UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONCOMMISSIO
N
Washington, D.C. 20549
 
 
FORM
10-Q
 
 
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended OctoberJuly 2, 20222023
OR
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from
    
    
    
    
to
    
    
    
    
Commission File
No. 001-06462
 
 
TERADYNE, INC.
(Exact name of registrant as specified in its charter)
 
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)
978-370-2700
(Registrant’s Telephone Number, Including Area Code)
 
 
Securities registered pursuant to Section 12(b) of the Act:
 
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
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to the filing requirements for the past 90 days.    Yes  ☒    No  ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant
to
Rule 405 of Regulation
S-T
(232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files)    Yes  ☒    No  ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated
filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company”, and “emerging growth company” in
Rule 12b-2
of the Exchange Act (check one):
 
Large accelerated filer   Accelerated filer 
    
Non-accelerated
filer
   Emerging growth company 
    
Smaller reporting company      
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule
12b-2
of the Exchange Act
)Act).    Yes  ☐    No  ☒
The number of shares outstanding of the registrant’s only class of Common Stock as of OctoberJuly 31, 2022 2023
,
was 155,756,146154,013,736 shares.





TERADYNE, INC.
INDE
X
 


TERADYNE, INC.

INDEX

  
Page No.
 

Item 1.

Financial Statements (Unaudited):

  

Item 1.
Condensed Consolidated Balance Sheets as of October 2, 2022 and December 31, 2021Financial Statements (Unaudited):

   1 

Condensed Consolidated Balance Sheets as of July 2, 2023 and December 31, 20221
Condensed Consolidated Statements of Operations for the Three and NineSix Months ended OctoberJuly 2, 20222023 and OctoberJuly 3, 20212022

   2 

Condensed Consolidated Statements of Comprehensive Income for the Three and NineSix Months ended OctoberJuly 2, 20222023 and OctoberJuly 3, 20212022

   3 

Condensed Consolidated Statements of Convertible Common Shares and Shareholders’ Equity for the Three and NineSix Months ended OctoberEnded July 2, 20222023 and OctoberJuly 3, 20212022

   4 

Condensed Consolidated Statements of Cash Flows for the NineSix Months Ended OctoberJuly 2, 20222023 and OctoberJuly 3, 20212022

   5 

Notes to Condensed Consolidated Financial Statements

   6 
Item 2.
 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

   3028 
Item 3.
 

Quantitative and Qualitative Disclosures about Market Risk

   41
Item 4.

Controls and Procedures

4237 
Item 4.
 

Controls and Procedures

38
  
Item 1.
 

Legal Proceedings

   4238 
Item 1A.
 

Risk Factors

   4238 
Item 2.
 

Unregistered Sales of Equity Securities and Use of Proceeds

   4439 
Item 4.
 

Mine Safety Disclosures

   4539 
Item 6.5.
 

ExhibitsOther Information

   4639
Item 6.
Exhibits40 


PART I
 
Item 1:
Financial Statements
TERADYNE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)

 
  
October 2, 2022
 
December 31, 2021
   
July 2,

2023
 
December 31,
2022
 
  
(in thousands,
except per share amount)
       
  
(in thousands,
except per share amount)
 
ASSETS
  
 
     
Current assets:
  
 
     
Cash and cash equivalents
  
$
710,746
 
 
$
1,122,199
 
  $613,208  $854,773 
Marketable securities
  
 
65,310
 
 
 
244,231
 
   95,199   39,612 
Accounts receivable, less allowance for credit losses
of $1,865
and $2,012
at October 2, 2022
and December 31, 2021, respectively
  
 
530,349
 
 
 
550,749
 
Accounts receivable, less allowance for credit losses of $2,232 and $1,955 at July 2, 2023 and December 31, 2022, respectively
   493,234   491,145 
Inventories, net
  
 
310,754
 
 
 
243,330
 
   347,295   325,019 
Prepayments
  
 
502,678
 
 
 
406,266
 
   560,682   532,962 
Other current assets
  
 
7,717
 
 
 
9,452
 
   14,222   14,404 
  
 
  
 
   
 
  
 
 
Total current assets   2,127,554   2,576,227    2,123,840   2,257,915 
Property, plant and equipment, net
   415,181   387,240    437,077   418,683 
Operating lease right-of-use assets, net
   61,430   68,807    75,889   73,734 
Marketable securities   111,039   133,858    104,685   110,777 
Deferred tax assets
   130,207   102,428    152,471   142,784 
Retirement plans assets   13,805   15,110    11,514   11,761 
Other assets   29,311   24,096    32,699   28,925 
Acquired intangible assets, net   55,580   75,635    44,611   53,478 
Goodwill   375,799   426,024    412,110   403,195 
  
 
  
 
   
 
  
 
 
Total assets  $3,319,906  $3,809,425   $3,394,896  $3,501,252 
  
 
  
 
 
  
 
  
 
 
LIABILITIES
  
 
     
Current liabilities:
  
 
     
Accounts payable  $167,975  $153,133   $153,157  $139,722 
Accrued employees’ compensation and withholdings   168,102   253,667    163,653   212,266 
Deferred revenue and customer advances   143,591   146,185    120,085   148,285 
Other accrued liabilities   126,457   124,187    114,435   112,271 
Operating lease liabilities   17,079   19,977    20,212   18,594 
Income taxes payable   64,141   88,789    65,437   65,010 
Current debt   14,596   19,182    32,806   50,115 
  
 
  
 
   
 
  
 
 
Total current liabilities   701,941   805,120    669,785   746,263 
Retirement plans liabilities   137,317   151,141    124,040   116,005 
Long-term deferred revenue and customer advances   48,488   54,921    38,999   45,131 
Long-term other accrued liabilities   15,506   15,497    16,475   15,981 
Deferred tax liabilities   1,327   6,327    1,304   3,267 
Long-term operating lease liabilities
   51,872   56,178    65,079   64,176 
Long-term incomes taxes payable
   59,135   67,041    44,331   59,135 
Debt   50,195   89,244 
  
 
  
 
   
 
  
 
 
Total liabilities   1,065,781   1,245,469    960,013   1,049,958 
  
 
  
 
   
 
  
 
 
Commitments and contingencies (Note Q)
       
Mezzanine equity:
     
Convertible common shares   —     1,512 
Commitments and contingencies (Note P)
       
SHAREHOLDERS’ EQUITY
  
 
     
Common stock
, $0.125 par value, 1,000,000 shares authorized; 155,782 and 162,251
shares issued and outstanding at
October 2, 2022 and December 31, 2021, respectively
   19,473   20,281 
Common stock, $0.125 par value, 1,000,000 shares authorized; 154,148 and 155,759 shares issued and outstanding at July 2, 2023 and December 31, 2022, respectively
   19,269   19,470 
Additional paid-in capital
   1,746,779   1,811,545    1,784,590   1,755,963 
Accumulated other comprehensive loss   (84,779  (5,948   (30,472  (49,868
Retained earnings   572,652   736,566    661,496   725,729 
  
 
  
 
   
 
  
 
 
Total shareholders’ equity   2,254,125   2,562,444    2,434,883   2,451,294 
  
 
  
 
   
 
  
 
 
Total liabilities, convertible common shares and shareholders’ equity  $3,319,906  $3,809,425 
Total liabilities and shareholders’ equity
  $3,394,896  $3,501,252 
  
 
  
 
   
 
  
 
 
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, 2021,2022, are an integral part of the condensed consolidated financial statements.
 
1

TERADYNE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)

 
  
For the Three Months

Ended
 
For the Six Months

Ended
 
  
For the Three Months

Ended
 
For the Nine Months

Ended
   
July 2,
2023
 
July 3,
2022
 
July 2,

2023
 
July 3,

2022
 
  
October 2,
2022
 
October 3,
2021
 
October 2,
2022
 
October 3,
2021
           
  
(in thousands, except per share amount)
   
(in thousands, except per share amount)
 
Revenues:
              
Products
  $676,252  $825,448  $2,000,081  $2,437,901   $540,375  $697,954  $1,013,793  $1,323,829 
Services
   150,821   125,053   423,128   379,934    144,062   142,812   288,173   272,307 
  
 
  
 
  
 
  
 
   
 
  
 
  
 
  
 
 
Total revenues
   827,073   950,501   2,423,209   2,817,835    684,437   840,766   1,301,966   1,596,136 
Cost of revenues:
                  
Cost of products
   277,539   333,229   795,229   989,859    217,011   274,674   415,675   517,690 
Cost of services
   64,155   46,271   181,279   148,368    64,934   59,703   127,379   117,124 
  
 
  
 
  
 
  
 
   
 
  
 
  
 
  
 
 
Total cost of revenues (exclusive of acquired intangible assets amortization shown separately below)
   341,694   379,500   976,508   1,138,227    281,945   334,377   543,054   634,814 
  
 
  
 
  
 
  
 
   
 
  
 
  
 
  
 
 
Gross profit
   485,379   571,001   1,446,701   1,679,608    402,492   506,389   758,912   961,322 
Operating expenses:
                  
Selling and administrative
   135,632   134,829   415,351   404,812    145,695   139,533   296,650   279,718 
Engineering and development
   111,715   107,220   331,781   317,644    105,706   111,951   211,468   220,067 
Acquired intangible assets amortization
   4,729   5,355   14,663   16,293    4,825   4,871   9,627   9,934 
Restructuring and other
   1,796   1,197   19,554   (3,426   6,358   2,044   8,395   17,758 
  
 
  
 
  
 
  
 
   
 
  
 
  
 
  
 
 
Total operating expenses
   253,872   248,601   781,349   735,323    262,584   258,399   526,140   527,477 
  
 
  
 
  
 
  
 
   
 
  
 
  
 
  
 
 
Income from operations
   231,507   322,400   665,352   944,285    139,908   247,990   232,772   433,845 
Non-operating
(income) expense:
                  
Interest income
   (1,318  (626  (2,972  (2,066   (6,354  (951  (11,613  (1,653
Interest expense
   779   3,785   2,704   15,354    1,045   913   2,031   1,925 
Other (income) expense, net
   5,849   21,486   20,472   25,223    815   9,436   868   14,622 
  
 
  
 
  
 
  
 
   
 
  
 
  
 
  
 
 
Income before income taxes
   226,197   297,755   645,148   905,774    144,402   238,592   241,486   418,951 
Income tax provision
   42,712   41,037   101,948   115,225    24,352   40,805   37,905   59,236 
  
 
  
 
  
 
  
 
   
 
  
 
  
 
  
 
 
Net income
  $183,485  $256,718  $543,200  $790,549   $120,050  $197,787  $203,581  $359,715 
  
 
  
 
  
 
  
 
   
 
  
 
  
 
  
 
 
Net income per common share:
                  
Basic
  $1.17  $1.56  $3.41  $4.77   $0.78  $1.24  $1.31  $2.24 
  
 
  
 
  
 
  
 
   
 
  
 
  
 
  
 
 
Diluted
  $1.10  $1.41  $3.17  $4.26   $0.73  $1.16  $1.23  $2.07 
  
 
  
 
  
 
  
 
   
 
  
 
  
 
  
 
 
Weighted average common shares—basic
   156,364   164,583   159,325   165,690    154,760   159,563   155,332   160,805 
  
 
  
 
  
 
  
 
   
 
  
 
  
 
  
 
 
Weighted average common shares—diluted
   166,733   181,987   171,156   185,492    164,751   171,159   165,530   173,367 
  
 
  
 
  
 
  
 
   
 
  
 
  
 
  
 
 
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, 2021,2022, are an integral part of the condensed
consolidated financial statements.
 
2

TERADYNE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)

 
  
For the Three Months

Ended
 
For the Six Months

Ended
 
  
For the Three Months

Ended
 
For the Nine Months

Ended
   
July 2,
2023
 
July 3,
2022
 
July 2,
2023
 
July 3,
2022
 
  
October 2,
2022
 
October 3,
2021
 
October 2,
2022
 
October 3,
2021
           
  
(in thousands)
   
(in thousands)
 
Net income
  $183,485  $256,718  $543,200  $790,549   $120,050  $197,787  $203,581  $359,715 
Other comprehensive income, net of tax:
                  
Foreign currency translation adjustment, net of tax of $0, $0, $0, $0, respectively
   (28,951  (10,698  (66,258  (26,672   2,943   (29,230  12,250   (37,307
Available-for-sale
marketable securities:
                  
Unrealized losses arising during period, net of tax of $(997), $(44), $(3,570), $(516), respectively
   (3,581  (176  (13,491  (1,952
Less: Reclassification adjustment for losses (gains) included in net income, net of tax of $(11), $(65), $48, $(186), respectively
   177   (229  386   (670
Unrealized (losses) gains on marketable securities arising during period, net of tax of $(180), $(1,240), $323, and $(2,573), respectively
   (568  (4,522  1,726   (9,910
Less: Reclassification adjustment for losses included in net income, net of tax of $8, $77, $10,
$59, respectively
   28   274   33   209 
  
 
  
 
  
 
  
 
   
 
  
 
  
 
  
 
 
   (3,404  (405  (13,105  (2,622   (540  (4,248  1,759   (9,701
Cash flow hedges:
                  
Unrealized gains arising during period, net of tax of $0, $0, $0, $0, respectively
   537   —     537   —   
Unrealized gains arising during period, net
of
tax of $920, $0, $1,088, $
0
respectively
   3,270   —     3,866   —   
Less: Reclassification adjustment for losses included in net income, net of tax of $91, $0, $428, $0 respectively
   323   —     1,524   —   
  
 
  
 
  
 
  
 
 
   3,593   —     5,390   —   
Defined benefit post-retirement plan:
                  
Amortization of prior service credit, net of tax of $0, $0, $(2), $(2), respectively
   (2  (2  (5  (5
Amortization of prior service credit, net of tax of $0, $0, $(1), $(1), respectively
   (2  (2  (3  (3
  
 
  
 
  
 
  
 
   
 
  
 
  
 
  
 
 
Other comprehensive loss
   (31,820  (11,105  (78,831  (29,299
Other comprehensive income (loss)
   5,994   (33,480  19,396   (47,011
  
 
  
 
  
 
  
 
   
 
  
 
  
 
  
 
 
Comprehensive income
  $151,665  $245,613  $464,369  $761,250   $126,044  $164,307  $222,977  $312,704 
  
 
  
 
  
 
  
 
   
 
  
 
  
 
  
 
 
The accompanying notes, together with the Notes to Consolidated Financial Statements included in Teradyne’s
Annual Report on Form
Form 10-K
for the year ended December 31, 2021,2022, are an integral part of the condensed
consolidated financial statements.
 
3

TERADYNE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CONVERTIBLE COMMON SHARES
AND SHAREHOLDERS’ EQUITY
(Unaudited)
 
    
Shareholders’ Equity
     
Shareholders’ Equity
 
  
Convertible
Common
Shares
Value
 
Common
Stock
Shares
 
Common
Stock
Par
Value
 
Additional
Paid-in

Capital
 
Accumulated
Other
Comprehensive
(Loss) Income
 
Retained
Earnings
 
Total
Shareholders’
Equity
   
Convertible
Common
Shares
Value
 
Common
Stock Shares
 
Common
Stock Par
Value
 
Additional
Paid-in

Capital
 
Accumulated
Other
Comprehensive
(Loss) Income
 
Retained
Earnings
 
Total
Shareholders’
Equity
 
    
(in thousands)
                 
    
(in thousands)
 
For the Three Months Ended October 2, 2022
  
 
 
 
 
 
 
Balance, July 3, 2022  $
  
   157,880  $19,735  $1,721,586  $(52,959 $610,234  $2,298,596 
For the Three Months Ended July 2, 2023
        
Balance, April 2, 2023
  $—     155,445  $19,431  $1,772,352  $(36,466 $694,145  $2,449,462 
Net issuance of common stock under stock-based plans
     169   21   12,031       12,052     52   7   161     168 
Stock-based compensation expense
         13,194       13,194       12,077     12,077 
Repurchase of common stock
     (2,267  (283      (203,918  (204,201    (1,349  (169    (135,668  (135,837
Cash dividends ($
0.11
per share)
             (17,149  (17,149
Cash dividends ($0.11 per share)
        (17,031  (17,031
Settlements of convertible notes     207   26   (58      (32    50   6   (6    —   
Exercise of convertible notes hedge call options     (207  (26  26       
  
     (50  (6  6     —   
Net income             183,485   183,485         120,050   120,050 
Other comprehensive loss           (31,820    (31,820
Other comprehensive income
       5,994    5,994 
  
 
  
 
  
 
  
 
  
 
  
 
  
 
   
 
  
 
  
 
  
 
  
 
  
 
  
 
 
Balance, October 2, 2022  $
  
   155,782  $19,473  $1,746,779  $(84,779 $572,652  $2,254,125 
Balance, July 2, 2023
  $—     154,148  $19,269  $1,784,590  $(30,472 $661,496  $2,434,883 
  
 
  
 
  
 
  
 
  
 
  
 
  
 
   
 
  
 
  
 
  
 
  
 
  
 
  
 
 
For the Three Months Ended October 3, 2021               
Balance, July 4, 2021  $21,386   165,444  $20,680  $1,772,302  $15,322  $684,952  $2,493,256 
For the Three Months Ended July 3, 2022
        
Balance, April 3, 2022
  $—     161,053  $20,132  $1,711,690  $(19,479 $762,189  $2,474,532 
Net issuance of common stock under stock-based plans     8   1   (259      (258    33   4   (1,675    (1,671
Stock-based compensation expense         10,042       10,042       11,658     11,658 
Repurchase of common stock     (1,724  (215      (212,781  (212,996    (3,206  (401    (333,933  (334,334
Cash dividends
($0.10
per share)
             (16,452  (16,452
Cash dividends ($0.11 per share)
        (17,561  (17,561
Settlements of convertible notes     5,589   699   636,798       637,497     495   62   (149    (87
Exercise of convertible notes hedge call options     (5,589  (699  (637,015      (637,714    (495  (62  62     —   
Convertible common shares   (18,505      18,505       18,505 
Cumulative-effect of change in accounting principle related to convertible debt
        1,752   1,752 
Net income             256,718   256,718         197,787   197,787 
Other comprehensive loss           (11,105    (11,105       (33,480   (33,480
  
 
  
 
  
 
  
 
  
 
  
 
  
 
   
 
  
 
  
 
  
 
  
 
  
 
  
 
 
Balance, October 3, 2021  $2,881   163,728  $20,466  $1,800,373  $4,217  $712,437  $2,537,493 
Balance, July 3, 2022
  $—     157,880  $19,735  $1,721,586  $(52,959 $610,234  $2,298,596 
  
 
  
 
  
 
  
 
  
 
  
 
  
 
   
 
  
 
  
 
  
 
  
 
  
 
  
 
 
For the Nine Months Ended October 2, 2022               
For the Six Months Ended July 2, 2023
        
Balance, December 31, 2022
  $—     155,759  $19,470  $1,755,963  $(49,868 $725,729  $2,451,294 
Net issuance of common stock under stock-based plans
    631   79   (3,782    (3,703
Stock-based compensation expense
      32,409     32,409 
Repurchase of common stock
    (2,242  (280    (233,604  (233,884
Cash dividends ($0.22 per share)
        (34,210  (34,210
Settlements of convertible notes
    375   47   (47    —   
Exercise of convertible notes hedge call options
    (375  (47  47     —   
Net income
        203,581   203,581 
Other comprehensive income
       19,396    19,396 
  
 
  
 
  
 
  
 
  
 
  
 
  
 
 
Balance, July 2, 2023
  $—     154,148  $19,269  $1,784,590  $(30,472 $661,496  $2,434,883 
  
 
  
 
  
 
  
 
  
 
  
 
  
 
 
For the Six Months Ended July 3, 2022
        
Balance, December 31, 2021  $1,512   162,251  $20,281  $1,811,545  $(5,948 $736,566  $2,562,444   $1,512   162,251  $20,281  $1,811,545  $(5,948 $736,566  $2,562,444 
Net issuance of common stock under stock-based plans     754   95   (4,287      (4,192    585   73   (16,318    (16,245
Stock-based compensation expense         39,056       39,056       25,862     25,862 
Repurchase of common stock     (7,223  (903      (749,097  (750,000    (4,956  (619    (545,179  (545,798
Cash dividends
($0.33
per share)
             (52,617  (52,617
Cash dividends ($0.22 per share)
        (35,470  (35,470
Settlements of convertible notes     1,211   151   (364      (213    1,004   125   (306    (181
Exercise of convertible notes hedge call options     (1,211  (151  151       
  
     (1,004  (125  125     —   
Convertible common shares   (1,512      1,512       1,512 
Cumulative-effect of change in accounting principle related
to convertible debt
         (100,834    94,600   (6,234   (1,512    (99,322   94,602   (4,720
Net income             543,200   543,200         359,715   359,715 
Other comprehensive loss           (78,831    (78,831       (47,011   (47,011
  
 
  
 
  
 
  
 
  
 
  
 
  
 
   
 
  
 
  
 
  
 
  
 
  
 
  
 
 
Balance, October 2, 2022  $
  
   155,782  $19,473  $1,746,779  $(84,779 $572,652  $2,254,125 
Balance, July 3, 2022
  $—     157,880  $19,735  $1,721,586  $(52,959 $610,234  $2,298,596 
  
 
  
 
  
 
  
 
  
 
  
 
  
 
   
 
  
 
  
 
  
 
  
 
  
 
  
 
 
For the Nine Months Ended October 3, 2021               
Balance, December 31, 2020  $3,787   166,123  $20,765  $1,765,323  $33,516  $387,414  $2,207,018 
Net issuance of common stock under stock-based plans     893   112   (48      64 
Stock-based compensation expense         35,915       35,915 
Repurchase of common stock     (3,288  (411      (415,769  (416,180
Cash dividends
($0.30
per share)
             (49,757  (49,757
Settlements of convertible notes     7,178   897   840,305       841,202 
Exercise of convertible notes hedge call options     (7,178  (897  (842,028      (842,925
Convertible common shares   (906      906       906 
Net income             790,549   790,549 
Other comprehensive loss           (29,299    (29,299
  
 
  
 
  
 
  
 
  
 
  
 
  
 
 
Balance, October 3, 2021  $2,881   163,728  $20,466  $1,800,373  $4,217  $712,437  $2,537,493 
  
 
  
 
  
 
  
 
  
 
  
 
  
 
 
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, 2021,2022, are an integral part of the condensed
consolidated financial statements.
 
4

TERADYNE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

 
  
For the Six Months Ended
 
  
For the Nine Months

Ended
   
July 2,

2023
 
July 3,

2022
 
  
October 2,
2022
 
October 3,
2021
       
  
(in thousands)
   
(in thousands)
 
Cash flows from operating activities:
        
Net income
  $543,200  $790,549   $203,581  $359,715 
Adjustments to reconcile net income from operations to net cash provided by operating activities:
          
Depreciation
   67,902   67,866    45,231   44,460 
Stock-based compensation
   37,420   34,649    32,449   25,122 
Provision for excess and obsolete inventory
   18,929   11,775    11,341   6,695 
Amortization
   15,012   27,626    9,580   10,095 
Losses (gains) on investments
   11,436   (4,750
Deferred taxes
   (28,373  (10,732   (13,571  (23,597
Contingent consideration fair value adjustments
   —     (7,227
Loss on convertible debt conversions
   —     25,397 
Retirement plans actuarial gains
   —     (627
(Gains) losses on investments
   (4,745  8,973 
Other
   740   243    (92  522 
Changes in operating assets and liabilities
          
Accounts receivable
   4,248   (103,299   (2,693  (146,384
Inventories
   (68,817  21,943    (13,845  (46,682
Prepayments and other assets
   (94,331  (138,564   (29,584  (94,751
Accounts payable and other liabilities
   (71,682  65,064    (24,514  (43,611
Deferred revenue and customer advances
   (5,896  8,699    (34,938  14,163 
Retirement plans contributions
   (3,897  (4,123   (2,482  (2,618
Income taxes
   (31,370  (17,406   (13,614  10,815 
  
 
  
 
   
 
  
 
 
Net cash provided by operating activities
   394,521   767,083    162,104   122,917 
  
 
  
 
   
 
  
 
 
Cash flows from investing activities:
          
Purchases of property, plant and equipment
   (128,672  (103,162   (80,702  (89,743
Purchases of marketable securities
   (267,175  (509,470   (99,018  (247,881
Proceeds from sales of marketable securities
   259,200   209,437    35,577   143,642 
Proceeds from maturities of marketable securities
   182,092   571,277    21,997   139,652 
Purchase of investment
   —     (12,000
Proceeds from life insurance
   460   —   
  
 
  
 
   
 
  
 
 
Net cash provided by investing activities
   45,445   156,082 
Net cash used for investing activities
   (121,686  (54,330
  
 
  
 
   
 
  
 
 
Cash flows from financing activities:
          
Issuance of common stock under stock purchase and stock option plans
   28,733   32,590 
Repurchase of common stock
   (750,000  (406,180   (227,845  (532,799
Payments of convertible debt principal
   (52,005  (301,997
Dividend payments
   (52,578  (49,711   (34,184  (35,442
Payments related to net settlement of employee stock compensation awards
   (32,987  (32,045   (20,308  (32,780
Payments of convertible debt principal
   (17,458  (42,292
Issuance of common stock under stock purchase and stock option plans
   16,599   16,536 
  
 
  
 
   
 
  
 
 
Net cash used for financing activities
   (858,837  (757,343   (283,196  (626,777
  
 
  
 
   
 
  
 
 
Effects of exchange rate changes on cash and cash equivalents
   7,418   (489   1,213   8,014 
  
 
  
 
   
 
  
 
 
(Decrease) increase in cash and cash equivalents
   (411,453  165,333 
Decrease in cash and cash equivalents
   (241,565  (550,176
Cash and cash equivalents at beginning of period
   1,122,199   914,121    854,773   1,122,199 
  
 
  
 
   
 
  
 
 
Cash and cash equivalents at end of period
  $710,746  $1,079,454   $613,208  $572,023 
  
 
  
 
   
 
  
 
 
Non-cash
investing activities:
          
Capital expenditures incurred but not yet paid:
  $2,349  $2,286   $1,741  $1,855 
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, 2021,2022, are an integral part of the condensed
consolidated financial statements.
 
