationships
   8,500    2.5
Backlog
   30    0.2



Total intangible assets
   $ 80,670    7.2


	Fair Value		Estimated Useful Life
	(in thousands)		(in years)
Developed technology	$	58,900		7.0
Trademarks and tradenames		13,240		11.0
Customer relationships		8,500		2.5
Backlog		30		0.2

Total intangible assets	$	80,670		7.2

Table of Contents

The following unaudited pro forma information gives effect to the acquisition of MiR as if the acquisition occurred on January 1, ~~2017.~~2018. The unaudited pro forma results are not necessarily indicative of what actually would have occurred had the acquisition been in effect for the periods presented:

   For the Three Months
Ended
   April 1, 2018
   (in thousands)
Revenue
   $ 493,017
Net income
   85,151
Net income per common share:

Basic
   $ 0.44


Diluted
   $ 0.42


	For the Nine Months Ended
	September 30, 2018
	(in thousands)
Revenue	$	1,588,042
Net income		306,768
Net income per common share:
Basic	$	1.61

Diluted	$	1.56

Pro forma results for the ~~three~~nine months ended ~~April 1,~~September 30, 2018 were adjusted to exclude ~~$0.6~~$2.9 million of acquisition related ~~costs.~~

costs, and $0.4 million of

non-recurring

expense related to fair value adjustment to acquisition-date inventory.

Energid Technologies Corporation

On February 26, 2018, Teradyne acquired all of the issued and outstanding shares of Energid Technologies Corporation (“Energid”) for a total purchase price of approximately $27.6 million. Energid’s technology enables and simplifies the programming of complex robotic motions used in a wide variety of end markets, ranging from heavy industry to healthcare, utilizing both traditional robots and collaborative robots. The Energid acquisition was accounted for as a business combination and, accordingly, Energid’s results have been included in Teradyne’s Industrial Automation segment from the date of acquisition. As of the acquisition date, Teradyne’s purchase price allocation was goodwill of $14.4 million which is deductible for tax purposes, acquired intangible assets of $12.3 million with an average estimated useful life of 7.7 years, and $1.0 million of net tangible assets. The acquisition was not material to Teradyne’s condensed consolidated financial statements.

Investment in Other Company

On June 3, 2019, Teradyne invested $15.0 million in RealWear, Inc. (“RealWear”). RealWear, a private company, develops and sells advanced wearable technology including industrial, hands-free, head-mounted augmented reality devices that make the workplace safer and more productive. Teradyne’s investment in RealWear aligns with its strategy of bringing the power of advanced automation to companies of all sizes to improve the productivity of their employees and the quality of their products and services. The investment was recorded at cost and is evaluated for impairment or an indication of changes in fair value resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer on a quarterly basis. At September 29, 2019

the value of the investment was $15.0 million

, which was unchanged in the three months ended September 30, 2019

E. REVENUE

~~Revenue~~

For the three and nine months ended September 29, 2019, revenues recognized in accordance with ASC 606: “

Revenue from Contracts with Customers”~~was $492.4~~

were $580.6 million and ~~$483.2~~$1,635.5 million, ~~for the three months ended March 31, 2019 and April 1, 2018,~~ respectively.

For the three and nine months ended ~~March 31,~~September 29, 2019, ~~and April 1, 2018,~~ Teradyne also recognized ~~$1.7~~$1.5 million and ~~$4.3~~$4.9 million, respectively, of revenues from leases of Teradyne systems, which are accounted for outside of ASC 606.

For the three and nine months ended September 30, 2018, revenues recognized in accordance with ASC 606: “

Revenue from Contracts with Customers”

were $564.5 million and $1,571.0 million, respectively. For the three and nine months ended September 30, 2018, Teradyne also recognized $2.3 million and $10.2 million, respectively, of revenues from leases of Teradyne systems, which are accounted for outside of ASC 606.

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Disaggregation of Revenue

The following table provides information about disaggregated revenue by primary geographical market, major product line and timing of revenue recognition.

For the Three Months Ended March 31, 2019
Semiconductor Test System Test Industrial
Automation Wireless
Test Corporate
and
Other Consolidated
System
on a Chip Memory Defense/
Aerospace Storage
Test Production
Board Test Universal
Robots Mobile
Industrial
Robots Energid
(in thousands)
Americas

Point in time
$ 7,977 $ 8,051 $ 14,783 $ 1,593 $ 3,254 $ 15,297 $ 3,539 $ —   $ 2,090 $ (151 ) $ 56,433
Over time
8,190 712 6,450 —   729 246 —   260 151 —   16,738
Europe, Middle East and Africa

Point in time
11,032 153 39 —   5,064 25,904 3,840 —   736 —   46,768
Over time
5,281 280 469 —   1,554 416 —   289 45 —   8,334
Asia Pacific

Point in time
219,746 35,571 263 16,605 3,636 14,178 1,727 —   24,628 —   316,354
Over time
38,913 3,280 764 2,054 920 228 —   212 1,359 —   47,730
Lease Revenue
1,667 —   —   —   43 —   —   —   32 —   1,742

Total
$ 292,806 $ 48,047 $ 22,768 $ 20,252 $ 15,200 $ 56,269 $ 9,106 $ 761 $ 29,041 $ (151 ) $ 494,099

For the Three Months Ended April 1, 2018
Semiconductor Test System Test Industrial
Automation Wireless
Test Corporate
and
Other Consolidated
System
on a Chip Memory Defense/
Aerospace Storage
Test Production
Board Test Universal
Robots Mobile
Industrial
Robots Energid
(in thousands)
Americas

Point in time
$ 9,600 $ 2,862 $ 11,597 $ 279 $ 1,760 $ 14,373 $ —   $ —   $ 4,979 $ (221 ) $ 45,229
Over time
8,791 696 6,188 —   757 89 —   —   112 —   16,633
Europe, Middle East and Africa

Point in time
12,125 139 1,497 —   4,037 22,573 —   —   1,041 —   41,412
Over time
5,214 269 551 —   1,559 143 —   —   227 —   7,963
Asia Pacific

Point in time
224,851 66,273 101 10,122 1,861 11,583 —   —   13,664 —   328,455
Over time
36,338 2,323 208 1,533 735 73 —   —   2,296 —   43,506
Lease Revenue
3,847 —   —   —   234 —   —   —   188 —   4,269

Total
$ 300,766 $ 72,562 $ 20,142 $ 11,934 $ 10,943 $ 48,834 $ —   $ —   $ 22,507 $ (221 ) $ 487,467

For the Three Months Ended September 29, 2019

Semiconductor
Test

System Test

Industrial Automation

Wireless
Test

Corporate
and Other

Consolidated

System

on
a
chip
(“SOC”)

Memory

Defense/
Aerospace

Storage
Test

Production
Board Test

Universal
Robots

M
iR

Energid

(in thousands)

Americas

Point in time
$
6,307
$
3,464
$
22,861
$
2,232
$
2,165
$
16,294
$
2,820
$
—
$
5,621
$
(160
) $
61,604

Over time

8,497

621

5,814

—

796

293

—

188

723

—

16,932

Europe, Middle East

and Africa

Point in time

6,894

274

742

—

4,354

25,557

5,011

—

1,220

—

44,052

Over time

5,189

255

469

—

1,613

459

—

615

48

—

8,648

Asia Pacific

Point in time

259,909

63,483

99

22,696

6,751

15,575

1,800

—

33,032

—

403,345

Over time

37,680

3,874

299

1,496

830

280

—

—

1,545

—

46,004

Lease Revenue

1,290

—

—

—

88

—

—

—

75

—

1,453

Total
$
325,766
$

71,971
$
30,284
$
26,424
$
16,597
$

58,458
$

9,631
$
803
$

42,264
$
(160
) $
582,038

For the Three Months Ended September 30, 2018

Semiconductor
Test

System Test

Industrial Automation

Wireless
Test

Corporate
and Other

Consolidated

SOC

Memory

Defense/
Aerospace

Storage
Test

Production
Board Test

Universal
Robots

M
iR

Energid

(in thousands)

Americas

Point in time
$
8,866
$
4,600
$
15,423
$
—
$
2,625
$
17,834
$
1,810
$
104
$
3,820
$
(272
) $
54,810

Over time

8,810

686

6,037

—

789

190

—

167

146

—

16,825

Europe, Middle East

and Africa

Point in time

9,728

2,080

161

—

3,223

26,445

2,647

—

1,504

—

45,788

Over time

5,336

301

505

—

1,510

282

—

457

318

—

8,709

Asia Pacific

Point in time

258,898

76,429

931

9,916

5,201

13,656

2,087

10

26,851

—

393,979

Over time

36,722

2,794

212

2,116

885

145

—

79

1,494

—

44,447

Lease Revenue

2,047

—

—

—

72

—

—

—

171

—

2,290

Total
$
330,407
$

86,890
$
23,269
$
12,032
$
14,305
$

58,552
$

6,544
$
817
$

34,304
$
(272
) $
566,848

For the Nine Months Ended September 29, 2019

Semiconductor
Test

System Test

Industrial Automation

Wireless
Test

Corporate
and Other

Consolidated

SOC

Memory

Defense/
Aerospace

Storage
Test

Production
Board Test

Universal
Robots

M
iR

Energid

(in thousands)

Americas

Point in time
$
21,830
$
19,574
$
54,870
$
7,528
$
6,760
$
48,529
$
9,152
$
—
$
12,961
$
(402
) $
180,802

Over time

24,862

2,056

19,116

—

2,317

793

—

1,235

1,550

—

51,929

Europe, Middle East

and Africa

Point in time

27,934

2,443

992

—

12,391

78,007

13,883

—

2,575

—

138,225

Over time

15,681

819

1,442

—

4,782

1,274

—

1,381

140

—

25,519

Asia Pacific

Point in time

727,035

143,163

525

66,974

17,235

48,284

6,208

—

91,029

—

1,100,453

Over time

113,158

10,447

1,391

5,860

2,526

786

—

221

4,146

—

138,535

Lease Revenue

4,487

—

—

—

225

—

—

—

140

—

4,852

Total
$
934,987
$
178,502
$
78,336
$
80,362
$
46,236
$
177,673
$
29,243
$
2,837
$
112,541
$
(402
) $
1,640,315

Table of Contents

The following table sets forth by fair value hierarchy Teradyne’s financial assets and liabilities that were measured at fair value on a recurring basis as of ~~March 31,~~September 29, 2019 and December 31, 2018.

   March 31, 2019
   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
   $ 222,714    $ —      $ —      $ 222,714
Cash equivalents
   186,520    74,494    —      261,014
Available-for-sale securities:

U.S. Treasury securities
   —      191,043    —      191,043
Commercial paper
   —      180,604    —      180,604
Corporate debt securities
   —      91,244    —      91,244
Certificates of deposit and time deposits
   —      11,496    —      11,496
U.S. government agency securities
   —      9,629    —      9,629
Debt mutual funds
   3,331    —      —      3,331
Non-U.S. government securities
   —      378    —      378
Equity securities:

Mutual funds
   25,289    —      —      25,289








   $ 437,854    $ 558,888    $ —      $ 996,742
Derivative assets
   —      17    —      17








Total
   $ 437,854    $ 558,905    $ —      $ 996,759








Liabilities

Contingent consideration
   $ —      $ —      $ 38,313    $ 38,313
Derivative liabilities
   —      291    —      291








Total
   $ —      $ 291    $ 38,313    $ 38,604


	September 29, 2019
	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	$	257,235	$	—	$	—	$	257,235
Cash equivalents		198,519		138,185		—		336,704
Available-for-sale securities:
U.S. Treasury securities		—		185,025		—		185,025
Commercial paper		—		117,714		—		117,714
Corporate debt securities		—		90,898		—		90,898
Certificates of deposit and time deposits		—		14,086		—		14,086
U.S. government agency securities		—		8,024		—		8,024
Debt mutual funds		3,968		—		—		3,968
Non-U.S. government securities		—		380		—		380
Equity securities:
Mutual funds		26,001		—		—		26,001

	$	485,723	$	554,312	$	—	$	1,040,035
Derivative assets		—		119		—		119

Total	$	485,723	$	554,431	$	—	$	1,040,154

Liabilities
Contingent consideration	$	—	$	—	$	18,080	$	18,080
Derivative liabilities		—		489		—		489

Total	$	—	$	489	$	18,080	$	18,569

Reported as follows:

   (Level 1)    (Level 2)    (Level 3)    Total
   (in thousands)
Assets

Cash and cash equivalents
   $ 409,234    $ 74,494    $ —      $ 483,728
Marketable securities
   —      421,088    —      421,088
Long-term marketable securities
   28,620    63,306    —      91,926
Prepayments
   —      17    —      17








Total
   $ 437,854    $ 558,905    $ —      $ 996,759








Liabilities
   .
Other current liabilities
   $ —      $ 291    $ —      $ 291
Contingent consideration
   —      —      22,803    22,803
Long-term contingent consideration
   —      —      15,510    15,510








Total
   $ —      $ 291    $ 38,313    $ 38,604


	(Level 1)		(Level 2)		(Level 3)		Total
	(in thousands)
Assets
Cash and cash equivalents	$	455,754	$	138,185	$	—	$	593,939
Marketable securities		—		342,538		—		342,538
Long-term marketable securities		29,969		73,589		—		103,558
Prepayments		—		119		—		119

Total	$	485,723	$	554,431	$	—	$	1,040,154

Liabilities
Other current liabilities	$	—	$	489	$	—	$	489
Contingent consideration		—		—		6,297		6,297
Long-term contingent consideration		—		—		11,783		11,783

Total	$	—	$	489	$	18,080	$	18,569

   December 31, 2018
   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
   $ 312,512    $ —      $ —      $ 312,512
Cash equivalents
   253,525    360,715    —      614,240
Available-for-sale securities:

U.S. Treasury securities
   —      109,721    —      109,721
Commercial paper
   —      86,117    —      86,117
Corporate debt securities
   —      40,020    —      40,020
U.S. government agency securities
   —      9,611    —      9,611
Certificates of deposit and time deposits
   —      7,604    —      7,604
Debt mutual funds
   3,187    —      —      3,187
Non-U.S. government securities
   —      376    —      376
Equity securities:

Mutual funds
   21,191    —      —      21,191








   $ 590,415    $ 614,164    $ —      $ 1,204,579
Derivative assets
   —      79    —      79








Total
   $ 590,415    $ 614,243    $ —      $ 1,204,658








Liabilities

Contingent consideration
   $ —      $ —      $ 70,543    $ 70,543
Derivative liabilities
   —      514    —      514








Total
   $ —      $ 514    $ 70,543    $ 71,057

Table of Contents


	December 31, 2018
	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	$	312,512	$	—	$	—	$	312,512
Cash equivalents		253,525		360,715		—		614,240
Available-for-sale securities:
U.S. Treasury securities		—		109,721		—		109,721
Commercial paper		—		86,117		—		86,117
Corporate debt securities		—		40,020		—		40,020
U.S. government agency securities		—		9,611		—		9,611
Certificates of deposit and time deposits		—		7,604		—		7,604
Debt mutual funds		3,187		—		—		3,187
Non-U.S. government securities		—		376		—		376
Equity securities:								—
Mutual funds		21,191		—		—		21,191

	$	590,415	$	614,164	$	—	$	1,204,579
Derivative assets		—		79		—		79

Total	$	590,415	$	614,243	$	—	$	1,204,658

Liabilities
Contingent consideration	$	—	$	—	$	70,543	$	70,543
Derivative liabilities		—		514		—		514

Total	$	—	$	514	$	70,543	$	71,057

Reported as follows:

   (Level 1)    (Level 2)    (Level 3)    Total
   (in thousands)
Assets

Cash and cash equivalents
   $ 566,037    $ 360,715    $ —      $ 926,752
Marketable securities
   —      190,096    —      190,096
Long-term marketable securities
   24,378    63,353    —      87,731
Prepayments
   —      79    —      79








Total
   $ 590,415    $ 614,243    $ —      $ 1,204,658








Liabilities

Other accrued liabilities
   $ —      $ 514    $ —      $ 514
Contingent consideration
   —      —      34,865    34,865
Long-term contingent consideration
   —      —      35,678    35,678








Total
   $ —      $ 514    $ 70,543    $ 71,057


	(Level 1)		(Level 2)		(Level 3 )		Total
	(in thousands)
Assets
Cash and cash equivalents	$	566,037	$	360,715	$	—	$	926,752
Marketable securities		—		190,096		—		190,096
Long-term marketable securities		24,378		63,353		—		87,731
Prepayments		—		79		—		79

Total	$	590,415	$	614,243	$	—	$	1,204,658

Liabilities
Other accrued liabilities	$	—	$	514	$	—	$	514
Contingent consideration		—		—		34,865		34,865
Long-term contingent consideration		—		—		35,678		35,678

Total	$	—	$	514	$	70,543	$	71,057

Table of Contents

Changes in the fair value of Level 3 contingent consideration for the three and nine months ended ~~March 31,~~September 29, 2019 and ~~April 1,~~September 30, 2018 were as follows:

   For the Three Months
Ended
   March 31,    April 1,
   2019    2018
   (in thousands)
Balance at beginning of period
   $ 70,543    $ 45,102
Foreign currency impact
   (610 )    —
Payments (a)
   (34,590 )    (24,553 )
Fair value adjustment (b)
   2,970    (4,968 )




Balance at end of period
   $ 38,313    $ 15,581


	For the Three Months Ended						For the Nine Months Ended
	September 29, 2019			September 30, 2018			September 29, 2019			September 30, 2018
	(in thousands)
Balance at beginning of period	$	26,847		$	60,914		$	70,543		$	45,102
Fair value adjustment (a)		(7,759	)		(768	)		(16,460	)		(9,236	)
Foreign currency impact		(1,008	)		796			(1,413	)		(1,770	)
Payments (b)		—			—			(34,590	)		(24,553	)
Acquisition of MiR		—			—			—			51,399

Balance at end of period	$	18,080		$	60,942		$	18,080		$	60,942

(a)

In the three and nine months ended September 29, 2019, the fair value of contingent consideration for the

earn-out

in connection with the acquisition of MiR was decreased by $7.8 million and $16.5 million, respectively, primarily due to a decrease in the forecasted revenue

, partially offset by impact from the modification, in the three months ended ~~March 31,~~September 29, 2019, of the earn-out structure

. In the three and nine months ended September 30, 2018, the fair value of contingent consideration for the

earn-out

in connection with the acquisition of Universal Robots A/S (“Universal Robots”) was decreased by $0.8 million and $9.2 million, respectively, primarily due to a decrease in forecasted revenue.

(b)

In the nine months ended September 29, 2019, Teradyne paid $30.8 million and $3.8 million of contingent consideration for the earn-outs in connection with the acquisition of MiR and Universal Robots, ~~A/S (“Universal Robots”),~~ respectively. In the ~~three~~nine months ended ~~April 1,~~September 30, 2018, Teradyne paid $24.6 million of contingent consideration for the

earn-out

in connection with the acquisition of Universal Robots.

