Item 8. Financial Statements and Supplementary Data

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Item 8. Financial Statements and Supplementary Data

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Report of Independent Registered Public Accounting Firm

To the Board of Directors and Shareholders of Teradyne, Inc.

Opinions on the Financial Statements and Internal Control over Financial Reporting

We have audited the accompanying consolidated balance sheets of Teradyne, Inc. and its subsidiaries (the “Company”) as of December 31, 2020 and 2019, and the related consolidated statements of operations, comprehensive income, convertible common shares and shareholders’ equity and cash flows for each of the three years in the period ended December 31, 2020, including the related notes and schedule of valuation and qualifying accounts for each of the three years in the period ended December 31, 2020 appearing under Item 15(c) (collectively referred to as the “consolidated financial statements”). We also have audited the Company’s internal control over financial reporting as of December 31, 2020, based on criteria established in

Internal Control - Integrated Framework

(2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020, based on criteria established in

Internal Control - Integrated Framework

(2013) issued by the COSO.

Changes in Accounting Principles

As discussed in Note B to the consolidated financial statements, the Company changed the manner in which it accounts for leases in 2019 and the manner in which it accounts for revenue from contracts with customers in 2018.

Basis for Opinions

The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Annual Report on Internal Control over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on the Company’s consolidated

financial statements and on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated

financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

Our audits of the consolidated

financial statements included performing procedures to assess the risks of material misstatement of the consolidated

financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated

financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated

financial statements. Our audit of internal control over financial reporting included obtaining an

understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Critical Audit Matters

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Valuation of Contingent Consideration payable related to the acquisition of AutoGuide, LLC

As described in Notes D, H and O to the consolidated financial statements, the Company completed its acquisition of AutoGuide, LLC on November 13, 2019. The total purchase price was approximately $81.6 million, which included contingent consideration payable upon achievement of certain performance targets, extending potentially through 2022. As of December 31, 2020, the maximum contingent consideration that could be paid is $100.2 million and management estimated the fair value of the contingent consideration to be approximately $7.2 million based on forecasted results, after recording $19.7 million in restructuring and other expenses during the year ended December 31, 2020. The valuation of contingent consideration is remeasured at each financial reporting date from the acquisition date through the date of final settlement using the Monte Carlo simulation model, and it is dependent on the following assumptions: forecasted revenues, revenue volatility, earnings before interest and taxes, and discount rate at each reporting date.

The principal considerations for our determination that performing procedures relating to the valuation of contingent consideration payable related to the acquisition of AutoGuide, LLC is a critical audit matter are (i) the high degree of auditor judgment and subjectivity in performing procedures relating to the fair value measurement of the contingent consideration due to the significant judgment by management when developing the fair value estimate; (ii) significant audit effort in evaluating the significant assumptions related to forecasted revenues and earnings before interest and taxes used in the Monte Carlo simulation model; and (iii) the audit effort involved the use of professionals with specialized skill and knowledge.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to management’s valuation of contingent consideration, including controls over the development of the forecasted revenues and earnings before interest and taxes used in the valuation of the contingent consideration. These procedures also included, among others, (i) testing management’s process for developing the fair value estimate; (ii) evaluating the appropriateness of the Monte Carlo simulation model; (iii) evaluating the reasonableness of the significant assumptions related to forecasted revenues and earnings before interest and taxes; and (iv) testing the completeness, accuracy and relevance of the underlying data used in the model. Evaluating management’s assumptions related to forecasted revenues and earnings before interest and taxes involved evaluating whether the assumptions were reasonable considering historical results and consistency with external industry and market data. Professionals with specialized skill and knowledge were used to assist in the evaluation of the appropriateness of the Monte Carlo simulation model, as well as the reasonableness of certain assumptions.

/s/ PricewaterhouseCoopers LLP

Boston, Massachusetts

February 22, 2021

We have served as the Company’s auditor since 1968.

TERADYNE, INC.

CONSOLIDATED BALANCE SHEETS


	2020		2019
	(in thousands, except per share information)
ASSETS
Current assets:
Cash and cash equivalents	$	914,121	$	773,924
Marketable securities		522,280		137,303
Accounts receivable, less allowance for doubtful accounts of $2,034 and $1,736 in 2020 and 2019, respectively		497,506		362,368
Inventories, net		222,189		196,691
Prepayments and other current assets		259,338		188,598

Total current assets		2,415,434		1,658,884
Property, plant and equipment, net		394,800		320,216
Operating lease right-of-use assets, net		54,569		57,539
Marketable securities		117,980		104,490
Deferred tax assets		87,913		75,185
Retirement plans assets		17,468		18,457
Other assets		9,384		10,332
Acquired intangible assets, net		100,939		125,480
Goodwill		453,859		416,431

Total assets	$	3,652,346	$	2,787,014

LIABILITIES
Current liabilities:
Accounts payable	$	133,663	$	126,617
Accrued employees’ compensation and withholdings		220,321		163,883
Deferred revenue and customer advances		134,662		104,876
Other accrued liabilities		77,581		70,871
Operating lease liabilities		20,573		19,476
Contingent consideration		—		9,106
Income taxes payable		80,728		44,200
Current debt		33,343		—

Total current liabilities		700,871		539,029
Retirement plans liabilities		151,140		134,471
Long-term deferred revenue and customer advances		58,359		45,974
Long-term contingent consideration		7,227		30,599
Deferred tax liabilities		10,821		14,070
Long-term other accrued liabilities		19,352		19,535
Long-term operating lease liabilities		42,073		45,849
Long-term income taxes payable		74,930		82,642
Debt		376,768		394,687

Total liabilities		1,441,541		1,306,856

Commitments and contingencies (Note M)
Mezzanine equity:
Convertible common shares		3,787		—
SHAREHOLDERS’ EQUITY
Common stock, $0.125 par value, 1,000,000 shares authorized, 166,123 and 166,410 shares issued and outstanding at December 31, 2020 and 2019, respectively		20,765		20,801
Additional paid-in capital		1,765,323		1,720,129
Accumulated other comprehensive income (loss)		33,516		(18,854	)
Retained earnings (accumulated deficit)		387,414		(241,918	)

Total shareholders’ equity		2,207,018		1,480,158

Total liabilities, convertible common shares and shareholders’ equity	$	3,652,346	$	2,787,014

The accompanying notes are an integral part of the consolidated financial statements.

TERADYNE, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS


	Years Ended December 31,
	2020			2019			2018
	(in thousands, except per share amounts)
Revenues:
Products	$	2,690,906		$	1,887,674		$	1,729,621
Services		430,563			407,291			371,181

Total revenues		3,121,469			2,294,965			2,100,802
Cost of revenues:
Cost of products		1,157,476			782,047			727,138
Cost of services		178,252			173,089			153,270

Total cost of revenues (exclusive of acquired intangible assets amortization shown separately below)		1,335,728			955,136			880,408

Gross profit		1,785,741			1,339,829			1,220,394
Operating expenses:
Selling and administrative		464,769			437,084			390,669
Engineering and development		374,964			322,824			301,505
Acquired intangible assets amortization		30,803			40,147			39,191
Restructuring and other		(13,202	)		(13,880	)		15,232

Total operating expenses		857,334			786,175			746,597

Income from operations		928,407			553,654			473,797
Non-operating (income) expenses:
Interest income		(5,982	)		(16,990	)		(20,458	)
Interest expense		24,182			22,224			21,780
Other (income) expense, net		9,192			22,648			4,674

Income before income taxes		901,015			525,772			467,801
Income tax provision		116,868			58,304			16,022

Net income	$	784,147		$	467,468		$	451,779

Net income per common share:
Basic	$	4.72		$	2.74		$	2.41

Diluted	$	4.28		$	2.60		$	2.35

Weighted average common shares—basic		166,120			170,425			187,672

Weighted average common shares—diluted		183,042			179,459			192,605

The accompanying notes are an integral part of the consolidated financial statements.

TERADYNE, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME


	Years Ended December 31,
	2020			2019			2018
	(in thousands)
Net income	$	784,147		$	467,468		$	451,779
Other comprehensive income, net of tax:
Foreign currency translation adjustment, net of tax of $0, $0, $0		48,903			(10,991	)		(28,442	)
Available-for-sale marketable securities:
Unrealized gains (losses) on marketable securities arising during period, net of tax of $1,629, $1,659, $(722), respectively		5,839			6,015			(2,110	)
Less: Reclassification adjustment for (gains) losses included in net income, net of tax of $(665), $(192), $(21), respectively		(2,365	)		(690	)		1,337

		3,474			5,325			(773	)
Defined benefit pension and post-retirement plans:
Amortization of prior service benefit included in net periodic pension and post-retirement benefit, net of tax $(2), $(43), $(71), respectively		(7	)		(148	)		(245	)

Other comprehensive income (loss)		52,370			(5,814	)		(29,460	)

Comprehensive income	$	836,517		$	461,654		$	422,319

The accompanying notes are an integral part of the consolidated financial statements.

TERADYNE, INC.

CONSOLIDATED STATEMENTS OF CONVERTIBLE COMMON SHARES AND SHAREHOLDERS’ EQUITY


			Shareholders’ Equity
	Convertible Common Shares		Common Stock Shares			Common Stock Par Value			Additional Paid-in Capital			Accumulated Other Comprehensive Income (Loss)			Retained Earnings (Accumulated Deficit)			Total Shareholders’ Equity
	(in thousands)
Year Ended December 31, 2017	$	—		195,548		$	24,444		$	1,638,413		$	18,776		$	272,013		$	1,953,646
Net issuance of common stock under stock-based plans				1,613			201			(72	)								129
Stock-based compensation expense										33,304									33,304
Repurchase of common stock				(21,639	)		(2,705	)								(829,651	)		(832,356	)
Cash dividends ($0.09 per share)																(67,367	)		(67,367	)
Net income																451,779			451,779
Other comprehensive loss													(29,460	)					(29,460	)
Reclassification of unrealized gains on equity securities													(3,125	)		3,125			—
Reclassification of tax effects resulting from the Tax Reform Act													769			(769	)		—
Cumulative effect of changes in accounting principle related to revenue recognition																12,679			12,679

Year Ended December 31, 2018		—		175,522			21,940			1,671,645			(13,040	)		(158,191	)		1,522,354

Net issuance of common stock under stock-based plans				1,784			223			10,399									10,622
Stock-based compensation expense										38,085									38,085
Repurchase of common stock				(10,896	)		(1,362	)								(489,840	)		(491,202	)
Cash dividends ($0.09 per share)																(61,355	)		(61,355	)
Net income																467,468			467,468
Other comprehensive loss													(5,814	)					(5,814	)

Year Ended December 31, 2019		—		166,410			20,801			1,720,129			(18,854	)		(241,918	)		1,480,158

Net issuance of common stock under stock-based plans				1,230			154			4,696									4,850
Stock-based compensation expense										44,285									44,285
Repurchase of common stock				(1,517	)		(190	)								(88,275	)		(88,465	)
Cash dividends ($0.10 per share)																(66,540	)		(66,540	)
Convertible common shares		3,787								(3,787	)								(3,787	)
Net income																784,147			784,147
Other comprehensive income													52,370						52,370

Year Ended December 31, 2020	$	3,787		166,123		$	20,765		$	1,765,323		$	33,516		$	387,414		$	2,207,018

The accompanying notes are an integral part of the consolidated financial statements.

TERADYNE, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS


	Years Ended December 31,
	2020			2019			2018
	(in thousands)
Cash flows from operating activities:
Net income	$	784,147		$	467,468		$	451,779
Adjustments to reconcile net income from operations to net cash provided by operating activities:
Depreciation		80,119			70,834			67,415
Amortization		46,624			49,821			45,809
Stock-based compensation		44,906			37,897			33,577
Provision for excess and obsolete inventory		17,534			15,244			11,242
Retirement plans actuarial losses (gains)		10,284			8,176			(3,316	)
Contingent consideration fair value adjustment		(23,271	)		(19,257	)		987
Deferred taxes		(15,688	)		(9,456	)		28,340
(Gains) losses on investments		(7,898	)		(6,033	)		3,494
Investment impairment		—			15,000			—
Other		1,557			766			1,083
Changes in operating assets and liabilities, net of businesses acquired:
Accounts receivable		(129,451	)		(70,440	)		(17,938	)
Inventories		(8,438	)		(27,408	)		(29,498	)
Prepayments and other assets		(64,418	)		(23,784	)		(58,402	)
Accounts payable and other accrued expenses		73,167			49,279			13,693
Deferred revenue and customer advances		39,974			39,313			13,379
Retirement plan contributions		(5,382	)		(5,086	)		(4,334	)
Income taxes		25,169			(13,584	)		(80,429	)

Net cash provided by operating activities		868,935			578,750			476,881

Cash flows from investing activities:
Purchases of property, plant and equipment		(184,977	)		(134,642	)		(114,379	)
Proceeds from government subsidy for property, plant and equipment		—			—			7,920
Purchases of marketable securities		(900,196	)		(662,701	)		(918,744	)
Proceeds from maturities of marketable securities		479,678			611,927			1,270,439
Proceeds from sales of marketable securities		35,006			105,586			846,122
Proceeds from insurance		546			2,912			1,126
Purchase of investment and acquisition of businesses, net of cash acquired		149			(79,742	)		(169,474	)

Net cash (used for) provided by investing activities		(569,794	)		(156,660	)		923,010

Cash flows from financing activities:
Issuance of common stock under stock purchase and stock option plans		28,527			29,312			20,973
Repurchase of common stock		(88,465	)		(500,000	)		(823,478	)
Dividend payments		(66,482	)		(61,305	)		(67,322	)
Payments related to net settlement of employee stock compensation awards		(23,014	)		(14,741	)		(20,023	)
Payments of contingent consideration		(8,852	)		(27,615	)		(13,571	)

Net cash used for financing activities		(158,286	)		(574,349	)		(903,421	)

Effects of exchange rate changes on cash and cash equivalents		(658	)		(569	)		439
Increase (decrease) in cash and cash equivalents		140,197			(152,828	)		496,909
Cash and cash equivalents at beginning of year		773,924			926,752			429,843

Cash and cash equivalents at end of year	$	914,121		$	773,924		$	926,752

Supplementary disclosure of cash flows information:
Cash paid for:
Interest	$	6,435		$	5,996		$	6,205
Income taxes	$	106,577		$	81,410		$	72,811
Non-cash investing activities:
Capital expenditures incurred but not yet paid:	$	3,666		$	4,068		$	2,537

The accompanying notes are an integral part of the consolidated financial statements.

TERADYNE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

A. THE COMPANY

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

	•		semiconductor test (“Semiconductor Test”) systems;

	•		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 (“Industrial Automation”) products.

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

On April 25, 2018, Teradyne acquired Mobile Industrial Robots ApS (“MiR”), a Danish limited liability company. MiR is a leading maker of collaborative autonomous mobile robots (“AMRs”) for industrial applications. The total purchase price was approximately $197.8 million, which included cash paid of approximately $145.2 million and $52.6 million in fair value of contingent consideration payable upon achievement of certain thresholds and targets for revenue and earnings before interest and taxes through 2020. Contingent consideration for 2018 was $30.8 million and was paid in March 2019. Contingent consideration for 2019 was $8.9 million and was paid in March 2020. MiR is included in Teradyne’s Industrial Automation segment.

On June 3, 2019, Teradyne invested $15.0 million in RealWear, Inc. (“RealWear”). RealWear, a private company, develops and sells advanced wearable technology including industrial, hands-free, head-mounted augmented reality devices that make the workplace safer and more productive. On February 28, 2020, RealWear’s debt holder demanded repayment of its $25.0 million loan to RealWear. As a result, in the fourth quarter of 2019, Teradyne recorded an impairment charge of $15.0 million to reduce its investment in RealWear to zero as of December 31, 2019.

On November 13, 2019, Teradyne acquired 100% of the membership interests of AutoGuide, LLC (“AutoGuide”), a maker of high payload AMRs, an emerging and fast growing segment of the global forklift

market. The total purchase price was approximately $81.6 million, which included cash paid of approximately $57.6 million and $24.0 million in fair value of contingent consideration payable upon achievement of certain performance targets, extending potentially through 2022. At December 31, 2020, the maximum contingent consideration that could be paid is $100.2 million. AutoGuide’s AMRs are used for material transport of payloads up to 4,500 kg in manufacturing, warehouse and logistics applications. These products complement MiR’s lower payload products. AutoGuide is included in our Industrial Automation segment.

B. ACCOUNTING POLICIES

The consolidated financial statements include the accounts of Teradyne and its wholly-owned subsidiaries. All significant intercompany balances and transactions are eliminated. Certain prior years’ amounts were reclassified to conform to the current year presentation.

Preparation of Financial Statements and Use of Estimates

The preparation of consolidated financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent liabilities. On an on-going basis, management evaluates its estimates, including those related to inventories, investments, goodwill, intangible and other long-lived assets, accounts receivable, income taxes, deferred tax assets and liabilities, pensions, warranties, contingent 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 judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Due to the COVID-19 pandemic, there has been uncertainty and disruption in the global economy and our markets. Management is not aware of any specific event or circumstance that would require an update to its estimates or judgments or a revision of the carrying value of its assets or liabilities as of February 22, 2021, the date of issuance of this Annual Report on Form 10-K. These estimates may change, as new events occur and additional information is obtained. Actual results may differ significantly from these estimates under different assumptions or conditions.

