Item 8. Financial Statements and Supplementary Data

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Item 8. Financial Statements and Supplementary Data

Report of Independent Registered Public Accounting Firm

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

Opinions on the Financial Statements and Internal Control over Financial Reporting

We have audited the accompanying consolidated balance sheets of Teradyne, Inc. and its subsidiaries (the “Company”) as of December 31, 2023 and 2022, 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, 2023, including the related notes and schedule of valuation and qualifying accounts for each of the three years in the period ended December 31, 2023 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, 2023, 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, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2023 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, 2023, 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 convertible debt in 2022.

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.

Revenue Recognition - Certain Product Revenue

As described in Note B to the consolidated financial statements, the Company recognizes revenue for transactions that do not meet the criteria for over time recognition at a point in time when shipped or delivered based on contractual terms. The transaction price is the amount of consideration the Company expects to be entitled to in exchange for such products, which is generally at contractually stated prices. The Company’s total product revenue was $2.1 billion for the year ended December 31, 2023, of which a majority relates to certain product revenue.

The principal consideration for our determination that performing procedures relating to revenue recognition for certain product revenue is a critical audit matter is a high degree of auditor effort in performing procedures related to revenue recognition for certain of the Company’s product revenue.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to the recognition process for certain product revenue. These procedures also included, among others (i) testing the completeness, accuracy, and occurrence of revenue recognized for a sample of certain product revenue transactions by obtaining and inspecting source documents, such as purchase orders, invoices, and proof of shipment or delivery; (ii) testing the cut off of revenue recognized for a sample of certain product revenue transactions near period end by obtaining and inspecting source documents, such as purchase orders, invoices and proof of shipment or delivery; and (iii) confirming a sample of outstanding customer invoice balances as of December 31, 2023 and, for confirmations not returned, obtaining and inspecting source documents, such as purchase orders, invoices, proof of shipment or delivery, and subsequent cash receipts.

/s/ PricewaterhouseCoopers LLP

Boston, Massachusetts

February 22, 2024

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

TERADYNE, INC.

CONSOLIDATED BAL****ANCE SHEETS


	December 31,
	2023			2022
	(in thousands, except per share amount)
ASSETS
Current assets:
Cash and cash equivalents	$	757,571		$	854,773
Marketable securities		62,154			39,612
Accounts receivable, less allowance for credit losses of $1,988 and $1,955 in 2023 and 2022, respectively		422,124			491,145
Inventories, net		309,974			325,019
Prepayments		548,970			532,962
Other current assets		37,992			14,404
Current assets held for sale		23,250			—
Total current assets		2,162,035			2,257,915
Property, plant and equipment, net		445,492			418,683
Operating lease right-of-use assets, net		73,417			73,734
Marketable securities		117,434			110,777
Deferred tax assets		175,775			142,784
Retirement plans assets		11,504			11,761
Other assets		38,580			28,925
Acquired intangible assets, net		35,404			53,478
Goodwill		415,652			403,195
Long-term assets held for sale		11,531			—
Total assets	$	3,486,824		$	3,501,252
LIABILITIES
Current liabilities:
Accounts payable	$	180,131		$	139,722
Accrued employees’ compensation and withholdings		191,750			212,266
Deferred revenue and customer advances		99,804			148,285
Other accrued liabilities		114,712			112,271
Operating lease liabilities		17,522			18,594
Income taxes payable		48,653			65,010
Current debt		—			50,115
Current liabilities held for sale		7,379			—
Total current liabilities		659,951			746,263
Retirement plans liabilities		132,090			116,005
Long-term deferred revenue and customer advances		37,282			45,131
Deferred tax liabilities		183			3,267
Long-term other accrued liabilities		19,998			15,981
Long-term operating lease liabilities		65,092			64,176
Long-term income taxes payable		44,331			59,135
Long-term liabilities held for sale		2,000			—
Total liabilities		960,927			1,049,958
Commitments and contingencies (Note M)
SHAREHOLDERS’ EQUITY
Common stock, $0.125 par value, 1,000,000 shares authorized, 152,698 and 155,759 shares issued and outstanding at December 31, 2023 and 2022, respectively		19,087			19,470
Additional paid-in capital		1,827,274			1,755,963
Accumulated other comprehensive loss		(26,978	)		(49,868	)
Retained earnings		706,514			725,729
Total shareholders’ equity		2,525,897			2,451,294
Total liabilities, convertible common shares and shareholders’ equity	$	3,486,824		$	3,501,252

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

TERADYNE, INC.

CONSOLIDATED ST****ATEMENTS OF OPERATIONS


	Years Ended December 31,
	2023			2022			2021
	(in thousands, except per share amount)
Revenues:
Products	$	2,096,286		$	2,591,572		$	3,196,575
Services		580,012			563,473			506,306
Total revenues		2,676,298			3,155,045			3,702,881
Cost of revenues:
Cost of products		882,892			1,042,555			1,300,106
Cost of services		256,658			245,339			196,119
Total cost of revenues (exclusive of acquired intangible assets amortization shown separately below)		1,139,550			1,287,894			1,496,225
Gross profit		1,536,748			1,867,151			2,206,656
Operating expenses:
Selling and administrative		577,315			558,103			547,559
Engineering and development		418,089			440,591			427,609
Acquired intangible assets amortization		18,999			19,333			21,456
Restructuring and other		21,277			17,185			9,312
Total operating expenses		1,035,680			1,035,212			1,005,936
Income from operations		501,068			831,939			1,200,720
Non-operating (income) expenses:
Interest income		(27,348	)		(6,379	)		(2,627	)
Interest expense		3,806			3,719			17,820
Other (income) expense, net		(962	)		(5,786	)		24,572
Income before income taxes		525,572			840,385			1,160,955
Income tax provision		76,820			124,884			146,366
Net income	$	448,752		$	715,501		$	1,014,589
Net income per common share:
Basic	$	2.91		$	4.52		$	6.15
Diluted	$	2.73		$	4.22		$	5.53
Weighted average common shares—basic		154,310			158,434			164,960
Weighted average common shares—diluted		164,304			169,734			183,625

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

TERADYNE, INC.

CONSOLIDATED STATEMEN****TS OF COMPREHENSIVE INCOME


	Years Ended December 31,
	2023			2022			2021
	(in thousands)
Net income	$	448,752		$	715,501		$	1,014,589
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustment, net of tax of $0, $0, $0, respectively		17,407			(29,031	)		(36,207	)
Available-for-sale marketable securities:
Unrealized gains (losses) on marketable securities arising during period, net of tax of $568, $(3,388), ($578), respectively		2,423			(12,666	)		(2,255	)
Less: Reclassification adjustment for losses (gains) included in net income, net of tax of $12, $25, $(277), respectively		44			301			(995	)
		2,467			(12,365	)		(3,250	)
Cash flow hedges:
Unrealized gains (losses) arising during period, net of tax of $1,537, $(708), $0, respectively		5,464			(2,517	)		—
Less: Reclassification adjustment for losses included in net income, net of tax of $(686), $0, $0, respectively		(2,441	)		—			—
		3,023			(2,517	)		—
Defined benefit post-retirement plan:
Amortization of prior service credit, net of tax $(2), $(2), $(2), respectively		(7	)		(7	)		(7	)
Other comprehensive income (loss)		22,890			(43,920	)		(39,464	)
Comprehensive income	$	471,642		$	671,581		$	975,125

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 Value			Common Stock Shares			Common Stock Par Value			Additional Paid-in Capital			Accumulated Other Comprehensive Income (loss)			Retained Earnings			Total Shareholders’ Equity
	(in thousands)
Year Ended December 31, 2020	$	3,787			166,123		$	20,765		$	1,765,323		$	33,516		$	387,414			2,207,018
Net issuance of common stock under stock-based plans					899			113			(225	)								(112	)
Stock-based compensation expense											45,632									45,632
Repurchase of common stock					(4,771	)		(597	)								(599,403	)		(600,000	)
Cash dividends ($0.40 per share)																	(66,034	)		(66,034	)
Settlements of convertible notes					8,148			1,018			984,622									985,640
Exercise of convertible notes hedge call options					(8,148	)		(1,018	)		(986,082	)								(987,100	)
Convertible common shares		(2,275	)								2,275									2,275
Net income																	1,014,589			1,014,589
Other comprehensive loss														(39,464	)					(39,464	)
Year Ended December 31, 2021	$	1,512			162,251		$	20,281		$	1,811,545		$	(5,948	)	$	736,566		$	2,562,444
Net issuance of common stock under stock-based plans					761			96			(4,471	)								(4,375	)
Stock-based compensation expense											48,466									48,466
Repurchase of common stock					(7,253	)		(907	)								(751,175	)		(752,082	)
Cash dividends ($0.44 per share)																	(69,763	)		(69,763	)
Settlements of convertible notes					1,495			187			(442	)								(255	)
Exercise of convertible notes hedge call options					(1,495	)		(187	)		187									—
Convertible common shares		(1,512	)								1,512									1,512
Cumulative-effect of change in accounting principle related to convertible debt											(100,834	)					94,600			(6,234	)
Net income																	715,501			715,501
Other comprehensive loss														(43,920	)					(43,920	)
Year Ended December 31, 2022	$	—			155,759		$	19,470		$	1,755,963		$	(49,868	)	$	725,729		$	2,451,294
Net issuance of common stock under stock-based plans					848			106			13,371									13,477
Stock-based compensation expense											57,940									57,940
Repurchase of common stock					(3,909	)		(489	)								(400,040	)		(400,529	)
Cash dividends ($0.44 per share)																	(67,927	)		(67,927	)
Settlements of convertible notes					1,072			133			(133	)								—
Exercise of convertible notes hedge call options					(1,072	)		(133	)		133									—
Net income																	448,752			448,752
Other comprehensive income														22,890						22,890
Year Ended December 31, 2023	$	—			152,698		$	19,087		$	1,827,274		$	(26,978	)	$	706,514		$	2,525,897

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

TERADYNE, INC.