~~(b)~~

~~In the three months ended March 31, 2019, the fair value of contingent consideration for theearn-out~~ ~~in connection with the acquisition of MiR was increased by $3.0 million. In the three months ended April 1, 2018, the fair value of contingent consideration for theearn-out~~ ~~in connection with the acquisition of Universal Robots was decreased by $5.0 million, primarily due to a decrease in forecasted revenue.~~

The following table provides quantitative information associated with the fair value measurement of Teradyne’s Level 3 financial instruments:

Liability
   March 31,
2019 Fair
Value    Valuation
Technique
Unobservable Inputs
   Weighted
Average
   (in thousands)
Contingent consideration
(MiR)
   $38,313    Monte Carlo
Simulation
   Revenue volatility    17.0%
         Discount Rate    0.4%

Liability

September 29,
2019 Fair Value

Valuation

Technique

Unobservable Inputs

Weighted

Average

(in thousands)

Contingent consideration

(MiR)

18,080

Monte Carl

imulation

Revenue volatility

15.0

Discount

ate

0.1

As of ~~March 31,~~September 29, 2019, the significant unobservable inputs used in the Monte Carlo simulation to fair value the MiR contingent consideration include forecasted revenues, revenue volatility, earnings before interest and taxes, and discount rate. Increases or decreases in the inputs would result in a higher or lower fair value measurement. As of ~~March 31,~~September 29, 2019, the maximum amount of contingent consideration that could be paid in connection with the acquisition of MiR is ~~$83.2~~$81.0 million. The remaining

earn-out

periods end on December 31, 2019 and December 31, 2020.

The carrying amounts and fair values of Teradyne’s financial instruments at ~~March 31,~~September 29, 2019 and December 31, 2018 were as follows:

   March 31, 2019    December 31, 2018
   Carrying Value    Fair Value    Carrying Value    Fair Value
   (in thousands)
Assets

Cash and cash equivalents
   $ 483,728    $ 483,728    $ 926,752    $ 926,752
Marketable securities
   513,014    513,014    277,827    277,827
Derivative assets
   17    17    79    79
Liabilities

Contingent consideration
   38,313    38,313    70,543    70,543
Derivative liabilities
   291    291    514    514
Convertible debt (1)
   383,590    644,575    379,981    547,113


	September 29, 2019				December 31, 2018
	Carrying Value		Fair Value		Carrying Value		Fair Value
	(in thousands)
Assets
Cash and cash equivalents	$	593,939	$	593,939	$	926,752	$	926,752
Marketable securities		446,096		446,096		277,827		277,827
Derivative assets		119		119		79		79
Liabilities
Contingent consideration		18,080		18,080		70,543		70,543
Derivative liabilities		489		489		514		514
Convertible debt (1)		390,942		867,388		379,981		547,113

(1)	The carrying value represents the bifurcated debt component only, while the fair value is based on quoted market prices for the convertible note, which includes the equity conversion features.

Table of Contents

The fair values of accounts receivable, net and accounts payable approximate the carrying value due to the short-term nature of these instruments.

The following table summarizes the composition of

available-for-sale

marketable securities at ~~March 31,~~September 29, 2019:

   March 31, 2019
   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
   $ 191,715    $ 144    $ (816 ) $ 191,043    $ 82,132
Commercial paper
   180,610    1    (7 ) 180,604    11,237
Corporate debt securities
   90,402    1,343    (501 ) 91,244    18,150
Certificates of deposit and time deposits
   11,497    1    (2 ) 11,496    4,419
U.S. government agency securities
   9,646    4    (21 ) 9,629    4,101
Debt mutual funds
   3,255    76    —   3,331    —
Non-U.S. government securities
   378    —      —   378    —








   $ 487,503    $ 1,569    $ (1,347 ) $ 487,725    $ 120,039


	September 29, 2019
	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	$	184,229	$	847	$	(51	)	$	185,025	$	25,814
Commercial paper		117,618		99		(3	)		117,714		30,704
Corporate debt securities		86,718		4,229		(49	)		90,898		3,079
Certificates of deposit and time deposits		14,083		3		—			14,086		—
U.S. government agency securities		8,009		17		(2	)		8,024		1,150
Debt mutual funds		3,820		148		—			3,968		—
Non-U.S. government securities		380		—		—			380		—

	$	414,857	$	5,343	$	(105	)	$	420,095	$	60,747

Reported as follows:

   Cost    Unrealized
Gain    Unrealized
(Loss) Fair Market
Value    Fair Market
Value of
Investments
with Unrealized
Losses
   (in thousands)
Marketable securities
   $ 421,024    $ 126    $ (62 ) $ 421,088    $ 91,100
Long-term marketable securities
   66,479    1,443    (1,285 ) 66,637    28,939








   $ 487,503    $ 1,569    $ (1,347 ) $ 487,725    $ 120,039


	Cost		Unrealized Gain		Unrealized (Loss)			Fair Market Value		Fair Market Value of Investments with Unrealized Losses
	(in thousands)
Marketable securities	$	342,234	$	313	$	(9	)	$	342,538	$	46,115
Long-term marketable securities		72,623		5,030		(96	)		77,557		14,632

	$	414,857	$	5,343	$	(105	)	$	420,095	$	60,747

The following table summarizes the composition of

available-for-sale

marketable securities at December 31, 2018:

   December 31, 2018
   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
   $ 110,969    $ 112    $ (1,360 ) $ 109,721    $ 75,040
Commercial paper
   86,130    13    (26 ) 86,117    85,094
Corporate debt securities
   41,133    432    (1,545 ) 40,020    24,767
U.S. government agency securities
   9,646    1    (36 ) 9,611    7,077
Certificates of deposit and time deposits
   7,604    —      —   7,604    —
Debt mutual funds
   3,153    34    —   3,187    —
Non-U.S. government securities
   376    —      —   376    —








   $ 259,011    $ 592    $ (2,967 ) $ 256,636    $ 191,978


	December 31, 2018
	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	$	110,969	$	112	$	(1,360	)	$	109,721	$	75,040
Commercial paper		86,130		13		(26	)		86,117		85,094
Corporate debt securities		41,133		432		(1,545	)		40,020		24,767
U.S. government agency securities		9,646		1		(36	)		9,611		7,077
Certificates of deposit and time deposits		7,604		—		—			7,604		—
Debt mutual funds		3,153		34		—			3,187		—
Non-U.S. government securities		376		—		—			376		—

	$	259,011	$	592	$	(2,967	)	$	256,636	$	191,978

Table of Contents

Reported as follows:

   Cost    Unrealized
Gain    Unrealized
(Loss) Fair
Market
Value    Fair Market
Value of
Investments
with Unrealized
Losses
   (in thousands)
Marketable securities
   $ 190,100    $ 88    $ (92 ) $ 190,096    $ 140,262
Long-term marketable securities
   68,911    504    (2,875 ) 66,540    51,716








   $ 259,011    $ 592    $ (2,967 ) $ 256,636    $ 191,978


	Cost		Unrealized Gain		Unrealized (Loss)			Fair Market Value		Fair Market Value of Investments with Unrealized Losses
	(in thousands)
Marketable securities	$	190,100	$	88	$	(92	)	$	190,096	$	140,262
Long-term marketable securities		68,911		504		(2,875	)		66,540		51,716

	$	259,011	$	592	$	(2,967	)	$	256,636	$	191,978

As of ~~March 31,~~September 29, 2019, the fair market value of investments in

available-for-sale

securities with unrealized losses totaled ~~$120.0~~$60.7 million. Of this value, ~~$32.9~~$4.9 million had unrealized losses of ~~$1.3~~$0.1 million for greater than one year and ~~$87.1~~$55.8 million had unrealized losses of $0.1 million for less than one year.

As of December 31, 2018, the fair market value of investments with unrealized losses totaled $192.0 million. Of this value, $28.5 million had unrealized losses of $1.6 million greater than one year and $163.5 million had unrealized losses of $1.4 million for less than one year.

Teradyne reviews its investments to identify and evaluate investments that have an indication of possible impairment. Based on this review, Teradyne determined that the unrealized losses related to these investments at ~~March 31,~~September 29, 2019 and December 31, 2018 were temporary.

The contractual maturities of investments in

available-for-sale

securities held at ~~March 31,~~September 29, 2019 were as follows:

   March 31, 2019
   Cost    Fair Market
Value
   (in thousands)
Due within one year
   $ 421,024    $ 421,088
Due after 1 year through 5 years
   9,325    9,343
Due after 5 years through 10 years
   14,026    13,659
Due after 10 years
   39,873    40,304




Total
   $ 484,248    $ 484,394


	September 29, 2019
	Cost		Fair Market Value
	(in thousands)
Due within one year	$	342,234	$	342,538
Due after 1 year through 5 years		16,609		16,718
Due after 5 years through 10 years		15,002		15,297
Due after 10 years		37,192		41,574

Total	$	411,037	$	416,127

Contractual maturities of investments in

available-for-sale

securities held at ~~March 31,~~September 29, 2019 exclude ~~$3.3~~$4.0 million of debt mutual funds as they do not have a contractual maturity date.

Derivatives

Teradyne conducts business in a number of foreign countries, with certain transactions denominated in local currencies. The purpose of Teradyne’s foreign currency management is to minimize the effect of exchange rate fluctuations on certain foreign currency denominated monetary assets and liabilities. Teradyne does not use derivative financial instruments for trading or speculative purposes.

To minimize the effect of exchange rate fluctuations associated with the remeasurement of monetary assets and liabilities denominated in foreign currencies, Teradyne enters into foreign currency forward contracts. The change in fair value of these derivatives is recorded directly in earnings, and is used to offset the change in value of monetary assets and liabilities denominated in foreign currencies.

The notional amount of foreign currency forward contracts at ~~March 31,~~September 29, 2019 and December 31, 2018 was ~~$148.8~~$114.9 million and $163.1 million, respectively.

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.

Table of Contents

The following table summarizes the fair value of derivative instruments as of ~~March 31,~~September 29, 2019 and December 31, 2018:

   Balance Sheet Location    March 31,
2019 December 31,
2018
      (in thousands)
Derivatives not designated as hedging instruments:

Foreign exchange contracts
   Prepayments    $ 17 $ 79
Foreign exchange contracts
   Other current liabilities    (291 ) (514 )


Total derivatives
      $ (274 ) $ (435 )


	Balance Sheet Location		September 29, 2019			December 31, 2018
			(in thousands)
Derivatives not designated as hedging instruments:
Foreign exchange contracts - derivative assets		Prepayments	$	119		$	79
Foreign exchange contracts - derivative liabilities		Other current liabilities		(489	)		(514	)

Total derivatives			$	(370	)	$	(435	)

The following table summarizes the effect of derivative instruments recognized in the statement of operations for the three and nine months ended ~~March 31,~~September 29, 2019 and ~~April 1,~~September 30, 2018.

Location of Losses (Gains)
Recognized in
Statement of Operations
   For the Three Months
Ended
   March 31,
2019    April 1,
2018
      (in thousands)
Derivatives not designated as hedging instruments:

Foreign exchange contracts
   Other (income) expense, net    $ 3,934    $ 1,575


	Location of Losses (Gains) Recognized in Statement of Operations	For the Three Months Ended					For the Nine Months Ended
		September 29, 2019		September 30, 2018			September 29, 2019		September 30, 2018
		(in thousands)
Derivatives not designated as hedging instruments:
Foreign exchange contracts	Other (income) expense, net	$	3,699	$	(899	)	$	7,872	$	2,502

(1)	The table does not reflect the corresponding gains and losses from the remeasurement of monetary assets and liabilities denominated in foreign currencies.

(2)

For the three months ended ~~March 31,~~September 29, 2019, ~~and April 1, 2018,~~ net gains from the remeasurement of monetary assets and liabilities denominated in foreign currencies were ~~$3.2~~$1.5 million. For the nine months ended September 29, 2019, net gains from the remeasurement of monetary assets and liabilities denominated in foreign currencies were $3.4 million.

(3)	For the three and nine months ended September 30, 2018, net losses from the remeasurement of monetary assets and liabilities denominated in foreign currencies were $3.7 million and ~~$0.6~~$1.2 million, respectively.

See Note I: “Debt” regarding derivatives related to the convertible senior notes.

H. LEASES

On January 1, 2019, Teradyne adopted ASC 842 using the modified retrospective approach. Under this method of adoption, the comparative information in the consolidated financial statements has not been revised and continues to be reported under the previously applicable lease accounting guidance (ASC 840). Adoption of ASC 842 resulted in recording ROU assets and lease liabilities of approximately $50.1 million and $54.3 million, respectively. The adoption of ASC 842 did not have a material impact on beginning retained earnings, the consolidated statement of operations, cash flows, or earnings per share.

Teradyne has facility and auto leases, which are accounted for as operating leases. Teradyne’s facility leases are primarily used for administrative functions, research and development, manufacturing, and storage and distribution. Remaining lease terms range from less than one year to ten years.

Total lease expense for the three months ended ~~March 31,~~September 29, 2019 was ~~$7.2~~$9.1 million and included ~~$1.4~~$3.0 million of variable lease costs and $0.7 million of costs related to ~~short terms~~short-term leases which are not recorded on the consolidated balance sheets.

Total lease expense for the nine months ended September 29, 2019 was $26.6 million and included $8.3 million of variable lease costs and $2.2 million of costs related to short-term leases which are not recorded on the consolidated balance sheets.

At ~~March 31,~~September 29, 2019, the weighted average remaining lease term and weighted average discount rate for operating leases was ~~4.2~~4.7 years and ~~5.1%~~5.0%, respectively.

Supplemental cash flow information related to leases was as follows:

   For the Three Months
Ended
   March 31,
2019
   (in thousands)
Cash paid for amounts included in the measurement of lease liabilities included in operating cash flows
   $ 5,059
Right-of-use assets obtained in exchange for new lease obligations
   5,737


	For the Three Months Ended		For the Nine Months Ended
	September 29, 2019		September 29, 2019
	(in thousands)
Cash paid for amounts included in the measurement of lease liabilities included in operating cash flows:	$	4,946	$	14,998
Right-of-use assets obtained in exchange for new lease obligations		8,315		23,727

Table of Contents

Maturities of lease liabilities as of ~~March 31,~~September 29, 2019 were as follows:

   Operating Leases
   (in thousands)
2019
   $ 15,375
2020
   18,967
2021
   14,514
2022
   10,262
2023
   5,719
Thereafter
   11,484


Total lease payments
   76,321
Less imputed interest
   (21,083 )


Total lease liabilities
   $ 55,238


	Operating Lease
	(in thousands)
2019	$	5,520
2020		20,368
2021		16,045
2022		11,603
2023		6,135
Thereafter		13,285

Total lease payments		72,956
Less imputed interest		(7,757	)

Total lease liabilities	$	65,199

As of December 31, 2018, future

non-cancelable

rent obligations as determined under ASC 840 were as follows:

   Operating Leases
   (in thousands)
2019
   $ 19,570
2020
   18,293
2021
   13,578
2022
   9,693
2023
   5,449
Thereafter
   9,472


Total lease payments
   $ 76,055


	Operating Lease
	(in thousands)
2019	$	19,570
2020		18,293
2021		13,578
2022		9,693
2023		5,449
Thereafter		9,472

Total lease payments	$	76,055

I. DEBT

Convertible Senior Notes

On December 12, 2016, Teradyne completed a private offering of $460.0 million aggregate principal amount of 1.25% convertible senior unsecured notes (the “Notes”) due December 15, 2023 and received net proceeds, after issuance costs, of approximately $450.8 million, $33.0 million of which was used to pay the net cost of the convertible note hedge transactions and $50.1 million of which was used to repurchase 2.0 million shares of Teradyne’s common stock under its existing stock repurchase program from purchasers of the Notes in privately negotiated transactions effected through one of the initial purchasers or its affiliates conducted concurrently with the pricing of the Note offering. The Notes will mature on December 15, 2023, unless earlier repurchased or converted. The Notes bear interest from December 12, 2016 at a rate of 1.25% per year payable

semiannually in arrears on June 15 and December 15 of each year, beginning on June 15, 2017. 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~~5 business day period after any ~~five~~5 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 conversion obligation by paying or delivering cash, shares of its common stock or a combination of cash and shares of its common stock, at Teradyne’s election. As of ~~December 31, 2018,~~September 29, 2019, the conversion price was approximately $31.70 per share of Teradyne’s common stock. The conversion rate is subject to adjustment under certain circumstances.

Concurrent with the offering of the Notes, Teradyne entered into convertible note hedge transactions (the “Note Hedge Transactions”) with the initial purchasers or their affiliates (the “Option Counterparties”). The Note Hedge Transactions cover, subject to customary anti-dilution adjustments, the number of shares of the common stock that underlie the Notes, with a strike price equal to the conversion price of the Notes of $31.70. The Note Hedge Transactions cover, subject to customary anti-dilution adjustments, approximately 14.5 million shares of Teradyne’s common stock.

Table of Contents

Separately and concurrent with the pricing of the Notes, Teradyne entered into warrant transactions with the Option Counterparties (the “Warrant Transactions”) in which it sold

net-share-settled ~~(or,~~

(or, at its election subject to certain conditions, cash-settled) warrants to the Option Counterparties. The Warrant Transactions cover, subject to customary anti-dilution adjustments, approximately 14.5 million shares of common stock. As of ~~March 31,~~September 29, 2019, the strike price of the warrants was approximately $39.78 per share. The strike price is subject to adjustment under certain circumstances. The Warrant Transactions could have a dilutive effect to Teradyne’s common stock to the extent that the market price per share of Teradyne’s common stock, as measured under the terms of the Warrant Transactions, exceeds the applicable strike price of the warrants.

The Note Hedge Transactions are expected to reduce the potential dilution to Teradyne’s common stock upon any conversion of the Notes. However, the Warrant Transactions could separately have a dilutive effect to the extent that the market value per share of Teradyne’s common stock exceeds the applicable strike price of the warrant. The net cost of the Note Hedge Transactions, after being partially offset by the proceeds from the sale of the warrants, was approximately $33.0 million.

In connection with establishing their initial hedge of these convertible note hedge and warrant transactions, the Option Counterparties have entered into various derivative transactions with respect to Teradyne’s common stock and/or purchased shares of Teradyne’s common stock or other securities, including the Notes, concurrent with, or shortly after, the pricing of the Notes. In addition, the Option Counterparties may modify their hedge positions by entering into or unwinding various derivative transactions with respect to Teradyne’s common stock or by selling Teradyne’s common stock or other securities, including the Notes, in secondary market transactions (and may do so during any observation period related to the conversion of the Notes). These activities could adversely affect the value of Teradyne’s common stock and the Notes.

Teradyne considered the guidance of ASC

815-40,

“Derivatives and Hedging—Contracts in Entity’s Own Equity,”

and concluded that the convertible note hedge is both indexed to Teradyne’s common stock and should be classified in stockholders’ equity in its statements of financial position. The convertible note hedge is

considered indexed to Teradyne’s common 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 common stock.