Revenue Recognition

Revenue from Contracts with Customers

Teradyne adopted Accounting Standard Codification (“ASC”) 606 “Revenue from Contracts with Customers” on January 1, 2018 using the modified retrospective method for all contracts not completed as of the date of adoption.

In accordance with ASC 606, Teradyne recognizes revenues, when or as control is transferred to a customer. Teradyne’s determination of revenue is dependent upon a five step process outlined below.

	•		Teradyne accounts for a contract with a customer when there is written approval, the contract is committed, the rights of the parties, including payment terms, are identified, the contract has commercial substance and consideration is probable of collection.

	•		Teradyne periodically enters into contracts with customers in which a customer may purchase a combination of goods and services, such as products with extended warranty obligations. Teradyne determines performance obligations by assessing whether the products or services are distinct from the other elements of the contract. In order to be distinct, the product or service must perform either on its own or with readily available resources and must be separate within the context of the contract.

	•		Teradyne considers the amount stated on the face of the purchase order to be the transaction price. Teradyne does not have material variable consideration which could impact the stated purchase price agreed to by Teradyne and the customer.

	•		Transaction price is allocated to each individual performance obligation based on the standalone selling price of that performance obligation. Teradyne uses standalone transactions when available to value each performance obligation. If standalone transactions are not available, Teradyne will estimate the standalone selling price through market assessments or cost plus a reasonable margin analysis. Any discounts from standalone selling price are spread proportionally to each performance obligation.

	•		In order to determine the appropriate timing for revenue recognition, Teradyne first determines if the transaction meets any of three criteria for over time recognition. If the transaction meets the criteria for over time recognition, Teradyne recognizes revenue as the good or service is delivered. Teradyne uses input variables such as hours or months utilized or costs incurred to determine the amount of revenue to recognize in a given period. Input variables are used as they best align consumption with benefit to the customer. For transactions that do not meet the criteria for over time recognition, Teradyne will recognize revenue at a point in time based on an assessment of the five criteria for transfer of control. Teradyne has concluded that revenue should be recognized when shipped or delivered based on contractual terms. Typically, acceptance of Teradyne’s products and services is a formality as Teradyne delivers similar systems, instruments and robots to standard specifications. In cases where acceptance is not deemed a formality, Teradyne will defer revenue recognition until customer acceptance.

Performance Obligations

Products

Teradyne products consist primarily of semiconductor test systems and instruments, defense/aerospace test instrumentation and systems, storage test systems and instruments, circuit-board test and inspection systems and instruments, wireless test systems and industrial automation products. Teradyne’s hardware is recognized at a point in time upon transfer of control to the customer.

Services

Teradyne services consist of extended warranties, training and application support, service agreements, post contract customer support (“PCS”) and replacement parts. Each service is recognized based on relative standalone selling price. Extended warranty, training and support, service agreements and PCS are recognized over time based on the period of service. Replacement parts are recognized at a point in time upon transfer of control to the customer.

Teradyne does not allow customer returns or provide refunds to customers for any products or services. Teradyne products include a standard 12-month warranty. This warranty is not considered a distinct performance obligation because it does not obligate Teradyne to provide a separate service to the customer and it cannot be purchased separately. Cost related to warranty are included in cost of revenues when product revenues are recognized.

As of December 31, 2020 and 2019, deferred revenue and customer advances consisted of the following and are included in the short and long-term deferred revenue and customer advances:


	2020		2019
	(in thousands)
Maintenance, service and training	$	77,654	$	63,815
Customer advances, undelivered elements and other		63,438		56,358
Extended warranty		51,929		30,677

Total deferred revenue and customer advances	$	193,021	$	150,850

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:


	Amount
	(in thousands)
Balance at December 31, 2017	$	8,200
Acquisition		41
Accruals for warranties issued during the period		13,045
Accruals related to pre-existing warranties		921
Settlements made during the period		(14,298	)

Balance at December 31, 2018		7,909
Acquisition		14
Accruals for warranties issued during the period		14,106
Accruals related to pre-existing warranties		4,026
Settlements made during the period		(17,059	)

Balance at December 31, 2019		8,996
Accruals for warranties issued during the period		28,490
Accruals related to pre-existing warranties		821
Settlements made during the period		(21,674	)

Balance at December 31, 2020	$	16,633

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


	Amount
	(in thousands)
Balance at December 31, 2017	$	24,438
Deferral of new extended warranty revenue		23,753
Recognition of extended warranty deferred revenue		(20,769	)

Balance at December 31, 2018		27,422
Deferral of new extended warranty revenue		23,271
Recognition of extended warranty deferred revenue		(20,016	)

Balance at December 31, 2019		30,677
Deferral of new extended warranty revenue		41,694
Recognition of extended warranty deferred revenue		(20,442	)

Balance at December 31, 2020	$	51,929

Accounts Receivable and Allowance for Doubtful Accounts

Trade accounts receivable are recorded at the invoiced amount and do not bear interest. Teradyne maintains allowances for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments. Estimated allowances for doubtful accounts are reviewed periodically taking into account the customer’s recent payment history, the customer’s current financial statements and other information regarding the customer’s credit worthiness. Account balances are written off against the allowance when it is determined the receivable will not be recovered.

Teradyne sells certain trade accounts receivables on a non-recourse basis to third-party financial institutions pursuant to factoring agreements. Teradyne accounts for these transactions as sales of receivables and presents cash proceeds as a cash provided by operating activities in the consolidated statements of cash flows. Total trade accounts receivable sold under the factoring agreements were $131.1 million and $143.6 million during 2020 and 2019, respectively. Factoring fees for the sales of receivables are recorded in interest expense and are not material.

Inventories

Inventories are stated at the lower of cost (first-in, first-out basis) or net realizable value. On a quarterly basis, Teradyne uses consistent methodologies to evaluate all inventories for net realizable value. Teradyne records a provision for both excess and obsolete inventory when such write-downs or write-offs are identified through the quarterly review process. The inventory valuation is based upon assumptions about future demand, product mix and possible alternative uses.

Investments

Teradyne accounts for its investments in debt and equity securities in accordance with the provisions of ASC 320-10, “

Investments—Debt and Equity Securities

.” ASC 320-10 requires that certain debt and equity securities be classified into one of three categories; trading, available-for-sale or held-to-maturity securities. On a quarterly basis, Teradyne reviews its investments to identify and evaluate those that have an indication of a potential other-than-temporary impairment. Factors considered in determining whether a loss is other-than-temporary include:

	•		The length of time and the extent to which the market value has been less than cost;

	•		The financial condition and near-term prospects of the issuer; and

	•		The intent and ability to retain the investment in the issuer for a period of time sufficient to allow for any anticipated recovery in market value.

Teradyne uses the market and income approach techniques to value its financial instruments and there were no changes in valuation techniques during the twelve months ended December 31, 2020 and 2019. As defined in ASC 820-10, “

Fair Value Measurements and Disclosures,

” fair value is the price that would be received from the sale of an asset or paid to transfer a liability in an orderly transaction between market participants. ASC 820-10 requires that assets and liabilities carried at fair value be classified and disclosed in one of the following three categories:

Level 1: Quoted prices in active markets for identical assets as of the reporting date;

Level 2: Inputs other than Level 1, that are observable either directly or indirectly as of the reporting date. For example, a common approach for valuing fixed income securities is the use of matrix pricing. Matrix pricing is a mathematical technique used to value securities by relying on the securities’ relationship to other benchmark quoted prices, and is considered a Level 2 input; or

Level 3: Unobservable inputs that are not supported by market data. Unobservable inputs are developed based on the best information available, which might include Teradyne’s own data.

In accordance with ASC 820-10, Teradyne measures its debt and equity investments at fair value. Teradyne’s debt investments are classified as Level 2, and equity investments are classified as Level 1. Acquisition-related contingent consideration is classified as Level 3. Teradyne determines the fair value of acquisition-related contingent consideration using a Monte Carlo simulation model. Assumptions utilized in the model include forecasted revenues, revenue volatility, earnings before interest and taxes, and discount rate.

Financial Assets and Financial Liabilities

In January 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-01, “

Financial Instruments—Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities

.” Teradyne adopted the new accounting guidance in the first quarter of 2018 using the modified retrospective approach. This guidance requires that changes in fair value of equity securities be accounted for directly in earnings. Previously, the changes in fair value were recorded in accumulated other comprehensive income on the balance sheet. Teradyne records realized gains and losses in other (income) expense, net. The adoption of this new accounting guidance increased the January 1, 2018 retained earnings balance by $3.1 million and decreased the accumulated other comprehensive income balance by the same amount.

Prepayments

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


	2020		2019
	(in thousands)
Contract manufacturer and supplier prepayments	$	212,286	$	143,392
Prepaid taxes		9,361		8,046
Prepaid maintenance and other services		13,116		8,503
Other prepayments		15,329		16,753

Total prepayments	$	250,092	$	176,694

Retirement and Postretirement Plans

Teradyne recognizes net actuarial gains and losses and the change in the fair value of the plan assets in its operating results in the year in which they occur or upon any interim remeasurement of the plans. Teradyne calculates the expected return on plan assets using the fair value of the plan assets. Actuarial gains and losses are generally measured annually as of December 31 and, accordingly, recorded during the fourth quarter of each year or upon any interim remeasurement of the plans.

Retirement Benefits

In March 2017, the FASB issued ASU 2017-07, “

Compensation—Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost

.” Teradyne retrospectively adopted the new accounting guidance on presentation of net periodic pension costs and net periodic postretirement benefit costs in the first quarter of 2018. This guidance requires the service cost component of net benefit costs to be reported in the same line item in the consolidated statement of operations as other employee compensation costs. The non-service components of net benefit costs such as interest cost, expected return on assets, amortization of prior service cost, and actuarial gains or losses, are required to be reported separately outside of income or loss from operations. Following the adoption of this guidance, Teradyne continues to record the service cost component in the same line item as other employee compensation costs and the non-service components of net benefit costs such as interest cost, expected return on assets, amortization of prior service cost, and actuarial gains or losses are reported within other (income) expense, net.

Goodwill, Intangible and Long-Lived Assets

Teradyne accounts for goodwill and intangible assets in accordance with ASC 350-10, “

Intangibles-Goodwill and Other.

” Intangible assets are amortized over their estimated useful economic life and are carried at cost less accumulated amortization. Goodwill is assessed for impairment at least annually in the fourth quarter, as

of December 31, on a reporting unit basis, or more frequently when events and circumstances occur indicating that the recorded goodwill may be impaired. In accordance with ASC 350-10, Teradyne has the option to perform a qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If Teradyne determines this is the case, Teradyne is required to perform a quantitative goodwill impairment test to identify potential goodwill impairment and measure the amount of goodwill impairment loss to be recognized. If Teradyne determines that it is more likely than not that the fair value of the reporting unit is greater than its carrying amounts, a quantitative goodwill impairment test is not required.

In accordance with ASC 360-10, “

Impairment or Disposal of Long-Lived Assets,

” Teradyne reviews long-lived assets for impairment whenever events or changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverable or that the useful lives of these assets are no longer appropriate. Each impairment test is based on a comparison of the estimated undiscounted cash flows to the recorded value of the asset. If impairment is indicated, the asset is written down to its estimated fair value based on a discounted cash flows analysis. The cash flows estimates used to determine the impairment, if any, contain management’s best estimates using appropriate assumptions and projections at that time.

Business Combination

Teradyne recognizes the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values at the date of acquisition. The fair value of identifiable intangible assets is based on detailed cash flows valuations that use information and assumptions provided by management. Teradyne estimates the fair value of contingent consideration at the time of the acquisition using all pertinent information known to us at the time to assess the probability of payment of contingent amounts or through the use of a Monte Carlo simulation model. Teradyne allocates any excess purchase price over the fair value of the net tangible and intangible assets acquired and liabilities assumed to goodwill. The assumptions used in the valuations for our acquisitions may differ materially from actual results depending on performance of the acquired businesses and other factors. While Teradyne believes the assumptions used were appropriate, different assumptions in the valuation of assets acquired and liabilities assumed could have a material impact on the timing and extent of impact on our statements of operations. Goodwill is assigned to reporting units as of the date of the related acquisition.

Property, Plant and Equipment

Property, plant and equipment are stated at cost and depreciated over the estimated useful lives of the assets. Leasehold improvements and major renewals are capitalized and included in property, plant and equipment accounts, while expenditures for maintenance and repairs and minor renewals are charged to expense. When assets are retired, the assets and related accumulated depreciation are removed from the accounts and any resulting gain or loss is reflected in the consolidated statements of operations.

Teradyne provides for depreciation of its assets principally on the straight-line method with the cost of the assets being charged to expense over their useful lives as follows:


Buildings		40 years
Building improvements		5 to 10 years
Leasehold improvements		Lesser of lease term or 10 years
Furniture and fixtures		10 years
Test systems manufactured internally		6 years
Machinery, equipment and software		3 to 5 years

Test systems manufactured internally are used by Teradyne for customer evaluations and manufacturing and support of its customers. Teradyne depreciates the test systems manufactured internally over a six-year life to cost of revenues, engineering and development, and selling and administrative expenses. Teradyne often sells

internally manufactured test equipment to customers. Upon the sale of an internally manufactured test system, the net book value of the system is transferred to inventory and expensed as cost of revenues. The net book value of internally manufactured test systems sold in the years ended December 31, 2020, 2019, and 2018 was $7.3 million, $5.0 million, and $3.8 million, respectively.

Leases

Teradyne adopted Accounting Standards Update (“ASU”) 2016-02, “

Leases (Topic 842)

” (“Topic 842”) and the related amendments (collectively “ASC 842”) on January 1, 2019 and utilized the modified retrospective approach provided by ASU 2018-11, “

Leases (Topic 842): Targeted Improvements

,” that allowed for a cumulative effect adjustment in the period of adoption.

Under ASC 842, a contract is or contains a lease when Teradyne has the right to control the use of an identified asset. Teradyne determines if an arrangement is a lease at inception of the contract, which is the date on which the terms of the contract are agreed to and the agreement creates enforceable rights and obligations. The commencement date of the lease is the date that the lessor makes an underlying asset available for use by Teradyne. As of December 31, 2020, Teradyne does not have material leases that have not yet commenced.

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

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

Teradyne’s contracts often include non-lease components such as common area maintenance. Teradyne elected the practical expedient to account for the lease and non-lease components as a single lease component. For leases with a term of one year or less Teradyne has elected not to record the lease asset or liability. The lease payments are recognized in the consolidated statement of earnings on a straight-line basis over the lease term. Teradyne includes lease costs within cost of revenues and operating expenses. See Note I: “Leases.”

Engineering and Development Costs

Teradyne’s products are highly technical in nature and require a large and continuing engineering and development effort. Software development costs incurred prior to the establishment of technological feasibility are charged to expense. Software development costs incurred subsequent to the establishment of technological feasibility are capitalized until the product is available for release to customers. To date, the period between achieving technological feasibility and general availability of the product has been short and software development costs eligible for capitalization have not been material. Engineering and development costs are expensed as incurred and consist primarily of salaries, contractor fees including non-recurring engineering charges related to product design, allocated facility costs, depreciation, and tooling costs.

Stock Compensation Plans and Employee Stock Purchase Plan

Stock-based compensation expense is based on the grant-date fair value estimated in accordance with the provisions of ASC 718-10, “

Compensation-Stock Compensation

.”

Excess tax benefits or tax deficiencies are recognized as a discrete tax benefit or discrete tax expense to the current income tax provision in Teradyne’s consolidated statements of operations, all excess tax benefits related

to share-based payments are reported as cash flows from operating activities, and all cash payments made to taxing authorities on the employees’ behalf for withheld shares are presented as financing activities on the statement of cash flows.

Teradyne elects to account for forfeitures by applying an estimated forfeiture rate and recognizes compensation costs only for those stock-based compensation awards expected to vest.

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

Income Taxes

Deferred tax assets and liabilities are determined based on differences between financial reporting and tax basis of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. The measurement of deferred tax assets is reduced by a valuation allowance if it is more likely than not that some or all of the deferred tax assets will not be realized. Teradyne performed the required assessment of positive and negative evidence regarding the realization of the net deferred tax assets in accordance with ASC 740,

“Accounting for Income Taxes.”

This assessment included the evaluation of scheduled reversals of deferred tax liabilities, estimates of projected future taxable income and tax-planning strategies. Although realization is not assured, based on its assessment, Teradyne concluded that it is more likely than not that such assets, net of the existing valuation allowance, will be realized.

Advertising Costs

Teradyne expenses all advertising costs as incurred. Advertising costs were $12.8 million, $16.6 million and $15.4 million in 2020, 2019 and 2018, respectively.