CONSOLIDATED STATE****MENTS OF CASH FLOWS


	Years Ended December 31,
	2023			2022			2021
	(in thousands)
Cash flows from operating activities:
Net income	$	448,752		$	715,501		$	1,014,589
Adjustments to reconcile net income from operations to net cash provided by operating activities:
Depreciation		92,118			90,763			91,073
Stock-based compensation		57,682			48,228			45,643
Provision for excess and obsolete inventory		28,358			31,452			15,475
Amortization		18,768			19,912			34,412
Retirement plans actuarial losses (gains)		2,703			(25,584	)		(2,217	)
Deferred taxes		(37,642	)		(38,693	)		(17,305	)
(Gains) losses on investments		(14,915	)		9,985			(6,410	)
Gains on sale of asset		—			(3,410	)		—
Loss on convertible debt conversion		—			—			28,828
Contingent consideration fair value adjustment		—			—			(7,227	)
Other		(955	)		2,353			271
Changes in operating assets and liabilities, net of businesses acquired:
Accounts receivable		70,977			50,628			(57,778	)
Inventories		5,327			(80,809	)		6,495
Prepayments and other assets		(43,101	)		(140,713	)		(175,846	)
Accounts payable and other accrued expenses		46,782			(60,507	)		129,499
Deferred revenue and customer advances		(57,210	)		(6,233	)		9,873
Retirement plan contributions		(5,492	)		(5,116	)		(5,405	)
Income taxes		(26,921	)		(29,834	)		(5,604	)
Net cash provided by operating activities		585,231			577,923			1,098,366
Cash flows from investing activities:
Purchases of property, plant and equipment		(159,642	)		(163,249	)		(132,472	)
Purchases of marketable securities		(161,906	)		(287,409	)		(661,781	)
Proceeds from maturities of marketable securities		85,042			222,941			660,148
Proceeds from sales of marketable securities		61,401			268,058			266,466
Proceeds from insurance		460			—			—
Issuance of convertible loan		(5,000	)		—			—
Proceeds from sale of asset		—			3,410			—
Purchase of investment and acquisition of business		—			—			(12,000	)
Net cash (used for) provided by investing activities		(179,645	)		43,751			120,361
Cash flows from financing activities:
Repurchase of common stock		(397,241	)		(752,082	)		(600,000	)
Dividend payments		(67,878	)		(69,711	)		(65,977	)
Payments of convertible debt principal		(50,264	)		(66,759	)		(342,990	)
Payments related to net settlement of employee stock compensation awards		(20,788	)		(33,170	)		(32,303	)
Issuance of common stock under stock purchase and stock option plans		34,259			28,733			32,686
Net cash used for financing activities		(501,912	)		(892,989	)		(1,008,584	)
Effects of exchange rate changes on cash and cash equivalents		(876	)		3,889			(2,065	)
(Decrease) increase in cash and cash equivalents		(97,202	)		(267,426	)		208,078
Cash and cash equivalents at beginning of year		854,773			1,122,199			914,121
Cash and cash equivalents at end of year	$	757,571		$	854,773		$	1,122,199
Supplementary disclosure of cash flow information:
Cash paid for:
Interest	$	296		$	1,498		$	4,236
Income taxes	$	140,239		$	193,246		$	172,134
Non-cash investing activities:
Capital expenditures incurred but not yet paid:	$	2,735		$	1,826		$	1,973

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

TERADYNE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

THE COMPANY

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

robotics (“Robotics”) products.

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. Management is not aware of any specific event or circumstance that would require an update to its estimates or judgments or a revision of the carrying value of its assets or liabilities as of the date of issuance of this 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

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 determines the transaction price to be the amount of consideration to which Teradyne expects to be entitled to, which is generally at contractually stated prices.

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 robotics products. Teradyne’s hardware is typically 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 warranties are included in cost of revenues when product revenues are recognized.

As of December 31, 2023 and 2022, deferred revenue and customer advances consisted of the following and are included in the short and long-term deferred revenue and customer advances:


	2023		2022
	(in thousands)
Maintenance, service and training	$	66,458	$	78,089
Customer advances, undelivered elements and other		35,731		59,147
Extended warranty		34,897		56,180
Total deferred revenue and customer advances	$	137,086	$	193,416

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, 2020	$	16,633
Accruals for warranties issued during the period		35,727
Accruals related to pre-existing warranties		(6,846	)
Settlements made during the period		(20,937	)
Balance at December 31, 2021		24,577
Accruals for warranties issued during the period		21,851
Accruals related to pre-existing warranties		(5,618	)
Settlements made during the period		(26,629	)
Balance at December 31, 2022		14,181
Accruals for warranties issued during the period		21,644
Accruals related to pre-existing warranties		(1,576	)
Settlements made during the period		(18,551	)
Balance at December 31, 2023	$	15,698

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, 2020	$	51,929
Deferral of new extended warranty revenue		43,597
Recognition of extended warranty deferred revenue		(31,358	)
Balance at December 31, 2021		64,168
Deferral of new extended warranty revenue		33,686
Recognition of extended warranty deferred revenue		(41,674	)
Balance at December 31, 2022		56,180
Deferral of new extended warranty revenue		14,330
Recognition of extended warranty deferred revenue		(35,613	)
Balance at December 31, 2023	$	34,897

Accounts Receivable and Allowance for Credit Losses

Trade accounts receivable are recorded at the invoiced amount and do not bear interest. Teradyne maintains allowances for estimated losses resulting from the inability of its customers to make required payments. Estimated allowances for credit losses 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 creditworthiness. 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 $243.5 million and $93.9 million during 2023 and 2022, 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, 2023 and 2022.

Teradyne measures its debt and equity investments at fair value, in accordance with ASC 820-10, “Fair Value Measurements and Disclosures.” ASC 820-10 defines fair value as 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 and requires that assets and liabilities carried at fair value be classified and disclosed in one of the following three categories:

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

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

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

Teradyne’s 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

Teradyne records changes in fair value of equity securities directly in earnings and unrealized gains and losses in other (income) expense, net, in accordance with ASU 2016-01, “Financial Instruments—Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities.”

Prepayments

Prepayments consist of the following:


	2023 (1)		2022
	(in thousands)
Contract manufacturer and supplier prepayments	$	502,257	$	491,105
Prepaid maintenance and other services		17,592		14,545
Prepaid taxes		16,083		18,625
Other prepayments		13,038		8,687
Total prepayments	$	548,970	$	532,962

(1)

Excludes $5.3 million of contract manufacturer and supplier prepayments, classified as assets held for sale. See Note E: “Assets held for sale” for additional information.

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.

Teradyne reports net periodic pension cost and net periodic postretirement benefit costs in accordance with ASU 2017-07, “Compensation—Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost.” The service cost component of net benefit costs is 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 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, 2023, 2022, and 2021 was $2.8 million, $6.6 million, and $16.6 million, respectively.

Convertible Debt

Teradyne adopted Accounting Standards Update (“ASU”) ASU 2020-06 – “Debt—Debt with Conversion and Other Options and Derivatives and Hedging—Contracts in Entity’s Own Equity,” on January 1, 2022 using the modified retrospective method of adoption. As a result of adoption, Teradyne recorded an increase of $1.4 million to current debt for unsettled shares, an increase of $1.8 million to deferred tax assets, an increase of $6.6 million to long-term debt for unamortized debt discount, and an increase to retained earnings of $94.6 million for the reclassification of the equity component. Mezzanine equity representing unsettled shares value was reduced to zero and additional paid-in capital was reduced by $100.8 million. In accordance with ASU 2020-06, Teradyne accounts for a convertible debt instrument as a single liability measured at its amortized cost, as long as no other features require bifurcation and recognition as derivatives. Unsettled shares are recorded in current debt, and there is no recognition of a debt discount, which was previously amortized to interest expense. Settled shares reduce the outstanding debt balance in an amount equal to the cash paid, but do not result in any gain or loss on extinguishment. We use the if-converted method in the diluted EPS calculation for convertible instruments.

Leases

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, 2023, 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.

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 right-of-use (“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.” 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”).

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.

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 $15.5 million, $17.3 million and $13.4 million in 2023, 2022 and 2021, 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, 2023, 2022 and 2021, losses (gains) from the remeasurement of the monetary assets and liabilities denominated in foreign currencies were $10.9 million, $10.8 million, and $(2.1) 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 per Common Share

Basic net income per common share is calculated by dividing net income by the weighted average number of common shares outstanding during the period. Except where the result would be anti-dilutive, diluted net income per common share is calculated by dividing net income 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 is required 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

Comprehensive income includes net income, unrealized pension and postretirement prior service costs and benefits, unrealized gains and losses on investments in debt marketable securities, unrealized gains and losses on cash flow hedge and foreign currency translation adjustment.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

In November 2023, the Financial Accounting Standards Board ("FASB") issued Accounting Standard Update ("ASU") No. 2023-07, "Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures", which will require us to disclose significant segment expenses and other segment items used by the Chief Operating Decision Maker ("CODM") on an annual and interim basis as well as provide in interim periods all disclosures about a reportable segment’s profit or loss and assets that are currently required annually. Additionally, we will be required to disclose the title and position of the CODM. The new standard is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. This ASU will have no impact on Teradyne’s results of operations, cash flows or financial condition. Upon adoption, Teradyne will apply the amendments in this ASU retrospectively to all prior period disclosures presented in the financial statements.

In December 2023, FASB issued ASU 2023-09 –“Income Taxes (Topic 740): Improvements to Income Tax Disclosures”, which requires expanded disclosures relating to the tax rate reconciliation, income taxes paid, income (loss) before income tax expense (benefit) and income tax expense (benefit), requiring a greater disaggregation of information for each. The provisions of ASU 2023-09 are effective for fiscal years beginning after December 15, 2024. The amendments in this update should be applied on a prospective basis, but retrospective application is permitted. Teradyne is currently evaluating the impact of this new standard.

D. REVENUE

Disaggregation of Revenue

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


		Semiconductor Test						Robotics
		System-on-a-chip		Memory		System Test		Universal Robots		Mobile Industrial Robots		Wireless Test		Corporate and Eliminations		Total
	(in thousands)
For the Year Ended December 31, 2023 (1)
Timing of Revenue Recognition
Point in Time		$	1,141,882	$	356,417	$	268,379	$	296,252	$	66,986	$	129,399	$	—	$	2,259,315
Over Time			290,739		29,598		69,818		7,540		4,405		14,883		—		416,983
Total		$	1,432,621	$	386,015	$	338,197	$	303,792	$	71,391	$	144,282	$	—	$	2,676,298
Geographical Market
Asia Pacific		$	1,214,322	$	366,151	$	153,387	$	63,312	$	10,424	$	85,415	$	—	$	1,893,011
Americas			117,728		11,367		151,579		111,761		36,191		50,770		—		479,396
Europe, Middle East and Africa			100,571		8,497		33,231		128,719		24,776		8,097		—		303,891
Total		$	1,432,621	$	386,015	$	338,197	$	303,792	$	71,391	$	144,282	$	—	$	2,676,298
For the Year Ended December 31, 2022 (1)
Timing of Revenue Recognition
Point in Time		$	1,445,238	$	344,693	$	402,074	$	317,514	$	73,812	$	189,040	$	251	$	2,772,622
Over Time			261,646		29,013		67,272		8,218		3,594		12,680		—		382,423
Total		$	1,706,884	$	373,706	$	469,346	$	325,732	$	77,406	$	201,720	$	251	$	3,155,045
Geographical Market
Asia Pacific		$	1,514,964	$	360,176	$	294,350	$	73,930	$	15,724	$	140,767	$	—	$	2,399,911
Americas			122,575		11,987		146,040		112,203		35,213		47,350		251		475,619
Europe, Middle East and Africa			69,345		1,543		28,956		139,599		26,469		13,603		—		279,515
Total		$	1,706,884	$	373,706	$	469,346	$	325,732	$	77,406	$	201,720	$	251	$	3,155,045
For the Year Ended December 31, 2021 (1)
Timing of Revenue Recognition
Point in Time		$	1,989,979	$	365,441	$	409,383	$	305,512	$	60,884	$	204,247	$	—	$	3,335,446
Over Time			256,751		30,171		58,356		5,670		3,839		12,648		—		367,435
Total		$	2,246,730	$	395,612	$	467,739	$	311,182	$	64,723	$	216,895	$	—	$	3,702,881
Geographical Market
Asia Pacific		$	2,076,647	$	381,444	$	306,812	$	81,456	$	12,919	$	172,103	$	—	$	3,031,381
Americas			102,702		10,665		135,230		94,897		26,069		36,173		—		405,736
Europe, Middle East and Africa			67,381		3,503		25,697		134,829		25,735		8,619		—		265,764
Total		$	2,246,730	$	395,612	$	467,739	$	311,182	$	64,723	$	216,895	$	—	$	3,702,881

(1)

Includes $5.2 million, $8.2 million and $13.2 million in 2023, 2022 and 2021, 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, 2023, 2022 and 2021, Teradyne recognized $108.1 million, $112.4 million and $102.5 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, 2023, Teradyne had $1,124.6 million of unsatisfied performance obligations. Teradyne expects to recognize 90% of the remaining performance obligation in the next 12 months, 9% in 1-3 years, and 1% thereafter.