5

TERADYNE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
A. THE COMPANY
Teradyne, Inc. (“Teradyne”) is a leading global supplier of automationautomated test equipment for test and industrial applications.robotics solutions. Teradyne designs, develops, manufactures and sells automatic test systems and robotics products. Teradyne’s automatic test systems are used to test semiconductors, wireless products, data storage and complex electronics systems in many industries including consumer electronics, wireless, automotive, industrial, computing, communications, and aerospace and defense industries. Teradyne’s industrial automationrobotics products include collaborative robotic arms and autonomous mobile robots and advanced robotic control software(“AMRs”) used by global manufacturing, logistics and light industrial customers to improve quality, increase manufacturing and material handling efficiency and decrease manufacturing and logistics costs. Teradyne’s automatic test equipment and industrial automationrobotics products and services include:
 
semiconductor test (“Semiconductor Test”) systems;
 
storage and system level test (“Storage Test”) systems, defense/aerospace (“Defense/Aerospace”) test instrumentation and systems, and circuit-board test and inspection (“Production Board Test”) systems (collectively these products represent “System Test”);
 
wireless test (“Wireless Test”) systems; and
 
industrial automationrobotics (“Industrial Automation”Robotics”) products.
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 may have been reclassified to conform to the current year presentation. The December 31, 20212022 condensed consolidated balance sheet data was derived from audited financial statements but does not include all disclosures required by United States of America generally accepted accounting principles (“U.S. GAAP”) for complete financial statements. The accompanying financial information should be read in conjunction with the consolidated financial statements and notes thereto contained in Teradyne’s Annual Report on Form
10-K,
filed with the U.S. Securities and Exchange Commission (“SEC”) on February 23, 2022,22, 2023, for the year ended December 31, 2021.2022.
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 of assets, liabilities, revenues and expenses, and related disclosures of contingent liabilities. On an
on-going
basis, management evaluates its estimates, including those related to inventories, investments, goodwill, intangible and other long-lived assets, accounts receivable, income taxes, deferred tax assets and liabilities, pensions, warranties, contingent consideration liabilities, and loss contingencies. Management bases its estimates on historical experience and on appropriate and customary assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgements about the carrying values of assets and liabilities that are not readily apparent from other sources. Due to the
COVID-19
pandemic, there has been uncertainty and disruption in the global economy and our markets. Management is not aware of any specific event or circumstance that would require an update to its estimates or judgments or a revision of the carrying value of its assets or liabilities as of the date of issuance of this Quarterly Report on Form
10-Q.
These estimates may change, as new events occur and additional information is obtained. Actual results may differ significantly from these estimates under different assumptions or conditions.
Convertible Debt
Teradyne adopted Accounting Standards Update (“ASU”) ASU
2020-06
“Debt—Debt with Conversion and Other Options and Derivatives and Hedging—Contracts in Entity’s Own Equity,”
on January 1, 2022 using the modified retrospective method of adoption
.
Under ASU
2020-06,
Teradyne accounts for a convertible debt instrument as a single liability measured at its amortized cost, as long as no other features require bifurcation and recognition as derivatives. Unsettled shares are recorded in current debt, and there is no recognition of a debt discount, which was previously amortized to interest expense. Teradyne uses the
if-converted
method in the diluted earnings per share (“EPS”) calculation for convertible instruments. As a result of adoption, Teradyne recorded an increase of $1.4 million to current debt for unsettled shares, an increase of $6.6 million to long-term debt for unamortized debt discount, an increase of $1.8 million to deferred tax assets and an increase to retained earnings of $94.6 million for the reclassification of the equity component. Mezzanine equity representing unsettled shares value was reduced to zero and additional
paid-in
capital was reduced by $100.8 million.
6

C. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
For the ninesix months ended OctoberJuly 2, 2022,2023, there were
no
recently issued accounting pronouncements that had, or are expected to have, a material impact to Teradyne’s consolidated financial statements.
D. INVESTMENT IN OTHER COMPANY
6

Contents
E.
D. REVENUE
Disaggregation of Revenue
The following table provides information about disaggregated revenue by timing of revenue recognition, primary geographical market, and major product lines. During the three months ended October 2, 2022 Teradyne combined Mobile Industrial Robots and AutoGuide into one business unit. Revenues for all periods shown below have been combined accordingly.

 
  
Semiconductor Test
     
Industrial
Automation
          
  
System
on-a-Chip
  
Memory
  
System
Test
  
Universal
Robots
  
Mobile
Industrial
Robots
  
Wireless

Test
  
Corporate

and

Eliminations
  
Total
 
  
(in thousands)
 
For the Three Months Ended October 2, 2022 (1)
                                
Timing of Revenue Recognition
                                
Point in Time
 $383,801  $117,943  $93,248  $71,300  $15,025  $42,885  $—    $724,202 
Over Time
  66,614   7,346   22,906   2,062   680   3,263   —     102,871 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
Total
 $450,415  $125,289  $116,154  $73,362  $15,705  $46,148  $—    $827,073 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
Geographical Market
                                
Asia Pacific
 $399,323  $122,839  $73,768  $18,850  $2,917  $34,420  $—    $652,117 
Americas
  31,719   2,129   35,865   26,515   8,877   9,481   —     114,586 
Europe, Middle East and Africa
  19,373   321   6,521   27,997   3,911   2,247   —     60,370 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
Total
 $450,415  $125,289  $116,154  $73,362  $15,705  $46,148  $—    $827,073 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
For the Three Months Ended October 3, 2021 (1)
                                
Timing of Revenue Recognition
                                
Point in Time
 $508,747  $105,454  $88,155  $76,008  $12,577  $65,409  $(63) $856,287 
Over Time
  66,270   7,761   14,450   1,742   687   3,304   —     94,214 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
Total
 $575,017  $113,215  $102,605  $77,750  $13,264  $68,713  $(63) $950,501 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
Geographical Market
                                
Asia Pacific
 $519,886  $110,362  $62,757  $19,654  $2,788  $54,344  $—    $769,791 
Americas
  29,119   2,281   34,560   23,429   5,321   11,352   (63)  105,999 
Europe, Middle East and Africa
  26,012   572   5,288   34,667   5,155   3,017   —     74,711 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
Total
 $575,017  $113,215  $102,605  $77,750  $13,264  $68,713  $(63) $950,501 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
For the Nine Months Ended October 2, 2022 (2)
                                
Timing of Revenue Recognition
                                
Point in Time
 $1,102,467  $281,456  $317,230  $234,352  $49,570  $152,079  $—    $2,137,154 
Over Time
  193,996   21,473   52,295   6,268   2,582   9,441   —     286,055 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
Total
 $1,296,463  $302,929  $369,525  $240,620  $52,152  $161,520  $—    $2,423,209 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
Geographical Market
                                
Asia Pacific
 $1,153,599  $294,986  $243,135  $54,828  $10,826  $113,472  $—    $1,870,846 
Americas
  90,148   6,727   105,884   81,857   24,670   36,628   —     345,914 
Europe, Middle East and Africa
  52,716   1,216   20,506   103,935   16,656   11,420   —     206,449 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
Total
 $1,296,463  $302,929  $369,525  $240,620  $52,152  $161,520  $—    $2,423,209 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
7

 
Semiconductor Test
   
Industrial
Automation
         
Semiconductor Test
       
Robotics
           
 
System
on-a-Chip
 
Memory
 
System
Test
 
Universal
Robots
 
Mobile
Industrial
Robots
 
Wireless

Test
 
Corporate

and

Eliminations
 
Total
                               
 
(in thousands)
   
System
on-a-Chip
   
Memory
   
System
Test
   
Universal
Robots
   
Mobile
Industrial
Robots
   
Wireless

Test
   
Corporate

and

Eliminations
 
Total
 
For the Nine Months Ended October 3, 2021 (2)
                
                              
  
(in thousands)
 
For the Three Months Ended July 2, 2023 (1)
                
Timing of Revenue Recognition
                                
Point in Time
 $1,548,895  $291,578  $295,666  $214,427  $41,612  $154,908  $(352 $2,546,734  $282,080  $112,547  $76,801  $55,737  $12,770  $40,261  $—    $580,196 
Over Time
  188,022   21,776   44,595   5,001   2,111   9,596   —     271,101   72,614   7,467   17,471   2,116   1,011   3,562   —     104,241 
 
 
  
 
  
 
  
 
  
 
  
 
  
 
  
 
  
 
  
 
  
 
  
 
  
 
  
 
  
 
  
 
 
Total
 $1,736,917  $313,354  $340,261  $219,428  $43,723  $164,504  $(352 $2,817,835  $354,694  $120,014  $94,272  $57,853  $13,781  $43,823  $—    $684,437 
 
 
  
 
  
 
  
 
  
 
  
 
  
 
  
 
  
 
  
 
  
 
  
 
  
 
  
 
  
 
  
 
 
Geographical Market
                                
Asia Pacific
 $1,618,117  $301,562  $223,507  $55,531  $8,674  $133,678  $—    $2,341,069  $303,062  $115,250  $41,644  $14,883  $2,291  $22,362  $—    $499,492 
Americas
  71,562   9,373   98,475   66,390   17,799   24,228   (352  287,475   32,191   4,286   40,163   22,832   6,086   19,491   —     125,049 
Europe, Middle East and Africa
  47,238   2,419   18,279   97,507   17,250   6,598   —     189,291   19,441   478   12,465   20,138   5,404   1,970   —     59,896 
 
 
  
 
  
 
  
 
  
 
  
 
  
 
  
 
  
 
  
 
  
 
  
 
  
 
  
 
  
 
  
 
 
Total
 $1,736,917  $313,354  $340,261  $219,428  $43,723  $164,504  $(352 $2,817,835  $354,694  $120,014  $94,272  $57,853  $13,781  $43,823  $—    $684,437 
 
 
  
 
  
 
  
 
  
 
  
 
  
 
  
 
  
 
  
 
  
 
  
 
  
 
  
 
  
 
  
 
 
For the Three Months Ended July 3, 2022 (1)
                
Timing of Revenue Recognition
                
Point in Time
 $395,211  $74,790  $118,692  $80,409  $17,801  $60,765  $(193 $747,475 
Over Time
  64,253   7,094   16,010   2,104   741   3,089   —     93,291 
 
 
  
 
  
 
  
 
  
 
  
 
  
 
  
 
 
Total
 $459,464  $81,884  $134,702  $82,513  $18,542  $63,854  $(193 $840,766 
 
 
  
 
  
 
  
 
  
 
  
 
  
 
  
 
 
Geographical Market
                
Asia Pacific
 $413,537  $78,996  $95,584  $17,357  $5,317  $44,106  $—    $654,897 
Americas
  28,714   2,552   33,409   27,732   7,229   17,460   (193  116,903 
Europe, Middle East and Africa
  17,213   336   5,709   37,424   5,996   2,288   —     68,966 
 
 
  
 
  
 
  
 
  
 
  
 
  
 
  
 
 
Total
 $459,464  $81,884  $134,702  $82,513  $18,542  $63,854  $(193 $840,766 
 
 
  
 
  
 
  
 
  
 
  
 
  
 
  
 
 
For the Six Months Ended July 2, 2023 (2)
                
Timing of Revenue Recognition
                
Point in Time
 $555,354  $173,805  $133,658  $125,760  $28,735  $75,624  $—    $1,092,937 
Over Time
  146,173   14,384   35,245   4,124   2,229   6,874   —     209,029 
 
 
  
 
  
 
  
 
  
 
  
 
  
 
  
 
 
Total
 $701,528  $188,189  $168,903  $129,884  $30,964  $82,498  $—    $1,301,966 
 
 
  
 
  
 
  
 
  
 
  
 
  
 
  
 
 
Geographical Market
                
Asia Pacific
 $586,321  $178,945  $81,234  $28,100  $3,793  $45,593  $—    $923,986 
Americas
  73,759   7,230   69,143   43,273   17,898   32,337   —     243,640 
Europe, Middle East and Africa
  41,448   2,014   18,526   58,511   9,273   4,568   —     134,340 
 
 
  
 
  
 
  
 
  
 
  
 
  
 
  
 
 
Total
 $701,528  $188,189  $168,903  $129,884  $30,964  $82,498  $—    $1,301,966 
 
 
  
 
  
 
  
 
  
 
  
 
  
 
  
 
 
For the Six Months Ended July 3, 2022 (2)
                
Timing of Revenue Recognition
                
Point in Time
 $718,666  $163,513  $223,981  $163,591  $34,545  $109,194  $(539 $1,412,951 
Over Time
  127,382   14,127   29,390   4,206   1,902   6,178   —     183,185 
 
 
  
 
  
 
  
 
  
 
  
 
  
 
  
 
 
Total
 $846,048  $177,640  $253,371  $167,797  $36,447  $115,372  $(539 $1,596,136 
 
 
  
 
  
 
  
 
  
 
  
 
  
 
  
 
 
Geographical Market
                
Asia Pacific
 $754,277  $172,147  $169,369  $35,978  $7,909  $79,052  $—    $1,218,732 
Americas
  58,428   4,598   70,017   55,880   15,793   27,147   (539  231,324 
Europe, Middle East and Africa
  33,343   895   13,985   75,939   12,745   9,173   —     146,080 
 
 
  
 
  
 
  
 
  
 
  
 
  
 
  
 
 
Total
 $846,048  $177,640  $253,371  $167,797  $36,447  $115,372  $(539 $1,596,136 
 
 
  
 
  
 
  
 
  
 
  
 
  
 
  
 
 
 
(1)
Includes $1.8$1.3 million and $3.8$1.9 million in 20222023 and 2021,2022, respectively, for leases of Teradyne’s systems recognized outside Accounting Standards Codification (“ASC”) 606
“Revenue from Contracts with Customers.”
(2)
Includes $5.9$2.5 million and $11.1$4.2 million in 20222023 and 2021,2022, respectively, for leases of Teradyne’s systems recognized outside ASC 606
“Revenue from Contracts with Customers.”
7

Contract Balances
During the three and ninesix months ended OctoberJuly 2, 2022,2023, Teradyne recognized $27.1$27.3 million and $87.3$68.4 million, respectively, that was previously included within the deferred revenue and customer advances balances at the beginning of the period. During the three and ninesix months ended OctoberJuly 3, 2021,2022, Teradyne recognized $32.9$25.1 million and $82.5 $60.2 
million, respectively, that was previously included within the deferred revenue and customer advances balances.balances at the beginning of the period. This revenue primarily relates to undelivered hardware, extended warranties, training, application support, and post contract support. Each of these represents a distinct performance obligation. As of OctoberJuly 2, 2022,2023, Teradyne has $1,506
had $
1,271.6
 million of unsatisfied performance obligations. Teradyne expects to recognize 88%
approximately
90
% of the remaining performance obligations in the next
12
months and 12%
the remainder
in
1-3
years.
Deferred revenue and customer advances consist of the following at October 2, 2022 and December 31, 2021, and are included in short and long-term deferred revenue and customer advances on the balance sheet:

 
  
July 2,
   
December 31,
 
  
2023
   
2022
 
  
October 2,
2022
   
December 31,
2021
         
  
(in thousands)
   
(in thousands)
 
Maintenance, service and training
  $76,310   $81,826   $68,282   $78,089 
Customer advances, undelivered elements and other   46,380    59,147 
Extended warranty
   61,920    64,168    44,422    56,180 
Customer advances, undelivered elements and other
   53,849    55,112 
  
 
   
 
   
 
   
 
 
Total deferred revenue and customer advances
  $192,079   $201,106   $159,084   $193,416 
  
 
   
 
   
 
   
 
 
Accounts Receivable
During the three and ninesix months ended OctoberJuly 2, 20222023 and OctoberJuly 3, 2021,2022, Teradyne sold certain trade accounts receivables on a
non-recourse
basis to third-party financial institutions pursuant to factoring agreements. During the three months ended OctoberJuly 2, 20222023 and OctoberJuly 3, 2021,2022, total trade accounts receivable sold under the factoring agreements were $15.9$59.3 million and $66.9$37.6 million, respectively. During the ninesix months ended OctoberJuly 2, 20222023 and OctoberJuly 3, 2021,2022, total trade accounts account
s
receivable sold under the factoring agreements were $73.0$93.5 million and $81.7$57.1 million respectively.
, respectively
. Factoring fees for the sales of receivables were recorded in interest expense and were not material. Teradyne accounted for these transactions as sales of receivables and presented cash proceeds as cash provided by operating activities in the consolidated statements of cash flows.
8

F.E. INVENTORIES
Inventories, net consisted of the following at OctoberJuly 2, 20222023 and December 31, 2021:2022:

 
  
October 2,
2022
   
December 31,
2021
   
July 2,

2023
   
December 31,

2022
 
  
(in thousands)
         
  
(in thousands)
 
Raw material
  $228,762   $155,641   $250,422   $256,065 
Work-in-process
   42,093    37,740    43,685    37,982 
Finished goods
   39,899    49,949    53,188    30,972 
  
 
   
 
   
 
   
 
 
  $310,754   $243,330   $347,295   $325,019 
  
 
   
 
   
 
   
 
 
Inventory reserves at OctoberJuly 2, 20222023 and December 31, 20212022 were $124.8$140.3 million and $114.1$136.8 million, respectively.
G.F. FINANCIAL INSTRUMENTS
Cash Equivalents
Teradyne considers all highly liquid investments with maturities of three months or less at the date of acquisition to be cash equivalents.
Marketable Securities
Teradyne’s equity and debt mutual funds are classified as Level 1 and
available-for-sale
debt securities are classified as Level 2. Contingent consideration is classified as Level 3. The vast majority of Level 2 securities are fixed income securities priced by third party pricing vendors. These pricing vendors utilize the most recent observable market information in pricing these securities or, if specific prices are not available, use other observable inputs like market transactions involving identical or comparable securities.
During the three and ninesix months ended OctoberJuly 2, 20222023 and OctoberJuly 3, 2021,2022, there were no transfers in or out of Level 1, Level 2, or Level 3 financial instruments.

8

Realized gains recorded in the three and ninesix months ended OctoberJuly 2, 2022 2023
,
were $0.1$
0.1
 million and $0.6$
0.4
 million, respectively. Realized gains recorded in the three and
nine six months ended OctoberJuly 3, 2021 2022
,
were $0.5$
0.1
 million and $2.6$
0.5
 million, respectively. Realized losses recorded in the three and ninesix months ended OctoberJuly 2, 2022 2023
,
were $0.3 million and $0.9 million, respectively. No realized$
0.2
 million. Realized losses were recorded in the three and ninesix months ended OctoberJuly 3, 2021.2022
,
were $
0.4
 million and $
0.6
 million, respectively. Realized gains and losses are included in other (income) expense, net.
Unrealized lossesgains on equity securities recorded in the three and ninesix months ended OctoberJuly 2, 2022 2023
,
were $2.3$2.6 million and $11.1$4.6 million, respectively. No unrealized gains on equity securities were recorded in the three and ninesix months ended October 2,July 3, 2022. Unrealized gainsNo unrealized losses on equity securities were recorded in
the
nine three and six months ended October 3, 2021 were $3.3 million.July 2, 2023. Unrealized losses on equity securities recorded in the three and ninesix months ended OctoberJuly 3, 2021 2022
,
were $0.4$6.6 million and $1.1$8.8 million, respectively. Unrealized gains and losses on equity securities are included in other (income) expense, net.
Unrealized gains and losses on
available-for-sale
debt securities are included in accumulated other comprehensive income (loss). on the balance sheet.
The cost of securities sold is based on average cost.
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 OctoberJuly 2, 20222023 and December 31, 2021.2022.
 