Teradyne assessed whether the convertible note hedge should be classified as equity under ASC

815-40.

In the Note Hedge Transactions contract the settlement terms permit net cash settlement or net share settlement, at the option of Teradyne. Therefore, the criteria as set forth in ASC

815-40

were evaluated by Teradyne. In reviewing the criteria, Teradyne noted the following: (1) the convertible note hedge does not require Teradyne to issue shares; (2) there is no requirement to net cash settle the convertible note hedge for failure to make timely filings with the SEC; (3) in the case of termination, the convertible note hedge is settled in the same consideration as the holders of the underlying stock; (4) the counterparty does not have rights that rank higher than those of a shareholder of the stock underlying the convertible note hedge; and (5) there is no requirement to post collateral. Based on its analysis of those criteria, Teradyne concluded that the convertible note hedge should be recorded in equity and no further adjustment should be made in future periods to adjust the value of the convertible note hedge.

Teradyne analyzed the Warrant Transactions under ASC

815-40,

“Derivatives and Hedging—Contracts in Entity’s Own Equity,”

and other relevant literature, and determined that it met the criteria for classification as an equity transaction and is considered indexed to Teradyne’s common stock. As a result, Teradyne recorded the proceeds from the warrants as an increase to additional

paid-in

capital. Teradyne does not recognize subsequent changes in fair value of the warrants in its financial statements.

The provisions of ASC

470-20,

“

Debt with Conversion and Other Options,

” are applicable to the Notes. ASC

470-20

requires Teradyne to separately account for the liability (debt) and equity (conversion feature) components of the Notes in a manner that reflects Teradyne’s nonconvertible debt borrowing rate at the date of issuance when interest cost is recognized in subsequent periods. Teradyne allocated $100.8 million of the $460.0 million principal amount of the Notes to the equity component, which represents a discount to the debt and will be amortized to interest expense using the effective interest method through December 2023. Accordingly, Teradyne’s effective annual interest rate on the Notes will be approximately 5.0%. The Notes are classified as long-term debt in the balance sheet based on their December 15, 2023 maturity date. Debt issuance costs of approximately $7.2 million are being amortized to interest expense using the effective interest method over the ~~seven year~~seven-year term of the Notes. As of ~~March 31,~~September 29, 2019, debt issuance costs were approximately ~~$5.1~~$4.6 million.

Table of Contents

The below tables represent the key components of Teradyne’s convertible senior notes:

   March 31,
2019    December 31,
2018
   (in thousands)
Debt Principal
   $ 460,000    $ 460,000
Unamortized discount
   76,410    80,019




Net Carrying amount of convertible debt
   $ 383,590    $ 379,981

   For the Three Months
Ended
   March 31,
2019    April 1,
2018
   (in thousands)
Contractual interest expense on the coupon
   $ 1,438    $ 1,438
Amortization of the discount component recognized as interest expense
   3,608    3,434




Total interest expense on the convertible debt
   $ 5,046    $ 4,872


	September 29, 2019		December 31, 2018
	(in thousands)
Debt Principal	$	460,000	$	460,000
Unamortized discount		69,058		80,019

Net Carrying amount of convertible debt	$	390,942	$	379,981


	For the Three Months Ended				For the Nine Months Ended
	September 29, 2019		September 30, 2018		September 29, 2019		September 30, 2018
	(in thousands)
Contractual interest expense on the coupon	$	1,438	$	1,438	$	4,313	$	4,313
Amortization of the discount component recognized as interest expense		3,699		3,520		10,961		10,431

Total interest expense on the convertible debt	$	5,137	$	4,958	$	15,274	$	14,744

As of ~~March 31,~~September 29, 2019, the remaining unamortized discount was ~~$76.4~~$69.1 million, which will be amortized over ~~4.7~~4.3 years using the effective interest rate method. The carrying amount of the equity component was $100.8 million. As of ~~March 31,~~September 29, 2019, the

if-converted

value of the Notes was ~~$578.1~~$832.9 million.

Revolving Credit Facility

On ~~April~~June 27, ~~2015,~~2019, Teradyne terminated its credit agreement, which Teradyne entered into ~~a Credit Agreement (the “Credit Agreement”)~~ with Barclays Bank PLC, ~~as administrative agent and collateral agent, and the lenders party thereto.~~on April 27, 2015. The ~~Credit Agreement provides~~terminated credit agreement provided for a five-year, senior secured revolving credit facility of up to $350 million (the “Credit Facility”). The Credit Agreement further provides that, subject to customary conditions, Teradyne may seek to obtain from existing or new lenders incremental commitments under the Credit Facility in an aggregate principal amount not to exceed $150 million.

Proceeds from the Credit Facility may be used for general corporate purposes and working capital. Teradyne incurred $2.3 million in costs related to the revolving credit facility. These costs are being amortized over the five-year term of the revolving credit facility and are included in interest expense in the statements of operations. As of May 10, 2019, Teradyne has not borrowed any funds under the Credit Facility.

The interest rates 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% per annum or LIBOR plus a margin ranging from 1.00% to 2.00% per annum, based on the Consolidated Leverage Ratio of Teradyne and its Restricted Subsidiaries. In addition, Teradyne will pay a commitment fee on the unused portion of the commitments under the Credit Facility ranging from 0.125% to 0.350% per annum, based on the then applicable Consolidated Leverage Ratio.

Teradyne is not required to repay any loans under the Credit Facility prior to maturity, subject to certain customary exceptions. Teradyne is permitted to prepay all or any portion of the loans under the Credit Facility prior to maturity without premium or penalty, other than customary LIBOR breakage costs.

The Credit Agreement contains customary events of default, representations, warranties and affirmative and negative covenants that, among other things, limit Teradyne’s and its Restricted Subsidiaries’ ability to sell assets, grant liens on assets, incur other secured indebtedness and make certain investments and restricted payments, all subject to exceptions set forth in the Credit Agreement. The Credit Agreement also requires Teradyne to satisfy two financial ratios measured as of the end of each fiscal quarter: a consolidated leverage ratio and an interest coverage ratio. As of May 10, 2019, Teradyne was in compliance with all covenants.

The Credit Facility is guaranteed by certain of Teradyne’s domestic subsidiaries and collateralized by assets of Teradyne and such subsidiaries, including a pledge of 65% of the capital stock of certain foreign subsidiaries.

J. PREPAYMENTS

Prepayments consist of the following and are included in prepayments and other assets on the balance sheet:

   March 31,
2019    December 31,
2018
   (in thousands)
Contract manufacturer and supplier prepayments
   $ 147,015    $ 131,642
Prepaid taxes
   13,404    9,646
Prepaid maintenance and other services
   7,703    8,487
Other prepayments
   16,111    12,744




Total prepayments
   $ 184,233    $ 162,519


	September 29, 2019		December 31, 2018
	(in thousands)
Contract manufacturer and supplier prepayments	$	136,470	$	131,642
Prepaid taxes		9,754		9,646
Prepaid maintenance and other services		8,310		8,487
Other prepayments		17,180		12,744

Total prepayments	$	171,714	$	162,519

K. 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:

   March 31,
2019    December 31,
2018
   (in thousands)
Maintenance and training
   $ 58,394    $ 58,362
Extended warranty
   27,242    27,422
Customer advances, undelivered performance obligations and other
   31,971    24,677




Total deferred revenue and customer advances
   $ 117,607    $ 110,461


	September 29, 2019		December 31, 2018
	(in thousands)
Maintenance and training	$	61,048	$	58,362
Extended warranty		29,937		27,422
Customer advances, undelivered performance obligations and other		47,543		24,677

Total deferred revenue and customer advances	$	138,528	$	110,461

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L. PRODUCT WARRANTY

Teradyne generally provides a

one-year

warranty on its products, commencing upon installation, acceptance, delivery or shipment. A provision is recorded upon revenue recognition to cost of revenues for estimated warranty expense based on historical experience. Related costs are charged to the warranty accrual as incurred. The warranty balance below is included in other accrued liabilities on the balance sheet.

   For the Three Months
Ended
   March 31,
2019    April 1,
2018
   (in thousands)
Balance at beginning of period
   $ 7,909    $ 8,200
Acquisition
   14    —
Accruals for warranties issued during the period
   3,066    3,063
Accruals related topre-existing warranties
   1,330    (139 )
Settlements made during the period
   (4,567 )    (3,576 )




Balance at end of period
   $ 7,752    $ 7,548


	For the Three Months Ended						For the Nine Months Ended
	September 29,			September 30,			September 29,			September 30,
	2019			2018			2019			2018
	(in thousands)
Balance at beginning of period	$	8,133		$	7,136		$	7,909		$	8,200
Acquisition		—			—			14			41
Accruals for warranties issued during the period		3,508			2,760			10,008			9,171
Accruals related to pre-existing warranties		1,132			282			3,156			109
Settlements made during the period		(4,265	)		(2,675	)		(12,579	)		(10,018	)

Balance at end of period	$	8,508		$	7,503		$	8,508		$	7,503

When Teradyne receives revenue for extended warranties, beyond one year, it is deferred and recognized on a straight-line basis over the contract period. Related costs are expensed as incurred. The balance below is included in short and long-term deferred revenue and customer advances on the balance sheet.

   For the Three Months
Ended
   March 31,
2019    April 1,
2018
   (in thousands)
Balance at beginning of period
   $ 27,422    $ 24,438
Deferral of new extended warranty revenue
   5,820    5,139
Recognition of extended warranty deferred revenue
   (6,000 )    (4,987 )




Balance at end of period
   $ 27,242    $ 24,590


	For the Three Months Ended						For the Nine Months Ended
	September 29, 2019			September 30, 2018			September 29, 2019			September 30, 2018
	(in thousands)
Balance at beginning of period	$	28,716		$	25,971		$	27,422		$	24,438
Deferral of new extended warranty revenue		5,666			7,232			16,962			19,072
Recognition of extended warranty deferred revenue		(4,445	)		(5,586	)		(14,447	)		(15,893	)

Balance at end of period	$	29,937		$	27,617		$	29,937		$	27,617

M. STOCK-BASED COMPENSATION

July 17, 2019 (the “Retirement Date”), former Chief Financial Officer Gregory Beecher retired as Vice President and Senior Advisor of Teradyne, and Teradyne entered into an agreement (the “Retirement Agreement”) with Mr.

Beecher. Under the Retirement Agreement, Mr.

Beecher’s

unvested time-based restricted stock units and stock options granted prior to 2019 were modified to allow continued vesting; unvested time-based restricted stock units and stock options granted in 2019 were modified to allow continued vesting through January 31, 2023 (the “Non-Competition Period”) in a pro-rated amount based on the number of days that Mr. Beecher was employed during 2019; unvested, performance-based restricted stock units awarded in 2019 will vest on the date the amount of shares underlying the performance-based restricted stock units are determined in a pro-rated amount of shares based on the number of days that Mr. Beecher was employed during 2019; vested options or options that vest during the Non-Competition Period may be exercised for the remainder of the applicable option term.

During the three and nine months ended September 29, 2019, Teradyne recorded a stock based compensation expense of $2.1 million related to the Retirement Agreement

Under Teradyne’s stock compensation plans, Teradyne grants stock options, restricted stock units and performance-based restricted stock units, and employees are eligible to purchase Teradyne’s common stock through its Employee Stock Purchase Plan (“ESPP”).

Time-based restricted stock unit awards granted to employees vest in equal annual installments over four years. Restricted stock unit awards granted to

non-employee

directors vest after a ~~one year~~one-year period, with 100% of the award vesting on the earlier of (a) the first anniversary of the grant date or (b) the date of the following year’s Annual Meeting of Shareholders. Teradyne expenses the cost of the restricted stock unit awards subject to time-based vesting, which is determined to be the fair market value of the shares at the date of grant, ratably over the period during which the restrictions lapse.

~~Teradyne grants performance-based~~

Performance-based restricted stock units (“PRSUs”) granted to ~~its~~Teradyne’s executive officers ~~with~~have a performance metric based on relative total shareholder return (“TSR”). Teradyne’s ~~three-year~~

three-year

TSR performance is measured against the New York Stock Exchange (“NYSE”) Composite Index. The final number of TSR PRSUs that vest will vary based upon the level of performance achieved from 200% to 0% of the target shares capped at four times the grant date value. The TSR PRSUs will vest upon the three-year anniversary of the grant date. The TSR PRSUs are valued using a Monte Carlo simulation model. The number of units expected to be earned, based upon the achievement of the TSR market condition, is factored into the grant date Monte Carlo valuation.

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Compensation expense is recognized on a straight-line basis over the shorter of the three-year service period or the period from the grant to the date described in the retirement provisions below. Compensation expense for employees meeting the retirement provisions prior to the grant date will be recognized in full on the date of 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~~

During the nine months ended September 29, 2019 and September 30, 2018, Teradyne granted PRSUs to its executive officers with a performance metric based on three-year cumulative

non-GAAP

profit before interest and tax (“PBIT”) as a percent of Teradyne’s revenue.

Non-GAAP

PBIT is a financial measure equal to GAAP income from operations less restructuring and other, net; amortization of acquired intangible assets; acquisition and divestiture related charges or credits; pension actuarial gains and losses;

non-cash

convertible debt interest expense; and other

non-recurring

gains and charges. The final number of PBIT PRSUs that vest will vary based upon the level of performance achieved from ~~200%~~

200

% to 0%

% of the target shares. The PBIT PRSUs will vest upon the three-year anniversary of the grant date. Compensation expense is recognized on a straight-line basis over the shorter of the ~~three year~~

three-year

service period or the period from the grant date to the date described in the retirement provisions below. Compensation expense for employees meeting the retirement provisions prior to the grant date will be recognized in full on the date of grant. Compensation expense is recognized based on the number of units that are earned based upon the three-year Teradyne PBIT as a percent of Teradyne’s revenue, provided the executive officer remains an employee at the end of the three-year period subject to the retirement and termination eligibility provisions noted below.

If a PRSU recipient’s employment ends prior to the determination of the performance percentage due to (1) permanent disability or death or (2) retirement or termination other than for cause, after attaining both at least age sixty and at least ten years of service, then all or a portion of the recipient’s PRSUs (based on the actual performance percentage achieved on the determination date) will vest on the date the performance percentage is determined. Except as set forth in the preceding sentence, no PRSUs will vest if the executive officer is no longer an employee at the end of the three-year period.

During the ~~three~~nine months ended ~~March 31,~~September 29, 2019 and ~~April 1,~~September 30, 2018, Teradyne granted 0.1 million and 0.1 million TSR PRSUs, respectively, with a grant date fair value of ~~$48.47~~$51.51 and $54.85, respectively.

The fair value was estimated using the Monte Carlo simulation model with the following assumptions:

   For the Three Months
Ended
   March 31,
2019 April 1,
2018
Risk-free interest rate
   2.6 % 2.2 %
Teradyne volatility-historical
   31.8 % 26.8 %
NYSE Composite Index volatility-historical
   12.0 % 12.4 %
Dividend yield
   1.0 % 0.8 %


	For the Nine Months Ended
	September 29, 2019			September 30, 2018
Risk-free interest rate		2.6	%		2.2	%
Teradyne volatility-historical		31.9	%		26.8	%
NYSE Composite Index volatility-historical		11.9	%		12.4	%
Dividend yield		1.0	%		0.8	%

Expected volatility was based on the historical volatility of Teradyne’s stock and the NYSE Composite Index for each of the 2019 and 2018 ~~grant~~grants over the most recent three-year period. The risk-free interest rate was determined using the U.S. Treasury yield curve in effect at the time of ~~grant.~~each of the grants. Dividend yield was based upon an estimated annual dividend amount of $0.36 per share, ~~for 2019 grants and 2018 grants,~~ divided by Teradyne’s stock price on the grant date of ~~$36.75~~$37.95 for

the

2019 ~~grant~~grants and $47.70 for the 2018 ~~grant.~~

grant

During the ~~three~~nine months ended ~~March 31,~~September 29, 2019 and ~~April 1,~~September 30, 2018, Teradyne granted 0.1 million and 0.1 million, respectively, of PBIT PRSUs with a grant date fair value of ~~$35.67~~$36.88 and $46.62, respectively.

During the ~~three~~nine months ended ~~March 31,~~September 29, 2019, Teradyne granted 0.7 million of service-based restricted stock unit awards to employees at a weighted average grant date fair value of $36.85, 0.1 million of service-based restricted stock unit awards to

non-employee

directors at a weighted average grant date fair value of $48.03

and 0.1 million of service-based stock options to executive officers at a weighted average grant date fair value of $10.61.

During the nine months ended September 30, 2018, Teradyne granted 0.6 million of service-based restricted stock unit awards to employees at a weighted average grant date fair value of ~~$35.88~~$46.25, 0.1 million of service-based restricted stock unit awards to

non-employee

directors at a weighted average grant date fair value of $35.81, and 0.1 million of service-based stock options to executive officers at a weighted average grant date fair value of ~~$10.26.~~

During the three months ended April 1, 2018, Teradyne granted 0.5 million of service-based restricted stock unit awards to employees at a weighted average grant date fair value of $46.58 and 0.1 million of service-based stock options to executive officers at a weighted average grant date fair value of $12.17.

Restricted stock unit awards granted to employees vest in equal annual installments over four years. 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.

