TerrAscend
Annual Report 2020

Plain-text annual report

Table of Contents Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTIONS 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (MARK ONE) ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2020 ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 OR Commission file number 001-06462 TERADYNE, INC. (Exact Name of Registrant as Specified in Its Charter) MASSACHUSETTS (State or Other Jurisdiction of Incorporation or Organization) 600 RIVERPARK DRIVE NORTH READING, MASSACHUSETTS (Address of Principal Executive Offices) 04-2272148 (I.R.S. Employer Identification Number) 01864 (Zip Code) Registrant’s telephone number, including area code: (978) 370-2700 Title of each class Common Stock, par value $0.125 per share Securities registered pursuant to Section 12(b) of the Act: Trading Symbol(s) TER Name of each exchange on which registered Nasdaq Stock Market LLC Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒ No ☐ Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes ☐ No ☒ Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐ Indicate by check mark whether the registrant has submitted electronically every Interactive Data File to be submitted pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐ Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act (check one): Large accelerated filer ☒ Accelerated filer ☐ Non-accelerated filer ☐ Smaller reporting company ☐ Emerging growth company ☐ If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐ Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. Yes ☒ No ☐ Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒ The aggregate market value of the voting stock held by non-affiliates of the registrant as of June 26, 2020 was approximately $10.6 billion based upon the closing price of the registrant’s Common Stock on the Nasdaq Stock Market on that date. The number of shares outstanding of the registrant’s only class of Common Stock as of February 16, 2021 was 166,694,772 shares. Portions of the registrant’s proxy statement in connection with its 2021 annual meeting of shareholders are incorporated by reference into Part III of DOCUMENTS INCORPORATED BY REFERENCE this Form 10-K. Table of Contents TERADYNE, INC. INDEX PART I. Item 1. Item 1A. Item 1B. Item 2. Item 3. Item 4. Item 5. Item 6. Item 7. Item 7A. Item 8. Item 9. Item 9A. Item 9B. Item 10. Item 11. Item 12. Item 13. Item 14. Item 15. Item 16. Business Risk Factors Unresolved Staff Comments Properties Legal Proceedings Mine Safety Disclosure Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities PART II. Selected Financial Data Management’s Discussion and Analysis of Financial Condition and Results of Operation Quantitative and Qualitative Disclosures about Market Risk Financial Statements and Supplementary Data Changes in and Disagreements with Accountants on Accounting and Financial Disclosure Controls and Procedures Other Information Directors, Executive Officers and Corporate Governance Executive Compensation Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Certain Relationships and Related Transactions, and Director Independence Principal Accountant Fees and Services PART III. Exhibits and Financial Statement Schedule Form 10-K Summary Signatures PART IV. Page No. 1 13 25 25 25 25 26 26 26 44 46 108 108 109 110 110 110 110 110 111 112 118 Table of Contents TERADYNE, INC. FORM 10-K SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS This Annual Report on Form 10-K contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act and Section 21E of the Securities Exchange Act. When used herein, the words “will,” “would,” “believe,” “anticipate,” “plan,” “expect,” “estimate,” “project,” “intend,” “may,” “see,” “target” and other words and terms of similar meaning are intended to identify forward- looking statements although not all forward looking statements contain these identifying words. Forward-looking statements involve risks and uncertainties, including, but not limited to, those discussed in the section entitled “Risk Factors” of this annual report on Form 10-K and elsewhere, and in other reports we file with the Securities and Exchange Commission. Readers are cautioned not to place undue reliance on these forward-looking statements which reflect management’s analysis only as of the date hereof and are subject to risks and uncertainties that could cause actual results to differ materially from those stated or implied. Teradyne assumes no obligation to update these forward-looking statements for any reason, except as may be required by law. PART I Item 1: Business Teradyne, Inc. (“Teradyne”) was founded in 1960 and is a leading global supplier of automation equipment for test and industrial applications. We design, develop, manufacture and sell automatic test systems used to test semiconductors, wireless products, data storage and complex electronics systems in many industries including consumer electronics, wireless, automotive, industrial, computing, communications, and aerospace and defense industries. Our industrial automation products include collaborative robotic arms, autonomous mobile robots and advanced robotic control software used by global manufacturing, logistics and light industrial customers to improve quality, increase manufacturing and material handling efficiency and decrease manufacturing and logistics costs. Our automatic test equipment and industrial automation products and services include: • • • • semiconductor test (“Semiconductor Test”) systems; storage and system level test (“Storage Test”) systems, defense/aerospace (“Defense/Aerospace”) test instrumentation and systems, and circuit-board test and inspection (“Production Board Test”) systems (collectively these products represent “System Test”); wireless test (“Wireless Test”) systems; and industrial automation (“Industrial Automation”) products. The market for our test products is concentrated with a limited number of significant customers accounting for a substantial portion of the purchases of test equipment. A few customers drive significant demand for our products both through direct sales and sales to the customer’s supply partners. We expect that sales of our test products will continue to be concentrated with a limited number of significant customers for the foreseeable future. We have grown our Industrial Automation business through acquisitions, including Mobile Industrial Robots A/S (“MiR”), a leading maker of collaborative autonomous mobile robots (“AMRs”) for industrial applications, in 2018 and AutoGuide, LLC (“AutoGuide”), a maker of high payload AMRs, in 2019. The market for our Industrial Automation products is dependent on the adoption of new automation technologies by large 1 Table of Contents manufacturers as well as small and medium enterprises (SMEs) throughout the world. In 2020, our Industrial Automation businesses were negatively impacted by the global industrial downturn as well as the COVID-19 pandemic. In 2020, revenue in our test businesses exceeded our plan as a result of Semiconductor Test demand by our largest customer, early 5G test investments and strength in our System Test businesses. The revenue of our Industrial Automation business was below our plan. In 2021, we expect strong momentum in our test businesses and a return to growth for Industrial Automation. Our strategy is to focus on profitably growing market share in our test businesses through the introduction of differentiated products that target growth segments and accelerating growth through continued investment in our Industrial Automation businesses. We plan to execute on our strategy while balancing capital allocations between returning capital to our shareholders through dividends and stock repurchases and using capital for opportunistic acquisitions. Investor Information We are a Massachusetts corporation incorporated on September 23, 1960. We are subject to the informational requirements of the Securities Exchange Act of 1934 (“Exchange Act”). We file periodic reports, proxy statements and other information with the Securities and Exchange Commission (“SEC”). The SEC maintains an internet site (http://www.sec.gov) that contains reports, proxy and information statements and other information regarding issuers that file documents electronically. You can access financial and other information, including the charters of our Audit Committee, Compensation Committee and Nominating and Corporate Governance Committee, our Corporate Governance Guidelines and Code of Conduct, by clicking the Investors link on our web site at www.teradyne.com. We make available, free of charge, copies of our filings with the SEC, including our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act through our web site as soon as reasonably practicable after filing such material electronically or otherwise furnishing it to the SEC. Products Semiconductor Test We design, manufacture, sell and support Semiconductor Test products and services on a worldwide basis. The test systems we provide are used both for wafer level and device package testing. These chips are used in automotive, industrial, communications, consumer, smartphones, and computer and electronic game applications, among others. Semiconductor devices span a broad range of functionality, from very simple low-cost devices such as appliance microcontrollers, operational amplifiers or voltage regulators to complex digital signal processors and microprocessors as well as memory devices. Semiconductor Test products and services are sold to integrated device manufacturers (“IDMs”) that integrate the fabrication of silicon wafers into their business, “Fabless” companies that outsource the manufacturing of silicon wafers, “Foundries” that cater to the processing and manufacturing of silicon wafers, and semiconductor assembly and test providers (“OSATs”) that provide test and assembly services for the final packaged devices to both Fabless companies and IDMs. Fabless companies perform the design of integrated circuits without manufacturing capabilities, and use Foundries for wafer manufacturing and OSATs for test and assembly. These customers obtain the overall benefit of comprehensively testing devices and reducing the total costs associated with testing by using our Semiconductor Test systems to: • • • • improve and control product quality; measure and improve product performance; reduce time to market; and increase production yields. 2 Table of Contents Our FLEX Test Platform architecture advances our core technologies to produce test equipment that is designed for high efficiency multi-site testing. Multi-site testing involves the simultaneous testing of many devices in parallel. Leading semiconductor manufacturers are using multi-site testing to significantly improve their “Cost of Test” economics. The FLEX Test Platform architecture addresses customer requirements through the following key capabilities: • • • A high efficiency multi-site architecture that reduces tester overhead such as instrument setup, synchronization and data movement, and signal processing; The IG-XL software operating system which provides fast program development, including instant conversion from single to multi-site test; ™ and Broad technology coverage by instruments designed to cover the range of test parameters, coupled with a universal slot test head design that allows easy test system reconfiguration to address changing test needs. FLEX Test Platform purchases are made by IDMs, OSATs, Foundries and Fabless customers. The FLEX Test Platform has become a widely used test solution at OSATs by providing versatile testers that can handle the widest range of devices, allowing OSATs to leverage their capital investments. The broad consumer, automotive and broadband markets have historically driven most of the device volume growth in the semiconductor industry. These markets include smartphones, cell phones, tablets, set top boxes, HDTVs, game controllers, computer graphics, and automotive controllers to name a few. These end use markets continue to be drivers for the FLEX Test Platform family of products because they require a wide range of technologies and instrument coverage. In 2019, we introduced our next generation UltraFlex Plus PACE architecture to deliver superior economics and fast time to market for complex digital devices. The FLEX Test Platform has an installed base of more than 8,000 systems. tester, the newest member of the UltraFlex family, UltraFlex uses the new TM Plus ™ Our J750 test system shares the IG-XL software environment with the family of FLEX Test Platform systems. The J750 is designed to address the highest volume semiconductor devices, such as microcontrollers, that are central to the functionality of almost every consumer electronics product, from small appliances to automobiles. J750 test systems combine compact packaging, high throughput and ease of production test. We extended the J750 platform technology to create the IP750 Image Sensor test system. The IP750 is focused on testing image sensor devices used in smartphones and other imaging products. We have continued to invest in the J750 platform with new instrument releases that bring new capabilities to existing market segments and expand the J750 platform to new devices that include high end microcontrollers and the latest generation of cameras. The J750 platform has an installed base of over 5,900 systems. ™ Our Magnum platform addresses the requirements of mass production test of memory devices for flash and DRAM memory. Flash and DRAM memory are widely used core building blocks in modern electronic products finding wide application in consumer, industrial, and computing equipment. Magnum V, the newest member of the family, is a next generation memory test solution designed for parallel memory test in the flash, DRAM and multi- chip package markets. In 2019, we introduced a high-speed DRAM test version of our Magnum platform called Magnum EPIC giving us full product coverage of the memory test market. The Magnum platform has an installed base of over 3,200 systems. Our ETS platform is used by semiconductor manufacturers and assembly and test subcontractors, primarily in the analog/mixed signal markets that cover more cost sensitive applications. Our proprietary SmartPin technology enables high efficiency multi-site testing, on an individual test system, permitting greater test throughput. Semiconductors tested by ETS platform systems are incorporated into a wide range of products in historically high- growth markets, including mobile devices, video/multimedia products, automotive electronics, computer peripherals, and notebook and desktop computers. The newest products from the platform include the ETS-88, a high performance multi-site production test system designed to test a wide variety of high volume commodity and precision devices, and the ETS-800, a high performance multi-site production test system to test ™ 3 Table of Contents high complexity power devices in automotive, industrial and consumer applications. The ETS platform has an installed base of over 5,600 systems. Lemsys SA, which we acquired in January 2019, has added a high power discrete device tester to our portfolio of semiconductor testers. Lemsys’s testers address the emerging segment for high power discrete devices used in electric vehicles, wind and solar power generation and other high power industrial applications. System Test Our System Test segment is comprised of three business units: Storage Test, Defense/Aerospace, and Production Board Test. Storage Test The Storage Test business unit addresses the high throughput, automated manufacturing test requirements of hard disk drive (“HDD”) and solid state disk (“SSD”) manufacturers and semiconductor manufacturers. Our products address the client and enterprise storage markets. The client market is driven by the needs of desktop, laptop, and external HDD and SSD storage products. The enterprise market is driven by the needs of data centers and cloud storage. In 2017, we developed a system level test product for the semiconductor production market, called Titan. Titan is used to test devices following wafer and package test. The business unit’s products lead in addressing customer requirements related to factory density, throughput and thermal performance. Defense/Aerospace We are a leading provider of high performance test systems, subsystems, instruments and service for the defense and aerospace markets. Our test products are used to ensure the readiness of military and commercial aerospace electronics systems. New programs, such as tactical aircraft and missile systems, as well as upgrade programs, continue to fuel the demand for high performance test systems in this market. Our test products are well-suited to the demands of defense/aerospace electronics manufacturers and repair depots worldwide. Our leadership in this market is underscored by our success with major Department of Defense programs across all U.S. military service branches and many allied defense services worldwide. Production Board Test Our test systems are used by electronics manufacturers worldwide to perform In-Circuit-Test (“ICT”) and device programming of printed circuit board assemblies. Fast, accurate and cost-effective test capabilities are hallmark features of our Test Station and Spectrum ICT product families. We offer the Test Station in off-line and automated in-line configurations. The automated in-line configurations address the growing requirements for automating production lines for high volume applications, such as automotive electronics. Wireless Test Our Wireless Test business operates under the LitePoint brand name and provides test solutions utilized in the development and manufacturing of wireless devices and modules. The world’s leading makers of smartphones, tablets, notebooks, laptops, peripherals, and Internet-of-Things (“IoT”) devices rely on LitePoint technology to ensure their products get into consumer hands with high quality and high efficiency. LitePoint hardware and software wireless test solutions are used in test insertions that span design verification to high volume manufacturing and are deployed across the entire production eco-system from the wireless chipset suppliers to the consumer brands. Wireless devices are often tested at multiple points along the manufacturing process that include insertions at component, system-in-package (“SiP”), module, PCB, SMT and finished product stages. 4 Table of Contents Design verification is an important step in the development process for evaluating product performance prior to starting production. As end market unit volumes have increased, the quantity of units and the amount of data that must be analyzed for a successful product launch continues to grow. LitePoint products provide easy to use, domain specific tools for rapid analysis of product performance. This helps to speed time to market. In high volume manufacturing, wireless test enables the calibration of each individual product’s wireless performance to improve range, data throughput and battery life. Testing also verifies product specifications for product quality control. As markets become increasingly competitive, product performance and quality provide brand differentiation. Wireless standards can be thought of in three categories, connectivity, cellular and location. Connectivity covers many standards such as Wi-Fi, Bluetooth, and GPS. LitePoint’s IQxel products cover emerging Wi-Fi standards such as WiFi 6E which makes use of the newly allocated 6-7GHz spectrum. Connectivity also includes a variety of other standards such as Bluetooth Classic, Bluetooth 5.0 and Bluetooth low energy, Zigbee, Z-Wave, NFC, LoRa and others. The IQxel product family’s high-performance wireless and multi-device testing economics is aligned with the needs of networking equipment, Internet gateways, IoT products and embedded modules used in smartphones, tablets, and PCs. Another connectivity product, the IQnfc, addresses the growing use of NFC technology for payments with mobile devices. Cellular standards include 2G, 3G, 4G and the new 5G mobile phone technologies. LitePoint’s IQxstream is a multi-device production test optimized solution for high-speed testing of GSM, EDGE, CDMA2000, TD-SCDMA, WCDMA, HSPA+, LTE-FDD, TD_LTE, and LTE-A, and 5G technologies. It is used for calibration and verification of smartphones, tablets, small cell wireless gateways and embedded cellular modules. The IQcell, is a multi-device cellular signaling test solution which enables user experience testing of LTE cellular devices via over-the-air connections. The IQgig family provides test solutions at the intermediate and millimeter wave frequencies for 5G and 802.11ad. Location technologies have traditionally been satellite-based wireless signals such as GPS and GLONASS, which are tested on LitePoint’s connectivity and cellular equipment. A new technology called Ultra-WideBand is being adopted in IoT, automotive and mobile phones. Ultra-WideBand provides finer location capability and is tested on LitePoint’s IQgig-UWB equipment. To complement the test systems, LitePoint offers turnkey test software for over 350 of the most popular wireless chipsets. These optimized solutions provide rapid development of high volume manufacturing solutions with a minimum of engineering effort by customers. Industrial Automation Our Industrial Automation segment is comprised of three business units: Universal Robots, Mobile Industrial Robots and AutoGuide. Universal Robots Universal Robots is a leading supplier of collaborative robots, which are low-cost, easy-to-deploy and simple-to-program robots that work side by side with production workers to improve quality, increase manufacturing efficiency and decrease manufacturing costs. Collaborative robots are designed to mimic the motion of a human arm and can be fitted with task specific grippers or end effectors to support a wide range of applications. Universal Robots offers a variety of collaborative robot models, including the UR3, UR5 and UR10, 5 Table of Contents each with different weight carrying capacity and arm reach. All models are easily integrated into existing production environments. Universal Robots’ products are differentiated by their: • • • • easy programming using a graphical interface which allows users to program the collaborative robot in a few hours; flexibility and ease of use in allowing customers to change the task the collaborative robot is performing as their production demands dictate; safe operations as collaborative robots can assist workers in side by side production environments requiring no special safety enclosures or shielding to protect workers; and short payback period, on average less than 12 months. In 2018, Universal Robots introduced its e-Series collaborative robots which include technology advances that enable faster development of applications, greater precision and improved safety. Universal Robots offers four e-Series collaborative robot models UR3e, UR5e, UR10e and UR16e that was launched in September 2019. In 2020, Universal Robots introduced ActiNav, an autonomous bin picking kit for machine tending applications. Cumulatively, Universal Robots has sold over 51,000 collaborative robots in diverse production environments and applications. Mobile Industrial Robots MiR is a leading supplier of AMRs, which are low-cost, easy-to-deploy and simple-to-program mobile robots that increase manufacturing and warehouse efficiency and decrease costs. Collaborative autonomous mobile robots are designed to move material from point to point via autonomous navigation rather than the need for traditional mobile robot guidance infrastructure such as painted or magnetic strips, and are designed to navigate safely around obstacles and people. MiR offers five collaborative autonomous mobile robot models, the MiR100, MiR200, MiR500, MiR1000 and MiR250 (launched in March 2020) each with different payload carrying capacity. All models are easily integrated into existing production environments. MiR’s products are differentiated by their: • • • • easy programming using a graphical interface which allows users to program the collaborative robot in a few hours; ease of use, speed of deployment and flexibility in allowing customers to change the task as their demands dictate; reliable autonomous navigation over large manufacturing and warehouse areas; and short payback period, on average 12–18 months. Cumulatively, MiR has sold over 5,000 collaborative autonomous mobile robots in diverse production and warehouse environments and applications. AutoGuide AutoGuide is a maker of high payload AMRs, an emerging and fast growing segment of the global forklift market. AutoGuide’s AMRs are used for material transport of payloads up to 4,500 kg in manufacturing, warehouse and logistics applications. These products complement MiR’s lower payload products. Cumulatively, AutoGuide has sold over 160 autonomous mobile robots in diverse production and warehouse environments and applications. 