9


   
October 2, 2022
 
   
Quoted Prices

in Active

Markets for

Identical

Instruments

(Level 1)
   
Significant

Other

Observable

Inputs

(Level 2)
   
Significant

Unobservable

Inputs

(Level 3)
   
Total
 
   
(in thousands)
 
Assets
                    
Cash
  $464,744   $—     $—    $464,744 
Cash equivalents
   51,243    194,759    —     246,002 
Available-for-sale
securities:
                   
U.S. Treasury securities
   —      65,354    —     65,354 
Corporate debt securities
   —      45,864    —     45,864 
Commercial paper
  
—  
   
17,719
   
—  
   
17,719
 
Debt mutual funds
   6,441    —      —     6,441 
U.S. government agency securities
   —      4,681    —     4,681 
Certificates of deposit and time deposits
   —      1,205    —     1,205 
Non-U.S.
government securities
   —      512    —     512 
Equity securities:
                   
Mutual funds
   34,573    —      —     34,573 
   
 
 
   
 
 
   
 
 
  
 
 
 
   $557,001   $330,094   $—    $887,095 
Derivative assets
   —      546    —     546 
   
 
 
   
 
 
   
 
 
  
 
 
 
Total
  $557,001   $330,640   $—    $887,641 
   
 
 
   
 
 
   
 
 
  
 
 
 
Liabilities
                   
Derivative liabilities
  $—     $1,106   $—    $1,106 
   
 
 
   
 
 
   
 
 
  
 
 
 
Total
  $—     $1,106   $—    $1,106 
   
 
 
   
 
 
   
 
 
  
 
 
 
     
Reported as follows:               
     
   
(Level 1)
   
(Level 2)
   
    (Level 3)    
  
Total
 
   
(in thousands)
 
Assets
                   
Cash and cash equivalents
  $515,987   $194,759   $—    $710,746 
Marketable securities
   —      65,310    —     65,310 
Long-term marketable securities
   41,014    70,025    —     111,039 
Prepayments and other current assets
   —      546    —     546 
   
 
 
   
 
 
   
 
 
  
 
 
 
Total
  $557,001   $330,640   $—    $887,641 
   
 
 
   
 
 
   
 
 
  
 
 
 
Liabilities
   .               
Other cur
r
ent liabilities
  $—     $1,106   $—    $1,106 
   
 
 
   
 
 
   
 
 
  
 
 
 
Total
  $—     $1,106   $—    $1,106 
   
 
 
   
 
 
   
 
 
  
 
 
 
1
0

   
December 31, 2021
 
   
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
  $628,740   $—     $—     $628,740 
Cash equivalents
   412,212    81,247    —      493,459 
Available-for-sale
securities:
                  —   
Commercial paper
   —      189,620    —      189,620 
U.S. Treasury securities
   —      77,789    —      77,789 
Corporate debt securities
   —      56,901    —      56,901 
Debt mutual funds
   7,971    —      —      7,971 
U.S. government agency securities
   —      4,610    —      4,610 
Certificates of deposit and time deposits
   —      1,356    —      1,356 
Non-U.S.
government securities
   —      589    —      589 
Equity securities:
                    
Mutual Funds
   39,253    —      —      39,253 
   
 
 
   
 
 
   
 
 
   
 
 
 
   $1,088,176   $412,112   $—     $1,500,288 
Derivative assets
   —      92    —      92 
   
 
 
   
 
 
   
 
 
   
 
 
 
Total
  $1,088,176   $412,204   $—     $1,500,380 
   
 
 
   
 
 
   
 
 
   
 
 
 
Liabilities
                    
Derivative liabilities
   —      118    —      118 
   
 
 
   
 
 
   
 
 
   
 
 
 
Total
  $—     $118   $—     $118 
   
 
 
   
 
 
   
 
 
   
 
 
 
     
Reported as follows:                
     
   
(Level 1)
   
(Level 2)
   
(Level 3)
   
Total
 
   
(in thousands)
 
Assets
                    
Cash and cash equivalents
  $1,040,952   $81,247   $—     $1,122,199 
Marketable securities
   —      244,231    —      244,231 
Long-term marketable securities
   47,224    86,634    —      133,858 
Prepayments and other current assets
   —      92    —      92 
   
 
 
   
 
 
   
 
 
   
 
 
 
Total
  $1,088,176   $412,204   $—     $1,500,380 
   
 
 
   
 
 
   
 
 
   
 
 
 
Liabilities
                    
Other current liabilities
  $—     $118   $—     $118 
   
 
 
   
 
 
   
 
 
   
 
 
 
Total
  $—     $118   $—     $118 
   
 
 
   
 
 
   
 
 
   
 
 
 
Changes in the fair value of Level 3 contingent consideration for the nine months ended October 2, 2022, and October 3, 2021 were as follows:
For the Three Months

Ended
For the Nine Months

Ended
October 2,
2022
October 3,
2021
October 2,
2022
October 3,
2021
(in thousands)
Balance at beginning of period
$—  $—  $—  
$
7,227
Fair value adjustment (a)
—  —  —  (7,227
Balance at end of period
$—  $—  $—  $—  
   
July 2, 2023
 
   
Quoted
Prices

in Active

Markets for

Identical

Instruments

(Level 1)
   
Significant

Other

Observable

Inputs

(Level 2)
   
Significant

Unobservable

Inputs

(Level 3)
   
Total
 
                 
   
(in thousands)
 
Assets
                    
Cash
  $311,803   $—     $—     $311,803 
Cash equivalents
   290,548    10,857    —      301,405 
Available-for-sale
securities:
                    
U.S. Treasury securities
   —      52,238    —      52,238 
Corporate debt securities
   —      51,608    —      51,608 
Commercial paper
   —      30,882    —      30,882 
Debt mutual funds
   7,739    —      —      7,739 
Certificates of deposit and time deposits
   —      6,699    —      6,699 
U.S. government agency securities
   —      6,475    —      6,475 
Non-U.S.
government securities
   —      544    —      544 
Equity securities:
                    
Mutual funds
   43,699    —      —      43,699 
   
 
 
   
 
 
   
 
 
   
 
 
 
   $653,789   $159,303   $—     $813,092 
Derivative assets
   —      5,819    —      5,819 
   
 
 
   
 
 
   
 
 
   
 
 
 
Total
  $653,789   $165,122   $—     $818,911 
   
 
 
   
 
 
   
 
 
   
 
 
 
Liabilities
                    
Derivative liabilities
  $—     $994   $—     $994 
   
 
 
   
 
 
   
 
 
   
 
 
 
Total
  $—     $994   $—     $994 
   
 
 
   
 
 
   
 
 
   
 
 
 
     
Reported as follows:                    
   
(Level 1)
   
(Level 2)
   
(Level 3)
   
Total
 
                 
   
(in thousands)
 
Assets
                    
Cash and cash equivalents
  $602,351   $10,857   $—     $613,208 
Marketable securities
   —      95,199    —      95,199 
Long-term marketable securities
   51,438    53,247    —      104,685 
Prepayments
   —      5,819    —      5,819 
   
 
 
   
 
 
   
 
 
   
 
 
 
Total
  $653,789   $165,122   $—     $818,911 
   
 
 
   
 
 
   
 
 
   
 
 
 
Liabilities
   .                
Other current liabilities
  $—     $994   $—     $994 
   
 
 
   
 
 
   
 
 
   
 
 
 
Total
  $—     $994   $—     $994 
   
 
 
   
 
 
   
 
 
   
 
 
 

(a)
In the nine months ended October 3, 2021, the fair value of contingent consideration for the earn-outs in connection with the acquisition of AutoGuide was reduced to zero, which resulted in a benefit of $7.2 million, primarily due to a decrease in forecasted revenues and earnings before interest and taxes.
On March 25, 2022, the arbitration claim filed by Industrial Automation LLC, sellers of AutoGuide, against Teradyne alleging
non-compliance
with the
earn-out
provisions of the Membership Interests Purchase Agreement, dated as of October 18, 2019, among Industrial Automation LLC, Teradyne and AutoGuide was settled for $26.7 million. As a result, Teradyne has no remaining
earn-out
obligations.
1
1
10

   
December 31, 2022
 
   
Quoted 

Prices

in Active

Markets for

Identical

Instruments

(Level 1)

   
Significant

Other

Observable

Inputs

(Level 2)
   
Significant

Unobservable

Inputs

(Level 3)
   
Total
 
                 
   
(in thousands)
 
Assets
                    
Cash
  $632,417   $—     $—     $632,417 
Cash equivalents
   161,767    60,589    —      222,356 
Available-for-sale
securities:
                  —   
Corporate debt securities
   —      50,856    —      50,856 
U.S. Treasury securities
   —      39,649    —      39,649 
Commercial paper
   —      7,159    —      7,159 
Debt mutual funds
   6,580    —      —      6,580 
U.S. government agency securities
   —      6,352    —      6,352 
Certificates of deposit and time deposits
   —      1,740    —      1,740 
Non-U.S.
government securities
   —      535    —      535 
Equity securities:
                    
Mutual Funds
   37,518    —      —      37,518 
   
 
 
   
 
 
   
 
 
   
 
 
 
   $838,282   $166,880   $—     $1,005,162 
Derivative assets
   —      86    —      86 
   
 
 
   
 
 
   
 
 
   
 
 
 
Total
  $838,282   $166,966   $—     $1,005,248 
   
 
 
   
 
 
   
 
 
   
 
 
 
Liabilities
                    
Derivative liabilities
   —      4,215    —      4,215 
   
 
 
   
 
 
   
 
 
   
 
 
 
Total
  $—     $4,215   $—     $4,215 
   
 
 
   
 
 
   
 
 
   
 
 
 
Reported as follows:
   
(Level 1)
   
(Level 2)
   
(Level 3)
   
Total
 
                 
   
(in thousands)
 
Assets
                    
Cash and cash equivalents
  $
 
 
794,184   $60,589   $—     $854,773 
Marketable securities
   —       39,612               —      39,612 
Long-term marketable securities
   44,098    66,679    —      110,777 
Prepayments
   —      86    —      86 
   
 
 
   
 
 
   
 
 
   
 
 
 
Total
  $838,282   $
 
166,966   $—     $1,005,248 
   
 
 
   
 
 
   
 
 
   
 
 
 
Liabilities
                    
Other current liabilities
  $—     $4,215   $—     $4,215 
   
 
 
   
 
 
   
 
 
   
 
 
 
Total
  $—     $4,215   $—     $4,215 
   
 
 
   
 
 
   
 
 
   
 
 
 
The carrying amounts and fair values of Teradyne’s financial instruments at OctoberJuly 2, 20222023 and December 31, 2021 2022
,
were as follows:
 
  
October 2, 2022
   
December 31, 2021
   
July 2, 2023
   
December 31, 2022
 
  
Carrying Value
   
Fair Value
   
Carrying Value
   
Fair Value
   
Carrying Value
   
Fair Value
   
Carrying Value
   
Fair Value
 
                                
  
(in thousands)
   
(in thousands)
 
Assets
                        
Cash and cash equivalents
  $710,746   $710,746   $1,122,199   $1,122,199   $613,208   $613,208   $854,773   $854,773 
Marketable securities
   176,349    176,349    378,089    378,089    199,884    199,884    150,389    150,389 
Derivative assets
   546    546    92    92 
Derivative assets
   5,819    5,819    86    86 
Liabilities
                        
Derivative liabilities
   1,106    1,106    118    118 
Derivative liabilities
   994    994    4,215    4,215 
Convertible debt
   64,791    154,486    108,426    604,648    32,806    115,778    50,115    139,007 
11

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 OctoberJuly 2, 2022:
2023:
 
  
July 2, 2023
 
                  
  
Available-for-Sale
 
  
October 2, 2022
                   
  
Available-for-Sale
       
Cost
   
Unrealized

Gain
   
Unrealized

(Loss)
 
Fair
Market

Value
   
Fair Market

Value of

Investments

with Unrealized

Losses
 
  
Cost
   
Unrealized

Gain
   
Unrealized

(Loss)
 
Fair
Market

Value
   
Fair Market

Value of

Investments

with Unrealized

Losses
                   
  
(in thousands)
   
(in thousands)
 
U.S. Treasury securities
  $69,598   $   $(4,244 $65,354   $65,354   $56,107   $2   $(3,871 $52,238   $42,716 
Corporate debt securities
   52,926    
1

    (7,063)  45,864    45,622    56,680    12    (5,084  51,608    50,455 
Commercial paper

   17,691    35    (7  17,719    8,983    30,311    581    (10  30,882    19,840 
Debt mutual funds
   6,897    —      (456  6,441    3,075    8,104    —      (365  7,739    3,161 
Certificates of deposit and time deposits
   6,699    —      —     6,699    —   
U.S. government agency securities
   4,790    —      (109  4,681    4,681    6,520    —      (45  6,475    6,475 
Certificates of deposit and time deposits
   1,205    —      —     1,205    —   
Non-U.S.
government securities
   512    —      —     512    —      544    —      —     544    —   
  
 
   
 
   
 
  
 
   
 
   
 
   
 
   
 
  
 
   
 
 
  $153,619   $36   $(11,879 $141,776   $127,715   $164,965   $595   $(9,375 $156,185   $122,647 
  
 
   
 
   
 
  
 
   
 
   
 
   
 
   
 
  
 
   
 
 
Reported as follows:
 
   
Cost
   
Unrealized

Gain
   
Unrealized

(Loss)
  
Fair Market

Value
   
Fair Market

Value of

Investments

with Unrealized

Losses
 
   
(in thousands)
 
Marketable securities
  $65,744   $35   $(469 $65,310   $55,369 
Long-term marketable securities
   87,875    1    (11,410  76,466    72,346 
   
 
 
   
 
 
   
 
 
  
 
 
   
 
 
 
   $153,619   $36   $(11,879 $141,776   $127,715 
   
 
 
   
 
 
   
 
 
  
 
 
   
 
 
 
1
2
   
Cost
   
Unrealized

Gain
   
Unrealized

(Loss)
  
Fair Market

Value
   
Fair Market

Value of

Investments

with Unrealized

Losses
 
                    
   
(in thousands)
 
Marketable securities
  $95,482   $581   $(864 $95,199   $68,121 
Long-term marketable securities
   69,483    14    (8,511  60,986    54,526 
   
 
 
   
 
 
   
 
 
  
 
 
   
 
 
 
   $164,965   $595   $(9,375 $156,185   $122,647 
   
 
 
   
 
 
   
 
 
  
 
 
   
 
 
 

The following table summarizes the composition of
available-for-sale
marketable securities at December 31, 2021:
2022:
 
  
December 31, 2021
   
December 31, 2022
 
  
Available-for-Sale
                       
  
Cost
   
Unrealized

Gain
   
Unrealized

(Loss)
 
Fair
Market

Value
   
Fair Market

Value of

Investments

with Unrealized

Losses
   
Available-for-Sale
 
�� 
(in thousands)
   
Cost
   
Unrealized

Gain
   
Unrealized

(Loss)
 
Fair
Market

Value
   
Fair Market

Value of

Investments

with Unrealized

Losses
 
                  
  
(in thousands)
 
Corporate debt securities
  $57,006   $3   $(6,153 $50,856   $50,667 
U.S. Treasury securities
   44,030    —      (4,381  39,649    39,649 
Commercial paper
  $189,614   $15   $(9 $189,620   $22,784    7,089    70    —     7,159    —   
U.S. Treasury securities
   77,707    551    (470  77,789    46,435 
Corporate debt securities
   52,266    4,863    (227  56,901    19,422 
Debt mutual funds
   7,928    43    —     7,971    —      6,997    —      (417  6,580    3,095 
U.S. government agency securities
   4,617    5    (12  4,610    3,296    6,442    —      (90  6,352    6,352 
Certificates of deposit and time deposits
   1,356    —      —     1,356    —      1,740    —      —     1,740    —   
Non-U.S.
government securities
   589    —      —     589    —      535    —      —     535    —   
  
 
   
 
   
 
  
 
   
 
   
 
   
 
   
 
  
 
   
 
 
  $334,077   $5,477   $(718 $338,836   $91,937   $123,839   $73   $(11,041 $112,871   $99,763 
  
 
   
 
   
 
  
 
   
 
   
 
   
 
   
 
  
 
   
 
 
12

Reported as follows:

 
  
Cost
   
Unrealized

Gain
   
Unrealized

(Loss)
 
Fair
Market

Value
   
Fair Market

Value of

Investments

with Unrealized

Losses
 
  
Cost
   
Unrealized

Gain
   
Unrealized

(Loss)
 
Fair
Market

Value
   
Fair Market

Value of

Investments

with Unrealized

Losses
                   
  
(in thousands)
   
(in thousands)
 
Marketable securities
  $244,213   $64   $(46 $244,231   $54,798   $39,950   $70   $(408 $39,612   $30,713 
Long-term marketable securities
   89,864    5,413    (672  94,605    37,139    83,889    3    (10,633  73,259    69,050 
  
 
   
 
   
 
  
 
   
 
   
 
   
 
   
 
  
 
   
 
 
  $334,077   $5,477   $(718 $338,836   $91,937   $123,839   $73   $(11,041 $112,871   $99,763 
  
 
   
 
   
 
  
 
   
 
   
 
   
 
   
 
  
 
   
 
 
As of OctoberJuly 2, 2022,2023, the fair market value of investments with unrealized losses less than one year and greater than one year totaled $99.7$63.8 million and $28.0$58.8 million, respectively. As of December 31, 2021,2022, the fair market value of investments with unrealized losses for less than one year and greater than one year totaled $85.4$66.3 million and $6.5$33.4 million, respectively.
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 OctoberJuly 2, 20222023 and December 31, 20212022 were not other than temporary.
The contractual maturities of investments in
available-for-sale
securities held at OctoberJuly 2, 2022 2023
,
were as follows:

 
  
July 2, 2023
 
  
October 2, 2022
         
  
Cost
   
Fair Market

Value
   
Cost
   
Fair Market

Value
 
  
(in thousands)
         
  
(in thousands)
 
Due within one year
  $65,744   $65,310   $95,482   $95,199 
Due after 1 year through 5 years
   35,934    34,116    17,131    16,467 
Due after 5 years through 10 years
   4,800    4,209    6,012    5,559 
Due after 10 years
   40,244    31,700    38,236    31,221 
  
 
   
 
   
 
   
 
 
Total
  $146,722   $135,335   $156,861   $148,446 
  
 
   
 
   
 
   
 
 
Contractual maturities of investments in
available-for-sale
securities held at OctoberJuly 2, 20222023, exclude debt mutual funds with a fair market
value of $6.4$7.7 million, as they do not have a contractual maturity date.
1
3

Derivatives
Teradyne conducts business in various foreign countries, with certain transactions denominated in local currencies. As a result, Teradyne is exposed to risks relating to changes in foreign currency exchange rates. Teradyne’s foreign currency risk management objective is to minimize the effect of exchange rate fluctuations associated with the remeasurement of monetary assets and liabilities denominated in foreign currencies, and changes in its cash inflows attributable to the forecasted cash flows from certain foreign currency denominated revenues.
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.
Teradyne also enters into foreign currency forward and option contracts designated as cash flow hedges to hedge the risk of changes in its cash inflows attributable to changes in foreign currency exchange rates. The cash flow hedges have maturities of less than six months and mature in the period of revenue recognition for certain products and services in b
a
cklogbacklog and forecasted to be recognized in a future period. Teradyne evaluates cash flow hedges for effectiveness at inception based on the critical terms match method. The hedges are not expected to incur any ineffectiveness however a quarterly qualitative assessment of effectiveness is done to determine if the critical terms match method remains appropriate to use. The change in fair value of the contracts is recorded in accumulated other comprehensive income (loss) and reclassified to earnings at maturity date.
Teradyne does not use derivative financial instruments for speculative purposes.
13

At OctoberJuly 2, 20222023 and December 31, 2021,2022, Teradyne had the following foreign currency forward contracts to buy and sell
non-U.S.
currencies for U.S. dollars and other
non-U.S.
currencies with the following notional amounts:

 
   
October 2, 2022
  
December 31, 2021
 
   
Buy

Position
  
Sell

Position
   
Net

Total
  
Buy

Position
  
Sell

Position
   
Net

Total
 
   
(in millions)
 
Japanese Yen
  $(37.5 $—     $(37.5 $(31.4 $—     $(31.4
Taiwan Dollar
   (35.2  —      (35.2  (35.1  —      (35.1
Korean Won
   (5.4  —      (5.4  (4.2  —      (4.2
British Pound Sterling
   (1.1  —      (1.1  (1.8  —      (1.8
Danish Krone
   (0.5  —      (0.5  —     —      —   
Singapore Dollar
   —     24.4    24.4   —     61.9    61.9 
Euro
   —     36.7    36.7   —     44.9    44.9 
Philippine Peso
   —     2.8    2.8   —     3.9    3.9 
Chinese Yuan
   —     2.4    2.4   —     2.8    2.8 
   
 
 
  
 
 
   
 
 
  
 
 
  
 
 
   
 
 
 
Total
  $(79.7 $66.3   $(13.4 $(72.5 $113.5   $41.0 
   
 
 
  
 
 
   
 
 
  
 
 
  
 
 
   
 
 
 
   
Net Notional Value
 
   
July 2, 2023
   
December 31, 2022
 
         
   
(in millions)
 
Currency Hedged (Buy/Sell)
  
U.S. dollar/Japanese yen $66.3   $37.1 
U.S. dollar/Taiwan dollar  22.3    29.2 
U.S. dollar/Korean won  8.1    6.4 
U.S. dollar/British pound sterling  0.9    1.2 
Euro/U.S. dollar  24.5    38.4 
Singapore dollar/U.S. dollar  22.0    34 
Philippine peso/U.S. dollar  2.5    2.7 
Chinese yuan/U.S. dollar  1.8    2.2 
Danish krone/U.S. dollar  0.6    —   
  
 
 
   
 
 
 
Total $149.0   $150.7 
  
 
 
   
 
 
 
The fair value of the outstanding
foreign currency forward
contracts was a loss
gain
of $1.1 million and $0.1
a loss of 
$0.9 million, respectively, at OctoberJuly 2, 20222023 and December 31, 2021.2022.
Unrealized 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.
At OctoberJuly 2, 20222023 and December 31, 2021,2022, Teradyne had the following cash flow hedge contracts to buy and sell
non-U.S.
currencies for U.S. dollars with the following notional amounts:

   
October 2, 2022
   
December 31, 2021
 
   
Buy

Position
  
Sell

Position
   
Net

Total
   
Buy

Position
   
Sell

Position
   
Net

Total
 
   
(in millions)
 
Japanese Yen
  $(5.4 $26.6   $21.2   $—     $—     $—   
Taiwan Dollar
   (9.2  18.3    9.1    —      —      —   
   
 
 
  
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Total
  $ (14.6 $44.9   $30.3   $—     $—     $—   
   
 
 
  
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
 
   
Net Notional Value
 
   
July 2, 2023
   
December 31, 2022
 
         
   
(in millions)
 
Currency Hedged (Buy/Sell)
  
Japanese yen/U.S. dollar  $52.8  $23.4 
Taiwan dollar/U.S. dollar       5.5 
U.S. dollar/Japanese yen   —      61.2 
U.S. dollar/Taiwan dollar   —      10.9 
   
 
 
   
 
 
 
Total  $52.8   $101.0 
   
 
 
   
 
 
 
14

The fair value of the outstanding cash flow hedge contracts was a gain of $0.5$3.7 million and a loss of $3.2 million at OctoberJuly 2, 2022.2023 and December 31, 2022, respectively.
Unrealized gains and losses on foreign currency cash flow hedge contracts are included in accumulated other comprehensive income (loss). At maturity, the gains or losses associated with cash flow hedge contracts are recorded to revenue.
The following table summarizes the fair value of derivative instruments as of OctoberJuly 2, 20222023 and December 31, 2021:2022:
 
  
Balance Sheet Location
  
July 2, 2023
   
December 31, 2022
 
  
Balance Sheet

Location
   
October 2,
2022
 
December 31,
2021
            
      
(in thousands)
      
(in thousands)
 
Derivatives not designated as hedging instruments:
              
Foreign currency forward contracts

   Prepayments   $9   $92 
Foreign currency forward contracts

   Other current liabilities    (1,106   (118
Foreign exchange forward contracts
  Prepayments  $2,138   $86 
Foreign exchange forward contracts
  Other current liabilities   (994   (990
Derivatives designated as hedging instruments:

            
Foreign currency option contracts

  
 
Prepayments
   
 
537
   
—  
 
Foreign exchange forward contracts
  Prepayments   3,681    —   
Foreign exchange option contracts
  Other current liabilities   —      (3,225
    
 
   
 
 
Total derivatives
     $(560  $(26    $4,825   $(4,129
     
 
   
 
     
 
   
 
 
14

The following table summarizes the effect of derivative instruments recognized in the statement of operations for the three and ninesix months ended OctoberJuly 2, 20222023 and OctoberJuly 3, 2021:
2022:

   
Location of Losses (Gains)
Recognized in
Statement of Operations
  
For the Three Months

Ended
   
For the Nine Months

Ended
 
   
October 2,
2022
   
October 3,
2021
   
October 2,
2022
   
October 3,
2021
 
      
(in thousands)
 
Derivatives not designated as hedging instruments:
                    
Foreign currency forward contracts

  
Other (income) expense, net
  $1,246   $2,288   $(2,209  $5,937 
Derivatives designated as hedging instruments:
                    
Foreign currency option contracts
  
Revenue
   —      —      —      —   
      
 
 
   
 
 
   
 
 
   
 
 
 
Total derivatives
     $1,246   $2,288   $(2,209  $5,937 
      
 
 
   
 
 
   
 
 
   
 
 
 
 
      
For the Three Months

Ended
  
For the Six Months
Ended
 
   
Location of (Gains) Losses
Recognized in Statement of
Operations
  
July 2,
2023
  
July 3,
2022
  
July 2,
2023
  
July 3,
2022
 
                 
      
(in thousands)
    
Derivatives not designated as hedging instruments:
                    
Foreign exchange forward contracts
  
Other (income) expense, net
  $(4,040 $(1,703 $(2,781 $(3,455
Derivatives designated as hedging instruments:
                    
Foreign exchange option contracts
  
Revenue
   414   —     1,952   —   
      
 
 
  
 
 
  
 
 
  
 
 
 
Total Derivatives
     $(3,626 $(1,703 $(829 $(3,455
      
 
 
  
 
 
  
 
 
  
 
 
 