Translation of Non-U.S. Currencies

The functional currency for all non-U.S. subsidiaries is the U.S. dollar, except for Universal Robots, MiR and Lemsys for which the local currency is its functional currency. All foreign currency denominated monetary assets and liabilities are remeasured on a monthly basis into the functional currency using exchange rates in effect at the end of the period. All foreign currency denominated non-monetary assets and liabilities are remeasured into the functional currency using historical exchange rates. Net foreign exchange gains and losses resulting from remeasurement are included in other (income) expense, net. For Universal Robots, MiR and Lemsys, assets and liabilities are translated into U.S. dollars using exchange rates in effect at the end of the period. Revenues and expense amounts are translated using an average of exchange rates in effect during the period. Translation adjustments are recorded within accumulated other comprehensive income (loss) on the balance sheet.

Net foreign exchange gains and losses resulting from remeasurement are included in other (income) expense, net. For the years ended December 31, 2020, 2019, and 2018, losses (gains) from the remeasurement of the monetary assets and liabilities denominated in foreign currencies were $2.6 million, $(1.6) million, and $(2.5) million, respectively.

These amounts do not reflect the corresponding (gains) losses from foreign exchange contracts. See Note H: “Financial Instruments” regarding foreign exchange contracts.

Net Income (Loss) per Common Share

Basic net income (loss) per common share is calculated by dividing net income (loss) by the weighted average number of common shares outstanding during the period. Except where the result would be anti-dilutive, diluted net income (loss) per common share is calculated by dividing net income (loss) by the sum of the weighted average number of common shares plus common stock equivalents, if applicable.

With respect to its convertible debt issued in 2016, Teradyne has determined that it has the ability and intent to settle the principal of the convertible debt in cash; accordingly, the principal amount is excluded from the determination of diluted earnings per share. As a result, Teradyne is accounting for the conversion spread using the treasury stock method.

Comprehensive Income (Loss)

Comprehensive income (loss) includes net income, unrealized pension and postretirement prior service costs and benefits, unrealized gains and losses on investments in debt marketable securities and foreign currency translation adjustment. Prior to 2018, comprehensive income (loss) included unrealized gains and losses on investments in equity marketable securities.

C. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

In August 2020, the FASB issued ASU 2020-06

—

“Debt

—

Debt with Conversion and Other Options and Derivatives and Hedging

—

Contracts in Entity’s Own Equity,”

which simplifies the accounting for convertible debt instruments by reducing the number of accounting models and the number of embedded conversion features that could be recognized separately from the primary contract. This ASU requires a convertible debt instrument to be accounted for as a single liability measured at its amortized cost, as long as no other features require bifurcation and recognition as derivatives. This ASU requires an entity to use the if-converted method in the diluted earnings per share calculation for convertible instruments. This ASU will be effective for Teradyne on January 1, 2022, with early adoption permitted beginning on January 1, 2021. This ASU permits the use of either the modified retrospective or fully retrospective method of transition. Teradyne is evaluating the timing and effects of the adoption of this ASU on its financial statements.

D. ACQUISITIONS AND INVESTMENT IN OTHER COMPANY

Acquisitions

AutoGuide LLC

On November 13, 2019, Teradyne acquired 100% of the membership interests of AutoGuide, LLC (“AutoGuide”), a maker of high-payload AMRs, based in Chelmsford, MA, an emerging and fast growing segment of the global forklift market. The total purchase price was approximately $81.6 million, which included cash paid of approximately $57.6 million and $24.0 million in fair value of contingent consideration payable upon achievement of certain performance targets, extending potentially through 2022. At December 31, 2020, the maximum contingent consideration that could be paid is $100.2 million.

The contingent consideration is payable upon achievement of certain thresholds and targets for revenue and earnings before interest and taxes for periods from January 1, 2019 to December 31, 2020, January 1, 2019 to December 31, 2021, and January 1, 2019 to December 31, 2022.

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

The AutoGuide acquisition was accounted for as a business combination and, accordingly, the results have been included in Teradyne’s consolidated results of operations from the date of acquisition. AutoGuide’s AMRs are used for material transport of payloads up to 4,500 kg in manufacturing, warehouse and logistics applications. These products complement Mobile Industrial Robots A/S (“MiR”) lower payload products and expand the Industrial Automation segment, which is a key component of Teradyne’s growth strategy.

The allocation of the total purchase price to AutoGuide’s net tangible assets and identifiable intangible assets was based on their fair values as of the acquisition date. The excess of the purchase price over the

identifiable intangible assets and net tangible assets in the amount of $41.2 million was allocated to goodwill, which is deductible for tax purposes. AutoGuide’s results have been included in Teradyne’s Industrial Automation segment from the date of acquisition.

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


	Purchase Price Allocation
	(in thousands)
Goodwill	$	41,223
Intangible assets		37,660
Tangible assets acquired and liabilities assumed:
Other current assets		3,661
Non-current assets		1,227
Accounts payable and current liabilities		(1,223	)
Long-term other liabilities		(949	)

Total purchase price	$	81,599

Teradyne estimated the fair value of intangible assets using the income approach. Forecasted revenues is the key assumption for estimating the fair value. Acquired intangible assets are amortized on a straight-line basis over their estimated useful lives. Components of these intangible assets and their estimated useful lives at the acquisition date are as follows:


	Fair Value		Estimated Useful Life
	(in thousands)		(in years)
Developed technology	$	24,590		6.0
Customer relationships		7,360		6.0
Trademarks and tradenames		5,450		7.0
Backlog		260		0.3

Total intangible assets	$	37,660		6.1

For the period from November 13, 2019 to December 31, 2019, AutoGuide contributed $1.4 million of revenues and had a $(0.9) million loss before income taxes.

Lemsys SA

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

Mobile Industrial Robots

On April 25, 2018, Teradyne acquired all of the issued and outstanding shares of MiR, a Danish limited liability company located in Odense, Denmark. MiR is a leading maker of collaborative autonomous mobile robots for industrial applications.

The total purchase price of $197.8 million included $145.2 million of cash paid and $52.6 million of contingent consideration measured at fair value. The contingent consideration is payable in Euros upon the achievement of certain thresholds and targets for revenue and earnings before interest and taxes for periods from January 1, 2018 to December 31, 2018; January 1, 2018 to December 31, 2019; and January 1, 2018 to December 31, 2020. Contingent consideration for the period from January 1, 2018 to December 31, 2018 was $31.0 million and was paid in March 2019. Contingent consideration for the period from January 1, 2018 to December 31, 2019 was $9.1 million, based on the results during the period and modification of the earn-out structure, and was paid in March 2020. No contingent consideration will be paid out against the period from December 31, 2018 through December 31, 2020.

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

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


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

Total purchase price	$	197,778

Teradyne estimated the fair value of intangible assets using the income and cost approaches. Acquired intangible assets are amortized on a straight-line basis over their estimated useful lives.

Components of these intangible assets and their estimated useful lives at the acquisition date are as follows:


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

Total intangible assets	$	80,670		7.2

Energid Technologies Corporation

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

Pro Forma Information

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


	December 31, 2019		December 31, 2018
	(in thousands, except per share amount)
Revenues	$	2,303,737	$	2,111,373
Net income	$	464,602	$	442,082
Net income per common share:
Basic	$	2.73	$	2.36

Diluted	$	2.59	$	2.30

Pro forma results for the year ended December 31, 2019 were adjusted to exclude $1.2 million of AutoGuide acquisition related costs and $0.1 million of AutoGuide non-recurring expense related to fair value adjustment to acquisition-date inventory.

Pro forma results for the year ended December 31, 2018 were adjusted to include $1.2 million of AutoGuide acquisition related costs and $0.1 million of AutoGuide non-recurring expense related to fair value adjustment to acquisition-date inventory.

Pro forma results for the year ended December 31, 2018 were adjusted to exclude $2.9 million of MiR acquisition related costs and $0.4 million of MiR non-recurring expense related to fair value adjustment to acquisition-date inventory.

Investment in Other Company

On June 3, 2019, Teradyne invested $15.0 million in RealWear, Inc. (“RealWear”). RealWear, a private company, develops and sells advanced wearable technology including industrial, hands-free, head-mounted augmented reality devices that make the workplace safer and more productive. The investment was recorded at cost and is evaluated for impairment or an indication of changes in fair value resulting from observable price changes in orderly transactions for the identical or similar investment of the same issuer on a quarterly basis. On February 28, 2020, RealWear’s debt holder demanded repayment of its $25.0 million loan to RealWear. As a result, in the fourth quarter of 2019, Teradyne recorded an impairment charge of $15.0 million to reduce its investment in RealWear to zero

as of December 31, 2019.

E. REVENUE

Disaggregation of Revenue

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


	Semiconductor Test						Industrial Automation						Wireless Test		Corporate and Other			Total
	System on-a-chip		Memory		System Test		Universa l Robots		Mobile Industrial Robots		AutoGuide
	(in thousands)
For the Year Ended December 31, 2020 (1)
Timing of Revenue Recognition

Point in Time	$	1,659,414	$	363,324	$	348,454	$	214,212	$	44,622	$	10,911	$	163,834	$	(604	)	$	2,804,166
Over Time		217,975		18,884		61,275		7,269		211		2,506		9,182		—			317,302

Total	$	1,877,389	$	382,208	$	409,729	$	221,481	$	44,833	$	13,417	$	173,016	$	(604	)	$	3,121,469

Geographical Market
Asia Pacific	$	1,744,593	$	364,000	$	258,521	$	60,277	$	6,471	$	—	$	143,969	$	—		$	2,577,831
Americas		77,671		12,999		128,482		64,164		16,769		13,417		22,544		(604	)		335,441
Europe, Middle East and Africa		55,125		5,209		22,726		97,040		21,593		—		6,503		—			208,196

Total	$	1,877,389	$	382,208	$	409,729	$	221,481	$	44,833	$	13,417	$	173,016	$	(604	)	$	3,121,469

For the Year Ended December 31, 2019 (1)
Timing of Revenue Recognition
Point in Time	$	1,070,375	$	247,221	$	237,686	$	244,515	$	44,329	$	1,144	$	148,322	$	(515	)	$	1,993,077
Over Time		216,065		18,910		49,769		7,843		74		234		8,993		—			301,888

Total	$	1,286,440	$	266,131	$	287,455	$	252,358	$	44,403	$	1,378	$	157,315	$	(515	)	$	2,294,965

Geographical Market
Asia Pacific	$	1,152,881	$	238,714	$	132,826	$	68,027	$	9,513	$	—	$	126,549	$	—		$	1,728,510
Americas		73,257		23,826		129,840		71,926		14,438		1,378		24,234		(515	)		338,384
Europe, Middle East and Africa		60,302		3,591		24,789		112,405		20,452		—		6,532		—			228,071

Total	$	1,286,440	$	266,131	$	287,455	$	252,358	$	44,403	$	1,378	$	157,315	$	(515	)	$	2,294,965

For the Year Ended December 31, 2018 (1)
Timing of Revenue Recognition
Point in Time	$	1,010,493	$	259,366	$	167,418	$	232,448	$	24,115	$	—	$	122,536	$	(1,205	)	$	1,815,171
Over Time		208,456		14,102		48,714		4,889		—		—		9,470		—			285,631

Total	$	1,218,949	$	273,468	$	216,132	$	237,337	$	24,115	$	—	$	132,006	$	(1,205	)	$	2,100,802

Geographical Market
Asia Pacific	$	1,067,879	$	245,264	$	90,989	$	58,492	$	5,950	$	—	$	107,872	$	—		$	1,576,446
Americas		78,498		17,353		96,763		70,478		7,326		—		19,166		(1,205	)		288,379
Europe, Middle East and Africa		72,572		10,851		28,380		108,367		10,839		—		4,968		—			235,977

Total	$	1,218,949	$	273,468	$	216,132	$	237,337	$	24,115	$	—	$	132,006	$	(1,205	)	$	2,100,802

(1)	Includes $10.0 million, $8.4 million and $12.0 million in 2020, 2019 and 2018, respectively, for leases of Teradyne’s systems recognized outside of ASC 606: “Revenue from Contracts with Customers.”

Contract Balances

For the years ended December 31, 2020, 2019 and 2018, Teradyne recognized $91.0 million, $65.6 million and $69.9 million, respectively, that

was included within the deferred revenue and customer advances balances at the beginning of the period. This revenue primarily relates to undelivered hardware, extended warranties, training, application support, and post contract support. Each of these represents a distinct performance obligation. As of December 31, 2020,

eradyne

has $929.6 million of unsatisfied performance obligations. Teradyne

expects to recognize 92% of the remaining performance obligation in the next 12 months, 8% in 1-3 years, and the remainder thereafter.

F. INVENTORIES

Inventories, net consisted of the following at December 31, 2020 and 2019:


	2020		2019
	(in thousands)
Raw material	$	114,133	$	118,595
Work-in-process		25,408		32,695
Finished goods		82,648		45,401

	$	222,189	$	196,691

Inventory reserves for the years ended December 31, 2020 and 2019 were $110.6 million and $103.6 million, respectively.

G. PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment, net consisted of the following at December 31, 2020 and 2019:


	2020		2019
	(in thousands)
Land	$	17,207	$	16,561
Buildings		108,221		107,282
Machinery, equipment and software		956,035		834,970
Furniture and fixtures		28,487		29,157
Leasehold improvements		61,276		59,378
Construction in progress		13,098		2,537

		1,184,324		1,049,885
Less: accumulated depreciation		789,524		729,669

	$	394,800	$	320,216

Depreciation of property, plant and equipment for the years ended December 31, 2020, 2019, and 2018 was $80.1 million, $70.8 million, and $67.4 million, respectively. As of December 31, 2020 and 2019, the gross book value included in machinery and equipment for internally manufactured test systems being leased by customers was $23.4 million and $5.4 million, respectively. As of December 31, 2020 and 2019, the accumulated depreciation on these test systems was $7.5 million and $5.1 million, respectively.

H. 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 recognizes the changes in fair value of equity securities directly in earnings. Teradyne’s available-for-sale debt securities are classified as Level 2, and equity and debt mutual funds are classified as Level 1.

Contingent consideration is classified as Level 3. The vast majority of Level 2 securities are fixed income

securities priced by third party pricing vendors. These pricing vendors utilize the most recent observable market information in pricing these securities or, if specific prices are not available, use other observable inputs like market transactions involving identical or comparable securities.

During the years ended December 31, 2020 and 2019, there were no transfers in or out of Level 1, Level 2, or Level 3 financial instruments.

Realized gains recorded in 2020, 2019, and 2018 were $4.6 million, $1.3 million, and $4.0 million, respectively. Realized losses recorded in 2020, 2019, and 2018 were $0.3 million, $0.2 million, and $1.6 million, respectively. Realized gains and losses are included in other (income) expense, net.

Unrealized gains on equity securities recorded during the years ended December 31, 2020 and 2019 were $9.6 million and $5.3 million, respectively. Unrealized losses on equity securities recorded during the years ended December 31, 2020 and 2019 were $6.0 million and $0.4 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 the first-in first out method.

The following table sets forth by fair value hierarchy Teradyne’s financial assets and liabilities that were measured at fair value on a recurring basis as of December 31, 2020 and 2019:


	December 31, 2020
	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	$	443,166	$	—	$	—	$	443,166
Cash equivalents		347,768		123,187		—		470,955
Available for sale securities:
U.S. Treasury securities		—		258,304		—		258,304
Commercial paper		—		254,413		—		254,413
Corporate debt securities		—		83,615		—		83,615
Debt mutual funds		8,565		—		—		8,565
U.S. government agency securities		—		4,339		—		4,339
Certificates of deposit and time deposits		—		979		—		979
Non-U.S. government securities		—		625		—		625
Equity securities:
Mutual funds		29,420		—		—		29,420

Total	$	828,919	$	725,462	$	—	$	1,554,381
Derivative assets		—		95		—		95

Total	$	828,919	$	725,557	$	—	$	1,554,476

Liabilities
Contingent consideration	$	—	$	—	$	7,227	$	7,227
Derivative liabilities		—		504		—		504

Total	$	—	$	504	$	7,227	$	7,731

Reported as follows:


	(Level 1)		(Level 2)		(Level 3)		Total
	(in thousands)
Assets
Cash and cash equivalents	$	790,934	$	123,187	$	—	$	914,121
Marketable securities		—		522,280		—		522,280
Long-term marketable securities		37,985		79,995		—		117,980
Prepayments and other current assets		—		95		—		95

Total	$	828,919	$	725,557	$	—	$	1,554,476

Liabilities
Other current liabilities	$	—	$	504	$	—	$	504
Long-term contingent consideration		—		—		7,227		7,227

Total	$	—	$	504	$	7,227	$	7,731


	December 31, 2019
	Quoted Prices in Active Markets for Identical Instruments (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
	(in thousands)
Assets
Cash	$	311,975	$	—	$	—	$	311,975
Cash equivalents		410,285		51,664		—		461,949
Available for sale securities:
Corporate debt securities		—		97,307		—		97,307
Commercial paper		—		54,149		—		54,149
U.S. Treasury securities		—		42,382		—		42,382
U.S. government agency securities		—		9,952		—		9,952
Debt mutual funds		6,888		—		—		6,888
Certificates of deposit and time deposits		—		4,751		—		4,751
Non-U.S. government securities		—		592		—		592
Equity securities:
Mutual funds		25,772		—		—		25,772

Total	$	754,920	$	260,797	$	—	$	1,015,717

Derivative assets		—		528		—		528

Total	$	754,920	$	261,325	$	—	$	1,016,245

Liabilities
Contingent consideration	$	—	$	—	$	39,705	$	39,705
Derivative liabilities		—		203		—		203

Total	$	—	$	203	$	39,705	$	39,908

Reported as follows:


	(Level 1)		(Level 2)		(Level 3)		Total
	(in thousands)
Assets
Cash and cash equivalents	$	722,260	$	51,664	$	—	$	773,924
Marketable securities		—		137,303		—		137,303
Long-term marketable securities		32,660		71,830		—		104,490
Prepayments and other current assets		—		528		—		528

Total	$	754,920	$	261,325	$	—	$	1,016,245

Liabilities
Other current liabilities	$	—	$	203	$	—	$	203
Contingent consideration		—		—		9,106		9,106
Long-term contingent consideration		—		—		30,599		30,599

Total	$	—	$	203	$	39,705	$	39,908

Changes in the fair value of Level 3 contingent consideration for the years ended December 31, 2020 and 2019 were as follows:


	Contingent Consideration
	(in thousands)
Balance at December 31, 2018	$	70,543
Acquisition of AutoGuide		23,976
Foreign currency impact		(967	)
Payments (1)		(34,590	)
Fair value adjustment (2)		(19,257	)

Balance at December 31, 2019		39,705
Foreign currency impact		(355	)
Payments (3)		(8,852	)
Fair value adjustment (4)		(23,271	)

Balance at December 31, 2020	$	7,227

(1)	During the year ended December 31, 2019, Teradyne paid $30.8 million and $3.8 million of contingent consideration for the earn-outs in connection with the acquisitions of MiR and Universal Robots A/S (“Universal Robots”), respectively.