6 Table of Contents Sales and Distribution In 2020, revenues from Taiwan Semiconductor Manufacturing Company Ltd., a customer of our Semiconductor Test segment, accounted for 15% of our consolidated revenues. In 2019 and 2018, no single direct customer accounted for more than 10% of our consolidated revenues. In each of the years, 2020, 2019 and 2018, our five largest direct customers in aggregate accounted for 36%, 27% and 27% of our consolidated revenues, respectively. OSAT customers, such as Taiwan Semiconductor Manufacturing Company Ltd., often purchase our test systems based upon recommendations from OEMs, IDMs and Fabless companies. In all cases when an OSAT customer purchases a test system from us, we consider the OSAT as the customer since credit risk, title and risk of loss, among other things, are between Teradyne and the OSAT. We estimate consolidated revenues driven by one OEM customer, combining direct sales to that customer with sales to the customer’s OSATs (which include Taiwan Semiconductor Manufacturing Company Ltd.), accounted for approximately 25%, 10% and 13% of our consolidated revenues in 2020, 2019 and 2018, respectively. We estimate consolidated revenues driven by Huawei Technologies Co. Ltd. (“Huawei”), combining direct sales to that customer with sales to the customer’s OSATs, accounted for approximately 3%, 11% and 4% of our consolidated revenues in 2020, 2019 and 2018, respectively. The loss of, or significant decrease in demand from this OEM customer or Huawei, or any of our five largest direct customers, could have a material adverse effect on our business, results of operations and financial condition. We have sales and service offices located throughout North America, Central America, Asia and Europe. We sell in these areas predominantly through a direct sales force, except for Industrial Automation products, which are sold through distributors. Our manufacturing activities are primarily conducted through subcontractors and outsourced contract manufacturers with significant operations in China and Malaysia. Sales to customers outside the United States were 90%, 85%, and 87%, respectively, of our consolidated revenues in 2020, 2019 and 2018. Sales are attributed to geographic areas based on the location of the customer site. See also “Item 1A: Risk Factors” and Note T: “Operating Segment, Geographic and Significant Customer Information” in Notes to Consolidated Financial Statements. Competition We face significant competition throughout the world in each of our reportable segments. Competitors in the Semiconductor Test segment include, among others, Advantest Corporation and Cohu, Inc. Competitors in the System Test segment include, among others, Keysight Technologies, Inc., Advantest Corporation, Test Research, Inc. and SPEA S.p.A. Competitors in our Wireless Test segment include, among others, Rohde & Schwarz GmbH & Co. KG, Anritsu Company, Keysight Technologies, Inc. and National Instruments Corporation, Welzek and iTest. Competitors in our Industrial Automation segment include manufacturers of traditional industrial robots such as KUKA Robotics Corporation, ABB, FANUC and Yaskawa Electric Corporation, companies with emerging collaborative robot offerings such as Techman, Doosan, and AUBO Robotics, and manufacturers of autonomous mobile robots such as Omron, Fetch, OTTO Motors, Vecna, Seegrid and Balyo. Some of our competitors have substantially greater financial and other resources to pursue engineering, manufacturing, marketing, and distribution of their products. We also face competition from emerging Asian companies and from internal suppliers at several of our customers. Some of our competitors have introduced or 7 Table of Contents announced new products with certain performance characteristics which may be considered equal or superior to those we currently offer. We expect our competitors to continue to improve the performance of their current products and to introduce new products or new technologies that provide improved cost of ownership and performance characteristics. See also “Item 1A: Risk Factors.” Backlog At December 31, 2020 and 2019, our backlog of unfilled orders in our four reportable segments was as follows: Semiconductor Test System Test Wireless Test Industrial Automation 2020 2019 (in millions) $567.4 $543.2 206.0 42.9 17.9 $929.6 $810.0 290.6 41.6 30.0 Customers may delay delivery of products or cancel orders suddenly and without advanced notice, subject to possible cancellation penalties. Due to possible customer changes in delivery schedules and cancellation of orders, our backlog at any particular date is not necessarily indicative of the actual sales for any succeeding period. Delays in delivery schedules or cancellations of backlog during any particular period could have a material adverse effect on our business, financial condition or results of operations. Raw Materials Our products contain electronic and mechanical components that are provided by a wide range of suppliers. Some of these components are standard products, while others are manufactured to our specifications. We can experience occasional delays in obtaining timely delivery of certain items. While the majority of our components are available from multiple suppliers, certain items are obtained from sole sources. We may experience a temporary adverse impact if any of our sole source suppliers delay or cease to deliver products. Intellectual Property and Licenses The development of our products, both hardware and software, is based in significant part on proprietary information, our brands and technology. We protect our rights in proprietary information, brands and technology through various methods, such as: • • • • • • patents; copyrights; trademarks; trade secrets; standards of business conduct and related business practices; and technology license agreements, software license agreements, non-disclosure agreements, employment agreements, and other agreements. However, these protections might not be effective in all circumstances. Competitors might independently develop similar technology or exploit our proprietary information and our brands in countries where we lack enforceable intellectual property rights or where enforcement of such rights through the legal system provides an 8 Table of Contents insufficient deterrent. Also, intellectual property protections can lapse or be invalidated through appropriate legal processes. We do not believe that any single piece of intellectual property or proprietary rights is essential to our business. Human Capital Resources We believe that our future success depends upon our continued ability to attract, develop, and retain a high-performance workforce, comprised of people with shared values. As of December 31, 2020, we employed approximately 5,500 employees, of whom approximately 1,900 were employed in the United States and approximately 3,600 were employed outside of the United States. Our largest non-US employee populations are in the Philippines (17%), China (12%), Denmark (10%), Costa Rica (6%), and Taiwan (6%). We also leverage contractors to provide flexibility for our business and manufacturing needs. As of December 31, 2020, we worked with approximately 300 contractors globally. Since the inception of our business, we have experienced no work stoppages or other labor disturbances. Corporate Culture Our core values are conducting business with honesty and integrity, collaborating with our colleagues as a company without doors, and partnering with our customers every step of the way, because customers count on us. We strive to foster a positive work environment that helps employees thrive. It is a priority for us to ensure that our people feel inspired, supported, safe and able to achieve their personal best. We are committed to equality through nondiscrimination, harassment prevention and pay equity policies. We value a diverse, inclusive and respectful work environment where all employees enjoy challenging assignments, development opportunities and a safe, positive culture. We are committed to conducting business in a responsible manner, with strategic operational policies, procedures and values that support transparency, sustainability and legal compliance. We ensure ethical operations and business commitments through robust governance of the company’s code of conduct and environmental, health and safety programs. Competitive Pay and Benefits The primary objective of our compensation program is to provide a compensation and benefits package that will continue to attract, retain, motivate and reward high performing employees who operate in a highly competitive and technologically challenging environment. We seek to achieve this objective by linking a significant portion of compensation to company and business unit performance. We enable employees to share in the success of the company through various programs including a stock purchase program, equity compensation, profit sharing and bonus plans. We seek competitiveness and fairness in total compensation with reference to peer comparisons and internal equity. In addition to providing our employees with competitive compensation packages, we offer benefits designed to meet the needs of employees and their families, including paid time off, parental leave, bereavement leave, health insurance coverage, flexible work arrangements, contributions to retirement savings, and access to employee assistance and work-life programs. Employee Development and Training We believe that employee development and training is a key factor in attracting, motivating, improving and retaining a strong, competitive workforce. We provide continual development to our employees focused on developing their job skills and competencies. Examples include new manager competencies like giving feedback 9 Table of Contents and coaching, and training in software development tools and project management. Our employees also receive annual performance reviews. Employees and managers look back on the previous year, review career development plans and create goals for the next year. We are committed to recruiting and developing talent at the collegiate level to help advance STEM education for the future generation. For example, our paid internships and entry-level positions offer real-world experience, and our co-op program offers higher education students a unique learning opportunity as students alternate one semester in a work assignment and one semester in the classroom. Additionally, we pay $5,250 per year for educational courses related to an employee’s work or as part of a degree program, including tuition, lab fees and books. We also offer a scholarship program for employees with college-age children and grandchildren. Employee Engagement We conduct regular employee surveys to check in with our global workforce and obtain input on a number of topics. The feedback we receive from these surveys helps us assess employee sentiment, identify areas of improvement and guides our decision-making as it relates to people management. In addition, CEO Mark Jagiela and other executives meet with employees on a frequent basis through exchange meetings and quarterly webcasts. The exchange meetings allow the executives to directly interact with a small group of employees, while the global webcasts enable all employees to engage with senior leaders and ask questions in an open Q&A session. We also offer employees an opportunity to network and connect with colleagues who share similar interests. This includes groups such as New Employees to Teradyne, Woman’s Affinity Group, Blue and Green (for team members that are committed to the environment), Runner’s affinity group and LGBTQ+ advocates. Diversity and Inclusion We believe in fostering a diverse workforce and equitable and inclusive culture in order to build a stronger and more resilient company for our customers, our employees and our communities. To support this effort, we have a Diversity and Inclusion Charter which was developed by our Diversity, Equity and Inclusion executive sub-committee and designed to ensure that we build diversity across our workforce. We have established programs for recruiting and hiring candidates from various backgrounds and experiences. We have implemented policies regarding gender pay equity and have conducted audits in the United States which have not identified any pay equity issues in the employee populations tested. We are an equal opportunity/affirmative action employer committed to making employment decisions without regard to race, religion, ethnicity or national origin, gender, sexual orientation, gender identity or expression, age, disability, protected veteran status or any other characteristics protected by law. We have a tradition of amplifying the charitable actions of our employees and responding to the needs of the communities where we work. In 2020, in order to show support for effecting positive change in society, we joined countless others to donate to organizations fighting for social justice and racial equality. We also sponsor the Massachusetts Conference for Women and the California Conference for Women offering opportunities for business networking, professional development and personal growth. Health and Safety The health and safety of our employees is our highest priority. We are committed to complying with all applicable regulatory health and safety requirements wherever we operate. We conduct internal audits, regular reviews and monitoring of regulations to ensure compliance with laws and regulations at the local, state, province and country levels. We ensure workers are provided with the knowledge to perform their jobs safely by deploying mandatory environmental, health and safety training. We also require contractors to complete safety training prior to working at any Teradyne site. We monitor, track and report common safety metrics such as 10 Table of Contents accidents, near misses and illness. Our injury and illness rate is below the industry average. We also provide our employees with a flexible and adjustable workspace, which includes reviewing ergonomics issues in the workplace, educating employees to self-identify risks and ensuring they have the work environment they need to do their jobs safely and effectively. Throughout the COVID-19 pandemic, we have focused on ensuring the health and safety of our employees. At the onset of the pandemic, we made the decision to close our offices and implement work from home policies for most employees. During this time, we have also provided resources to enable employees to effectively manage remote work, such as web conferencing and project collaboration solutions and furniture and equipment for at-home offices. To protect those employees whose work requires them to be on-site, we’ve implemented cleaning processes, access to personal protection equipment and other protocols to ensure their safety. We have also supported our global workforce by sending regular all-employee communications, providing development opportunities for managers and employees to support effectively working virtually, establishing emergency response teams to empower local decision-making, conducting surveys to check in with employees, sharing regular video updates from our leadership team, and establishing a well-defined return to work process. Regulatory Environment We are subject to various federal, state, and local government laws and regulations relating to international trade, business conduct, the protection of employee health and safety and the environment. We accrue for all known environmental liabilities when it becomes probable that we will incur cleanup costs and those costs can reasonably be estimated. Estimated environmental costs are not expected to materially affect the financial position or results of our operations in future periods. However, estimates of future costs are subject to change due to protracted cleanup periods and changing environmental remediation laws and regulations. We are subject to U.S. laws and regulations that limit and restrict the export of some of our products and services and may restrict our transactions with certain customers, business partners and other persons. In certain circumstances, export control and economic sanctions regulations may prohibit the export of certain products, services, and technologies, and in other circumstances we may be required to obtain an export license before exporting the controlled item. For example, we must comply with current U.S. Department of Commerce export control regulations restricting transactions with certain customers in China. We must also comply with export restrictions and laws imposed by other countries affecting trade and investments. We maintain an export compliance program but there are risks that the compliance controls could be circumvented, exposing us to legal liabilities. Compliance with these laws has not significantly limited our sales but could significantly limit them in the future. Changes in, and responses to, U.S. trade policy could reduce the competitiveness of our products and cause our sales to drop, which could have a material adverse effect on our business, financial condition or results of operations. 11 Table of Contents INFORMATION ABOUT OUR EXECUTIVE OFFICERS Pursuant to General Instruction G (3) of Form 10-K, the following table is included in Part I of this Annual Report on Form 10-K in lieu of being included in the Proxy Statement for the Annual Meeting of Shareholders. The table sets forth the names of all of our executive officers and certain other information relating to their positions held with Teradyne and other business experience. Our executive officers do not have a specific term of office but rather serve at the discretion of the Board of Directors. Executive Officer Mark E. Jagiela Sanjay Mehta Age 60 Position Chief Executive Officer and President 52 Vice President, Chief Financial Officer and Treasurer Charles J. Gray 59 Vice President, General Counsel and Secretary Bradford B. Robbins 62 President of Wireless Test Gregory S. Smith 57 President of Industrial Automation Richard J Burns 58 President of Semiconductor Test Walter G. Vahey 56 Executive Vice President, Business Development Business Experience for The Past 5 Years Chief Executive Officer since February 2014; President of Teradyne since January 2013; President of Semiconductor Test from 2003 to February 2016; Vice President of Teradyne from 2001 to 2013. Vice President, Chief Financial Officer and Treasurer of Teradyne since April 2019; Senior Vice President and General Manager of Compute and XR Products at Qualcomm Technologies, Inc. (“Qualcomm”) from June 2018 to March 2019; President of Qualcomm’s semiconductor segment (“QCT”) China from March 2016 to June 2018; Senior Vice President Business Operations of QCT at Qualcomm from November 2015 to March 2016; Chief Financial Officer and Senior Vice President, Sales Operations, of QCT at Qualcomm from October 2010 to November 2015. Vice President, General Counsel and Secretary of Teradyne since April 2009. President of Wireless Test since August 2014; Chief Operating Officer of LitePoint Corporation from 2012 to 2014; Vice President of Teradyne since 2001. President of Industrial Automation since October 2020; President of Semiconductor Test from February 2016 to September 2020; Vice President, SOC Business Group and Marketing Manager for Semiconductor Test Group from January 2014 to February 2016; Business Unit Manager, Complex SOC Business Unit from 2009 to January 2014. President of Semiconductor Test since October 2020; Vice President, Semiconductor Test Engineering from February 2016 to September 2020. Executive Vice President, Business Development since December 2017; President of System Test from July 2012 to December 2017; Vice President of Teradyne since 2008; General Manager of Storage Test from 2008 to December 2017; General Manager of Production Board Test from April 2013 to December 2017. 12 Table of Contents Item 1A: Risk Factors The risks described below are not the only risks that we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results. Risks Related to the COVID-19 Pandemic The novel coronavirus (COVID-19) pandemic has impacted our business and could materially adversely affect our results of operations, financial condition, liquidity or cash flows. The global pandemic of the novel strain of the coronavirus (COVID-19) has resulted in government authorities implementing numerous measures in an effort to contain the spread of the virus, such as travel bans and restrictions, limitations on gatherings or social distancing requirements, quarantines, shelter-in-place orders, and business limitations and shutdowns. These measures have impacted our day-to-day operations and disrupted our business, workforce and operations, as well as the operations of our customers, contract manufacturers and suppliers. The COVID-19 pandemic, and the numerous measures implemented by authorities in response, has adversely impacted our results of operations, including increasing costs company-wide and decreasing demand in our Industrial Automation businesses, but we cannot accurately estimate the full extent of the impact for our 2020 financial results or to our future financial results. The COVID-19 pandemic has significantly increased economic uncertainty in our markets, resulting in a decrease in demand for our industrial automation products. The spread of COVID-19 has caused us to modify our business practices, including implementing social distancing protocols, suspending employee travel, requiring most employees to work remotely, canceling physical participation in meetings, events and conferences, and extensively and frequently disinfecting our workspaces, and we may take further actions as may be required by government authorities or that we determine are in the best interests of our employees, customers, contract manufacturers and suppliers. We are continuing to monitor the rapidly evolving situation regarding the COVID-19 pandemic and the availability of vaccinations where we do business. However, we are unable to accurately predict the full impact of COVID-19, which will depend on future developments that are highly uncertain and cannot be predicted with accuracy, including, but not limited to, any new surges of the virus, the availability of vaccines, further government actions to contain the virus, and how quickly and to what extent normal economic and operating conditions can resume. Risks Associated with Teradyne’s Markets Our business is impacted by global and industry-specific economic cycles, which are difficult to predict, and actions we have taken or may take to offset these cycles may not be sufficient. Capital equipment providers in the electronics, semiconductor industries and industrial automation, such as Teradyne, have, in the past, been negatively impacted by both sudden slowdowns in the global economies and recurring cyclicality within those industries. These cycles have resulted in periods of over-supply; a trend we believe will continue to occur. Our business and results of operations depend, in significant part, upon capital expenditures of manufacturers of semiconductors electronics and other industrial products, which in turn depend upon the current and anticipated market demand for those products. Disruption or deterioration in economic conditions may reduce customer purchases of our products, thereby reducing our revenues and earnings. In addition, such adverse changes in economic conditions, and resulting slowdowns in the market for our products, may, among other things, result in increased price competition for our products, increased risk of excess and obsolete inventories, increased risk in the collectability of our accounts receivable from our customers, potential reserves for doubtful accounts and write-offs of accounts receivable, increased risk of restructuring charges, and higher operating costs as a percentage of revenues, which, in each case and together, adversely affect our 13 Table of Contents operating results. We are unable to predict the likely duration, frequency and severity of disruptions in financial markets, credit availability, and adverse economic conditions throughout the world, and we cannot ensure that the level of revenues or new orders for a fiscal quarter will be sustained in subsequent quarters. We have taken actions to address the effects of general economic variability and recurring industry cyclicality, including implementing cost control and reduction measures. We cannot predict whether these measures will be sufficient to offset global or market-specific disruptions that might affect our test businesses and we may need to take additional or different measures in the future. We are subject to intense competition. We face significant competition throughout the world in each of our reportable segments. Some of our competitors have substantial financial and other resources to pursue engineering, manufacturing, marketing and distribution of their products. We also face competition from emerging Asian companies and internal development at several of our customers. Some of our competitors have introduced or announced new products with certain performance characteristics that may be considered equal or superior to those we currently offer. We expect our competitors to continue to improve the performance of their current products and to introduce new products or new technologies that provide improved cost of ownership and performance characteristics. New product introductions by competitors could cause a decline in revenues or loss of market acceptance of our products. The market for our products is concentrated, and our business depends, in part, on obtaining orders from a few significant customers. The market for our products is concentrated with a limited number of significant customers accounting for a substantial portion of the purchases of test equipment. In each of the years, 2020, 2019 and 2018, our five largest direct customers in aggregate accounted for 36%, 27% and 27% of consolidated revenues, respectively. We estimate consolidated revenues driven by one OEM customer, combining direct sales to that customer with sales to the customer’s OSATs (which include Taiwan Semiconductor Manufacturing Company Ltd.), accounted for approximately 25%, 10% and 13% of our consolidated revenues in 2020, 2019 and 2018, respectively. We estimate consolidated revenues driven by Huawei, combining direct sales to that customer with sales to the customer’s OSATs accounted for approximately 3%, 11% and 4% of our consolidated revenues in 2020, 2019 and 2018, respectively. In any one reporting period, a single customer or several customers may contribute even a larger percentage of our consolidated revenues. In addition, our ability to increase sales will depend, in part, on our ability to obtain orders from current or new significant customers. The opportunities to obtain orders from these customers may be limited, which may impair our ability to grow revenues. We expect that sales of our products will continue to be concentrated with a limited number of significant customers for the foreseeable future. The loss of a significant customer or any reduction in orders by these customers, including reductions due to market or competitive conditions, would likely have a material adverse effect on our business, financial conditions or results of operations. If we fail to develop new technologies to adapt to our customers’ needs and if our customers fail to accept our new products, our revenues will be adversely affected. We believe that our technological position depends primarily on the technical competence and creative ability of our engineers. In a rapidly evolving market, such as ours, the development or acquisition of new technologies, commercialization of those technologies into products and market acceptance and customer demand for those products are critical to our success. Successful product development or acquisition, introduction and acceptance depend upon a number of factors, including: • new product selection; 14 Table of Contents • • • • • • • • • • • • • ability to meet customer requirements including with respect to safety and cyber security; development of competitive products by competitors; timely and efficient completion of product design; timely and efficient implementation of manufacturing and manufacturing processes; timely remediation of product performance issues, if any, identified during testing; assembly processes and product performance at customer locations; differentiation of our products from our competitors’ products; management of customer expectations concerning product capabilities and product life cycles; transition of customers to new product platforms; compliance with product safety regulations; ability to protect products from cyber attacks when used by our customers; ability to attract and retain technical talent; and innovation that does not infringe on the intellectual property rights of third parties. Risks Associated with Operating a Global Business We are subject to risks of operating internationally. A significant portion of our total revenues is derived from customers outside the United States. Our international sales and operations are subject to significant risks and difficulties, including: • • • • • • • • • • • • unexpected changes in legal and regulatory requirements affecting international markets; changes in tariffs and exchange rates; social, political and economic instability, acts of terrorism and international conflicts; disruption caused by health pandemics, such as the coronavirus; difficulties in protecting intellectual property; difficulties in accounts receivable collection; cultural differences in the conduct of business; difficulties in staffing and managing international operations; compliance with anti-corruption laws; compliance with data privacy regulations; compliance with customs and trade regulations; and compliance with international tax laws and regulations. In addition, an increasing portion of our products and the products we purchase from our suppliers are sourced or manufactured in foreign locations, including China and Malaysia, and a large portion of the devices our products test are fabricated and tested by foundries and subcontractors in Taiwan, China, Korea and other parts of Asia. As a result, we are subject to a number of economic and other risks, particularly during times of political, health or financial instability in these regions. Disruption of manufacturing or supply sources in these 15 Table of Contents international locations could materially adversely impact our ability to fill customer orders and potentially result in lost business. Risks Related to Teradyne’s Finances We may not fully realize the benefits of our acquisitions or strategic alliances. In June 2015, we acquired Universal Robots, in 2018, we acquired Energid and MiR and, in 2019, we acquired Lemsys and AutoGuide. We may not be able to realize the benefit of acquiring or successfully growing these businesses. We may continue to acquire additional businesses, form strategic alliances, or create joint ventures with third parties that we believe will complement or augment our existing businesses. We may not be able to realize the expected synergies and cost savings from the integration with our existing operations of other businesses or technologies that we may acquire. In addition, the integration process for our acquisitions may be complex, costly and time consuming and include unanticipated issues, expenses, and liabilities. We may have difficulty in developing, manufacturing, and marketing the products of a newly acquired company in a manner that enhances the performance of our combined businesses or product lines and allows us to realize value from expected synergies. Following an acquisition, we may not achieve the revenue or net income levels that justify the acquisition. Acquisitions may also result in one-time charges (such as acquisition-related expenses, write-offs or restructuring charges) or in the future, impairment of goodwill or acquired intangible assets that adversely affect our operating results. Additionally, we may fund acquisitions of new businesses, strategic alliances, or joint ventures by utilizing our cash, incurring debt, issuing shares of our common stock, or by other means. We may incur higher tax rates than we expect and may have exposure to additional international tax liabilities and costs. We are subject to paying income taxes in the United States and various other countries where we operate. Our effective tax rate is dependent on where our earnings are generated and the tax regulations and the interpretation and judgment of administrative tax or revenue authorities in the United States and other countries. We have pursued a global tax strategy that could be adversely affected by the mix of earnings and tax rates in the countries where we operate, changes to tax laws, tax regulations or an adverse tax ruling by administrative authorities. We are also subject to tax audits in the countries where we operate. Any material change in our tax liability resulting from changes in tax laws, tax regulations, administrative ruling or from an audit from an administrative tax or revenue authority could negatively affect our financial results. As a multinational corporation, we are subject to income taxes as well as non-income based taxes, in both the United States and various foreign jurisdictions. In certain foreign jurisdictions, we qualify for tax incentives and tax holidays based on our ability to meet, on a continuing basis, various tests relating to our employment levels, research and development expenditures and other qualification requirements in a particular foreign jurisdiction. While we intend to operate in such a manner to maintain and maximize our tax incentives and tax holidays, no assurance can be given that we have so qualified or that we will so qualify for any particular year or jurisdiction. If we fail to qualify and to remain qualified for certain foreign tax incentives and tax holidays, we may be subject to further taxation or an increase in our effective tax rate which would adversely impact our financial results. In December 2015, we entered into an agreement with the Singapore Economic Development Board which extended, until December 31, 2020, our Singapore tax holiday under substantially similar terms to the agreement which expired on December 31, 2015. In November 2020, we 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. The tax savings attributable to the Singapore tax holiday for the years ended December 31, 2020, 2019 and 2018 were $29.9 million or $0.16 per diluted share, $15.1 million or $0.08 per diluted share and $11.9 million or $0.06 per diluted share, respectively. These tax savings may not be achievable in subsequent years due to changes in Singapore’s tax laws or the expiration of the tax holiday. 