The above table does not reflect the corresponding gains and losses from the remeasurement of the monetary assets and liabilities
denominated in foreign currencies. For the three and ninesix months ended OctoberJuly 2, 2022,2023, net losses from the remeasurement of monetary assets and liabilities denominated in foreign currencies were $1.6$6.7 million and $9.5$7.0 million, respectively. For the three and ninesix months ended OctoberJuly 3, 2021,2022, net gainslosses from the remeasurement of monetary assets and liabilities denominated in foreign currencies were $1.0$3.7 million and $1.3$8.0 million, respectively.
See Note H:G: “Debt” regarding derivatives related to the convertible senior notes.
H.G. DEBT
Convertible Senior Notes
On December 12, 2016, Teradyne completed a private offering of $460.0 million aggregate principal amount of 1.25
%1.25% convertible senior unsecured notes (the “Notes”) due December 15, 2023 and received net proceeds, after issuance costs, of approximately
$450.8
$450.8 million,
$33.0 $33.0 million
of which was used to pay the net cost of the convertible note hedge transactions and $50.1 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 at a rate of 1.25% per year payable semiannually in arrears on June 15 and December 15 of each year. The Notes will be convertible at the option of the noteholders at any time prior to the close of
business on the business day immediately preceding September 15, 2023, only under the following circumstances: (1) during any calendar quarter beginning after
March 31, 2017 (and only during such calendar quarter), if the closing sale price of Teradyne’s common stock, for at least 20 trading days (whether or
not consecutive) during a period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter is greater
than 130% of the conversion price on each applicable trading day; (2) during the five business day period after any five consecutive
trading day period
(the (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
15

of specified
corporate events. On or after September 15, 2023, until the close of business on the second scheduled trading day immediately preceding the maturity date, holders may convert their Notes at any time, regardless of the foregoing circumstances. Teradyne may satisfy its future conversion obligation by paying cash for the principal amount of the Notes and paying or delivering cash, shares of its common stock or a combination of cash and shares of its common stock, at Teradyne’s election for the amount in excess of principal. On November 4, 2021, Teradyne made an irrevocable election under the Indenture to require the principal portion of the remaining Notes to be settled in cash. As of OctoberJuly 2, 2022,2023, the conversion price was approximately $31.47$31.43 per share of Teradyne’s common stock. The conversion rate is subject to adjustment under certain circumstances. As of NovemberAugust 4, 2022,2023, one hundred and sixteenthirty-four debt holders had exercised the option to convert $401.8$436.1 million worth of notes.
Concurrent with the offering of the Notes, Teradyne entered into convertible note hedge transactions (the “Note Hedge Transactions”) with the initial purchasers or their affiliates (the “Option Counterparties”). The Note Hedge Transactions cover, subject to customary anti-dilution adjustments, the number of shares of the common stock that underlie the Notes, with a strike price equal to the conversion price of the Notes of $31.47.$31.43.
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, at its election subject to certain conditions, cash-settled) warrants to the Option Counterparties. The Warrant Transactions currently cover, subject to customary anti-dilution adjustments, approximately 14.6 million shares of common stock. As of OctoberJuly 2, 2022,
2023, the strike price of the warrants was approximately $39.50$39.44 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.
15

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
$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.
Originally, Teradyne allocated $100.8 million of the $460.0 million principal amount of the Notes to the equity component, which represented a discount to the debt and was amortized to interest expense using the effective interest method through December 2023. Effective January 1, 2022, Teradyne adopted ASC
2020-06
using the modified retrospective method of transition and accounts for the debt as a single liability measured at its amortized cost. As a result of the adoption, Teradyne recorded an increase of $1.4 million to current debt for unsettled shares, an increase of $1.8 million to deferred tax assets, an increase of $6.6 million to long-term debt for unamortized debt discount, and an increase to retained earnings of $94.6 million for the reclassification of the equity component. Mezzanine equity representing unsettled shares value was reduced to zero and additional
paid-in
capital was reduced by $100.8 million.
On November 4, 2021, Teradyne made an irrevocable election under the Indenture to require the principal portion of the remaining Notes to be settled in cash.
Debt issuance fees of approximately $0.2 million, at OctoberJuly 2, 2022, are being2023, have been fully amortized to interest expense using the effective interest method over the seven-year term of the Notes.
The tables below tables represent the key components of Teradyne’s convertible senior notes:
 
   
July 2,

2023
   
December 31,
2022
 
         
   
(in thousands)
 
Debt principal
  $32,806   $50,228 
Unamortized debt issuance fees
   —      113 
   
 
 
   
 
 
 
Net
c
arrying amount of convertible debt
  $32,806   $50,115 
   
 
 
   
 
 
 
   
October 2,
2022
   
December 31,
2021
 
   
(in thousands)
 
Debt principal
  $64,980   $116,980 
Unamortized debt issuance fees (1)
   189    8,554 
   
 
 
   
 
 
 
Net Carrying amount of convertible debt
  $64,791   $108,426 
   
 
 
   
 
 
 
Teradyne’s convertible senior notes were reported as current debt at July 2, 2023 and December 31, 2022.
16

ReportedThe interest expense on Teradyne’s convertible senior notes for the three and six months ended July 2, 2023 and July 3, 2022 was as follows:
   
October 2,
2022
   
December 31,
2021
 
   
(in thousands)
 
Current debt
  $14,596   $19,182 
Long-term debt
   50,195    89,244 
   
 
 
   
 
 
 
Net carrying amount of convertible debt
  $64,791   $108,426 
   
 
 
   
 
 
 
   
For the Three Months
Ended
   
For the Nine Months
Ended
 
   
October 2,
2022
   
October 3,
2021
   
October 2,
2022
   
October 3,
2021
 
   
(in thousands)
   
(in thousands)
 
Contractual interest expense on the coupon
  $159   $355   $592   $2,666 
Amortization of debt issuance fees recognized as interest expense (2)
   43    2,424    173    9,771 
   
 
 
   
 
 
   
 
 
   
 
 
 
Total interest expense on the convertible debt
  $202   $2,779   $765   $12,437 
   
 
 
   
 
 
   
 
 
   
 
 
 
 
(1)
Unamortized debt issuance fees as of December 31, 2021 include unamortized debt discount of $8.1 million, which was eliminated with the adoption of ASU
2020-
0
6
on January 1, 2022.
   
For the Three Months
Ended
   
For the Six Months

Ended
 
   
July 2,

2023
   
July 3,

2022
   
July 2,

2023
   
July 3,
2022
 
                 
   
(in thousands)
   
(in thousands)
 
Contractual interest expense on the coupon
  $100   $121   $238   $432 
Amortization of debt issuance fees recognized as interest expense
   —      64    113    130 
   
 
 
   
 
 
   
 
 
   
 
 
 
Total interest expense on the convertible debt
  $100   $185   $351   $562 
   
 
 
   
 
 
   
 
 
   
 
 
 
(2)
Three and nine months ended October 3, 2021 includes the amortization of debt discount component, which was eliminated with the adoption of ASU
2020-06
on January 1, 2022.
As of OctoberJuly 2, 2022,2023, the conversion price was approximately $31.47$31.43 per share and the
if-converted
if converted value of the notes was $155.2$116.2 million.
During the nine months ended October 2, 2022, thirty-three debt holders elected to convert $52.0 million of debt principal. The conversion of the debt was settled in cash for principal amount and in shares for the excess of conversion value over principal amount. The 1.2 million shares issued to the debt holders were received from exercising the convertible notes hedge call options.
Additional conversions of approximately $14.6$8.9 million of debt principal will occur in the fourththird quarter of 2022 and the liability is included in current debt.
2023. Teradyne expects to make contractualprincipal interest payme
ntspayments of $0.6$0.2 million in the next
12 months and $0.3 million thereafter.
months.
16

Revolving Credit Facility
On May 1, 2020, Teradyne entered into a credit agreement (the “Credit Agreement”) with Truist Bank, as administrative agent and collateral agent, and the lenders party thereto. The Credit Agreement provided for a three-year, senior secured revolving credit facility of $400.0 million (the “Credit Facility”).
On December 10, 2021, the Credit Agreement was amended to extend the maturity date of the Credit Facility to December 10, 2026. On October 5, 2022, the Credit Agreement was amended to increase the amount of the Credit Facility to $750.0 million from $400.0 million.
The Credit Agreement provides that, subject to customary conditions, Teradyne may seek to obtain from existing or new lenders the available incremental amount under the Credit Facility, not to exceed the greater
of $
200.0
$200.0 million or
15
% 15% of consolidated EBIDTA.
The interest rate applicable to loans under the Credit Facility are, at Teradyne’s option, equal to either a base rate plus a margin ranging from 0.00% to 0.75% per annum or SOFR plus a margin ranging from 1.10% to 1.85% per annum, based on the consolidated leverage ratio of Teradyne. In addition, Teradyne will pay a commitment fee on the unused portion of the commitments under the Credit Facility ranging from 0.15% to 0.25% per annum, based on the then applicable consolidated leverage ratio.
Teradyne is not required to repay any loans under the Credit Facility prior to maturity, subject to certain customary exceptions. Teradyne is permitted to prepay all or any portion of the loans under the Credit Facility prior to maturity without premium or penalty, other than customary SOFR breakage costs.
The Credit Agreement contains customary events of default, representations, warranties and affirmative and negative covenants that, among other things, limit Teradyne’s ability to sell assets, grant liens on assets, incur other secured indebtedness and make certain investments and restricted payments, all subject to exceptions set forth in the Credit Agreement. The Credit Agreement also requires Teradyne to satisfy two financial ratios measured as of the end of each fiscal quarterquarter: a consolidated leverage ratio and an interest coverage ratio.
17

The Credit
Facility is guaranteed by certain of Teradyne’s domestic subsidiaries and collateralized by assets of Teradyne and such subsidiaries, including a pledge of 65% of the capital stock of certain foreign subsidiaries.
As of NovemberAugust 4, 2022,2023, the Credit Agreement was undrawn and Teradyne has not borrowed any funds under the credit facility and was in compliance with all covenants.covenants under the Credit Agreement.
See Note U: “Subsequent Event” regarding an increase in the amount of the Credit Facility.
I.H. PREPAYMENTS
Prepayments consist of the following:


   
July 2,
2023
   
December 31,
2022
 
         
   
(in thousands)
 
Contract manufacturer and supplier prepayments
  $515,350   $491,105 
Prepaid maintenance and other services   15,557    14,545 
Prepaid taxes   15,437    18,625 
Other prepayments
   14,338    8,687 
   
 
 
   
 
 
 
Total prepayments
  $560,682   $532,962 
   
 
 
   
 
 
 
   
October 2,
2022
   
December 31,
2021
 
   
(in thousands)
 
Contract manufacturer and supplier prepayments
  $466,648   $364,478 
Prepaid maintenance and other services
   13,760    13,660 
Prepaid taxes
   12,531    15,090 
Other prepayments
   9,739    13,038 
   
 
 
   
 
 
 
Total prepayments
  $502,678   $406,266 
   
 
 
   
 
 
 
J.I. PRODUCT WARRANTY
Teradyne generally provides a
one-year
warranty on its products, commencing upon installation, acceptance or shipment. A provision is recorded upon revenue recognition to cost of revenues for estimated warranty expense based on historical experience. Related costs are charged to the warranty accrual as incurred. The balance below is included in other accrued liabilities.

   
For the Three Months

Ended
   
For the Six Months

Ended
 
   
July 2,
   
July 3,
   
July 2,
   
July 3,
 
   
2023
   
2022
   
2023
   
2022
 
                 
   
(in thousands)
 
Balance at beginning of period
  $12,901   $20,105   $14,181   $24,577 
Accruals for warranties issued during the period
   3,261    6,429    7,378    10,530 
Accruals related to
pre-existing
warranties
   (352   (1,611   (757   (4,370
Settlements made during the period
   (3,267   (8,887   (8,259   (14,701
   
 
 
   
 
 
   
 
 
   
 
 
 
Balance at end of period
  $12,543   $16,036   $12,543   $16,036 
   
 
 
   
 
 
   
 
 
   
 
 
 
17

   
For the Three Months

Ended
   
For the Nine Months

Ended
 
   
October 2,
2022
   
October 3,
2021
   
October 2,
2022
   
October 3,
2021
 
   
(in thousands)
 
Balance at beginning of period
  $16,036   $25,676   $24,577   $16,633 
Accruals for warranties issued during the period
   4,930    6,641    15,460    28,719 
Accruals related to
pre-existing
warranties
   (654   (963   (5,024   (3,966
Settlements made during the period
   (6,181   (5,233   (20,882   (15,265
   
 
 
   
 
 
   
 
 
   
 
 
 
Balance at end of period
  $14,131   $26,121   $14,131   $26,121 
   
 
 
   
 
 
   
 
 
   
 
 
 
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.

  
For the Three Months

Ended
   
For the Six Months

Ended
 
  
July 2,
   
July 3,
   
July 2,
   
July 3,
 
  
For the Three Months

Ended
   
For the Nine Months

Ended
   
2023
   
2022
   
2023
   
2022
 
  
October 2,
2022
   
October 3,
2021
   
October 2,
2022
   
October 3,
2021
                 
  
(in thousands)
   
(in thousands)
 
Balance at beginning of period
  $65,791   $63,525   $64,168   $51,929   $49,343   $65,726   $56,180   $64,168 
Deferral of new extended warranty revenue
   6,987    12,728    28,550    36,533    4,467    9,788    8,881    21,563 
Recognition of extended warranty deferred revenue
   (10,858   (8,771   (30,798   (20,980   (9,388   (9,723   (20,639   (19,940
  
 
   
 
   
 
   
 
   
 
   
 
   
 
   
 
 
Balance at end of period
  $61,920   $67,482   $61,920   $67,482   $44,422   $65,791   $44,422   $65,791 
  
 
   
 
   
 
   
 
   
 
   
 
   
 
   
 
 
J. STOCK-BASED COMPENSATION
On February 1, 2023 (the”Retirement Date”), Mark E. Jagiela retired as Chief Executive Officer of Teradyne and a member of Teradyne’s Board of Directors, and Teradyne entered into an agreement (the “Retirement Agreement”) with Mr. Jagiela. Under the Retirement Agreement, Mr. Jagiela’s unvested time-based restricted stock units and stock options granted prior to his Retirement Date were modified to allow continued vesting; and any vested options or options that vest during that period may be exercised for the remainder of the applicable option term. During the six months ended
18

TableJuly 2, 2023, Teradyne recorded a stock-based compensation expense of Contents$
5.9
K. STOCK-BASED COMPENSATION
 million related to the Retirement Agreement.
Under Teradyne’s stock compensation plans, Teradyne grants service-basedtime-based restricted stock units, performance-based restricted stock units and stock options, and employees are eligible to purchase Teradyne’s common stock through its Employee Stock Purchase Plan (“ESPP”).
Service-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
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 service-basedtime-based vesting, which is determined to be the fair market value of the shares at the date of grant, ratably over the period during which the restrictions lapse.
Performance-based restricted stock units (“PRSUs”) granted to Teradyne’s executive officers may have a performance metric based on relative total shareholder return (“TSR”). Teradyne’s 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 0% to 200% of the target shares. The TSR PRSUs will vest upon the three-year anniversary of the grant date. The TSR PRSUs are valued using a Monte Carlo simulation model. The number of units expected to be earned, based upon the achievement of the TSR market condition, is factored into the grant date Monte Carlo valuation. Compensation expense is recognized on a straight-line basis over the shorter of the three-year service period or the period from the grant to the date described in the retirement provisions below. Compensation expense for executive officers meeting the retirement provisions prior to the grant date is recognized during the year following the grant. Compensation expense is recognized regardless of the eventual number of units that are earned based upon the market condition, provided the executive officer remains an employee at the end of the three-year period. Compensation expense is reversed if at any time during the three-year service period the executive officer is no longer an employee, subject to the retirement and termination eligibility provisions noted below.
PRSUs granted to Teradyne’s executive officers may also have a performance metric based on three-year cumulative
non-GAAP
profit before interest and tax (“PBIT”) as a percent of Teradyne’s revenue.
Non-GAAP
PBIT is a financial measure equal to GAAP income from operations less restructuring and other, net; amortization of acquired intangible assets; acquisition and divestiture related charges or credits; pension actuarial gains and losses;
non-cash
convertible debt interest expense; and other
non-recurring
gains and charges. The final number of PBIT PRSUs that vest will vary based upon the level of performance achieved from 0% to 200% of the target shares. The PBIT PRSUs will vest upon the three-year anniversary of the grant date. Compensation expense is recognized on a straight-line basis over the shorter of the three-year service period or the period from the grant date to the date described in the retirement provisions below. Compensation expense for executive officers meeting the retirement provisions prior to the grant date is recognized during the year following the 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.
18

If a PRSU recipient’s employment ends prior to the determination of the performance percentage due to (1) permanent disability or death or (2) retirement or termination other than for cause, after attaining both at least age sixty and at least ten years of service, then all or a portion of the recipient’s PRSUs (based on the actual performance percentage achieved on the determination date) will
vest on the date the performance percentage is determined. Except as set forth in the preceding sentence, no PRSUs will vest if the executive officer is no longer an employee at the end of the three-year period.
Stock options to purchase Teradyne’s common stock at 100% of the fair market value on the grant date vest in equal annual installments over four years from the grant date and have a maximum term of seven years.years
.
During the ninesix months ended OctoberJuly 2, 20222023 and OctoberJuly 3, 2021,2022, Teradyne granted 0.40.5 million and 0.30.4 million of service-based restricted stock unit awards to employees at a weighted average grant date fair value of $110.34$102.30 and $113.76,$111.21, respectively, and $0.1 million of service-based restricted stock unit awards to
non-employee
directors at a weighted average grant date fair value of $106.91$90.50 and $127.77,$106.91, respectively.
During the ninesix months ended OctoberJuly 2, 20222023 and OctoberJuly 3, 2021,2022, Teradyne granted 0.1 million of PBIT PRSUs with a grant date fair value of $102.23 and $110.84, and $113.65,
respectively.
19

Duri
ngDuring the ninesix months ended OctoberJuly 2, 20222023 and OctoberJuly 3, 2021,2022, Teradyne granted 0.1 million of TSR PRSUs, with a grant date fair value of $101.06$137.64 and $125.02,$101.06, respectively. The fair value was estimated using the Monte Carlo simulation model with the following assumptions:

 
   
For the Nine Months

Ended
 
   
October 2,
2022
  
October 3,
2021
 
Risk-free interest rate
   1.4  0.2
Teradyne volatility-historical
   47.1  43.9
NYSE Composite Index volatility-historical
   22.7  22.9
Dividend yield
   0.4  0.4
   
For the Six Months

Ended
 
   
July 2,
  
July 3,
 
   
2023
  
2022
 
        
Risk-free interest rate
   3.9  1.4
Teradyne volatility-historical
   50.2  47.1
NYSE Composite Index volatility-historical
   24.8  22.7
Dividend yield
   0.4  0.4
Expected volatility was based on the historical volatility of Teradyne’s stock and the NYSE Composite Index 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. Dividend yield was based upon an estimated annual dividend amount of $0.44 per share divided by Teradyne’s stock price on the grant date of $112.12$103.44 for the 20222023 grant and an estimated annual dividend amount of $0.40$0.44 per share divided by Teradyne’s stock price on the grant date of $113.48$112.12 for the 20212022 grant.
During the ninesix months ended OctoberJuly 2, 20222023 and OctoberJuly 3, 2021,2022, Teradyne granted 0.1 million of service-based stock options to executive officers at a weighted average grant date fair value of $39.01$40.90 and $36.60,$39.01, respectively.
The fair value of stock options was estimated using the Black-Scholes option-pricing model with the following assumptions:

 
  
For the Six Months

Ended
 
  
July 2,
 
July 3,
 
  
For the Nine Months

Ended
   
2023
 
2022
 
  
October 2,
2022
 
October 3,
2021
       
Expected life (years)
   4.0   5.0    4.0   4.0 
Risk-free interest rate
   1.6  0.4   3.7  1.6
Volatility-historical
   43.7  37.8   46.7  43.7
Dividend yield
   0.4  0.4   0.4  0.4
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 $0.44 per share divided by Teradyne’s stock price on the grant date of $112.12$103.44 for the 20222023 grant and an estimated annual dividend amount of $0.40$0.44 per share divided by Teradyne’s stock price on the grant date of $113.48$112.12 for the 20212022 grant.
 
20
19

L.
K. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
Changes in accumulated
a
ccumulated other comprehensive income (loss), which are presented net of tax, consist of the following:

 
   
Foreign
Currency
Translation
Adjustment
  
Unrealized
Gains
(Losses) on
Marketable
Securities
  
Unrealized
Gains on
Cash Flow
Hedges
   
Retirement
Plans
Prior
Service
Credit
  
Total
 
   
(in thousands)
 
Nine Months Ended October 2, 2022
       
Balance at December 31, 2021, net of tax of $0, $1,055, $0, $(1,128), respectively
  $(10,818 $3,704  $—     $1,166  $(5,948
Other comprehensive (loss) gain before reclassifications, net of tax of $0, $(3,570), $0, $0, respectively
   (66,258  (13,491  537    —     (79,212
Amounts reclassified from accumulated other comprehensive income, net of tax of $0, $48, $0, $(2), respectively
   —     386   —      (5  381 
   
 
 
  
 
 
  
 
 
   
 
 
  
 
 
 
Net current period other comprehensive (loss) gain, net of tax of $0, $(3,522), $0, $(2), respectively
   (66,258  (13,105  537    (5  (78,831
   
 
 
  
 
 
  
 
 
   
 
 
  
 
 
 
Balance at October 2, 2022, net of tax of $0, $(2,467), $0, $(1,130), respectively
  $(77,076 $(9,401 $537   $1,161  $(84,779
   
 
 
  
 
 
  
 
 
   
 
 
  
 
 
 
Nine Months Ended October 3, 2021
                      
Balance at December 31, 2020, net of tax of $0, $1,910, $0, $(1,126), respectively
  $25,389  $6,954  $—     $1,173  $33,516 
Other comprehensive loss before reclassifications, net of tax of $0, $(516), $0, $0, respectively
   (26,672  (1,952  —      —     (28,624
Amounts reclassified from accumulated other comprehensive income, net of tax of $0, $(186), $0, $(2), respectively
   —     (670  —      (5  (675
   
 
 
  
 
 
  
 
 
   
 
 
  
 
 
 
Net current period other comprehensive loss, net of tax of $0, $(702), $0, $(2), respectively
   (26,672  (2,622  —      (5  (29,299
   
 
 
  
 
 
  
 
 
   
 
 
  
 
 
 
Balance at October 3, 2021, net of tax of $0, $1,208, $0, $(1,128), respectively
  $(1,283 $4,332  $—     $1,168  $4,217 
   
 
 
  
 
 
  
 
 
   
 
 
  
 
 
 
   
Foreign

Currency

Translation

Adjustment
  
Unrealized

(Losses)
Gains on

Marketable

Securities
  
Unrealized
(Losses)
Gains on
Cash Flow
Hedges
  
Retirement

Plans
Prior

Service

Credit
  
Total
 
                 
   
(in thousands)
 
Six Months Ended July 2, 2023
                     
Balance at December 31, 2022, net of tax of $0, $(2,308), $(708), $(1,130), respectively
  $(39,849 $(8,661 $(2,517 $1,159  $(49,868
Other comprehensive gain before reclassifications, net of tax of $0, $323, $1,088, $0, respectively
   12,250   1,726   3,866   —     17,842 
Amounts reclassified from accumulated other comprehensive income, net of tax of $0, $10, $428, $(1), respectively
   —     33   1,524   (3  1,554 
   
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
Net current period other comprehensive gain (loss), net of tax of $0, $333, $1,516, $(1), respectively
   12,250   1,759   5,390   (3  19,396 
   
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
Balance at July 2, 2023, net of tax of $0, $(1,975), $808, $(1,131), respectively
  $(27,599 $(6,902 $2,873  $1,156  $(30,472
   
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
Six Months Ended July 3, 2022
                     
Balance at December 31, 2021, net of tax of $0, $1,055, $0, $(1,128), respectively
  $(10,818 $3,704  $—    $1,166  $(5,948
Other comprehensive loss before reclassifications, net of tax of $0, $(2,573), $0, $0, respectively
   (37,307  (9,910  —     —     (47,217
Amounts reclassified from accumulated other comprehensive income, net of tax of $0, $59, $0, $(1), respectively
   —     209   —     (3  206 
   
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
Net current period other comprehensive loss, net of tax of $0, $(2,514), $0, $(1), respectively
   (37,307  (9,701  —     (3  (47,011
   
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
Balance at July 3, 2022, net of tax of $0, $(1,459), $0, $(1,129), respectively
  $(48,125 $(5,997 $—    $1,163  $(52,959
   
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
Reclas
Reclassificationssifica
tions out of accumulated other comprehensive income (loss) to the statement of operations for the three and ninesix months ended OctoberJuly 2, 20222023 and OctoberJuly 3, 20212022, were as follows:

 
Details about Accumulated Other Comprehensive Income (Loss) Components
  
For the Three Months

Ended
   
For the Nine Months

Ended
   
Affected Line Item

in the Statements

of Operations
 
   
October 2,
2022
  
October 3,
2021
   
October 2,
2022
  
October 3,
2021
     
   
(in thousands)
     
Available-for-sale
marketable securities:
        
Unrealized (losses) gains, net of tax of $11, $65, $(48
)
, $186, respectively
  $(177 $229   $(386 $670    Other (income) 
expense, net
 
Defined benefit postretirement plan:
                       
Amortization of prior service credit, net of tax of $0, $0, $2, $2, respectively
   2   2    5   5     
(a)
 
   
 
 
  
 
 
   
 
 
  
 
 
      
Total reclassifications, net of tax of $11, $65, $46, $188, respectively
  $(175 $231   $(381 $675    Net income 
   
 
 
  
 
 
   
 
 
  
 
 
      
Details about Accumulated Other Comprehensive Income (Loss) Components
  
For the Three Months
Ended
  
For the Six Months
Ended
  
Affected Line Item
in the Statements
of Operations
   
July 2,
  
July 3,
  
July 2,
  
July 3,
   
   
2023
  
2022
  
2023
  
2022
   
                
   
(in thousands)
   
Available-for-sale
marketable securities:
                   
Unrealized losses, net of tax of $(8), $(77), $(10), $(59), respectively
  $(28 $(274 $(33 $(209 Other (income) expense, net
Cash flow hedges:
                   
Unrealized losses, net of tax of $(91), $0, $(428), $0, respectively
   (323  —     (1,524  —    Revenue
Defined benefit pension and postretirement plans:
                   
Amortization of prior service credit, net of tax of $0, $0, $1, $1, respectively
   2   2   3   3  
(a)
   
 
 
  
 
 
  
 
 
  
 
 
   
Total reclassifications, net of tax of $(99), $(77), $(437), $(58), respectively
  $(349 $(272 $(1,554 $(206 
Net income
   
 
 
  
 
 
  
 
 
  
 
 
   
 
(a)
The amortization of prior service credit is included in the computation of net periodic postretirement benefit cost. See Note P:O: “Retirement Plans.”
 