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The fair value of stock options was estimated using the Black-Scholes option-pricing model with the following assumptions:

   For the Three Months
Ended
   March 31,
2019 April 1,
2018
Expected life (years)
   5.0 5.0
Risk-free interest rate
   2.6 % 2.4 %
Volatility-historical
   30.1 % 26.4 %
Dividend yield
   1.0 % 0.8 %


	For the Nine Months Ended
	September 29, 2019			September 30, 2018
Expected life (years)		5.0			5.0
Risk-free interest rate		2.5	%		2.4	%
Volatility-historical		30.1	%		26.4	%
Dividend yield		1.0	%		0.8	%

Teradyne determined the stock options’ expected life based upon historical exercise data for executive officers, the age of the executive officers and the terms of the stock option grant. Volatility was determined using historical volatility for a period equal to the expected life. The risk-free interest rate was determined using the U.S. Treasury yield curve in effect at the time of grant. Dividend yield was based upon an estimated annual dividend amount of $0.36 per share ~~for 2019 and 2018 grants~~ divided by Teradyne’s stock price on the grant date of ~~$36.75~~$37.95 for

the

2019 ~~grant~~grants and $47.70 for the 2018 ~~grant.~~

grant

N. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

Changes in accumulated other comprehensive income (loss), which are presented net of tax, consist of the following:

   Foreign
Currency
Translation
Adjustment Unrealized
Gains
(Losses) on
Marketable
Securities Retirement
Plans Prior
Service
Credit Total
   (in thousands)
Three Months Ended March 31, 2019

Balance at December 31, 2018, net of tax of $0, $(521), $(1,081), respectively
   $ (12,523 ) $ (1,845 ) $ 1,328 $ (13,040 )
Other comprehensive income before reclassifications, net of tax of $0, $577, $0, respectively
   (4,659 ) 2,100 —   (2,559 )
Amounts reclassified from accumulated other comprehensive income, net of tax of $0, $(20), $(11), respectively
   —   (70 ) (37 ) (107 )


Net current period other comprehensive income (loss), net of tax of $0, $557, $(11), respectively
   (4,659 ) 2,030 (37 ) (2,666 )


Balance at March 31, 2019, net of tax of $0, $36, $(1,092), respectively
   $ (17,182 ) $ 185 $ 1,291 $ (15,706 )

   Foreign
Currency
Translation
Adjustments    Unrealized
Gains
(Losses) on
Marketable
Securities Retirement
Plans Prior
Service
Credit Total
   (in thousands)
Three Months Ended April 1, 2018

Balance at December 31, 2017, net of tax of $0, $1,815, $(932), respectively
   $ 15,919    $ 1,362 $ 1,495 $ 18,776
Other comprehensive income (loss) before reclassifications, net of tax of $0, $(718), $0, respectively
   10,541    (2,687 ) —   7,854
Amounts reclassified from accumulated other comprehensive income, net of tax of $0, $78, $(18), respectively
   —      1,668 (61 ) 1,607




Net current period other comprehensive income (loss), net of tax of $0, $(640), $(18), respectively
   10,541    (1,019 ) (61 ) 9,461
Reclassification of income tax effects from the Tax Reform Act, net of tax of $0, $(691), $(78), respectively (a)
   —      691 78 769
Reclassification of unrealized gains on equity securities, net of tax of $0, $(902), $0, respectively (b)
   —      (3,125 ) —   (3,125 )




Balance as April 1, 2018, net of tax of $0, $(418), $(1,028), respectively
   $ 26,460    $ (2,091 ) $ 1,512 $ 25,881

~~(a)~~

~~In the three months ended April 1, 2018, Teradyne early adopted the ASU2018-02,~~~~“Income Statement—Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income.”~~ ~~As a result, the stranded tax effects resulting from the Tax Reform Act enacted in December 2017 were reclassified from accumulated other comprehensive income to retained earnings.~~

~~(b)~~

~~In the three months ended April 1, 2018, Teradyne adopted the ASU2016-01,~~ “~~Financial Instruments—Overall (Subtopic825-10):~~ ~~Recognition and Measurement of Financial Assets and Financial Liabilities.”~~


	Foreign Currency Translation Adjustment			Unrealized Gains (Losses) on Marketable Securities			Retirement Plans Prior Service Credit			Total
	(in thousands)
Nine Months Ended September 29, 2019
Balance at December 31, 2018, net of tax of $0, $(521), $(1,081), respectively	$	(12,523	)	$	(1,845	)	$	1,328		$	(13,040	)
Other comprehensive loss before reclassifications, net of tax of $0, $1,762, $0, respectively		(17,019	)		6,391			—			(10,628	)
Amounts reclassified from accumulated other comprehensive income, net of tax of $0, $( 125 ), $(32), respectively		—			(442	)		(111	)		(553	)

Net current period other comprehensive income (loss), net of tax of $0, $1,637, $(32), respectively		(17,019	)		5,949			(111	)		(11,181	)

Balance at September 29, 2019, net of tax of $0, $1,116, $(1,113), respectively	$	(29,542	)	$	4,104		$	1,217		$	(24,221	)


	Foreign Currency Translation Adjustments			Unrealized Gains (Losses) on Marketable Securities			Retirement Plans Prior Service Credit			Total
	(in thousands)
Nine Months Ended September 30, 2018
Balance at December 31, 2017, net of tax of $0, $1,815, $(932), respectively	$	15,919		$	1,362		$	1,495		$	18,776
Other comprehensive income (loss) before reclassifications, net of tax of $0, $(806), $0, respectively		(11,568	)		(2,555	)		—			(14,123	)
Amounts reclassified from accumulated other comprehensive income, net of tax of $0, $(6), $(53), respectively		—			1,411			(184	)		1,227

Net current period other comprehensive income (loss), net of tax of $0, $(812), $(53), respectively		(11,568	)		(1,144	)		(184	)		(12,896	)
Reclassification of income tax effects from the Tax Reform Act, net of tax of $0, $(691), $(78), respectively		—			691			78			769
Reclassification of unrealized gains on equity securities, net of tax of $0, $(902), $0, respectively		—			(3,125	)		—			(3,125	)

Balance a t September 30, 2018, net of tax of $0, $(590), $(1,063), respectively	$	4,351		$	(2,216	)	$	1,389		$	3,524

O. GOODWILL AND ACQUIRED INTANGIBLE ASSETS

Goodwill

Teradyne performs its annual goodwill impairment test as required under the provisions of ASC

350-10,

“Intangibles—Goodwill and Other”

on December 31 of each fiscal year unless interim indicators of impairment exist. Goodwill is considered impaired when the net book value of a reporting unit exceeds its estimated fair value.

The changes in the carrying amount of goodwill by reportable segments for the ~~three~~nine months ended ~~March 31,~~September 29, 2019 were as follows:

   Industrial
Automation System
Test Wireless
Test Semiconductor
Test Total
   (in thousands)
Balance at December 31, 2018

Goodwill
   $ 363,358 $ 158,699 $ 361,819 $ 260,540 $ 1,144,416
Accumulated impairment losses
   —   (148,183 ) (353,843 ) (260,540 ) (762,566 )


   363,358 10,516 7,976 —   381,850
Lemsys acquisition
   —   —   —   1,145 1,145
Foreign currency translation adjustment
   (3,494 ) —   —   12 (3,482 )


Balance at March 31, 2019

Goodwill
   359,864 158,699 361,819 261,697 1,142,079
Accumulated impairment losses
   —   (148,183 ) (353,843 ) (260,540 ) (762,566 )


   $ 359,864 $ 10,516 $ 7,976 $ 1,157 $ 379,513

Industrial
Automation

System
Test

Wireless
Test

Semiconductor
Test

Total

(in thousands)

Balance at December 31, 2018

Goodwill
$
363,358
$
158,699
$
361,819
$
260,540
$
1,144,416

Accumulated impairment losses

—

(148,183
)
(353,843
)
(260,540
)
(762,566
)

363,358

10,516

7,976

—

381,850

Lemsys acquisition

—

—

—

1,428

1,428

Foreign currency translation adjustment

(12,572
)
—

—

11

(12,561
)

Balance at September 29, 2019

Goodwill

350,786

158,699

361,819

261,979

1,133,283

Accumulated impairment losses

—

(148,183
)
(353,843
)
(260,540
)
(762,566
)

$
350,786
$
10,516
$
7,976
$
1,439
$
370,717

Intangible Assets

Teradyne reviews long-lived assets for impairment whenever events or changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverable or that the useful lives of these assets are no longer appropriate.

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Amortizable intangible assets consist of the following and are included in intangible assets, net on the balance sheet:

   March 31, 2019
   Gross
Carrying
Amount (1)    Accumulated
Amortization    Foreign
Currency
Translation
Adjustment    Net
Carrying
Amount
   (in thousands)
Developed technology
   $ 337,218    $ (259,129 )    $ (4,812 )    $ 73,277
Customer relationships
   100,743    (85,469 )    (408 )    14,866
Tradenames and trademarks
   64,670    (32,897 )    (973 )    30,800
Non-compete agreement
   320    (320 )    —      —
Backlog
   780    (349 )    (2 )    429








Total intangible assets
   $ 503,731    $ (378,164 )    $ (6,195 )    $ 119,372

   December 31, 2018
   Gross
Carrying
Amount    Accumulated
Amortization    Foreign
Currency
Translation
Adjustment    Net
Carrying
Amount
   (in thousands)
Developed technology
   $ 336,308    $ (252,080 )    $ (4,079 )    $ 80,149
Customer relationships
   97,153    (83,448 )    (340 )    13,365
Tradenames and trademarks
   64,420    (31,653 )    (799 )    31,968
Non-compete agreement
   320    (320 )    —      —
Backlog
   30    (30 )    —      —








Total intangible assets
   $ 498,231    $ (367,531 )    $ (5,218 )    $ 125,482


	September 29, 2019
	Gross Carrying Amount (1) (2)		Accumulated Amortization (2)			Foreign Currency Translation Adjustment			Net Carrying Amount
	(in thousands)
Developed technology	$	337,198	$	(272,317	)	$	(6,461	)	$	58,420
Customer relationships		100,313		(89,540	)		(562	)		10,211
Tradenames and trademarks		64,670		(35,368	)		(1,360	)		27,942

Total intangible assets	$	502,181	$	(397,225	)	$	(8,383	)	$	96,573


	December 31, 2018
	Gross Carrying Amount		Accumulated Amortization			Foreign Currency Translation Adjustment			Net Carrying Amount
	(in thousands)
Developed technology	$	336,308	$	(252,080	)	$	(4,079	)	$	80,149
Customer relationships		97,153		(83,448	)		(340	)		13,365
Tradenames and trademarks		64,420		(31,653	)		(799	)		31,968
Non-compete agreement		320		(320	)		—			—
Backlog		30		(30	)		—			—

Total intangible assets	$	498,231	$	(367,531	)	$	(5,218	)	$	125,482

(1)	~~Includes $5.5~~$4.6 million of intangible assets from Lemsys ~~acquisition.~~ acquisition have been added in January 2019 .

(2)	$0.7 million of amortizable intangible assets became fully amortized and have been removed from the gross carrying amount and accumulated amortization.

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P. NET INCOME PER COMMON SHARE

The following table sets forth the computation of basic and diluted net income per common share:

   For the Three Months
Ended
   March 31,
2019    April 1,
2018
   (in thousands, except per share amounts)
Net income for basic and diluted net income per share
   $ 109,138    $ 86,974




Weighted average common shares-basic
   173,532    195,255
Effect of dilutive potential common shares:

Incremental shares from assumed conversion of convertible notes (1)
   2,186    4,398
Convertible note hedge warrant shares (2)
   —      1,830
Restricted stock units
   1,021    1,666
Stock options
   222    321
Employee stock purchase plan
   11    14




Dilutive potential common shares
   3,440    8,229




Weighted average common shares-diluted
   176,972    203,484




Net income per common share-basic
   $ 0.63    $ 0.45




Net income per common share-diluted
   $ 0.62    $ 0.43


	For the Three Months Ended				For the Nine Months Ended
	September 29, 2019		September 30, 2018		September 29, 2019		September 30, 2018
	(in thousands, except per share amounts)
Net income for basic and diluted net income per share	$	135,860	$	119,981	$	342,395	$	307,991
Weighted average common shares-basic		169,641		185,744		171,471		190,576
Effect of dilutive potential common shares:
Incremental shares from assumed conversion of convertible notes (1)		5,800		3,025		4,117		3,356
Convertible note hedge warrant shares (2)		3,580		108		1,786		646
Restricted stock units		1,313		1,331		1,112		1,406
Stock options		155		275		186		290
Employee stock purchase plan		5		22		13		26

Dilutive potential common shares		10,853		4,761		7,214		5,724

Weighted average common shares-diluted		180,494		190,505		178,685		196,300

Net income per common share-basic	$	0.80	$	0.65	$	2.00	$	1.62

Net income per common share-diluted	$	0.75	$	0.63	$	1.92	$	1.57

(1)

Incremental shares from assumed conversion of the convertible notes ~~was~~were calculated using the difference between the average Teradyne stock price for the period and the conversion price of $31.70, multiplied by 14.5 million shares. The result of this calculation, representing the total intrinsic value of the convertible debt, was divided by the average Teradyne stock price for the period.

(2)

Convertible ~~notes~~note hedge warrant shares were calculated using the difference between the average Teradyne stock price for the period and the warrant price of $39.78, multiplied by 14.5 million shares. The result of this calculation, representing the total intrinsic value of the warrant, was divided by the average Teradyne stock price for the period.

The computation of diluted net income per common share for the three and nine months ended ~~March 31,~~September 29, 2019 excludes the effect of the potential vesting of ~~0.6~~0.1 million of stock options

because the effect would have been anti-dilutive.

The computation of diluted net income per share for the nine months ended September 29, 2019 excludes the effect of the potential vesting of 0.2 million of restricted stock units because the effect would have been anti-dilutive.

The computation of diluted net income per common share for the three and nine months ended ~~April 1,~~September 30, 2018 excludes the effect of the potential vesting of ~~0.4~~0.5 million shares of restricted stock units because the effect would have been anti-dilutive.

Q. RESTRUCTURING AND OTHER

During the three months ended ~~March 31,~~September 29, 2019, Teradyne recorded ~~an expense of $3.0~~a $7.8 million

gain

for the ~~increase~~decrease in the fair value of the MiR contingent consideration liability, ~~$1.3~~partially offset by $0.5 million of recorded for

employee

severance charges primarily in

Industrial Automation,

$0.5 million f

acquisition related compensation and expenses

, and ~~$0.8~~$0.3 million of ~~severance charges related to headcount reductions primarily~~fixed assets impairment in ~~Semiconductor Test.~~

Wireless Test

R. RETIREMENT PLANS

ASC 715,

“Compensation—Retirement ~~Benefits”~~Benefits

”

requires an employer with a defined benefit plan or other postretirement benefit plan to recognize an asset or a liability on its balance sheet for the overfunded or underfunded status of the plan. The pension asset or liability represents a difference between the fair value of the pension plan’s assets and the projected benefit obligation.

Defined Benefit Pension Plans

Teradyne has defined benefit pension plans covering a portion of domestic employees and employees of certain

non-U.S.

subsidiaries. Benefits under these plans are based on employees’ years of service and compensation. Teradyne’s funding policy is to make contributions to these plans in accordance with local laws and to the extent that such contributions are tax deductible. The assets of the U.S. qualified pension plan consist primarily of fixed income and equity securities. In addition, Teradyne has unfunded qualified foreign plans as well as an unfunded supplemental executive defined benefit plan in the United States to provide retirement benefits in excess of levels allowed by the Employment Retirement Income Security Act (“ERISA”) and the Internal Revenue Code (“IRC”).

In the ~~three~~nine months ended ~~March 31,~~September 29, 2019, Teradyne contributed ~~$0.7~~$2.1 million to the U.S. supplemental executive defined benefit pension plan and ~~$0.2~~$0.6 million to certain qualified pension plans for

non-U.S.

subsidiaries.

For the three and nine months ended ~~March 31,~~September 29, 2019 and ~~April 1,~~September 30, 2018, Teradyne’s net periodic pension cost was comprised of the following:

   For the Three Months Ended
   March 31, 2019    April 1, 2018
   United
States    Foreign    United
States    Foreign
   (in thousands)
Service cost
   $ 405    $ 188    $ 571    $ 213
Interest cost
   1,795    173    2,997    186
Expected return on plan assets
   (1,511 )    (7 )    (3,369 )    (5 )
Amortization of prior service cost
   —      —      14    —








Total net periodic pension cost
   $ 689    $ 354    $ 213    $ 394

For the Three Months Ended

September

29,

2019

September 30, 2018

United
States

Foreign

United
States

Foreign

(in thousands)

Service cost
$
402
$
183
$
538
$
203

Interest cost

1,797

168

1,750

177

Expected return on plan assets

(1,510
)
(7
)
(1,551
)
(5
)
Amortization of prior service cost

—

—

14

—

Settlement loss

—

—

267

—

Total net periodic pension cost
$
689
$
344
$
1,018
$
375

For the Nine Months Ended

September 29, 2019

September 30, 2018

United
States

Foreign

United
States

Foreign

(in thousands)

Service cost
$
1,206
$
550
$
1,657
$
609

Interest cost

5,392

505

7,188

532

Expected return on plan assets

(4,531
)
(21
)
(7,484
)
(15
)
Amortization of prior service cost

—

—

43

—

Net actuarial loss (gain)

252

—

(189
)
—

Settlement loss

—

—

345

—

Total net periodic pension cost
$
2,319
$
1,034
$
1,560
$
1,126

Postretirement Benefit Plan

In addition to receiving pension benefits, Teradyne employees in the United States who meet early retirement eligibility requirements as of their termination dates may participate in Teradyne’s Welfare Plan, which includes medical and dental benefits up to age 65. Death benefits provide a fixed sum to retirees’ survivors and are available to all retirees. Substantially all of Teradyne’s current U.S. employees could become eligible for these benefits, and the existing benefit obligation relates primarily to those employees.

Table of Contents

For the three and nine months ended ~~March 31,~~September 29, 2019 and ~~April 1,~~September 30, 2018, Teradyne’s net periodic postretirement benefit cost was comprised of the following:

   For the Three
Months Ended
   March 31,
2019    April 1,
2018
   (in thousands)
Service cost
   $ 9    $ 9
Interest cost
   85    50
Amortization of prior service credit
   (48 )    (93 )
Special termination benefits
   —      1,626




Total net periodic postretirement benefit cost
   $ 46    $ 1,592


	For the Three Months Ended						For the Nine Months Ended
	September 29, 2019			September 30, 2018			September 29, 2019			September 30, 2018
	(in thousands)
Service cost	$	10		$	10		$	31		$	29
Interest cost		87			49			260			147
Amortization of prior service credit		(48	)		(93	)		(143	)		(280	)
Net actuarial loss		—			—			196			40
Special termination benefits		—			601			—			3,419

Total net periodic postretirement benefit cost	$	49		$	567		$	344		$	3,355

S. COMMITMENTS AND CONTINGENCIES

Purchase Commitments

As of ~~March 31,~~September 29, 2019, Teradyne had entered into purchase commitments for certain components and materials. The purchase commitments covered by the agreements aggregate to approximately ~~$263.0~~$360.3 million, of which ~~$255.3~~$354.2 million is for less than one year.

Legal Claims

Teradyne is subject to various legal proceedings and claims which have arisen in the ordinary course of business. In the opinion of management, the ultimate disposition of these matters will not have a material adverse effect on Teradyne’s results of operations, financial condition or cash flows.