(2)

During the year ended December 31, 2019, the fair value of contingent consideration for the earn-out in connection with the acquisition of MiR was decreased by $22.2 million primarily due to a decrease in forecasted revenues partially offset by the impact from modification of the earn-out structure. During the year ended December 31, 2019, the fair value of contingent consideration for the earn-out in connection with the acquisition of AutoGuide was increased by $3.0 million primarily due to an increase in forecasted revenues

(3)	During the year ended December 31, 2020, Teradyne paid $8.9 million of contingent consideration for the earn-out in connection with the acquisition of MiR.

(4)

During the year ended December 31, 2020, the fair value of contingent consideration for the earn-out in connection with the acquisition of AutoGuide was decreased by $19.7 million primarily due to a decrease in forecasted revenues and earnings before interest and taxes . Teradyne has received a letter from the sellers of AutoGuide alleging non-compliance with the earn-out provisions of the AutoGuide acquisition agreement. Teradyne disputes the allegation of non-compliance. The ultimate amount of contingent consideration for the earn-outs in connection with the acquisition of AutoGuide may be affected by the outcome of the dispute. During the year ended December 31, 2020, the fair value of contingent consideration for the earn-out in connection with the acquisition of MiR was decreased by $3.5 million primarily due to a decrease in forecasted revenues.

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


Liability	December 31, 2020 Fair Value		Valuation Technique	Unobservable Inputs	Weighted Average
	(in thousands)
Contingent consideration (AutoGuide)	$	7,227	Monte Carlo simulation	Revenue Volatility		16.5%
				Discount Rate		1.0%

As of December 31, 2020, the significant unobservable inputs used in the Monte Carlo simulation to fair value the AutoGuide contingent consideration include forecasted revenues, revenue volatility, earnings before interest and taxes and discount rate. Increases or decreases in the inputs would result in a higher or lower fair value measurement. As of December 31, 2020, the maximum amount of contingent consideration that could be paid in connection with the acquisition of AutoGuide is $100.2 million.

No payment was made related to the period ending December 31, 2020. The remaining earn-out periods end on December 31, 2021 and December 31, 2022.

The carrying amounts and fair values of Teradyne’s financial instruments at December 31, 2020 and 2019 were as follows:


	December 31, 2020				December 31, 2019
	Carrying Value		Fair Value		Carrying Value		Fair Value
	(in thousands)
Assets
Cash and cash equivalents	$	914,121	$	914,121	$	773,924	$	773,924
Marketable securities		640,260		640,260		241,793		241,793
Derivative assets		95		95		528		528
Liabilities
Contingent consideration		7,227		7,227		39,705		39,705
Derivative liabilities		504		504		203		203
Convertible debt (1)		410,111		1,739,553		394,687		1,010,275

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

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

The following tables summarize the composition of available-for-sale marketable securities at December 31, 2020 and 2019:


	December 31, 2020
	Available-for-Sale
	Cost		Unrealized Gain		Unrealized (Loss)			Fair Market Value		Fair Market Value of Investments with Unrealized Losses
	(in thousands)
U.S. Treasury securities	$	257,132	$	1,330	$	(158	)	$	258,304	$	17,243
Commercial paper		254,404		10		(1	)		254,413		12,173
Corporate debt securities		76,129		7,539		(53	)		83,615		39,896
Debt mutual funds		8,413		152		—			8,565		—
U.S. government agency securities		4,294		46		(1	)		4,339		1,106
Certificates of deposit and time deposits		979		—		—			979		—
Non-U.S. government securities		625		—		—			625		—

	$	601,976	$	9,077	$	(213	)	$	610,840	$	70,418

Reported as follows:


	Cost		Unrealized Gain		Unrealized (Loss)			Fair Market Value		Fair Market Value of Investments with Unrealized Losses
	(in thousands)
Marketable securities	$	522,228	$	92	$	(40	)	$	522,280	$	61,806
Long-term marketable securities		79,748		8,985		(173	)		88,560		8,612

	$	601,976	$	9,077	$	(213	)	$	610,840	$	70,418


	December 31, 2019
	Available-for-Sale
	Cost		Unrealized Gain		Unrealized (Loss)			Fair Market Value		Fair Market Value of Investments with Unrealized Losses
	(in thousands)
Corporate debt securities	$	93,267	$	4,081	$	(41	)	$	97,307	$	2,009
Commercial paper		54,124		26		(1	)		54,149		1,391
U.S. Treasury securities		42,167		431		(216	)		42,382		17,556
U.S. government agency securities		9,942		14		(4	)		9,952		3,043
Debt mutual funds		6,753		135		—			6,888		—
Certificates of deposit and time deposits		4,751		—		—			4,751		—
Non-U.S. government securities		592		—		—			592		—

	$	211,596	$	4,687	$	(262	)	$	216,021	$	23,999

Reported as follows:


	Cost		Unrealized Gain		Unrealized (Loss)			Fair Market Value		Fair Market Value of Investments with Unrealized Losses
	(in thousands)
Marketable securities	$	137,144	$	160	$	(1	)	$	137,303	$	2,922
Long-term marketable securities		74,452		4,527		(261	)		78,718		21,077

	$	211,596	$	4,687	$	(262	)	$	216,021	$	23,999

As of December 31, 2020, the fair market value of investments with unrealized losses less than one year totaled $70.4 million.

As of December 31, 2019, the fair market value of investments with unrealized losses less than one year totaled $23.6 million.

Teradyne reviews its investments to identify and evaluate investments that have an indication of possible impairment. Based on this review, Teradyne determined that the unrealized losses related to these investments at December 31, 2020 and 2019, were not other than temporary.

The contractual maturities of investments in available-for-sale marketable securities held at December 31, 2020 were as follows:


	Cost		Fair Value
	(in thousands)
Due within one year	$	522,228	$	522,280
Due after 1 year through 5 years		24,829		25,245
Due after 5 years through 10 years		13,030		14,183
Due after 10 years		33,476		40,567

Total	$	593,563	$	602,275

Contractual maturities of investments in available-for-sale marketable securities held at December 31, 2020 exclude debt mutual funds with the fair market value of $8.6 million as they do not have a contractual maturity date.

Derivatives

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

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

At December 31, 2020 and 2019, Teradyne had the following contracts to buy and sell non-U.S. currencies for U.S. dollars and other non-U.S. currencies with the following notional amounts:


	December 31, 2020								December 31, 2019
	Buy Position			Sell Position		Net Total			Buy Position			Sell Position		Net Total
	(in millions)
Japanese Yen	$	(14.1	)	$	—	$	(14.1	)	$	(29.3	)	$	—	$	(29.3	)
Taiwan Dollar		(27.9	)		—		(27.9	)		(18.4	)		—		(18.4	)
Korean Won		(5.3	)		—		(5.3	)		(10.7	)		—		(10.7	)
British Pound Sterling		(1.0	)		—		(1.0	)		(3.8	)		—		(3.8	)
Singapore Dollar		—			52.3		52.3			—			25.3		25.3
Euro		—			43.9		43.9			—			47.8		47.8
Philippine Peso		—			5.0		5.0			—			5.2		5.2
Chinese Yuan		—			3.4		3.4			—			4.4		4.4
Total	$	(48.3	)	$	104.6	$	56.3		$	(62.2	)	$	82.7	$	20.5

The fair value of the outstanding contracts was a loss of $0.4 million and a gain of $0.3 million, respectively, at December 31, 2020 and 2019.

Gains and losses on foreign currency forward contracts and foreign currency remeasurement gains and losses on monetary assets and liabilities are included in other (income) expense, net.

The following table summarizes the fair value of derivative instruments as of December 31, 2020 and 2019:


	Balance Sheet Location	December 31, 2020			December 31, 2019
		(in thousands)
Derivatives not designated as hedging instruments:
Foreign exchange contracts	Prepayments	$	95		$	528
Foreign exchange contracts	Other current liabilities		(504	)		(203	)
Total derivatives		$	(409	)	$	325

The following table summarizes the effect of derivative instruments in the statements of operations recognized for the years ended December 31, 2020, 2019, and 2018.


	Location of (Gains) Losses Recognized in Statement of Operations	December 31, 2020		December 31, 2019		December 31, 2018
		(in thousands)
Derivatives not designated as hedging instruments:
Foreign exchange contracts	Other (income) expense, net	$	3,515	$	5,960	$	7,386

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

(2)	For the years ended December 31, 2020, net losses from remeasurement of monetary assets and liabilities denominated in foreign currencies were $2.6 million.

(3)	For the year ended December 31, 2019 and 2018, net gains from the remeasurement of monetary assets and liabilities denominated in foreign currencies were $1.6 million and $2.5 million, respectively.

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

Concentration of Credit Risk

Financial instruments which potentially subject Teradyne to concentrations of credit risk consist principally of cash equivalents, marketable securities, forward currency contracts and accounts receivable. Teradyne’s cash equivalents consist primarily of money market funds invested in U.S. Treasuries and government agencies. Teradyne’s fixed income available-for-sale marketable securities have a minimum rating of AA by one or more of the major credit rating agencies. Teradyne places foreign currency forward contracts with high credit-quality financial institutions in order to minimize credit risk exposure. Concentrations of credit risk with respect to accounts receivable are limited due to the large number of geographically dispersed customers. Teradyne performs ongoing credit evaluations of its customers’ financial condition and from time to time may require customers to provide a letter of credit from a bank to secure accounts receivable. As of December 31, 2020, a customer of our Semiconductor Test segment, JA Mitsui Leasing, LTD, accounted for 25% of our accounts receivable balance. The balance was paid in full as of February 22, 2021. There were no customers who accounted for 10% or more of our accounts receivable balance as of December 31, 2019.

I. LEASES

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

Total lease expense for the year ended December 31, 2020 was $38.5 million and included $12.1 million of variable lease costs and $3.4 million of costs related to short-term leases, which are not recorded on the consolidated balance sheets.

Total lease expense for the year ended December 31, 2019 was $35.6 million and included $11.1 million of variable lease costs and $2.6 million of costs related to short-term leases, which are not recorded on the consolidated balance sheets.

At December 31, 2020, the weighted average remaining lease term and weighted average discount rate for operating leases was 4.2 years and 4.8%, respectively. At December 31, 2019, the weighted average remaining lease term and weighted average discount rate for operating leases was 4.5 years and 5.0%, respectively.

Supplemental cash flows information related to leases was as follows:


	For the Year Ended December 31, 2020
Cash paid for amounts included in the measurement of lease liabilities included in operating cash flows:	$	24,136
Right-of-use assets obtained in exchange for new lease obligations		14,801

Maturities of lease liabilities as of December 31, 2020 were as follows:


	Operating Lease
	(in thousands)
2021	$	22,451
2022		16,798
2023		9,727
2024		7,215
2025		5,715
Thereafter		6,149

Total lease payments		68,055
Less imputed interest		(5,409	)

Total lease liabilities	$	62,646

J. DEBT

Convertible Senior Notes

On December 12, 2016, Teradyne completed a private offering of $460.0 million aggregate principal amount of 1.25% convertible senior unsecured notes (the “Notes”) due December 15, 2023 and received net proceeds, after issuance costs, of approximately $450.8 million, $33.0 million of which was used to pay the net cost of the convertible note hedge transactions and $50.1 million of which was used to repurchase 2.0 million shares of Teradyne’s common stock under its existing stock repurchase program from purchasers of the Notes in privately negotiated transactions effected through one of the initial purchasers or its affiliates conducted concurrently with the pricing of the Note offering. The Notes will mature on December 15, 2023, unless earlier repurchased or converted. The Notes bear interest 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 “measurement period”) in which the trading price (as defined in the Indenture) per $1,000 principal amount of Notes for each trading day of the measurement period was less than 98% of the product of the closing sale price of the Teradyne’s common stock and the conversion rate on each such trading day; and (3) upon the occurrence of specified corporate

events. On or after September 15, 2023 until the close of business on the second scheduled trading day immediately preceding the maturity date, holders may convert their Notes at any time, regardless of the foregoing circumstances. Teradyne may satisfy its conversion obligation by paying or delivering cash, shares of its common stock or a combination of cash and shares of its common stock, at Teradyne’s election. As of December 31, 2020, the conversion price was approximately $31.56 per share of Teradyne’s common stock. The conversion rate is subject to adjustment under certain circumstances. As of February 22, 2021, twenty-four holders had exercised the option to convert $51.0 million worth of notes.

Concurrent with the offering of the Notes, Teradyne entered into convertible note hedge transactions (the “Note Hedge Transactions”) with the initial purchasers or their affiliates (the “Option Counterparties”). The Note Hedge Transactions cover, subject to customary anti-dilution adjustments, the number of shares of the common stock that underlie the Notes, with a strike price equal to the conversion price of the Notes of $31.56. The Note Hedge Transactions cover, subject to customary anti-dilution adjustments, approximately 14.6 million shares of Teradyne’s common stock.

Separately and concurrent with the pricing of the Notes, Teradyne entered into warrant transactions with the Option Counterparties (the “Warrant Transactions”) in which it sold net-share-settled (or, at its election subject to certain conditions, cash-settled) warrants to the Option Counterparties. The Warrant Transactions cover, subject to customary anti-dilution adjustments, approximately 14.6 million shares of common stock. As of December 31, 2020, the strike price of the warrants was approximately $39.60 per share. The strike price is subject to adjustment under certain circumstances. The Warrant Transactions could have a dilutive effect to Teradyne’s common stock to the extent that the market price per share of Teradyne’s common stock, as measured under the terms of the Warrant Transactions, exceeds the applicable strike price of the warrants.

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

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

Teradyne considered the guidance of ASC 815-40,

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

and concluded that the convertible note hedge is both indexed to Teradyne’s stock and should be classified in stockholders’ equity in its statements of financial position. The convertible note hedge is considered indexed to Teradyne’s stock as the terms of the Note Hedge Transactions do not contain an exercise contingency and the settlement amount equals the difference between the fair value of a fixed number of Teradyne’s shares and a fixed strike price. Because the only variable that can affect the settlement amount is Teradyne’s stock price, which is an input to the fair value of a fixed-for-fixed option contract, the convertible note hedge is considered indexed to Teradyne’s stock.

Teradyne assessed whether the convertible note hedge should be classified as equity under ASC 815-40. In the Note Hedge Transactions contract the settlement terms permit net cash settlement or net share settlement, at the option of Teradyne. Therefore, the criteria as set forth in ASC 815-40 were evaluated by Teradyne. In reviewing the criteria, Teradyne noted the following: (1) the convertible note hedge does not require Teradyne to issue shares; (2) there is no requirement to net cash settle the convertible note hedge for failure to make timely filings with the SEC; (3) in the case of termination, the convertible note hedge is settled in the same consideration as the holders of the underlying stock; (4) the counterparty does not have rights that rank higher than those of a shareholder of the stock underlying the convertible note hedge; and (5) there is no requirement to post collateral. Based on its analysis of those criteria, Teradyne concluded that the convertible note hedge should be recorded in equity and no further adjustment should be made in future periods to adjust the value of the convertible note hedge.

Teradyne analyzed the Warrant Transactions under ASC 815-40,

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

and other relevant literature, and determined that it met the criteria for classification as an equity transaction and is considered indexed to Teradyne’s stock. As a result, Teradyne recorded the proceeds from the warrants as an increase to additional paid-in capital. Teradyne does not recognize subsequent changes in fair value of the warrants in its financial statements.