16 Table of Contents In addition, we may incur additional costs, including headcount expenses, in order to maintain or obtain a foreign tax incentive or tax holiday in a particular foreign jurisdiction. We have significant guarantees, indemnification, and customer confidentiality obligations. From time to time, we make guarantees to customers regarding the delivery, price and performance of our products and guarantee certain indebtedness, performance obligations or lease commitments of our subsidiary and affiliate companies. We also have agreed to provide indemnification to our officers, directors, employees and agents, to the extent permitted by law, arising from certain events or occurrences, while the officer, director, employee or agent, is or was serving at our request in such capacity. Additionally, we have confidentiality obligations to certain customers and if breached would require the payment of significant penalties. If we become liable under any of these obligations, it could materially and adversely affect our business, financial condition or operating results. For additional information see Note M: “Commitments and Contingencies—Guarantees and Indemnification Obligations” in Notes to Consolidated Financial Statements. We may discontinue or reduce our quarterly cash dividend or share repurchase program. In January 2014, our Board of Directors initiated a quarterly cash dividend. Since 2014, the Board of Directors has increased our quarterly cash dividend from $0.06 per share to $0.10 per share. Holders of our common stock are only entitled to receive dividends when and if they are declared by our Board of Directors. In January 2015, our Board of Directors approved a share repurchase program. From January 2015 to April 2020, we repurchased $2.1 billion of common stock. Due to the uncertainty regarding the duration, severity and business impact of the COVID-19 pandemic, we suspended the stock repurchase program as of April 1, 2020. In January 2021, our Board of Directors approved a new $2.0 billion share repurchase program. Under the share repurchase program, we may repurchase outstanding shares of our common stock from time to time in the open market and through privately negotiated transactions. Unless terminated earlier by resolution of our Board of Directors, the repurchase program will expire when we have repurchased all shares authorized for repurchase under the share repurchase program. Future cash dividends and share repurchases are subject to the discretion of our Board of Directors and will depend, among other things, upon our earnings, capital requirements and financial condition. While we have declared a quarterly cash dividend on our common stock and authorized a share repurchase program, we are not required to do either and may reduce or eliminate our cash dividend or share repurchase program in the future. The reduction or elimination of our cash dividend or our share repurchase program could adversely affect the market price of our common stock. We have incurred indebtedness and may incur additional indebtedness. On December 12, 2016, we completed a private offering of $460.0 million aggregate principal amount of 1.25% convertible senior unsecured notes (the “Notes”) due December 15, 2023 and received net proceeds, after issuance costs, of approximately $450.8 million, $33.0 million of which was used to pay the net cost, after being partially offset by proceeds from the sale of the warrants, of the convertible note hedge transactions and $50.1 million of which was used to repurchase 2.0 million shares of our common stock. Holders of the Notes may require us to repurchase the Notes upon the occurrence of certain fundamental changes involving us or the holders may elect to convert into shares of our common stock. As of February 22, 2021, twenty-four holders had exercised the option to convert $51.0 million worth of notes. On May 1, 2020, we entered into a three-year, senior secured revolving credit facility of up to $400.0 million. Subject to customary conditions, we may seek to obtain from existing or new lenders incremental commitments under the credit facility in an aggregate principal amount not to exceed $150.0 million. We have 17 Table of Contents not borrowed any funds under this credit facility. We could borrow funds under this credit facility at any time for general corporate purposes and working capital. The issuance of the Notes and any additional indebtedness, among other things, could: • • • • make it difficult to make payments on this indebtedness and our other obligations; make it difficult to obtain any necessary future financing for working capital, capital expenditures, debt service requirements or other purposes; require the dedication of a substantial portion of any cash flows from operations to service for indebtedness, thereby reducing the amount of cash flows available for other purposes, including capital expenditures; and limit our flexibility in planning for, or reacting to, changes in our business and the industries in which we compete. Restrictive covenants in the agreement governing our senior secured revolving credit facility may restrict our ability to pursue business strategies. The agreement governing our senior secured revolving credit facility limits our ability, among other things, to incur additional secured indebtedness; sell, transfer, license or dispose of assets; consolidate or merge; enter into transactions with our affiliates; and incur liens. In addition, our senior secured revolving credit facility contains financial and other restrictive covenants that limit our ability to engage in activities that may be in our long-term best interest, such as, subject to permitted exceptions, making capital expenditures in excess of certain thresholds, making investments, loans and other advances, and prepaying any additional indebtedness while our indebtedness under our senior secured revolving credit facility is outstanding. Our failure to comply with financial and other restrictive covenants could result in an event of default, which if not cured or waived, could result in the lenders requiring immediate payment of all outstanding borrowings or foreclosing on collateral pledged to them to secure the indebtedness. Our convertible note hedge and warrant transactions could impact the value of our stock. Concurrent with the offering of the Notes, we 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 our common stock that underlie the Notes, with a strike price equal to the conversion price of the Notes of $31.56. The Note Hedge Transactions cover, subject to customary anti-dilution adjustments, approximately 14.6 million shares of our common stock. Separately and concurrent with the pricing of the Notes, we entered into warrant transactions with the Option Counterparties (the “Warrant Transactions”) in which we sold net-share-settled (or, at our election subject to certain conditions, cash-settled) warrants to the Option Counterparties. The Warrant Transactions cover, subject to customary anti-dilution adjustments, approximately 14.6 million shares of our common stock. The strike price of the warrants is $39.60 per share. The Warrant Transactions could have a dilutive effect to our common stock to the extent that the market price per share of our common stock, as measured under the terms of the Warrant Transactions, exceeds the applicable strike price of the warrants. The Note Hedge Transactions are expected to reduce the potential dilution to our common stock upon any conversion of the Notes. However, the Warrant Transactions could separately have a dilutive effect to the extent that the market value per share of our common stock 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 our common stock 18 Table of Contents and/or purchase shares of our 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 our common stock or by selling our 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 impact the value of our common stock and the Notes. We may not be able to pay our debt and other obligations. If our cash flows are inadequate to meet our obligations, we could face substantial liquidity problems. If we are unable to generate sufficient cash flows or otherwise obtain funds necessary to make required payments on the Notes or certain of our other obligations, we would be in default under the terms thereof, which would permit the holders of those obligations to accelerate their maturity and also could cause defaults under future indebtedness we may incur. Any such default could have a material adverse effect on our business, prospects, financial position and operating results. In addition, we cannot be certain that we would be able to repay amounts due on the Notes if those obligations were to be accelerated following the occurrence of any other event of default as defined in the instruments creating those obligations, or if the holders of the Notes require us to repurchase the Notes upon the occurrence of a fundamental change involving us. Moreover, we cannot be certain that we will have sufficient funds or will be able to arrange for financing to pay the principal amount due on the Notes at maturity. Risks Related to Operations Our operating results are likely to fluctuate significantly. Our operating results are affected by a wide variety of factors that could materially adversely affect revenues or profitability. The following factors could impact future operations: • • • • • • • • • • • • • a worldwide economic slowdown or disruption in the global financial or industrial markets; competitive pressures on selling prices; our ability to introduce, and the market acceptance of, new products; changes in product revenues mix resulting from changes in customer demand; the level of orders received which can be shipped in a quarter because of the tendency of customers to wait until late in a quarter to commit to purchase due to capital expenditure approvals and constraints occurring at the end of a quarter, or the hope of obtaining more favorable pricing from a competitor seeking the business; engineering and development investments relating to new product introductions, and the expansion of manufacturing, outsourcing and engineering operations in Asia; provisions for excess and obsolete inventory relating to the lack of demand for and the discontinuance of products; impairment charges for certain long-lived and intangible assets, and goodwill; an increase in the leasing of our products to customers; disruption caused by health pandemics, such as the coronavirus; our ability to expand our global distribution channel for our collaborative and mobile robots; parallel or multi-site testing which could lead to a decrease in the ultimate size of the market for our semiconductor and electronic test products; and the ability of our suppliers and subcontractors to meet product quality or delivery requirements needed to satisfy customer orders for our products, especially if consolidated revenues increase. 19 Table of Contents As a result of the foregoing and other factors, we have experienced and may continue to experience material fluctuations in future operating results on a quarterly or annual basis which could materially and adversely affect our business, financial condition, operating results or stock price. If our suppliers do not meet product or delivery requirements, we could have reduced revenues and earnings. Certain components, including semiconductor chips, may be in short supply from time to time because of high industry demand or the inability of some vendors to consistently meet our quality or delivery requirements. If any of our suppliers were to cancel contracts or commitments or fail to meet the quality or delivery requirements needed to satisfy customer orders for our products, we could lose time-sensitive customer orders, have significantly decreased revenues and earnings and be subject to contractual penalties, which would have a material adverse effect on our business, results of operations and financial condition. In addition, we rely on contract manufacturers for certain subsystems used in our products, and our ability to meet customer orders for those products depends upon the timeliness and quality of the work performed by these subcontractors, over whom we do not exercise any control. To a certain extent, we are dependent upon the ability of our suppliers and contract manufacturers to help meet increased product or delivery requirements. It may be difficult for certain suppliers to meet delivery requirements in a period of rapid growth, therefore impacting our ability to meet our customers’ demands. Our suppliers are subject to trade regulations, including tariffs and export restrictions imposed by the United States Government and by the governments of other countries. These regulations could impact our suppliers’ ability to provide us with components for our products or could increase the price of those components. We rely on the financial strength of our suppliers. There can be no assurance that the loss of suppliers either as a result of financial viability, bankruptcy or otherwise will not have a material adverse effect on our business, results of operations or financial condition. Our operations may be adversely impacted if our outsourced contract manufacturers or service providers fail to perform. We depend on Flex Ltd. (“Flex”) to manufacture and test our FLEX and J750 family of products from its facility in China, Plexus Corp. (“Plexus”) to manufacture and test our Magnum and ETS family of products from its facility in Malaysia, and on other contract manufacturers to manufacture other products. If for any reason these contract manufacturers cannot provide us with these products in a timely fashion, or at all, we may not be able to sell these products to our customers until we enter a similar arrangement with an alternative contract manufacturer. The Flex facility in China may be impacted by the ongoing trade dispute between the United States and China, by regulations implemented by the United States or China, or disruption caused by health pandemics, such as the coronavirus. If we experience a problem with our supply of products from Flex, Plexus, or our other contract manufacturers, it may take us significant time to either manufacture the product or find an alternate contract manufacturer, which could result in substantial expense and disruption to our business. We have also outsourced certain general and administrative functions to reputable service providers, many of which are in foreign countries, sometimes impacting communication with them because of language and time differences. Their presence in foreign countries also increases the risk they could be exposed to political risk. Additionally, there may be difficulties encountered in coordinating the outsourced operations with existing functions and operations. If we fail in successfully coordinating and managing the outsourced service providers, it may cause an adverse effect on our operations which could have a material adverse effect on our business, results of operations or financial condition. 20 Table of Contents Our business may suffer if we are unable to attract and retain key employees. Competition for employees with skills we require is intense in the high technology industry. Our success will depend on our ability to attract and retain key technical employees. The loss of one or more key or other employees, a decrease in our ability to attract additional qualified employees, or the delay in hiring key personnel could each have a material adverse effect on our business, results of operations or financial condition. Our operations, and the operations of our customers and suppliers, are subject to risks of natural catastrophic events, widespread health epidemics, acts of war, terrorist attacks and the threat of domestic and international terrorist attacks, any one of which could result in cancellation of orders, delays in deliveries or other business activities, or loss of customers and could negatively affect our business and results of operations. Our business is international in nature, with our sales, service and administrative personnel and our customers and suppliers located in numerous countries throughout the world. Our operations, and those of our customers and suppliers, are subject to disruption for a variety of reasons, including work stoppages, acts of war, terrorism, health epidemics, fires, earthquakes, hurricanes, volcanic eruptions, energy shortages, telecommunication failures, tsunamis, flooding or other natural disasters. Such disruption could materially increase our costs and expenses as well as cause delays in, among other things, shipments of products to our customers, our ability to perform services requested by our customers, or the installation and acceptance of our products at customer sites. Any of these conditions could have a material adverse effect on our business, financial condition or results of operations. Risks Related to Intellectual Property (“IP”) and Cybersecurity Third parties may claim we are infringing their intellectual property and we could suffer significant litigation costs, licensing expenses or be prevented from selling our products. We have been sued for patent infringement in the past and receive notifications from time to time that we may be in violation of patents held by others. An assertion of patent infringement against us, if successful, could have a material adverse effect on our ability to sell our products or it could force us to seek a license to the intellectual property rights of others or alter such products so that they no longer infringe the intellectual property rights of others. A license could be very expensive to obtain or may not be available at all. Similarly, changing our products or processes to avoid infringing the rights of others may be costly or impractical. Additionally, patent litigation could require a significant use of management resources and involve a lengthy and expensive defense, even if we eventually prevail. If we do not prevail, we might be forced to pay significant damages, obtain licenses, modify our products, or stop making our products; each of which could have a material adverse effect on our financial condition, operating results or cash flows. If we are unable to protect our IP, we may lose a valuable asset or may incur costly litigation to protect our rights. We protect the technology that is incorporated in our products in several ways, including through patent, copyright, trademark and trade secret protection and by contractual agreement. However, even with these protections, our IP may still be challenged, invalidated or subject to other infringement actions. While we believe that our IP has value in the aggregate, no single element of our IP is in itself essential. If a significant portion of our IP is invalidated or ineffective, our business could be materially adversely affected. A breach of our operational or security systems could negatively affect our business and results of operations. We rely on various information technology networks and systems to process, transmit and store electronic information, including proprietary and confidential data, and to carry out and support a variety of business activities, including manufacturing, research and development, supply chain management, sales and accounting. We have experienced several attempted cyber-attacks of our network. None of the attempted attacks has caused a 21 Table of Contents disruption to our operations or had a material adverse effect on our business or financial results. As a result of the attempts, we have taken further preventive security measures to protect our systems. Despite these preventative security measures we have implemented, we may continue to be vulnerable to attempts by third parties to gain unauthorized access to our networks or sabotage our systems. These attempts, which might be related to criminal hackers, industrial espionage or state-sponsored intrusions, include trying to covertly introduce malware to our computers, networks and systems and impersonating authorized users. In addition, third party suppliers and service providers that we rely on to manage our networks and systems and process and store our proprietary and confidential data may also be subject to similar attacks. Such attempts could result in the misappropriation, theft, misuse, disclosure or loss or destruction of the intellectual property, or the proprietary, confidential or personal information, of Teradyne or our employees, customers, suppliers or other third parties, as well as damage to or disruptions in our information technology networks and systems. These threats are constantly evolving, thereby increasing the difficulty of defending against them or implementing adequate preventative measures. While we seek to detect and investigate all security incidents and to prevent their recurrence, attempts to gain unauthorized access to our information technology networks and systems may be successful, and in some cases, we might be unaware of an incident or its magnitude and effects. For example, we recently became aware that one of our vendors providing IT infrastructure management software, SolarWinds Corporation, had been compromised by cyber-attacks. Although we have not identified any compromise of our IT systems due to the use of SolarWinds software to date, we continue to monitor our network for any potential impact related to the SolarWinds cyber-attack. A failure in or a breach of our operational or security systems or infrastructure, or those of our suppliers and other service providers, including as a result of the SolarWinds or any other cyber-attacks, could have a material adverse effect on our business or financial results, disrupt our business, result in the disclosure or misuse of proprietary or confidential information, damage our reputation, cause losses and increase our costs. We expect to continue to devote significant resources to the security of our information technology networks and systems. A breach of the security of our products could negatively affect our business and results of operations. We may be subject to security breaches of certain of our products caused by viruses, illegal break-ins or hacking, sabotage, or acts of vandalism by third parties or our employees or contractors. A breach of our product security systems could have a material adverse effect on our business or financial results, disrupt our business, result in the disclosure or misuse of proprietary or confidential information, damage our reputation, cause losses, and increase our costs. We expect to continue to devote significant resources to the security of our products. Risks Related to Legal and Regulatory Compliance The implementation of tariffs on our products may have a material impact on our business. Our business operations and supply chain are global and may be disrupted by the implementation of tariffs. In 2018, the United States Trade Representative imposed a 25% tariff on many lists of products, including certain Teradyne products that are made in China and imported into the United States. We have implemented operational changes that mitigate the impact of the 25% tariff on the import of our impacted products into the United States. As a result, the existing tariff has not had a material adverse effect on our business, financial condition or results of operations. The implementation of additional tariffs by the United States could have a material adverse effect on our business, financial condition or results of operations. In addition to the actions taken by the United States, China has implemented retaliatory tariffs on products made in the United States and imported into China, including certain Teradyne products. We have implemented, if appropriate, operational changes that would mitigate the impact of the retaliatory tariffs. However, notwithstanding our efforts, the retaliatory tariffs or other trade restrictions implemented by China could disrupt our business operations, sales and supply chain and, therefore, have a material adverse effect on our business, financial condition or results of operations. 