ASSETS HELD FOR SALE

On November 7, 2023, Teradyne entered into a definitive agreement to sell Teradyne’s Device Interface Solutions ("DIS") business, a component of the Semiconductor Test segment, to Technoprobe S.p.A. for $85.0 million in cash. As a result, the related assets and liabilities met the criteria and were classified as held-for-sale in Teradyne’s consolidated balance sheet as of December 31, 2023. The transaction, which does not qualify as a strategic shift required for discontinued operations treatment, is expected to close in the first half of 2024.

Assets held-for-sale comprise of the following as of December 31, 2023:


	December 31,
	2023
	(in thousands)
Current assets:
Inventories, net	$	17,952
Prepayments		5,298
Total current assets held for sale		23,250
Property, plant and equipment, net		8,986
Operating lease right-of-use assets, net		2,545
Total assets held for sale	$	34,781

Current liabilities:
Accounts payable	$	6,356
Other accrued liabilities		552
Operating lease liabilities		471
Total current liabilities held for sale		7,379
Long-term operating lease liabilities		2,000
Total liabilities held for sale	$	9,379
Net assets held for sale	$	25,402

INVENTORIES

Inventories, net consisted of the following at December 31, 2023 and 2022:


	2023 (1)		2022
	(in thousands)
Raw material	$	258,422	$	256,065
Work-in-process		26,851		37,982
Finished goods		24,701		30,972
	$	309,974	$	325,019

(1)

Excludes $18.0 million of primarily work-in-process inventories, net classified as assets held for sale. See Note E: “Assets held for sale” for additional information.

PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment, net consisted of the following at December 31, 2023 and 2022:


	2023 (1)		2022
	(in thousands)
Land	$	19,487	$	18,481
Buildings		127,705		128,991
Machinery, equipment and software		1,047,235		1,059,880
Furniture and fixtures		28,093		29,929
Leasehold improvements		66,777		64,631
Construction in progress		54,799		22,470
		1,344,096		1,324,382
Less: accumulated depreciation		898,604		905,699
	$	445,492	$	418,683

(1)

Excludes $9.0 million of property, plant and equipment, net classified as assets held for sale. See Note E: “Assets held for sale” for additional information.

Depreciation of property, plant and equipment for the years ended December 31, 2023, 2022, and 2021 was $92.1 million, $90.8 million, and $91.1 million, respectively. As of December 31, 2023 and 2022, the gross book value included in machinery and equipment for internally manufactured test systems being leased by customers was $5.1 million and $5.8 million, respectively. As of December 31, 2023 and 2022, the accumulated depreciation on these test systems was $4.9 million and $5.6 million, respectively.

FINANCIAL INSTRUMENTS

Cash Equivalents

Teradyne considers all highly liquid investments with maturities of three months or less at the date of acquisition to be cash equivalents.

Marketable Securities

Teradyne’s equity and debt mutual funds are classified as Level 1 and available-for-sale debt securities are classified as Level 2. Contingent consideration is classified as Level 3. The vast majority of Level 2 securities are fixed income securities priced by third party pricing vendors. These pricing vendors utilize the most recent observable market information in pricing these securities or, if specific prices are not available, use other observable inputs like market transactions involving identical or comparable securities.

During the years ended December 31, 2023 and 2022, there were no transfers in or out of Level 1, Level 2, or Level 3 financial instruments.

Realized gains recorded in 2023, 2022, and 2021 were $0.6 million, $0.8 million, and $3.1 million, respectively. Realized losses recorded in 2023 and 2022 were $0.3 million and $1.0 million, respectively. No realized losses were recorded in 2021. Realized gains and losses are included in other (income) expense, net.

Unrealized gains on equity securities recorded during the years ended December 31, 2023, 2022 and 2021 were $8.9 million, $1.9 million and $5.1 million, respectively. Unrealized losses on equity securities recorded during the years ended December 31, 2023, 2022, and 2021 were $1.7 million, $11.6 million and $1.8 million, respectively. Unrealized gains and losses on equity securities are included in other (income) expense, net. Unrealized gains and losses on available-for-sale debt securities are included in accumulated other comprehensive income (loss) on the balance sheet.

The cost of securities sold is based on average cost.

The following table sets forth by fair value hierarchy Teradyne’s financial assets and liabilities that were measured at fair value on a recurring basis as of December 31, 2023 and 2022:


	December 31, 2023
	Quoted Prices in Active Markets for Identical Instruments (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
	(in thousands)
Assets
Cash	$	298,156	$	—	$	—	$	298,156
Cash equivalents		453,298		6,117		—		459,415
Available for sale securities:
Corporate debt securities		—		52,734		—		52,734
U.S. Treasury securities		—		41,808		—		41,808
Commercial paper		—		1,667		—		1,667
Debt mutual funds		8,773		—		—		8,773
U.S. government agency securities		—		4,892		—		4,892
Certificates of deposit and time deposits		—		21,772		—		21,772
Non-U.S. government securities		—		810		—		810
Equity securities:
Mutual funds		47,132		—		—		47,132
Total	$	807,359	$	129,800	$	—	$	937,159
Derivative assets		—		18,746		—		18,746
Total	$	807,359	$	148,546	$	—	$	955,905
Liabilities
Derivative liabilities		—		2,545		—		2,545
Total	$	—	$	2,545	$	—	$	2,545

Reported as follows:
	(Level 1)		(Level 2)		(Level 3)		Total
	(in thousands)
Assets
Cash and cash equivalents	$	751,454	$	6,117	$	—	$	757,571
Marketable securities		—		62,154		—		62,154
Long-term marketable securities		55,905		61,529		—		117,434
Other current assets		—		18,746		—		18,746
Total	$	807,359	$	148,546	$	—	$	955,905
Liabilities
Other current liabilities	$	—	$	2,545	$	—	$	2,545
Total	$	—	$	2,545	$	—	$	2,545


	December 31, 2022
	Quoted Prices in Active Markets for Identical Instruments (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
	(in thousands)
Assets
Cash	$	632,417	$	—	$	—	$	632,417
Cash equivalents		161,767		60,589		—		222,356
Available for sale securities:
Corporate debt securities		—		50,856		—		50,856
U.S. Treasury securities		—		39,649		—		39,649
Commercial paper		—		7,159		—		7,159
Debt mutual funds		6,580		—		—		6,580
U.S. government agency securities		—		6,352		—		6,352
Certificates of deposit and time deposits		—		1,740		—		1,740
Non-U.S. government securities		—		535		—		535
Equity securities:
Mutual funds		37,518		—		—		37,518
Total	$	838,282	$	166,880	$	—	$	1,005,162
Derivative assets		—		86		—		86
Total	$	838,282	$	166,966	$	—	$	1,005,248
Liabilities
Derivative liabilities		—		4,215		—		4,215
Total	$	—	$	4,215	$	—	$	4,215

Reported as follows:
	(Level 1)		(Level 2)		(Level 3)		Total
	(in thousands)
Assets
Cash and cash equivalents	$	794,184	$	60,589	$	—	$	854,773
Marketable securities		—		39,612		—		39,612
Long-term marketable securities		44,098		66,679		—		110,777
Other current assets		—		86		—		86
Total	$	838,282	$	166,966	$	—	$	1,005,248
Liabilities
Other current liabilities	$	—	$	4,215	$	—	$	4,215
Total	$	—	$	4,215	$	—	$	4,215

The carrying amounts and fair values of Teradyne’s financial instruments at December 31, 2023 and 2022 were as follows:


	December 31, 2023				December 31, 2022
	Carrying Value		Fair Value		Carrying Value		Fair Value
	(in thousands)
Assets
Cash and cash equivalents	$	757,571	$	757,571	$	854,773	$	854,773
Marketable securities		179,588		179,588		150,389		150,389
Derivative assets		18,746		18,746		86		86
Liabilities
Derivative liabilities		2,545		2,545		4,215		4,215
Convertible debt (1)		—		—		50,115		139,007

(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, 2023 and 2022:


	December 31, 2023
	Available-for-Sale
	Cost		Unrealized Gain		Unrealized (Loss)			Fair Market Value		Fair Market Value of Investments with Unrealized Losses
	(in thousands)
Corporate debt securities	$	56,458	$	201	$	(3,925	)	$	52,734	$	44,263
U.S. Treasury securities		45,725		14		(3,931	)		41,808		35,080
Certificates of deposit and time deposits		21,772		—		—			21,772		—
Debt mutual funds		9,081		—		(308	)		8,773		3,303
U.S. government agency securities		4,898		—		(6	)		4,892		4,892
Commercial paper		1,633		34		—			1,667		—
Non-U.S. government securities		810		—		—			810		—
	$	140,377	$	249	$	(8,170	)	$	132,456	$	87,538

Reported as follows:


	Cost		Unrealized Gain		Unrealized (Loss)			Fair Market Value		Fair Market Value of Investments with Unrealized Losses
	(in thousands)
Marketable securities	$	62,385	$	36	$	(267	)	$	62,154	$	34,844
Long-term marketable securities		77,992		213		(7,903	)	$	70,302		52,694
	$	140,377	$	249	$	(8,170	)	$	132,456	$	87,538


	December 31, 2022
			Available-for-Sale
	Cost		Unrealized Gain		Unrealized (Loss)			Fair Market Value		Fair Market Value of Investments with Unrealized Losses
	(in thousands)
Corporate debt securities	$	57,006	$	3	$	(6,153	)	$	50,856	$	50,667
U.S. Treasury securities		44,030		—		(4,381	)		39,649		39,649
Commercial paper		7,089		70		—			7,159		—
Debt mutual funds		6,997		—		(417	)		6,580		3,095
U.S. government agency securities		6,442		—		(90	)		6,352		6,352
Certificates of deposit and time deposits		1,740		—		—			1,740		—
Non-U.S. government securities		535		—		—			535		—
	$	123,839	$	73	$	(11,041	)	$	112,871	$	99,763

Reported as follows:


	Cost		Unrealized Gain		Unrealized (Loss)			Fair Market Value		Fair Market Value of Investments with Unrealized Losses
	(in thousands)
Marketable securities	$	39,950	$	70	$	(408	)	$	39,612	$	30,713
Long-term marketable securities		83,889		3		(10,633	)	$	73,259		69,050
	$	123,839	$	73	$	(11,041	)	$	112,871	$	99,763

As of December 31, 2023, the fair market value of investments with unrealized losses less than one year and greater than one year totaled $22.3 million and $65.2 million, respectively.

As of December 31, 2022, the fair market value of investments with unrealized losses less than one year and greater than one year totaled $66.3 million and $33.4 million, respectively.

Teradyne reviews its investments to identify and evaluate investments that have an indication of possible impairment. Based on this review, Teradyne determined that the unrealized losses related to these investments at December 31, 2023 and 2022 were not other than temporary.