T. INCOME TAXES

~~The~~

A reconciliation of the United States federal statutory corporate tax rate to Teradyne’s effective tax rate ~~for the three months ended March 31, 2019 and April 1, 2018~~ was ~~(16.1)% and 9.2%, respectively.~~

The decrease in the effective tax rate from the three months ended April 1, 2018 to the three months ended March 31, 2019 resulted from discrete tax benefits from the release of reserves for uncertain tax positions, increases in benefits related to the U.S. foreign derived intangible income deduction and U.S. research and development tax credits, a decrease in expense related to the uncertain tax positions for transfer pricing and a reduction in discrete tax expense associated with remeasurement of deferred tax assets as a result of reductions in tax rates. These reductions were partially offset by a projected shift in the geographic distribution of income, which increases the income subject to taxation in higher tax rate jurisdictions relative to lower tax rate jurisdictions, an increase in the U.S. global intangible~~low-taxed~~ ~~income inclusion and a reduction in the discrete benefit from stock based compensation.~~

The effective tax rate for the three months ended March 31, 2019 and April 1, 2018 was lower than the expected federal statutory rate because of the favorable effect of statutory rates applicable to income earned outside the United States, the benefit from U.S. research and development tax credits, the benefit from stock based compensation deductions, and the benefit of the U.S. foreign derived intangible income deduction partially offset by the U.S. global intangible~~low-taxed~~ income inclusion. The effective tax rate for the three months ended March 31, 2019 was also reduced by discrete tax benefits from the release of reserves for uncertain tax positions. The effective rate for the three months ended April 1, 2018 was also increased by additions to the uncertain tax positions for transfer pricing.

follows:


	For the Three Months Ended						For the Nine Months Ended
	September 29, 2019			September 30, 2018			September 29, 2019			September 30, 2018
US statutory federal tax rate		21.0	%		21.0	%		21.0	%		21.0	%
Discrete expense related to U.S. transition tax		—			—			3.9			0.0
Foreign taxes		(5.1	)		(4.4	)		(4.9	)		(3.7	)
International provisions of the U.S. Tax Cuts and Jobs Act of 2017		(2.8	)		(1.4	)		(0.6	)		(1.4	)
Tax credits		(1.8	)		(1.9	)		(2.2	)		(2.1	)
Discrete benefit related to equity compensation		(0.7	)		(0.1	)		(1.5	)		(2.2	)
Discrete benefit related to release of reserves for uncertain tax positions		—			(0.1	)		(6.9	)		—
Other, net		(0.1	)		1.7			0.4			2.0

Effective tax rate		10.5	%		14.8	%		9.2	%		13.6	%

Discrete tax items recorded in the three months ended March 31, 2019 amounted to $30.2 million of net benefit. The $30.2 million of discrete tax benefit consisted of $28.8 million of benefit resulting from the release of reserves for uncertain tax positions, $3.8 million of benefit from stock based compensation, $2.9 million of expense from an increase in U.S. state valuation allowances and $0.5 million of other discrete tax benefit. The release of reserves for uncertain tax positions and the increase in U.S. state valuation allowances were associated with the conclusion of the U.S. Federal income tax audit for the year ended December 31, 2015.

Discrete tax items recorded in the three months ended April 1, 2018 amounted to $6.0 million of net benefit. The $6.0 million of discrete tax benefit consisted of $7.6 million of benefit from stock based compensation, $1.7 million of expense from the write down of deferred tax assets as a result of reductions in tax rates, $0.7 million of other discrete tax benefits and $0.6 million of other discrete tax expenses.

On a quarterly basis, Teradyne evaluates the realizability of the deferred tax assets by jurisdiction and assesses the need for a valuation allowance. As of ~~March 31,~~September 29, 2019, Teradyne believes that it will ultimately realize the deferred tax assets recorded on the condensed consolidated balance sheet. However, should Teradyne believe that it is

more-likely-than-not

that the deferred tax assets would not be realized, the tax provision would increase in the period in which Teradyne determined that the realizability was not likely. Teradyne considers the probability of future taxable income and historical profitability, among other factors, in assessing the realizability of the deferred tax assets.

On July 27, 2015, in Altera Corp. v. Commissioner (“Altera”), the U.S. Tax Court issued an opinion invalidating the regulations relating to ~~local~~the treatment of stock-based compensation expense in an intercompany cost-sharing arrangement. A final decision was issued by the Tax Court in December 2015. The IRS appealed the decision in June 2016. On July 24, 2018, the Ninth Circuit Federal Court issued a decision that was subsequently withdrawn and a reconstituted panel has conferred on the appeal. On June 7, 2019, the Ninth Circuit Federal Court upheld the cost-sharing regulations. Due to the uncertainty surrounding the status of the current regulations, questions related to the scope of potential benefits or obligations, the outcome of the appeals process, and questions regarding jurisdiction, Teradyne has not established any income tax ~~incentives.~~

reserves as of

September

, 2019 related to Altera. Teradyne estimates that including stock-based compensation in Teradyne’s intercompany cost-sharing arrangement could result in a potential tax reserve of $5 million to $11 million. Teradyne will continue to monitor ongoing developments and potential impacts to our consolidated financial statements.

Teradyne recognizes interest and penalties related to income tax matters in income tax expense. As of ~~March 31,~~September 29, 2019 and December 31, 2018, ~~$0.6~~$0.5 million and $0.3 million, respectively, of interest and penalties were accrued for uncertain tax positions. For the ~~three~~nine months ended ~~March 31,~~September 29, 2019 and ~~April 1,~~September 30, 2018, expense of ~~$0.3~~$0.2 million and $0.1 million, respectively, was recorded for interest and penalties related to income tax items.

Teradyne qualifies for a tax holiday in Singapore by fulfilling the requirements of an agreement with the Singapore Economic Development Board under which certain headcount and spending requirements must be met. The tax savings due to the tax holiday for the ~~three~~nine months ended ~~March 31,~~September 29, 2019 was ~~$2.1~~$12.0 million, or ~~$0.01~~$0.07 per diluted share. The tax savings due to the tax holiday for the ~~three~~nine months ended ~~April 1,~~September 30, 2018 was ~~$3.0~~$8.9 million, or ~~$0.01~~$0.05 per diluted share. The tax holiday is scheduled to expire on December 31, 2020.

U. SEGMENT INFORMATION

Teradyne has ~~four~~4 reportable segments (Semiconductor Test, System Test, Industrial Automation and Wireless Test). Each of the Semiconductor Test, System Test, and Wireless Test segments is also an individual operating segment. The Industrial Automation reportable segment consists of operating segments with discrete financial information, which have been combined into one reportable segment as they share similar economic characteristics, types of products, production processes, distribution channels, and currency risks. The Semiconductor Test segment includes operations related to the design, manufacturing and marketing of semiconductor test products and services. The System Test segment includes operations related to the design, manufacturing and marketing of products and services for defense/aerospace instrumentation test, storage test and circuit-board test. The Industrial Automation segment includes operations related to the design,

manufacturing and marketing of collaborative robotic arms, autonomous mobile robots and advanced robotic control software. The Wireless Test segment includes operations related to the design, manufacturing and marketing of wireless test products and services.

Teradyne evaluates performance based on several factors, of which the primary financial measure is business segment income (loss) before income taxes. The accounting policies of the business segments in effect are described in Note B: “Accounting Policies” in Teradyne’s Annual Report on Form

10-K

for the year ended December 31, ~~2018.~~

2018, and Note B: “Accounting Policies” in this filing for any changes in the three and nine months ended September 29, 2019.

Table of Contents

Segment information for the three and nine months ended ~~March 31,~~September 29, 2019 and ~~April 1,~~September 30, 2018 is as follows:

Semiconductor
Test Industrial
Automation System
Test Wireless
Test Corporate
and
Other Consolidated
(in thousands)
Three Months Ended March 31, 2019

Revenues
$ 340,853 $ 66,136 $ 58,220 $ 29,041 $ (151 ) $ 494,099
Income (loss) before income taxes (1)(2)
83,049 (5,295 ) 15,340 3,628 (2,743 ) 93,979
Total assets (3)
770,967 596,899 98,916 73,066 1,076,795 2,616,643
Three Months Ended April 1, 2018

Revenues
$ 373,328 $ 48,834 $ 43,019 $ 22,507 $ (221 ) $ 487,467
Income before income taxes (1)(2)
88,079 784 5,888 464 605 95,820
Total assets (3)
758,737 406,557 90,785 59,739 1,679,375 2,995,193


	Semiconductor Test		Industrial Automation			System Test		Wireless Test		Corporate and Other			Consolidated
	(in thousands)
Three Months Ended September 29, 2019
Revenues	$	397,737	$	68,892		$	73,305	$	42,264	$	(160	)	$	582,038
Income (loss) before income taxes (1)(2)		116,633		(1,645	)		24,381		11,182		1,182			151,733
Total assets (3)		757,422		580,635			126,452		94,789		1,139,493			2,698,791
Three Months Ended September 30, 2018
Revenues	$	417,297	$	65,913		$	49,606	$	34,304	$	(272	)	$	566,848
Income (loss) before income taxes (1)(2)		126,638		940			9,056		7,843		(3,633	)		140,844
Total assets (3)		709,616		617,741			83,160		79,986		1,391,984			2,882,487
Nine Months Ended September 29, 2019
Revenues	$	1,113,489	$	209,753		$	204,934	$	112,541	$	(402	)	$	1,640,315
Income (loss) before income taxes (1)(2)		291,037		(10,670	)		63,254		25,740		7,528			376,889
Total assets (3)		757,422		580,635			126,452		94,789		1,139,493			2,698,791
Nine Months Ended September 30, 2018
Revenues	$	1,150,712	$	176,803		$	162,308	$	92,023	$	(602	)	$	1,581,244
Income (loss) before income taxes (1)(2)		305,876		(1,198	)		35,296		18,615		(1,914	)		356,675
Total assets (3)		709,616		617,741			83,160		79,986		1,391,984			2,882,487

(1)

Included in

Corporate and Other are: contingent consideration adjustments, severance charges, interest income ~~interest~~and expense, net foreign exchange gains (losses), intercompany eliminations, ~~and~~ acquisition related ~~charges.~~

expenses and compensation, pension and postretirement plans actuarial losses and an expense for the modification of Teradyne’s former chief financial officer’s outstanding equity awards.

(2)	Included in the income (loss) before income taxes for each of the segments are charges and credits related to restructuring and other and inventory charges.

(3)	Total business assets are directly attributable to each business. Corporate assets consist of cash and cash equivalents, marketable securities and certain other assets.

Included in ~~the Semiconductor Test~~each segment ~~are charges in the following line items in the statements of operations:~~

   For the Three Months
Ended
   March 31,
2019    April 1,
2018
   (in thousands)
Cost of revenues—inventory charge
   $ 1,174    $ 2,166
Restructuring and other—employee severance
   567    3,761

~~Included in the Industrial Automation segment are charges in the following line items in the statements of operations:~~

   For the Three Months
Ended
   March 31,
2019    April 1,
2018
   (in thousands)
Restructuring and other—acquisition related expenses and compensation
   $ 1,261    $ —
Cost of revenues—inventory charge
   416    200

~~Included in the System Test segment are charges in the following line item in the statements of operations:~~

   For the Three Months
Ended
   March 31,
2019    April 1,
2018
   (in thousands)
Cost of revenues—inventory charge
   $ 468    $ 320

~~Included in the Wireless Test segment are charges in the following line items in the statements of operations:~~

   For the Three Months
Ended
   March 31,
2019    April 1,
2018
   (in thousands)
Cost of revenues—inventory charge
   $ 339    $ 836

~~Included in Corporate and Other~~ are charges and credits in the following line items in the statements of operations:

   For the Three Months
Ended
   March 31,
2019    April 1,
2018
   (in thousands)
Restructuring and other—MiR contingent consideration adjustment
   $ 3,003    $ —
Restructuring and other—Universal Robots contingent consideration adjustment
   —      (4,968 )
Restructuring and other—acquisition related expenses
   —      774


	For the Three Months Ended						For the Nine Months Ended
	September 29,			September 30,			September 29,			September 30,
	2019			2018			2019			2018
	(in thousands)
Semiconductor Test:
Cost of revenues—inventory charge	$	1,867		$	2,071		$	5,319		$	5,851
Restructuring and other—employee severance		—			1,716			1,009			7,657
Industrial Automation:
Restructuring and other—acquisition related expenses	$	—		$	811		$	1,330		$	811
Restructuring and other—employee severance		—			—			604			—
Cost of revenues—inventory charge		—			—			508			680
System Test:
Cost of revenues—inventory charge	$	—		$	—		$	1,129		$	812
Wireless Test:
Cost of revenues—inventory charge	$	724		$	716		$	1,892		$	2,179
Corporate and Other:
Restructuring and other—MiR contingent consideration adjustment	$	(7,759	)	$	—		$	(16,427	)	$	—
Selling and administrative – equity modification charge		2,108			—			2,108			—
Restructuring and other—acquisition related expenses and compensation		816			—			928			3,318
Restructuring and other—Universal Robots contingent consideration adjustment		—			(768	)		—			(9,236	)

Table of Contents

V. SHAREHOLDERS’ EQUITY

Stock Repurchase Program

In January 2018, Teradyne’s Board of Directors cancelled the December 2016 stock repurchase program and authorized a new stock repurchase program for up to $1.5 billion of common stock. Teradyne intends to repurchase $500 million in 2019.

During the ~~three~~nine months ended ~~March 31,~~September 29, 2019, Teradyne repurchased ~~4.5~~8.8 million shares of common stock for ~~$156.5~~$368.8 million at an average price of ~~$35.12~~$41.93 per share. The cumulative repurchases under the $1.5 billion stock repurchase program as of ~~March 31,~~September 29, 2019 totaled ~~26.1~~30.4 million shares of common stock for ~~$979.9 million~~$1.2 billion at an average price per share of ~~$37.55.~~

$39.18.

During the ~~three~~nine months ended ~~April 1,~~September 30, 2018, Teradyne repurchased ~~2.9~~13.8 million shares of common stock for ~~$134.3~~$562.3 million at an average price of ~~$45.69~~$40.62 per share.

The total price includes commissions and is recorded as a reduction to retained earnings.

Dividend

Holders of Teradyne’s common stock are entitled to receive dividends when they are declared by Teradyne’s Board of Directors.

In January 2019

May 2019 and August 2019, Teradyne’s Board of Directors declared a quarterly cash dividend of $0.09 per share. Dividend payments for the three and nine months ended ~~March 31,~~September 29, 2019 were ~~$15.6 million.~~

$15.3 million and $46.3 million, respectively.

In January 2018

May 2018 and August 2018, Teradyne’s Board of Directors declared a quarterly cash dividend of $0.09 per share. Dividend payments for the three and nine months ended ~~April 1,~~September 30, 2018 were ~~$17.6 million.~~

$16.6 million and $51.3 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.

W. SUBSEQUENT EVENTS

On October 18, 2019, Teradyne entered into an agreement to acquire 100% of the equity of AutoGuide, LLC (“AutoGuide”), a maker of high-payload autonomous mobile robots (AMRs), an emerging and fast growing segment of the global forklift market for $58 million of cash and up to $107 million in earn-outs potentially through 2022. AutoGuide is based in Chelmsford, MA. AutoGuide’s AMRs are used for material transport of payloads up to 4,500 kg in manufacturing, warehouse and logistics applications. These products complement MiR’s lower payload products. The acquisition of AutoGuide is expected to close in the fourth quarter of 2019, subject to customary closing conditions and regulatory approval. AutoGuide will be included in Teradyne’s Industrial Automation segment.

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, 2018. 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 automation equipment for test and industrial applications. We design, develop, manufacture and sell automatic test systems used to test semiconductors, wireless products, data storage and complex electronics systems in the consumer electronics, wireless, automotive, industrial, computing, communications, and aerospace and defense industries. Our industrial automation products include collaborative robotic arms, autonomous mobile robots and advanced robotic control software used by global manufacturing and light industrial customers to improve quality, increase manufacturing and material handling efficiency and decrease manufacturing costs. Our automatic test equipment and industrial automation products and services include:

semiconductor test (“Semiconductor Test”) systems;

industrial automation (“Industrial Automation”) products;

wireless test (“Wireless Test”) systems.

We have a customer base which includes integrated device manufacturers (“IDMs”), outsourced semiconductor assembly and test providers (“OSATs”), original equipment manufacturers (“OEMs”), wafer foundries, fabless companies that design, but contract with others for the manufacture of integrated circuits (“ICs”), developers of wireless devices and consumer electronics, manufacturers of circuit boards, automotive suppliers, wireless product manufacturers, storage device manufacturers, aerospace and military contractors, and distributors that sell collaborative robots, autonomous mobile robots and wireless test systems.

The 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 drives significant demand for our products both through direct sales and sales to the customer’s 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.

The sales of our products and services are dependent, to a large degree, on these customers who are subject to cyclical trends in the demand for their products. These cyclical periods have had, and will continue to have, a significant effect on our business because our customers often delay or accelerate purchases in reaction to changes in their businesses and to demand fluctuations in the semiconductor, electronics and ~~electronics~~industrial automation industries. Historically, these demand fluctuations have resulted in significant variations in our results of operations.

The market for our test products is concentrated with a limited number of significant customers accounting for a substantial portion of the purchases of test equipment. A few customers drive significant demand for our test products both through direct sales and sales to the customer’s 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 the nine months ended September 29, 2019, revenue in our test businesses has exceeded forecasts as a result of semiconductor test demand in China, early 5G test investments and strength in our System Test businesses. It is difficult to predict whether these positive trends will continue in 2020.

In the nine months ended September 29, 2019, the revenue growth of our industrial automation business was below our forecast. We expect 2019 full year revenue growth of our industrial automation business to be under the low end of our long-term range of 30% to 40%. We will continue to invest in our industrial automation businesses to position us for returning to our long-term range of 30% to 40% growth when industrial activity and investment increase.

On February 26, 2018, we acquired Energid Technologies Corporation (“Energid”) for a total purchase price of approximately $27.6 million. Energid’s technology enables and simplifies the programming of complex robotic motions used in a wide variety of end markets, ranging from heavy industry to healthcare, utilizing both traditional robots and collaborative robots.

On April 25, 2018, we acquired Mobile Industrial Robots ApS (“MiR”), a Danish limited liability company. MiR is the leading maker of collaborative autonomous mobile robots for industrial applications. The total purchase price was approximately ~~$198~~$197.8 million, which included cash paid of approximately ~~$145~~$145.2 million and ~~$53~~$52.6 million in fair value of contingent consideration payable upon achievement of certain thresholds and targets for revenue and earnings before interest and taxes through 2020. Contingent consideration for 2018 was ~~$31~~$30.8 million and was paid in March 2019. The maximum payment for the remaining MiR contingent consideration that could be paid is ~~$83.2~~$81.0 million.

MiR and Energid are included in our Industrial Automation segment.

On January 30, 2019, we acquired all of the issued and outstanding shares of Lemsys SA (“Lemsys”) for a total purchase price of approximately $9.1 million. Lemsys strengthens our position in the electrification trends of vehicles, solar, wind, and industrial applications. Lemsys is included in our Semiconductor Test segment.

On June 3, 2019, we invested $15 million in RealWear, Inc. (“RealWear”). RealWear, a private company, develops and sells advanced wearable technology including industrial, hands-free, head-mounted augmented reality devices that make the workplace safer and more productive. Our investment in RealWear aligns with our strategy of bringing the power of advanced automation to companies of all sizes to improve the productivity of their employees and the quality of their products and services.