21
20

M.
L. 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. In the ninesix months ended OctoberJuly 2, 2022,2023, there were no interim indicators of impairment. 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 ninesix months ended OctoberJuly 2, 2022,2023, were as follows:

 
  
Industrial
Automation
 
Wireless
Test
 
Semiconductor
Test
 
System Test
 
Total
   
Robotics
   
Wireless
Test
 
Semiconductor
Test
 
System Test
 
Total
 
  
(in thousands)
               
Balance at December 31, 2021
           
  
(in thousands)
 
Balance at December 31, 2022
            
Goodwill
  $405,971  $361,819  $262,101  $158,699  $1,188,590   $383,166   $361,819  $262,077  $158,699  $1,165,761 
Accumulated impairment losses
   —     (353,843  (260,540  (148,183  (762,566   —      (353,843  (260,540  (148,183  (762,566
  
 
  
 
  
 
  
 
  
 
   
 
   
 
  
 
  
 
  
 
 
Total Goodwill
   405,971   7,976   1,561   10,516   426,024    383,166    7,976   1,537   10,516   403,195 
  
 
  
 
  
 
  
 
  
 
   
 
   
 
  
 
  
 
  
 
 
Foreign currency translation adjustment
   (50,126  —     (99  —     (50,225   8,857    —     58   —     8,915 
  
 
  
 
  
 
  
 
  
 
   
 
   
 
  
 
  
 
  
 
 
Balance at October 2, 2022
           
Balance at July 2, 2023
            
Goodwill
   355,845   361,819   262,002   158,699   1,138,365    392,023    361,819   262,135   158,699   1,174,676 
Accumulated impairment losses
   —     (353,843  (260,540  (148,183  (762,566   —      (353,843  (260,540  (148,183  (762,566
  
 
  
 
  
 
  
 
  
 
   
 
   
 
  
 
  
 
  
 
 
Total Goodwill
  $355,845  $7,976  $1,462  $10,516  $375,799   $392,023   $7,976  $1,595  $10,516  $412,110 
  
 
  
 
  
 
  
 
  
 
   
 
   
 
  
 
  
 
  
 
 
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.
Amortizable intangible assets consist of the following and are included in intangible assets, net on the balance sheet:


   
Gross

Carrying

Amount (1)
   
Accumulated

Amortization (1)
   
Foreign
Currency
Translation
Adjustment
   
Net

Carrying

Amount
 
                 
   
(in thousands)
 
Balance at July 2, 2023
     
Developed technology
  $267,708   $(237,078  $(5,444  $25,186 
Customer relationships
   52,109    (46,699   200    5,610 
Tradenames and trademarks
   59,007    (43,904   (1,288   13,815 
   
 
 
   
 
 
   
 
 
   
 
 
 
Total intangible assets
  $378,824   $(327,681  $(6,532  $44,611 
   
 
 
   
 
 
   
 
 
   
 
 
 
Balance, December 31, 2022
                    
Developed technology
  $270,967   $(234,208  $(5,935  $30,824 
Customer relationships
   57,739    (51,186   172    6,725 
Tradenames and trademarks
   59,387    (41,930   (1,528   15,929 
   
 
 
   
 
 
   
 
 
   
 
 
 
Total intangible assets
  $388,093   $(327,324  $(7,291  $53,478 
   
 
 
   
 
 
   
 
 
   
 
 
 
 
   
Gross
Carrying
Amount
   
Accumulated
Amortization
   
Foreign
Currency
Translation
Adjustment
   
Net
Carrying
Amount
 
   
(in thousands)
 
Balance at October 2, 2022
     
Developed technology
  $272,547   $(232,802  $(7,620  $32,125 
Customer relationships
   57,739    (50,623   126    7,242 
Tradenames and trademarks
   59,387    (40,809   (2,365   16,213 
   
 
 
   
 
 
   
 
 
   
 
 
 
Total intangible assets
  $389,673   $(324,234  $(9,859  $55,580 
   
 
 
   
 
 
   
 
 
   
 
 
 
Balance, December 31, 2021
                    
Developed technology
  $272,547   $(223,413  $(4,093  $45,041 
Customer relationships
   57,739    (48,921   209    9,027 
Tradenames and trademarks
   59,387    (37,237   (583   21,567 
   
 
 
   
 
 
   
 
 
   
 
 
 
Total intangible assets
  $389,673   $(309,571  $(4,467  $75,635 
   
 
 
   
 
 
   
 
 
   
 
 
 
(1)
In 2023, $9.3 million of amortizable intangible assets became fully amortized and have been eliminated from the gross carrying amount and accumulated amortization.
Aggregate
intangible asset amortization expense was $4.7$4.8 million and $14.7$9.6 million, respectively, for the three and ninesix months ended OctoberJuly 2, 2022 2023
,
and $5.4$4.9 million and $16.3$9.9 million, respectively
,
for the three and ninesix months ended OctoberJuly 3, 2021.2022.
 
22
21

Estimated intangible asset amortization expense for each of the five succeeding fiscal years and thereafter is as follows:
 
Year
  
Amortization Expense
   
Amortization Expense
 
  
(in thousands)
   
(in thousands)
 
2022
  $4,592 
2023
   17,922   $9,443 
2024
   17,617    18,834 
2025
   10,855    11,352 
2026
   2,262    2,379 
2027
   1,162 
Thereafter
   2,332    1,441 
N.M. 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
   
For the Nine Months

Ended
 
   
October 2,
2022
   
October 3,
2021
   
October 2,
2022
   
October 3,
2021
 
   
(in thousands, except per share amounts)
 
Net income for basic and diluted net income per share
  $183,485   $256,718   $543,200   $790,549 
   
 
 
   
 
 
   
 
 
   
 
 
 
Weighted average common shares-basic
   156,364    164,583    159,325    165,690 
Effect of dilutive potential common shares:
                    
Convertible note hedge warrant shares (1)
   8,284    9,819    9,114    9,774 
Incremental shares from assumed conversion of convertible notes (2)
   1,453    6,464    1,965    8,784 
Restricted stock units
   564    1,035    673    1,147 
Stock options
   45    73    56    87 
Employee stock purchase plan
   23    13    23    10 
   
 
 
   
 
 
   
 
 
   
 
 
 
Dilutive potential common shares
   10,369    17,404    11,831    19,802 
   
 
 
   
 
 
   
 
 
   
 
 
 
Weighted average common shares-diluted
   166,733    181,987    171,156    185,492 
   
 
 
   
 
 
   
 
 
   
 
 
 
Net income per common share-basic
  $1.17   $1.56   $3.41   $4.77 
   
 
 
   
 
 
   
 
 
   
 
 
 
Net income per common share-diluted
  $1.10   $1.41   $3.17   $4.26 
   
 
 
   
 
 
   
 
 
   
 
 
 
   
For the Three Months

Ended
   
For the Six Months

Ended
 
   
July 2,
   
July 3,
   
July 2,
   
July 3,
 
   
2023
   
2022
   
2023
   
2022
 
                 
   
(in thousands, except per share amounts)
 
Net income for basic and diluted net income per share
  $120,050   $197,787   $203,581   $359,715 
   
 
 
   
 
 
   
 
 
   
 
 
 
Weighted average common shares-basic
   154,760    159,563    155,332    160,805 
Effect of dilutive potential common shares:
                    
Convertible note hedge warrant shares (1)
   8,876    9,029    8,929    9,528 
Incremental shares from assumed conversion of convertible notes (2)
   742    1,900    828    2,220 
Restricted stock units
   323    581    389    730 
Stock options
   43    54    45    61 
Employee stock purchase plan
   7    32    7    23 
   
 
 
   
 
 
   
 
 
   
 
 
 
Dilutive potential common shares
   9,991    11,596    10,198    12,562 
   
 
 
   
 
 
   
 
 
   
 
 
 
Weighted average common shares-diluted
   164,751    171,159    165,530    173,367 
   
 
 
   
 
 
   
 
 
   
 
 
 
Net income per common share-basic
  $0.78   $1.24   $1.31   $2.24 
   
 
 
   
 
 
   
 
 
   
 
 
 
Net income per common share-diluted
  $0.73   $1.16   $1.23   $2.07 
   
 
 
   
 
 
   
 
 
   
 
 
 
 
(1)
Convertible notes hedge warrant shares were calculated using the difference between the average Teradyne stock price for the period and the warrant price, multiplied by the number of warrant shares. The result of this calculation, representing the total intrinsic value of the warrant, was divided by the average Teradyne stock price for the period.
(2)
Incremental shares from assumed conversion of the convertible notes were calculated using the difference between the average Teradyne stock price for the period and the conversion price, multiplied by the number of convertible notes 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.
The computation of diluted net income per common share for the three and ninesix months ended OctoberJuly 2, 2022 2023
,
excludes the effect of the potential vesting of 0.70.4 million and 0.90.5 million, respectively, 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 ninesix months ended OctoberJuly 3, 2021 2022
,
excludes the effect of the potential vesting of 0.1 million and 0.10.2 million, respectively, of restricted stock units because the effect would have been anti-dilutive.
O.N. RESTRUCTURING AND OTHER
During the three months ended OctoberJuly 2, 2022,2023, Teradyne recorded $1.2$5.1 million of severance charges related to headcount reductions of 112 people primarily in Industrial AutomationSemiconductor Test and $0.7Robotics
which included charges related to a voluntary early retirement program for employees meeting certain conditions 
and a charge of $1.1 million for an increase in legal liabilities.environmental liability.
During the three months ended OctoberJuly 3, 2021,2022, Teradyne recorded $0.6a charge of $1.5 million of severance charges primarilyfor an increase in Industrial Automation.environmental and legal liabilities.

 
23
22

During the ninesix months ended OctoberJuly 2, 2023, Teradyne recorded $
7.2
 million of severance charges related to headcount reductions of 1
79
 people primarily in Semiconductor Test and Robotics
 which included charges related to a voluntary early retirement program for employees meeting certain conditions
and a charge of $
1.1
 million for an increase in environmental liability.

During the six months ended July 3, 2022, Teradyne recorded a charge of $14.7 million related to the arbitration claim filed against Teradyne and AutoGuide related to an
earn-out
dispute, which was settled on March 25, 2022 for $26.7 million, and a charge of $2.7$2.0 million for an increase in environmental and legal liabilities, and $2.1 million of severance charges primarily in Industrial Automation. Previously, in the three months ended December 31, 2021, Teradyne recorded a charge of $12.0 million related to this
earn-out
dispute.
During the nine months ended October 3, 2021, Teradyne recorded a gain of $7.2 million for the decrease in the fair value of the AutoGuide contingent consideration liability, partially offset by a charge of $1.7 million for an increase in environmental and legal liabilities, and $1.2 million of severance charges primarily in Industrial Automation.
liabilities.
P.O. RETIREMENT PLANS
ASC 715, “Compensation—Retirement Benefits,” requires an employer with defined benefit plans or other postretirement benefit plans to recognize an asset or a liability on its balance sheet for the overfunded or underfunded status of the plans as defined by ASC 715. The pension asset or liability represents a difference between the fair value of the pension plan’s assets and the projected benefit obligation at December 31. Teradyne uses a December 31 measurement date for all its plans.
Defined Benefit Pension Plans
Teradyne has defined benefit pension plans covering a portion of domestic employees and employees of certain
non-U.S.
subsidiaries. Benefits under these plans are based on employees’ years of service and compensation. Teradyne’s funding policy is to make contributions to these plans in accordance with local laws and to the extent that such contributions are tax deductible. The assets of the U.S. qualifiedqu
alifie
d pension plan consist primarily of fixed income and equity securities. In addition, Teradyne has an unfunded supplemental executive defined benefitdef
ined b
enefit plan in the United States to provide retirement benefits in excess of levels allowed by the Employment Retirement Income Security Act (“ERISA”) and the Internal Revenue Code (the “IRC”), as well as unfunded qualified foreign plans.
In the ninesix months ended OctoberJuly 2, 20222023 and OctoberJuly 3, 2021,2022, Teradyne contributed $2.5$1.5 million and $2.5$1.6 million, respectively, to the U.S. supplemental executive defined benefit pension plan, and $0.7$0.6 million and $0.8$0.5 million, respectively, to certain qualified pension plans for
non-U.S.
subsidiaries.
For the three and ninesix months ended OctoberJuly 2, 20222023 and OctoberJuly 3, 2021,2022, Teradyne’s net periodic pension cost was comprised of the following:

 
  
For the Three Months Ended
 
  
              
   
              
   
              
   
              
                 
  
For the Three Months Ended
   
July 2, 2023
   
July 3, 2022
 
  
October 2, 2022
   
October 3, 2021
   
United

States
   
Foreign
   
United

States
   
Foreign
 
  
United
States
   
Foreign
   
United
States
   
Foreign
                 
  
(in thousands)
   
(in thousands)
 
Service cost
  $397   $153   $452   $240   $272   $110   $397   $180 
Interest cost
   1,222    96    1,098    86    1,714    263    1,221    120 
Expected return on plan assets
   (732   (16   (936   (17   (1,286   (9   (732   (18
Net actuarial loss (gain)
   24    —      (45   —   
  
 
   
 
   
 
   
 
   
 
   
 
   
 
   
 
 
Total net periodic pension cost
  $887   $233   $614   $309   $724   $364   $841   $282 
  
 
   
 
   
 
   
 
   
 
   
 
   
 
   
 
 
 
   
For the Six Months Ended
 
                 
   
July 2, 2023
   
July 3, 2022
 
   
United

States
   
Foreign
   
United

States
   
Foreign
 
                 
   
(in thousands)
 
Service cost
  $543   $220   $794   $386 
Interest cost
   3,425    526    2,443    238 
Expected return on plan assets
   (2,571   (18   (1,463   (38
Net actuarial loss (gain)
   24    —      (45   —   
   
 
 
   
 
 
   
 
 
   
 
 
 
Total net periodic pension cost
  $1,421   $728   $1,729   $586 
   
 
 
   
 
 
   
 
 
   
 
 
 
   
              
   
              
   
              
   
              
 
   
For the Nine Months Ended
 
   
October 2, 2022
   
October 3, 2021
 
   
United
States
   
Foreign
   
United
States
   
Foreign
 
   
(in thousands)
 
Service cost
  $1,191   $539   $1,357   $720 
Interest cost
   3,665    333    3,295    257 
Expected return on plan assets
   (2,195   (54   (2,809   (50
Net actuarial gain
   (45   —      (400   —   
   
 
 
   
 
 
   
 
 
   
 
 
 
Total net periodic pension cost
  $2,616   $818   $1,443   $927 
   
 
 
   
 
 
   
 
 
   
 
 
 
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.
During the three and six months ended July 2, 2023, Teradyne recorded special termination benefit charges associated with a voluntary early retirement program. 
 
24
23

For the three and ninesix months ended OctoberJuly 2, 20222023 and OctoberJuly 3, 2021,2022, Teradyne’s net periodic postretirement benefit cost (credit) was comprised of the following:

 

   
For the Three Months

Ended
   
For the Nine Months

Ended
 
   
October 2,
2022
   
October 3,
2021
   
October 2,
2022
   
October 3,
2021
 
   
(in thousands)
 
Service cost
  $16   $16   $48   $48 
Interest cost
   44    43    132    128 
Amortization of prior service credit
   (2   (2   (7   (7
Net actuarial loss (gain)
   —      —      54    (228
   
 
 
   
 
 
   
 
 
   
 
 
 
Total net periodic postretirement benefit cost (credit)
  $58   $57   $227   $(59
   
 
 
   
 
 
   
 
 
   
 
 
 
   
For the Three Months

Ended
   
For the Six Months

Ended
 
                 
   
July 2,
2023
   
July 3,
2022
   
July 2,
2023
   
July 3,
2022
 
                 
   
(in thousands)
 
Service cost
  $8   $15   $17   $32 
Interest cost
   60    45    121    88 
Amortization of prior service credit
   (2   (2   (4   (4
Special termination benefits
   369    —      369    —   
Net actuarial loss
   30    54    30    54 
   
 
 
   
 
 
   
 
 
   
 
 
 
Total net periodic postretirement benefit cost
  $465   $112   $533   $170 
   
 
 
   
 
 
   
 
 
   
 
 
 
Q.P. COMMITMENTS AND CONTINGENCIES
Purchase Commitments
As of OctoberJuly 2, 2022,2023, Teradyne had entered into purchase commitments for certain components and materials. The purchase commitments covered by the agreements aggregate to approximately $887.1$554.5 million, of which $808.3$482.4 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 such as, but not limited to, patent, employment, commercial and environmental matters. Teradyne believes that it has meritorious defenses against all pending claims and intends to vigorously contest them. While it is not possible to predict or determine the outcomes of any pending claims or to provide possible ranges of losses that may arise, Teradyne believes the potential losses associated with all of these actions are unlikely to have a material adverse effect on its business, financial position or results of operations.
On March 8, 2021, Industrial Automation LLC, sellers of AutoGuide, submitted a demand for arbitration against Teradyne and AutoGuide in Wilmington, Delaware alleging that Teradyne and AutoGuide breached certain provisions of the Membership Interests Purchase Agreement (the “Purchase Agreement”), dated as of October 18, 2019, among Industrial Automation LLC, Teradyne and AutoGuide. The arbitration demand sought full acceleration of the maximum
earn-out
amount payable under the Purchase Agreement, or $106.9 million, for the alleged breach of the
earn-out
provisions of the Purchase Agreement. On March 25, 2022, the arbitration claim was settled for $26.7 million. As a result, Teradyne has no remaining
earn-out
obligations.
Guarantees and Indemnification Obligations
Teradyne provides indemnification, to the extent permitted by law, to its officers, directors, employees and agents for liabilities arising from certain events or occurrences, while the officer, director, employee, or agent, is or was serving, at Teradyne’s request in
such capacity. Teradyne may enter into indemnification agreements with certain of its officers and directors. With respect to acquisitions, Teradyne provides indemnifications to or assumes indemnification obligations for the current and former directors, officers and employees of the acquired companies in accordance with the acquired companies’
by-laws
and charters.charter. As a matter of practice, Teradyne has maintained directors’ and officers’ liability insurance coverage including coverage for directors and officers of acquired companies.
Teradyne enters into agreements in the ordinary course of business with customers, resellers, distributors, integrators and suppliers. Most of these agreements require Teradyne to defend and/or indemnify the other party against intellectual property infringement claims brought by a third party with respect to Teradyne’s products. From time to time, Teradyne also indemnifies customers and business partners for damages, losses and liabilities they may suffer or incur relating to personal injury, personal property damage, product liability, breach of confidentiality obligations and environmental claims relating to the use of Teradyne’s products and services or resulting from the acts or omissions of Teradyne, its employees, authorized agents or subcontractors. On occasion, Teradyne has also provided guarantees to customers regarding the delivery and performance of its products in addition to the warranty described below.
25

As a matter of ordinary course of business, Teradyne warrants that its products will substantially perform in accordance with its standard published specifications in effect at the time of delivery. Most warranties have a
one-year
duration commencing from installation. A provision is recorded upon revenue recognition to cost of revenues for estimated warranty expense based upon historical experience. When Teradyne receives revenue for extended warranties beyond the standard duration, the revenue is deferred
24

and recognized on a straight-line basis over the contract period. Related costs are expensed as incurred. As of OctoberJuly 2, 20222023 and December 31, 2021,2022, Teradyne had a product warranty accrual of $14.1$12.5 million and $24.6$14.2 million, respectively, included in other accrued liabilities and revenue deferrals related to extended warranties of $61.9$44.4 million and $64.2$56.2 million, respectively, included in short and long-term deferred revenue and customer advances.
In addition, in the ordinary course of business, Teradyne provides minimum purchase guarantees to certain vendors to ensure continuity of supply against the market demand. Although some of these guarantees provide penalties for cancellations and/or modifications to the purchase commitments as the market demand decreases, most of the guarantees do not. Therefore, as the market demand decreases, Teradyne
re-evaluates
these guarantees and determines what charges, if any, should be recorded.
With respect to its agreements covering product, business or entity divestitures and acquisitions, Teradyne provides certain representations, warranties and covenants to purchasers and agrees to indemnify and hold such purchasers harmless against breaches of such representations, warranties and covenants. Many of the indemnification claims have a definite expiration date while some remain in force indefinitely. With respect to its acquisitions, Teradyne may, from time to time, assume the liability for certain events or occurrences that took place prior to the date of acquisition.
As a matter of ordinary course of business, Teradyne occasionally guarantees certain indebtedness obligations of its subsidiary companies, limited to the borrowings from financial institutions, purchase commitments to certain vendors and lease commitments to landlords.
Based on historical experience and information known as of OctoberJuly 2, 20222023 and December 31, 2021,2022, except for product warranty, Teradyne has not recorded any liabilities for these guarantees and obligations because the amount would be immaterial.
R.Q. INCOME TAXES
A reconciliation of the United States federal statutory corporate tax rate to Teradyne’s effective tax rate was as follows:

 
        
  
For the Three Months

Ended
 
For the Nine Months

Ended
   
For the Three Months

Ended
 
For the Six Months

Ended
 
  
October 2,
2022
 
October 3,
2021
 
October 2,
2022
 
October 3,
2021
           
          
July 2,
2023
 
July 3,
2022
 
July 2,
2023
 
July 3,
2022
 
U.S. statutory federal tax rate
   21.0  21.0  21.0  21.0   21.0  21.0  21.0  21.0
Discrete expense related to foreign currency gain/loss   1.2   0.6   0.7   0.6 
Non-deductible
officers’ compensation
   1.8   0.8   1.4   0.8    1.0   1.4   1.0   1.3 
International provisions of the U.S. Tax Cuts and Jobs Act of 2017
   (2.5  (1.0  (2.8  (1.2
Tax credits
   (2.4  (2.0  (2.4  (1.8
Discrete benefit related to equity compensation
   (0.1  (0.2  (1.4  (2.9
Foreign taxes
   (0.7  (4.4  (2.4  (4.4   (1.0  (3.2  (0.8  (3.3
Tax credits
   (2.1  (1.9  (1.9  (1.4
International provisions of the U.S. Tax Cuts and Jobs Act of 2017
   (1.4  (1.5  (1.2  (1.6
Discrete benefit related to equity compensation
   (0.1  (0.1  (1.9  (1.6
Other, net
   0.4   (0.1  0.8   (0.1   (0.3  0.5   0.4   0.4 
  
 
  
 
  
 
  
 
   
 
  
 
  
 
  
 
 
Effective tax rate
   18.9  13.8  15.8  12.7   16.9  17.1  15.7  14.1
  
 
  
 
  
 
  
 
   
 
  
 
  
 
  
 
 
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 OctoberJuly 2, 2022,2023, 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.
As of OctoberJuly 2, 20222023 and December 31, 2021,2022, Teradyne had $14.8$15.9 million and $14.5$15.6 million, respectively, of reserves for uncertain tax positions. The $0.3 million net increase in reserves for uncertain tax positions consists of an increaseis related to U.S. federal research and development credits generated in the current year partially offset by the release of reserves related to
prior year loss carryforwards.year.
As of OctoberJuly 2, 2022,2023, Teradyne does not anticipate a material change inestimates that it is reasonably possible that the balance of unrecognized tax benefits duringmay decrease approximately $0.1 million in the next twelve months.
months because of a lapse of statutes of limitation. The estimated decrease relates to U.S. state research and development credits.
26

Teradyne
recognizes interest and penalties related to income tax matters in income tax expense. As of OctoberJuly 2, 20222023 and December 31, 2021, $0.42022, $0.5 million and $0.3$0.4 million, respectively, of interest and penalties were accrued for uncertain tax positions. For the ninesix months ended OctoberJuly 2, 2023 and July 3, 2022, and October 3, 2021,an expense
s
of $0.1 million and $0.3$0.1 million, respectively, w
ere
was recorded for interest and penalties related to income tax items.