22 Table of Contents Trade regulations and restrictions impact our ability to sell products to and support certain customers, which may materially adversely affect our sales and results of operations. We are subject to U.S. laws and regulations that limit and restrict the export of some of our products and services and may restrict our transactions with certain customers, business partners and other persons. In certain circumstances, export control and economic sanctions regulations prohibit the export of certain products, services and technologies, and in other circumstances we may be required to obtain an export license before exporting the controlled item. We must also comply with export restrictions and laws imposed by other countries affecting trade and investments. We maintain an export compliance program but there are risks that the compliance controls could be circumvented, exposing us to legal liabilities. Compliance with these laws has not significantly limited our sales but could significantly limit them in the future. Changes in, and responses to, U.S. trade policy could reduce the competitiveness of our products and cause our sales to drop, which could have a material adverse effect on our business, financial condition or results of operations. In 2018, the United States Department of Commerce announced that it has commenced a review of new export controls focusing on emerging and foundational technologies. The new export controls could cover technologies used in one or more Teradyne products and therefore could impact the sales of certain Teradyne products. The U.S. government from time to time has issued export restrictions that prohibit U.S. companies from exporting U.S. manufactured products, foreign manufactured products with more than 25% controlled U.S. content, as well as U.S. origin technology. For example, the U.S. Department of Commerce has restricted the access of U.S. origin technologies to certain Chinese companies by adding those companies to the Entity List under U.S. Export Administration Regulations (“EAR”). On May 16, 2019, Huawei and 68 of its affiliates, including HiSilicon, were added to the U.S. Department of Commerce Entity List under the EAR. This action by the U.S. Department of Commerce imposes new export licensing requirements on exports, re-exports, and in-country transfers of all U.S. regulated products, software and technology to the designated Huawei entities. While most of our products are not subject to the EAR and therefore not affected by the Entity List restrictions, certain of our products are currently manufactured in the U.S. and thus subject to the Entity List restrictions. The addition of Huawei entities, including HiSilicon, to the Entity List in May 2019 did not have a material adverse effect on our business, financial condition or results of operations. On August 17, 2020, the U.S. Department of Commerce published final regulations expanding the scope of the U.S. EAR to include additional products that would become subject to export restrictions relating to Huawei entities including HiSilicon. These new regulations restrict the sale to Huawei and the designated Huawei entities of certain non-U.S. made items, such as semiconductor devices, manufactured for or sold to Huawei entities including HiSilicon under specific, detailed conditions set forth in the new regulations. These new regulations have impacted our sales to Huawei, HiSilicon and their suppliers. We are taking appropriate actions, including filing license applications and obtaining licenses from the U.S. Department of Commerce as well as working with the U.S. regulators to clarify the scope of the restrictions. However, we cannot be certain that the actions we take will mitigate the risks associated with the new export controls that impact our business. It is uncertain the extent these new regulations and any other additional regulations that may be implemented by the U.S. Department of Commerce or other government agency may have on our business and financial results. Also, our controls related to Entity List compliance could be circumvented, exposing us to legal liabilities. Even if such restrictions are lifted, any financial or other penalties or continuing export restrictions imposed on Huawei could have a material adverse effect on our business, financial condition or results of operations. On April 28, 2020, the U.S. Department of Commerce published new export control regulations for certain U.S. products and technology sold to military end users or for military end-use in China, Russia and Venezuela. The definition of military end user is broad. The regulations went into effect on June 29, 2020. In December 2020, the U.S. Department of Commerce issued a list of companies in China and other countries that it considered to be military end users. We do not expect that compliance with the new export controls will 23 Table of Contents significantly impact our ability to sell products to our customers in China or to manufacture products in China. The new export controls, however, could disrupt our supply chain, increase our compliance costs and impact the demand for our products in China and, thus, have a material adverse impact on our business, financial condition or results of operations. In addition, while we maintain an export compliance program, our compliance controls could be circumvented, exposing us to legal liabilities. We will continue to assess the potential impact of the new export controls on our business and operations and take appropriate actions, including filing for licenses with the U.S. Department of Commerce, to minimize any disruption. However, we cannot be certain that the actions we take will mitigate all the risks associated with the new export controls that may impact our business. In response to the regulations issued by the U.S. Department of Commerce, the Chinese government has passed new laws, including blocking legislation, which may impact our business activities in China. The Company is assessing the potential impact of these new Chinese laws and monitoring relevant laws and regulations issued by the Chinese government. The impact of these new Chinese laws on our business activities in China remains uncertain at this time. We may be subject to product recalls and warranty and product liability claims. We invest significant resources in the design, manufacture and testing of our products. However, we may discover design or manufacturing defects in our products after they have been shipped and, as a result, we may incur development and remediation costs and be required to settle warranty and product liability claims. In addition, if any of our products contain defects or have reliability, quality or safety issues, we may need to conduct a product recall which could result in significant repair or replacement costs and substantial delays in product shipments and may damage our reputation which could make it more difficult to sell our products. Any of these results could have a material adverse effect on our business, results of operations or financial condition. We may incur significant liabilities if we fail to comply with environmental regulations. We are subject to both domestic and international environmental regulations and statutory strict liability relating to the use, storage, discharge, site cleanup and disposal of hazardous chemicals used in our manufacturing processes. If we fail to comply with present and future regulations, or are required to perform site remediation, we could be subject to future liabilities or cost, including penalties or the suspension of production. Present and future regulations may also: • • • • • restrict our ability to expand facilities; restrict our ability to ship certain products; require us to modify our operations logistics; require us to acquire costly equipment; or require us to incur other significant costs and expenses. Pursuant to present regulations and agreements, we are conducting groundwater and subsurface assessment and monitoring and are implementing remediation and corrective action plans for facilities located in Massachusetts and New Hampshire which are no longer conducting manufacturing operations. As of December 31, 2020, we have not incurred material costs as a result of the monitoring and remediation steps taken at the Massachusetts and New Hampshire sites. The directive on the Restriction of the Use of Certain Hazardous Substances in Electrical and Electronic Equipment (the “RoHS Directive”) and the directive on Waste Electrical and Electronic Equipment (the “WEEE Directive”) altered the form and manner in which electronic equipment is imported, sold and handled in the European Union. Other jurisdictions, such as China, have followed the European Union’s lead in enacting legislation with respect to hazardous substances and waste removal. Ensuring compliance with the RoHS Directive, the WEEE Directive and similar legislation in other jurisdictions, and integrating compliance activities 24 Table of Contents with our suppliers and customers could result in additional costs and disruption to operations and logistics and thus, could have a negative impact on our business, operations or financial condition. We currently are, and in the future may be, subject to litigation or regulatory proceedings that could have an adverse effect on our business. From time to time, we may be subject to litigation or other administrative, regulatory or governmental proceedings, including tax audits and resulting claims that could require significant management time and resources and cause us to incur expenses and, in the event of an adverse decision, pay damages or incur costs in an amount that could have a material adverse effect on our financial position or results of operations. We may face risks associated with shareholder activism. We may become subject to campaigns by shareholders advocating corporate actions such as financial restructuring, increased borrowing, special dividends, stock repurchases or divestitures. Such activities could interfere with our ability to execute our business plans, be costly and time-consuming, disrupt our operations, divert the attention of management, or result in our initiating borrowing or increasing our share repurchase plan or dividend, any of which could have an adverse effect on our business or stock price. Provisions of our charter and by-laws and Massachusetts law may make a takeover of Teradyne more difficult. There are provisions in our basic corporate documents and under Massachusetts law that could discourage, delay or prevent a change in control, even if a change in control may be regarded as beneficial to some or all of our stockholders. Item 1B: Unresolved Staff Comments None. Item 2: Properties Our corporate headquarters is located in North Reading, Massachusetts in buildings that we own consisting of approximately 422,000 square feet. We conduct manufacturing, engineering, sales and marketing, service, corporate administration and other operations in many locations worldwide. We own approximately 600,000 square feet and lease over 1,500,000 square feet of office space for these operations. We believe our existing facilities and planned expansions noted below are adequate to meet our current and reasonably foreseeable requirements. We regularly evaluate our expected facility needs and periodically make adjustments based on these evaluations. In 2020, we purchased land in San Jose, Costa Rica primarily for our Semiconductor Test and System Test operations. The new building of approximately 110,000 square feet is expected to be completed in 2021. We have purchased land in Denmark and plan to build a new building over the next two years for our Industrial Automation operations. Item 3: Legal Proceedings We are subject to legal proceedings, claims and investigations that arise in the ordinary course of business such as, but not limited to, patent, employment, commercial and environmental matters. We believe that we have meritorious defenses against all pending claims and intend 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, we believe the potential losses associated with all of these actions are unlikely to have a material adverse effect on our results of operations, financial condition or cash flows. Item 4: Mine Safety Disclosure Not Applicable. 25 Table of Contents PART II Item 5: Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities Our common stock is traded on the Nasdaq Global Select Market under the trading symbol “TER.” As of February 16, 2021, there were approximately 1,362 holders of record of shares of our common stock. See “Item 7: Management’s Discussion and Analysis of Financial Condition and Results of Operations,” for information on the frequency and amounts of our quarterly cash dividends, equity compensation plans and performance graph. The following table includes information with respect to repurchases we made of our common stock during the three months ended December 31, 2020 (in thousands except per share price): Period September 28, 2020 – October 25, 2020 October 26, 2020 – November 22, 2020 November 23, 2020 – December 31, 2020 (a) Total Number of Shares (or Units) Purchased 1 2 — 3(1) (b) Average Price Paid per Share (or Unit) 79.59 $ 89.70 $ 116.15 $ 90.74(1) $ (c) Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs — — — — (d) Maximum Number (or Approximate Dollar Value) of Shares (or Units) that may Yet Be Purchased Under the Plans or Programs $ $ $ 911,535 911,535 911,535 (1) Includes approximately three thousand shares at an average price of $90.74 withheld from employees for the payment of taxes. We satisfy U.S. federal and state minimum withholding tax obligations due upon the vesting and the conversion of restricted stock units into shares of our common stock, by automatically withholding from the shares being issued, a number of shares with an aggregate fair market value on the date of such vesting and conversion that would satisfy the minimum withholding amount due. Item 6: Selected Financial Data Teradyne has early adopted the amendment to Regulation S-K Item 301, which became effective on February 10, 2021. Item 7: Management’s Discussion and Analysis of Financial Condition and Results of Operations Overview We are a leading global supplier of automation equipment for test and industrial applications. We design, develop, manufacture and sell automatic test systems used to test semiconductors, wireless products, data storage and complex electronics systems in many industries including consumer electronics, wireless, automotive, industrial, computing, communications, and aerospace and defense industries. Our industrial automation products include collaborative robotic arms, autonomous mobile robots (“AMRs”) and advanced robotic control software used by global manufacturing, logistics and light industrial customers to improve quality, increase manufacturing and material handling efficiency and decrease manufacturing and logistics costs. Our automatic test equipment and industrial automation products and services include: • • semiconductor test (“Semiconductor Test”) systems; storage and system level test (“Storage Test”) systems, defense/aerospace (“Defense/Aerospace”) test instrumentation and systems and circuit- board test and inspection (“Production Board Test”) systems (collectively these products represent “System Test”); 26 Table of Contents • • wireless test (“Wireless Test”) systems; and industrial automation (“Industrial Automation”) products. The market for our test products is concentrated with a limited number of significant customers accounting for a substantial portion of the purchases of test equipment. A few customers drive significant demand for our test products both through direct sales and sales to the customers’ supply partners. We expect that sales of our test products will continue to be concentrated with a limited number of significant customers for the foreseeable future. We have grown our Industrial Automation business through acquisitions, including Mobile Industrial Robots A/S (“MiR”), a leading maker of collaborative autonomous mobile robots (“AMRs”) for industrial applications, in 2018 and AutoGuide, LLC (“AutoGuide”), a maker of high payload AMRs, in 2019. The market for our industrial automation products is dependent on the adoption of new automation technologies by large manufacturers as well as small and medium enterprises (SMEs) throughout the world. In 2020, our Industrial Automation businesses were negatively impacted by the global industrial downturn as well as the COVID-19 pandemic. In 2020, revenue in our test businesses exceeded our plan as a result of Semiconductor Test demand by our largest customer, early 5G test investments and strength in our System Test businesses. The revenue of our Industrial Automation business was below our plan. In 2021, we expect strong momentum in our test businesses and return to growth for Industrial Automation. Our strategy is to focus on profitably growing market share in our test businesses the introduction of differentiated products that target growth segments, and accelerating growth through continued investment in our Industrial Automation businesses. We plan to execute on our strategy while balancing capital allocations between returning capital to our shareholders through dividends and stock repurchases and using capital for with opportunistic acquisitions. Impact of the COVID-19 Pandemic on our Business The novel coronavirus (COVID-19) pandemic has resulted in government authorities implementing numerous measures in an effort to contain the spread of the virus, such as travel bans and restrictions, limitations on gatherings or social distancing requirements, quarantines, shelter-in-place orders, and business limitations and shutdowns. These measures have impacted our day-to-day operations and disrupted our business, workforce and operations, as well as the operations of our customers, contract manufacturers and suppliers. We are continuing to monitor the rapidly evolving situation regarding the COVID-19 pandemic and the availability and impact of vaccinations. However, we are unable to accurately predict the full impact of COVID-19, which will depend on future developments that are highly uncertain and cannot be predicted with accuracy, including, but not limited to, any new surges in areas where we do business, the availability of vaccinations, any further government actions to contain the virus or treat its impact, and how quickly and to what extent normal economic and operating conditions can resume. Health and Safety In response to the COVID-19 pandemic, we have taken proactive, aggressive action to protect the health and safety of our employees, customers, contract manufacturers and suppliers and we have complied with all government orders around the globe. The spread of COVID-19 has caused us to modify our business practices, including implementing social distancing protocols, suspending employee travel, requiring most employees to work remotely, cancelling physical participation in meetings, and extensively and frequently disinfecting our workspaces. Around the world, the majority of our employees are working from home. However, some of our engineering, operations, supply line and customer support teams must be on-site at our or our customers’ 27 Table of Contents facilities. We are providing those on-site employees with the necessary protective resources and procedures to minimize their exposure risk. We may take further actions as may be required or recommended by government authorities or that we determine are in the best interests of our employees, customers, contract manufacturers and suppliers. Operations We believe the COVID-19 pandemic, and the numerous measures implemented by authorities in response, has adversely impacted our results of operations, including by increasing costs and decreasing demand in our Industrial Automation businesses, but we cannot accurately estimate the amount of the impact to our 2020 financial results or to our future financial results. In addition, the pandemic has disrupted our contract manufacturers and suppliers, and has resulted in some instances in short-term cost increases to meet customer demand. While the duration and severity of the pandemic may further impact our workforce and operations, as well as those of our customers, contract manufacturers and suppliers, we expect that our manufacturing facilities will remain operational, at sufficient capacity to support production demand. We are monitoring our operations closely in an effort to avoid any potential productivity loss caused by responses to the COVID-19 pandemic. Supply We have not experienced any significant impacts or interruptions to our supply chain as a result of the COVID-19 pandemic. However, our suppliers have faced and may continue to face difficulties maintaining operations in light of government-ordered restrictions, including social distancing requirements and shelter-in-place mandates. Our supply chain team, and our suppliers, overcame numerous supply, production, and logistics obstacles in 2020, but there is no assurance we or they will be able to do so in the future. Although we regularly monitor the financial health of companies in our supply chain, financial hardship on our suppliers or sub-suppliers caused by the COVID-19 pandemic could disrupt our ability to obtain components required to manufacture our products, adversely affecting our operations and in some instances result in higher costs and delays, both for obtaining components and shipping finished goods to customers, which could harm our profitability, make our products less competitive, or cause our customers to seek alternative suppliers. Demand The COVID-19 pandemic has significantly increased economic uncertainty in our markets. Demand for our Test products was strong throughout 2020. While there was incremental softening in the automotive sector in 2020, there was strengthening demand in mobility, 5G, and memory test. Our Industrial Automation business, however, experienced a significant decline in demand through first half of 2020 due to COVID-19 related shutdowns affecting global manufacturing but demand recovered in the second half of 2020 from the low point in the second quarter. The COVID-19 pandemic could cause further global economic disruption that could cause demand for our products to decline, which would adversely affect our business. Liquidity Although there is continued uncertainty related to the impact of the COVID-19 pandemic on our future results, we believe our business model and our current cash reserves leave us well-positioned to manage our business through this crisis. We have a strong balance sheet as well as an operating model that we believe is capable of flexing up and down with extreme demand swings while still remaining profitable. Based on our analysis, we believe our existing balances of cash and cash equivalents and our currently anticipated operating cash flows will be sufficient to meet our working capital needs and other capital and liquidity requirements for the next twelve months. However, due to the uncertainty related to the future impact of the COVID-19 pandemic, 28 Table of Contents in order to bolster our liquidity position, on May 1, 2020 we entered into a credit agreement providing for a three-year, senior secured revolving credit facility of $400 million as further described in Note J: “Debt.” As of February 22, 2020, we have not borrowed any funds under the credit facility. We are continuing to monitor the evolving situation regarding the COVID-19 pandemic, the availability of vaccinations where we do business and guidance from government authorities around the world. In these circumstances, there may be developments outside our control requiring us to adjust our operating plan. As a result, given the uncertain nature of this situation, we are not able to accurately predict the full extent of the impact of COVID-19 on our business, financial condition, results of operations, liquidity, or cash flows in the future. In addition, see Part II—Item 1A, “Risk Factors,” included herein for updates to our risk factors regarding risks associated with the COVID-19 pandemic. Critical Accounting Policies and Estimates We have identified the policies discussed below as critical to understanding our business and our results of operations and financial condition. The impact and any associated risks related to these policies on our business operations is discussed throughout Management’s Discussion and Analysis of Financial Condition and Results of Operations where such policies affect our reported and expected financial results. Due to the COVID-19 pandemic, there has been uncertainty and disruption in the global economy and our markets. We are not aware of any specific event or circumstance that would require an update to our estimates or judgments or a revision of the carrying value of our assets or liabilities as of February 22, 2021, the date of issuance of this Annual Report on Form 10-K. These estimates may change, as new events occur, and additional information is obtained. Actual results could differ significantly from these estimates under different assumptions or conditions. Revenue from Contracts with Customers In accordance with ASC 606, “Revenue from Contracts with Customers” (“ASC 606”), we recognize revenues, when or as control is transferred to a customer. Our determination of revenue is dependent upon a five step process outlined below. • • • • We account 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. We periodically enter into contracts with customers in which a customer may purchase a combination of goods and services, such as products with extended warranty obligations. We determine 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. We consider the amount stated on the face of the purchase order to be the transaction price. We do not have variable consideration which could impact the stated purchase price agreed to by us and the customer. Transaction price is allocated to each individual performance obligation based on the standalone selling price of that performance obligation. We use standalone transactions when available to value each performance obligation. If standalone transactions are not available, we 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. 29 Table of Contents • In order to determine the appropriate timing for revenue recognition, we first determine if the transaction meets any of three criteria for over time recognition. If the transaction meets the criteria for over time recognition, we recognize revenue as the good or service is delivered. We use 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, we will recognize revenue at a point in time based on an assessment of the five criteria for transfer of control. We have concluded that revenue should be recognized when shipped or delivered based on contractual terms. Typically, acceptance of our products and services is a formality as we deliver similar systems, instruments and robots to standard specifications. In cases where acceptance is not deemed a formality, we will defer revenue recognition until customer acceptance. 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. Retirement and Postretirement Plans We recognize net actuarial gains and losses and the change in the fair value of the plan assets in our operating results in the year in which they occur or upon any interim remeasurement of the plans. We calculate 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. In March 2017, the Financial Accounting Standards Board (“FASB”) issued ASU 2017-07, “Compensation—Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost.” We retrospectively adopted the new accounting guidance on presentation of net periodic pension costs and net periodic postretirement benefit costs in the first quarter of 2018. This guidance requires the service cost component of net benefit costs to be reported in the same line item in the consolidated statement of operations as other employee compensation costs. The non-service components of net benefit costs such as interest cost, expected return on assets, amortization of prior service cost, and actuarial gains or losses, are required to be reported separately outside of income or loss from operations. Following the adoption of this guidance, we continue to record the service cost component in the same line item as other employee compensation costs and the non-service components of net benefit costs such as interest cost, expected return on assets, amortization of prior service cost, and actuarial gains or losses are reported within other (income) expense, net. Inventories Inventories are stated at the lower of cost using a standard costing system which approximates cost based on a first-in, first-out basis or net realizable value. On a quarterly basis, we use consistent methodologies to evaluate all inventories for net realizable value. We record a provision for both excess and obsolete inventory when such 30 Table of Contents 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. Equity Incentive and Stock Purchase Plans Stock-based compensation expense is based on the grant-date fair value estimated in accordance with the provisions of ASC 718, “Compensation— Stock Compensation.” Upon adoption of ASU 2016-09, “Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting,” in the first quarter of 2017, we made an accounting policy election to continue accounting for forfeitures by applying an estimated forfeiture rate and recognizing compensation costs only for those stock- based compensation awards expected to vest. In accordance with ASU 2016-09, excess tax benefits or tax deficiencies are recognized as a discrete tax benefit or discrete tax expense to the current income tax provision in our consolidated statements of operations and are reported as cash flows from operating activities. 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. In 2020, 2019 and 2018, we recognized a discrete tax benefit of $9.6 million, $4.9 million and $7.6 million, respectively, related to net excess tax benefit. 