On October 18, 2019, we entered into an agreement to acquire 100% of the equity of AutoGuide, LLC (“AutoGuide”), a maker of high-payload autonomous mobile robots (AMRs), an emerging and fast growing segment of the global forklift market for $58 million of cash and up to $107 million in earn-outs potentially through 2022. AutoGuide is based in Chelmsford, MA. AutoGuide’s AMRs are used for material transport of payloads up to 4,500 kg in manufacturing, warehouse and logistics applications. These products complement MiR’s lower payload products. The acquisition of AutoGuide is expected to close in the fourth quarter of 2019, subject to customary closing conditions and regulatory approval. AutoGuide will be included in Teradyne’s Industrial Automation segment.

We believe our recent acquisitions and investments have enhanced our opportunities for growth. We intend to continue to invest in our business, grow market share in our markets and expand further our addressable markets while tightly managing our costs.

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 ~~March 31,~~September 29, 2019 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, 2018, except as noted below.

Investment in Other Company

We hold an investment in a private company that develops and sells advanced wearable technology. We do not have the ability to exert significant influence over the company. The investment was recorded at cost and is evaluated for impairment or an indication of changes in fair value resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer on a quarterly basis. See Note D: “Acquisitions and Investment in Other Company.”

Leases

In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)

2016-02,

“Leases (Topic 842)” (“

(“Topic 842”), which requires a lessee to record a

right-of-use

(“ROU”) asset and a lease liability on the balance sheet for operating leases with terms longer than twelve months. We adopted this standard and the related amendments (collectively “ASC 842”) on January 1, 2019 and utilized the modified retrospective approach provided by ASU

2018-11,

“Leases (Topic 842): Targeted Improvements,”

that allowed for a cumulative effect adjustment in the period of adoption. Under this method of adoption, the comparative information in the consolidated financial statements has not been revised and continues to be reported under the previously applicable lease accounting guidance (ASC 840). We also utilized the package of practical expedients permitted under the transition guidance which included the carry-forward of historical lease classification. Adoption of ASC 842 resulted in recording ROU assets and lease liabilities of approximately $50.1 million and $54.3 million, respectively. Operating lease liabilities were calculated using the discount rate on January 1, 2019. The adoption of ASC 842 did not have a material impact on beginning retained earnings, the consolidated statement of operations, cash flows, or earnings per share.

Under ASC 842, a contract is or contains a lease when we have the right to control the use of an identified asset. We determine if an arrangement is a lease at inception of the contract, which is the date on which the terms of the contract are agreed to and the agreement creates enforceable rights and obligations. The commencement date of the lease is the date that the lessor makes an underlying asset available for use. As of ~~March 31,~~September 29, 2019, we do not have material leases that have not yet commenced.

We determine if the lease is operating or finance at the lease commencement date based upon the terms of the lease and the nature of the asset. The lease term used to calculate the lease liability includes options to extend or terminate the lease when it is reasonably certain that the option will be exercised.

For leases commencing after January 1, 2019, the lease liability is measured at the present value of future lease payments, discounted using the discount rate for the lease at the commencement date. As we are typically unable to determine the implicit rate, we use an incremental borrowing rate based on the lease term and economic environment at commencement date. We initially measure payments based on an index by using the applicable rate at lease commencement. Variable payments that do not depend on an index are not included in the lease liability and are recognized as they are incurred. The ROU asset is initially measured as the amount of lease liability, adjusted for any initial lease costs, prepaid lease payments, and reduced by any lease incentives.

Our contracts often include

non-lease

components such as common area maintenance. We elected the practical expedient to account for the lease and

non-lease

components as a single lease component. For leases with a term of one year or less we elected not to record the lease asset or liability. The lease payments are recognized in the consolidated statement of earnings on a straight-line basis over the lease term. We include lease costs within cost of revenues and operating ~~expenses~~

expenses.

Preparation of Financial Statements and Use of Estimates

SELECTED RELATIONSHIPS WITHIN THE CONDENSED CONSOLIDATED

STATEMENTS OF OPERATIONS

   For the Three Months
Ended
   March 31,
2019 April 1,
2018
Percentage of revenues:

Revenues:

Products
   80 % 83 %
Services
   20 17


Total revenues
   100 100
Cost of revenues:

Cost of products
   33 37
Cost of services
   8 8


Total cost of revenues (exclusive of acquired intangible assets amortization shown separately below)
   42 45


Gross profit
   58 55
Operating expenses:

Selling and administrative
   21 19
Engineering and development
   16 15
Acquired intangible assets amortization
   2 2
Restructuring and other
   1 —


Total operating expenses
   39 35


Income from operations
   19 20
Non-operating (income) expense:

Interest income
   (2 ) (1 )
Interest expense
   1 1
Other (income) expense, net
   —   —


Income before income taxes
   19 20
Income tax provision
   (3 ) 2


Net income
   22 % 18 %


	For the Three Months Ended						For the Nine Months Ended
	September 29,			September 30,			September 29,			September 30,
	2019			2018			2019			2018
Percentage of revenues:
Revenues:
Products		84	%		83	%		82	%		83	%
Services		16			17			18			17

Total revenues		100			100			100			100
Cost of revenues:
Cost of products		34			34			34			35
Cost of services		7			7			8			7

Total cost of revenues (exclusive of acquired intangible assets amortization shown separately below)		41			41			42			42

Gross profit		59			59			58			58
Operating expenses:
Selling and administrative		19			18			20			18
Engineering and development		13			14			14			14
Acquired intangible assets amortization		2			2			2			2
Restructuring and other		(1	)		—			(1	)		—

Total operating expenses		33			34			35			35

Income from operations		27			25			23			23
Non-operating (income) expense:
Interest income		(1	)		(1	)		(1	)		(1	)
Interest expense		1			1			1			1
Other (income) expense, net		—			1			—			—

Income before income taxes		26			25			23			23
Income tax provision		3			4			2			3

Net income		23	%		21	%		21	%		19	%

Results of Operations

~~First~~

Third Quarter 2019 Compared to ~~First~~Third Quarter 2018

Revenues

Revenues by our four reportable segments were as follows:

   For the Three Months
Ended
   March 31,
2019    April 1,
2018    Dollar
Change
   (in millions)
Semiconductor Test
   $ 340.9    $ 373.3    $ (32.4 )
Industrial Automation
   66.1    48.8    17.3
System Test
   58.2    43.0    15.2
Wireless Test
   29.0    22.5    6.5






   $ 494.1    $ 487.5    $ 6.6


	For the Three Months Ended
	September 29,			September 30,			Dollar
	2019			2018			Change
	(in millions)
Semiconductor Test	$	397.7		$	417.3		$	(19.6	)
System Test		73.3			49.6			23.7
Industrial Automation		68.9			65.9			3.0
Wireless Test		42.3			34.3			8.0
Corporate and Other		(0.2	)		(0.3	)		0.1

	$	582.0		$	566.8		$	15.2

The decrease in Semiconductor Test revenues of ~~$32.4~~$19.6 million, or ~~8.7%~~4.7%, was driven primarily by a decrease in sales in the automotive and memory test ~~sales and lower mobility test sales,~~segments, partially offset by ~~higher image sensor test sales. The~~an increase in ~~Industrial Automation revenues of $17.3 million, or 35.5%, was due to higher demand~~semiconductor tester sales for ~~collaborative robotic arms and the acquisition of MiR, which was acquired in April 2018. MiR added $9.1 million of revenue in the three months ended March 31, 2019.~~

5G infrastructure. The increase in System Test revenues of ~~$15.2~~$23.7 million, or ~~35.3%~~47.8%, was primarily due to higher sales in Storage Test of 3.5” hard disk drive and system level testers, higher sales in Defense/Aerospace test instrumentation and systems, and higher sales in Production Board ~~Test.~~Test from higher 5G demand. The increase in Industrial Automation revenues of $3.0 million, or 4.6%, was due to higher demand for collaborative autonomous mobile robots. The increase in Wireless Test revenues of ~~$6.5~~$8.0 million, or ~~28.9%~~23.3%, was primarily due to higher demand for millimeter wave test products driven by new wireless standards and ~~cellular test products.~~

5G.

Revenues by country as a percentage of total revenues were as follows (1):

   For the Three Months
Ended
   March 31,
2019 April 1,
2018
Taiwan
   17 % 28 %
China
   17 17
United States
   15 13
Japan
   12 5
Europe
   11 10
Korea
   10 11
Singapore
   6 3
Philippines
   4 6
Thailand
   4 2
Malaysia
   3 4
Rest of World
   1 1


   100 % 100 %


	For the Three Months Ended
	September 29,			September 30,
	2019			2018
China		31	%		21	%
Taiwan		21			25
United States		14			12
Korea		10			6
Europe		9			9
Japan		4			7
Thailand		4			2
Singapore		3			7
Malaysia		2			7
Philippines		2			3
Rest of World		—			1

		100	%		100	%

(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
   March 31,
2019 April 1,
2018
   (in millions)
Gross profit
   $ 287.6 $ 269.8 $ 17.8
Percent of total revenues
   58.2 % 55.4 % 2.8


	For the Three Months Ended
	September 29,			September 30,			Dollar/Point
	2019			2018			Change
	(in millions)
Gross profit	$	345.0		$	333.7		$	11.3
Percent of total revenues		59.3	%		58.9	%		0.4

Gross profit as a percent of revenue increased by ~~2.8~~0.4 points, primarily due to favorable product ~~mix.~~

mix in Semiconductor Test and Storage Test.

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 ~~March 31,~~September 29, 2019, we recorded an inventory provision of ~~$2.4~~$3.0 million included in cost of revenues primarily due to downward revisions to previously forecasted demand levels, of which ~~$1.2~~$1.9 million was related to Semiconductor Test, $0.7 million was related to Wireless Test and ~~$0.5~~$0.4 million was related to System Test.

During the three months ended ~~April 1,~~September 30, 2018, we recorded an inventory provision of ~~$3.5~~$3.3 million included in cost of revenues primarily due to downward revisions to previously forecasted demand levels, of which ~~$2.2~~$2.1 million was related to Semiconductor Test, ~~$0.8~~$0.7 million was related to Wireless Test, ~~$0.3 million was related to System Test,~~ and ~~$0.2~~$0.4 million was related to Industrial Automation.

During the three months ended ~~March 31,~~September 29, 2019 and ~~April 1,~~September 30, 2018, we scrapped ~~$0.4~~$3.4 million and ~~$0.3~~$1.7 million of inventory, respectively. During the three months ended ~~March 31,~~September 29, 2019 and ~~April 1,~~September 30, 2018, we sold $0.8 million and ~~$2.2~~$1.0 million of previously written-down or

written-off

inventory, respectively. As of ~~March 31,~~September 29, 2019, we had inventory related reserves, ~~for inventory,~~ which had been written-down or

written-off

totaling ~~$100.9~~$101.2 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
   March 31,
2019 April 1,
2018 Dollar
Change
   (in millions)
Selling and administrative
   $ 102.0 $ 90.5 $ 11.5
Percent of total revenues
   20.6 % 18.6 %


	For the Three Months Ended
	September 29,			September 30,			Dollar
	2019			2018			Change
	(in millions)
Selling and administrative	$	109.2		$	100.2		$	9.0
Percent of total revenues		18.8	%		17.7	%

The increase of ~~$11.5~~$9.0 million in selling and administrative expenses was due primarily to higher spending in Industrial Automation ~~due to~~from higher sales and marketing spending in Universal Robots and ~~due to the acquisitions of~~ MiR, and ~~Energid in 2018.~~

higher stock compensation expense from the modification of Teradyne’s former chief financial officer’s outstanding equity awards.

Engineering and Development

Engineering and development expenses were as follows:

   For the Three Months
Ended Dollar
Change
   March 31,
2019 April 1,
2018
   (in millions)
Engineering and development
   $ 76.8 $ 74.4 $ 2.4
Percent of total revenues
   15.5 % 15.3 %


	For the Three Months Ended
	September 29,			September 30,			Dollar
	2019			2018			Change
	(in millions)
Engineering and development	$	77.8		$	77.0		$	0.8
Percent of total revenues		13.4	%		13.6	%

The increase of ~~$2.4~~$0.8 million in engineering and development expenses was primarily due to higher spending in Industrial Automation, ~~and Wireless Test,~~ partially offset by lower spending in Semiconductor Test.

~~Acquired Intangible Assets Amortization~~

~~Acquired intangible assets amortization expense was as follows:~~

   For the Three Months
Ended
   March 31,
2019 April 1,
2018 Dollar
Change
   (in millions)
Acquired intangible assets amortization
   $ 10.6 $ 7.7 $ 2.9
Percent of total revenues
   2.2 % 1.6 %

Table of Contents

During the three months ended ~~April 1,~~September 30, 2018, we recorded $1.7 million for employee severance charges, primarily in Semiconductor Test and $0.8 million for acquisition related compensation, partially offset by a ~~$5.0~~$0.8 million ~~credit~~gain for the decrease in the fair value of the Universal Robots contingent consideration ~~liability, partially offset by $3.9 million recorded for employee severance charges, primarily in Semiconductor Test, and $0.8 million of acquisition related expenses.~~

liability.

Interest and Other

   For the Three Months
Ended
   March 31,
2019    April 1,
2018    Dollar
Change
   (in millions)
Interest income
   $ (8.1 )    $ (6.0 )    $ (2.1 )
Interest expense
   5.7    6.9    (1.2 )
Other (income) expense, net
   1.4    0.8    0.6


	For the Three Months Ended
	September 29, 2019			September 30, 2018			Dollar Change
	(in millions)
Interest income	$	(5.2	)	$	(6.2	)	$	1.0
Interest expense		5.7			5.6			0.1
Other (income) expense, net		2.7			3.4			(0.7	)

Interest income ~~increased~~decreased by ~~$2.1~~$1.0 million due primarily to lower unrealized gains on equity marketable securities in 2019. ~~Interest~~Other (income) expense, net decreased by ~~$1.2~~$0.7 million due primarily to lower ~~realized losses on sales of marketable securities in 2019.~~

foreign exchange losses.

Income (Loss) Before Income Taxes

   For the Three Months
Ended
   March 31,
2019    April 1,
2018    Dollar
Change
   (in millions)
Semiconductor Test
   $ 83.0    $ 88.1    $ (5.0 )
System Test
   15.3    5.9    9.5
Wireless Test
   3.6    0.5    3.2
Industrial Automation
   (5.3 )    0.8    (6.1 )
Corporate and Other (1)
   (2.7 )    0.6    (3.3 )






   $ 94.0    $ 95.8    $ (1.8 )


	For the Three Months Ended
	September 29, 2019			September 30, 2018			Dollar Change
	(in millions)
Semiconductor Test	$	116.6		$	126.6		$	(10.0	)
System Test		24.4			9.1			15.3
Wireless Test		11.2			7.8			3.3
Industrial Automation		(1.6	)		0.9			(2.6	)
Corporate and Other (1)		1.2			(3.6	)		4.8

	$	151.7		$	140.8		$	10.9

(1)	Included in Corporate and Other are: contingent consideration adjustments, employee severance, equity modification charge, interest income, interest expense, net foreign exchange gains and losses, intercompany eliminations, and acquisition related ~~expenses.~~ expenses and compensation.

The decrease in income before income taxes in Semiconductor Test was driven primarily by a decrease in sales in the automotive and memory test ~~sales and lower mobility test sales~~segments, partially offset by ~~higher image sensor test sales.~~an increase in semiconductor tester sales for 5G infrastructure. The increase in income before income taxes in System Test was primarily due to higher sales in Storage Test of 3.5” hard disk drive testers and system level testers, higher sales in Defense/Aerospace test instrumentation and systems, and higher sales in Production Board Test from higher 5G demand. The increase in income before income taxes in Wireless Test was primarily due to higher demand for millimeter wave test products. The decrease in income before income taxes in Industrial Automation was primarily due to higher sales and marketing, and engineering spending.

Income Taxes

The effective tax rate for the three months ended September 29, 2019 and September 30, 2018 was 10.5% and 14.8%, respectively. The decrease in the effective tax rate from the three months ended September 29, 2019 to the three months ended September 30, 2018 primarily resulted from the tax rate effect of a projected shift in the geographic distribution of income, which reduces the income subject to taxation in higher tax rate jurisdictions relative to lower tax rate jurisdictions, an increase in the net favorable impact of the U.S. Tax Cuts and Jobs Act of 2017, and an increase in net discrete tax benefit.

Table of Contents

During the nine months ended September 30, 2018, we recorded $7.9 million for employee severance charges, primarily in Semiconductor Test, and $4.1 million for acquisition related compensation and expenses, partially offset by a $9.2 million gain for the decrease in the fair value of the Universal Robots contingent consideration liability.

Interest and Other


	For the Nine Months Ended
	September 29, 2019			September 30, 2018			Dollar Change
	(in millions)
Interest income	$	(18.6	)	$	(17.6	)	$	(1.0	)
Interest expense		17.2			18.1			(0.9	)
Other (income) expense, net		6.6			4.4			2.2

Interest income increased by $1.0 million due primarily to higher unrealized gains on equity marketable securities in 2019. Interest expense decreased by $0.9 million due primarily to lower realized losses on sales of marketable securities in 2019. Other (income) expense, net increased by $2.2 million due primarily to higher pension costs and higher foreign exchange losses.

Income (Loss) Before Income Taxes


	For the Nine Months Ended
	September 29, 2019			September 30, 2018			Dollar Change
	(in millions)
Semiconductor Test	$	291.0		$	305.9		$	(14.8	)
System Test		63.3			35.3			28.0
Wireless Test		25.7			18.6			7.1
Industrial Automation		(10.7	)		(1.2	)		(9.5	)
Corporate and Other (1)		7.5			(1.9	)		9.4

	$	376.9		$	356.7		$	20.2

(1)	Included in Corporate and Other are: contingent consideration adjustments, employee severance, equity modification charge, interest income, interest expense, net foreign exchange gains and losses, intercompany eliminations, and acquisition related expenses and compensation.

The decrease in income before income taxes in Semiconductor Test revenues was driven primarily by a decrease in sales in the automotive and memory test segments, partially offset by an increase in semiconductor tester sales for 5G infrastructure and image sensors. The increase in income before income taxes in System Test was primarily due to higher sales in Storage Test of 3.5” hard disk drive testers, higher sales in Defense/Aerospace test instrumentation and systems and higher sales in Production Board Test for 5G. The increase in income before income taxes in Wireless Test was primarily due to higher demand for millimeter wave and cellular test ~~products.~~products driven by new wireless standards and 5G, partially offset by lower connectivity test products sales. The decrease in income before income taxes in Industrial Automation was primarily due to ~~increased intangible assets amortization expense from the acquisitions of MiR~~higher sales and ~~Energid in 2018.~~

marketing, and engineering spending.