25

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 ninesix months ended OctoberJuly 2, 20222023, was $9.7
$
1.0
 million, or $0.05 $
0.01
per diluted share. The tax savings due to the tax holiday for the ninesix months ended OctoberJuly 3, 2021 2022
,
was $23.9$
8.3
 million, or $0.13 $
0.05
per diluted share. In November 2020, Teradyne entered into an agreement with the Singapore Economic Development Board which extended itsour Singapore tax holiday under substantially similar terms to the agreement which expired on December 31, 2020. The new tax holiday is scheduled to expire on December 31, 2025.
S.
On August 16, 2022, the Inflation Reduction Act of 2022 (“IRA”) was signed into law. The IRA introduced a 15% alternative minimum tax based on the financial statement income of certain large corporations (“CAMT”), effective January 1, 2023. Teradyne currently does not expect the CAMT to have a material impact on its financial results.
R. SEGMENT INFORMATION
Teradyne has four reportable segments (Semiconductor Test, System Test, Industrial AutomationWireless Test and Wireless Test)Robotics). Each of the reportable segments is alsorepresents an individual operating segment.
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 and system level test, and circuit-board test. The Industrial AutomationWireless Test segment includes operations related to the design, manufacturing and marketing of wireless test products and services. The Robotics 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. Each operating segment has a segment manager who is accountable to and maintains regular contact with Teradyne’s chief operating decision maker (Teradyne’s chief executive officer) to discuss operating activities, financial results, forecasts and plans for the segment.
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 the same as those described in Note B: “Accounting Policies” in Teradyne’s Annual Report on Form
10-K
for the year ended December 31, 2021.2022.
27

Segment information for the three and ninesix months ended OctoberJuly 2, 20222023 and OctoberJuly 3, 20212022 is as follows:

 
  
Semiconductor

Test
   
System

Test
   
Industrial

Automation
 
Wireless

Test
   
Corporate

and

Eliminations
 
Consolidated
   
Semiconductor

Test
   
System

Test
   
Robotics
 
Wireless

Test
   
Corporate

and

Eliminations
 
Consolidated
 
  
(in thousands)
                     
Three Months Ended October 2, 2022
                
  
(in thousands)
 
Three Months Ended July 2, 2023
                
Revenues
  $575,704   $116,154   $89,067  $46,148   $—    $827,073   $474,708   $94,272   $71,634  $43,823   $—    $684,437 
Income (loss) before income taxes (1)(2)
   182,625    40,201    (3,992  12,647    (5,284  226,197    129,040    28,599    (26,401  12,020    1,144   144,402 
Total assets (3)
   1,366,478    192,684    614,558   110,484    1,035,702   3,319,906    1,416,109    191,002    685,132   88,869    1,013,784   3,394,896 
Three Months Ended October 3, 2021
                
Three Months Ended July 3, 2022
                
Revenues
  $688,232   $102,605   $91,014  $68,713   $(63 $950,501   $541,348   $134,702   $101,055  $63,854   $(193 $840,766 
Income (loss) before income taxes (1)(2)
   265,017    31,773    (4,226  31,726    (26,535  297,755    177,782    54,042    (6,406  25,393    (12,219  238,592 
Total assets (3)
   1,251,549    147,970    696,792   119,568    1,546,303   3,762,182    1,449,878    229,359    644,099   118,445    1,046,645   3,488,426 
Nine Months Ended October 2, 2022
                
Six Months Ended July 2, 2023
                
Revenues
  $1,599,392   $369,525   $292,772  $161,520   $—    $2,423,209   $889,717   $168,903   $160,848  $82,498   $—    $1,301,966 
Income (loss) before income taxes (1)(2)
   510,112    135,566    (15,496  56,659    (41,693  645,148    225,225    43,874    (44,891  21,372    (4,094  241,486 
Total assets (3)
   1,366,478    192,684    614,558   110,484    1,035,702   3,319,906    1,416,109    191,002    685,132   88,869    1,013,784   3,394,896 
Nine Months Ended October 3, 2021
                
Six Months Ended July 3, 2022
                
Revenues
  $2,050,271   $340,261   $263,151  $164,504   $(352 $2,817,835   $1,023,688   $253,371   $204,244  $115,372   $(539 $1,596,136 
Income (loss) before income taxes (1)(2)
   778,687    116,788    (14,586  63,810    (38,925  905,774    327,487    95,365    (11,504  44,012    (36,409  418,951 
Total assets (3)
   1,251,549    147,970    696,792   119,568    1,546,303   3,762,182    1,449,878    229,359    644,099   118,445    1,046,645   3,488,426 
 
(1)
Included in Corporate and Eliminations are: legal and environmental fees, contingent consideration fair value adjustments, interest income, interest expense, severance charges, net foreign exchange gains (losses), acquisition related charges and compensation, pension, intercompany eliminations, legal and environmental fees, severance charges, pension, and an expense for the three and nine months ended October 3, 2021, loss on convertible debt conversions.modification of Teradyne’s former chief executive officer’s outstanding equity awards.
(2)
Included in income (loss) before taxes are charges and credits related to restructuring and other, and inventory charges and, for the three and nine months ended October 3, 2021, loss on convertible debt conversions.charges.
(3)
Total assets are attributable to each segment. Corporate assets consist of cash and cash equivalents, marketable securities, and certain other assets.
26

Included in each segment are charges and credits in the following line items in the statements of operations:

 
  
For the Three Months

Ended
   
For the Six Months

Ended
 
                
  
For the Three Months

Ended
   
For the Nine Months

Ended
   
July 2,
2023
   
July 3,
2022
   
July 2,
2023
   
July 3,
2022
 
  
October 2,
2022
   
October 3,
2021
   
October 2,
2022
   
October 3,
2021
                 
  
(in thousands)
   
(in thousands)
 
Semiconductor Test:
                    
Cost of revenues—inventory charge
  $10,829   $3,725   $13,144   $4,959   $4,184   $2,071   $7,952   $2,315 
Industrial Automation:
            
Restructuring and other—employee severance
   2,485    —      3,279    
System Test:
            
Cost of revenues—inventory charge
  $—     $—     $1,113   $—   
Restructuring and other—employee severance
   —      —      642    —   
Robotics:
            
Restructuring and other—employee severance
  $1,074   $—     $1,616   $965   $1,638   $—     $2,071   $—   
Cost of revenues—inventory charge
   —      3,656    1,411    4,941    769    831    1,551    1,197 
Restructuring and other—acquisition related expenses and compensation
   —      —      —      825 
Wireless:
                        
Cost of revenues—inventory charge
  $966   $679   $3,942   $1,351 
System Test:
            
Cost of revenues—inventory charge
  $—     $—     $—     $524   $—     $2,099   $725   $2,976 
Corporate and Eliminations:
                        
Restructuring and other—other
  $700   $—     $2,700   $1,846   $1,100    1,500    1,100    2,000 
Restructuring and other—employee severance
   —      —      1,124    —   
Selling and administrative—equity modification charge
   —      —      5,889    —   
Restructuring and other—legal settlement charge
   —      —      14,700    —      —      —      —      14,700 
Other (income) expense, net—loss on convertible debt conversions
   —      20,153    —      25,397 
Restructuring and other—AutoGuide contingent consideration adjustment
   —      —      —      (7,227
Restructuring and other—acquisition related expenses and compensation
   —      —      —      (513
28

T.S. SHAREHOLDERS’ EQUITY
Stock Repurchase Program
In January 2021,2023, Teradyne’s Board of Directors cancelled its January 2021 repurchase program and approved a new repurchase program for up to $2.0 billion of common stock. Teradyne intends to repurchase up to $500.0 million of its common stock in 2023 based on market conditions.
During the ninesix months ended OctoberJuly 2, 2022,2023, Teradyne repurchased 7.22.2 million shares of common stock for $750.0a total cost of $229.5 million at an average price of $103.83$102.35 per share. As of January 1, 2023, share repurchases in excess of issuances are subject to a 1% excise tax, which is i
n
cluded
as
part of the cost basis of the shares acquired.
During the ninesix months ended OctoberJuly 3, 2021,2022, Teradyne repurchased 3.35.0 million shares of common stock for $406.2$532.8 million at an average price of $123.53$107.50 per share. The cumulative repurchases under the $2.0 billion common stock repurchase program as of October 2, 2022 were 12.0 million shares of common stock for $1,350.0 million at an average price per share of $112.55.
The total pricecost of shares acquired includes commissions and, starting in 2023, related excise tax, 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 2022,2023 and May 2023, Teradyne’s Board of Directors declared a quarterly cash dividend of $0.11 per share. Dividend payments for the three and six months ended July 2, 2023
,
were $17.0 million and $34.2 million, respectively.
In January 2022 and AugustMay 2022, Teradyne’s Board of Directors declared a quarterly cash dividend of $0.11 per share. Dividend payments for the three and ninesix months ended October 2,July 3, 2022
,
were $17.1$17.5 million and $52.6$35.4 million, respectively.
In January 2021, May 2021 and August 2021, Teradyne’s Board of Directors declared a quarterly cash dividend of $0.10 per share. Dividend payments for the three and nine months ended October 3, 2021 were $16.4 million and $49.7 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.27

U. SUBSEQUENT EVENT
On October 5, 2022, Teradyne amended its existing credit agreement to increase the amount of its senior secured revolving credit facility to $750 million from $400 million.
29


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, 2021.2022. Readers are cautioned not to place undue reliance on these forward-looking statements which reflect management’s analysis only as of the date hereof. We assume no obligation to update these forward-looking statements to reflect actual results or changes in factors or assumptions affecting forward-looking statements, except as may be required by law.

Overview

We are a leading global supplier of automationautomated test equipment for test and industrial applications.robotics solutions. We design, develop, manufacture and sell automatic test systems and robotics products. Our automatic test systems are used to test semiconductors, wireless products, data storage and complex electronics systems in many industries including the consumer electronics, wireless, automotive, industrial, computing, communications, and aerospace and defense industries. Our industrial automationrobotics products include collaborative robotic arms and autonomous mobile robots (“AMRs”) and advanced robotic control software used by global manufacturing, logistics and light industrial customers to improve quality, increase manufacturing and material handling efficiency and decrease manufacturing and logistics costs. Our automatic test equipment and industrial automationrobotics products and services include:

semiconductor test (“Semiconductor Test”) systems;

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

wireless test (“Wireless Test”) systems; and

industrial automation

robotics (“Industrial Automation”Robotics”) products.

The market for our test products is concentrated with a limited number of significant customers accounting for a substantial portion of the purchases of test equipment. A few customers drive significant demand for our test products both through direct sales and sales to the customers’ supply partners. We expect that sales of our test products will continue to be concentrated with a limited number of significant customers for the foreseeable future.
In 2022, we expect lowerthe second quarter of 2023, the demand in the mobility and compute segments of our Semiconductor Test business duecontinued to end marketbe impacted by a correction cycle driven by excess semiconductor inventory, primarily in the mobility segment of the market. The depth of this slowdown and the timing of the recovery are uncertain, however, strong automotive demand and in Memory test, the growth of DDR5 and High Bandwidth Memory (“HBM”) devices for data center applications are partially offsetting these segments as well as slower technology transition in one of our largest end-markets. While there is uncertainty if end markets will recover in 2023,declines. Over the midterm we expect the ramp of 3 nanometer starting in 2023 followed by and gate-all-around and process technology, increasing multichip packaging, remain drivers of growth. We expect Semiconductor Testadditional device complexity and unit growth will drive additional demand in the automotive and industrial segments to remain strong in 2022.

for test.

Our Industrial AutomationRobotics segment consists of Universal Robots A/S (“UR”), a leading supplier of collaborative robotic arms and Mobile Industrial Robots A/S (“MiR”), a leading maker of AMRs for industrial automation. The market for our Industrial AutomationRobotics segment products is dependent on the adoption of new automation technologies by large manufacturers as well as small and medium enterprises (SMEs)(“SMEs”) throughout the world.

In the second quarter of 2023, Robotics demand has softened significantly due to slowing global industrial activity and macro-economic headwinds.

In the second quarter of 2023, we met customer demand, in part, through faster than expected recoveries from supply chain constraints, while inflation had minimal effects on our results. Both our test and industrial automationrobotics businesses may continue tostill be impactedinfluenced by supply constraints during the remainder of 2023, which will in turncould impact our revenue and is expected to increase costs in 2022. Through thecosts. For example, our third quarter of 2022, inflation has not had a material impact on our results. In the third quarter 2022, we were unable to supply approximately $10 million of revenue in our test businesses for which we had customer demand. Our fourth quarter 20222023 forecast excludes approximately $15$35 million of revenue, primarily in our test businesses, due to these continued supply chain constraints.

Our financial statements are denominated in U.S. dollars. While the majority of our revenues are in U.S. dollars, approximately 70 percent of our Industrial AutomationRobotics revenue is denominated in foreign currencies. In the third quarter of 2022, the strengthening of the U.S. dollar was a factor in lower than forecasted revenues in our Industrial AutomationRobotics segment. Continued strengtheningStrengthening of the U.S. dollar may adversely impactwould negatively affect Robotics revenue growth in the fourth quarter2023.
28

Our corporate strategy continues to focus on profitably gaining market share in our test businesses through the introduction of differentiated products that target expanding segments and accelerating growth through continued investment in our Industrial AutomationRobotics businesses. We plan to execute on our strategy while balancing capital allocations between returning capital to our shareholders through stock repurchases and dividends and using capital for opportunistic acquisitions.

30


Impact of the
COVID-19
Pandemic on our Business

The novel coronavirus
(COVID-19)
pandemic resulted in government authorities implementing numerous measures in an effort to contain the spread of the virus, such as travel bans and restrictions, limitations on gatherings or social distancing requirements, quarantines,
shelter-in-place
orders, vaccination and testing mandates, and business limitations and shutdowns. These measures have impacted our
day-to-day
operations and disrupted our business, workforce and operations, as well as the operations of our customers, contract manufacturers and suppliers. We are continuing to monitorIn the rapidly evolving situation regardingsecond quarter of 2023 the
COVID-19
pandemic particularlyhad significantly less impact on our business than in China, andprior quarters since the availability and impactstart of vaccinations globally.the pandemic in 2020. However, we are unable to accurately predict the fullfuture impact of
COVID-19,
which will depend on future developments that are highly uncertain and cannot be predicted with accuracy, including, but not limited to, any new surges or new strains or variants of the virus in areas where we do business, the availability and use of vaccinations, any further government actions to contain the virus or treat its impact, continuing shutdowns in China, and how quickly and to what extent normal economic and operating conditions can resume.

business.

Due to the
COVID-19
pandemic, there has been uncertainty and disruption in the global economy and our markets. We are not aware of any specific event or circumstance that would require an update to our estimates or judgments or a revision of the carrying value of our assets or liabilities as of NovemberAugust 4, 2022,2023, the date of issuance of this Quarterly Report on Form
10-Q.

Health and Safety

In response to the COVID-19 pandemic, we have taken proactive, aggressive action to protect the health and safety of our employees, customers, contract manufacturers and suppliers, and we have complied with all government orders around the globe. The spread of COVID-19 has caused us to modify our business practices, which includes implementing social distancing protocols, limiting employee travel and requiring employees to work remotely. We may take further actions as may be required or recommended by government authorities or that we determine are in the best interests of our employees, customers, contract manufacturers and suppliers.

Operations

We believe the
COVID-19
pandemic and the numerous measures implemented by authorities in response, has adversely impacted our results of operations, including by increasing costs, but we cannot accurately estimate the amount of the impact to our third quarter of 2022 financial results or to our future financial results. In addition, the pandemic has disrupted our contract manufacturers and suppliers, and has resulted in supply constraints and in short-term cost increases to meet customer demand. While the duration and severity of the pandemic may further impact our workforce and operations, as well as those of our customers, contract manufacturers and suppliers, we expect that our manufacturing facilities will remain operational, at sufficient capacity to support production based on demand and the availability of supply. We are monitoring our operations closely in an effort to avoid any potential productivity losses caused by responses to the COVID-19 pandemic.

Demand

The COVID-19 pandemic significantly increased economic uncertainty in our markets. Demand for our Test products in China and other countries was strong throughout 2021, but the COVID-19 pandemic could cause further economic disruption that could cause demand for our products to decline, which would adversely affect our business.

Liquidity

Although there is continued uncertainty related to the impact of the COVID-19 pandemic on our future results, we believe our business model and our current cash reserves leave us well-positioned to manage our business through this crisis. We have a strong balance sheet, as well as an operating model that we believe is capable of flexing up and down with extreme demand swings while still remaining profitable. Based on our analysis, we believe our existing balances of cash and cash equivalents and our currently anticipated operating cash flows will be sufficient to meet our working capital needs and other capital and liquidity requirements for the next twelve months. However, due to the uncertainty related to the future impact of the COVID-19 pandemic, in order to bolster our liquidity position, on May 1, 2020 we entered into a credit agreement providing for a three-year, senior secured revolving credit facility of $400 million. On December 10, 2021, we amended the credit agreement to extend its maturity to December 10, 2026 as further described in Note H: “Debt.” As described in Note U: “Subsequent Event”, the credit facility was increased to $750 million on October 5, 2022. As of November 4, 2022, we have not borrowed any funds under the credit facility.

We are continuing to monitor the evolving situation regarding the COVID-19 pandemic, the availability of vaccinations where we do business and guidance from government authorities around the world. In these circumstances, there may be developments outside our control requiring us to adjust our operating plan. As a result, given the uncertain nature of this situation, we are not able to accurately predict the full extent of the impact of COVID-19 on our business, financial condition, results of operations, liquidity, or cash flows in the future.

31


Supply Chain Constraints and Inflationary Pressures

The global supply shortage of electrical components, including semiconductor chips, continued to impact our supply chain in the thirdsecond quarter of 2022. As a result,2023. We are seeing improvements related to supply constraints however, we experienced, and expect to continue to experience through the remainder of 2023, increases in our lead times and costs for certain components for certain of our products. In addition, while not material, inflationary pressures contributed to increased costs for product components and wage inflation, impacting our cost of products, gross margin and profit for the quarter. Our supply chain team, and our suppliers, continue to manage numerous supply, production, and logistics obstacles. While not material through the thirdsecond quarter of 2022,2023, in an effort to mitigate these risks, in some cases, we have incurred higher costs due to investment in supply chain resiliency and to secure available inventory or have extended or placed
non-cancellable
purchase commitments with semiconductor suppliers, which introduces inventory risk if our forecasts and assumptions prove inaccurate. We have also sourced components from additional suppliers and multi-sourced and
pre-ordered
components and finished goods inventory in some cases in an effort to reduce the impact of the adverse supply chain conditions we have experienced. There is no assurance that these efforts will be successful. In theOur third quarter 2022, we were unable to supply approximately $10 million of revenue in our test businesses for which we had customer demand. Our fourth quarter 20222023 forecast excludes approximately $15$35 million of revenue, primarily in our test businesses, due to these continued supply chain constraints.

Impact of Russia’s invasion of Ukraine on our Business

Russia’s invasion of Ukraine, in February 2022, did not have a significant impact on our business as we have minimal business in Russia and Ukraine, both directly and indirectly. However, following the invasion, the U.S. and other countries imposed significant sanctions against the Russian government and many Russian companies and individuals. Although we do not have significant operations in Russia, the sanctions and Russia’s response to the sanctions, have impacted our business in other countries and could have a negative impact on our future revenue and supply chain, either of which could adversely affect our business and financial results. In addition, the global economic uncertainty following the invasion, sanctions and Russia’s response to the sanctions could impact demand for our products.

Impact of October 7, 2022 U.S. Department of Commerce Regulations on our Business

On October 7, 2022, the U.S. Department of Commerce published new regulations restricting the export to China of advanced semiconductors, supercomputer technology, equipment for the manufacturing of advanced semiconductors and components and technology for the manufacturing in China of certain semiconductor manufacturing equipment. The new restrictions are lengthy and complex. We continue to assess the impact of these regulations on our business. We have determined that restrictions on the sale of semiconductor testers in China to test certain advanced semiconductors will impact our sales to certain companies in China. Several multinational companies manufacturing these advanced semiconductors in China have obtained one-year licenses allowing suppliers such as Teradyne to continue to provide testers to the facilities operated by these companies. We expect that other companies manufacturing advanced semiconductors in China will not receive licenses, thereby restricting our ability to provide testers to the facilities operated by these companies that do not receive a license. We also are assessing the filing of license requests to sell to and support certain customers in China for certain end uses that, if granted, may reduce the impact of these restrictions on our business. At this time, we do not know the impact these end user and end use restrictions will have on our business in China or on future revenues. In addition to the specific restrictions impacting our business, the regulations may have an adverse impact on certain actual or potential customers and on the global semiconductor industry. To the extent the regulations impact actual and potential customers or disrupt the global semiconductor industry, our business and revenues will be adversely impacted. We also have determined that the restrictions on the export of certain US origin components and technology for use in the development and production in China of certain semiconductor manufacturing equipment impact our manufacturing and development operations in China. We have received a temporary authorization from the U.S. Department of Commerce allowing us to continue our manufacturing and development operations in China until the U.S. Department of Commerce issues a license to replace this temporary authorization. We will file an application with the U.S. Department of Commerce for a license to replace the temporary authorization by November 17, 2022. We cannot assess the likelihood or timing of receiving this license. In addition to requesting a license, we are implementing procedures for minimizing the impact of these new regulations on our operations in China, but there is no assurance that these procedures will succeed.

See Part II—Item 1A, “Risk Factors,” included in our Annual Report on Form
10-K
for the fiscal year ended December 31, 20212022 for our risk factors regarding risks associated with both the
COVID-19
pandemic and international conflicts.

Critical Accounting Policies and Estimates

We have identified the policies which are critical to understanding our business and our results of operations. There have been no significant changes during the ninesix months ended OctoberJuly 2, 20222023, 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, 2021,2022, except as noted below.

32


Critical accounting estimates are complex and may require significant judgment by management. Changes to the underlying assumptions may have a material impact on our financial condition and results of operations. These estimates may change, as new events occur and additional information is obtained. Actual results could differ significantly from these estimates under different assumptions or conditions.

Convertible Debt

We adopted Accounting Standards Update (“ASU”) ASU 2020-06“Debt—Debt with Conversion and Other Options and Derivatives and Hedging—Contracts in Entity’s Own Equity,” on January 1, 2022 using the modified retrospective method of adoption. Under ASU 2020-06, we account for a convertible debt instrument as a single liability measured at its amortized cost, as long as no other features require bifurcation and recognition as derivatives. Unsettled shares are recorded in current debt, and there is no recognition of a debt discount, which was previously amortized to interest expense. We use the if-converted method in the diluted EPS calculation for convertible instruments. As a result of adoption, we recorded an increase of $1.4 million to current debt for unsettled shares, an increase of $1.8 million to deferred tax assets, an increase of $6.6 million to long-term debt for unamortized debt discount, and an increase to retained earnings of $94.6 million for the reclassification of the equity component. Mezzanine equity representing unsettled shares value was reduced to zero and additional paid-in capital was reduced by $100.8 million.

Preparation of Financial Statements and Use of Estimates

The preparation of consolidated financial statements requires management to make estimates and judgments that affect the amounts reported in the financial statements. Actual results may differ significantly from these estimates under different assumptions or conditions.