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. We 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 our assessment, we concluded that it is more likely than not that such assets, net of the existing valuation allowance, will be realized. Investments We account for our investments in debt and equity securities in accordance with the provisions of ASC 320-10, “Investments—Debt and Equity Securities.” On a quarterly basis, we review our 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. Investment in Other Companies We account for investments in other companies at cost and evaluate for impairment or an indication of changes in fair value resulting from observable price changes in orderly transactions for the identical or similar investment of the same issuer on a quarterly basis. Financial Assets and Financial Liabilities In January 2016, the FASB issued ASU 2016-01, “Financial Instruments—Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities.” We adopted the new accounting 31 Table of Contents guidance in the first quarter of 2018 using the modified retrospective approach. This guidance requires that changes in fair value of equity marketable securities be accounted for directly in earnings. Previously, the changes in fair value of equity marketable securities were recorded in accumulated other comprehensive income on the balance sheet. We continue to record realized gains in interest income and realized losses in interest expense. The adoption of this new accounting guidance increased the January 1, 2018 retained earnings balance by $3.1 million and decreased the accumulated other comprehensive income balance by the same amount. Credit Losses In June 2016, the FASB issued ASU 2016-13, “Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” This standard introduced the expected credit losses methodology for the measurement of credit losses on financial assets that are not measured at fair value through net income and replaces the “incurred loss” model with an “expected credit loss” model that requires consideration of a broader range of information to estimate expected credit losses over the lifetime of the asset. We adopted this standard on January 1, 2020 on a modified retrospective basis. The adoption of ASU 2016-13 did not have a material impact on our consolidated statement of operations, balance sheets, cash flows, or earnings per share. Goodwill, Intangible and Long-Lived Assets On January 26, 2017, the Financial Accounting Standards Board (“FASB”) issued ASU 2017-04, “Intangibles—Goodwill and Other (Topic 350): Simplifying the Accounting for Goodwill Impairment.” The new guidance removes Step 2 of the goodwill impairment test, which requires a hypothetical purchase price allocation. We adopted this standard on January 1, 2020, on a prospective basis. The adoption of ASU 2017-04 did not have a material impact on the consolidated statement of operations, cash flows, or earnings per share. We assess goodwill 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. Under ASU 2017-04, goodwill impairment will be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. All other goodwill impairment guidance will remain largely unchanged. Entities will continue to have the option to perform a qualitative assessment to determine if a quantitative impairment test is necessary. The same one-step impairment test will be applied to goodwill at all reporting units, even those with zero or negative carrying amounts. Entities will be required to disclose the amount of goodwill at reporting units with zero or negative carrying amounts. No goodwill impairment was identified in 2020, 2019 and 2018. We assess the impairment of intangible and long-lived assets whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Factors we consider important in the determination of an impairment include significant underperformance relative to historical or projected future operating results, significant changes in the manner that we use the acquired asset and significant negative industry or economic trends. Business Combination We recognize 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. We estimate 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. We allocate 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 we believe the 32 Table of Contents 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. Results of Operations Information pertaining to fiscal year 2018 results of operations, including a year-to-year comparison against fiscal year 2019, was included in our Annual Report on Form 10-K for the year ended December 31, 2019 under Part II, Item 7, “Management’s Discussion and Analysis of Financial Position and Results of Operations,” which was filed with the SEC on March 2, 2020. This information is incorporated by reference herein. The following table sets forth the percentage of total net revenues included in our consolidated statements of operations: Percentage of revenues: Revenues: Products Services Total revenues Cost of revenues: Cost of products Cost of services Total cost of revenues (exclusive of acquired intangible assets amortization shown separately below) Gross profit Operating expenses: Selling and administrative Engineering and development Acquired intangible assets amortization Restructuring and other Total operating expenses Income from operations Non-operating (income) expenses: Interest income Interest expense Other (income) expense, net Income before income taxes Income tax provision Net income 33 Years Ended December 31, 2020 2019 86.2% 13.8 100.0 37.1 5.7 42.8 57.2 14.9 12.0 1.0 (0.4) 27.5 29.7 (0.2) 0.8 0.3 28.9 3.7 25.1% 82.3% 17.7 100.0 34.1 7.5 41.6 58.4 19.0 14.1 1.7 (0.6) 34.3 24.1 (0.7) 1.0 1.0 22.9 2.5 20.4% Table of Contents Revenues Revenues for our reportable segments were as follows: Semiconductor Test System Test Industrial Automation Wireless Test Corporate and Other 2020 $2,259.6 409.7 279.7 173.0 (0.6) $3,121.5 2019 (in millions) $ 1,552.6 287.5 298.1 157.3 (0.5) $ 2,295.0 2019-2020 Dollar Change $ 707.0 122.2 (18.4) 15.7 (0.1) $ 826.5 The increase in Semiconductor Test revenues of $707.0 million, or 45.5%, was driven primarily by an increase in semiconductor mobility test sales resulting from increased complexity of cell phone silicon which drives demand for testers, and an increase in memory test sales of flash and DRAM testers. The increase in System Test revenues of $122.2 million, or 42.5%, was primarily due to higher sales in Storage Test of system level and hard disk drive testers, and higher sales in Defense/Aerospace test instrumentation and systems, partially offset by lower sales in Production Board Test due to lower automotive electronics demand. The decrease in Industrial Automation revenues of $18.4 million, or 6.2%, was primarily due to lower demand for collaborative robotic arms in the automotive and manufacturing markets amplified by the impacts of COVID-19. The increase in Wireless Test revenues of $15.7 million, or 10.0%, was primarily due to increased sales of 5G, WiFi 6 and WiFi 6E testers. Our reportable segments accounted for the following percentages of consolidated revenues: Semiconductor Test System Test Industrial Automation Wireless Test Revenues by country as a percentage of total revenues were as follows (1): Taiwan China Korea United States Europe Japan Thailand Singapore Malaysia Philippines Rest of the World (1) Revenues attributable to a country are based on the location of the customer site. 34 2020 72% 13 9 6 100% 2019 68% 13 13 7 100% 2020 38% 15 13 10 7 5 4 2 2 2 2 100% 2019 21% 22 10 15 10 8 4 4 3 2 2 100% Table of Contents The breakout of product and service revenues was as follows: Product revenues Service revenues 2020 $2,690.9 430.6 $3,121.5 2019 (in millions) $1,887.7 407.3 $2,295.0 2019-2020 Dollar Change $ 803.2 23.3 $ 826.5 Our product revenues increased $803.2 million, or 42.5%, primarily due to higher sales in Semiconductor Test mobility test segment, higher sales of flash and DRAM testers, higher sales in Storage Test of system level and hard disk drive testers, and higher sales in Wireless Test of 5G, WiFi 6 and WiFi 6E testers, partially offset by a decrease in sales in Industrial Automation. Service revenues increased $23.3 million or 5.7%. In 2020, revenues from Taiwan Semiconductor Manufacturing Company Ltd., a customer of our Semiconductor Test segment, accounted for 15% of our consolidated revenues. In 2019, no single direct customer accounted for more than 10% of our consolidated revenues. In 2020 and 2019, our five largest direct customers in aggregate accounted for 36% and 27% of our consolidated revenues, respectively. We estimate consolidated revenues driven by one OEM customer, combining direct sales to that customer with sales to the customer’s OSATs, accounted for approximately 25% and 10% of our consolidated revenues in 2020 and 2019, respectively. We estimate consolidated revenues driven by Huawei Technologies Co. Ltd. (“Huawei”), combining direct sales to that customer with sales to the customer’s OSATs, accounted for approximately 3% and 11% of our consolidated revenues in 2020 and 2019, respectively. Gross Profit Gross profit Percent of total revenues 2020 $1,785.7 2019 (dollars in millions) $1,339.8 57.2% 58.4% Gross profit as a percent of total revenues decreased by 1.2 points, primarily due to product mix in Semiconductor Test. The breakout of product and service gross profit was as follows: 2019-2020 Dollar / Point Change $ 445.9 (1.2) 2019-2020 Dollar / Point Change $ 427.8 (1.6) 2020 $1,533.4 2019 (dollars in millions) $1,105.6 57.0% 58.6% $ 252.3 $ 234.2 $ 58.6% 57.5% 18.1 1.1 Product gross profit Percent of product revenues Service gross profit Percent of service revenues We assess the carrying value of our inventory on a quarterly basis by estimating future demand and comparing that demand against on-hand and on-order inventory positions. Forecasted revenues information is obtained from the sales and marketing groups and incorporates factors such as backlog and future consolidated 35 Table of Contents revenues. This quarterly process identifies obsolete and excess inventory. Obsolete inventory, which represents items for which there is no demand, is fully reserved. Excess inventory, which represents inventory items that are not expected to be consumed during the next twelve quarters for our Semiconductor Test, Industrial Automation and System Test segments and next four quarters for our Wireless Test segment, is written-down to estimated net realizable value. During the year ended December 31, 2020, we recorded an inventory provision of $17.5 million included in cost of revenues, primarily due to downward revisions to previously forecasted demand levels for certain products. Of the $17.5 million of total excess and obsolete provisions, $11.0 million was related to Semiconductor Test, $4.8 million was related to Wireless Test, $0.9 million was related to System Test, and $0.8 million was related to Industrial Automation. During the year ended December 31, 2019, we recorded an inventory provision of $15.2 million included in cost of revenues, primarily due to downward revisions to previously forecasted demand levels for certain products. Of the $15.2 million of total excess and obsolete provisions, $8.7 million was related to Semiconductor Test, $4.0 million was related to Wireless Test, $2.0 million was related to System Test, and $0.5 million was related to Industrial Automation. During the years ended December 31, 2020 and 2019, we scrapped $7.7 million and $9.2 million of inventory, respectively, and sold $2.3 million and $3.2 million of previously written-down or written-off inventory, respectively. As of December 31, 2020, we had inventory related reserves for amounts which had been written-down or written-off totaling $110.6 million. We have no pre-determined timeline to scrap the remaining inventory. Selling and Administrative Selling and administrative expenses were as follows: Selling and administrative Percent of total revenues 2020 $464.8 14.9% 2019 (dollars in millions) $437.1 19.0% 2019-2020 Change $ 27.7 The increase of $27.7 million in selling and administrative expenses was primarily due to higher variable compensation. Engineering and Development Engineering and development expenses were as follows: Engineering and development Percent of total revenues 2020 $375.0 12.0% 2019 (dollars in millions) $322.8 14.1% 2019-2020 Change $ 52.1 The increase of $52.1 million in engineering and development expenses was primarily due to higher variable compensation and higher spending across all segments. Restructuring and Other During the year ended December 31, 2020, we recorded a $19.7 million gain for the decrease in the fair value of the AutoGuide contingent consideration liability, and a $3.5 million gain for the decrease in the fair 36 Table of Contents value of the MiR contingent consideration liability, partially offset by a $4.0 million contract termination settlement charge, $2.5 million of acquisition related compensation and expenses, $2.3 million of severance charges primarily in Industrial Automation, and $1.2 million of other expenses. During the year ended December 31, 2019, we recorded a $22.2 million gain for the decrease in the fair value of the MiR contingent consideration liability, partially offset by a $3.0 million gain for the increase in the fair value of the AutoGuide contingent consideration, $2.9 million of severance charges related to headcount reductions primarily in Semiconductor Test and Industrial Automation, and $2.5 million for acquisition related expenses and compensation. The remaining accrual for severance of $0.5 million is reflected in the accrued employees’ compensation and withholdings on the balance sheet and is expected to be paid by March 2021. Interest and Other Interest income Interest expense Other (income) expense, net 2020 $ (6.0) 24.2 9.2 2019 (in millions) $ (17.0) 22.2 22.6 2019-2020 Change $ 11.0 2.0 (13.5) Interest income decreased by $11.0 million primarily due to lower interest rates in 2020 compared to 2019. Interest expense increased by $2.0 million primarily due to interest expense related to our convertible senior notes and revolving credit facility costs. Other (income) expense, net decreased by $13.5 million primarily due to a $15.0 million charge for the impairment of the investment in RealWear in 2019, partially offset by a $2.1 million increase in pension actuarial losses from $8.2 million losses in 2019 to $10.3 million losses in 2020. Income (Loss) Before Income Taxes Semiconductor Test System Test Wireless Test Industrial Automation Corporate and Other (1) 2020 $739.7 152.1 42.0 (24.0) (8.7) $901.0 2019 (in millions) $417.0 93.5 35.6 (5.9) (14.4) $525.8 2019-2020 Change $ 322.7 58.6 6.4 (18.1) 5.7 $ 375.3 (1) Included in Corporate and Other are: contingent consideration adjustments, investment impairment, employee severance charges, interest (income) and expense, net foreign exchange (gains) and losses, pension and postretirement plan actuarial (gains) and losses and settlement charges, intercompany eliminations, and certain acquisition related charges and compensation. The increase in income before income taxes in Semiconductor Test was driven primarily by an increase in semiconductor mobility test sales resulting from increased complexity of cell phone silicon which drives demand for testers, and an increase in memory test sales of flash and DRAM testers. The increase in income before income taxes in System Test was primarily due to higher sales in Storage Test of system level and hard disk drive testers, and higher sales in Defense/Aerospace test of instrumentation and systems, partially offset by lower sales in Production Board due to lower automotive electronics demand. The increase in income before income taxes in Wireless Test was primarily due to increased sales of 5G, WiFi 6 and WiFi 6E testers. The decrease in income before income taxes in Industrial Automation was primarily due to lower demand for collaborative robotic arms in the automotive and manufacturing markets amplified by the impacts of COVID-19. 37 Table of Contents Income Taxes Income tax expense for 2020, 2019 and 2018 totaled $116.9 million, $58.3 million and $16.0 million, respectively. The effective tax rate for 2020, 2019 and 2018 was 13.0%, 11.1% and 3.4%, respectively. The increase in the effective tax rate from 2019 to 2020 is primarily attributable to a reduction in the benefit from releases of reserves for uncertain tax positions and a reduction in the benefit from foreign tax credits. These increases in expense were partially offset by a decrease in the transition tax on the mandatory deemed repatriation of foreign earnings and shift in the geographic distribution of income, which increases the income subject to taxation in lower tax rate jurisdictions relative to higher tax rate jurisdictions. In the fourth quarter of 2017, we recorded $186.0 million of additional income tax expense which represented our best estimate of the impact of the Tax Reform Act in accordance with our understanding of the Tax Reform Act and available guidance as of that date. The $186.0 million was primarily composed of expense of $161.0 million related to the one-time transition tax on the mandatory deemed repatriation of foreign earnings, $33.6 million of expense related to the remeasurement of certain deferred tax assets and liabilities based on the rates at which they are expected to reverse in the future, and benefit of $10.3 million associated with the impact of correlative adjustments on uncertain tax positions. In accordance with the requirements of SEC Staff Accounting Bulletin (“SAB”) No. 118, “Income Tax Accounting Implications of the Tax Cuts and Jobs Act”, in the fourth quarter of 2018, we completed our analysis of the effect of the Tax Reform Act based on the application of the guidance available as of December 31, 2018 and recorded $49.5 million of net income tax benefit. The net benefit consisted of $51.7 million of benefit resulting from a reduction in the estimate of the one-time transition tax on the mandatory deemed repatriation of foreign earnings and an expense of $2.2 million associated with the impact of correlative adjustments on uncertain tax positions. The increase in the effective tax rate from 2018 to 2019 is primarily attributable to increases in expense associated with U.S. global intangible low-taxed income and U.S. transition tax on the mandatory deemed repatriation of foreign earnings. These increases in expense were partially offset by increased benefit from the U.S. foreign derived intangible income deduction, an increase in the benefit from foreign tax credits and the benefit from a net reduction in reserves for uncertain tax positions. We qualify for a tax holiday in Singapore by fulfilling the requirements of an agreement with the Singapore Economic Development Board under which certain headcount and spending requirements must be met. The tax savings attributable to the Singapore tax holiday for the years ended December 31, 2020, 2019 and 2018 were $29.9 million or $0.16 per diluted share, $15.1 million or $0.08 per diluted share and $11.9 million or $0.06 per diluted share, respectively. In November 2020, we 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. 38 Table of Contents Contractual Obligations The following table reflects our contractual obligations as of December 31, 2020: Total Less than 1 year Payments Due by Period 3-5 years 1-3 years (in thousands) More than 5 years Other Purchase obligations Convertible debt Retirement plans contributions Transition tax payable (1) Operating lease obligations Interest on long term debt Fair value of contingent consideration Other long-term liabilities reflected on the balance sheet under $ 603,464 $ 592,058 $ 11,406 $ — $ 459,971 156,592 82,820 71,457 15,928 7,227 422,574 10,598 15,795 27,371 10,564 7,227 — 10,426 34,540 13,839 — — 37,397 5,551 7,889 22,631 5,364 — — $ — — — — 130,017 — 24,596 — 7,616 — — — — GAAP (2) Total 88,532 30,173 51,165 $ 1,485,991 $ 670,890 $ 556,700 $ 65,592 $ 162,636 $ 30,173 6,787 407 — (1) Represents the transition tax liability associated with our accumulated foreign earnings as a result of enactment of the Tax Reform Act on (2) December 22, 2017. Included in other long-term liabilities are liabilities for customer advances, extended warranty, uncertain tax positions, deferred tax liabilities and other obligations. For certain long-term obligations, we are unable to provide a reasonably reliable estimate of the timing of future payments relating to these obligations and therefore we included these amounts in the column marked “Other.” Liquidity and Capital Resources Our cash, cash equivalents and marketable securities balance increased by $539 million in 2020 to $1,554 million. Operating activities during 2020 provided cash of $868.9 million. Changes in operating assets and liabilities used cash of $69.4 million. This was due to a $202.3 million increase in operating assets and a $132.9 million increase in operating liabilities. The increase in operating assets was due to a $129.5 million increase in accounts receivable due to increased sales, an $8.4 million increase in inventories, and a $64.4 million increase in prepayments and other assets. The increase in operating liabilities was due to a $54.7 million increase in accrued employee compensation, a $40.0 million increase in deferred revenue and customer advance payments, a $25.2 million increase in income taxes, a $12.8 million increase in other accrued liabilities, and a $5.7 million increase in accounts payable, partially offset by $5.4 million of retirement plan contributions. Investing activities during 2020 used cash of $569.8 million, due to $900.2 million used for purchases of marketable securities, and $185.0 million used for purchases of property, plant and equipment, partially offset by $480.0 million and $35.0 million in proceeds from maturities and sales of marketable securities, respectively, and proceeds from life insurance of $0.5 million related to the cash surrender value from the cancellation of Teradyne owned life insurance policy. Financing activities during 2020 used cash of $158.3 million, due to $88.5 million used for the repurchase of 1.5 million shares of common stock at an average price of $58.33 per share, $66.5 million used for dividend payments, $23.0 million used for payments related to net settlement of employee stock compensation awards, and $8.9 million used for payment related to MiR acquisition contingent consideration, partially offset by $28.5 million from the issuance of common stock under employee stock purchase and stock option plans. 39 Table of Contents Operating activities during 2019 provided cash of $578.8 million. Changes in operating assets and liabilities used cash of $51.7 million. This was due to a $121.6 million increase in operating assets and a $69.9 million increase in operating liabilities. The increase in operating assets was due to a $70.4 million increase in accounts receivable due to increased sales, a $27.4 million increase in inventories, and a $23.8 million increase in prepayments and other assets. The increase in operating liabilities was due to a $39.3 million increase in deferred revenue and customer advance payments, a $24.8 million increase in accounts payable, a $15.3 million increase in accrued employee compensation and a $9.2 million increase in other accrued liabilities, partially offset by a $13.6 million decrease in income taxes, and $5.1 million of retirement plan contributions. Investing activities during 2019 used cash of $156.7 million, due to $662.7 million used for purchases of marketable securities, $134.6 million used for purchases of property, plant and equipment, $57.8 million, net of cash acquired, used for the acquisition of AutoGuide, $15.0 million used for an investment in RealWear, and $7.0 million, net of cash acquired, used for the acquisition of Lemsys, partially offset by $611.9 million and $105.6 million in proceeds from maturities and sales of marketable securities, respectively, and proceeds from life insurance of $2.9 million related to the cash surrender value from the cancellation of Teradyne owned life insurance policies. Financing activities during 2019 used cash of $574.3 million, due to $500.0 million used for the repurchase of 10.9 million shares of common stock at an average price of $45.89 per share, $61.3 million used for dividend payments, $27.6 million used for payments related to MiR and Universal Robots acquisition contingent consideration and $14.7 million used for payments related to net settlement of employee stock compensation awards, partially offset by $29.3 million from the issuance of common stock under employee stock purchase and stock option plans. In January 2020, May 2020, August 2020 and November 2020, our Board of Directors declared a quarterly cash dividend of $0.10 per share. Total dividend payments in 2020 were $66.5 million. In January 2019, May 2019, August 2019 and November 2019, our Board of Directors declared a quarterly cash dividend of $0.09 per share. Total dividend payments in 2019 were $61.3 million. In January 2021, our Board of Directors declared a quarterly cash dividend of $0.10 per share to be paid on March 19, 2021 to shareholders of record as of February 19, 2021. Payment of future cash dividends are subject to the discretion of our Board of Directors and will depend, among other things, upon our earnings, capital requirements and financial condition. In January 2020, our Board of Directors cancelled the January 2018 stock repurchase program and approved a new stock repurchase program for up to $1.0 billion in common stock. On April 1, 2020, we suspended the share repurchase program. In 2020, we repurchased 1.5 million shares of common stock for $88.5 million at an average price per share of $58.33. In 2019, we repurchased 10.9 million shares of common stock for $500.0 million at an average price per share of $45.89. The cumulative repurchases as of December 31, 2019, for the 2018 stock repurchase program, totaled 32.5 million shares of common stock for $1,323.0 million at an average price per share of $40.68. In January 2021, our Board of Directors cancelled the January 2020 repurchase program and approved a new repurchase program for up to $2.0 billion of common stock. Unless terminated by resolution of our Board of Directors, the repurchase program will expire when we have repurchased all shares authorized for repurchase under the share repurchase program. We intend to repurchase a minimum of $600 million in 2021. While we declared a quarterly cash dividend and authorized a share repurchase program, we may reduce or eliminate the cash dividend or share repurchase program in the future. Future cash dividends and stock repurchases are subject to the discretion of our Board of Directors, which will consider, among other things, our earnings, capital requirements and financial condition. 