Income Taxes

The effective tax rate for the ~~three~~nine months ended ~~March 31,~~September 29, 2019 and ~~April 1,~~September 30, 2018 was ~~(16.1)%~~9.2% and ~~9.2%~~13.6%, respectively. The decrease in the effective tax rate from the ~~three~~nine months ended ~~April 1, 2018~~September 29, 2019 to the ~~three~~nine months ended ~~March 31, 2019~~September 30, 2018 primarily resulted from ~~discrete~~the tax ~~benefit from the release~~rate effect of reserves for uncertain tax positions, increases in benefits related to the U.S. foreign derived intangible income deduction and U.S. research and development tax credits, a decrease in expense related to the uncertain tax positions for transfer pricing and a reduction in discrete tax expense associated with remeasurement of deferred tax assets as a result of reductions in tax rates. These reductions were partially offset by a projected shift in the geographic distribution of income, which ~~increases~~reduces the income subject to taxation in higher tax rate jurisdictions relative to lower tax rate jurisdictions, and an increase in net discrete tax benefit. These reductions were partially offset by a decrease in the net favorable impact of the U.S. ~~global intangiblelow-taxed~~ ~~income inclusion~~Tax Cuts and ~~a reduction in the discrete benefit from stock based compensation.~~

Jobs Act of 2017.

Table of Contents

Contractual Obligations

The following table reflects our contractual obligations as of ~~March 31,~~September 29, 2019:

   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
   262,970    255,335    7,635    —      —      —
Retirement plans contributions
   126,034    4,993    10,370    11,019    99,652    —
Transition tax payable (1)
   91,186    7,295    14,590    14,590    54,711    —
Operating lease obligations
   76,323    20,487    31,178    14,346    10,312    —
Fair value of contingent consideration
   38,313    22,803    15,510    —      —      —
Interest on long-term debt
   28,750    5,750    11,500    11,500    —      —
Other long-term liabilities reflected on the balance sheet under GAAP (2)
   62,189    —      25,571    7,272    —      29,346












Total
   $ 1,145,765    $ 316,663    $ 116,354    $ 518,727    $ 164,675    $ 29,346


	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		360,342		354,195		6,147		—		—		—
Retirement plans contributions		126,147		9,494		20,594		26,485		69,574		—
Transition tax payable (1)		91,139		7,358		15,958		22,940		44,883		—
Operating lease obligations		73,253		21,342		29,923		12,508		9,480		—
Interest on long-term debt		25,875		5,750		11,500		8,625		—		—
Fair value of contingent consideration		18,080		6,297		11,783		—		—		—
Other long-term liabilities reflected on the balance sheet under GAAP (2)		67,785		—		36,044		6,097		451		25,193

Total	$	1,222,621	$	404,436	$	131,949	$	536,655	$	124,388	$	25,193

(1)	Represents ~~our estimate of a provisional tax amount for~~ the transition tax liability associated with our accumulated foreign earnings as a result of the enactment of the Tax Reform Act on December 22, 2017.

(2)

Included in other long-term liabilities are liabilities for customer advances, extended warranty, uncertain tax positions, deferred tax liabilities and other obligations. For certain long-term obligations, we are unable to provide a reasonably reliable estimate of the timing of future payments relating to these obligations and therefore we included these amounts in the column marked “Other.”

Liquidity and Capital Resources

Our cash, cash equivalents, and marketable securities balances decreased by ~~$207.8~~$164.5 million in the ~~three~~nine months ended ~~March 31,~~September 29, 2019 to ~~$996.7 million.~~

$1.0 billion.

Operating activities during the ~~three~~nine months ended ~~March 31,~~September 29, 2019 provided cash of ~~$18.0~~$362.4 million. Changes in operating assets and liabilities used cash of ~~$134.2 million. This was~~$83.5 million due to a ~~$63.3~~$97.1 million increase in operating assets and a ~~$70.9~~$13.6 million ~~decrease~~increase in operating liabilities.

The increase in operating assets was primarily due to a ~~$41.7~~$66.8 million increase in accounts receivable due to increased sales, a ~~$18.6~~$16.1 million increase in prepayments and other assets, and a ~~$2.9~~$14.1 million increase in inventories.

The increase in operating liabilities was due to a $27.8 million increase in deferred revenue and customer advance payments, a $23.7 million increase in other accrued liabilities, and a $17.5 million increase in accounts payable, partially offset by a $31.2 million decrease in income taxes, a $20.4 million decrease in accrued employee compensation due primarily to first quarter payments related to variable compensation, and $3.8 million of retirement plan contributions.

Investing activities during the nine months ended September 29, 2019 used cash of $266.9 million due to $605.5 million used for purchases of marketable securities, $96.0 million used for purchases of property, plant and equipment, $15.0 million used for an investment in RealWear, and $7.0 million, net of cash acquired, used for the acquisition of Lemsys, partially offset by $393.5 million and $60.3 million in proceeds from maturities and sales of marketable securities, respectively, and proceeds from life insurance of $2.9 million related to the cash surrender value from the cancellation of Teradyne owned life insurance policies.

Financing activities during the nine months ended September 29, 2019 used cash of $427.9 million due to $368.8 million used for the repurchase of 8.8 million shares of common stock at an average price of $41.93 per share, $46.3 million used for dividend payments, $27.6 million used for payments related to MiR and Universal Robots acquisition contingent consideration, and $14.5 million used for payments related to net settlements of employee stock compensation awards, partially offset by $29.3 million from the issuance of common stock under employee stock purchase and stock option plans.

Operating activities during the nine months ended September 30, 2018 provided cash of $290.5 million. Changes in operating assets and liabilities used cash of $151.1 million due to a $140.6 million increase in operating assets and a $10.4 million decrease in operating liabilities.

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The increase in operating assets was primarily due to a $77.8 million increase in accounts receivable due to increased sales and the impact of the new revenue recognition standard, a $34.1 million increase in inventories, and a $28.7 million increase in prepayments and other assets.

The decrease in operating liabilities was due to a ~~$59.5~~$26.1 million decrease in accrued employee compensation due primarily to first quarter payments related to variable compensation, a ~~$22.8~~$33.2 million decrease in income taxes, ~~an $11.5 million decrease in other accrued liabilities,~~ and ~~$1.2~~$3.2 million of retirement plan contributions, partially offset by a ~~$17.7~~$22.9 million increase in other accrued liabilities, a $19.4 million increase in accounts payable and a ~~$6.5~~$9.8 million increase in deferred revenue and customer advance payments.

Investing activities during the ~~three~~nine months ended ~~March 31, 2019 used~~September 30, 2018 provided cash of ~~$261.0~~$719.0 million due to $375.2 million used for purchases of marketable securities, $25.7 million used for purchases of property, plant and equipment, and $7.0 million, net of cash acquired, used for the acquisition of Lemsys, partially offset by $141.2$843.2 million and ~~$5.4~~$934.1 million in proceeds from ~~maturities~~sales and ~~sales~~maturities of marketable securities, respectively, proceeds from a government subsidy of $7.9 million for property, plant and equipment and proceeds from life insurance of ~~$0.3~~$1.1 million related to the cash surrender value from the cancellation of a Teradyne owned life insurance ~~policy.~~

policies, partially offset by $809.5 million used for purchases of marketable securities, $169.5 million used for the acquisitions of MiR and Energid, and $88.3 million used for purchases of property, plant and equipment.

Financing activities during the ~~three~~nine months ended ~~March 31, 2019~~September 30, 2018 used cash of ~~$199.8~~$626.0 million due to ~~$156.5~~$562.3 million used for the repurchase of ~~4.5~~13.8 million shares of common stock at an average price of ~~$35.12~~$40.62 per share, ~~$27.6 million used for a payment related to MiR and Universal Robots acquisition contingent consideration, $15.6~~$51.3 million used for dividend payments, and $14.3 million used for payments related to net settlements of employee stock compensation awards, partially offset by $14.3 million from the issuance of common stock under employee stock purchase and stock option plans.

Operating activities during the three months ended April 1, 2018 used cash of $81.9 million. Changes in operating assets and liabilities used cash of $212.6 million. This was due to a $162.4 million increase in operating assets and a $50.2 million decrease in operating liabilities.

The increase in operating assets was primarily due to a $140.7 million increase in accounts receivable due to an increase in shipments during the last month of the quarter and the impact of the new revenue recognition standard, a $21.0 million increase in inventories, and a $0.7 million increase in prepayments and other assets.

The decrease in operating liabilities was due to a $56.3 million decrease in accrued employee compensation due primarily to first quarter payments related to variable compensation, a $12.1 million decrease in income taxes, a $7.5 million decrease in other accrued liabilities, and $1.0 million of retirement plan contributions, partially offset by a $17.1 million increase in accounts payable and a $9.6 million increase in deferred revenue and customer advance payments.

Investing activities during the three months ended April 1, 2018 provided cash of $462.9 million, due to $800.7 million and $212.7 million in proceeds from sales and maturities of marketable securities, respectively, partially offset by $490.3 million used for purchases of marketable securities, $34.8 million used for purchases of property, plant and equipment and $25.4 million used for the acquisition of Energid.

Financing activities during the three months ended April 1, 2018 used cash of $174.4 million, due to $134.3 million used for the repurchase of 2.9 million shares of common stock at an average price of $45.69 per share, $19.6$19.8 million used for payment related to net settlement of employee stock compensation awards, ~~$17.6 million used for dividend payments,~~ and $13.6 million used for a payment related to Universal Robots acquisition contingent consideration, partially offset by ~~$10.7~~$21.0 million from the issuance of common stock under employee stock purchase and stock option plans.

In January 2019, May 2019, and August 2019, our Board of Directors declared a quarterly cash dividend of $0.09 per share. Dividend payments for the ~~three~~nine months ended ~~March 31,~~September 29, 2019 were ~~$15.6~~$46.3 million.

In January 2018, May 2018, and August 2018, our Board of Directors declared a quarterly cash dividend of $0.09 per share. Dividend payments for the ~~three~~nine months ended ~~April 1,~~September 30, 2018 were ~~$17.6~~$51.3 million.

In January 2018, our Board of Directors cancelled the December 2016 stock repurchase program and authorized a new stock repurchase program for up to $1.5 billion of common stock. We intend to repurchase $500 million in 2019. During the ~~three~~nine months ended ~~March 31,~~September 29, 2019, we repurchased ~~4.5~~8.8 million shares of common stock for ~~$156.5~~$368.8 million at an average price of ~~$35.12~~$41.93 per share. During the ~~three~~nine months ended ~~April 1,~~September 30, 2018, we repurchased ~~2.9~~13.8 million shares of common stock for ~~$134.3~~$562.3 million at an average price of ~~$45.69~~$40.62 per share. The cumulative repurchases under the $1.5 billion stock repurchase program as of ~~March 31,~~September 29, 2019 totaled ~~26.1~~30.4 million shares of common stock for ~~$979.9~~$1,192.3 million at an average price per share of ~~$37.55.~~

$39.18.

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.

We believe our cash, cash equivalents and marketable securities balance will be sufficient to pay our quarterly dividend, execute our authorized share repurchase program and meet our working capital and expenditure needs for at least the next twelve months. Inflation has not had a significant long-term impact on earnings.

Equity Compensation Plans

As discussed in Note O: “Stock Based Compensation” in our 2018 Annual Report on Form

10-K,

we have a 1996 Employee Stock Purchase Plan and 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. Both plans were approved by our shareholders.

Recently Issued Accounting Pronouncements

On January 26, 2017, the FASB issued ASU

2017-04,

“Intangibles—Goodwill and Other (Topic 350): Simplifying the Accounting for Goodwill Impairment.”

one-step

impairment test will be applied to goodwill at all reporting units, even those with zero or negative carrying

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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.

Item 3:

Quantitative and Qualitative Disclosures about Market Risks

For “Quantitative and Qualitative Disclosures about Market Risk” affecting Teradyne, see Part 2 Item 7a, “Quantitative and Qualitative Disclosures about Market Risks,” in our Annual Report on Form

10-K

filed with the SEC on March 1, ~~2018.~~2019. There were no material changes in our exposure to market risk from those set forth in our Annual Report on Form

10-K

for the fiscal year ended December 31, 2018.

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”) due December 15, 2023. As of ~~March 31,~~September 29, 2019, the Notes had a fair value of ~~$644.6~~$867.4 million. The table below provides a sensitivity analysis of hypothetical 10% changes of Teradyne’s stock price as of the end of the ~~first~~third quarter of 2019 and the estimated impact on the fair value of the Notes. The selected scenarios are not predictions of future events, but rather are intended to illustrate the effect such event may have on the fair value of the Notes. The fair value of the Notes is subject to equity price risk due to the convertible feature. The fair value of the Notes will generally increase as Teradyne’s common stock price increases and will generally decrease as the common stock price declines in value. The change in stock price affects the fair value of the convertible senior notes, but does not impact Teradyne’s financial position, cash flows or results of operations due to the fixed nature of the debt obligation. Additionally, we carry the Notes at face value less unamortized discount on our balance sheet, and we present the fair value for required disclosure purposes only. In connection with the offering of the Notes we also sold warrants to the option counterparties. These transactions have been accounted for as an adjustment to our shareholders’ equity. The convertible note hedge transactions are expected to reduce the potential equity dilution upon conversion of the Notes. The warrants along with any shares issuable upon conversion of the Notes will have a dilutive effect on our earnings per share to the extent that the average market price of our common stock for a given reporting period exceeds the applicable strike price or conversion price of the warrants or Notes, respectively.

Hypothetical Change in Teradyne Stock Price
   Fair Value    Estimated change
in fair value Hypothetical percentage
increase (decrease) in
fair value
10% Increase
   $ 693,013    $ 48,438 7.5 %
No Change
   644,575    —   —
10% Decrease
   598,497    (46,078 ) (7.1 )


Hypothetical Change in Teradyne Stock Price	Fair Value		Estimated change in fair value			Hypothetical percentage increase (decrease) in fair value
10% Increase	$	936,589	$	69,201			8.0	%
No Change		867,388		—			—
10% Decrease		793,228		(74,160	)		(8.5	)

See Note I: “Debt” for further information.

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.

Table of Contents

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. In the opinion of management, the ultimate disposition of these matters will not have a material adverse effect on our results of operations, financial condition or cash flows.

Item 1A:

Risk Factors

In addition to other information set forth in this Form

10-Q,

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, 2018, 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.

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.

Trade regulations and restrictions could impact our ability to sell products to and support certain customers, which may materially adversely affect our sales and results of operations.

We are subject to U.S. laws and regulations that limit and restrict the export of some of our products and services and may restrict our transactions with certain customers, business partners and other persons. In certain circumstances, export control and economic sanctions regulations may prohibit the export of certain products, services and technologies, and in other circumstances we may be required to obtain an export license before exporting the controlled item. We must also comply with export restrictions and laws imposed by other countries affecting trade and investments. We maintain an export compliance program but there are risks that the compliance controls could be circumvented, exposing us to legal liabilities. Compliance with these laws has not significantly limited our sales, but could significantly limit them in the future. Changes in, and responses to, U.S. trade policy could reduce the competitiveness of our products and cause our sales to drop, which could have a material adverse effect on our business, financial condition or results of operations.

The U.S. government from time to time has issued export restrictions that prohibit U.S. companies from exporting U.S. manufactured products, foreign manufactured products with more than 25% controlled U.S. content, as well as U.S. origin technology. For example, the U.S. Department of Commerce has restricted the access of U.S. origin technologies to certain Chinese companies by adding those companies to the Entity List under U.S. Export Administration Regulations (“EAR”). On May 16, 2019, Huawei and 68 of its affiliates, including HiSilicon, were added to the U.S. Department of Commerce Entity List under the EAR. This action by the U.S. Department of Commerce imposes new export licensing requirements on exports,

re-exports,

and

in-country

transfers of all U.S. regulated products, software and technology to the designated Huawei entities. While most of our products are not subject to the EAR and therefore not affected by the Entity List restrictions, certain of our products are currently manufactured in the U.S. and thus subject to the Entity List restrictions. Compliance with the Entity List restrictions has not significantly impacted our sales, but could limit sales in the future. In addition, the prohibition on transfers of U.S. origin technology to Huawei could significantly limit our ability to service certain of our products sold to Huawei and our ability to engage in product development activities with Huawei and, therefore, could have a material adverse effect on our business, financial condition or results of operations. Furthermore, Huawei’s inability to obtain products from other companies in its supply chain may adversely impact Huawei’s demand for our products. Huawei or other foreign customers affected by future U.S. government sanctions or threats of sanctions may respond by developing their own solutions to replace our products or by adopting our foreign competitors’ solutions. Also, our controls related to Entity List compliance could be circumvented, exposing us to legal liabilities. Even if such restrictions are lifted, any financial or other penalties or continuing export restrictions imposed on Huawei could have a material adverse effect on our business, financial condition or results of operations.

Item 2:

Unregistered Sales of Equity Securities and Use of Proceeds

$39.18.

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The following table includes information with respect to repurchases we made of our common stock during the three months ended ~~March 31,~~September 29, 2019 (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
January 1, 2019 – January 27, 2019
2,424 $ 31.59 2,424 $ 599,950
January 28, 2019 – February 24, 2019
1,240 $ 37.58 853 $ 567,513
February 25, 2019 – March 31, 2019
1,183 $ 40.24 1,180 $ 520,054

4,847 (1 ) $ 35.24 (1 ) 4,457


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 1, 2019 – July 28, 2019		806		$	47.02			806	$	391,430
July 29, 2019 – August 25, 2019		386		$	53.36			385	$	370,875
August 26, 2019 – September 29, 2019		1,133		$	55.75			1,132	$	307,737

		2,325	(1)	$	52.33	(1)		2,323

(1)	Includes ~~three hundred ninety one~~approximately two thousand shares at an average price of ~~$36.60~~$50.83 withheld from employees for the payment of taxes.

We satisfy U.S. federal and state minimum withholding tax obligations due upon the vesting and the conversion of restricted stock units into shares of our common stock, by automatically withholding from the shares being issued, a number of shares with an aggregate fair market value on the date of such vesting and conversion that would satisfy the minimum withholding amount due.