33

29

Table of Contents

SELECTED RELATIONSHIPS WITHIN THE CONDENSED CONSOLIDATED

STATEMENTS OF OPERATIONS

   For the Three Months
Ended
  For the Nine Months
Ended
 
   October 2,
2022
  October 3,
2021
  October 2,
2022
  October 3,
2021
 

Percentage of revenues:

     

Revenues:

     

Products

   82  87  83  87

Services

   18   13   17   13 
  

 

 

  

 

 

  

 

 

  

 

 

 

Total revenues

   100   100   100   100 

Cost of revenues:

     

Cost of products

   34   35   33   35 

Cost of services

   8   5   7   5 
  

 

 

  

 

 

  

 

 

  

 

 

 

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

   41   40   40   40 
  

 

 

  

 

 

  

 

 

  

 

 

 

Gross profit

   59   60   60   60 

Operating expenses:

     

Selling and administrative

   16   14   17   14 

Engineering and development

   14   11   14   11 

Acquired intangible assets amortization

   1   1   1   1 

Restructuring and other

   —     —     1   —   
  

 

 

  

 

 

  

 

 

  

 

 

 

Total operating expenses

   31   26   32   26 
  

 

 

  

 

 

  

 

 

  

 

 

 

Income from operations

   28   34   27   34 

Non-operating (income) expense:

     

Interest income

   —     —     —     —   

Interest expense

   —     —     —     1 

Other (income) expense, net

   1   2   1   1 
  

 

 

  

 

 

  

 

 

  

 

 

 

Income before income taxes

   27   31   27   32 

Income tax provision

   5   4   4   4 
  

 

 

  

 

 

  

 

 

  

 

 

 

Net income

   22  27  22  28
  

 

 

  

 

 

  

 

 

  

 

 

 

   
For the Three Months

Ended
  
For the Six Months

Ended
 
        
   
July 2,
  
July 3,
  
July 2,
  
July 3,
 
   
2023
  
2022
  
2023
  
2022
 
              
Percentage of revenues:
                 
Revenues:
                 
Products
   79  83  78  83
Services
   21   17   22   17 
   
 
 
  
 
 
  
 
 
  
 
 
 
Total revenues
   100   100   100   100 
Cost of revenues:
                 
Cost of products
   32   33   32   32 
Cost of services
   9   7   10   7 
   
 
 
  
 
 
  
 
 
  
 
 
 
Total cost of revenues (exclusive of acquired intangible assets amortization shown separately below)
   41   40   42   40 
   
 
 
  
 
 
  
 
 
  
 
 
 
Gross profit
   59   60   58   60 
Operating expenses:
                 
Selling and administrative
   21   17   23   18 
Engineering and development
   15   13   16   14 
Acquired intangible assets amortization
   1   —     1   1 
Restructuring and other
   1   —     1   1 
   
 
 
  
 
 
  
 
 
  
 
 
 
Total operating expenses
   38   31   40   33 
   
 
 
  
 
 
  
 
 
  
 
 
 
Income from operations
   20   29   18   27 
Non-operating
(income) expense:
                 
Interest income
   (1  —     (1  —   
Interest expense
   —     —     —     —   
Other (income) expense, net
   —     1   —     1 
   
 
 
  
 
 
  
 
 
  
 
 
 
Income before income taxes
   21   28   19   26 
Income tax provision
   4   5   3   4 
   
 
 
  
 
 
  
 
 
  
 
 
 
Net income
   18  24  16  23
   
 
 
  
 
 
  
 
 
  
 
 
 
Results of Operations

Third

Second Quarter 20222023 Compared to ThirdSecond Quarter 2021

2022

Revenues

Revenues by our reportable segments were as follows:

   For the Three Months
Ended
     
   October 2,
2022
   October 3,
2021
   Dollar
Change
 
             
   (in millions) 

Semiconductor Test

  $575.7   $688.2   $(112.5

System Test

   116.2    102.6    13.6 

Industrial Automation

   89.1    91.0    (1.9

Wireless Test

   46.1    68.7    (22.6

Corporate and Eliminations

   —      (0.1   0.1 
  

 

 

   

 

 

   

 

 

 
  $827.1   $950.5   $(123.4
  

 

 

   

 

 

   

 

 

 

   
For the Three Months

Ended
     
   
July 2,
   
July 3,
   
Dollar
 
   
2023
   
2022
   
Change
 
             
   
(in millions)
 
Semiconductor Test
  $474.7   $541.3   $(66.6
System Test
   94.3    134.7    (40.4
Robotics
   71.6    101.1    (29.5
Wireless Test
   43.8    63.9    (20.1
Corporate and Eliminations
   —      (0.2   0.2 
   
 
 
   
 
 
   
 
 
 
   $684.4   $840.8   $(156.4
   
 
 
   
 
 
   
 
 
 
The decrease in Semiconductor Test revenues of $112.5$66.6 million, or 16.3%12.3%, was driven primarily by lower tester sales in mobilefor Mobility applications, partially offset by higher memoryMemory test sales.sales in Flash Final Test. The increasedecrease in System Test revenues of $13.6$40.4 million, or 13.3%30.0%, was primarily due to higherlower sales in Storage Test of system level and hard disk drive testers.testers, partially offset by higher sales in Defense/Aerospace. The decrease in Industrial AutomationRobotics revenues of $1.9$29.5 million, or 2.1%29.2%, was driven primarily by changes in foreign exchange rates.softening demand due to slowing global industrial activity and macro-economic headwinds and the impact of the transformation of Universal Robots distribution channel. The decrease in Wireless Test revenues of $22.6$20.1 million, or 32.9%31.5%, was primarily due to a decrease in connectivity and cellular test product sales.

34

products.

30

Table of Contents

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

   For the Three Months
Ended
 
   October 2,
2022
  October 3,
2021
 

Taiwan

   23  27

Korea

   18   8 

China

   16   19 

United States

   14   11 

Europe

   7   8 

Philippines

   5   5 

Thailand

   4   3 

Malaysia

   4   6 

Japan

   4   5 

Singapore

   3   5 

Rest of World

   2   3 
  

 

 

  

 

 

 
   100  100
  

 

 

  

 

 

 

   
For the Three Months

Ended
 
   
July 2,
  
July 3,
 
   
2023
  
2022
 
        
United States
   17  14
Korea
   15   17 
Taiwan
   15   25 
China
   13   13 
Japan
   13   5 
Europe
   9   8 
Malaysia
   5   5 
Thailand
   4   6 
Philippines
   4   3 
Singapore
   3   2 
Rest of World
   2   2 
   
 
 
  
 
 
 
    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
    
   October 2,
2022
  October 3,
2021
  Dollar/Point
Change
 
           
   (in millions) 

Gross profit

  $485.4  $571.0  $(85.6

Percent of total revenues

   58.7  60.1  (1.4

                                              
   
For the Three Months

Ended
    
   
July 2,
  
July 3,
  
Dollar/Point
 
   
2023
  
2022
  
Change
 
           
   
(in millions)
 
Gross profit
  $402.5  $506.4  $(103.9
Percent of total revenues
   58.8  60.2  (1.4
Gross profit as a percent of revenue decreased by 1.4 points, primarily due to lower volume and product mix in Semiconductor Test and higher inventory reserves.

volume.

Selling and Administrative

Selling and administrative expenses were as follows:

   For the Three Months
Ended
    
   October 2,
2022
  October 3,
2021
  Dollar
Change
 
           
   (in millions) 

Selling and administrative

  $135.6  $134.8  $0.8 

Percent of total revenues

   16.4  14.2 

                                              
   
For the Three Months

Ended
    
   
July 2,
  
July 3,
  
Dollar
 
   
2023
  
2022
  
Change
 
           
   
(in millions)
 
Selling and administrative
  $145.7  $139.5  $6.2 
Percent of total revenues
   21.3  16.6    
The increase of $0.8$6.2 million in selling and administrative expenses was primarily driven by Semiconductor Test and Industrial Automation increase in headcount and greater spending, partially offset by lowerdue to higher variable compensation.

35

31

Table of Contents

Engineering and Development

Engineering and development expenses were as follows:

   For the Three Months
Ended
    
   October 2,
2022
  October 3,
2021
  Dollar
Change
 
           
   (in millions) 

Engineering and development

  $111.7  $107.2  $4.5 

Percent of total revenues

   13.5  11.3 

                                                                
   
For the Three Months

Ended
    
   
July 2,
  
July 3,
  
Dollar
 
   
2023
  
2022
  
Change
 
           
   
(in millions)
 
Engineering and development
  $105.7  $112.0  $(6.3
Percent of total revenues
   15.4  13.3    
The increasedecrease of $4.5$6.3 million in engineering and development expenses was primarily driven bydue to lower spending in Semiconductor Test, and Industrial Automation increase in headcount and greater spending, partially offset by lower variable compensation.

higher spending in Robotics.

Restructuring and Other

During the three months ended OctoberJuly 2, 2022,2023, we recorded $1.2$5.1 million of severance charges related to headcount reductions of 112 people primarily in Industrial Automation,Semiconductor Test and Robotics which included charges related to a voluntary early retirement program for employees meeting certain conditions and a charge of $0.7$1.1 million for an increase in legal liabilities.

environmental liability.

During the three months ended OctoberJuly 3, 2021,2022, we recorded $0.6a charge of $1.5 million of severance charges primarilyfor an increase in Industrial Automation.

environmental and legal liabilities.

Interest and Other

   For the Three Months
Ended
     
   October 2,
2022
   October 3,
2021
   Dollar
Change
 
             
   (in millions) 

Interest income

  $(1.3  $(0.6  $(0.7

Interest expense

   0.8    3.8    (3.0

Other (income) expense, net

   5.8    21.5    (15.7

   
                        
   
                        
   
                        
 
   
For the Three Months

Ended
     
   
July 2,
   
July 3,
   
Dollar
 
   
2023
   
2022
   
Change
 
             
   
(in millions)
 
Interest income
  $(6.4  $(1.0  $(5.4
Interest expense
   1.0    0.9   $0.1 
Other (income) expense, net
   0.8    9.4   $(8.6
Interest expense decreasedincome increased by $3.0$5.4 million primarily due to the January 1, 2022 adoption of ASU 2020-06 which eliminated the amortization of the debt discount which was $2.3 millionhigher interest rates in the three months ended October 3, 2021.2023. Other (income) expense, net decreased by $15.7$8.6 million primarily due to lower losses on convertible debt conversions partially offset by changes in unrealized gains/losses on equity securities, from a $0.4$6.6 million loss in 20212022 to a $2.2$2.6 million lossgain in 2022.

2023.

Income (Loss) Before Income Taxes

   For the Three Months
Ended
     
   October 2,
2022
   October 3,
2021
   Dollar
Change
 
             
   (in millions) 

Semiconductor Test

  $182.6   $265.0   $(82.4

System Test

   40.2    31.8    8.4 

Wireless Test

   12.6    31.7    (19.1

Industrial Automation

   (4.0   (4.2   0.2 

Corporate and Eliminations (1)

   (5.3   (26.5   21.2 
  

 

 

   

 

 

   

 

 

 
  $226.2   $297.8   $(71.6
  

 

 

   

 

 

   

 

 

 

   
                        
   
                        
   
                        
 
   
For the Three Months

Ended
     
   
July 2,
   
July 3,
   
Dollar
 
   
2023
   
2022
   
Change
 
             
   
(in millions)
 
Semiconductor Test
  $129.0   $177.8   $(48.8
System Test
   28.6    54.0    (25.4
Wireless Test
   12.0    25.4    (13.4
Robotics
   (26.4   (6.4   (20.0
Corporate and Eliminations (1)
   1.1    (12.2   13.3 
   
 
 
   
 
 
   
 
 
 
   $144.4   $238.6   $(94.2
   
 
 
   
 
 
   
 
 
 
(1)

Included in Corporate and Eliminations are legal and environmental fees, interest income, interest expense, net foreign exchange gains (losses), pension, intercompany eliminations, acquisition related chargeslegal and compensationenvironmental fees, and for the three months ended October 3, 2021, loss on convertible debt conversions.

severance charges.

The decrease in income before income taxes in Semiconductor Test was driven primarily by lower revenues in mobiletester sales for Mobility applications, partially offset by higher memoryMemory test sales.sales in Flash Final Test. The increasedecrease in income before income taxes in System Test was primarily due to higherlower sales in Storage Test of system level and hard disk drive testers. The decrease in income before income taxes in Wireless Test was driven primarily by a decrease in sales of connectivity test products. The decrease in income before income taxes in Robotics was driven primarily by softening demand due to slowing global industrial activity and cellular test product sales.

36

macro-economic headwinds and the impact of the transformation of Universal Robots distribution channel. The income before income taxes in Corporate and Eliminations was primarily due to changes in unrealized gains/losses on equity securities.

32

Table of Contents

Income Taxes

The effective tax rate for the three months ended OctoberJuly 2, 2023 and July 3, 2022, was 16.9% and October 3, 2021 was 18.9% and 13.8%17.1%, respectively. The increasedecrease in the effective tax rate from the three months ended OctoberJuly 3, 20212022, to the three months ended OctoberJuly 2, 2022 was primarily attributable2023, resulted from an increase in benefit from the international provisions of the U.S. Tax Cuts and Jobs Act of 2017, a reduction in
non-deductible
officers’ compensation and an increase in benefit related to tax credits. These reductions in expense 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 and an increase in non-deductible officers’ compensation and a reduction in the benefitdiscrete expense related to the international provisions of the U.S. Tax Cuts and Jobs Act of 2017. These increases were partially offset by an increase in benefit from tax credits.

Nineforeign currency gain or loss.

Six Months 20222023 Compared to NineSix Months 2021

2022

Revenues

Revenues by our reportable segments were as follows:

   For the Nine Months
Ended
   

 

 
   October 2,
2022
   October 3,
2021
   Dollar
Change
 
             
   (in millions) 

Semiconductor Test

  $1,599.4   $2,050.3   $(450.9

System Test

   369.5    340.3    29.2 

Industrial Automation

   292.8    263.2    29.6 

Wireless Test

   161.5    164.5    (3.0

Corporate and Eliminations

   —      (0.4   0.4 
  

 

 

   

 

 

   

 

 

 
  $2,423.2   $2,817.8   $(394.6
  

 

 

   

 

 

   

 

 

 

                                                                                  
   
For the Six Months

Ended
     
   
July 2,
   
July 3,
   
Dollar
 
   
2023
   
2022
   
Change
 
             
   
(in millions)
 
Semiconductor Test
  $889.7   $1,023.7   $(134.0
System Test
   168.9    253.4    (84.5
Robotics
   160.8    204.2    (43.4
Wireless Test
   82.5    115.4    (32.9
Corporate and Eliminations
   —      (0.5   0.5 
   
 
 
   
 
 
   
 
 
 
   $1,302.0   $1,596.1   $(294.1
   
 
 
   
 
 
   
 
 
 
The decrease in Semiconductor Test revenues of $450.9$134.0 million, or 22.0%13.1%, was driven primarily by lower tester sales for Mobility and Compute applications, partially offset by higher Memory test sales in high performance compute processor and mobile applications.Flash Final Test. The increasedecrease in System Test revenues of $29.2$84.5 million, or 8.6%33.3%, was primarily due to higherlower sales in Storage Test of system level and hard disk drive testers, and higher salestesters. The decrease in Defense/Aerospace and in Production Board Test. The rise in Industrial AutomationRobotics revenues of $29.6$43.4 million, or 11.2%21.3%, was driven primarily by highersoftening demand for UR’s collaborative robotic armsdue to slowing global industrial activity and MiR’s autonomous mobile robots, partially offset by changes in foreign exchange rates.macro-economic headwinds and the impact of the transformation of Universal Robots distribution channel. The decrease in Wireless Test revenues of $3.0$32.9 million, or 1.8%28.5%, was primarily due to a decrease in cellular test product sales partially offset by an increase inof connectivity test product sales.

products.

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

   For the Nine Months
Ended
 
   October 2,
2022
  October 3,
2021
 

Taiwan

   22  36

China

   16   18 

Korea

   16   8 

United States

   14   10 

Europe

   8   7 

Japan

   5   4 

Thailand

   5   4 

Malaysia

   5   4 

Philippines

   3   5 

Singapore

   3   3 

Rest of World

   3   1 
  

 

 

  

 

 

 
   100  100
  

 

 

  

 

 

 

   
For the Six Months

Ended
 
   
July 2,
  
July 3,
 
   
2023
  
2022
 
        
United States
   17  15
Taiwan
   16   22 
Korea
   14   15 
China
   12   16 
Japan
   11   5 
Europe
   10   9 
Singapore
   5   3 
Philippines
   5   3 
Malaysia
   4   5 
Thailand
   3   5 
Rest of World
   3   2 
   
 
 
  
 
 
 
    100  100
   
 
 
  
 
 
 
(1)

Revenues attributable to a country are based on location of customer site.

37

33

Table of Contents

Gross Profit

Our gross profit was as follows:

   For the Nine Months
Ended
    
   October 2,
2022
  October 3,
2021
  Dollar/Point
Change
 
           
   (in millions) 

Gross profit

  $1,446.7  $1,679.6  $(232.9

Percent of total revenues

   59.7  59.6  0.1 

   
                        
   
                        
   
                        
 
   
For the Six Months

Ended
    
   
July 2,
  
July 3,
  
Dollar/Point
 
   
2023
  
2022
  
Change
 
           
   
(in millions)
 
Gross profit
  $758.9  $961.3  $(202.4
Percent of total revenues
   58.3  60.2  (1.9
Gross profit as a percent of revenue increaseddecreased by 0.11.9 points, primarily due to product mix in Semiconductor Test partially offset bya lower volume.

Selling and Administrative

Selling and administrative expenses were as follows:

   For the Nine Months
Ended
    
   October 2,
2022
  October 3,
2021
  Dollar
Change
 
           
   (in millions) 

Selling and administrative

  $415.4  $404.8  $10.6 

Percent of total revenues

   17.1  14.4 

   
                        
   
                        
   
                        
 
   
For the Six Months

Ended
    
   
July 2,
  
July 3,
  
Dollar
 
   
2023
  
2022
  
Change
 
           
   
(in millions)
 
Selling and administrative
  $296.7  $279.7  $17.0 
Percent of total revenues
   22.8  17.5    
The increase of $10.6$17.0 million in selling and administrative expenses was primarily driven bydue to the charge of $5.9 million recorded in the six months ended July 2, 2023, related to the modification of Teradyne’s chief executive officer’s outstanding equity awards in connection with his retirement and higher spending in System Test, Semiconductor Test and Industrial Automation increase in headcount and greater spending, partially offset by lower variable compensation.

Robotics.

Engineering and Development

Engineering and development expenses were as follows:

   For the Nine Months
Ended
    
   October 2,
2022
  October 3,
2021
  Dollar
Change
 
           
   (in millions) 

Engineering and development

  $331.8  $317.6  $14.2 

Percent of total revenues

   13.7  11.3 

   
                        
   
                        
   
                        
 
   
For the Six Months

Ended
    
   
July 2,
  
July 3,
  
Dollar
 
   
2023
  
2022
  
Change
 
           
   
(in millions)
 
Engineering and development
  $211.5  $220.1  $(8.6
Percent of total revenues
   16.2  13.8    
The increasedecrease of $14.2$8.6 million in engineering and development expenses was due to lower variable compensation and lower spending in Semiconductor Test, partially offset by higher spending in Robotics.
Restructuring and Other
During the six months ended July 2, 2023, we recorded $7.2 million of severance charges related to headcount reductions of 179 people primarily driven byin Semiconductor Test and Industrial AutomationRobotics which included charges related to a voluntary early retirement program for employees meeting certain conditions and a charge of $1.1 million for an increase in headcount and greater spending, partially offset by lower variable compensation.

Restructuring and Other

environmental liability.

During the ninesix months ended October 2,July 3, 2022, we recorded a charge of $14.7 million related to the arbitration claim filed against Teradyne and AutoGuide related to an
earn-out
dispute, which was settled on March 25, 2022 for $26.7 million, and a charge of $2.7$2.0 million for an increase in environmental and legal liabilities, and $2.1 millionliabilities.
34

Table of severance charges primarily in Industrial Automation. Previously, in the three months ended December 31, 2021, we recorded a charge of $12.0 million related to this earn-out dispute.

During the nine months ended October 3, 2021, we recorded a gain of $7.2 million for the decrease in the fair value of the AutoGuide contingent consideration liability, partially offset by a charge of $1.7 million for an increase in environmental and legal liabilities, and $1.2 million of severance charges primarily in Industrial Automation.

38

Contents


Interest and Other

   For the Nine Months
Ended
     
   October 2,
2022
   October 3,
2021
   Dollar
Change
 
             
   (in millions) 

Interest income

  $(3.0  $(2.1  $(0.9

Interest expense

   2.7    15.4    (12.7

Other (income) expense, net

   20.5    25.2    (4.7

   
                              
   
                              
   
                              
 
   
For the Six Months

Ended
     
   
July 2,
   
July 3,
   
Dollar
 
   
2023
   
2022
   
Change
 
             
   
(in millions)
 
Interest income
  $(11.6  $(1.7  $(9.9
Interest expense
   2.0    1.9    0.1 
Other (income) expense, net
   0.9    14.6    (13.7
Interest expense decreasedincome increased by $12.7$9.9 million primarily due to the January 1, 2022 adoption of ASU 2020-06 which eliminated the amortization of the debt discount which was $9.1 millionhigher interest rates in the nine months ended October 3, 2021.2023. Other (income) expense, net decreased by $4.7$13.7 million primarily due to changes in unrealized gains/losses on equity securities, from a $2.2 million gain in 2021 to an $11.0$8.8 million loss in 2022 partially offset by lower losses on convertible debt conversions.

to a $4.6 million gain in 2023.

Income (Loss) Before Income Taxes

   For the Nine Months
Ended
     
   October 2,
2022
   October 3,
2021
   Dollar
Change
 
             
   (in millions) 

Semiconductor Test

  $510.1   $778.7   $(268.6

System Test

   135.6    116.8    18.8 

Wireless Test

   56.7    63.8    (7.1

Industrial Automation

   (15.5   (14.6   (0.9

Corporate and Eliminations (1)

   (41.7   (38.9   (2.8
  

 

 

   

 

 

   

 

 

 
  $645.1   $905.8   $(260.7
  

 

 

   

 

 

   

 

 

 

                                                                                  
   
For the Six Months

Ended
     
   
July 2,
   
July 3,
   
Dollar
 
   
2023
   
2022
   
Change
 
             
   
(in millions)
 
Semiconductor Test
  $225.2   $327.5   $(102.3
System Test
   43.9    95.4    (51.5
Wireless Test
   21.4    44.0    (22.6
Robotics
   (44.9   (11.5   (33.4
Corporate and Eliminations (1)
   (4.1   (36.4   32.3 
   
 
 
   
 
 
   
 
 
 
   $241.5   $419.0   $(177.5
   
 
 
   
 
 
   
 
 
 
(1)

Included in Corporate and Eliminations are legal and environmental fees, contingent consideration adjustments, interest income, interest expense, net foreign exchange gains (losses), pension, intercompany eliminations, acquisition relatedlegal and environmental fees, severance charges, pension, and compensation andan expense for the nine months ended October 3, 2021, loss on convertible debt conversions.

modification of Teradyne’s former chief executive officer’s outstanding equity awards.

The decrease in income before income taxes in Semiconductor Test was driven primarily by lower revenuestester sales for Mobility and Compute applications, partially offset by higher Memory test sales in high performance compute processor and mobile applications.Flash Final Test. The increasedecrease in income before income taxes in System Test was primarily due to higherlower sales in Storage Test of system level and hard disk drive testers, and elevated sales in Defense/Aerospace and in Production Board Test.testers. The decrease in income before income taxes in Wireless Test was driven primarily by lowera decrease in sales in cellular test products partially offset by elevated sales inof connectivity test products. The decrease in income before income taxes in Robotics was driven primarily by softening demand due to slowing global industrial activity and macro-economic headwinds and the impact of the transformation of Universal Robots distribution channel. The decrease in loss before income taxes in Corporate and Eliminations was primarily due to legal settlement charges in 2022 related to litigation for the
earn-out
dispute in connection with the AutoGuide acquisition.

acquisition, changes in unrealized gains/losses on equity securities and higher interest income.

Income Taxes

The effective tax rate for the ninesix months ended OctoberJuly 2, 2023 and July 3, 2022, was 15.7% and October 3, 2021 was 15.8% and 12.7%14.1%, respectively. The increase in the effective tax rate from the ninesix months ended OctoberJuly 3, 20212022, to the ninesix months ended OctoberJuly 2, 20222023, was primarily attributable to 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 non-deductible officers’ compensation and a reduction in thediscrete benefit related tofrom equity compensation. These increases were partially offset by an increase in benefit from the international provisions of the U.S. Tax Cuts and Jobs Act of 2017. These increases in expense were partially offset by increases in benefit from tax credits and discrete benefit related to equity compensation.

Contractual Obligations

There have been no changes outside of the ordinary course of business to our contractual obligations as disclosed in our Annual Report on
Form 10-K
for the year ended December 31, 2021.

39

2022.

35

Table of Contents

Liquidity and Capital Resources

Our cash, cash equivalents and marketable securities balances decreased by $613.2$192.1 million in the ninesix months ended OctoberJuly 2, 20222023, to $887.1$813.1 million.

Operating activities during the ninesix months ended OctoberJuly 2, 20222023, provided cash of $394.5$162.1 million. Changes in operating assets and liabilities used cash of $271.7 million. This was$121.7 million due to a $158.9$46.1 million increase in operating assets and a $112.8$75.5 million decrease in operating liabilities.