The contractual maturities of investments in available-for-sale marketable securities held at December 31, 2023 were as follows:


	Cost		Fair Value
	(in thousands)
Due within one year	$	62,385	$	62,154
Due after 1 year through 5 years		23,703		23,319
Due after 5 years through 10 years		6,049		5,735
Due after 10 years		39,159		32,475
Total	$	131,296	$	123,683

Contractual maturities of investments in available-for-sale marketable securities held at December 31, 2023 exclude debt mutual funds with the fair market value of $8.8 million as they do not have a contractual maturity date.

Derivatives

Teradyne conducts business in various foreign countries, with certain transactions denominated in local currencies. As a result, Teradyne is exposed to risks relating to changes in foreign currency exchange rates. Teradyne’s foreign currency risk management objective is to minimize the effect of exchange rate fluctuations associated with the remeasurement of monetary assets and liabilities denominated in foreign currencies, and changes in its cash inflows attributable to the forecasted cash flows from certain foreign currency denominated revenues.

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

Teradyne also enters into foreign currency forward and option contracts designated as cash flow hedges to hedge the risk of changes in its cash inflows attributable to changes in foreign currency exchange rates. The cash flow hedges have maturities of less than six months and mature in the period of revenue recognition for certain products and services in backlog and forecasted to be recognized in a future period. Teradyne evaluates cash flow hedges for effectiveness at inception based on the critical terms match method. The hedges are not expected to incur any ineffectiveness however a quarterly qualitative assessment of effectiveness is done to determine if the critical terms match method remains appropriate to use. The change in fair value of the contracts is recorded in accumulated other comprehensive income (loss) and reclassified to earnings at maturity date.

Teradyne does not use derivative financial instruments for speculative purposes.

At December 31, 2023 and 2022, to hedge certain of its local currency balance sheet assets and liabilities, 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:


	Net Notional Value
	December 31, 2023		December 31, 2022
	(in millions)
Currency Hedged (Buy/Sell)
U.S. dollar/Taiwan dollar	$	42.7	$	29.2
U.S. dollar/Danish krone		36.0		—
U.S. dollar/Japanese yen		11.0		37.1
U.S. dollar/Korean won		7.2		6.4
U.S. dollar/British pound sterling		1.5		1.2
Euro/U.S. dollar		25.3		38.4
Singapore dollar/U.S. dollar		16.6		33.5
Philippine peso/U.S. dollar		10.1		2.7
Chinese yuan/U.S. dollar		1.0		2.2
Danish krone/U.S. dollar		0.7		—
Total		152.1		150.7

The change in the fair value of the outstanding contracts was a loss of $1.8 million and $0.9 million, respectively, at December 31, 2023 and 2022.

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

At December 31, 2023 and 2022, Teradyne had the following cash flow hedge contracts to buy and sell non-U.S. currencies for U.S. dollars with the following notional amounts:


	Net Notional Value
	December 31, 2023		December 31, 2022
	(in millions)
Currency Hedged (Buy/Sell)
U.S. dollar/Japanese yen	$	35.5	$	61.2
U.S. dollar/Taiwan dollar		—		10.9
Japanese yen/U.S. dollar		—		23.4
Taiwan dollar/U.S. dollar		—		5.5
Total	$	35.5	$	101.0

The change in the fair value of the outstanding cash flow hedge contracts was a gain of $0.6 million at December 31, 2023 and a loss of $3.2 million at December 31, 2022.

Unrealized gains and losses on foreign currency cash flow hedge contracts are included in accumulated other comprehensive income (loss). At maturity, the gains or losses associated with cash flow hedge contracts are recorded to revenue.

On November 7, 2023, in connection with our agreement to acquire 10% investment in Technoprobe S.p.A we purchased a call option to buy 481.0 million Euros. The expiration date of the option is April 26, 2024. At December 31, 2023, the fair value of the outstanding contract was $17.4 million and an unrealized gain of $7.5 million was recorded in other (income) expense, net.

The following table summarizes the fair value of derivative instruments as of December 31, 2023 and 2022:


	Balance Sheet Location	December 31, 2023			December 31, 2022
		(in thousands)
Derivatives not designated as hedging instruments:
Foreign exchange forward contracts	Other current assets	$	733		$	86
Foreign exchange option contracts	Other current assets		17,364			—
Foreign exchange forward contracts	Other current liabilities		(2,545	)		(990	)
Derivatives designated as hedging instruments:
Foreign exchange forward contracts	Other current assets		648			—
Foreign exchange option contracts	Other current liabilities		—			(3,225	)
Total derivatives		$	16,200		$	(4,129	)

The following table summarizes the effect of derivative instruments in the statements of operations recognized for the years ended December 31, 2023, 2022, and 2021:


	Location of (Gains) Losses Recognized in Statement of Operations	December 31, 2023			December 31, 2022			December 31, 2021
		(in thousands)
Derivatives not designated as hedging instruments:
Foreign exchange forward contracts (1)	Other (income) expense, net	$	(1,843	)	$	(2,482	)	$	6,488
Foreign exchange option contracts	Other (income) expense, net		(7,464	)		—			—
Derivatives designated as hedging instruments:
Foreign exchange forward and option contracts	Revenue		(3,127	)		(251	)		—
Total derivatives		$	(12,434	)	$	(2,733	)	$	6,488

(1)

The table does not reflect the corresponding gains and losses from the remeasurement of the monetary assets and liabilities denominated in foreign currencies. For the years ended December 31, 2023, 2022 and 2021, net losses (gains) from remeasurement of monetary assets and liabilities denominated in foreign currencies were $10.9 million, $10.8 million, and $(2.1) 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, 2023, one customer of our Semiconductor Test segment, Texas Instruments Inc., accounted for 18% of our accounts receivable balance. There were no customers who accounted for more than 10% of our accounts receivable balance as of December 31, 2022.

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.

For the years ended December 31, 2023, 2022 and 2021, total lease expense was $42.7 million, $40.1 million, and $39.2 million respectively, and included $15.5 million, $14.1 million, and $12.6 million, respectively, of variable lease costs and $1.3 million, $2.0 million, and $1.8 million, respectively, of costs related to short-term leases, which are not recorded on the consolidated balance sheets.

At December 31, 2023, the weighted average remaining lease term and weighted average discount rate for operating leases was 6.3 years and 5.2%, respectively. At December 31, 2022, the weighted average remaining lease term and weighted average discount rate for operating leases was 5.9 years and 4.7%, respectively.

Supplemental cash flows information related to leases was as follows:


	For the Years Ended
	December 31, 2023		December 31, 2022		December 31, 2021
	(in thousands)
Cash paid for amounts included in the measurement of lease liabilities included in operating cash flows:	$	26,059	$	20,775	$	24,593
Right-of-use assets obtained in exchange for new lease obligations		17,987		26,149		34,246

Maturities of lease liabilities as of December 31, 2023 were as follows:


	Operating Lease (1)
	(in thousands)
2024	$	21,045
2025		18,755
2026		15,074
2027		11,733
2028		7,622
Thereafter		23,906
Total lease payments		98,135
Less imputed interest		(15,521	)
Total lease liabilities	$	82,614

(1)

Excludes $2.5 million of lease liabilities classified as liabilities held for sale. See Note E: “Assets held for sale” for additional information.

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”) 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 bore interest at a rate of 1.25% per year payable semiannually in arrears on June 15 and December 15 of each year. The notes matured on December 15, 2023. Substantially all of the Notes were converted as of December 15, 2023.

During 2023, twenty three debt holders elected to convert $50.2 million of debt principal. The conversion of the debt was settled in cash for principal amount and in shares for the excess of conversion value over principal amount. The 1.1 million shares issued to the debt holders were received from exercising the convertible notes hedge call options.

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.

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. These transactions have been accounted for as an adjustment to our shareholders equity. The Warrant Transactions, which expire between March 18, 2024 and July 10, 2024, currently cover, subject to customary anti-dilution adjustments, approximately 14.7 million shares of common stock. As of December 31, 2023, the strike price of the warrants was approximately $39.40 per share. The strike price is subject to adjustment under certain circumstances. The Warrant Transactions could result in additional shares of Teradyne’s common stock being issued 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 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.

Originally, Teradyne allocated $100.8 million of the $460.0 million principal amount of the Notes to the equity component, which represented a discount to the debt and was amortized to interest expense using the effective interest method through December 2023. Effective January 1, 2022, Teradyne adopted ASC 2020-06 using the modified retrospective method of transition and accounts for the debt as a single liability measured at its amortized cost. As a result of the adoption, Teradyne recorded an increase of $1.4 million to current debt for unsettled shares, an increase of $1.8 million to deferred tax assets, an increase of $6.6 million to long-term debt for unamortized debt discount, and an increase to retained earnings of $94.6 million for the reclassification of the equity component. Mezzanine equity representing unsettled shares value was reduced to zero and additional paid-in capital was reduced by $100.8 million.

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


	For the Years Ended
	December 31, 2023		December 31, 2022
	(in thousands)
Debt principal	$	—	$	50,228
Unamortized debt issuance fees		—		113
Net carrying amount of convertible debt	$	—	$	50,115


	For the Years Ended
	December 31, 2023		December 31, 2022
	(in thousands)
Contractual interest expense on the coupon	$	312	$	732
Amortization of the issuance fees recognized as interest expense		113		209
Total interest expense on the convertible debt	$	425	$	941

Revolving Credit Facility

On May 1, 2020, Teradyne entered into a credit agreement (the “Credit Agreement”) with Truist Bank, as administrative agent and collateral agent, and the lenders party thereto. The Credit Agreement provides for a three-year, senior secured revolving credit facility of $400.0 million (the “Credit Facility”).

On December 10, 2021, the Credit Agreement was amended to extend maturity date of the Credit Facility to December 10, 2026. On October 5, 2022, the Credit Agreement was amended to increase the amount of the Credit Facility to $750.0 million from $400.0 million.

The Credit Agreement provides that, subject to customary conditions, Teradyne may seek to obtain from existing or new lenders the available incremental amount under the Credit Facility, not to exceed the greater of $200.0 million or 15% of consolidated EBIDTA. The interest rate applicable to loans under the Credit Facility are, at Teradyne’s option, equal to either a base rate plus a margin ranging from 0.00% to 0.75% per annum or SOFR plus a margin ranging from 1.10% to 1.85% per annum, based on the consolidated leverage ratio of Teradyne. In addition, Teradyne will pay a commitment fee on the unused portion of the commitments under the Credit Facility ranging from 0.15% to 0.25% per annum, based on the then applicable consolidated leverage ratio.

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

The Credit Agreement contains customary events of default, representations, warranties and affirmative and negative covenants that, among other things, limit Teradyne’s ability to sell assets, grant liens on assets, incur other secured indebtedness and make certain investments and restricted payments, all subject to exceptions set forth in the Credit Agreement. The Credit Agreement also requires Teradyne to satisfy two financial ratios measured as of the end of each fiscal 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 February 22, 2024, the Credit Agreement was undrawn and Teradyne was in compliance with all covenants under the Credit Agreement.

ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

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


	Foreign Currency Translation Adjustment			Unrealized Gains (Losses) on Marketable Securities			Unrealized (Losses) Gains on Cash Flow Hedges			Retirement Plans Prior Service Credit			Total
	(in thousands)
Balance at December 31, 2021, net of tax of $0, $1,055, $0, $(1,128), respectively	$	(10,818	)	$	3,704		$	—		$	1,166		$	(5,948	)
Other comprehensive loss before reclassifications, net of tax of $0, $(3,388), $(708), $0, respectively		(29,031	)		(12,666	)		(2,517	)		—			(44,214	)
Amounts reclassified from accumulated other comprehensive income (loss), net of tax of $0, $25, $0, $(2), respectively		—			301			—			(7	)		294
Net current period other comprehensive loss, net of tax of $0, $(3,363), $(708), $(2), respectively		(29,031	)		(12,365	)		(2,517	)		(7	)		(43,920	)
Balance at December 31, 2022, net of tax of $0, $(2,308), $(708), $(1,130), respectively	$	(39,849	)	$	(8,661	)	$	(2,517	)	$	1,159		$	(49,868	)
Other comprehensive gain before reclassifications, net of tax of $0, $568, $1,537, $0, respectively		17,407			2,423			5,464			—			25,294
Amounts reclassified from accumulated other comprehensive income (loss), net of tax of $0, $12, $(686), $(2), respectively		—			44			(2,441	)		(7	)		(2,404	)
Net current period other comprehensive gain (loss), net of tax of $0 $580, $851, $(2), respectively		17,407			2,467			3,023			(7	)		22,890
Balance at December 31, 2023, net of tax of $0, $(1,728), $143, $(1,132), respectively	$	(22,442	)	$	(6,194	)	$	506		$	1,152		$	(26,978	)

Reclassifications out of accumulated other comprehensive income (loss) to the statements of operations for the years ended December 31, 2023, 2022, and 2021, were as follows:


Details about Accumulate Other Comprehensive Income (Loss) Components	For the years ended								Affected Line Item in the Statements of Operations
	December 31, 2023			December 31, 2022			December 31, 2021
	(in thousands)
Available-for-sale marketable securities
Unrealized (losses) gains, net of tax of $(12), $(25), $277, respectively	$	(44	)	$	(301	)	$	995	Other (income) expense, net
Cash flow hedges:
Unrealized gains, net of tax of $686, $0, $0, respectively		2,441			—			—	Revenue
Defined benefit pension and postretirement plans:
Amortization of prior service benefit, net of tax of $2, $2, $2, respectively		7			7			7	(a)
Total reclassifications, net of tax of $676, $(23), $279, respectively	$	2,404		$	(294	)	$	1,002	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.”

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.

In the fourth quarter of 2023, Teradyne performed the annual goodwill impairment test, completing a quantitative assessment for the Robotics reporting unit and a qualitative assessment for the Wireless Test and System Test reporting units. There was no impairment as a result of the annual test performed in the fourth quarter of 2023. 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 2022, Teradyne performed the annual goodwill impairment test, completing a quantitative assessment for the Robotics reporting unit and a qualitative assessment for the Wireless Test and System Test reporting units. There was no impairment as a result of the annual test performed in the fourth quarter of 2022. Key assumptions in the goodwill valuation model are forecasted revenues, discount rate, earnings before interest and taxes, and revenue multiples from comparable companies.

The changes in the carrying amount of goodwill by reportable segments for the years ended December 31, 2023 and 2022 are as follows:


	Robotics			Wireless Test			Semiconductor Test			System Test			Total
	(in thousands)
Balance at December 31, 2021:
Goodwill	$	405,971		$	361,819		$	262,101		$	158,699		$	1,188,590
Accumulated impairment losses		—			(353,843	)		(260,540	)		(148,183	)		(762,566	)
		405,971			7,976			1,561			10,516			426,024
Foreign currency translation adjustment		(22,805	)		—			(24	)		—			(22,829	)
Balance at December 31, 2022:
Goodwill		383,166			361,819			262,077			158,699			1,165,761
Accumulated impairment losses		—			(353,843	)		(260,540	)		(148,183	)		(762,566	)
		383,166			7,976			1,537			10,516			403,195
Foreign currency translation adjustment		12,297			—			160			—			12,457
Balance at December 31, 2023:
Goodwill		395,463			361,819			262,237			158,699			1,178,218
Accumulated impairment losses		—			(353,843	)		(260,540	)		(148,183	)		(762,566	)
	$	395,463		$	7,976		$	1,697		$	10,516		$	415,652

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 2023, 2022 and 2021.

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


	December 31, 2023
	Gross Carrying Amount (1)		Accumulated Amortization (1)			Foreign Currency Translation Adjustment			Net Carrying Amount
	(in thousands)
Developed technology	$	267,706	$	(243,191	)	$	(5,343	)	$	19,172
Customer relationships		52,109		(47,850	)		232			4,491
Tradenames and trademarks		59,007		(46,021	)		(1,245	)		11,741
Total intangible assets	$	378,822	$	(337,062	)	$	(6,356	)	$	35,404


	December 31, 2022
	Gross Carrying Amount (1)		Accumulated Amortization (1)			Foreign Currency Translation Adjustment			Net Carrying Amount
	(in thousands)
Developed technology	$	270,967	$	(234,208	)	$	(5,935	)	$	30,824
Customer relationships		57,739		(51,186	)		172			6,725
Tradenames and trademarks		59,387		(41,930	)		(1,528	)		15,929
Total intangible assets	$	388,093	$	(327,324	)	$	(7,291	)	$	53,478

(1)

In 2023 and 2022, $9.3 million and $1.6 million, respectively, 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, 2023, 2022, and 2021, was $19.0 million, $19.3 million, and $21.5 million, respectively. Estimated intangible assets amortization expense for each of the five succeeding fiscal years is as follows:


Year	Amortization Expense
	(in thousands)
2024	$	18,983
2025		11,402
2026		2,390
2027		1,173
2028		1,092
Thereafter		364

COMMITMENTS AND CONTINGENCIES

Purchase Commitments

As of December 31, 2023, Teradyne had entered into non-cancelable purchase commitments for certain components and materials. The purchase commitments covered by the agreements aggregate to approximately $414.4 million, of which $379.1 million is for less than one year.

Legal Claims

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

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

Guarantees and Indemnification Obligations

Teradyne provides indemnification, to the extent permitted by law, to its officers, directors, employees and agents for liabilities arising from certain events or occurrences, while the officer, director, employee, or agent, is or was serving, at Teradyne’s request in such capacity. Teradyne may enter into indemnification agreements with certain of its officers and directors. With respect to acquisitions, Teradyne provides indemnifications to or assumes indemnification obligations for the current and former directors, officers and employees of the acquired companies in accordance with the acquired companies’ by-laws and 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 revenues 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, 2023 and 2022, Teradyne had a product warranty accrual of $15.7 million and $14.2 million, respectively, included in other accrued liabilities, and revenue deferrals related to extended warranties of $34.9 million and $56.2 million, respectively, included in short and long-term deferred revenue and customer advances.

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

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

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

Based on historical experience and information known as of December 31, 2023, and 2022, except for product warranty, Teradyne has not recorded any liabilities for these guarantees and obligations because the amount would be immaterial.

NET INCOME PER COMMON SHARE

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


	2023		2022		2021
	(in thousands, except per share amounts)
Net income for basic and diluted net income per share	$	448,752	$	715,501	$	1,014,589
Weighted average common shares-basic		154,310		158,434		164,960
Effect of dilutive potential common shares:
Convertible note hedge warrant shares (1)		8,897		8,806		9,956
Incremental shares from assumed conversion of convertible notes (2)		633		1,763		7,435
Restricted stock units		423		657		1,180
Stock options		34		52		86
Employee stock purchase rights		7		22		8
Dilutive potential common shares		9,994		11,300		18,665
Weighted average common shares-diluted		164,304		169,734		183,625
Net income per common share-basic	$	2.91	$	4.52	$	6.15
Net income per common share-diluted	$	2.73	$	4.22	$	5.53

(1)

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

(2)

Incremental shares from 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, multiplied by the number of convertible notes shares. The result of this calculation, representing the total intrinsic value of the convertible debt, was divided by the average Teradyne stock price for the period.

The computation of diluted net income per common share for 2023 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 2022 excludes the effect of the potential exercise of stock options to purchase approximately 0.1 million shares and restricted stock units to purchase approximately 0.4 million shares because the effect would have been anti-dilutive.

RESTRUCTURING AND OTHER

During the year ended December 31, 2023, Teradyne recorded $14.7 million of severance charges related to headcount reductions of 215 people primarily in Semiconductor Test and Robotics, which included charges related to a voluntary early retirement program for employees meeting certain conditions, a $3.1 million of acquisition and divestiture expenses related to Technoprobe transaction, a $1.5 million contract termination charge, and a charge of $1.1 million for an increase in environmental liability.

During the year ended December 31, 2022, Teradyne recorded a charge of $14.7 million related to the arbitration claim filed against Teradyne and AutoGuide related to an earn-out dispute, which was settled on March 25, 2022 for $26.7 million, $2.9 million of severance charges primarily in Robotics, and a charge of $2.7 million for an increase in environmental and legal liabilities, partially offset by a $3.4 million gain on sale of asset.

During the year ended December 31, 2021, Teradyne recorded a charge of $12.0 million related to the arbitration claim filed against Teradyne and AutoGuide related to an earn-out dispute, $1.5 million of severance charges primarily in Robotics, $0.5 million of acquisition related compensation and expenses, and $2.5 million for other expenses, offset by a $7.2 million gain for the decrease in the fair value of the AutoGuide contingent consideration liability.

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 2023, Teradyne’s projected benefit obligations increased primarily due to actuarial losses of approximately $6.0 million across all pension plans from increases in discount rates, and approximately $1.0 million of losses from foreign exchange effects for foreign plans. In 2022, Teradyne’s projected benefit obligations decreased primarily due to actuarial gains of approximately $59.1 million across all pension plans from increases in discount rates, and approximately $3.1 million gain from foreign exchange effects for foreign plans.

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


	2023						2022
	United States			Foreign			United States			Foreign
	(in thousands)
Assets and Obligations
Change in benefit obligation:
Projected benefit obligation:
Beginning of year	$	143,814		$	29,935		$	192,472		$	45,774
Service cost		1,063			446			1,588			784
Interest cost		6,888			1,057			4,886			482
Actuarial loss (gain)		3,229			2,738			(45,932	)		(13,181	)
Benefits paid		(10,807	)		(947	)		(9,200	)		(863	)
Liability (gain) loss due to settlement		—			(254	)		—			—
Non-U.S. currency movement		—			1,009			—			(3,061	)
End of year		144,187			33,984			143,814			29,935
Change in plan assets:
Fair value of plan assets:
Beginning of year		111,760			2,087			149,578			2,017
Actual return on plan assets		8,613			43			(31,835	)		153
Company contributions		3,051			1,028			3,217			949
Benefits paid		(10,807	)		(947	)		(9,200	)		(863	)
Settlements gain		—			(254	)		—			—
Non-U.S. currency movement		—			(28	)		—			(169	)
End of year		112,617			1,929			111,760			2,087
Funded status	$	(31,570	)	$	(32,055	)	$	(32,054	)	$	(27,848	)

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


	2023						2022
	United States			Foreign			United States			Foreign
	(in thousands)
Retirement plans assets	$	11,504		$	—		$	11,761		$	—
Accrued employees’ compensation and withholdings		(3,110	)		(1,255	)		(3,055	)		(1,191	)
Retirement plans liabilities		(39,964	)		(30,800	)		(40,760	)		(26,657	)
Funded status	$	(31,570	)	$	(32,055	)	$	(32,054	)	$	(27,848	)

The accumulated benefit obligation for the United States defined benefit pension plans was $142.2 million and $140.6 million at December 31, 2023 and 2022, respectively. The accumulated benefit obligation for foreign defined benefit pension plans was $32.6 million and $28.6 million at December 31, 2023 and 2022, respectively.