Item 4:

Mine Safety Disclosures

Not Applicable

Item 6:

Exhibits

Exhibit Number
~~Exhibit~~ ~~Number~~		Description

~~10.1~~		Teradyne Offer of Employment dated February 8, 2019 for Sanjay Mehta*

~~10.2~~	31.1		Executive Officer Change in Control Agreement dated April 25, 2019 between Teradyne, Inc. and Sanjay Mehta*

~~10.3~~		Employment Agreement dated April 25, 2019 between Teradyne, Inc. and Sanjay Mehta *

~~10.4~~		Agreement Regarding Termination Benefits dated April 25, 2019 between Teradyne, Inc. and Sanjay Mehta*

~~10.5~~		Time-Based Restricted Stock Unit Agreement dated May 1, 2019 for Sanjay Mehta under 2006 Equity and Cash Compensation Incentive Plan*

~~31.1~~		Certification of Principal Executive Officer, pursuant to Rule13a-14(a) of Securities and Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith)

~~31.2~~
	31.2			Certification of Principal Financial Officer, pursuant to Rule13a-14(a) of Securities and Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith)

~~32.1~~
	32.1			Certification of Principal Executive Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith)

~~32.2~~
	32.2			Certification of Principal Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith)

~~101.INS~~
	101.INS			XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document

~~101.SCH~~
	101.SCH			XBRL Taxonomy Extension Schema Document

~~101.CAL~~
	101.CAL			XBRL Taxonomy Extension Calculation Linkbase Document

~~101.DEF~~
	101.DEF			XBRL Taxonomy Extension Definition Linkbase Document

~~101.LAB~~
	101.LAB			XBRL Taxonomy Extension Label Linkbase Document

~~101.PRE~~
	101.PRE			XBRL Taxonomy Extension Presentation Linkbase Document

	104			Cover Page Interactive Data File (formatted as Inline XBRL, and contained in Exhibit 101)

*	~~Mangement Contract and Compensatory Plan~~


~~Massachusetts~~		~~04-2272148~~
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


~~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~~


			Page No.
	PART I. FINANCIAL INFORMATION
			~~Page No.~~
Item 1.	Financial Statements (Unaudited):


	~~PART I. FINANCIAL INFORMATION~~

~~Item 1.~~	~~Financial Statements (Unaudited):~~

	Condensed Consolidated Balance Sheets as of ~~March 31,~~September 29, 2019 and December 31, 2018			1


	Condensed Consolidated Statements of Operations for the Three and Nine Months Ended ~~March 31,~~September 29, 2019 and ~~April 1,~~September 30, 2018			2


	Condensed Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended ~~March 31,~~September 29, 2019 and ~~April 1,~~September 30, 2018			3


	Condensed Consolidated Statements of Shareholders’ Equity for the Three and Nine Months Ended ~~March 31,~~September 29, 2019 and ~~April 1,~~September 30, 2018			4


	Condensed Consolidated Statements of Cash Flows for the ~~Three~~Nine Months Ended ~~March 31,~~September 29, 2019 and ~~April 1,~~September 30, 2018			5


	Notes to Condensed Consolidated Financial Statements			6

~~Item 2.~~
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations			34 33

~~Item 3.~~
Item 3.	Quantitative and Qualitative Disclosures about Market Risk			43 44

Item 4.	Controls and Procedures			44


~~Item 4.~~ PART II. OTHER INFORMATION	~~Controls and Procedures~~
		44

	~~PART II. OTHER INFORMATION~~

~~Item 1.~~	~~Legal Proceedings~~			45

Item ~~1A.~~1.	~~Risk Factors~~Legal Proceedings			45

~~Item 2.~~
Item 1A.	Risk Factors			45

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds			45

~~Item 4.~~	~~Mine Safety Disclosures~~			45

~~Item 6.~~	~~Exhibits~~
Item 4.	Mine Safety Disclosures			46

Item 6.	Exhibits			46


	March 31, 2019			December 31, 2018
	(in thousands, except per share amount)
ASSETS
Current assets:
Cash and cash equivalents	$	483,728		$	926,752
Marketable securities		421,088			190,096
Accounts receivable, less allowance for doubtful accounts of $1,675 and $1,673 at March 31, 2019 and December 31, 2018, respectively		333,840			291,267
Inventories, net		161,342			153,541
Prepayments and other current assets		194,044			170,826

Total current assets		1,594,042			1,732,482
Property, plant and equipment, net		283,300			279,821
Operating leaseright-of-use assets, net		50,733			—
Marketable securities		91,926			87,731
Deferred tax assets		69,687			70,848
Retirement plans assets		16,791			16,883
Other assets		11,279			11,509
Acquired intangible assets, net		119,372			125,482
Goodwill		379,513			381,850

Total assets	$	2,616,643		$	2,706,606


LIABILITIES
Current liabilities:
Accounts payable	$	118,816		$	100,688
Accrued employees’ compensation and withholdings		89,089			148,566
Deferred revenue and customer advances		84,764			77,711
Other accrued liabilities		67,422			78,272
Contingent consideration		22,803			34,865
Operating lease liabilities		17,176			—
Income taxes payable		41,898			36,185

Total current liabilities		441,968			476,287
Retirement plans liabilities		121,205			117,456
Long-term deferred revenue and customer advances		32,843			32,750
Deferred tax liabilities		19,614			20,662
Long-term other accrued liabilities		9,732			37,547
Long-term contingent consideration		15,510			35,678
Long-term operating lease liabilities		38,062			—
Long-term incomes taxes payable		83,891			83,891
Debt		383,590			379,981

Total liabilities		1,146,415			1,184,252

Commitments and contingencies (See Note S)

SHAREHOLDERS’ EQUITY
Common stock, $0.125 par value, 1,000,000 shares authorized; 172,353 and 175,522 shares issued and outstanding at March 31, 2019 and December 31, 2018, respectively		21,544			21,940
Additionalpaid-in capital		1,679,997			1,671,645
Accumulated other comprehensive loss		(15,706	)		(13,040	)
Accumulated deficit		(215,607	)		(158,191	)

Total shareholders’ equity		1,470,228			1,522,354

Total liabilities and shareholders’ equity	$	2,616,643		$	2,706,606


	For the Three Months Ended
	March 31, 2019			April 1, 2018
	(in thousands, except per share amount)
Revenues:
Products	$	393,442		$	403,925
Services		100,657			83,542

Total revenues		494,099			487,467
Cost of revenues:
Cost of products		165,368			180,958
Cost of services		41,096			36,677

Total cost of revenues (exclusive of acquired intangible assets amortization shown separately below)		206,464			217,635

Gross profit		287,635			269,832
Operating expenses:
Selling and administrative		102,013			90,505
Engineering and development		76,791			74,408
Acquired intangible assets amortization		10,634			7,698
Restructuring and other		5,112			(313	)

Total operating expenses		194,550			172,298

Income from operations		93,085			97,534
Non-operating (income) expense:
Interest income		(8,052	)		(5,981	)
Interest expense		5,713			6,890
Other (income) expense, net		1,445			805

Income before income taxes		93,979			95,820
Income tax (benefit) provision		(15,159	)		8,846

Net income	$	109,138		$	86,974

Net income per common share:
Basic	$	0.63		$	0.45

Diluted	$	0.62		$	0.43

Weighted average common shares—basic		173,532			195,255

Weighted average common shares—diluted		176,972			203,484


	For the Three Months Ended
	March 31, 2019			April 1, 2018
	(in thousands)
Net income	$	109,138		$	86,974
Other comprehensive income, net of tax:
Foreign currency translation adjustment, net of tax of $0, $0, respectively		(4,659	)		10,541
Available-for-sale marketable securities:
Unrealized gains (losses) on marketable securities arising during period, net of tax of $577, $(718), respectively		2,100			(2,687	)
Less: Reclassification adjustment for (gains) losses included in net income, net of tax of $(20), $78, respectively		(70	)		1,668

		2,030			(1,019	)
Defined benefit pension and post-retirement plans:
Amortization of prior service benefit included in net periodic pension and post-retirement benefit, net of tax of $(11), $(18), respectively		(37	)		(61	)

Other comprehensive (loss) income		(2,666	)		9,461

Comprehensive income	$	106,472		$	96,435


	For the Three Months Ended March 31, 2019
	Common Stock Shares Issued			Common Stock Par Value			Additional Paid-in Capital			Accumulated Other Comprehensive Loss			Accumulated Deficit			Total Shareholders’ Equity
	(in thousands)
Balance, December 31, 2018		175,522		$	21,940		$	1,671,645		$	(13,040	)	$	(158,191	)	$	1,522,354
Issuance of common stock to employees under benefit plans, net of shares withheld for payroll tax of $14,318		1,287			161			(210	)								(49	)
Stock-based compensation expense								8,562									8,562
Repurchase of common stock		(4,456	)		(557	)								(150,913	)		(151,470	)
Cash dividends ($0.09 per share)														(15,641	)		(15,641	)
Net income														109,138			109,138
Foreign currency translation adjustment											(4,659	)					(4,659	)
Unrealized gains on marketable securities:
Unrealized gains on marketable securities, net of tax of $577											2,100						2,100
Less: reclassification adjustment for gains included in net income, net of tax $(20)											(70	)					(70	)
Amortization of prior service benefit, net of tax of $(11)											(37	)					(37	)

Balance, March 31, 2019		172,353		$	21,544		$	1,679,997		$	(15,706	)	$	(215,607	)	$	1,470,228


	For the Three Months Ended April 1, 2018
	Common Stock Shares Issued			Common Stock Par Value			Additional Paid-in Capital			Accumulated Other Comprehensive Income			Retained Earnings			Total Shareholders’ Equity
	(in thousands)
Balance, December 31, 2017		195,548		$	24,444		$	1,638,413		$	18,776		$	272,013		$	1,953,646
Issuance of common stock to employees under benefit plans, net of shares withheld for payroll tax of $19,629		1,199			150			(8,129	)								(7,979	)
Stock-based compensation expense								8,472									8,472
Repurchase of common stock		(2,939	)		(368	)								(140,304	)		(140,672	)
Cash dividends ($0.09 per share)														(17,598	)		(17,598	)
Net income														86,974			86,974
Foreign currency translation adjustment											10,541						10,541
Unrealized gains (losses) on marketable securities:
Unrealized losses on marketable securities, net of tax of $(718)											(2,687	)					(2,687	)
Less: reclassification adjustment for losses included in net income, net of tax $78											1,668						1,668
Reclassification of unrealized gains on equity securities, net of tax of $(902)											(3,125	)		3,125			—
Amortization of prior service benefit, net of tax of $(18)											(61	)					(61	)
Reclassification of tax effects resulting from the Tax Reform Act, net of tax of $769											769			(769	)		—
Cumulative effect of changes in accounting principle related to revenue recognition														12,679			12,679

Balance, April 1, 2018		193,808		$	24,226		$	1,638,756		$	25,881		$	216,120		$	1,904,983


	Purchase Price Allocation
	(in thousands)
Goodwill	$	135,976
Intangible assets		80,670
Tangible assets acquired and liabilities assumed:
Current assets		6,039
Non-current assets		1,336
Accounts payable and current liabilities		(7,336	)
Long-term deferred tax liabilities		(18,007	)
Other long-term liabilities		(900	)

Total purchase price	$	197,778


	Fair Value		Estimated Useful Life
	(in thousands)		(in years)
Developed technology	$	58,900		7.0
Trademarks and tradenames		13,240		11.0
Customer relationships		8,500		2.5
Backlog		30		0.2

Total intangible assets	$	80,670		7.2


	For the Three Months Ended
	April 1, 2018
	(in thousands)
Revenue	$	493,017
Net income		85,151
Net income per common share:
Basic	$	0.44

Diluted	$	0.42


	March 31, 2019
	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	$	222,714	$	—	$	—	$	222,714
Cash equivalents		186,520		74,494		—		261,014
Available-for-sale securities:
U.S. Treasury securities		—		191,043		—		191,043
Commercial paper		—		180,604		—		180,604
Corporate debt securities		—		91,244		—		91,244
Certificates of deposit and time deposits		—		11,496		—		11,496
U.S. government agency securities		—		9,629		—		9,629
Debt mutual funds		3,331		—		—		3,331
Non-U.S. government securities		—		378		—		378
Equity securities:
Mutual funds		25,289		—		—		25,289

	$	437,854	$	558,888	$	—	$	996,742
Derivative assets		—		17		—		17

Total	$	437,854	$	558,905	$	—	$	996,759

Liabilities
Contingent consideration	$	—	$	—	$	38,313	$	38,313
Derivative liabilities		—		291		—		291

Total	$	—	$	291	$	38,313	$	38,604


	For the Three Months Ended
	March 31,			April 1,
	2019			2018
	(in thousands)
Balance at beginning of period	$	70,543		$	45,102
Foreign currency impact		(610	)		—
Payments (a)		(34,590	)		(24,553	)
Fair value adjustment (b)		2,970			(4,968	)

Balance at end of period	$	38,313		$	15,581


Liability	March 31, 2019 Fair Value	Valuation Technique	Unobservable Inputs	Weighted Average
	(in thousands)
Contingent consideration (MiR)	$38,313	Monte Carlo Simulation	Revenue volatility	17.0%
			Discount Rate	0.4%


	March 31, 2019
	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	$	191,715	$	144	$	(816	)	$	191,043	$	82,132
Commercial paper		180,610		1		(7	)		180,604		11,237
Corporate debt securities		90,402		1,343		(501	)		91,244		18,150
Certificates of deposit and time deposits		11,497		1		(2	)		11,496		4,419
U.S. government agency securities		9,646		4		(21	)		9,629		4,101
Debt mutual funds		3,255		76		—			3,331		—
Non-U.S. government securities		378		—		—			378		—

	$	487,503	$	1,569	$	(1,347	)	$	487,725	$	120,039


	March 31, 2019
	Cost		Fair Market Value
	(in thousands)
Due within one year	$	421,024	$	421,088
Due after 1 year through 5 years		9,325		9,343
Due after 5 years through 10 years		14,026		13,659
Due after 10 years		39,873		40,304

Total	$	484,248	$	484,394


	Balance Sheet Location		March 31, 2019			December 31, 2018
			(in thousands)
Derivatives not designated as hedging instruments:
Foreign exchange contracts		Prepayments	$	17		$	79
Foreign exchange contracts		Other current liabilities		(291	)		(514	)

Total derivatives			$	(274	)	$	(435	)


	Operating Leases
	(in thousands)
2019	$	15,375
2020		18,967
2021		14,514
2022		10,262
2023		5,719
Thereafter		11,484

Total lease payments		76,321
Less imputed interest		(21,083	)

Total lease liabilities	$	55,238


	Foreign Currency Translation Adjustment			Unrealized Gains (Losses) on Marketable Securities			Retirement Plans Prior Service Credit			Total
	(in thousands)
*Three Months Ended March 31, 2019*
Balance at December 31, 2018, net of tax of $0, $(521), $(1,081), respectively	$	(12,523	)	$	(1,845	)	$	1,328		$	(13,040	)
Other comprehensive income before reclassifications, net of tax of $0, $577, $0, respectively		(4,659	)		2,100			—			(2,559	)
Amounts reclassified from accumulated other comprehensive income, net of tax of $0, $(20), $(11), respectively		—			(70	)		(37	)		(107	)

Net current period other comprehensive income (loss), net of tax of $0, $557, $(11), respectively		(4,659	)		2,030			(37	)		(2,666	)

Balance at March 31, 2019, net of tax of $0, $36, $(1,092), respectively	$	(17,182	)	$	185		$	1,291		$	(15,706	)


Details about Accumulated Other Comprehensive Income Components	For the Three Months Ended					Affected Line Item in the Statements of Operations
	March 31, 2019		April 1, 2018
	(in thousands)
Available-for-sale marketable securities:
Unrealized gains (losses), net of tax of $20, $(78), respectively	$	70	$	(1,668	)	Interest (expense) income
Defined benefit pension and postretirement plans:
Amortization of prior service benefit, net of tax of $11, $18, respectively		37		61		(a)

Total reclassifications, net of tax of $31, $(60), respectively	$	107	$	(1,607	)	Net income


	Industrial Automation			System Test			Wireless Test			Semiconductor Test			Total
	(in thousands)
Balance at December 31, 2018
Goodwill	$	363,358		$	158,699		$	361,819		$	260,540		$	1,144,416
Accumulated impairment losses		—			(148,183	)		(353,843	)		(260,540	)		(762,566	)

		363,358			10,516			7,976			—			381,850
Lemsys acquisition		—			—			—			1,145			1,145
Foreign currency translation adjustment		(3,494	)		—			—			12			(3,482	)

Balance at March 31, 2019
Goodwill		359,864			158,699			361,819			261,697			1,142,079
Accumulated impairment losses		—			(148,183	)		(353,843	)		(260,540	)		(762,566	)

	$	359,864		$	10,516		$	7,976		$	1,157		$	379,513


	March 31, 2019
	Gross Carrying Amount (1)		Accumulated Amortization			Foreign Currency Translation Adjustment			Net Carrying Amount
	(in thousands)
Developed technology	$	337,218	$	(259,129	)	$	(4,812	)	$	73,277
Customer relationships		100,743		(85,469	)		(408	)		14,866
Tradenames and trademarks		64,670		(32,897	)		(973	)		30,800
Non-compete agreement		320		(320	)		—			—
Backlog		780		(349	)		(2	)		429

Total intangible assets	$	503,731	$	(378,164	)	$	(6,195	)	$	119,372


	December 31, 2018
	Gross Carrying Amount		Accumulated Amortization			Foreign Currency Translation Adjustment			Net Carrying Amount
	(in thousands)
Developed technology	$	336,308	$	(252,080	)	$	(4,079	)	$	80,149
Customer relationships		97,153		(83,448	)		(340	)		13,365
Tradenames and trademarks		64,420		(31,653	)		(799	)		31,968
Non-compete agreement		320		(320	)		—			—
Backlog		30		(30	)		—			—

Total intangible assets	$	498,231	$	(367,531	)	$	(5,218	)	$	125,482


Year	Amortization Expense
	(in thousands)
2019 (remainder)		29,184
2020		24,852
2021		14,707
2022		13,815
2023		13,339
Thereafter		23,475


	For the Three Months Ended
	September 29, 2019						September 30, 2018
	United States			Foreign			United States			Foreign
	(in thousands)
Service cost	$	402		$	183		$	538		$	203
Interest cost		1,797			168			1,750			177
Expected return on plan assets		(1,510	)		(7	)		(1,551	)		(5	)
Amortization of prior service cost		—			—			14			—
Settlement loss		—			—			267			—

Total net periodic pension cost	$	689		$	344		$	1,018		$	375


	For the Three Months Ended
	March 31, 2019			April 1, 2018
	(in thousands)
Service cost	$	9		$	9
Interest cost		85			50
Amortization of prior service credit		(48	)		(93	)
Special termination benefits		—			1,626

Total net periodic postretirement benefit cost	$	46		$	1,592


	For the Three Months Ended						Dollar/ Point Change
	March 31, 2019			April 1, 2018			Dollar/ Point Change
	(in millions)
Gross profit	$	287.6		$	269.8		$	17.8
Percent of total revenues		58.2	%		55.4	%		2.8


	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		262,970		255,335		7,635		—		—		—
Retirement plans contributions		126,034		4,993		10,370		11,019		99,652		—
Transition tax payable (1)		91,186		7,295		14,590		14,590		54,711		—
Operating lease obligations		76,323		20,487		31,178		14,346		10,312		—
Fair value of contingent consideration		38,313		22,803		15,510		—		—		—
Interest on long-term debt		28,750		5,750		11,500		11,500		—		—
Other long-term liabilities reflected on the balance sheet under GAAP (2)		62,189		—		25,571		7,272		—		29,346

Total	$	1,145,765	$	316,663	$	116,354	$	518,727	$	164,675	$	29,346


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
January 1, 2019 – January 27, 2019		2,424			$	31.59				2,424	$	599,950
January 28, 2019 – February 24, 2019		1,240			$	37.58				853	$	567,513
February 25, 2019 – March 31, 2019		1,183			$	40.24				1,180	$	520,054

		4,847	(1	)	$	35.24	(1	)		4,457

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