The increase in operating assets was primarily due to a $94.3$29.6 million increase in prepayments and other assets due to prepayments to our contract manufacturers, a $68.8$13.8 million increase in inventories partially offset byand a $4.2$2.7 million decreaseincrease in accounts receivable.

The decrease in operating liabilities was due to a $82.9$48.9 million decrease in accrued employee compensation, a $31.4 million decrease in income taxes, a $7.5 million decrease in other accrued liabilities, a $5.9$34.9 million decrease in deferred revenue and customer advance payments, a $13.6 million decrease in income taxes, and $3.9$2.5 million of retirement plan contributions, partially offset by an $18.7a $13.0 million increase in accounts payable.

payable, and an $11.4 million increase in other accrued liabilities.

Investing activities during the ninesix months ended OctoberJuly 2, 2022 provided2023, used cash of $45.4$121.7 million due to $259.2$99.0 million used for purchases of marketable securities, and $80.7 million used for purchases of property, plant and equipment, partially offset by $35.6 million and $182.1$22.0 million in proceeds from sales and maturities of marketable securities, respectively, partially offset by $267.2and $0.5 million used for purchasesin proceeds from the cancellation of marketable securities, and $128.7 million used for purchases of property, plant and equipment.

Teradyne owned life insurance policies related to the cash surrender value.

Financing activities during the ninesix months ended OctoberJuly 2, 20222023, used cash of $858.8$283.2 million due to $750.0$227.8 million used for the repurchase of 7.22.2 million shares of common stock at an average price of $103.83$102.35 per share, $52.6$20.3 million used for payment related to net settlements of employee stock compensation awards, $34.2 million used for dividend payments, $52.0and $17.5 million used for payments of convertible debt principal, partially offset by $16.6 million from the issuance of common stock under employee stock purchase and $33.0stock option plans.
Operating activities during the six months ended July 3, 2022, provided cash of $122.9 million. Changes in operating assets and liabilities used cash of $309.1 million. This was due to a $287.8 million increase in operating assets and a $21.3 million decrease in operating liabilities.
The increase in operating assets was due to a $146.4 million increase in accounts receivable, a $94.8 million prepayments and other assets due to prepayments to our contract manufacturers, and a $46.7 million increase in inventories.
The decrease in operating liabilities was due to a $61.7 million decrease in accrued employee compensation, a $6.9 million decrease in other accrued liabilities, and $2.6 million of retirement plan contributions, partially offset by a $25.0 million increase in accounts payable, a $14.2 million increase in deferred revenue and customer advance payments, and a $10.8 million increase in income taxes.
Investing activities during the six months ended July 3, 2022, used cash of $54.3 million due to $247.9 million used for purchases of marketable securities, and $89.7 million used for purchases of property, plant and equipment, partially offset by $139.7 million and $143.6 million in proceeds from maturities and sales of marketable securities, respectively.
Financing activities during the six months ended July 3, 2022, used cash of $626.8 million due to $532.8 million used for the repurchase of 5.0 million shares of common stock at an average price of $107.5 per share, $42.3 million used for payments of convertible debt principal, $35.4 million used for dividend payments, and $32.8 million used for payment related to net settlements of employee stock compensation awards, partially offset by $28.7$16.5 million from the issuance of common stock under employee stock purchase and stock option plans.

Operating activities during the nine months ended October 3, 2021 provided cash of $767.1 million. Changes in operating assets and liabilities used cash of $167.7 million. This was due to a $219.9 million increase in operating assets and a $52.2 million increase in operating liabilities.

The increase in operating assets was due to a $138.6 million increase in prepayments and other assets due to prepayments to our contract manufacturers, a $103.3 million increase in accounts receivable due to greater sales, partially offset by a $21.9 million decrease in inventories.

The change in operating liabilities was due to increases of $63.5 million in other accrued liabilities, $23.8 million in accounts payable, and $8.7 million in deferred revenue and customer advance payments, partially offset by a $17.4 million decrease in income taxes, a $22.3 million decrease in accrued employee compensation, and $4.1 million of retirement plan contributions.

Investing activities during the nine months ended October 3, 2021 provided cash of $156.1 million due to $571.3 million and $209.4 million in proceeds from maturities and sales of marketable securities, partially offset by $509.5 million used for purchases of marketable securities, $103.2 million used for purchases of property, plant and equipment and $12.0 million used for an investment in MachineMetrics, Inc.(“MachineMetrics”).

Financing activities during the nine months ended October 3, 2021 used cash of $757.3 million due to $406.2 million used for the repurchase of 3.3 million shares of common stock at an average price of $123.53 per share, $302.0 million used for payments of convertible debt principal, $49.7 million used for dividend payments, and $32.0 million used for payments related to net settlements of employee stock compensation awards, partially offset by $32.6 million from the issuance of common stock under employee stock purchase and stock option plans.

In January 2022,2023 and May 2022 and August 2022, our2023, Teradyne’s Board of Directors declared a quarterly cash dividend of $0.11 per share. Dividend payments for the three and ninesix months ended OctoberJuly 2, 20222023, were $17.1$17.0 million and $52.6$34.2 million, respectively.

In January 2021,2022 and May 2021 and August 2021, our2022, Teradyne’s Board of Directors declared a quarterly cash dividend of $0.10to $0.11 per share. Dividend payments for the three and ninesix months ended OctoberJuly 3, 2021were $16.42022, were $17.5 million and $49.7$35.4 million, respectively.

In January 2021,2023, our Board of Directors cancelled the 2021 repurchase program and approved a new repurchase program for up to $2.0 billion of common stock. Unless terminated by resolutionWe intend to repurchase up to $500.0 million of our Boardcommon stock in 2023 subject to market conditions.
36

Table of Directors, the repurchase program will expire when we have repurchased all shares authorized for repurchase under the share repurchase program.

40

Contents


During the ninesix months ended OctoberJuly 2, 2022,2023, we repurchased 7.22.2 million shares of common stock for $750.0$227.8 million, which excludes related excise tax, at an average price of $102.35 per share. During the six months ended July 3, 2022, we repurchased 5.0 million shares of common stock for $532.8 million at an average price of $103.83$107.50 per share. During the nine months ended October 3, 2021, we repurchased 3.3 million shares of common stock for $406.2 million at an average price of $123.53 per share. The cumulative repurchases under the $2.0 billion common stock repurchase program as of October 2, 2022 were 12.0 million shares of common stock for $1,350.0 million at an average price per share of $112.55.

While we declared a quarterly cash dividend and authorized a share repurchase program, we may reduce or eliminate the cash dividend or share repurchase program in the future. Future cash dividends and stock repurchases are subject to the discretion of our Board of Directors, which will consider, among other things, our earnings, capital requirements and financial condition.

On May 1, 2020, we entered into a credit agreement providing a three-year, senior secured revolving credit facility of $400 million. On December 10, 2021, the credit agreement was amended to extend the senior secured revolving credit facility to December 10, 2026. On October 5, 2022, the credit agreement was amended to increase the amount of the credit facility to $750.0 million from $400.0 million. As of NovemberAugust 4, 2022,2023, we have not borrowed any funds under the credit facility.

We believe our cash, cash equivalents, and marketable securities balanceand senior secured revolving credit facility will be sufficient
to
pay
our
quarterly dividend and meet our working capital and expenditure needs for at least the next twelve months. Inflation has not had a significant long-term impact on earnings. At this time, the
COVID-19
pandemic has not had an impact on our liquidity, but there is no assurance that continued impacts resulting from the pandemic will not have an adverse effect in the future.

Equity Compensation Plans

As

In addition to our 1996 Employee Stock Purchase Program as discussed in Note Q: “Stock-Based Compensation” in our 20212022 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.and directors. Both plans were approved by our shareholders.

Recently Issued Accounting Pronouncements

For the ninesix months ended OctoberJuly 2, 2022,2023, there were no recently issued accounting pronouncements that had, or are expected to have, a material impact to our consolidated financial statements.

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 February 23, 2022.22, 2023. 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, 2021.

2022.

In addition to market risks described in our Annual Report on Form
10-K,
we have an equity price risk related to the fair value of our convertible senior unsecured notes issued in December 2016. In December 2016, Teradyne issued $460 million aggregate principal amount of 1.25% convertible senior unsecured notes (the “Notes”) due December 15, 2023. As of OctoberJuly 2, 2022, $65.02023, $32.8 million of principal remained outstanding and the Notes had a fair value of $154.5$115.8 million. The table below provides a sensitivity analysis of hypothetical 10% changes of Teradyne’s stock price as of the end of the thirdsecond quarter of 20222023 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 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.

41

37

Table of Contents
Hypothetical Change in Teradyne Stock Price  Fair Value   Estimated
change

in fair value
   Hypothetical
percentage
increase
(decrease) in
fair value
 

10% Increase

  $170,003   $15,517    10.0

No Change

   154,486    —      —   

10% Decrease

   138,990    (15,496   (10.0

Hypothetical Change in Teradyne Stock Price
  
Fair Value
   
Estimated change
in fair value
   
Hypothetical
percentage
increase (decrease)
in fair value
 
             
10% Increase
  $127,385   $11,607    10.0
No Change
   115,778    —      —   
10% Decrease
   104,171    (11,607   (10.0
Item 4:

Controls and Procedures

As of the end of the period covered by this report, our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures pursuant to Rule
13a-15(b)
or Rule
15d-15(f)
promulgated under the Exchange Act. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were effective in ensuring that material information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, including ensuring that such material information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

There have been no changes in our internal control over financial reporting (as defined in Rules
13a-15(f)
and
15d-15(f)
under the Exchange Act) during the three months ended OctoberJuly 2, 20222023, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1:

Legal Proceedings

We are subject to various legal proceedings and claims which have arisen in the ordinary course of business such as, but not limited to, patent, employment, commercial and environmental matters. Teradyne believes that it has meritorious defenses against all pending claims and intends to vigorously contest them. While it is not possible to predict or determine the outcomes of any pending claims or to provide possible ranges of losses that may arise, Teradyne believes the potential losses associated with all of these actions are unlikely to have a material adverse effect on its business, financial position or results of operations.

On March 8, 2021, Industrial Automation LLC submitted a demand for arbitration against Teradyne and AutoGuide in Wilmington, Delaware alleging that Teradyne and AutoGuide breached certain provisions of the Membership Interests Purchase Agreement (the “Purchase Agreement”), dated as of October 18, 2019, among Industrial Automation LLC, Teradyne and AutoGuide. The arbitration demand sought full acceleration of the maximum
earn-out
amount payable under the Purchase Agreement, or $106.9 million, for the alleged breach of the
earn-out
provisions of the Purchase Agreement. On March 25, 2022, the arbitration claim was settled for $26.7 million. As a result, Teradyne has no remaining
earn-out
obligations.

Item 1A:

Risk Factors

In addition to other information set forth in this Form
10-Q,
including the risk discussed below, you should carefully consider the factors discussed in Part I, “Item 1A: Risk Factors” in our Annual Report on Form
10-K
for the year ended December 31, 2021,2022, which could materially affect our business, financial condition or future results. The risk factors described in our Annual Report on Form
10-K
remain applicable to our business and many of these risks could be further increased due to the
COVID-19
pandemic.

The risks described in our Annual Report on Form
10-K
are not the only risks that we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.

42


The global supply shortage of electrical components and inflationary cost increases has impacted our ability to meet customer demand and could adversely affect our business and

Adverse developments affecting the financial results.

During 2022, there has been a global supply shortage of electrical components,services industry, including semiconductor chips. As a result, we have experienced, and expect to continue to experience, increases in our lead times and costs for certain components for certain products and delays in the delivery of some orders placed events or risks involving liquidity, defaults or

non-performance
by our customers. While not material, year to date 2022, in an effort to mitigate these risks, in some cases, we have incurred higher costs due to investment in supply chain resiliency and to secure available inventory or have extended or placed non-cancellable purchase commitments with semiconductor suppliers, which introduces inventory risk if our forecasts and assumptions prove inaccurate. We have also sourced components from additional suppliers and multi-sourced and pre-ordered components and finished goods inventory in some cases in an effort to reduce the impact of the adverse supply chain conditions we have experienced. However, if we are unable to secure manufacturing capacities from our current or new suppliers and contract manufacturers, on acceptable terms or at all, or successfully manage our purchase commitments and inventory for components, our ability to deliver our products to our customers in the desired quantities, at competitive prices or in a timely manner may be negatively impacted for the remainder of 2022 and into 2023. In the third quarter 2022, we were unable to supply approximately $10 million of revenue in our test businesses for which we had customer demand. Our fourth quarter 2022 forecast excludes approximately $15 million of revenue, primarily in our test businesses, due to these continued supply chain constraints. Also, our suppliers and contract manufacturers have increased their prices, which increased our cost of products. We have been and may continue to be, affected by wage inflation. We have, and may continue to attempt to, offset the effect of these inflationary pressures by increasing the prices of our products. However, we may not be fully able to pass additional costs on to our customers, which could have a negative impact on our results of operations and financial condition.

Trade regulations and restrictions impact our ability to manufacture certain products and 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 prohibit the export of certain products, services and technologies, and in other circumstances are 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, whichinstitutions, could have a material adverse effect on our business, financial condition or results of operations.

The U.S. government from time

On March 10, 2023,
Silicon Valley Bank
(SVB), who is a lender in our revolving credit facility and where we maintain certain accounts and cash deposits, was placed into receivership with the Federal Deposit Insurance Corporation (FDIC), which resulted in all funds held at SVB being temporarily inaccessible by SVB’s customers. As of March 13, 2023, access to 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, Huaweiour cash 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 imposed new export licensing requirements on exports, re-exports,cash equivalents at SVB was fully restored. Although our cash balances at SVB are insignificant andin-country transfers of all U.S. regulated products, software and technology to the designated Huawei entities. On August 17, 2020, the U.S. Department of Commerce published final regulations expanding the scope of the U.S. EAR to include additional products that would become subject to export restrictions relating to Huawei entities including HiSilicon. These new regulations restrict the sale to Huawei and the designated Huawei entities of certain non-U.S. made items, such as semiconductor devices, manufactured for or sold to Huawei entities including HiSilicon under specific, detailed conditions set forth in the new regulations. These new regulations have impacted our sales to Huawei, HiSilicon and their suppliers. We are taking appropriate actions, including filing license applications and obtaining licenses from the U.S. Department of Commerce. However, we do not expect these actions will mitigate the impact of the regulations on our sales to Huawei, HiSilicon and other suppliers. As a result, the regulations will continuefurther developments at SVB to have an adversea material impact on our businesscash and cash equivalents, we do hold cash balances in several large financial institutions significantly in excess of FDIC and global insurance limits. If other banks and financial results. It is uncertaininstitutions with whom we have banking relationships enter receivership or become insolvent in the future, we may be unable to access, and we may lose, some or all of our existing cash, cash equivalents and investments to the extent these new regulations and any additional regulations that may be implementedthose funds are not insured or otherwise protected by the U.S. DepartmentFDIC.

38

Table of Commerce or other government agency may have on our business with other customers or potential customers. Also, our controls related to Entity List compliance could be circumvented, exposing us to legal liabilities.

On April 28, 2020, the U.S. Department of Commerce published new export control regulations for certain U.S. products and technology sold to military end users or for military end-use in China, Russia and Venezuela. The definition of military end user is broad. The regulations went into effect on June 29, 2020. In December 2020, the U.S. Department of Commerce issued a list of companies in China and other countries that it considered to be military end users. Compliance with the new export controls has impacted our ability to sell products to certain customers in China. In addition, while we maintain an export compliance program, our compliance controls could be circumvented, exposing us to legal liabilities. We will continue to assess the impact of the new export controls on our business and operations and take appropriate actions, including filing for licenses with the U.S. Department of Commerce, to minimize any disruption. However, we cannot be certain that the actions we take will mitigate all the risks associated with the export controls that may impact our business.

43

Contents


On October 7, 2022, the U.S. Department of Commerce published new regulations restricting the export to China of advanced semiconductors, supercomputer technology, equipment for the manufacturing of advanced semiconductors and components and technology for the manufacturing in China of certain semiconductor manufacturing equipment. The new restrictions are lengthy and complex. We continue to assess the impact of these regulations on our business. We have determined that restrictions on the sale of semiconductor testers in China to test certain advanced semiconductors will impact our sales to certain companies in China. Several multinational companies manufacturing these advanced semiconductors in China have obtained one-year licenses allowing suppliers such as Teradyne to continue to provide testers to the facilities operated by these companies. We expect that other companies manufacturing advanced semiconductors in China will not receive licenses, thereby restricting our ability to provide testers to the facilities operated by these companies that do not receive a license. We also are assessing the filing of license requests to sell to and support certain customers in China for certain end uses that, if granted, may reduce the impact of these restrictions on our business. At this time, we do not know the impact these end user and end use restrictions will have on our business in China or on future revenues. In addition to the specific restrictions impacting our business, the regulations may have an adverse impact on certain actual or potential customers and on the global semiconductor industry. To the extent the regulations impact actual and potential customers or disrupt the global semiconductor industry, our business and revenues will be adversely impacted. We also have determined that the restrictions on the export of certain US origin components and technology for use in the development and production in China of certain semiconductor manufacturing equipment impact our manufacturing and development operations in China. We have received a temporary authorization from the U.S. Department of Commerce allowing us to continue our manufacturing and development operations in China until the U.S. Department of Commerce issues a license to replace this temporary authorization. We will file an application with the U.S. Department of Commerce for a license to replace the temporary authorization by November 17, 2022. We cannot assess the likelihood or timing of receiving this license. In addition to requesting a license, we are implementing procedures for minimizing the impact of these new regulations on our operations in China, but there is no assurance that these procedures will succeed.

In response to the regulations issued by the U.S. Department of Commerce, the Chinese government has passed new laws, including blocking legislation, which may impact our business activities in China. The Company is assessing the potential impact of these new Chinese laws and monitoring relevant laws and regulations issued by the Chinese government. The impact of these new Chinese laws on our business activities in China remains uncertain at this time.

Foreign currency exchange rates and fluctuations in those rates may affect the Company’s ability to realize projected growth rates in its sales and earnings.

Our financial statements are denominated in U.S. dollars. While the majority of our revenues are in U.S. dollars, approximately 70 percent of our Industrial Automation revenue is denominated in foreign currencies. Correspondingly, our results of operations and our ability to realize projected growth rates in sales and earnings could be adversely affected if the U.S. dollar strengthens significantly against foreign currencies.

Item 2:

Unregistered Sales of Equity Securities and Use of Proceeds

In January 2021,2023, Teradyne’s Board of Directors cancelled our 2021 repurchase program and approved a new repurchase program for up to $2.0 billion of common stock. During the ninesix months ended OctoberJuly 2, 2022,2023, we repurchased 7.22.2 million shares of common stock for $750.0a total cost of $229.5 million at an average price of $103.83$102.35 per share. We record share repurchases at cost, which includes broker commissions and related excise taxes. During the ninesix months ended OctoberJuly 3, 2021,2022, we repurchased 3.35.0 million shares of common stock for $406.2$532.8 million at an average price of $123.53$107.5 per share. The cumulative repurchases under the $2.0 billion common stock repurchase program as of October 2, 2022 were 12.0 million shares of common stock for $1,350.0 million at an average price per share of $112.55.

44


The following table includes information with respect to repurchases we made of our common stock during the three and six months ended OctoberJuly 2, 20222023, (in thousands except per share price):

Period

  (a) Total
Number of
Shares
(or Units)
Purchased
  (b) Average
Price Paid per
Share (or Unit)
  (c) Total Number of
Shares (or Units)
Purchased as Part of
Publicly Announced
Plans or Programs
   (d) Maximum Number
(or Approximate Dollar
Value) of Shares (or
Units) that may Yet Be
Purchased Under the
Plans or Programs
 

July 4, 2022 - July 31, 2022

   1,296  $93.00   1,296   $746,702,775 

August 1, 2022 – August 28, 2022

   972  $99.56   971   $650,000,254 

August 29, 2022 – October 2, 2022

   1  $82.86   —     $650,000,254 
  

 

 

  

 

 

  

 

 

   
   2,269 (1)  $95.81 (1)   2,267   
  

 

 

  

 

 

  

 

 

   

Period
  
Total

Number of

Shares

(or Units)

Purchased
      
Average

Price Paid per

Share (or Unit)
  
Total Number of

Shares (or Units)

Purchased as Part of

Publicly Announced

Plans or Programs
   
Maximum Number

(or Approximate Dollar

Value) of Shares (or

Units) that may Yet Be

Purchased Under the

Plans or Programs (2)
 
                   
April 3, 2023 – April 30, 2023
   410       $100.73   409   $1,865,063 
May 1, 2023 – May 28, 2023
   469       $92.88   467   $1,821,664 
May 29, 2023 – July 2, 2023
   474       $108.31   473   $1,770,455 
   
 
 
       
 
 
  
 
 
      
    1,354(1)       $100.66(1)   1,349      
   
 
 
       
 
 
  
 
 
      
(1)

Includes approximately twofour thousand shares at an average price of $89.37$97.95 withheld from employees for the payment of taxes.

(2)
As of January 1, 2023, share repurchases net of share issuances are subject to a 1% excise tax under the Inflation Reduction Act. Excise tax incurred is included as part of the cost basis of shares repurchased in the Condensed Consolidated Statements of Convertible Common Shares and Stockholders’ Equity.
We satisfy U.S. federal and state minimum withholding tax obligations due upon the vesting and the conversion of restricted stock units into shares of our common stock, by automatically withholding from the shares being issued, a number of shares with an aggregate fair market value on the date of such vesting and conversion that would satisfy the minimum withholding amount due.

Item 4:

Mine Safety Disclosures

Not Applicable

45

Item 5:
Other Information
10b5-1
Trading Plans
Our officers (as defined in Rule
16a-1(f)
under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) (“Section 16 Officers”) and directors from time to time enter into contracts, instructions or written plans for the purchase or sale of our securities that are intended to satisfy the conditions specified in Rule
10b5-1(c)
under the Exchange Act for an affirmative defense against liability for trading in securities on the basis of material nonpublic information. We refer to these contracts, instructions, and written plans as “Rule
10b5-1
trading plans” and each one as a “Rule
10b5-1
trading plan.” During our
fiscal quarter
ended
July 2, 2023
, the following Section 16 Officers and directors adopted, modified or terminated Rule
10b5-1
trading plans:
Sanjay Mehta, Chief Financial Officer and Treasurer
Sanjay Mehta, our Chief Financial Officer and Treasurer, entered into a new Rule
10b5-1
trading plan on May 12, 2023. The Rule
10b5-1
trading plan provides that Mr. Mehta, acting through a broker, may sell up to an aggregate of (i) 19,494 shares of our common stock, (ii) 100% of the (net) shares resulting from the vesting of 16,603 (gross) restricted stock units (net shares are net of tax withholding), and (iii)
100
% of the (net) shares resulting from the exercise of up to 8,827 stock options (net shares are net of the stock option exercise prices). Subject to price limits, the first trade under the Rule
10b5-1
trading plan is scheduled for August 14, 2023. The plan is scheduled to terminate on May 3, 2024, subject to earlier termination upon the sale of all shares subject to the plan, upon termination by Mr. Mehta or the broker, or as otherwise provided in the
plan.
39

Table of Contents
Item 6:

Exhibits

Exhibit

Number
  

Description

 3.1 Amended and Restated Bylaws of Teradyne, Inc. effective September 6, 2022 filed as Exhibit 3.1 to Teradyne’s Current Report on Form 8-K filed on September 6, 2022.
  10.1Second Amendment to Credit Agreement dated December 10, 2021 among Teradyne, Inc., Truist Bank, as the administrative agent, issuing bank and swingline lender, and other lenders party thereto (filed herewith)
31.1  Certification of Principal Executive Officer, pursuant to Rule 13a-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  Certification of Principal Financial Officer, pursuant to Rule 13a-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  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  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  Inline XBRL Instance Document
101.SCH  Inline XBRL Taxonomy Extension Schema Document
101.CAL  Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF  Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB  Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE  Inline XBRL Taxonomy Extension Presentation Linkbase Document
104  Cover Page Interactive Data File (formatted as Inline XBRL, and contained in Exhibit 101)

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Table of Contents

SIGNATURES

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

TERADYNE, INC.
Registrant

/s/ S
ANJAY
M
EHTA

Sanjay Mehta

Vice President,

Chief Financial Officer and Treasurer

(Duly Authorized Officer

and Principal Financial Officer)

November

August 4, 2022

2023

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