The provisions of ASC 470-20, “

Debt with Conversion and Other Options,

” are applicable to the Notes. ASC 470-20 requires Teradyne to separately account for the liability (debt) and equity (conversion feature) components of the Notes in a manner that reflects Teradyne’s nonconvertible debt borrowing rate at the date of issuance when interest cost is recognized in subsequent periods. Teradyne allocated $100.8 million of the $460.0 million principal amount of the Notes to the equity component, which represents a discount to the debt and will be amortized to interest expense using the effective interest method through December 2023. Accordingly, Teradyne’s effective annual interest rate on the Notes will be approximately 5.0%. The Notes are classified as long-term debt

the balance sheet based on their December 15, 2023 maturity date. Debt issuance costs of approximately $7.2 million are being amortized to interest expense using the effective interest method over the seven-year term of the Notes. As of December 31, 2020, debt issuance costs were approximately $3.3 million.

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


	December 31, 2020		December 31, 2019
	(in thousands)
Debt principal	$	459,971	$	460,000
Unamortized discount		49,860		65,313

Net carrying amount of convertible debt	$	410,111	$	394,687

Reported as follows:


	December 31, 2020		December 31, 2019
	(in thousands)
Current debt	$	33,343	$	—
Long-term debt		376,768		394,687

Net carrying amount of convertible debt	$	410,111	$	394,687


	For the year ended
	December 31, 2020		December 31, 2019
	(in thousands)
Contractual interest expense on the coupon	$	5,750	$	5,750
Amortization of the discount component and debt issue fees recognized as interest expense		15,454		14,706

Total interest expense on the convertible debt	$	21,204	$	20,456

As of December 31, 2020, the unamortized discount was $49.9 million, which will be amortized over three years using the effective interest rate method. The carrying amount of the equity component was $100.8 million. As of December 31, 2020, the conversion price was approximately $31.56 per share and if converted the value of the notes was $1,747.5 million.

As of December 31, 2020, certain holders have elected to convert approximately $37 million of debt principal. Conversions will occur in the first quarter of 2021. The related liability component is included in current debt and the portion of the equity component is included in convertible common shares.

Revolving Credit Facility

On June 27, 2019, Teradyne terminated its credit agreement, which Teradyne entered into with Barclays Bank PLC on April 27, 2015. The terminated credit agreement, which was undrawn at termination, provided for a five-year, senior secured revolving credit facility of up to $350 million.

May 1, 2020, Teradyne entered into a credit agreement (the “Credit Agreement”) with Truist Bank, as administrative agent and collateral agent, and the lenders party thereto. The Credit Agreement provides for a three-year, senior secured revolving credit facility of $400.0 million (the “Credit Facility”). The Credit Agreement further provides that, subject to customary conditions, Teradyne may seek to obtain from existing or new lenders incremental commitments under the Credit Facility in an aggregate principal amount not to exceed $150.0 million.

The interest rate applicable to loans under the Credit Facility are, at Teradyne’s option, equal to either a base rate plus a margin ranging from 0.50% to 1.25% per annum or LIBOR, a minimum of 0.75%, plus a margin ranging from 1.50% to 2.25% per annum, based on the consolidated leverage ratio of Teradyne. In addition, Teradyne will pay a commitment fee on the unused portion of the commitments under the Credit Facility ranging from 0.25% to 0.40% per annum, based on the then applicable consolidated leverage ratio.

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

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

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

As of December 31, 2020, Teradyne was in compliance with all covenants under the Credit Agreement.

K. ACCUMULATED OTHER COMPREHENSIVE (LOSS) INCOME

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


	Foreign Currency Translation Adjustment			Unrealized (Losses) Gains on Marketable Securities			Retirement Plans Prior Service Credit			Total
	(in thousands)
Balance at December 31, 2018, net of tax of $0, $(521), $(1,081)	$	(12,523	)	$	(1,845	)	$	1,328		$	(13,040	)

Other comprehensive (loss) income before reclassifications, net of tax of $0, $1,659, $0		(10,991	)		6,015			—			(4,976	)
Amounts reclassified from accumulated other comprehensive income, net of tax of $0, $(192), $(43)		—			(690	)		(148	)		(838	)

Net current period other comprehensive (loss) income, net of tax of $0, $1,467, $(43)		(10,991	)		5,325			(148	)		(5,814	)

Balance at December 31, 2019, net of tax of $0, $946, $(1,124)	$	(23,514	)	$	3,480		$	1,180		$	(18,854	)

Other comprehensive income before reclassifications, net of tax of $0, $1,629, $0		48,903			5,839			—			54,742
Amounts reclassified from accumulated other comprehensive income, net of tax of $0, $(665), $(2)		—			(2,365	)		(7	)		(2,372	)

Net current period other comprehensive income (loss), net of tax of $0, $964, $(2)		48,903			3,474			(7	)		52,370

Balance at December 31, 2020, net of tax of $0, $1,910, $(1,126)	$	25,389		$	6,954		$	1,173		$	33,516

Reclassifications out of accumulated other comprehensive income to the statements of operations for the years ended December 31, 2020, 2019, and 2018, were as follows:


Details about Accumulated Other Comprehensive Income Components	For the year ended							Affected Line Item in the Statements of Operations
	December 31, 2020		December 31, 2019		December 31, 2018
	(in thousands)
Available-for-sale marketable securities
Unrealized gains (losses), net of tax of $665, $192, $21	$	2,365	$	690	$	(1,337	)		Interest income (expense)
Defined benefit pension and postretirement plans:
Amortization of prior service benefit, net of tax of $2, $43, $71		7		148		245			(a)

Total reclassifications, net of tax of $667, $235, $92	$	2,372	$	838	$	(1,092	)		Net income

(a)	The amortization of prior service credit is included in the computation of net periodic pension cost and postretirement benefit; see Note P: “Retirement Plans.”

L. GOODWILL AND INTANGIBLE ASSETS

Goodwill

Teradyne performs its annual goodwill impairment test as required under the provisions of ASC 350-10, “

Intangibles—Goodwill and Other,

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

Teradyne has the option to perform a qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If Teradyne determines this is the case, Teradyne is required to perform a quantitative goodwill impairment test to identify potential goodwill impairment and measure the amount of goodwill impairment loss to be recognized. If Teradyne determines that it is more likely than not that the fair value of the reporting unit is greater than its carrying amounts, the quantitative goodwill impairment test is not required. In performing the quantitative goodwill impairment test, Teradyne determines the fair value of a reporting unit using the results derived from an income approach and a market approach, weighting the fair value determined under each approach to determine an estimated fair value for a reporting unit. The income approach is estimated through the discounted cash flows (“DCF”) analysis. Determining fair value requires the exercise of significant judgment, including judgments about appropriate discount rates, perpetual growth rates, and the amount and timing of expected future cash flows. Discount rates are based on a weighted average cost of capital (“WACC”), which represents the average rate a business must pay its providers of debt and equity, plus a risk premium. The WACC used to test goodwill is derived from a group of comparable companies. The cash flows employed in the DCF analysis are derived from internal forecasts and external market forecasts. The market approach estimates the fair value of the reporting unit by utilizing the market comparable method which is based on revenue and earnings multiples from comparable companies. If the estimated fair value of a reporting unit exceeds its carrying amount, goodwill of the reporting unit is not impaired. If the carrying amount of a reporting unit exceeds its estimated fair value, then the goodwill is written down by the amount that carrying value exceeds the fair value of the reporting unit, but not below zero.

On September 15, 2020, Teradyne announced the appointment of Gregory Smith as President of Teradyne’s Industrial Automation reportable segment effective October 1, 2020. With the appointment of Gregory Smith, the Industrial Automation reportable segment, which includes UR, MiR and AutoGuide, is considered one operating segment and one reporting unit. Teradyne performed a goodwill impairment test at the time of the change in operating segments, which indicated the fair value of Teradyne’s reporting units exceeded their carrying values. In the fourth quarter of 2020, Teradyne performed the annual goodwill impairment test, completing a qualitative assessment for the Wireless Test, System Test, and Industrial Automation reporting units. There was no impairment as a result of the annual test performed in the fourth quarter of 2020. Key assumptions in the goodwill valuation model are forecasted revenues, discount rate, earnings before interest and taxes, and revenue multiples from comparable companies. A change in any of these key assumptions could result in the reporting unit being impaired in a future period.

Based on Teradyne’s December 31, 2019 goodwill impairment test, the MiR reporting unit’s estimated fair value exceeded its carrying value by 14%. The MiR goodwill amount is $123.6 million as of December 31, 2019. Key assumptions in the goodwill valuation model are forecasted revenues, discount rate, earnings before interest and taxes, and revenue multiples from comparable companies. A change in any of these key assumptions could result in the reporting unit being impaired in a future period.

In the fourth quarter of 2018, Teradyne performed the annual goodwill impairment test. Teradyne completed step one of the two-step impairment test for the Universal Robots reporting unit. Teradyne completed step zero for the Wireless Test and Defense/Aerospace, MiR, and Energid reporting units. There was no impairment as a result of the annual test performed in the fourth quarter of 2018.

The changes in the carrying amount of goodwill by reportable segments for the years ended December 31, 2020 and 2019 are as follows:


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

		363,358			7,976			—			10,516			381,850
Lemsys acquisition		—			—			1,428			—			1,428
AutoGuide acquisition		41,372			—			—			—			41,372
Foreign currency translation adjustment		(8,247	)		—			28			—			(8,219	)

Balance at December 31, 2019:
Goodwill		396,483			361,819			261,996			158,699			1,178,997
Accumulated impairment losses		—			(353,843	)		(260,540	)		(148,183	)		(762,566	)

		396,483			7,976			1,456			10,516			416,431
AutoGuide acquisition		(149	)		—			—			—			(149	)
Foreign currency translation adjustment		37,418			—			159			—			37,577

Balance at December 31, 2020:
Goodwill		433,752			361,819			262,155			158,699			1,216,425
Accumulated impairment losses		—			(353,843	)		(260,540	)		(148,183	)		(762,566	)

	$	433,752		$	7,976		$	1,615		$	10,516		$	453,859

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.

There were no events or circumstances indicating that the carrying value of intangible and long-lived assets may not be recoverable in 2020, 2019 and 2018.

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


	December 31, 2020
	Gross Carrying Amount (1)		Accumulated Amortization (1)			Foreign Currency Translation Adjustment			Net Carrying Amount
	(in thousands)
Developed technology	$	272,547	$	(210,479	)	$	(1,610	)	$	60,458
Customer relationships		66,239		(54,524	)		305			12,020
Tradenames and trademarks		70,120		(42,344	)		685			28,461

Total intangible assets	$	408,906	$	(307,347	)	$	(620	)	$	100,939


	December 31, 2019
	Gross Carrying Amount		Accumulated Amortization			Foreign Currency Translation Adjustment			Net Carrying Amount
	(in thousands)
Developed technology	$	361,787	$	(279,000	)	$	(5,709	)	$	77,078
Customer relationships		75,669		(59,077	)		(455	)		16,137
Tradenames and trademarks		70,120		(36,671	)		(1,184	)		32,265
Backlog		260		(260	)		—			—

Total intangible assets	$	507,836	$	(375,008	)	$	(7,348	)	$	125,480

(1)	In 2020, $98.9 million of amortizable intangible assets became fully amortized and have been eliminated from the gross carrying amount and accumulated amortization.

Aggregate intangible assets amortization expense for the years ended December 31, 2020, 2019, and 2018, was $30.8 million, $40.1 million, and $39.2 million, respectively. Estimated intangible assets amortization expense for each of the five succeeding fiscal years is as follows:


Year	Amortization Expense
	(in thousands)
2021	$	21,893
2022		21,000
2023		20,504
2024		20,192
2025		11,922
Thereafter		5,428

M. COMMITMENTS AND CONTINGENCIES

Purchase Commitments

As of December 31, 2020, Teradyne had entered into non-cancelable purchase commitments for certain components and materials. The purchase commitments covered by the agreements aggregate to approximately $603.5 million, of which $592.1 million is for less than one year.

Legal Claims

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

Guarantees and Indemnification Obligations

Teradyne provides indemnification, to the extent permitted by law, to its officers, directors, employees and agents for liabilities arising from certain events or occurrences, while the officer, director, employee, or agent, is or was serving, at Teradyne’s request in such capacity. Teradyne 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 charter. As a matter of practice, Teradyne has maintained directors’ and officers’ liability insurance coverage including coverage for directors and officers of acquired companies.

Teradyne enters into agreements in the ordinary course of business with customers, resellers, distributors, integrators and suppliers. Most of these agreements require Teradyne to defend and/or indemnify the other party against intellectual property infringement claims brought by a third party with respect to Teradyne’s products. From time to time, Teradyne also indemnifies customers and business partners for damages, losses and liabilities they may suffer or incur relating to personal injury, personal property damage, product liability, breach of confidentiality obligations and environmental claims relating to the use of Teradyne’s products and services or resulting from the acts or omissions of Teradyne, its employees, authorized agents or subcontractors. On occasion, Teradyne has also provided guarantees to customers regarding the delivery and performance of its products in addition to the warranty described below.

As a matter of ordinary course of business, Teradyne warrants that its products will substantially perform in accordance with its standard published specifications in effect at the time of delivery. Most warranties have a one-year duration commencing from installation. A provision is recorded upon revenue recognition to cost of revenue for estimated warranty expense based upon historical experience. When Teradyne receives revenue for extended warranties beyond the standard duration, the revenue is deferred and recognized on a straight-line basis over the contract period. Related costs are expensed as incurred. As of December 31, 2020, and 2019, Teradyne had a product warranty accrual of $16.6 million and $9.0 million, respectively, included in other accrued liabilities, and revenue deferrals related to extended warranties of $51.9 million and $30.7 million, respectively, included in short and long-term deferred revenue and customer advances.

In addition, in the ordinary course of business, Teradyne provides minimum purchase guarantees to certain vendors to ensure continuity of supply against the market demand. Although some of these guarantees provide penalties for cancellations and/or modifications to the purchase commitments as the market demand decreases, most of the guarantees do not. Therefore, as the market demand decreases, Teradyne re-evaluates these guarantees and determines what charges, if any, should be recorded.

With respect to its agreements covering product, business or entity divestitures and acquisitions, Teradyne provides certain representations, warranties and covenants to purchasers and agrees to indemnify and hold such purchasers harmless against breaches of such representations, warranties and covenants. Many of the indemnification claims have a definite expiration date while some remain in force indefinitely. With respect to its acquisitions, Teradyne may, from time to time, assume the liability for certain events or occurrences that took place prior to the date of acquisition.

As a matter of ordinary course of business, Teradyne occasionally guarantees certain indebtedness obligations of its subsidiary companies, limited to the borrowings from financial institutions, purchase commitments to certain vendors, and lease commitments to landlords.

Based on historical experience and information known as of December 31, 2020, and 2019, except for product warranty, Teradyne has not recorded any liabilities for these guarantees and obligations because the amount would be immaterial.

N. NET INCOME PER COMMON SHARE

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


	2020		2019		2018
	(in thousands, except per share amounts)

Net income for basic and diluted net income per share	$	784,147	$	467,468	$	451,779

Weighted average common shares-basic		166,120		170,425		187,672
Effect of dilutive potential common shares:
Incremental shares from assumed conversion of convertible notes (1)		8,528		4,909		2,749
Convertible note hedge warrant shares (2)		6,989		2,698		485
Restricted stock units		1,264		1,236		1,385
Stock options		131		178		278
Employee stock purchase rights		10		13		36

Dilutive potential common shares		16,922		9,034		4,933

Weighted average common shares-diluted		183,042		179,459		192,605

Net income per common share-basic	$	4.72	$	2.74	$	2.41

Net income per common share-diluted	$	4.28	$	2.60	$	2.35

(1)	Incremental shares from the assumed conversion of the convertible notes was calculated using the difference between the average Teradyne stock price for the period and the conversion price of $31.56, multiplied by 14.6 million shares. The result of this calculation, representing the total intrinsic value of the convertible debt, was divided by the average Teradyne stock price for the period.

(2)	Convertible notes hedge warrant shares were calculated using the difference between the average Teradyne stock price for the period and the warrant price of $39.60, multiplied by 14.6 million shares. The result of this calculation, representing the total intrinsic value of the warrant, was divided by the average Teradyne stock price for the period.

The computation of diluted net income per common share for 2020 excludes the effect of the potential exercise of stock options to purchase approximately 0.1 million shares and restricted stock units to purchase approximately 0.1 million shares because the effect would have been anti-dilutive.

The computation of diluted net income per common share for 2018 excludes the effect of the potential exercise of restricted stock units to purchase approximately 0.5 million shares because the effect would have been anti-dilutive.

O. RESTRUCTURING AND OTHER

During the year ended December 31, 2020, Teradyne recorded a $19.7 million gain for the decrease in the fair value of the AutoGuide contingent consideration liability, and a $3.5 million gain for the decrease in the fair value of the MiR contingent consideration liability, partially offset by a $4.0 million contract termination settlement charge, $2.5 million of acquisition related compensation and expenses, $2.3 million of severance charges primarily in Industrial Automation, and $1.2 million of other expenses.