Information for pension plans with an accumulated benefit obligation in excess of plan assets as of December 31:


	2023				2022
	United States		Foreign		United States		Foreign
	(in millions)
Projected benefit obligation	$	43.1	$	34.0	$	43.8	$	29.9
Accumulated benefit obligation		42.6		32.5		42.3		28.6
Fair value of plan assets		—		1.9		—		2.1

Expense

For the years ended December 31, 2023, 2022, and 2021, Teradyne’s net periodic pension cost (income) was comprised of the following:


	2023						2022						2021
	United States			Foreign			United States			Foreign			United States			Foreign
	(in thousands)
Components of Net Periodic Pension Cost (Income):
Service cost	$	1,063		$	446		$	1,588		$	784		$	1,784		$	941
Interest cost		6,888			1,057			4,886			482			4,427			337
Expected return on plan assets		(5,194	)		(45	)		(2,927	)		(75	)		(3,858	)		(67	)
Net actuarial loss (gain)		18			2,735			(11,170	)		(13,259	)		643			(2,223	)
Settlement (gain) loss		(209	)		5			—			—			(204	)		—
Total net periodic pension cost (income)	$	2,566		$	4,198		$	(7,623	)	$	(12,068	)	$	2,792		$	(1,012	)

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


	2023						2022						2021
	United States			Foreign			United States			Foreign			United States			Foreign
Discount rate		3.5	%		3.5	%		2.5	%		1.1	%		2.2	%		0.7	%
Expected return on plan assets		4.8			1.8			2.0			4.0			2.4			3.5
Salary progression rate		2.4			2.1			2.4			2.2			2.4			2.3

Weighted Average Assumptions to Determine Pension Obligations at December 31:


	2023						2022
	United States			Foreign			United States			Foreign
Discount rate		4.7	%		3.0	%		4.9	%		3.5	%
Salary progression rate		2.5			2.4			2.5			2.1

In developing the expected return on plan assets assumption, Teradyne evaluates input from its investment manager and pension consultants, including their forecast of asset class return expectations. Teradyne believes that 4.75% was an appropriate rate to use for fiscal year 2023 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 4.7% at December 31, 2023, down from 4.9% at December 31, 2022.

Plan Assets

As of December 31, 2023, the fair value of Teradyne’s pension plans’ assets totaled $114.5 million, of which $112.6 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, 2023 and 2022:


	2023						2022
	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 U.S. Corporate A or Better Index, 20+ Year Index		43	%
U.S. corporate fixed income	Bloomberg U.S. Corporate A or Better Index, 5- 20 Year Index		32
U.S. government fixed income	Bloomberg U.S. 3 - 10 year Treasury Bond Index		14
Global equity	MSCI World Index		5
High yield fixed income	ICE BofA BB-B U.S. High Yield Constrained Index		5
Cash	ICE BofA 3-Month 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, 2023 and December 31, 2022, 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, 2023 and December 31, 2022 were as follows:


	December 31, 2023
	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	$	—	$	89,971	$	—	$	89,971	$	—	$	—	$	—	$	—
U.S. government securities		—		15,817		—		15,817		—		—		—		—
Global equity		—		5,691		—		5,691		—		—		—		—
Other		—		—		—		—		—		1,929		—		1,929
Cash and cash equivalents		1,138		—		—		1,138		—		—		—		—
Total	$	1,138	$	111,479	$	—	$	112,617	$	—	$	1,929	$	—	$	1,929


	December 31, 2022
	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	$	—	$	89,403	$	—	$	89,403	$	—	$	—	$	—	$	—
U.S. government securities		—		15,631		—		15,631		—		—		—		—
Global equity		—		5,579		—		5,579		—		—		—		—
Other		—		—		—		—		—		2,087		—		2,087
Cash and cash equivalents		1,147		—		—		1,147		—		—		—		—
Total	$	1,147	$	110,613	$	—	$	111,760	$	—	$	2,087	$	—	$	2,087

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 2023, Teradyne contributed $3.1 million to the U.S. supplemental executive defined benefit pension plan and $1.0 million to certain qualified plans for non-U.S. subsidiaries. During 2022, Teradyne contributed $3.2 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 2024, contributions to the U.S. supplemental executive defined benefit pension plan and certain qualified plans from non-U.S. subsidiaries will be approximately $3.1 million and $1.4 million, respectively.

Contributions to the U.S. supplemental executive defined benefit pension plan and certain non-U.S. subsidiaries qualified plans will be approximately $6.6 million and $2.3 million, respectively, in 1 to 3 years, $7.1 million and $2.5 million, respectively, in 3 to 5 years and $16.9 million and $7.9 million, respectively, thereafter.

Expected Future Pension Benefit Payments

Future benefit payments are expected to be paid as follows:


	United States		Foreign
	(in thousands)
2024	$	10,210	$	1,312
2025		9,720		1,068
2026		9,863		1,191
2027		10,792		1,301
2028		10,795		1,238
2029-2032		51,857		8,832

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. During the twelve months ended December 31, 2023, Teradyne recorded special termination benefit charges associated with a voluntary early retirement program.

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


	2023			2022
	(in thousands)
Assets and Obligations
Change in benefit obligation:
Projected benefit obligation:
Beginning of year	$	5,345		$	7,210
Service cost		34			64
Interest cost		299			177
Actuarial loss (gain)		155			(1,155	)
Benefits paid		(1,413	)		(950	)
Special termination benefits		2,513			—
End of year		6,933			5,345
Change in plan assets:
Fair value of plan assets:
Beginning of year		—			—
Company contributions		1,413			950
Benefits paid		(1,413	)		(950	)
End of year		—			—
Funded status	$	(6,933	)	$	(5,345	)

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


	2023			2022
	(in thousands)
Accrued employees’ compensation and withholdings	$	(1,508	)	$	(853	)
Retirement plans liabilities		(5,425	)		(4,492	)
Funded status	$	(6,933	)	$	(5,345	)

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


	2023			2022
	(in thousands)
Prior service credit, before tax	$	(23	)	$	(31	)
Deferred taxes		(1,691	)		(1,689	)
Total recognized in other comprehensive income (loss), net of tax	$	(1,714	)	$	(1,720	)

Expense

For the years ended December 31, 2023, 2022, and 2021, Teradyne’s net periodic postretirement benefit cost (income) was comprised of the following:


	2023			2022			2021
	(in thousands)
Components of Net Periodic Postretirement Benefit Cost (income):
Service cost	$	34		$	64		$	64
Interest cost		299			177			170
Amortization of prior service credit		(9	)		(9	)		(9	)
Net actuarial loss (gain)		155			(1,155	)		(433	)
Special termination benefits		2,513			—			—
Total net periodic postretirement benefit cost (income)		2,992			(923	)		(208	)
Changes in Plan Assets and Benefit Obligations Recognized in Other Comprehensive Income:
Reversal of amortization items:
Prior service credit		9			9			9
Total recognized in other comprehensive income		9			9			9
Total recognized in net periodic postretirement cost (income) and other comprehensive income	$	3,001		$	(914	)	$	(199	)

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


	2023			2022			2021
Discount rate		5.0	%		2.6	%		2.2	%
Initial health care cost trend rate		7.2			7.3			7.3
Ultimate health care cost trend rate		4.5			4.5			4.5
Year in which ultimate health care cost trend rate is reached	2032			2029			2029

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


	2023			2022			2021
Discount rate		4.7	%		5.0	%		2.6	%
Initial health care trend		7.7			7.2			7.3
Ultimate health care trend		4.5			4.5			4.5
Medical cost trend rate decrease to ultimate rate in year		2033			2032			2029

Contributions

Contributions to the U.S. postretirement benefit plan will be approximately $1.5 million in 2024, $1.6 million in 1 to 3 years, $1.2 million in 3 to 5 years and $2.0 million, thereafter.

Expected Future Benefit Payments

Future benefit payments are expected to be paid as follows:


	Benefit Payments
	(in thousands)
2024	$	1,508
2025		924
2026		701
2027		637
2028		568
2029-2032		2,004

STOCK-BASED COMPENSATION

Stock Compensation Plans

On February 1, 2023 (the “Retirement Date”), Mark E. Jagiela retired as Chief Executive Officer of Teradyne and a member of Teradyne's Board of Directors, and Teradyne entered into an agreement (the “Retirement Agreement”) with Mr. Jagiela. Under the Retirement Agreement, Mr. Jagiela's unvested time-based restricted stock units and stock options granted prior to his Retirement Date were modified to allow continued vesting; and any vested options or options that vest during that period may be exercised for the remainder of the applicable option term. During 2023, Teradyne recorded a stock-based compensation expense of $5.9 million related to the Retirement Agreement.

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

Service-based restricted stock unit awards granted to employees vest in equal annual installments over four years. Restricted stock unit awards granted to non-employee directors vest after a one-year period, with 100% of the award vesting on the earlier of (a) the first anniversary of the grant date or (b) the date of the following year’s Annual Meeting of Shareholders. Teradyne expenses the cost of the restricted stock unit awards subject to 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 0% to 200% of the target shares. The TSR PRSUs will vest upon the three-year anniversary of the grant date. The TSR PRSUs are valued using a Monte Carlo simulation model. The number of units expected to be earned, based upon the achievement of the TSR market condition, is factored into the grant date Monte Carlo valuation. Compensation expense is recognized on a straight-line basis over the shorter of the three-year service period or the period from the grant to the date described in the retirement provisions below. Compensation expense for executive officers meeting the retirement provisions prior to the grant date is recognized during the year following the grant. Compensation expense is recognized regardless of the eventual number of units that are earned based upon the market condition, provided the executive officer remains an employee at the end of the three-year period. Compensation expense is reversed if at any time during the three-year service period the executive officer is no longer an employee, subject to the retirement and termination eligibility provisions noted below.

PRSUs granted to Teradyne’s executive officers may also have a performance metric based on three-year cumulative non-GAAP profit before interest and tax (“PBIT”) as a percent of Teradyne’s revenue. Non-GAAP PBIT is a financial measure equal to GAAP income from operations less restructuring and other, net; amortization of acquired intangible assets; acquisition and divestiture related charges or credits; pension actuarial gains and losses; non-cash convertible debt interest expense; and other non-recurring gains and charges. The final number of PBIT PRSUs that vest will vary based upon the level of performance achieved from 0% to 200% of the target shares. The PBIT PRSUs will vest upon the three-year anniversary of the grant date. Compensation expense is recognized on a straight-line basis over the shorter of the three-year service period or the period from the grant date to the date described in the retirement provisions below. Compensation expense for executive officers meeting the retirement provisions prior to the grant date is recognized during the year following the grant. Compensation expense is recognized based on the number of units that are earned based upon the three-year Teradyne PBIT as a percent of Teradyne’s revenue, provided the executive officer remains an employee at the end of the three-year period subject to the retirement and termination eligibility provisions noted below.

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 2023, 2022 and 2021, Teradyne granted 0.5 million, 0.4 million and 0.3 million of service-based restricted stock unit awards to employees at a weighted average grant date fair value of $102.45, $109.42, and $114.16, respectively.

During 2023, 2022 and 2021, 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 $90.50, $105.93, and $128.70, respectively.

During 2023, 2022 and 2021, Teradyne granted 0.1 million of PBIT PRSUs with a grant date fair value of $102.91, $110.84 and $113.65, respectively.