40 Table of Contents On May 1, 2020, we entered into a credit agreement providing a three-year, senior secured revolving credit facility of $400 million. As of February 22, 2021, we have not borrowed any funds under the credit facility. We believe our cash, cash equivalents and marketable securities balance will be sufficient to pay our quarterly dividend and meet our working capital and expenditure needs for at least the next twelve months. Inflation has not had a significant long-term impact on earnings. At this time, the COVID-19 pandemic has not had an impact on our liquidity, but there is no assurance that continued impacts resulting from the pandemic will not have an adverse effect in the future. Retirement Plans ASC 715-20, “Compensation—Retirement Benefits—Defined Benefit Plans,” 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 715-20. The pension asset or liability represents the difference between the fair value of the pension plans’ assets and the projected benefit obligation as of December 31. For other postretirement benefit plans, the liability is the difference between the fair value of the plan’s assets and the accumulated postretirement benefit obligation as of December 31. For the year ended December 31, 2020, our pension expense, which includes the U.S. Qualified Pension Plan (“U.S. Plan”), certain qualified plans for non-U.S. subsidiaries, and a U.S. Supplemental Executive Defined Benefit Plan, was approximately $13.9 million. Pension expense is calculated based upon a number of actuarial assumptions. Discount rate and expected return on assets are two assumptions which are important elements of pension plan expense and asset/liability measurement. We evaluate our discount rate and expected rate of return on assets assumptions annually on a plan and country specific basis. We evaluate other assumptions related to demographic factors, such as retirement age, mortality and turnover periodically, and update them to reflect our experience and expectations for the future. In developing the expected return on U.S. Plan assets assumption, we evaluated input from our investment manager and pension consultants, including their forecast of asset class return expectations. We believe that 3.0% was an appropriate rate of return on assets to use for 2020. The December 31, 2020 asset allocation for our U.S. Plan was 94% invested in fixed income securities, 5% invested in equity securities, and 1% invested in other securities. Our investment manager regularly reviews the actual asset allocation and periodically rebalances the portfolio to ensure alignment with our target allocations. We recognize net actuarial gains and losses and the change in the fair value of plan assets in our operating results in the year in which they occur or upon any interim remeasurement of the plans. We calculate 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. The discount rate that we utilized for determining future pension obligations for the U.S. Plan is based on the FTSE Pension Index adjusted for the U.S. Plan’s expected cash flows and was 2.3% at December 31, 2020, down from 3.1% at December 31, 2019. We estimate that in 2021 we will recognize approximately $0.9 million of pension expense for the U.S. Plan. The U.S. Plan pension expense estimate for 2021 is based on a 2.3% discount rate and a 2.4% return on assets. Future pension expense or income will depend on future investment performance, changes in future discount rates and various other factors related to the employee population participating in our pension plans. As of December 31, 2020, our pension plans had no unrecognized pension prior service cost. The assets of the U.S. Plan consist substantially of fixed income securities. U.S. Plan assets have decreased from $166.9 million at December 31, 2019 to $158.9 million at December 31, 2020, while the U.S. Plan’s 41 Table of Contents liability decreased from $148.5 million at December 31, 2019 to $141.4 million at December 31, 2020. In 2020, the decrease in plan assets and plan liability was primarily due to a retiree annuity purchase. In 2020, the accrued pension obligations for approximately 115 retiree participants were transferred to an insurance company and resulted in a $24.4 million reduction in the pension benefit obligation and pension assets. We recorded $2.2 million of pension actuarial loss and a settlement loss of $0.5 million related to the retiree group annuity transaction. Our funding policy is to make contributions to our pension plans in accordance with local laws and to the extent that such contributions are tax deductible. During 2020, we made contributions of $3.1 million to the U.S. supplemental executive defined benefit pension plan, and $1.1 million to certain qualified plans for non-U.S. subsidiaries. In 2021, we expect to contribute approximately $3.3 million to the U.S. supplemental executive defined benefit pension plan. Contributions to be made in 2021 to certain qualified plans for non-U.S. subsidiaries are based on local statutory requirements and are estimated at approximately $1.1 million. Equity Compensation Plans In addition to our 1996 Employee Stock Purchase Plan discussed in Note Q: “Stock-Based Compensation” in Notes to Consolidated Financial Statements, we have a 2006 Equity and Cash Compensation Incentive Plan (the “2006 Equity Plan”) under which equity securities are authorized for issuance. The 2006 Equity Plan was initially approved by stockholders on May 25, 2006. At our annual meeting of stockholders held May 21, 2013, our stockholders approved an amendment to the 2006 Equity Plan to increase the number of shares issuable thereunder by 10.0 million, for an aggregate of 32.0 million shares issuable thereunder, and our stockholders also approved an amendment to our 1996 Employee Stock Purchase Plan to increase the number of shares issuable thereunder by 5.0 million, for an aggregate of 30.4 million shares issuable thereunder. At our annual meeting of stockholders held May 12, 2015, our stockholders approved an amendment to the 2006 Equity Plan to extend its term until May 12, 2025. The following table presents information about these plans as of December 31, 2020 (share numbers in thousands): Plan category Equity plans approved by shareholders Equity plans not approved by shareholders (3) Total Number of securities to be issued upon exercise of outstanding options, warrants and rights 1,943(1) 6 1,949 Weighted-average exercise price of outstanding options, warrants and rights 37.31 $ 3.77 37.21 Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column one) 7,563(2) — 7,563 Includes 1,789,217 shares of restricted stock units that are not included in the calculation of the weighted average exercise price. (1) (2) Consists of 6,122,630 securities available for issuance under the 2006 Equity Plan and 1,440,073 of securities available for issuance under the (3) Employee Stock Purchase Plan. In connection with the 2011 acquisition of LitePoint Corporation (the “LitePoint Acquisition”), we assumed the options granted under the LitePoint Corporation 2002 Stock Plan (the “LitePoint Plan”). Upon the consummation of the LitePoint Acquisition, these options were converted automatically into options to purchase an aggregate of 2,828,344 shares of our common stock. No additional awards were granted under the LitePoint Plan. As of December 31, 2020, there were outstanding options exercisable for an aggregate of 6,125 shares of our common stock pursuant to the LitePoint Plan, with a weighted average exercise price of $3.77 per share. 42 Table of Contents The purpose of the 2006 Equity Plan is to motivate employees, officers and directors by providing equity ownership and compensation opportunities in Teradyne. The aggregate number of shares available under the 2006 Equity Plan as of December 31, 2020 was 6,122,630 shares of our common stock. The 2006 Equity Plan authorizes the grant of stock-based awards in the form of (1) non-qualified and incentive stock options, (2) stock appreciation rights, (3) restricted stock awards and restricted stock unit awards, (4) phantom stock, and (5) other stock-based awards. Awards may be tied to time-based vesting schedules and/or performance-based vesting measured by reference to performance criteria chosen by the Compensation Committee of the Board of Directors, which administers the 2006 Equity Plan. Awards may be made to any employee, officer, consultant and advisor of Teradyne and our subsidiaries, as well as, to our directors. The maximum number of shares of stock-based awards that may be granted to one participant during any one fiscal year is 2,000,000 shares of common stock. As of December 31, 2020, total unrecognized compensation expense related to non-vested restricted stock units and options was $44 million and is expected to be recognized over a weighted average period of 2.4 years. Performance Graph The following graph compares the change in our cumulative total shareholder return in our common stock with (i) the NYSE Composite Index and (ii) the Morningstar Semiconductor Equipment & Materials Industry Group (compiled by Morningstar, Inc.), and (iii) the Standard & Poor’s 500 Index. The comparison assumes $100.00 was invested on December 31, 2015 in our common stock and in each of the foregoing indices and assumes reinvestment of dividends, if any. Historic stock price performance is not necessarily indicative of future price performance. This is the last year that we will compare ourselves to the NYSE Composite Index. Going forward, we will compare ourselves to (i) Standard & Poor’s 500 Index, as a result of Teradyne being added, on September 21, 2020, to the Standard & Poor’s 500 Index, and (ii) the Morningstar Semiconductor Equipment & Materials Industry Group (compiled by Morningstar, Inc.) Recently Issued Accounting Pronouncements In August 2020, the FASB issued ASU 2020-06—“Debt—Debt with Conversion and Other Options and Derivatives and Hedging—Contracts in Entity’s Own Equity,” which simplifies the accounting for convertible 43 Table of Contents debt instruments by reducing the number of accounting models and the number of embedded conversion features that could be recognized separately from the primary contract. This ASU requires a convertible debt instrument to be accounted for as a single liability measured at its amortized cost, as long as no other features require bifurcation and recognition as derivatives. This ASU requires an entity to use the if-converted method in the diluted earnings per share calculation for convertible instruments. This ASU will be effective for Teradyne on January 1, 2022, with early adoption permitted beginning on January 1, 2021. This ASU permits the use of either the modified retrospective or fully retrospective method of transition. Teradyne is evaluating the timing and effects of the adoption of this ASU on its financial statements. Item 7A: Quantitative and Qualitative Disclosures about Market Risks Concentration of Credit Risk Financial instruments which potentially subject us to concentrations of credit risk consist principally of cash equivalents, marketable securities, forward currency contracts and accounts receivable. Our cash equivalents consist primarily of money market funds invested in U.S. Treasuries and government agencies. Our fixed income available-for-sale marketable securities have a minimum rating of AA by one or more of the major credit rating agencies. We place forward currency 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. We perform ongoing credit evaluations of our customers’ financial condition and from time to time may require customers to provide a letter of credit from a bank to secure accounts receivable. As of December 31, 2020, a customer of our Semiconductor Test segment, JA Mitsui Leasing, Ltd., accounted for 25% of our accounts receivable balance. The balance was paid in full as of February 22, 2021. There were no customers who accounted for 10% or more of our accounts receivable balance as of December 31, 2019. In addition to market risks, we have an equity price risk related to the fair value of our convertible senior unsecured notes issued in December 2016. In December 2016, Teradyne issued $460 million aggregate principal amount of 1.25% convertible senior unsecured notes (the “Notes”) due December 15, 2023. As of December 31, 2020, the Notes had a fair value of $1,740 million. The table below provides a sensitivity analysis of hypothetical 10% changes of Teradyne’s stock price as of the end of 2020 and the estimated impact on the fair value of the Notes. The selected scenarios are not predictions of future events, but rather are intended to illustrate the effect such event may have on the fair value of the Notes. The fair value of the Notes is subject to equity price risk due to the convertible feature. The fair value of the Notes will generally increase as Teradyne’s common stock price increases and will generally decrease as the common stock price declines in value. The change in stock price affects the fair value of the convertible senior notes, but does not impact Teradyne’s financial position, cash flows or results of operations due to the fixed nature of the debt obligation. Additionally, we carry the Notes at face value less unamortized discount on our balance sheet, and we present the fair value for required disclosure purposes only. In connection with the offering of the Notes we also sold warrants to the option counterparties. These transactions have been accounted for as an adjustment to our shareholders’ equity. The convertible note hedge transactions are expected to reduce the potential equity dilution upon conversion of the Notes. The warrants along with any shares issuable upon conversion of the Notes will have a dilutive effect on our earnings per share to the extent that the average market price of our common stock for a given reporting period exceeds the applicable strike price or conversion price of the warrants or Notes, respectively. Hypothetical Change in Teradyne Stock Price 10% Increase No Change 10% Decrease See Note J: “Debt” for further information. 44 Fair Value $1,917,955 1,739,553 1,569,357 Estimated change in fair value $ 178,402 — (170,196) Hypothetical percentage increase (decrease) in fair value 10.3% — (9.8) Table of Contents Exchange Rate Risk Management We regularly enter into foreign currency forward contracts to hedge the value of our monetary assets and liabilities in Japanese Yen, British Pound, Korean Won, Taiwan Dollar, Singapore Dollar, Euro, Philippine Peso and Chinese Yuan. These foreign currency forward contracts have maturities of approximately one month. These contracts are used to minimize the effect of exchange rate fluctuations associated with the remeasurement of monetary assets and liabilities. We do not engage in currency speculation. We performed a sensitivity analysis assuming a hypothetical 10% fluctuation in foreign exchange rates to the hedging contracts and the underlying exposures described above. As of December 31, 2020 and 2019, the analysis indicated that these hypothetical market movements would not have a material effect on our consolidated financial position, results of operations or cash flows. Interest Rate Risk Management We are exposed to potential losses due to changes in interest rates. Our interest rate exposure is primarily related to short-term and long-term marketable securities. In order to estimate the potential loss due to interest rate risk, a fluctuation in interest rates of 25 basis points was assumed. Market risk for the short and long-term marketable securities was estimated as the potential change in the fair value resulting from a hypothetical change in interest rates for securities contained in the investment portfolio. The potential change in the fair value from changes in interest rates is immaterial as of December 31, 2020 and 2019. 45 Table of Contents 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, 2020 and 2019, and the related consolidated statements of operations, comprehensive income, convertible common shares and shareholders’ equity and cash flows for each of the three years in the period ended December 31, 2020, including the related notes and schedule of valuation and qualifying accounts for each of the three years in the period ended December 31, 2020 appearing under Item 15(c) (collectively referred to as the “consolidated financial statements”). We also have audited the Company’s internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO. Changes in Accounting Principles As discussed in Note B to the consolidated financial statements, the Company changed the manner in which it accounts for leases in 2019 and the manner in which it accounts for revenue from contracts with customers in 2018. Basis for Opinions The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Annual Report on Internal Control over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an 46 Table of Contents understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions. Definition and Limitations of Internal Control over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Critical Audit Matters The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Valuation of Contingent Consideration payable related to the acquisition of AutoGuide, LLC As described in Notes D, H and O to the consolidated financial statements, the Company completed its acquisition of AutoGuide, LLC on November 13, 2019. The total purchase price was approximately $81.6 million, which included contingent consideration payable upon achievement of certain performance targets, extending potentially through 2022. As of December 31, 2020, the maximum contingent consideration that could be paid is $100.2 million and management estimated the fair value of the contingent consideration to be approximately $7.2 million based on forecasted results, after recording $19.7 million in restructuring and other expenses during the year ended December 31, 2020. The valuation of contingent consideration is remeasured at each financial reporting date from the acquisition date through the date of final settlement using the Monte Carlo simulation model, and it is dependent on the following assumptions: forecasted revenues, revenue volatility, earnings before interest and taxes, and discount rate at each reporting date. The principal considerations for our determination that performing procedures relating to the valuation of contingent consideration payable related to the acquisition of AutoGuide, LLC is a critical audit matter are (i) the high degree of auditor judgment and subjectivity in performing procedures relating to the fair value measurement of the contingent consideration due to the significant judgment by management when developing the fair value estimate; (ii) significant audit effort in evaluating the significant assumptions related to forecasted revenues and earnings before interest and taxes used in the Monte Carlo simulation model; and (iii) the audit effort involved the use of professionals with specialized skill and knowledge. 47 Table of Contents Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to management’s valuation of contingent consideration, including controls over the development of the forecasted revenues and earnings before interest and taxes used in the valuation of the contingent consideration. These procedures also included, among others, (i) testing management’s process for developing the fair value estimate; (ii) evaluating the appropriateness of the Monte Carlo simulation model; (iii) evaluating the reasonableness of the significant assumptions related to forecasted revenues and earnings before interest and taxes; and (iv) testing the completeness, accuracy and relevance of the underlying data used in the model. Evaluating management’s assumptions related to forecasted revenues and earnings before interest and taxes involved evaluating whether the assumptions were reasonable considering historical results and consistency with external industry and market data. Professionals with specialized skill and knowledge were used to assist in the evaluation of the appropriateness of the Monte Carlo simulation model, as well as the reasonableness of certain assumptions. /s/ PricewaterhouseCoopers LLP Boston, Massachusetts February 22, 2021 We have served as the Company’s auditor since 1968. 48 Table of Contents TERADYNE, INC. CONSOLIDATED BALANCE SHEETS Current assets: ASSETS Cash and cash equivalents Marketable securities Accounts receivable, less allowance for doubtful accounts of $2,034 and $1,736 in 2020 and 2019, respectively Inventories, net Prepayments and other current assets Total current assets Property, plant and equipment, net Operating lease right-of-use assets, net Marketable securities Deferred tax assets Retirement plans assets Other assets Acquired intangible assets, net Goodwill Total assets Current liabilities: LIABILITIES Accounts payable Accrued employees’ compensation and withholdings Deferred revenue and customer advances Other accrued liabilities Operating lease liabilities Contingent consideration Income taxes payable Current debt Total current liabilities Retirement plans liabilities Long-term deferred revenue and customer advances Long-term contingent consideration Deferred tax liabilities Long-term other accrued liabilities Long-term operating lease liabilities Long-term income taxes payable Debt Total liabilities Commitments and contingencies (Note M) Mezzanine equity: Convertible common shares Common stock, $0.125 par value, 1,000,000 shares authorized, 166,123 and 166,410 shares issued and outstanding at SHAREHOLDERS’ EQUITY December 31, 2020 and 2019, respectively Additional paid-in capital Accumulated other comprehensive income (loss) Retained earnings (accumulated deficit) Total shareholders’ equity Total liabilities, convertible common shares and shareholders’ equity The accompanying notes are an integral part of the consolidated financial statements. 49 2020 2019 (in thousands, except per share information) $ 914,121 $ 773,924 137,303 362,368 196,691 188,598 1,658,884 320,216 57,539 104,490 75,185 18,457 10,332 125,480 416,431 $3,652,346 $2,787,014 522,280 497,506 222,189 259,338 2,415,434 394,800 54,569 117,980 87,913 17,468 9,384 100,939 453,859 $ 133,663 $ 126,617 163,883 104,876 70,871 19,476 9,106 44,200 — 539,029 134,471 45,974 30,599 14,070 19,535 45,849 82,642 394,687 1,306,856 220,321 134,662 77,581 20,573 — 80,728 33,343 700,871 151,140 58,359 7,227 10,821 19,352 42,073 74,930 376,768 1,441,541 3,787 — 20,765 1,765,323 33,516 387,414 2,207,018 20,801 1,720,129 (18,854) (241,918) 1,480,158 $3,652,346 $2,787,014 TERADYNE, INC. CONSOLIDATED STATEMENTS OF OPERATIONS Table of Contents Revenues: Products Services Total revenues Cost of revenues: Cost of products Cost of services Total cost of revenues (exclusive of acquired intangible assets amortization shown separately below) Gross profit Operating expenses: Selling and administrative Engineering and development Acquired intangible assets amortization Restructuring and other Total operating expenses Income from operations Non-operating (income) expenses: Interest income Interest expense Other (income) expense, net Income before income taxes Income tax provision Net income Net income per common share: Basic Diluted Weighted average common shares—basic Weighted average common shares—diluted 2020 Years Ended December 31, 2019 (in thousands, except per share amounts) 2018 $ 2,690,906 430,563 3,121,469 $ 1,887,674 407,291 2,294,965 $ 1,729,621 371,181 2,100,802 1,157,476 178,252 782,047 173,089 727,138 153,270 1,335,728 1,785,741 955,136 1,339,829 880,408 1,220,394 464,769 374,964 30,803 (13,202) 857,334 928,407 (5,982) 24,182 9,192 901,015 116,868 784,147 4.72 4.28 166,120 183,042 $ $ $ 437,084 322,824 40,147 (13,880) 786,175 553,654 (16,990) 22,224 22,648 525,772 58,304 467,468 2.74 2.60 170,425 179,459 $ $ $ 390,669 301,505 39,191 15,232 746,597 473,797 (20,458) 21,780 4,674 467,801 16,022 451,779 2.41 2.35 187,672 192,605 $ $ $ The accompanying notes are an integral part of the consolidated financial statements. 50 Table of Contents CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME TERADYNE, INC. 2020 Net income Other comprehensive income, net of tax: Foreign currency translation adjustment, net of tax of $0, $0, $0 Available-for-sale marketable securities: Unrealized gains (losses) on marketable securities arising during period, net of tax of $1,629, $1,659, $(722), respectively Less: Reclassification adjustment for (gains) losses included in net income, net of tax of $(665), $(192), $(21), respectively Defined benefit pension and post-retirement plans: Amortization of prior service benefit included in net periodic pension and post-retirement benefit, net of tax $(2), $(43), $(71), respectively Other comprehensive income (loss) Comprehensive income Years Ended December 31, 2019 (in thousands) $467,468 2018 $451,779 $784,147 48,903 (10,991) (28,442) 5,839 6,015 (2,110) (2,365) 3,474 (690) 5,325 1,337 (773) (7) (148) (245) 52,370 (5,814) (29,460) $836,517 $461,654 $422,319 The accompanying notes are an integral part of the consolidated financial statements. 51 Table of Contents CONSOLIDATED STATEMENTS OF CONVERTIBLE COMMON SHARES AND SHAREHOLDERS’ EQUITY TERADYNE, INC. Year Ended December 31, 2017 Net issuance of common stock under stock-based plans Stock-based compensation expense Repurchase of common stock Cash dividends ($0.09 per share) Net income Other comprehensive loss Reclassification of unrealized gains on equity securities Reclassification of tax effects resulting from the Tax Reform Act Cumulative effect of changes in accounting principle related to revenue recognition Year Ended December 31, 2018 Net issuance of common stock under stock-based plans Stock-based compensation expense Repurchase of common stock Cash dividends ($0.09 per share) Net income Other comprehensive loss Year Ended December 31, 2019 Net issuance of common stock under stock-based plans Stock-based compensation expense Repurchase of common stock Cash dividends ($0.10 per share) Convertible common shares Net income Other comprehensive income Year Ended December 31, 2020 Convertible Common Shares Common Stock Shares Common Stock Par Value $ — 195,548 1,613 $ 24,444 201 (21,639) (2,705) Shareholders’ Equity Accumulated Other Comprehensive Income (Loss) Additional Paid-in Capital (in thousands) Retained Earnings (Accumulated Deficit) Total Shareholders’ Equity $ 18,776 $ 272,013 $ $1,638,413 (72) 33,304 (29,460) (3,125) 769 — 175,522 21,940 1,671,645 (13,040) 1,784 223 (10,896) (1,362) 10,399 38,085 — 166,410 20,801 1,720,129 1,230 154 (1,517) (190) 4,696 44,285 (3,787) 3,787 (5,814) (18,854) (829,651) (67,367) 451,779 3,125 (769) 12,679 (158,191) (489,840) (61,355) 467,468 (241,918) (88,275) (66,540) 784,147 1,953,646 129 33,304 (832,356) (67,367) 451,779 (29,460) — — 12,679 1,522,354 10,622 38,085 (491,202) (61,355) 467,468 (5,814) 1,480,158 4,850 44,285 (88,465) (66,540) (3,787) 784,147 52,370 2,207,018 $ 3,787 166,123 $ 20,765 $1,765,323 $ 52,370 33,516 $ 387,414 $ The accompanying notes are an integral part of the consolidated financial statements. 52 Table of Contents TERADYNE, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS Cash flows from operating activities: Net income Adjustments to reconcile net income from operations to net cash provided by operating activities: Depreciation Amortization Stock-based compensation Provision for excess and obsolete inventory Retirement plans actuarial losses (gains) Contingent consideration fair value adjustment Deferred taxes (Gains) losses on investments Investment impairment Other Changes in operating assets and liabilities, net of businesses acquired: Accounts receivable Inventories Prepayments and other assets Accounts payable and other accrued expenses Deferred revenue and customer advances Retirement plan contributions Income taxes Net cash provided by operating activities Cash flows from investing activities: Purchases of property, plant and equipment Proceeds from government subsidy for property, plant and equipment Purchases of marketable securities Proceeds from maturities of marketable securities Proceeds from sales of marketable securities Proceeds from insurance Purchase of investment and acquisition of businesses, net of cash acquired Net cash (used for) provided by investing activities Cash flows from financing activities: Issuance of common stock under stock purchase and stock option plans Repurchase of common stock Dividend payments Payments related to net settlement of employee stock compensation awards Payments of contingent consideration Net cash used for financing activities Effects of exchange rate changes on cash and cash equivalents Increase (decrease) in cash and cash equivalents Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year Supplementary disclosure of cash flows information: Cash paid for: Interest Income taxes Non-cash investing activities: Capital expenditures incurred but not yet paid: The accompanying notes are an integral part of the consolidated financial statements. 