During the year ended December 31, 2019, Teradyne recorded a $22.2 million gain for the decrease in the fair value of the MiR contingent consideration liability, partially offset by a $3.0 million gain for the increase in the fair value of the AutoGuide contingent consideration, $2.9 million of severance charges related to headcount reductions primarily in Semiconductor Test and Industrial Automation, and $2.5 million for acquisition related expenses and compensation.

The remaining accrual for severance of $0.5 million is reflected in the accrued employees’ compensation and withholdings on the balance sheet and is expected to be paid by March 2021.

P. 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 of its plans.

Defined Benefit Pension Plans

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

In 2020, Teradyne’s projected benefit obligations increased primarily due to actuarial losses of approximately $27.6 million across all pension plans from decreases in discount rates, and approximately $4.0 million from unfavorable foreign exchange effects for the German plan, partially offset by a transfer of obligations for approximately 115 retiree participants to an insurance company which resulted in a $24.4 million reduction in the projected benefit obligations and pension assets. We also recorded a settlement loss of $0.5 million related to the retiree group annuity transaction. In 2019, Teradyne’s projected benefit obligations increased primarily due to actuarial losses of approximately $29.0 million across all pension plans from decreases in discount rates.

The December 31 balances of these defined benefit pension plans assets and obligations are shown below:


	2020						2019
	United States			Foreign			United States			Foreign
	(in thousands)
Assets and Obligations
Change in benefit obligation:
Projected benefit obligation:
Beginning of year	$	203,791		$	43,952		$	178,237		$	39,146
Service cost		1,773			907			1,608			751
Interest cost		5,770			516			7,189			691
Actuarial loss		24,671			2,951			24,447			4,520
Benefits paid		(9,844	)		(1,299	)		(7,690	)		(836	)
Retiree annuity purchase		(24,379	)		—			—			—
Liability loss due to settlement		451			—			—			—
Non-U.S. currency movement		—			3,961			—			(320	)

End of year		202,233			50,988			203,791			43,952

Change in plan assets:
Fair value of plan assets:
Beginning of year		166,932			1,586			144,301			1,400
Actual return on plan assets		23,048			67			27,516			64
Company contributions		3,098			1,079			2,805			923
Benefits paid		(9,844	)		(988	)		(7,690	)		(836	)
Retiree annuity purchase		(24,379	)		—			—			—
Non-U.S. currency movement		—			112			—			35

End of year		158,855			1,856			166,932			1,586

Funded status	$	(43,378	)	$	(49,132	)	$	(36,859	)	$	(42,366	)

The following table provides amounts recorded within the account line items of the statements of financial position as of December 31:


	2020						2019
	United States			Foreign			United States			Foreign
	(in thousands)
Retirement plans assets	$	17,468		$	—		$	18,457		$	—
Accrued employees’ compensation and withholdings		(3,273	)		(1,019	)		(2,826	)		(922	)
Retirement plans liabilities		(57,573	)		(48,113	)		(52,490	)		(41,444	)

Funded status	$	(43,378	)	$	(49,132	)	$	(36,859	)	$	(42,366	)

The following table provides amounts recognized in accumulated other comprehensive income as of December 31:


	2020				2019
	United States		Foreign		United States		Foreign
	(in thousands)
Deferred taxes related to prior service cost recognized in other comprehensive income	$	560	$	—	$	560	$	—

The accumulated benefit obligation for the United States defined benefit pension plans was $196.7 million and $198.2 million at December 31, 2020 and 2019, respectively. The accumulated benefit obligation for foreign defined benefit pension plans was $46.5 million and $39.9 million at December 31, 2020 and 2019, respectively.

Information for pension plans with an accumulated benefit obligation in excess of plan assets as of Decemb

r 31:


	2020				2019
	United States		Foreign		United States		Foreign
	(in millions)

Projected benefit obligation	$	60.8	$	51.0	$	55.3	$	44.0
Accumulated benefit obligation		58.5		46.5		53.2		39.9
Fair value of plan assets		—		1.9		—		1.6

Expense

For the years ended December 31, 2020, 2019, and 2018, Teradyne’s net periodic pension cost (income) was comprised of the following:


	2020						2019						2018
	United States			Foreign			United States			Foreign			United States			Foreign
	(in thousands)
Components of Net Periodic Pension Cost (Income):
Service cost	$	1,773		$	907		$	1,608		$	751		$	2,196		$	786
Interest cost		5,770			516			7,189			691			8,940			687
Expected return on plan assets		(4,840	)		(65	)		(6,042	)		(29	)		(9,049	)		(19	)
Amortization of prior service cost		—			—			—			—			58			—
Net actuarial loss (gain)		6,463			2,949			2,973			4,485			(4,429	)		743
Settlement loss		451			—			—			—			345			—

Total net periodic pension cost (income)	$	9,617		$	4,307		$	5,728		$	5,898		$	(1,939	)	$	2,197

Changes in Plan Assets and Benefit Obligations Recognized in Other Comprehensive Income:
Reversal of amortization items:
Prior service cost		—			—			—			—			(58	)		—

Total recognized in other comprehensive income		—			—			—			—			(58	)		—

Total recognized in net periodic pension cost (income) and other comprehensive income	$	9,617		$	4,307		$	5,728		$	5,898		$	(1,997	)	$	2,197

Weighted Average Assumptions to Determine Net Periodic Pension Cost at January 1:


	2020						2019						2018
	United States			Foreign			United States			Foreign			United States			Foreign
Discount rate		2.8	%		1.1	%		4.1	%		1.8	%		3.4	%		1.8	%
Expected return on plan assets		3.0			3.8			4.3			2.0			4.3			1.5
Salary progression rate		2.6			2.5			2.3			2.5			2.3			2.7

Weighted Average Assumptions to Determine Pension Obligations at December 31:


	2020						2019
	United States			Foreign			United States			Foreign
Discount rate		2.2	%		0.7	%		3.0	%		1.1	%
Salary progression rate		2.4			2.3			2.6			2.5

In developing the expected return on plan assets assumption, Teradyne evaluates input from its investment manager and pension consultants, including their forecast of asset class return expectations. Teradyne believes that 3.0% was an appropriate rate to use for fiscal 2020 for the U.S. Qualified Pension Plan (“U.S. Plan”).

The discount rate utilized to determine future pension obligations for the U.S. Plan is based on FTSE Pension Index adjusted for the plan’s expected cash flows and was 2.3% at December 31, 2020, down from 3.10% at December 31, 2019.

Plan Assets

As of December 31, 2020, the fair value of Teradyne’s pension plans’ assets totaled $160.7 million of which $158.9 million was related to the U.S. Plan and $1.9 million was related to the Taiwan defined benefit pension plan. Substantially all of Teradyne’s pension plans’ assets are held in individual trusts, which were established for the investment of assets of Teradyne’s sponsored retirement plans.

The following table provides weighted average pension asset allocation by asset category at December 31, 2020 and 2019:


	2020						2019
	United States			Foreign			United States			Foreign
Fixed income securities		94.0	%		—	%		94.0	%		—	%
Equity securities		5.0			—			5.0			—
Other		1.0			100.0			1.0			100.0

		100.0	%		100.0	%		100.0	%		100.0	%

The assets of the U.S. Plan are overseen by the Teradyne Fiduciary Committee which is comprised of members of senior management drawn from appropriate diversified levels of the management team. The Fiduciary Committee is responsible for setting the policy that provides the framework for management of the U.S. Plan assets. In accordance with its responsibilities, the Fiduciary Committee meets on a regular basis to review the performance of the U.S. Plan assets and compliance with the investment policy. The policy sets forth an investment structure for managing U.S. Plan assets, including setting the asset allocation ranges, which are expected to provide an appropriate level of overall diversification required to maximize the long-term return on plan assets for a prudent and reasonable level of risk given prevailing market conditions, total investment return over the long term, and preservation of capital, while maintaining sufficient liquidity to pay the benefits of the U.S. Plan. The investment portfolio will not, at any time, have a direct investment in Teradyne stock. It may have indirect investment in Teradyne stock, if one of the funds selected by the investment manager invests in Teradyne stock. In developing the asset allocation ranges, third party asset allocation studies are periodically performed that consider the current and expected positions of the plan assets and funded status. Based on this study and other appropriate information, the Fiduciary Committee establishes asset allocation ranges taking into account acceptable risk targets and associated returns. The investment return objectives are to avoid excessive volatility and produce a rate of return that at least matches the Policy Index identified below. The manager’s investment performance is reviewed at least annually. Results for the total portfolio and for each major category of assets are evaluated in comparison with appropriate market indices and the Policy Index.

The target asset allocation and the index for each asset category for the U.S. Plan, per the investment policy, are as follows:


Asset Category:	Policy Index:	Target Allocation
U.S. corporate fixed income	Bloomberg Barclays U.S. Corporate A or Better Index		75	%
Global equity	MSCI World Minimum Volatility Index		5
U.S. government fixed income	Bloomberg Barclays U.S. Long Government Bond Index		14
High yield fixed income	Bloomberg Barclays U.S. Corporate High Yield 2% Issuer Cap Index		5
Cash	Citigroup Three Month U.S. Treasury Bill Index		1

Teradyne’s U.S. Plan invests primarily in common trust funds. Units held in the common trust funds are valued at the unit price as reported by the investment manager based on the asset value of the underlying investments; underlying investments in equity securities are valued at the last reported sales price, and underlying investments in fixed-income securities are generally valued using methods based upon market transactions for comparable securities.

During the years ended December 31, 2020 and December 31, 2019, there were no transfers of pension assets in or out of Level 1, Level 2, and Level 3.

The fair value of pension plan assets by asset category and by level at December 31, 2020 and December 31, 2019 were as follows:


	December 31, 2020
	United States								Foreign
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
	(in thousands)
Fixed income securities:
Corporate debt securities	$	—	$	127,098	$	—	$	127,098	$	—	$	—	$	—	$	—
U.S. government securities		—		22,250		—		22,250		—		—		—		—
Global equity		—		7,925		—		7,925		—		—		—		—
Other		—		—		—		—		—		1,856		—		1,856
Cash and cash equivalents		1,582		—		—		1,582		—		—		—		—

Total	$	1,582	$	157,273	$	—	$	158,855	$	—	$	1,856	$	—	$	1,856


	December 31, 2019
	United States								Foreign
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
	(in thousands)
Fixed income securities:
Corporate debt securities	$	—	$	133,792	$	—	$	133,792	$	—	$	—	$	—	$	—
U.S. government securities		—		23,186		—		23,186		—		—		—		—
Global equity		—		8,344		—		8,344		—		—		—		—
Other		—		—		—		—		—		1,586		—		1,586
Cash and cash equivalents		1,610		—		—		1,610		—		—		—		—

Total	$	1,610	$	165,322	$	—	$	166,932	$	—	$	1,586	$	—	$	1,586

Contributions

Teradyne’s funding policy is to make contributions to the plans in accordance with local laws and to the extent that such contributions are tax deductible. During 2020, Teradyne contributed $3.1 million to the U.S.

supplemental executive defined benefit pension plan and $1.1 million to certain qualified plans for non-U.S. subsidiaries. During 2019, Teradyne contributed $2.8 million to the U.S. supplemental executive defined benefit pension plan and $0.9 million to certain qualified plans for non-U.S. subsidiaries. In 2021, contributions to the U.S. supplemental executive defined benefit pension plan and certain qualified plans from non-U.S. subsidiaries will be approximately $3.3 million and $1.1 million, respectively.

Expected Future Pension Benefit Payments

Future benefit payments are expected to be paid as follows:


	United States		Foreign
	(in thousands)
2021	$	8,902	$	1,058
2022		8,782		1,063
2023		9,189		1,313
2024		9,815		1,192
2025		10,374		1,140
2026-2030		54,145		7,053

Postretirement Benefit Plans

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

The December 31 balances of the postretirement assets and obligations are shown below:


	2020			2019
	(in thousands)
Assets and Obligations
Change in benefit obligation:
Projected benefit obligation:
Beginning of year	$	9,003		$	9,256
Service cost		57			41
Interest cost		240			347
Actuarial loss		421			717
Benefits paid		(1,205	)		(1,358	)
End of year		8,515			9,003
Change in plan assets:
Fair value of plan assets:
Beginning of year		—			—
Company contributions		1,205			1,358
Benefits paid		(1,205	)		(1,358	)
End of year		—			—
Funded status	$	(8,515	)	$	(9,003	)

The following table provides amounts recorded within the account line items of financial position as of December 31:


	2020			2019
	(in thousands)
Accrued employees’ compensation and withholdings	$	(1,161	)	$	(1,231	)
Retirement plans liability		(7,354	)		(7,772	)

Funded status	$	(8,515	)	$	(9,003	)

The following table provides amounts recognized in accumulated other comprehensive income as of December 31:


	2020			2019
	(in thousands)
Prior service credit, before tax	$	(49	)	$	(58	)
Deferred taxes		(1,686	)		(1,684	)

Total recognized in other comprehensive income, net of tax	$	(1,735	)	$	(1,742	)

Expense

For the years ended December 31, 2020, 2019, and 2018, Teradyne’s net periodic postretirement benefit cost (income) was comprised of the following:


	2020			2019			2018
	(in thousands)
Components of Net Periodic Postretirement Benefit Cost (income):
Service cost	$	57		$	41		$	39
Interest cost		240			347			196
Amortization of prior service credit		(9	)		(191	)		(373	)
Net actuarial loss		421			717			25
Special termination benefits		—			—			3,708

Total net periodic postretirement benefit cost		709			914			3,595

Changes in Plan Assets and Benefit Obligations Recognized in Other Comprehensive Income:
Reversal of amortization items:
Prior service credit		9			191			373

Total recognized in other comprehensive income		9			191			373

Total recognized in net periodic postretirement cost and other comprehensive income	$	718		$	1,105		$	3,968

Weighted Average Assumptions to Determine Net Periodic Postretirement Benefit Income as of January 1:


	2020			2019			2018
Discount rate		3.0	%		4.0	%		3.4	%
Initial health care cost trend rate		7.1			7.5			7.9
Ultimate health care cost trend rate		4.5			4.5			4.5
Year in which ultimate health care cost trend rate is reached		2026			2026			2026

Weighted Average Assumptions to Determine Postretirement Benefit Obligation as of December 31:


	2020			2019			2018
Discount rate		2.2	%		3.0	%		4.0	%
Initial medical trend		7.3			7.1			7.5
Ultimate health care trend		4.5			4.5			4.5
Medical cost trend rate decrease to ultimate rate in year		2029			2026			2026

Expected Future Benefit Payments

Future benefit payments are expected to be paid as follows:


	Benefit Payments
	(in thousands)
2021	$	1,161
2022		961
2023		786
2024		646
2025		533
2026-2030		1,601

Q. STOCK-BASED COMPENSATION

Stock Compensation Plans

On July 17, 2019 (the “Retirement Date”), former Chief Financial Officer Gregory Beecher retired as Vice President and Senior Advisor of Teradyne, and Teradyne entered into an agreement (the “Retirement Agreement”) with Mr. Beecher. Under the Retirement Agreement, Mr. Beecher’s unvested time-based restricted stock units and stock options granted prior to 2019 were modified to allow continued vesting; unvested time-based restricted stock units and stock options granted in 2019 were modified to allow continued vesting through January 31, 2023 (the “Non-Competition Period”) in a pro-rated amount based on the number of days that Mr. Beecher was employed during 2019; unvested, performance-based restricted stock units awarded in 2019 will vest on the date the amount of shares underlying the performance-based restricted stock units are determined in a pro-rated amount of shares based on the number of days that Mr. Beecher was employed during 2019; vested options or options that vest during the Non-Competition Period may be exercised for the remainder of the applicable option term. During 2019, Teradyne recorded a stock-based compensation expense of $2.1 million related to the Retirement Agreement.

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

Time-based restricted stock unit awards granted to employees vest in equal annual installments over four years. Restricted stock unit awards granted to 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 time-based vesting, which is determined to be the fair market value of the shares at the date of grant, ratably over the period during which the restrictions lapse.

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 200% to 0% of the target shares

capped at four times the grant date value for grants prior to 2019. The TSR PRSUs will vest upon the three-year anniversary of the grant date. The TSR PRSUs are valued using a Monte Carlo simulation model. The number of units expected to be earned, based upon the achievement of the TSR market condition, is factored into the grant date Monte Carlo valuation. Compensation expense is recognized on a straight-line basis over the shorter of the three-year service period or the period from the grant to the date described in the retirement provisions below. Compensation expense for 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 employees meeting the retirement provisions prior to the grant date will be recognized in full on the date of grant. Compensation expense is recognized based on the number of units that are earned based upon the three-year Teradyne PBIT as a percent of Teradyne’s revenue, provided the executive officer remains an employee at the end of the three-year period subject to the retirement and termination eligibility provisions noted below.

If a PRSU recipient’s employment ends prior to the determination of the performance percentage due to (1) permanent disability or death or (2) retirement or termination other than for cause, after attaining both at least age sixty and at least

ten years of service, then all or a portion of the recipient’s PRSUs (based on the actual performance percentage achieved on the determination date) will vest on the date the performance percentage is determined. Except as set forth in the preceding sentence, no PRSUs will vest if the executive officer is no longer an employee at the end of the three-year period.