During 2023, 2022 and 2021, Teradyne granted 0.1 million TSR PRSUs, with a grant date fair value of $139.04, $101.06, and $125.02, respectively. The fair value was estimated using the Monte Carlo simulation model with the following assumptions:


	2023			2022			2021
Risk-free interest rate		4.0	%		1.4	%		0.2	%
Teradyne volatility-historical		49.7	%		47.1	%		43.9	%
NYSE Composite Index volatility-historical		24.1	%		22.7	%		22.9	%
Dividend yield		0.4	%		0.4	%		0.4	%

Expected volatility was based on the historical volatility of Teradyne’s stock and the NYSE Composite Index for each of the 2023, 2022 and 2021 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 $0.44 per share for 2023, $0.44 per share for 2022, and $0.40 per share for 2021, divided by Teradyne’s stock price on the grant date of $104.12 for the 2023 grants, $112.12 for the 2022 grants, and $113.48 for the 2021 grants.

During 2023, 2022 and 2021, Teradyne granted 0.1 million of service-based stock options to executive officers at a weighted average grant date fair value of $41.23, $39.01, and $36.60, respectively.

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


	2023			2022			2021
Expected life (years)		4.0			4.0			5.0
Risk-free interest rate		3.8	%		1.6	%		0.4	%
Volatility-historical		46.6	%		43.7	%		37.8	%
Dividend yield		0.4	%		0.4	%		0.4	%

Teradyne determined the stock options’ expected life based upon historical exercise data for executive officers, the age of the executive officers and the terms of the stock option grant. Volatility was determined using historical volatility for a period equal to the expected life. The risk-free interest rate was determined using the U.S. Treasury yield curve in effect at the time of grant. Dividend yield was based upon an estimated annual dividend amount of $0.44 per share divided by Teradyne’s stock on the grant date of $104.15 for the 2023 grant, and $112.12 for the 2022 grant, and $0.40 per share divided by Teradyne’s stock price on the grant date of $113.48 for the 2021 grants.

Stock compensation plan activity for the years 2023, 2022 and 2021, is as follows:


	2023			2022			2021
	(in thousands)
Restricted Stock Units:
Non-vested at January 1		1,317			1,417			1,789
Awarded		728			660			447
Vested		(609	)		(709	)		(749	)
Forfeited		(58	)		(51	)		(70	)
Non-vested at December 31		1,378			1,317			1,417
Stock Options:
Outstanding at January 1		188			171			216
Granted		41			42			34
Exercised		(56	)		(25	)		(78	)
Forfeited		(2	)		—			(1	)
Expired		—			—			—
Outstanding at December 31		171			188			171
Vested and expected to vest at December 31		171			188			171
Exercisable at December 31		68			69			30

Total shares available for the years 2023, 2022 and 2021:


	2023			2022			2021
	(in thousands)
Shares available:
Available for grant at January 1		5,062			5,713			6,123
Options granted		(41	)		(42	)		(34	)
Options forfeited		2			—			1
Restricted stock units awarded		(728	)		(660	)		(447	)
Restricted stock units forfeited		58			51			70
Available for grant at December 31		4,353			5,062			5,713

Weighted average restricted stock unit award date fair value information for the years 2023, 2022 and 2021, is as follows:


	2023		2022		2021
Non-vested at January 1	$	88.71	$	67.97	$	47.84
Awarded		105.05		108.74		115.51
Vested		75.55		54.27		43.99
Forfeited		102.12		85.71		65.52
Non-vested at December 31	$	101.00	$	88.71	$	67.97

Restricted stock unit awards aggregate intrinsic value information at December 31 for the years 2023, 2022 and 2021 is as follows:


	2023		2022		2021
	(in thousands)
Vested	$	62,001	$	95,408	$	101,679
Outstanding		149,504		115,087		231,763
Expected to vest		135,238		108,666		231,246

Restricted stock units weighted average remaining contractual terms (in years) information at December 31 for the years 2023, 2022 and 2021 is as follows:


	2023		2022		2021
Outstanding		1.13		0.99		0.89
Expected to vest		1.13		0.99		0.89

Weighted average stock options exercise price information for the year ended December 31, 2023 is as follows:


	2023
Outstanding at January 1	$	76.52
Options granted		104.15
Options exercised		39.71
Options forfeited		112.57
Options cancelled		113.03
Outstanding at December 31		94.85
Exercisable at December 31		81.53

The total cash received from employees as a result of employee stock options exercised during the years ended December 31, 2023, 2022 and 2021, was $2.2 million, $0.9 million, and $3.1 million, respectively. In connection with these exercises, the tax benefit realized by Teradyne for the years ended December 31, 2023, 2022 and 2021, was $0.2 million, $0.1 million, and $0.4 million, respectively.

Stock option aggregate intrinsic value information for the years ended December 31, 2023, 2022 and 2021 is as follows:


	2023		2022		2021
	(in thousands)
Exercised	$	3,901	$	2,030	$	6,345
Outstanding		2,647		3,963		17,356
Expected to vest		696		1,583		13,500
Vested and exercisable		1,950		2,380		3,856

Stock options weighted average remaining contractual terms (in years) information at December 31, for the years 2023, 2022 and 2021 is as follows:


	2023		2022		2021
Outstanding		4.4		4.2		4.4
Expected to vest		5.1		4.8		4.8
Vested and exercisable		3.4		3.1		2.5

As of December 31, 2023, total unrecognized expense related to non-vested restricted stock unit awards and stock options was $73.7 million and is expected to be recognized over a weighted average period of 2.5 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 2023, 0.2 million shares of common stock were issued to employees who participated in the plan during the first half of 2023 at the price of $94.64 per share. In January 2024, Teradyne issued 0.2 million shares of common stock to employees who participated in the plan during the second half of 2023 at the price of $92.25 per share.

In July 2022, 0.2 million shares of common stock were issued to employees who participated in the plan during the first half of 2022 at the price of $76.12 per share. In January 2023, Teradyne issued 0.2 million shares of common stock to employees who participated in the plan during the second half of 2022 at the price of $74.25 per share.

In July 2021, 0.1 million shares of common stock were issued to employees who participated in the plan during the first half of 2021 at the price of $113.87 per share. In January 2022, Teradyne issued 0.1 million shares of common stock to employees who participated in the plan during the second half of 2021 at the price of $139.00 per share.

As of December 31, 2023, there were 3.5 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, 2023, 2022, and 2021:


	2023			2022			2021
	(in thousands)
Cost of revenues	$	4,208		$	4,050		$	4,196
Engineering and development		10,659			9,992			9,783
Selling and administrative		42,815			34,186			31,664
Stock-based compensation		57,682			48,228			45,643
Income tax benefit		(10,397	)		(11,493	)		(14,389	)
Total stock-based compensation expense after income taxes	$	47,285		$	36,735		$	31,254

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 2023, 2022 and 2021,

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, 2023 and 2022, was $55.9 million and $44.1 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, 2023, 2022, and 2021 were $30.5 million, $30.1 million, and $26.9 million, respectively.

INCOME TAXES

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


	2023			2022			2021
	(in thousands)
Income before income taxes:
U.S.	$	307,997		$	385,968		$	403,451
Non-U.S.		217,575			454,417			757,504
	$	525,572		$	840,385		$	1,160,955
Provision (benefit) for income taxes:
Current:
U.S. Federal	$	58,063		$	86,692		$	58,218
Non-U.S.		54,037			74,204			105,153
State		2,362			2,681			300
		114,462			163,577			163,671
Deferred:
U.S. Federal		(27,459	)		(36,739	)		(15,106	)
Non-U.S.		(8,584	)		1,232			(4,300	)
State		(1,599	)		(3,186	)		2,101
		(37,642	)		(38,693	)		(17,305	)
Total provision for income taxes:	$	76,820		$	124,884		$	146,366

Income tax expense for 2023, 2022 and 2021 totaled $76.8 million, $124.9 million, and $146.4 million, respectively. The effective tax rate for 2023, 2022 and 2021 was 14.6%, 14.9% and 12.6%, respectively.

At December 31, 2023, Teradyne’s remaining tax liability resulting from the U.S. one-time transition tax on the mandatory deemed repatriation of foreign earnings amounts to $59.1 million. Teradyne will pay approximately $14.8 million related to the transition tax in 2024, and $44.3 million in 1 to 3 years.

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.

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 2021, Teradyne recognized approximately $2.5 million of tax benefit related to the inclusion of stock-based compensation in its intercompany cost-sharing arrangement.

The decrease in the effective tax rate from 2022 to 2023 is primarily attributable to increases in benefit from tax credits and the U.S. foreign derived intangible income deduction. These decreases in expense were partially offset by a shift in the geographic distribution of income, which increased the income subject to taxation in higher tax rate jurisdictions relative to lower tax rate jurisdictions and a reduction in benefit from equity compensation.

The increase in the effective tax rate from 2021 to 2022 is primarily attributable to a shift in the geographic distribution of income, which increased the income subject to taxation in higher tax rate jurisdictions relative to lower tax rate jurisdictions, increases in expense from U.S. global low-taxed income and increases in expense from non-deductible officer compensation. These increases in expense were partially offset by increases in benefits from the U.S. foreign derived intangible income deduction and tax credits.

A reconciliation of the effective tax rate for the years 2023, 2022 and 2021 is as follows:


	2023			2022			2021
U.S. statutory federal tax rate		21.0	%		21.0	%		21.0	%
Foreign taxes		2.5			(1.9	)		(4.5	)
Non-deductible officers’ compensation		1.1			1.3			0.8
U.S. global intangible low-taxed income		0.8			1.2			0.6
State income taxes, net of federal tax benefit		0.1			(0.1	)		0.2
U.S. research and development credit		(4.2	)		(1.8	)		(1.4	)
U.S. foreign derived intangible income		(3.9	)		(3.1	)		(2.3	)
Foreign tax credits		(3.3	)		(1.0	)		(0.5	)
Equity compensation		(0.4	)		(1.1	)		(1.0	)
Other, net		0.9			0.4			(0.3	)
		14.6	%		14.9	%		12.6	%

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, 2023, 2022 and 2021 were $1.4 million or $0.01 per diluted share, $16.0 million or $0.09 per diluted share, and $33.3 million or $0.18 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. Teradyne does not anticipate entering into a similar tax holiday agreement with the Singapore Economic Development Board when the current agreement expires.

Significant components of Teradyne’s deferred tax assets (liabilities) as of December 31, 2023 and 2022 were as follows:


	2023			2022
	(in thousands)
Deferred tax assets:
Tax credits	$	112,571		$	105,503
Research and development		82,571			47,760
Accruals		25,644			30,747
Pension liabilities		24,997			21,335
Lease liabilities		21,167			18,679
Inventory valuations		19,289			22,554
Deferred revenue		13,807			14,909
Equity compensation		7,179			6,578
Vacation accrual		6,096			5,856
Net operating loss carryforwards		5,737			1,857
Investment impairment		3,292			3,292
Intangible assets		2,323			350
Marketable securities		128			2,283
Other		953			2,520
Gross deferred tax assets		325,754			284,223
Less: valuation allowance		(109,251	)		(103,807	)
Total deferred tax assets	$	216,503		$	180,416
Deferred tax liabilities:
Right of use assets	$	(19,016	)	$	(16,607	)
Depreciation		(16,681	)		(19,078	)
Contingent consideration		(5,214	)		(5,214	)
Total deferred tax liabilities	$	(40,911	)	$	(40,899	)
Net deferred assets	$	175,592		$	139,517

As of December 31, 2023 and 2022, 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 the majority of its deferred tax assets will be realized through consideration of both the positive and negative evidence. At December 31, 2023 and 2022, Teradyne maintained a valuation allowance for certain deferred tax assets of $109.3 million and $103.8 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, 2023, Teradyne had tax effected operating loss carryforwards that expire in the following years:


	State Operating Loss Carryforwards		Foreign Operating Loss Carryforwards
	(in thousands)
2024	$	6	$	—
2025		4		—
2026		—		—
2027		—		—
2028		23		83
2029-2033		121		500
2034-2038		31		—
Beyond 2038		—		—
Non-expiring		30		4,939
Total	$	215	$	5,522

Teradyne has approximately $147.1 million of tax credit carryforwards including federal business tax credits of approximately $3.4 million which expire in 2028 through 2033, and state tax credits of $143.8 million, of which $76.5 million do not expire and the remainder expires in the years 2023 through 2043.