Stock options to purchase Teradyne’s common stock at 100% of the fair market value on the grant date vest in equal annual installments over four years from the grant date and have a maximum term of seven years.

During 2020, 2019 and 2018, Teradyne granted 0.4 million, 0.8 million and 0.6 million of service-based restricted stock unit awards to employees at a weighted average grant date fair value of $71.31, $37.65, and $45.92, respectively.

During 2020, 2019 and 2018, Teradyne granted 0.1 million of service-based restricted stock unit awards to non-employee directors at a weighted average grant date fair value of $66.56, $48.03, and $35.81, respectively.

During 2020, 2019 and 2018, Teradyne granted 0.1 million TSR PRSUs, with a grant date fair value of $89.93, $51.51, and $54.85, respectively. The fair value was estimated using the Monte Carlo simulation model with the following assumptions:


	2020			2019			2018
Risk-free interest rate		1.5	%		2.6	%		2.2	%
Teradyne volatility-historical		34.9	%		31.9	%		26.8	%
NYSE Composite Index volatility-historical		11.4	%		11.9	%		12.4	%
Dividend yield		0.6	%		1.0	%		0.8	%

Expected volatility was based on the historical volatility of Teradyne’s stock and the NYSE Composite Index for each of the 2020, 2019 and 2018 grants over the most recent three-year period. The risk-free interest rate was determined using the U.S. Treasury yield curve in effect at the time of each of the grants. Dividend yield was based upon an estimated annual dividend amount of $0.40 per share for 2020 and $0.36 per share for 2019 and 2018, divided by Teradyne’s stock price on the grant date of $72.10 for the 2020 grants, $37.95 for the 2019 grants and $47.70 for the 2018 grants.

During 2020, 2019 and 2018, Teradyne granted 0.1 million of PBIT PRSUs with a grant date fair value of $70.94, $36.88 and $46.62, respectively.

During 2020, 2019 and 2018, Teradyne granted 0.1 million of service-based stock options to executive officers at a weighted average grant date fair value of $20.93, $10.64, and $12.17, respectively.

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


	2020			2019			2018
Expected life (years)		5.0			5.0			5.0
Risk-free interest rate		1.5	%		2.5	%		2.4	%
Volatility-historical		32.0	%		30.1	%		26.4	%
Dividend yield		0.5	%		1.0	%		0.8	%

Teradyne determined the stock options’ expected life based upon historical exercise data for executive officers, the age of the executive officers and the terms of the stock option grant. 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 $0.40 per share divided by Teradyne’s stock price on the grant date of $72.61 for the 2020 grants, $37.95 for the 2019 grants and $47.70 for the 2018 grants.

Stock compensation plan activity for the years 2020, 2019, and 2018, is as follows:


	2020			2019			2018
	(in thousands)
Restricted Stock Units:
Non-vested at January 1		2,269			2,454			3,174
Awarded		616			1,139			790
Vested		(1,028	)		(1,237	)		(1,382	)
Forfeited		(68	)		(87	)		(128	)

Non-vested at December 31		1,789			2,269			2,454

Stock Options:
Outstanding at January 1		319			506			531
Granted		56			102			69
Exercised		(159	)		(280	)		(94	)
Forfeited		—			(7	)		—
Expired		—			(2	)		—

Outstanding at December 31		216			319			506

Vested and expected to vest at December 31		216			319			506

Exercisable at December 31		27			85			256

Total shares available for the years 2020, 2019, and 2018:


	2020			2019			2018
	(in thousands)
Shares available:
Available for grant at January 1		6,727			7,874			8,605
Options granted		(56	)		(102	)		(69	)
Options forfeited		—			7
Restricted stock units awarded		(616	)		(1,139	)		(790	)
Restricted stock units forfeited		68			87			128

Available for grant at December 31		6,123			6,727			7,874

Weighted average restricted stock unit award date fair value information for the years 2020, 2019, and 2018, is as follows:


	2020		2019		2018
Non-vested at January 1	$	35.58	$	29.22	$	21.71
Awarded		72.76		39.08		45.99
Vested		31.53		23.59		20.20
Forfeited		45.36		35.60		24.67
Non-vested at December 31	$	47.84	$	35.58	$	29.22

Restricted stock unit awards aggregate intrinsic value information at December 31 for the years 2020, 2019, and 2018 is as follows:


	2020		2019		2018
	(in thousands)
Vested	$	71,582	$	46,110	$	63,688
Outstanding		214,509		154,752		77,015
Expected to vest		210,301		152,374		77,187

Restricted stock units weighted average remaining contractual terms (in years) information at December 31 for the years 2020, 2019, and 2018 is as follows:


	2020		2019		2018
Outstanding		0.96		1.02		0.92
Expected to vest		0.96		1.02		0.91

Weighted average stock options exercise price information for the year ended December 31, 2020 is as follows:


	2020
Outstanding at January 1	$	29.91
Options granted		72.61
Options exercised		23.77
Options forfeited		—
Options cancelled		—
Outstanding at December 31		45.59
Exercisable at December 31		23.51

The total cash received from employees as a result of employee stock options exercises during the years ended December 31, 2020, 2019, and 2018, was $3.8 million, $3.7 million, and $1.0 million, respectively. In connection with these exercises, the tax benefit realized by Teradyne for the years ended December 31, 2020, 2019, and 2018, was $1.5 million, $2.0 million, and $0.4 million, respectively.

Stock option aggregate intrinsic value information for the years ended December 31, 2020, 2019, and 2018 is as follows:


	2020		2019		2018
	(in thousands)
Exercised	$	9,682	$	9,232	$	2,960
Outstanding		16,083		12,218		7,359
Vested and expected to vest		13,499		7,701		7,359
Exercisable		2,584		4,517		5,905

Stock options weighted average remaining contractual terms (in years) information at December 31, for the years 2020, 2019, and 2018 is as follows:


	2020		2019		2018
Outstanding		4.6		4.2		3.6
Vested and expected to vest		4.9		5.0		3.6
Exercisable		2.5		2.1		2.4

As of December 31, 2020, total unrecognized expense related to non-vested restricted stock unit awards and stock options was $44 million and is expected to be recognized over a weighted average period of 2.4 years.

Employee Stock Purchase Plan

Under the ESPP, eligible employees may purchase shares of common stock through regular payroll deductions of up to 10% of their compensation, to a maximum of shares with a fair market value of $25,000 per calendar year, not to exceed 6,000 shares. Under the plan, the price paid for the common stock is equal to 85% of the stock price on the last business day of the six-month purchase period.

In July 2020, 0.2 million shares of common stock were issued to employees who participated in the plan during the first half of 2020 at the price of $71.83 per share. In January 2021, Teradyne issued 0.1 million shares of common stock to employees who participated in the plan during the second half of 2020 at the price of $101.91 per share.

In July 2019, 0.3 million shares of common stock were issued to employees who participated in the plan during the first half of 2019 at the price of $40.72 per share. In January 2020, Teradyne issued 0.2 million shares of common stock to employees who participated in the plan during the second half of 2019 at the price of $57.96 per share.

In July 2018, 0.3 million shares of common stock were issued to employees who participated in the plan during the first half of 2018 at the price of $32.36 per share. In January 2019, Teradyne issued 0.4 million shares of common stock to employees who participated in the plan during the second half of 2018 at the price of $26.67 per share.

As of December 31, 2020, there were 1.4 million shares available for grant under the ESPP.

The following table provides the effect to income from operations for recording stock-based compensation for the years ended December 31, 2020, 2019, and 2018:


	2020			2019			2018
	(in thousands)
Cost of revenues	$	4,227		$	3,480		$	3,129
Engineering and development		12,039			9,913			9,181
Selling and administrative		28,640			24,504			21,267

Stock-based compensation		44,906			37,897			33,577
Income tax benefit		(13,060	)		(8,360	)		(12,036	)

Total stock-based compensation expense after income taxes	$	31,846		$	29,537		$	21,541

R. SAVINGS PLAN

Teradyne sponsors a defined contribution employee retirement savings plan (“Savings Plan”) covering substantially all U.S. employees. Under the Savings Plan, employees may contribute up to 20% of their compensation (subject to Internal Revenue Service limitations). The Savings Plan provides for a discretionary employer match that is determined each year. In 2020, 2019 and 2018, Teradyne matched 100% of eligible employee contributions up to 4% of their compensation for employees not accruing benefits in the U.S. Qualified Pension Plan. There was no match for employees still actively accruing benefits in the U.S. Qualified Pension Plan. Teradyne’s contributions vest 25% per year for the first four years of employment, and contributions for those employees with

four years of service vest immediately.

In addition, Teradyne sponsors an unfunded U.S. Supplemental Savings Plan to provide savings benefits in excess of those allowed by the Employee Retirement Income Security Act of 1974 and the Internal Revenue Code. The provisions of this plan are the same as the Savings Plan. The liability for the U.S. Supplemental Savings Plan at December 31, 2020 and 2019, was $38.0 million and $32.7 million, respectively, and is included in retirement plan liabilities. Teradyne contributes to defined contributions savings plans for its foreign employees. Under Teradyne’s savings plans, amounts charged to the statements of operations for the years ended December 31, 2020, 2019, and 2018 were $21.7 million, $20.9 million, and $19.4 million, respectively.

S. INCOME TAXES

The components of income (loss) before income taxes and the provision (benefit) for income taxes as shown in the consolidated statements of operations were as follows:


	2020			2019			2018
	(in thousands)
Income before income taxes:
U.S.	$	312,153		$	192,442		$	189,691
Non-U.S.		588,862			333,330			278,110

	$	901,015		$	525,772		$	467,801

Provision (benefit) for income taxes:
Current:
U.S. Federal	$	58,678		$	19,297		$	(59,122	)
Non-U.S.		75,193			52,810			45,083
State		(1,315	)		(4,347	)		1,721

		132,556			67,760			(12,318	)

Deferred:
U.S. Federal		(12,604	)		(4,522	)		29,252
Non-U.S.		(5,127	)		(8,007	)		(1,243	)
State		2,043			3,073			331

		(15,688	)		(9,456	)		28,340

Total provision for income taxes:	$	116,868		$	58,304		$	16,022

Income tax expense for 2020, 2019 and 2018 totaled $116.9 million, $58.3 million, and $16.0 million, respectively. The effective tax rate for 2020, 2019 and 2018 was 13.0%, 11.1% and 3.4%, respectively.

On December 22, 2017, the U.S. enacted the Tax Cuts and Jobs Act of 2017 (the “Tax Reform Act”), making significant changes to the Internal Revenue Code. The Tax Reform Act has significant direct and indirect implications for accounting for income taxes under ASC 740, “Accounting for Income Taxes” some of which could not be calculated with precision until further clarification and guidance was made available from tax authorities, regulatory bodies or the FASB. In light of this uncertainty, on December 22, 2017 the SEC issued

Staff Accounting Bulletin (“SAB”) No. 118, “Income Tax Accounting Implications of the Tax Cuts and Jobs Act,” to address uncertainty in the application of U.S. GAAP when the registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the Tax Reform Act. In accordance with SAB 118, Teradyne recorded $186.0 million of additional income tax expense in the fourth quarter of 2017 which represented Teradyne’s best estimate of the impact of the Tax Reform Act in accordance with Teradyne’s understanding of the Tax Reform Act and available guidance as of that date. The $186.0 million was primarily composed of expense of $161.0 million related to the one-time transition tax on the mandatory deemed repatriation of foreign earnings, $33.6 million of expense related to the remeasurement of certain deferred tax assets and liabilities based on the rates at which they are expected to reverse in the future, and a benefit of $10.3 million associated with the impact of correlative adjustments on uncertain tax positions. In accordance with the requirements of SAB 118, in the fourth quarter of 2018, Teradyne completed its analysis of the effect of the Tax Reform Act based on the application of the most recently available guidance as of December 31, 2018 and recorded $49.5

million of net income tax benefit. The net benefit consisted of $51.7 million of benefit resulting from a reduction in the estimate of the one-time transition tax on the mandatory deemed repatriation of foreign earnings and an expense of $2.2 million associated with the impact of correlative adjustments on uncertain tax positions.

Teradyne has made an accounting policy election to account for global intangible low-taxed income (“GILTI”) as a component of tax expense in the period in which Teradyne is subject to the rules and therefore did not provide any deferred tax impacts of GILTI in its consolidated financial statements.

The increase in the effective tax rate from 2019 to 2020 is primarily attributable to a reduction in the benefit from releases of reserves for uncertain tax positions and a reduction in the benefit from foreign tax credits. These increases in expense were partially offset by a decrease in the transition tax on the mandatory deemed repatriation of foreign earnings and shift in the geographic distribution of income, which increases the income subject to taxation in lower tax rate jurisdictions relative to higher tax rate jurisdictions.

On July 27, 2015, in Altera Corp. (“Altera”) v. Commissioner, the U.S. Tax Court issued an opinion invalidating the regulations relating to the treatment of stock-based compensation expense in an intercompany cost-sharing arrangement. A final decision was issued by the Tax Court in December 2015. The IRS appealed the decision in June 2016. On July 24, 2018, the U.S. Court of Appeals for the Ninth Circuit (“Ninth Circuit”) issued a decision that was subsequently withdrawn and a reconstituted panel conferred on the appeal. On June 7, 2019, the Ninth Circuit upheld the cost-sharing regulations. On November 12, 2019 the Ninth Circuit denied Altera’s petition for rehearing of its case. Altera’s application for certiorari to the Supreme Court was declined on June 22, 2020. In the fourth quarter of 2019 and 2020, Teradyne recognized tax expense of approximately $6.3 million and $2.3 million, respectively, related to the inclusion of stock-based compensation in its intercompany cost-sharing arrangement.

The increase in the effective tax rate from 2018 to 2019 is primarily attributable to increases in expense associated with GILTI and the transition tax on the mandatory deemed repatriation of foreign earnings. These increases in expense were partially offset by increased benefit from the U.S. foreign derived intangible income deduction, foreign tax credits and a net reduction of reserves for uncertain tax positions.

A reconciliation of the effective tax rate for the years 2020, 2019 and 2018 is as follows:


	2020			2019			2018
U.S. statutory federal tax rate		21.0	%		21.0	%		21.0	%
U.S. global intangible low-taxed income		5.7			6.2			0.3
State income taxes, net of federal tax benefit		0.3			0.5			0.1
Foreign taxes		(5.6	)		(4.0	)		(2.0	)
Foreign tax credits		(4.8	)		(5.9	)		(2.2	)
U.S. foreign derived intangible income		(2.2	)		(2.6	)		(1.8	)
U.S. research and development credit		(1.3	)		(1.8	)		(2.2	)
Equity compensation		(0.6	)		(0.7	)		(1.2	)
Uncertain tax positions		(0.1	)		(4.3	)		1.0
U.S. transition tax		—			1.9			(10.5	)
Impact of rate change on deferred taxes		—			—			0.3
Other, net		0.6			0.8			0.6

		13.0	%		11.1	%		3.4	%

Teradyne qualifies for a tax holiday in Singapore by fulfilling the requirements of an agreement with the Singapore Economic Development Board under which certain headcount and spending requirements must be met. The tax savings attributable to the Singapore tax holiday for the years ended December 31, 2020, 2019 and 2018 were $29.9 million or $0.16 per diluted share, $15.1 million or $0.08 per diluted share and $11.9 million or $0.06 per diluted share, respectively. In November 2020, Teradyne entered into an agreement with the Singapore Economic Development Board which extended our Singapore tax holiday under substantially similar terms to the agreement which expired on December 31, 2020. The new tax holiday is scheduled to expire on December 31, 2025.

Significant components of Teradyne’s deferred tax assets (liabilities) as of December 31, 2020 and 2019 were as follows:


	2020			2019
	(in thousands)
Deferred tax assets:
Tax credits	$	87,595		$	79,480
Accruals		33,156			25,424
Pension liabilities		28,348			24,459
Inventory valuations		18,427			18,572
Lease liability		12,627			13,093
Deferred revenue		9,235			7,622
Equity compensation		6,543			7,042
Vacation accrual		5,890			4,768
Investment impairment		3,292			3,292
Net operating loss carryforwards		1,823			2,705
Other		626			187

Gross deferred tax assets		207,562			186,644
Less: valuation allowance		(84,962	)		(77,177	)

Total deferred tax assets	$	122,600		$	109,467

Deferred tax liabilities:
Depreciation	$	(14,525	)	$	(18,238	)
Intangible assets		(12,726	)		(16,705	)
Right of use assets		(10,688	)		(11,197	)
Contingent consideration		(3,515	)		—
Marketable securities		(3,344	)		(1,601	)
Other		(710	)		(611	)

Total deferred tax liabilities	$	(45,508	)	$	(48,352	)

Net deferred assets	$	77,092		$	61,115

As of December 31, 2020 and 2019, Teradyne evaluated the likelihood that it would realize deferred income taxes to offset future taxable income and concluded that it is more likely than not that a substantial majority of its deferred tax assets will be realized through consideration of both the positive and negative evidence. At December 31, 2020 and 2019, Teradyne maintained a valuation allowance for certain deferred tax assets of $85.0 million and $77.2 million, respectively, primarily related to state net operating losses and state tax credit carryforwards, due to the uncertainty regarding their realization. Adjustments could be required in the future if Teradyne estimates that the amount of deferred tax assets to be realized is more or less than the net amount recorded.

At December 31, 2020, Teradyne had operating loss carryforwards that expire in the following years:


	State Operating Loss Carryforwards		Foreign Operating Loss Carryforwards
	(in thousands)
2021	$	333	$	—
2022		2,203		—
2023		3,368		—
2024		812		—
2025		191		—
2026-2030		7,452		—
2031-2035		2,147		68
Beyond 2035		73		—
Non-expiring		870		3,923

Total	$	17,449	$	3,991

Teradyne has approximately $116.3 million of tax credit carryforwards including federal business tax credits of approximately $1.9 million which expire in 2028 through 2030, and state tax credits of $114.3 million, of which $63.8 million do not expire and the remainder expires in the years 2021 through 2040.

Teradyne’s gross unrecognized tax benefits for the years ended December 31, 2020, 2019 and 2018 were as follows:


	2020			2019			2018
	(in thousands)
Beginning balance as of January 1	$	21,180		$	43,395		$	36,263
Additions:
Tax positions for current year		1,082			1,322			4,716
Tax positions for prior years		66			8,043			2,626
Reductions:
Tax positions for prior years		(2,989	)		(31,397	)		(153	)
Expiration of statutes		(1,436	)		(183	)		(57	)

Ending balance as of December 31	$	17,903		$	21,180		$	43,395

Current year additions relate to federal and state research credits. Prior year additions primarily relate to stock-based compensation. Prior year reductions are primarily composed of federal and state reserves related to transfer pricing and research credits and resulted from the completion of the 2015 U.S. federal audit in the first quarter of 2019.

Of the $17.9 million of unrecognized tax benefits as of December 31, 2020, $12.0 million would impact the consolidated income tax rate if ultimately recognized. The remaining $5.9 million would impact deferred taxes if recognized.

As of December 31, 2020, Teradyne estimates that it is reasonably possible that the balance of unrecognized tax benefits may decrease approximately $1.6 million in the next twelve months as a result of a lapse of statutes of limitation. The estimated decrease relates to loss carryforwards, research credits and U.S. manufacturing activities deductions.

Teradyne records all interest and penalties related to income taxes as a component of income tax expense. Accrued interest and penalties related to income tax items at December 31, 2020 and 2019 amounted to $1.2

million and $1.4 million, respectively. For the years ended December 31, 2020, 2019 and 2018, benefit of $0.2 million, expense of $1.1 million and benefit of $0.1 million, respectively, was recorded for interest and penalties related to income tax items.

Teradyne is subject to U.S. federal income tax, as well as income tax in multiple state, local and foreign jurisdictions. As of December 31, 2020, all material state and local income tax matters have been concluded through 2015, all material federal income tax matters have been concluded through 2016 and all material foreign income tax matters have been concluded through 2012. However, in some jurisdictions, including the United States, operating losses and tax credits may be subject to adjustment until such time as they are utilized and the year of utilization is closed to adjustment.

As of December 31, 2020, Teradyne is not permanently reinvested with respect to the unremitted earnings of non-U.S. subsidiaries to the extent that those earnings exceed local statutory and operational requirements. Remittance of those earnings is not expected to result in material income tax.

T. OPERATING SEGMENT, GEOGRAPHIC AND SIGNIFICANT CUSTOMER INFORMATION

Teradyne has four reportable segments (Semiconductor Test, System Test, Wireless Test and Industrial Automation). Each of the reportable segment represents an individual operating segment. On September 15, 2020, Teradyne announced the appointment of Gregory Smith as President of Teradyne’s Industrial Automation reportable segment effective October 1, 2020. With the appointment of Gregory Smith, the Industrial Automation reportable segment is considered one operating segment and one reporting unit. The Semiconductor Test segment includes operations related to the design, manufacturing and marketing of semiconductor test products and services. The System Test segment includes operations related to the design, manufacturing and marketing of products and services for storage and system level test, defense/aerospace instrumentation test, and circuit-board test. The Wireless Test segment includes operations related to the design, manufacturing and marketing of wireless test products and services. The Industrial Automation segment includes operations related to the design, manufacturing and marketing of collaborative robotic arms, autonomous mobile robots and advanced robotic control software.

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

Segment information for the years ended December 31, 2020, 2019, and 2018 is as follows:


	Semiconductor Test		System Test		Industrial Automation			Wireless Test		Corporate and Other			Consolidated
	(in thousands)
2020
Revenues	$	2,259,597	$	409,729	$	279,731		$	173,016	$	(604	)	$	3,121,469
Income (loss) before taxes (1)(2)		739,695		152,092		(24,019	)		41,950		(8,703	)		901,015
Total assets (3)		1,070,378		138,295		712,936			106,273		1,624,464			3,652,346
Property additions		168,055		3,092		8,899			4,931		—			184,977
Depreciation and amortization expense		64,998		3,426		36,242			6,258		15,819			126,743
2019
Revenues	$	1,552,571	$	287,455	$	298,139		$	157,315	$	(515	)	$	2,294,965
Income (loss) before taxes (1)(2)		416,973		93,543		(5,916	)		35,585		(14,413	)		525,772
Total assets (3)		784,808		131,428		671,559			97,299		1,101,920			2,787,014
Property additions		112,145		3,059		9,076			10,362		—			134,642
Depreciation and amortization expense		59,197		5,518		40,904			5,365		9,671			120,655
2018
Revenues	$	1,492,417	$	216,132	$	261,452		$	132,006	$	(1,205	)	$	2,100,802
Income (loss) before taxes (1)(2)		397,645		48,857		7,670			29,052		(15,423	)		467,801
Total assets (3)		669,452		88,098		607,502			77,570		1,263,984			2,706,606
Property additions		94,496		3,469		11,188			5,226		—			114,379
Depreciation and amortization expense		58,095		6,430		36,755			5,328		6,616			113,224

(1)	Included in Corporate and Other are: contingent consideration adjustments, investment impairment, pension and postretirement plans actuarial gains (losses), severance charges, interest income, interest expense, net foreign exchange gains (losses), intercompany eliminations and acquisition related charges.

(2)	Included in income (loss) before taxes are charges and credits related to restructuring and other, and inventory charges.

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

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

	For the Year Ended December 31,
	2020			2019			2018
	(in thousands)
Semiconductor Test:
Cost of revenues—inventory charge	$	11,013		$	8,731		$	6,822
Contract termination settlement fee		4,000			—			—
Restructuring and other—employee severance		—			1,277			8,429
System Test:
Cost of revenues—inventory charge	$	887		$	2,000		$	1,175
Industrial Automation:
Restructuring and other—acquisition related expenses and compensation	$	985		$	741		$	1,163
Cost of revenues—inventory charge		834			508			680
Restructuring and other—employee severance		1,584			796			—
Wireless:
Cost of revenues—inventory charge	$	4,800		$	4,005		$	2,565
Corporate and Other:
Restructuring and other—AutoGuide contingent consideration adjustment	$	(19,724	)	$	2,976		$	—
Restructuring and other—MiR contingent consideration adjustment		(3,546	)		(22,199	)		17,666
Restructuring and other—acquisition related expenses and compensation		1,728			1,765			3,422
Other (income) expense, net—investment impairment charge		—			15,000			—
Selling and administrative—equity modification charge		766			2,108			—
Restructuring and other—Universal Robots contingent consideration adjustment		—			—			(16,679	)

Information as to Teradyne’s revenues by country is as follows:


	2020		2019		2018
	(in thousands)
Revenues from customers (1):
Taiwan	$	1,178,068	$	485,681	$	516,322
China		465,722		514,327		348,942
Korea		391,571		239,504		163,224
United States		321,674		333,059		282,869
Europe		205,587		219,015		223,207
Japan		143,983		175,322		158,281
Thailand		138,787		87,503		59,184
Singapore		76,460		84,111		108,618
Philippines		68,887		54,560		77,996
Malaysia		56,096		58,200		122,797
Rest of the World		74,634		43,683		39,362

	$	3,121,469	$	2,294,965	$	2,100,802

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

In 2020, revenues from Taiwan Semiconductor Manufacturing Company Ltd., a customer of Teradyne’s Semiconductor Test segment, accounted for 15% of Teradyne’s consolidated revenues. In 2019 and 2018, no single direct customer accounted for more than 10% of Teradyne’s consolidated revenues. Teradyne estimates consolidated revenues driven by one OEM customer, combining direct sales to that customer with sales to the customer’s OSATs (which include Taiwan Semiconductor Manufacturing Company Ltd.), accounted for

approximately 25%, 10% and 13% of its consolidated revenues in 2020, 2019 and 2018, respectively. Teradyne

estimates consolidated revenues driven by Huawei Technologies Co., Ltd. (“Huawei”), combining direct sales to that customer with sales to the customer’s OSATs, accounted for approximately 3% and 11% of its consolidated revenues in 2020 and 2019, respectively.

Long-lived assets by geographic area:


	United States		Foreign(1)		Total
	(in thousands)
December 31, 2020	$	291,234	$	158,135	$	449,369
December 31, 2019	$	252,812	$	124,943	$	377,755

(1)	As of December 31, 2020 and 2019, long-lived assets attributable to Singapore were $62.5 million and $35.2 million, respectively.

U. STOCK REPURCHASE PROGRAM

In 2018, Teradyne repurchased 21.6 million shares of common stock for $823.5 million at an average price per share of $38.06.

In 2019, Teradyne repurchased 10.9 million shares of common stock for $500.0 million at an average price per share of $45.89. The cumulative repurchases as of December 31, 2019, for the 2018 stock repurchase program, totaled 32.5 million shares of common stock for $1,323.0 million at an average price per share of $40.68.

In January 2020, Teradyne’s Board of Directors cancelled the January 2018 repurchase program and approved a new stock repurchase program for up to $1.0 billion of common stock. On April 1, 2020, Teradyne suspended its share repurchase program. In 2020, Teradyne repurchased 1.5 million shares of common stock for $88.5 million at an average price of $58.33 per share.

In January 2021, Teradyne’s Board of Directors cancelled the January 2020 repurchase program and approved a new repurchase program for up to $2.0 billion of common stock. Teradyne intends to repurchase a minimum of $600 million in 2021.

V. SUBSEQUENT EVENTS

In January 2021, Teradyne’s Board of Directors declared a quarterly cash dividend of $0.10 per share to be paid on March 19, 2021 to shareholders of record as of

February 19, 2021.

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

SUPPLEMENTARY INFORMATION

(Unaudited)

The following sets forth certain unaudited consolidated quarterly statements of operations data for each of Teradyne’s last eight quarters. In management’s opinion, this quarterly information reflects all adjustments, consisting only of normal recurring adjustments, necessary for a fair statement for the periods presented. Such quarterly results are not necessarily indicative of future results of operations and should be read in conjunction with the audited consolidated financial statements of Teradyne and the notes thereto included elsewhere herein.


	2020
	1st Quarter			2nd Quarter			3rd Quarter			4th Quarter
	(1)			(2)(5)			(3)(5)			(4)(5)
	(in thousands, except per share amounts)
Revenues:
Products	$	610,906		$	734,630		$	697,745		$	647,625
Services		93,449			104,031			121,739			111,343

Total revenues		704,355			838,661			819,484			758,968
Cost of revenues:
Cost of products		259,996			322,732			300,174			274,574
Cost of services		38,809			44,456			60,382			34,605

Total cost of revenues (exclusive of acquired intangible assets amortization shown separately below)		298,805			367,188			360,556			309,179

Gross profit		405,550			471,473			458,928			449,789

Operating expenses:
Selling and administrative		111,388			113,259			115,840			124,279
Engineering and development		85,159			94,102			94,909			100,795
Acquired intangible assets amortization		9,891			8,941			6,219			5,752
Restructuring and other		(7,606	)		37,222			(27,701	)		(15,117	)

Total operating expenses		198,832			253,524			189,267			215,709

Income from operations		206,718			217,949			269,661			234,080
Non-operating (income) expense:
Interest income		(2,751	)		(1,368	)		(1,071	)		(793	)
Interest expense		5,551			6,043			6,237			6,351
Other (income) expense, net		6,849			(4,017	)		764			5,597

Income before income taxes		197,069			217,291			263,731			222,925
Income tax provision		20,878			28,383			41,013			26,595

Net income	$	176,191		$	188,908		$	222,718		$	196,330

Net income per common share—basic	$	1.06		$	1.14		$	1.34		$	1.18

Net income per common share—diluted	$	0.97		$	1.05		$	1.21		$	1.05

Cash dividend declared per common share	$	0.10		$	0.10		$	0.10		$	0.10

(1)	Restructuring and other includes a $10.0 million gain for the decrease in the fair value of the AutoGuide and MiR contingent consideration liabilities, partially offset by $1.4 million of acquisition related compensation and expenses and $0.7 million of severance charges related to headcount reductions primarily in Industrial Automation and Semiconductor Test.

(2)	Restructuring and other includes a $29.9 million charge for the increase in the fair value of the AutoGuide contingent consideration liability, a $4.0 million contract termination settlement charge, $3.1 million of

	acquisition related compensation and expense and $0.8 million of other expenses, partially offset by a $0.6 million gain for the decrease in the fair value of MiR contingent consideration liability.

(3)	Restructuring and other includes a $27.2 million gain for the decrease in the fair value of AutoGuide contingent consideration liability, and a $1.1 million gain for the decrease in acquisition related compensation liability, partially offset by $0.5 million recorded for employee severance charges primarily in Industrial Automation.

(4)	Restructuring and other includes a $15.3 million gain for the decrease in the fair value adjustment to the AutoGuide acquisition contingent consideration liability, and a $0.9 million gain for the decrease in acquisition related compensation liability, partially offset by $1.1 million of employee severance charges primarily in Industrial Automation.

(5)	Teradyne recorded pension and post retirement net actuarial (gains) losses of $(0.1) million, $2.7 million, $7.7 million for the second, third and fourth quarter in 2020, respectively. See Note B: “Accounting Policies” for a discussion of Teradyne’s accounting policy.


	2019
	1st Quarter			2nd Quarter			3rd Quarter			4th Quarter
	(1)			(2)			(3)			(4)(5)(6)
	(in thousands, except per share amounts)
Revenues:
Products	$	393,442		$	457,511		$	488,170		$	548,552
Services		100,657			106,667			93,868			106,098

Total revenues		494,099			564,178			582,038			654,650
Cost of revenues:
Cost of products		165,368			193,299			197,196			226,184
Cost of services		41,096			46,961			39,804			45,228

Total cost of revenues (exclusive of acquired intangible assets amortization shown separately below)		206,464			240,260			237,000			271,412

Gross profit		287,635			323,918			345,038			383,238

Operating expenses:
Selling and administrative		102,013			108,811			109,166			117,092
Engineering and development		76,791			81,434			77,804			86,794
Acquired intangible assets amortization		10,634			10,083			9,647			9,784
Restructuring and other		5,112			(10,404	)		(6,500	)		(2,088	)

Total operating expenses		194,550			189,924			190,117			211,582

Income from operations		93,085			133,994			154,921			171,656
Non-operating (income) expense:
Interest income		(4,989	)		(4,384	)		(4,433	)		(3,185	)
Interest expense		5,520			5,800			5,463			5,441
Other (income) expense, net		(1,425	)		1,401			2,158			20,514

Income before income taxes		93,979			131,177			151,733			148,886
Income tax provision (benefit)		(15,159	)		33,780			15,873			23,811

Net income	$	109,138		$	97,397		$	135,860		$	125,075

Net income per common share—basic	$	0.63		$	0.57		$	0.80		$	0.75

Net income per common share—diluted	$	0.62		$	0.55		$	0.75		$	0.69

Cash dividend declared per common share	$	0.09		$	0.09		$	0.09		$	0.09

(1)	Restructuring and other includes a $3.0 million fair value adjustment to increase the MiR acquisition contingent consideration, $1.3 million of acquisition related expenses and compensation and $0.8 million of employee severance charges.

(2)	Restructuring and other includes a $11.7 million gain for the decrease in the fair value of the MiR contingent consideration liability, partially offset by $0.8 million of employee severance charges and $0.5 million of acquisition related expenses and compensation.

(3)	Restructuring and other includes a $7.8 million gain for the decrease in the fair value of MiR contingent consideration liability, partially offset by $0.8 million of employee severance charges and $0.5 million of acquisition related expenses and compensation.

(4)	Restructuring and other includes a $5.8 million gain for the decrease in the fair value adjustment to the MiR acquisition contingent consideration, partially offset by a $3.0 million fair value adjustment to increase the AutoGuide acquisition contingent consideration, $0.5 million of employee severance charges and $0.2 million of acquisition related expenses and compensation.

(5)	Teradyne recorded pension and post retirement net actuarial losses of $7.7 million for the fourth quarter in 2019. See Note B: “Accounting Policies” for a discussion of Teradyne’s accounting policy.

(6)	Other (income) expense, net includes a $15.0 million charge for the impairment of the investment in RealWear.

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