Teradyne’s gross unrecognized tax benefits for the years ended December 31, 2023, 2022 and 2021 were as follows:


	2023			2022			2021
	(in thousands)
Beginning balance as of January 1	$	15,608		$	14,465		$	17,903
Additions:
Tax positions for current year		—			1,398			1,417
Tax positions for prior years		3,024			13			30
Reductions:
Tax positions for prior years		(26	)		(56	)		(1,639	)
Expiration of statutes		—			(212	)		(3,246	)
Ending balance as of December 31	$	18,606		$	15,608		$	14,465

Current year additions primarily relate to foreign transfer pricing and prior year reductions relate to state research credits.

Of the $18.6 million of unrecognized tax benefits as of December 31, 2023, $12.9 million would impact the consolidated income tax rate if ultimately recognized. The remaining $5.7 million would impact deferred taxes if recognized.

As of December 31, 2023, Teradyne estimates that it is reasonably possible that the balance of unrecognized tax benefits may decrease approximately $2.8 million in the next twelve months as a result of the resolution of an audit and a lapse of statutes of limitation. The estimated decrease relates to transfer pricing and state research credits.

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, 2023 and 2022 amounted to $1.3 million and $0.4 million, respectively. For the years ended December 31, 2023, 2022 and 2021, expense of $0.9 million, expense of $0.1 million, and benefit of $0.9 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, 2023, all material state and local income tax matters have been concluded through 2018, all material federal income tax matters have been concluded through 2017 and all material foreign income tax matters have been concluded through 2015. 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, 2023, 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.

On August 16, 2022, the Inflation Reduction Act of 2022 (“IRA”) was signed into law. The IRA introduced a 15% alternative minimum tax based on the financial statement income of certain large corporations (“CAMT”), effective January 1, 2023. Teradyne currently does not expect the CAMT to have a material impact on its financial results.

On December 15, 2022, the European Union ("EU") Member States formally adopted the EU’s Pillar Two Directive, which generally provides for a minimum effective tax rate of 15%, as established by the Organization for Economic Co-operation and Development ("OECD") Pillar Two Framework. The EU’s Pillar Two Directive effective dates are January 1, 2024, and January 1, 2025, for different aspects of the directive. On July 17, 2023, the OECD published Administrative Guidance proposing certain safe harbor rules that effectively extend certain effective dates to January 1, 2027. Certain EU Member States where Teradyne has a legal presence have recently enacted the directive and administrative guidance into their local tax legislation. Additionally, countries outside the EU where Teradyne has a legal presence have enacted similar language as the EU Members States in their local tax legislation. Teradyne is closely monitoring these developments and evaluating the potential financial impact on future periods. Based upon preliminary calculations for calendar year 2024, Teradyne anticipates it will meet the safe harbors in most jurisdictions, and any remaining tax under the rules should be immaterial.

OPERATING SEGMENT, GEOGRAPHIC AND SIGNIFICANT CUSTOMER INFORMATION

Teradyne has four reportable segments (Semiconductor Test, System Test, Wireless Test and Robotics). Each of the reportable segments represents an individual operating segment.

The Semiconductor Test segment includes operations related to the design, manufacturing and marketing of semiconductor test products and services. The System Test segment includes operations related to the design, manufacturing and marketing of products and services for 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 Robotics segment includes operations related to the design, manufacturing and marketing of collaborative robotic arms, autonomous mobile robots and advanced robotic control software. Each operating segment has a segment manager who is accountable to and maintains regular contract with Teradyne’s chief operating decision maker (Teradyne’s chief executive officer) to discuss operating activities, financial results, forecasts, and plans for the segment.

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

Segment information for the years ended December 31, 2023, 2022 and 2021 is as follows:


	Semiconductor Test		System Test		Robotics			Wireless Test		Segment Total		Corporate and Eliminations			Consolidated
	(in thousands)
2023
Revenues	$	1,818,636	$	338,197	$	375,183		$	144,282	$	2,676,298	$	—		$	2,676,298
Income (loss) before taxes (1)(2)		453,320		94,073		(54,251	)		30,568		523,710		1,862			525,572
Total assets (3)		1,329,522		182,084		737,323			68,291		2,317,220		1,169,604			3,486,824
Property additions		113,415		3,643		40,739			1,845		159,642		—			159,642
Depreciation and amortization expense		77,745		3,801		25,527			4,043		111,116		(230	)		110,886
2022
Revenues	$	2,080,590	$	469,346	$	403,138		$	201,720	$	3,154,794	$	251		$	3,155,045
Income (loss) before taxes (1)(2)		634,488		166,879		(16,244	)		66,820		851,943		(11,558	)		840,385
Total assets (3)		1,382,623		165,925		665,638			94,298		2,308,484		1,192,768			3,501,252
Property additions		126,898		7,275		25,712			3,364		163,249		—			163,249
Depreciation and amortization expense		76,532		3,235		25,339			4,991		110,097		578			110,675
2021
Revenues	$	2,642,342	$	467,739	$	375,905		$	216,895	$	3,702,881	$	—		$	3,702,881
Income (loss) before taxes (1)(2)		976,988		163,064		(8,167	)		83,543		1,215,428		(54,473	)		1,160,955
Total assets (3)		1,245,596		170,954		701,196			107,513		2,225,259		1,584,166			3,809,425
Property additions		115,618		3,905		9,821			3,128		132,472		—			132,472
Depreciation and amortization expense		75,982		3,156		27,336			6,055		112,529		12,956			125,485

(1)

Included in Corporate and Eliminations are interest income, interest expense, net foreign exchange gains (losses), intercompany eliminations, pension and postretirement plan actuarial gains (losses), legal and environmental fees, contingent consideration adjustments, acquisition and divestiture related expenses, contract termination settlement charge, an expense for the modification of Teradyne's former chief executive officer's outstanding equity awards, and loss on convertible debt conversions in 2021.

(2)

Included in income (loss) before taxes are charges and credits related to restructuring and other, inventory charges and loss on convertible debt conversions in 2021.

(3)

Total assets are attributable to each segment. Semiconductor Test includes $34.8 million of total assets classified as assets held for sale. See Note E: “Assets held for sale” for additional information. 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 Years Ended December 31,
	2023			2022			2021
	(in thousands)
Semiconductor Test:
Cost of revenues—inventory charge	$	22,482		$	21,456		$	6,661
Restructuring and other—employee severance		5,666			—			—
System Test:
Cost of revenues—inventory charge	$	1,855		$	1,730		$	641
Restructuring and other—employee severance		1,541		$	—		$	—
Robotics:
Cost of revenues—inventory charge	$	2,275		$	3,668		$	6,403
Restructuring and other—employee severance		3,707			2,115			1,210
Restructuring and other—acquisition & divestiture related expenses		—			—			1,000
Wireless:
Cost of revenues—inventory charge	$	1,746		$	4,598		$	1,770
Corporate and Eliminations:
Selling and administrative—equity modification charge	$	5,889		$	—		$	—
Restructuring and other—employee severance		3,599			—			—
Restructuring and other—acquisition & divestiture related expenses		3,562			—			(513	)
Restructuring and other—contract termination		1,511			—			—
Restructuring and other—environmental and legal liabilities		1,100			2,700			1,971
Other (income) expense, net—gain on foreign exchange option		(7,464	)		—			—
Restructuring and other—legal settlement charge		—			14,700			12,000
Restructuring and other—gain on sale of asset		—			(3,410	)		—
Other (income) expense, net—loss on convertible debt conversion		—			—			28,828
Restructuring and other—AutoGuide contingent consideration adjustment		—			—			(7,227	)

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


	2023		2022		2021
	(in thousands)
Revenues from customers (1):
United States	$	433,661	$	469,948	$	392,626
Korea		394,690		544,816		502,167
Taiwan		384,842		626,424		1,117,874
China		314,899		491,798		631,963
Japan		281,742		162,920		166,231
Europe		273,784		268,384		259,954
Philippines		189,419		124,107		166,838
Singapore		116,969		99,503		121,582
Thailand		91,818		137,356		138,812
Malaysia		89,197		142,203		136,774
Rest of the World		105,277		87,586		68,060
	$	2,676,298	$	3,155,045	$	3,702,881

(1)

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

In 2023, revenues from Texas Instruments Inc., a customer of our Semiconductor Test segment, accounted for 10% of our consolidated revenues. In 2021, revenues from Taiwan Semiconductor Manufacturing Company Ltd., a customer of Teradyne’s Semiconductor Test segment, accounted for 12%, of Teradyne’s consolidated revenues. Teradyne estimates consolidated revenues driven by Qualcomm, a customer of our Semiconductor Test, System Test, and Wireless Test segments, combining direct and indirect sales, accounted for approximately 11% of its consolidated revenues in 2022. Teradyne estimates consolidated revenues driven by one OEM customer, of our Semiconductor Test and Wireless Test segments, combining direct sales to that customer with sales to the customer’s OSATs (which include Taiwan Semiconductor Manufacturing Company Ltd.), accounted for 19% in 2021.

Long-lived assets by geographic area:


	United States		Foreign (1)		Total
	(in thousands)
December 31, 2023 (2)	$	322,445	$	207,995	$	530,440
December 31, 2022	$	328,341	$	164,076	$	492,417

(1)

As of December 31, 2023 and December 31, 2022, long-lived assets attributable to Denmark were $78.1 million and $42.5 million, respectively.

(2)

Includes $11.5 million of long-lived assets classified as assets held for sale. See Note E: “Assets held for sale” for additional information.

STOCK REPURCHASE PROGRAM

In January 2023, Teradyne’s Board of Directors cancelled the January 2021 repurchase program and approved a new repurchase program for up to $2.0 billion of common stock. In 2023, Teradyne repurchased 3.9 million shares of common stock for a total cost of $400.5 million at an average price of $102.47 per share. In 2022, Teradyne repurchased 7.3 million shares of common stock for $752.1 million at an average price of $103.69 per share. The cumulative repurchases under the January 2021 repurchase program as of December 31, 2022 were 12.0 million shares of common stock for $1,352.1 million at an average price per share of $112.44.

The total cost of shares acquired includes commissions and, starting in 2023, related excise tax, and is recorded as a reduction to retained earnings.

SUBSEQUENT EVENTS

In January 2024, Teradyne’s Board of Directors declared a 9% increase in the quarterly cash dividend to $0.12 per share to be paid on March 15, 2024 to shareholders of record as of February 16, 2024.

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)

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