53 2020 Years Ended December 31, 2019 (in thousands) 2018 $ 784,147 $ 467,468 $ 451,779 80,119 46,624 44,906 17,534 10,284 (23,271) (15,688) (7,898) — 1,557 (129,451) (8,438) (64,418) 73,167 39,974 (5,382) 25,169 868,935 (184,977) — (900,196) 479,678 35,006 546 149 (569,794) 28,527 (88,465) (66,482) (23,014) (8,852) (158,286) (658) 140,197 773,924 $ 914,121 70,834 49,821 37,897 15,244 8,176 (19,257) (9,456) (6,033) 15,000 766 (70,440) (27,408) (23,784) 49,279 39,313 (5,086) (13,584) 578,750 (134,642) — (662,701) 611,927 105,586 2,912 (79,742) (156,660) 29,312 (500,000) (61,305) (14,741) (27,615) (574,349) (569) (152,828) 926,752 $ 773,924 67,415 45,809 33,577 11,242 (3,316) 987 28,340 3,494 — 1,083 (17,938) (29,498) (58,402) 13,693 13,379 (4,334) (80,429) 476,881 (114,379) 7,920 (918,744) 1,270,439 846,122 1,126 (169,474) 923,010 20,973 (823,478) (67,322) (20,023) (13,571) (903,421) 439 496,909 429,843 $ 926,752 $ 6,435 $ 106,577 $ 5,996 $ 81,410 $ 3,666 $ 4,068 $ $ $ 6,205 72,811 2,537 Table of Contents A. THE COMPANY TERADYNE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Teradyne, Inc. (“Teradyne”) is a leading global supplier of automation equipment for test and industrial applications. Teradyne designs, develops, manufactures and sells automatic test systems used to test semiconductors, wireless products, data storage and complex electronics systems in many industries including consumer electronics, wireless, automotive, industrial, computing, communications, and aerospace and defense industries. Teradyne’s industrial automation products include collaborative robotic arms, autonomous mobile robots, and advanced robotic control software used by global manufacturing, logistics and light industrial customers to improve quality, increase manufacturing and material handling efficiency and decrease manufacturing and logistics costs. Teradyne’s automatic test equipment and industrial automation products and services include: • • • • semiconductor test (“Semiconductor Test”) systems; storage and system level test (“Storage Test”) systems, defense/aerospace (“Defense/Aerospace”) test instrumentation and systems, and circuit-board test and inspection (“Production Board Test”) systems (collectively these products represent “System Test”); wireless test (“Wireless Test”) systems; and industrial automation (“Industrial Automation”) products. On February 26, 2018, Teradyne acquired Energid Technologies Corporation (“Energid”) for a total purchase price of approximately $27.6 million. Energid’s technology enables and simplifies the programming of complex robotic motions used in a wide variety of end markets, ranging from heavy industry to healthcare, utilizing both traditional robots and collaborative robots. Energid was merged with Universal Robots which is part of Teradyne’s Industrial Automation segment. On April 25, 2018, Teradyne acquired Mobile Industrial Robots ApS (“MiR”), a Danish limited liability company. MiR is a leading maker of collaborative autonomous mobile robots (“AMRs”) for industrial applications. The total purchase price was approximately $197.8 million, which included cash paid of approximately $145.2 million and $52.6 million in fair value of contingent consideration payable upon achievement of certain thresholds and targets for revenue and earnings before interest and taxes through 2020. Contingent consideration for 2018 was $30.8 million and was paid in March 2019. Contingent consideration for 2019 was $8.9 million and was paid in March 2020. MiR is included in Teradyne’s Industrial Automation segment. On January 30, 2019, Teradyne acquired all of the issued and outstanding shares of Lemsys SA (“Lemsys”) for a total purchase price of approximately $9.1 million. Lemsys strengthens Teradyne’s position in the electrification of vehicles, solar and wind power, and industrial applications. Lemsys is included in Teradyne’s Semiconductor Test segment. On June 3, 2019, Teradyne invested $15.0 million in RealWear, Inc. (“RealWear”). RealWear, a private company, develops and sells advanced wearable technology including industrial, hands-free, head-mounted augmented reality devices that make the workplace safer and more productive. On February 28, 2020, RealWear’s debt holder demanded repayment of its $25.0 million loan to RealWear. As a result, in the fourth quarter of 2019, Teradyne recorded an impairment charge of $15.0 million to reduce its investment in RealWear to zero as of December 31, 2019. On November 13, 2019, Teradyne acquired 100% of the membership interests of AutoGuide, LLC (“AutoGuide”), a maker of high payload AMRs, an emerging and fast growing segment of the global forklift 54 Table of Contents market. The total purchase price was approximately $81.6 million, which included cash paid of approximately $57.6 million and $24.0 million in fair value of contingent consideration payable upon achievement of certain performance targets, extending potentially through 2022. At December 31, 2020, the maximum contingent consideration that could be paid is $100.2 million. AutoGuide’s AMRs are used for material transport of payloads up to 4,500 kg in manufacturing, warehouse and logistics applications. These products complement MiR’s lower payload products. AutoGuide is included in our Industrial Automation segment. B. ACCOUNTING POLICIES The consolidated financial statements include the accounts of Teradyne and its wholly-owned subsidiaries. All significant intercompany balances and transactions are eliminated. Certain prior years’ amounts were reclassified to conform to the current year presentation. Preparation of Financial Statements and Use of Estimates The preparation of consolidated financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent liabilities. On an on-going basis, management evaluates its estimates, including those related to inventories, investments, goodwill, intangible and other long-lived assets, accounts receivable, income taxes, deferred tax assets and liabilities, pensions, warranties, contingent consideration liabilities, and loss contingencies. Management bases its estimates on historical experience and on appropriate and customary assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Due to the COVID-19 pandemic, there has been uncertainty and disruption in the global economy and our markets. Management is not aware of any specific event or circumstance that would require an update to its estimates or judgments or a revision of the carrying value of its assets or liabilities as of February 22, 2021, the date of issuance of this Annual Report on Form 10-K. These estimates may change, as new events occur and additional information is obtained. Actual results may differ significantly from these estimates under different assumptions or conditions. Revenue Recognition Revenue from Contracts with Customers Teradyne adopted Accounting Standard Codification (“ASC”) 606 “Revenue from Contracts with Customers” on January 1, 2018 using the modified retrospective method for all contracts not completed as of the date of adoption. In accordance with ASC 606, Teradyne recognizes revenues, when or as control is transferred to a customer. Teradyne’s determination of revenue is dependent upon a five step process outlined below. • • • Teradyne accounts for a contract with a customer when there is written approval, the contract is committed, the rights of the parties, including payment terms, are identified, the contract has commercial substance and consideration is probable of collection. Teradyne periodically enters into contracts with customers in which a customer may purchase a combination of goods and services, such as products with extended warranty obligations. Teradyne determines performance obligations by assessing whether the products or services are distinct from the other elements of the contract. In order to be distinct, the product or service must perform either on its own or with readily available resources and must be separate within the context of the contract. Teradyne considers the amount stated on the face of the purchase order to be the transaction price. Teradyne does not have material variable consideration which could impact the stated purchase price agreed to by Teradyne and the customer. 55 Table of Contents • • Transaction price is allocated to each individual performance obligation based on the standalone selling price of that performance obligation. Teradyne uses standalone transactions when available to value each performance obligation. If standalone transactions are not available, Teradyne will estimate the standalone selling price through market assessments or cost plus a reasonable margin analysis. Any discounts from standalone selling price are spread proportionally to each performance obligation. In order to determine the appropriate timing for revenue recognition, Teradyne first determines if the transaction meets any of three criteria for over time recognition. If the transaction meets the criteria for over time recognition, Teradyne recognizes revenue as the good or service is delivered. Teradyne uses input variables such as hours or months utilized or costs incurred to determine the amount of revenue to recognize in a given period. Input variables are used as they best align consumption with benefit to the customer. For transactions that do not meet the criteria for over time recognition, Teradyne will recognize revenue at a point in time based on an assessment of the five criteria for transfer of control. Teradyne has concluded that revenue should be recognized when shipped or delivered based on contractual terms. Typically, acceptance of Teradyne’s products and services is a formality as Teradyne delivers similar systems, instruments and robots to standard specifications. In cases where acceptance is not deemed a formality, Teradyne will defer revenue recognition until customer acceptance. Performance Obligations Products Teradyne products consist primarily of semiconductor test systems and instruments, defense/aerospace test instrumentation and systems, storage test systems and instruments, circuit-board test and inspection systems and instruments, wireless test systems and industrial automation products. Teradyne’s hardware is recognized at a point in time upon transfer of control to the customer. Services Teradyne services consist of extended warranties, training and application support, service agreements, post contract customer support (“PCS”) and replacement parts. Each service is recognized based on relative standalone selling price. Extended warranty, training and support, service agreements and PCS are recognized over time based on the period of service. Replacement parts are recognized at a point in time upon transfer of control to the customer. Teradyne does not allow customer returns or provide refunds to customers for any products or services. Teradyne products include a standard 12- month warranty. This warranty is not considered a distinct performance obligation because it does not obligate Teradyne to provide a separate service to the customer and it cannot be purchased separately. Cost related to warranty are included in cost of revenues when product revenues are recognized. As of December 31, 2020 and 2019, deferred revenue and customer advances consisted of the following and are included in the short and long-term deferred revenue and customer advances: Maintenance, service and training Customer advances, undelivered elements and other Extended warranty Total deferred revenue and customer advances 56 2020 2019 (in thousands) $ 77,654 $ 63,815 56,358 30,677 $ 193,021 $ 150,850 63,438 51,929 Table of Contents 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: Balance at December 31, 2017 Acquisition Accruals for warranties issued during the period Accruals related to pre-existing warranties Settlements made during the period Balance at December 31, 2018 Acquisition Accruals for warranties issued during the period Accruals related to pre-existing warranties Settlements made during the period Balance at December 31, 2019 Accruals for warranties issued during the period Accruals related to pre-existing warranties Settlements made during the period Balance at December 31, 2020 Amount (in thousands) 8,200 $ 41 13,045 921 (14,298) 7,909 14 14,106 4,026 (17,059) 8,996 28,490 821 (21,674) 16,633 $ When Teradyne receives revenue for extended warranties, beyond one year, it is deferred and recognized on a straight-line basis over the contract period. Related costs are expensed as incurred. The balance below is included in short and long-term deferred revenue and customer advances: Balance at December 31, 2017 Deferral of new extended warranty revenue Recognition of extended warranty deferred revenue Balance at December 31, 2018 Deferral of new extended warranty revenue Recognition of extended warranty deferred revenue Balance at December 31, 2019 Deferral of new extended warranty revenue Recognition of extended warranty deferred revenue Balance at December 31, 2020 Accounts Receivable and Allowance for Doubtful Accounts Amount (in thousands) 24,438 $ 23,753 (20,769) 27,422 23,271 (20,016) 30,677 41,694 (20,442) 51,929 $ Trade accounts receivable are recorded at the invoiced amount and do not bear interest. Teradyne maintains allowances for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments. Estimated allowances for doubtful accounts are reviewed periodically taking into account the customer’s recent payment history, the customer’s current financial statements and other information regarding the customer’s credit worthiness. Account balances are written off against the allowance when it is determined the receivable will not be recovered. 57 Table of Contents Teradyne sells certain trade accounts receivables on a non-recourse basis to third-party financial institutions pursuant to factoring agreements. Teradyne accounts for these transactions as sales of receivables and presents cash proceeds as a cash provided by operating activities in the consolidated statements of cash flows. Total trade accounts receivable sold under the factoring agreements were $131.1 million and $143.6 million during 2020 and 2019, respectively. Factoring fees for the sales of receivables are recorded in interest expense and are not material. Inventories Inventories are stated at the lower of cost (first-in, first-out basis) or net realizable value. On a quarterly basis, Teradyne uses consistent methodologies to evaluate all inventories for net realizable value. Teradyne records a provision for both excess and obsolete inventory when such write- downs or write-offs are identified through the quarterly review process. The inventory valuation is based upon assumptions about future demand, product mix and possible alternative uses. Investments Teradyne accounts for its investments in debt and equity securities in accordance with the provisions of ASC 320-10, “Investments—Debt and Equity Securities.” ASC 320-10 requires that certain debt and equity securities be classified into one of three categories; trading, available-for-sale or held-to- maturity securities. On a quarterly basis, Teradyne reviews its investments to identify and evaluate those that have an indication of a potential other-than- temporary impairment. Factors considered in determining whether a loss is other-than-temporary include: • • • The length of time and the extent to which the market value has been less than cost; The financial condition and near-term prospects of the issuer; and The intent and ability to retain the investment in the issuer for a period of time sufficient to allow for any anticipated recovery in market value. Teradyne uses the market and income approach techniques to value its financial instruments and there were no changes in valuation techniques during the twelve months ended December 31, 2020 and 2019. As defined in ASC 820-10, “Fair Value Measurements and Disclosures,” fair value is the price that would be received from the sale of an asset or paid to transfer a liability in an orderly transaction between market participants. ASC 820-10 requires that assets and liabilities carried at fair value be classified and disclosed in one of the following three categories: Level 1: Quoted prices in active markets for identical assets as of the reporting date; Level 2: Inputs other than Level 1, that are observable either directly or indirectly as of the reporting date. For example, a common approach for valuing fixed income securities is the use of matrix pricing. Matrix pricing is a mathematical technique used to value securities by relying on the securities’ relationship to other benchmark quoted prices, and is considered a Level 2 input; or Level 3: Unobservable inputs that are not supported by market data. Unobservable inputs are developed based on the best information available, which might include Teradyne’s own data. In accordance with ASC 820-10, Teradyne measures its debt and equity investments at fair value. Teradyne’s debt investments are classified as Level 2, and equity investments are classified as Level 1. Acquisition-related contingent consideration is classified as Level 3. Teradyne determines the fair value of acquisition-related contingent consideration using a Monte Carlo simulation model. Assumptions utilized in the model include forecasted revenues, revenue volatility, earnings before interest and taxes, and discount rate. 58 Table of Contents Financial Assets and Financial Liabilities In January 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-01, “Financial Instruments—Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities.” Teradyne adopted the new accounting guidance in the first quarter of 2018 using the modified retrospective approach. This guidance requires that changes in fair value of equity securities be accounted for directly in earnings. Previously, the changes in fair value were recorded in accumulated other comprehensive income on the balance sheet. Teradyne records realized gains and losses in other (income) expense, net. The adoption of this new accounting guidance increased the January 1, 2018 retained earnings balance by $3.1 million and decreased the accumulated other comprehensive income balance by the same amount. Prepayments Prepayments consist of the following and are included in prepayments and other current assets on the balance sheet: Contract manufacturer and supplier prepayments Prepaid taxes Prepaid maintenance and other services Other prepayments Total prepayments Retirement and Postretirement Plans 2020 2019 (in thousands) $ 212,286 $ 143,392 8,046 8,503 16,753 $ 250,092 $ 176,694 9,361 13,116 15,329 Teradyne recognizes net actuarial gains and losses and the change in the fair value of the plan assets in its operating results in the year in which they occur or upon any interim remeasurement of the plans. Teradyne calculates the expected return on plan assets using the fair value of the plan assets. Actuarial gains and losses are generally measured annually as of December 31 and, accordingly, recorded during the fourth quarter of each year or upon any interim remeasurement of the plans. Retirement Benefits In March 2017, the FASB issued ASU 2017-07, “Compensation—Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost.” Teradyne retrospectively adopted the new accounting guidance on presentation of net periodic pension costs and net periodic postretirement benefit costs in the first quarter of 2018. This guidance requires the service cost component of net benefit costs to be reported in the same line item in the consolidated statement of operations as other employee compensation costs. The non-service components of net benefit costs such as interest cost, expected return on assets, amortization of prior service cost, and actuarial gains or losses, are required to be reported separately outside of income or loss from operations. Following the adoption of this guidance, Teradyne continues to record the service cost component in the same line item as other employee compensation costs and the non-service components of net benefit costs such as interest cost, expected return on assets, amortization of prior service cost, and actuarial gains or losses are reported within other (income) expense, net. Goodwill, Intangible and Long-Lived Assets Teradyne accounts for goodwill and intangible assets in accordance with ASC 350-10, “Intangibles-Goodwill and Other.” Intangible assets are amortized over their estimated useful economic life and are carried at cost less accumulated amortization. Goodwill is assessed for impairment at least annually in the fourth quarter, as 59 Table of Contents 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 Building improvements Leasehold improvements Furniture and fixtures Test systems manufactured internally Machinery, equipment and software 40 years 5 to 10 years Lesser of lease term or 10 years 10 years 6 years 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 60 Table of Contents internally manufactured test equipment to customers. Upon the sale of an internally manufactured test system, the net book value of the system is transferred to inventory and expensed as cost of revenues. The net book value of internally manufactured test systems sold in the years ended December 31, 2020, 2019, and 2018 was $7.3 million, $5.0 million, and $3.8 million, respectively. Leases Teradyne adopted Accounting Standards Update (“ASU”) 2016-02, “Leases (Topic 842)” (“Topic 842”) and the related amendments (collectively “ASC 842”) on January 1, 2019 and utilized the modified retrospective approach provided by ASU 2018-11, “Leases (Topic 842): Targeted Improvements,” that allowed for a cumulative effect adjustment in the period of adoption. Under ASC 842, a contract is or contains a lease when Teradyne has the right to control the use of an identified asset. Teradyne determines if an arrangement is a lease at inception of the contract, which is the date on which the terms of the contract are agreed to and the agreement creates enforceable rights and obligations. The commencement date of the lease is the date that the lessor makes an underlying asset available for use by Teradyne. As of December 31, 2020, Teradyne does not have material leases that have not yet commenced. Teradyne determines if the lease is an operating or finance lease at the lease commencement date based upon the terms of the lease and the nature of the asset. The lease term used to calculate the lease liability includes options to extend or terminate the lease when it is reasonably certain that the option will be exercised. For leases commencing after January 1, 2019, the lease liability is measured at the present value of future lease payments, discounted using the discount rate for the lease at the commencement date. As Teradyne is typically unable to determine the implicit rate, Teradyne uses an incremental borrowing rate based on the lease term and economic environment at commencement date. Teradyne initially measures payments based on an index by using the applicable rate at lease commencement. Variable payments that do not depend on an index are not included in the lease liability and are recognized as they are incurred. The ROU asset is initially measured as the amount of lease liability, adjusted for any initial lease costs, prepaid lease payments, and reduced by any lease incentives. Teradyne’s contracts often include non-lease components such as common area maintenance. Teradyne elected the practical expedient to account for the lease and non-lease components as a single lease component. For leases with a term of one year or less Teradyne has elected not to record the lease asset or liability. The lease payments are recognized in the consolidated statement of earnings on a straight-line basis over the lease term. Teradyne includes lease costs within cost of revenues and operating expenses. See Note I: “Leases.” Engineering and Development Costs Teradyne’s products are highly technical in nature and require a large and continuing engineering and development effort. Software development costs incurred prior to the establishment of technological feasibility are charged to expense. Software development costs incurred subsequent to the establishment of technological feasibility are capitalized until the product is available for release to customers. To date, the period between achieving technological feasibility and general availability of the product has been short and software development costs eligible for capitalization have not been material. Engineering and development costs are expensed as incurred and consist primarily of salaries, contractor fees including non-recurring engineering charges related to product design, allocated facility costs, depreciation, and tooling costs. Stock Compensation Plans and Employee Stock Purchase Plan Stock-based compensation expense is based on the grant-date fair value estimated in accordance with the provisions of ASC 718-10, “Compensation- Stock Compensation.” Excess tax benefits or tax deficiencies are recognized as a discrete tax benefit or discrete tax expense to the current income tax provision in Teradyne’s consolidated statements of operations, all excess tax benefits related 61 Table of Contents to share-based payments are reported as cash flows from operating activities, and all cash payments made to taxing authorities on the employees’ behalf for withheld shares are presented as financing activities on the statement of cash flows. Teradyne elects to account for forfeitures by applying an estimated forfeiture rate and recognizes compensation costs only for those stock-based compensation awards expected to vest. Under its stock compensation plans, Teradyne has granted stock options, restricted stock units and performance-based restricted stock units, and employees are eligible to purchase Teradyne’s common stock through its Employee Stock Purchase Plan (“ESPP”). Income Taxes Deferred tax assets and liabilities are determined based on differences between financial reporting and tax basis of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. The measurement of deferred tax assets is reduced by a valuation allowance if it is more likely than not that some or all of the deferred tax assets will not be realized. Teradyne performed the required assessment of positive and negative evidence regarding the realization of the net deferred tax assets in accordance with ASC 740, “Accounting for Income Taxes.” This assessment included the evaluation of scheduled reversals of deferred tax liabilities, estimates of projected future taxable income and tax- planning strategies. Although realization is not assured, based on its assessment, Teradyne concluded that it is more likely than not that such assets, net of the existing valuation allowance, will be realized. Advertising Costs Teradyne expenses all advertising costs as incurred. Advertising costs were $12.8 million, $16.6 million and $15.4 million in 2020, 2019 and 2018, respectively. Translation of Non-U.S. Currencies The functional currency for all non-U.S. subsidiaries is the U.S. dollar, except for Universal Robots, MiR and Lemsys for which the local currency is its functional currency. All foreign currency denominated monetary assets and liabilities are remeasured on a monthly basis into the functional currency using exchange rates in effect at the end of the period. All foreign currency denominated non-monetary assets and liabilities are remeasured into the functional currency using historical exchange rates. Net foreign exchange gains and losses resulting from remeasurement are included in other (income) expense, net. For Universal Robots, MiR and Lemsys, assets and liabilities are translated into U.S. dollars using exchange rates in effect at the end of the period. Revenues and expense amounts are translated using an average of exchange rates in effect during the period. Translation adjustments are recorded within accumulated other comprehensive income (loss) on the balance sheet. Net foreign exchange gains and losses resulting from remeasurement are included in other (income) expense, net. For the years ended December 31, 2020, 2019, and 2018, losses (gains) from the remeasurement of the monetary assets and liabilities denominated in foreign currencies were $2.6 million, $(1.6) million, and $(2.5) million, respectively. These amounts do not reflect the corresponding (gains) losses from foreign exchange contracts. See Note H: “Financial Instruments” regarding foreign exchange contracts. Net Income (Loss) per Common Share Basic net income (loss) per common share is calculated by dividing net income (loss) by the weighted average number of common shares outstanding during the period. Except where the result would be anti-dilutive, diluted net income (loss) per common share is calculated by dividing net income (loss) by the sum of the weighted average number of common shares plus common stock equivalents, if applicable. 62 Table of Contents With respect to its convertible debt issued in 2016, Teradyne has determined that it has the ability and intent to settle the principal of the convertible debt in cash; accordingly, the principal amount is excluded from the determination of diluted earnings per share. As a result, Teradyne is accounting for the conversion spread using the treasury stock method. Comprehensive Income (Loss) Comprehensive income (loss) includes net income, unrealized pension and postretirement prior service costs and benefits, unrealized gains and losses on investments in debt marketable securities and foreign currency translation adjustment. Prior to 2018, comprehensive income (loss) included unrealized gains and losses on investments in equity marketable securities. C. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS In August 2020, the FASB issued ASU 2020-06—“Debt—Debt with Conversion and Other Options and Derivatives and Hedging—Contracts in Entity’s Own Equity,” which simplifies the accounting for convertible debt instruments by reducing the number of accounting models and the number of embedded conversion features that could be recognized separately from the primary contract. This ASU requires a convertible debt instrument to be accounted for as a single liability measured at its amortized cost, as long as no other features require bifurcation and recognition as derivatives. This ASU requires an entity to use the if-converted method in the diluted earnings per share calculation for convertible instruments. This ASU will be effective for Teradyne on January 1, 2022, with early adoption permitted beginning on January 1, 2021. This ASU permits the use of either the modified retrospective or fully retrospective method of transition. Teradyne is evaluating the timing and effects of the adoption of this ASU on its financial statements. D. ACQUISITIONS AND INVESTMENT IN OTHER COMPANY Acquisitions AutoGuide LLC On November 13, 2019, Teradyne acquired 100% of the membership interests of AutoGuide, LLC (“AutoGuide”), a maker of high-payload AMRs, based in Chelmsford, MA, an emerging and fast growing segment of the global forklift market. The total purchase price was approximately $81.6 million, which included cash paid of approximately $57.6 million and $24.0 million in fair value of contingent consideration payable upon achievement of certain performance targets, extending potentially through 2022. At December 31, 2020, the maximum contingent consideration that could be paid is $100.2 million. The contingent consideration is payable upon achievement of certain thresholds and targets for revenue and earnings before interest and taxes for periods from January 1, 2019 to December 31, 2020, January 1, 2019 to December 31, 2021, and January 1, 2019 to December 31, 2022. The valuation of the contingent consideration is dependent on the following assumptions: forecasted revenues, revenue volatility, earnings before interest and taxes, and discount rate. These assumptions were estimated based on a review of the historical and projected results. The AutoGuide acquisition was accounted for as a business combination and, accordingly, the results have been included in Teradyne’s consolidated results of operations from the date of acquisition. AutoGuide’s AMRs are used for material transport of payloads up to 4,500 kg in manufacturing, warehouse and logistics applications. These products complement Mobile Industrial Robots A/S (“MiR”) lower payload products and expand the Industrial Automation segment, which is a key component of Teradyne’s growth strategy. The allocation of the total purchase price to AutoGuide’s net tangible assets and identifiable intangible assets was based on their fair values as of the acquisition date. The excess of the purchase price over the 63 Table of Contents identifiable intangible assets and net tangible assets in the amount of $41.2 million was allocated to goodwill, which is deductible for tax purposes. AutoGuide’s results have been included in Teradyne’s Industrial Automation segment from the date of acquisition. The following table represents the final allocation of the purchase price: Goodwill Intangible assets Tangible assets acquired and liabilities assumed: Other current assets Non-current assets Accounts payable and current liabilities Long-term other liabilities Total purchase price Purchase Price Allocation (in thousands) $ $ 41,223 37,660 3,661 1,227 (1,223) (949) 81,599 Teradyne estimated the fair value of intangible assets using the income approach. Forecasted revenues is the key assumption for estimating the fair value. Acquired intangible assets are amortized on a straight-line basis over their estimated useful lives. Components of these intangible assets and their estimated useful lives at the acquisition date are as follows: Developed technology Customer relationships Trademarks and tradenames Backlog Total intangible assets Fair Value (in thousands) 24,590 $ 7,360 5,450 260 37,660 $ Estimated Useful Life (in years) 6.0 6.0 7.0 0.3 6.1 For the period from November 13, 2019 to December 31, 2019, AutoGuide contributed $1.4 million of revenues and had a $(0.9) million loss before income taxes. Lemsys SA On January 30, 2019, Teradyne acquired all of the issued and outstanding shares of Lemsys SA (“Lemsys”) for a total purchase price of approximately $9.1 million. Lemsys strengthens Teradyne’s position in the electrification trends of vehicles, solar and wind power, and industrial applications. The Lemsys acquisition was accounted for as a business combination and, accordingly, the results have been included in Teradyne’s Semiconductor Test segment from the date of acquisition. Teradyne’s final allocation of the purchase price was goodwill of $1.4 million, which is not deductible for tax purposes, acquired intangible assets of $4.6 million with an average estimated useful life of 5.2 years, and $3.1 million of net tangible assets. The acquisition was not material to Teradyne’s consolidated financial statements. Mobile Industrial Robots On April 25, 2018, Teradyne acquired all of the issued and outstanding shares of MiR, a Danish limited liability company located in Odense, Denmark. MiR is a leading maker of collaborative autonomous mobile robots for industrial applications. 64 Table of Contents The total purchase price of $197.8 million included $145.2 million of cash paid and $52.6 million of contingent consideration measured at fair value. The contingent consideration is payable in Euros upon the achievement of certain thresholds and targets for revenue and earnings before interest and taxes for periods from January 1, 2018 to December 31, 2018; January 1, 2018 to December 31, 2019; and January 1, 2018 to December 31, 2020. Contingent consideration for the period from January 1, 2018 to December 31, 2018 was $31.0 million and was paid in March 2019. Contingent consideration for the period from January 1, 2018 to December 31, 2019 was $9.1 million, based on the results during the period and modification of the earn-out structure, and was paid in March 2020. No contingent consideration will be paid out against the period from December 31, 2018 through December 31, 2020. The valuation of the contingent consideration is dependent on the following assumptions: forecasted revenues, revenue volatility, earnings before interest and taxes, and discount rate. These assumptions were estimated based on a review of the historical and projected results. The MiR acquisition was accounted for as a business combination and, accordingly, the results have been included in Teradyne’s consolidated results of operations from the date of acquisition. MiR’s products will help expand the Industrial Automation segment, which is a key component of our growth strategy. The allocation of the total purchase price to MiR’s net tangible liabilities and identifiable intangible assets was based on their estimated fair values as of the acquisition date. The excess of the purchase price over the identifiable intangible assets and net tangible liabilities in the amount of $136.0 million was allocated to goodwill, which is not deductible for tax purposes. MiR’s results have been included in Teradyne’s Industrial Automation segment from the date of acquisition. The following table represents the final allocation of the purchase price: Goodwill Intangible assets Tangible assets acquired and liabilities assumed: Current assets Non-current assets Accounts payable and current liabilities Long-term deferred tax liabilities Other long-term liabilities Total purchase price Purchase Price Allocation (in thousands) $ $ 135,976 80,670 6,039 1,336 (7,336) (18,007) (900) 197,778 Teradyne estimated the fair value of intangible assets using the income and cost approaches. Acquired intangible assets are amortized on a straight- line basis over their estimated useful lives. Components of these intangible assets and their estimated useful lives at the acquisition date are as follows: Developed technology Trademarks and tradenames Customer relationships Backlog Total intangible assets 65 Fair Value (in thousands) 58,900 $ 13,240 8,500 30 80,670 $ Estimated Useful Life (in years) 7.0 11.0 2.5 0.2 7.2 Table of Contents Energid Technologies Corporation On February 26, 2018, Teradyne acquired all of the issued and outstanding shares of Energid for a total purchase price of approximately $27.6 million. Energid’s technology enables and simplifies the programming of complex robotic motions used in a wide variety of end markets, ranging from heavy industry to healthcare, utilizing both traditional robots and collaborative robots. The Energid acquisition was accounted for as a business combination and, accordingly, Energid’s results have been included in Teradyne’s Industrial Automation segment from the date of acquisition. As of the acquisition date, Teradyne’s purchase price allocation was goodwill of $14.4 million which is deductible for tax purposes, acquired intangible assets of $12.3 million with an average estimated useful life of 7.7 years, and $1.0 million of net tangible assets. The acquisition was not material to Teradyne’s consolidated financial statements. Pro Forma Information The following unaudited pro forma information gives effect to the acquisition of AutoGuide as if the acquisition occurred on January 1, 2018 and the acquisition of MiR as if the acquisition occurred on January 1, 2017. The unaudited pro forma results are not necessarily indicative of what actually would have occurred had the acquisition been in effect for the periods presented: Revenues Net income Net income per common share: Basic Diluted December 31, 2019 December 31, 2018 (in thousands, except per share amount) $ $ 2,303,737 464,602 2,111,373 442,082 2.73 2.59 $ $ 2.36 2.30 $ $ $ $ Pro forma results for the year ended December 31, 2019 were adjusted to exclude $1.2 million of AutoGuide acquisition related costs and $0.1 million of AutoGuide non-recurring expense related to fair value adjustment to acquisition-date inventory. Pro forma results for the year ended December 31, 2018 were adjusted to include $1.2 million of AutoGuide acquisition related costs and $0.1 million of AutoGuide non-recurring expense related to fair value adjustment to acquisition-date inventory. Pro forma results for the year ended December 31, 2018 were adjusted to exclude $2.9 million of MiR acquisition related costs and $0.4 million of MiR non-recurring expense related to fair value adjustment to acquisition-date inventory. Investment in Other Company On June 3, 2019, Teradyne invested $15.0 million in RealWear, Inc. (“RealWear”). RealWear, a private company, develops and sells advanced wearable technology including industrial, hands-free, head-mounted augmented reality devices that make the workplace safer and more productive. The investment was recorded at cost and is evaluated for impairment or an indication of changes in fair value resulting from observable price changes in orderly transactions for the identical or similar investment of the same issuer on a quarterly basis. On February 28, 2020, RealWear’s debt holder demanded repayment of its $25.0 million loan to RealWear. As a result, in the fourth quarter of 2019, Teradyne recorded an impairment charge of $15.0 million to reduce its investment in RealWear to zero as of December 31, 2019. 66 Table of Contents E. REVENUE Disaggregation of Revenue The following table provides information about disaggregated revenue by timing of revenue recognition, primary geographical market, and major product lines. Semiconductor Test System on-a-chip Memory System Test Industrial Automation Mobile Industrial Universal Robots Robots AutoGuide (in thousands) Wireless Test Corporate and Other Total For the Year Ended December 31, 2020 (1) Timing of Revenue Recognition Point in Time Over Time Total Geographical Market Asia Pacific Americas Europe, Middle East and Africa Total For the Year Ended December 31, 2019 (1) Timing of Revenue Recognition Point in Time Over Time Total Geographical Market Asia Pacific Americas Europe, Middle East and Africa Total For the Year Ended December 31, 2018 (1) Timing of Revenue Recognition Point in Time Over Time Total Geographical Market Asia Pacific Americas Europe, Middle East and Africa Total $ 1,659,414 217,975 $ 1,877,389 $ 1,744,593 77,671 55,125 $ 1,877,389 $ 1,070,375 216,065 $ 1,286,440 $ 1,152,881 73,257 60,302 $ 1,286,440 $ 1,010,493 208,456 $ 1,218,949 $ 1,067,879 78,498 72,572 $ 1,218,949 $363,324 $ 348,454 $ 214,212 $ 61,275 $382,208 $ 409,729 $ 221,481 $ 18,884 7,269 $364,000 $ 258,521 $ 12,999 5,209 128,482 22,726 $382,208 $ 409,729 $ 221,481 $ 60,277 $ 64,164 97,040 $247,221 $ 237,686 $ 244,515 $ 49,769 $266,131 $ 287,455 $ 252,358 $ 18,910 7,843 44,622 $ 211 44,833 $ 10,911 $ 163,834 $ 2,506 13,417 $ 173,016 $ 9,182 (604) $ 2,804,166 — 317,302 (604) $ 3,121,469 6,471 $ 16,769 21,593 44,833 $ — $ 143,969 $ 13,417 — 22,544 6,503 13,417 $ 173,016 $ — $ 2,577,831 335,441 (604) — 208,196 (604) $ 3,121,469 44,329 $ 74 44,403 $ 1,144 $ 148,322 $ 234 8,993 1,378 $ 157,315 $ (515) $ 1,993,077 301,888 — (515) $ 2,294,965 $238,714 $ 132,826 $ 23,826 3,591 129,840 24,789 68,027 $ 71,926 112,405 9,513 $ — $ 126,549 $ 14,438 20,452 1,378 — 24,234 6,532 — $ 1,728,510 338,384 (515) 228,071 — $266,131 $ 287,455 $ 252,358 $ 44,403 $ 1,378 $ 157,315 $ (515) $ 2,294,965 $259,366 $ 167,418 $ 232,448 $ 48,714 $273,468 $ 216,132 $ 237,337 $ 14,102 4,889 $245,264 $ 90,989 $ 17,353 10,851 96,763 28,380 $273,468 $ 216,132 $ 237,337 $ 58,492 $ 70,478 108,367 24,115 $ — 24,115 $ 5,950 $ 7,326 10,839 24,115 $ — $ 122,536 $ — — $ 132,006 $ 9,470 (1,205) $ 1,815,171 285,631 (1,205) $ 2,100,802 — — $ 107,872 $ — — — $ 132,006 $ 19,166 4,968 (1,205) — — $ 1,576,446 288,379 235,977 (1,205) $ 2,100,802 (1) Includes $10.0 million, $8.4 million and $12.0 million in 2020, 2019 and 2018, respectively, for leases of Teradyne’s systems recognized outside of ASC 606: “Revenue from Contracts with Customers.” Contract Balances For the years ended December 31, 2020, 2019 and 2018, Teradyne recognized $91.0 million, $65.6 million and $69.9 million, respectively, that was included within the deferred revenue and customer advances balances at the beginning of the period. This revenue primarily relates to undelivered hardware, extended warranties, training, application support, and post contract support. Each of these represents a distinct performance obligation. As of December 31, 2020, Teradyne has $929.6 million of unsatisfied performance obligations. Teradyne 67 Table of Contents expects to recognize 92% of the remaining performance obligation in the next 12 months, 8% in 1-3 years, and the remainder thereafter. F. INVENTORIES Inventories, net consisted of the following at December 31, 2020 and 2019: Raw material Work-in-process Finished goods 2020 2019 (in thousands) $ 114,133 $ 118,595 32,695 45,401 $ 222,189 $ 196,691 25,408 82,648 Inventory reserves for the years ended December 31, 2020 and 2019 were $110.6 million and $103.6 million, respectively. G. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment, net consisted of the following at December 31, 2020 and 2019: 2020 2019 Land Buildings Machinery, equipment and software Furniture and fixtures Leasehold improvements Construction in progress Less: accumulated depreciation (in thousands) $ $ 17,207 108,221 956,035 28,487 61,276 13,098 1,184,324 789,524 $ 394,800 16,561 107,282 834,970 29,157 59,378 2,537 1,049,885 729,669 $ 320,216 Depreciation of property, plant and equipment for the years ended December 31, 2020, 2019, and 2018 was $80.1 million, $70.8 million, and $67.4 million, respectively. As of December 31, 2020 and 2019, the gross book value included in machinery and equipment for internally manufactured test systems being leased by customers was $23.4 million and $5.4 million, respectively. As of December 31, 2020 and 2019, the accumulated depreciation on these test systems was $7.5 million and $5.1 million, respectively. H. FINANCIAL INSTRUMENTS Cash Equivalents Teradyne considers all highly liquid investments with maturities of three months or less at the date of acquisition to be cash equivalents. Marketable Securities Teradyne recognizes the changes in fair value of equity securities directly in earnings. Teradyne’s available-for-sale debt securities are classified as Level 2, and equity and debt mutual funds are classified as Level 1. Contingent consideration is classified as Level 3. The vast majority of Level 2 securities are fixed income 68 Table of Contents securities priced by third party pricing vendors. These pricing vendors utilize the most recent observable market information in pricing these securities or, if specific prices are not available, use other observable inputs like market transactions involving identical or comparable securities. During the years ended December 31, 2020 and 2019, there were no transfers in or out of Level 1, Level 2, or Level 3 financial instruments. Realized gains recorded in 2020, 2019, and 2018 were $4.6 million, $1.3 million, and $4.0 million, respectively. Realized losses recorded in 2020, 2019, and 2018 were $0.3 million, $0.2 million, and $1.6 million, respectively. Realized gains and losses are included in other (income) expense, net. Unrealized gains on equity securities recorded during the years ended December 31, 2020 and 2019 were $9.6 million and $5.3 million, respectively. Unrealized losses on equity securities recorded during the years ended December 31, 2020 and 2019 were $6.0 million and $0.4 million, respectively. Unrealized gains and losses on equity securities are included in other (income) expense, net. Unrealized gains and losses on available-for-sale debt securities are included in accumulated other comprehensive income (loss) on the balance sheet. The cost of securities sold is based on the first-in first out method. The following table sets forth by fair value hierarchy Teradyne’s financial assets and liabilities that were measured at fair value on a recurring basis as of December 31, 2020 and 2019: Quoted Prices in Active Markets for Identical Instruments (Level 1) December 31, 2020 Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) (in thousands) Assets Cash Cash equivalents Available for sale securities: U.S. Treasury securities Commercial paper Corporate debt securities Debt mutual funds U.S. government agency securities Certificates of deposit and time deposits Non-U.S. government securities Equity securities: Mutual funds Total Total Liabilities Total Derivative assets Contingent consideration Derivative liabilities $ 443,166 347,768 $ — 123,187 $ — — — 8,565 — — — 29,420 $ 828,919 — $ 828,919 258,304 254,413 83,615 — 4,339 979 625 — $725,462 95 $725,557 $ $ — — — $ — 504 504 $ $ $ $ $ 69 Total $ 443,166 470,955 258,304 254,413 83,615 8,565 4,339 979 625 29,420 $1,554,381 95 $1,554,476 — — — — — — — — — — — — — 7,227 — 7,227 $ $ 7,227 504 7,731 Table of Contents Reported as follows: Assets Cash and cash equivalents Marketable securities Long-term marketable securities Prepayments and other current assets Total Liabilities Other current liabilities Long-term contingent consideration Total Assets Cash Cash equivalents Available for sale securities: Corporate debt securities Commercial paper U.S. Treasury securities U.S. government agency securities Debt mutual funds Certificates of deposit and time deposits Non-U.S. government securities Equity securities: Mutual funds Total Total Liabilities Total Derivative assets Contingent consideration Derivative liabilities (Level 1) (Level 2) (Level 3) Total (in thousands) 914,121 $ 790,934 $ 123,187 $ — $ 522,280 522,280 117,980 79,995 95 95 $ 828,919 $ 725,557 $ — $ 1,554,476 — — — — 37,985 — $ $ — $ — — $ 504 $ — $ — 504 $ 7,227 $ 7,227 504 7,227 7,731 Quoted Prices in Active Markets for Identical Instruments (Level 1) December 31, 2019 Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) (in thousands) $ 311,975 410,285 $ — 51,664 $ — — — — 6,888 — — 25,772 $ 754,920 — $ 754,920 97,307 54,149 42,382 9,952 — 4,751 592 — $260,797 528 $261,325 $ $ — — — $ — 203 203 $ $ $ $ $ 70 Total $ 311,975 461,949 97,307 54,149 42,382 9,952 6,888 4,751 592 25,772 $1,015,717 528 $1,016,245 — — — — — — — — — — — — — 39,705 — 39,705 $ $ 39,705 203 39,908 Table of Contents Reported as follows: Assets Cash and cash equivalents Marketable securities Long-term marketable securities Prepayments and other current assets Total Liabilities Other current liabilities Contingent consideration Long-term contingent consideration Total (Level 1) (Level 2) (Level 3) Total (in thousands) $ 722,260 $ 51,664 $ — $ 137,303 71,830 528 773,924 137,303 104,490 528 $ 754,920 $ 261,325 $ — $ 1,016,245 — — — — 32,660 — $ $ — $ — — — $ 203 $ — $ — — 203 $ 39,705 $ 9,106 30,599 203 9,106 30,599 39,908 Changes in the fair value of Level 3 contingent consideration for the years ended December 31, 2020 and 2019 were as follows: Balance at December 31, 2018 Acquisition of AutoGuide Foreign currency impact Payments (1) Fair value adjustment (2) Balance at December 31, 2019 Foreign currency impact Payments (3) Fair value adjustment (4) Balance at December 31, 2020 Contingent Consideration (in thousands) $ $ 70,543 23,976 (967) (34,590) (19,257) 39,705 (355) (8,852) (23,271) 7,227 (1) During the year ended December 31, 2019, Teradyne paid $30.8 million and $3.8 million of contingent consideration for the earn-outs in connection with the acquisitions of MiR and Universal Robots A/S (“Universal Robots”), respectively. (2) During the year ended December 31, 2019, the fair value of contingent consideration for the earn-out in connection with the acquisition of MiR was decreased by $22.2 million primarily due to a decrease in forecasted revenues partially offset by the impact from modification of the earn-out structure. During the year ended December 31, 2019, the fair value of contingent consideration for the earn-out in connection with the acquisition of AutoGuide was increased by $3.0 million primarily due to an increase in forecasted revenues (3) During the year ended December 31, 2020, Teradyne paid $8.9 million of contingent consideration for the earn-out in connection with the acquisition of MiR. (4) During the year ended December 31, 2020, the fair value of contingent consideration for the earn-out in connection with the acquisition of AutoGuide was decreased by $19.7 million primarily due to a decrease in forecasted revenues and earnings before interest and taxes. Teradyne has received a letter from the sellers of AutoGuide alleging non-compliance with the earn-out provisions of the AutoGuide acquisition agreement. Teradyne disputes the allegation of non-compliance. The ultimate amount of contingent consideration for the earn-outs in connection with the acquisition of AutoGuide may be affected by the outcome of the dispute. During the year ended December 31, 2020, the fair value of contingent consideration for the earn-out in connection with the acquisition of MiR was decreased by $3.5 million primarily due to a decrease in forecasted revenues. 71 Table of Contents The following table provides quantitative information associated with the fair value measurement of Teradyne’s Level 3 financial instrument: Liability Contingent consideration (AutoGuide) December 31, 2020 Fair Value (in thousands) 7,227 $ Valuation Technique Unobservable Inputs Weighted Average Monte Carlo simulation Revenue Volatility 16.5% Discount Rate 1.0% As of December 31, 2020, the significant unobservable inputs used in the Monte Carlo simulation to fair value the AutoGuide contingent consideration include forecasted revenues, revenue volatility, earnings before interest and taxes and discount rate. Increases or decreases in the inputs would result in a higher or lower fair value measurement. As of December 31, 2020, the maximum amount of contingent consideration that could be paid in connection with the acquisition of AutoGuide is $100.2 million. No payment was made related to the period ending December 31, 2020. The remaining earn-out periods end on December 31, 2021 and December 31, 2022. The carrying amounts and fair values of Teradyne’s financial instruments at December 31, 2020 and 2019 were as follows: Assets Cash and cash equivalents Marketable securities Derivative assets Liabilities Contingent consideration Derivative liabilities Convertible debt (1) December 31, 2020 December 31, 2019 Carrying Value Fair Value Carrying Value Fair Value (in thousands) $ 914,121 640,260 95 7,227 504 410,111 $ 914,121 640,260 95 7,227 504 1,739,553 $ 773,924 241,793 528 39,705 203 394,687 $ 773,924 241,793 528 39,705 203 1,010,275 (1) The carrying value represents the bifurcated debt component only, while the fair value is based on quoted market prices for the convertible note which includes the equity conversion features. The fair values of accounts receivable, net and accounts payable approximate the carrying amount due to the short term nature of these instruments. 72 Table of Contents The following tables summarize the composition of available-for-sale marketable securities at December 31, 2020 and 2019: U.S. Treasury securities Commercial paper Corporate debt securities Debt mutual funds U.S. government agency securities Certificates of deposit and time deposits Non-U.S. government securities Reported as follows: Marketable securities Long-term marketable securities Corporate debt securities Commercial paper U.S. Treasury securities U.S. government agency securities Debt mutual funds Certificates of deposit and time deposits Non-U.S. government securities Reported as follows: Marketable securities Long-term marketable securities December 31, 2020 Available-for-Sale Unrealized Gain Unrealized (Loss) Fair Market Value Fair Market Value of Investments with Unrealized Losses $ 1,330 10 7,539 152 46 — — $ 9,077 $ (in thousands) (158) (1) (53) — (1) — — (213) $ $ 258,304 254,413 83,615 8,565 4,339 979 625 $ 610,840 $ $ 17,243 12,173 39,896 — 1,106 — — 70,418 Unrealized Gain Unrealized (Loss) Fair Market Value Fair Market Value of Investments with Unrealized Losses $ 92 8,985 $ 9,077 (in thousands) (40) (173) (213) $ 522,280 88,560 $ 610,840 $ $ $ $ 61,806 8,612 70,418 December 31, 2019 Available-for-Sale Unrealized Gain Unrealized (Loss) Fair Market Value Fair Market Value of Investments with Unrealized Losses $ 4,081 26 431 14 135 — — $ 4,687 $ (in thousands) (41) (1) (216) (4) — — — (262) $ $ 97,307 54,149 42,382 9,952 6,888 4,751 592 $ 216,021 $ $ 2,009 1,391 17,556 3,043 — — — 23,999 Unrealized Gain Unrealized (Loss) Fair Market Value Fair Market Value of Investments with Unrealized Losses $ 160 4,527 $ 4,687 (in thousands) (1) (261) (262) $ 137,303 78,718 $ 216,021 $ $ $ $ 2,922 21,077 23,999 Cost $257,132 254,404 76,129 8,413 4,294 979 625 $601,976 Cost $522,228 79,748 $601,976 Cost $ 93,267 54,124 42,167 9,942 6,753 4,751 592 $211,596 Cost $137,144 74,452 $ 211,596 73 Table of Contents As of December 31, 2020, the fair market value of investments with unrealized losses less than one year totaled $70.4 million. As of December 31, 2019, the fair market value of investments with unrealized losses less than one year totaled $23.6 million. Teradyne reviews its investments to identify and evaluate investments that have an indication of possible impairment. Based on this review, Teradyne determined that the unrealized losses related to these investments at December 31, 2020 and 2019, were not other than temporary. The contractual maturities of investments in available-for-sale marketable securities held at December 31, 2020 were as follows: Due within one year Due after 1 year through 5 years Due after 5 years through 10 years Due after 10 years Total Cost Fair Value (in thousands) $ 522,228 $ 522,280 25,245 14,183 40,567 $ 593,563 $ 602,275 24,829 13,030 33,476 Contractual maturities of investments in available-for-sale marketable securities held at December 31, 2020 exclude debt mutual funds with the fair market value of $8.6 million as they do not have a contractual maturity date. Derivatives Teradyne conducts business in a number of foreign countries, with certain transactions denominated in local currencies. The purpose of Teradyne’s foreign currency management is to minimize the effect of exchange rate fluctuations on certain foreign currency denominated monetary assets and liabilities. Teradyne does not use derivative financial instruments for trading or speculative purposes. To minimize the effect of exchange rate fluctuations associated with the remeasurement of monetary assets and liabilities denominated in foreign currencies, Teradyne enters into foreign currency forward contracts. The change in fair value of these derivatives is recorded directly in earnings, and is used to offset the change in value of the monetary assets and liabilities denominated in foreign currencies. At December 31, 2020 and 2019, Teradyne had the following contracts to buy and sell non-U.S. currencies for U.S. dollars and other non-U.S. currencies with the following notional amounts: Japanese Yen Taiwan Dollar Korean Won British Pound Sterling Singapore Dollar Euro Philippine Peso Chinese Yuan Total December 31, 2020 Sell Position Buy Position Net Total December 31, 2019 Sell Position Buy Position Net Total (in millions) $ (14.1) (27.9) (5.3) (1.0) — — — — $ (48.3) $ — $ (14.1) (27.9) — (5.3) — (1.0) — 52.3 52.3 43.9 43.9 5.0 5.0 3.4 3.4 $104.6 $ 56.3 $ (29.3) (18.4) (10.7) (3.8) — — — — $ (62.2) $ — $ (29.3) (18.4) — (10.7) — — (3.8) 25.3 25.3 47.8 47.8 5.2 5.2 4.4 4.4 $ 82.7 $ 20.5 74 Table of Contents The fair value of the outstanding contracts was a loss of $0.4 million and a gain of $0.3 million, respectively, at December 31, 2020 and 2019. Gains and losses on foreign currency forward contracts and foreign currency remeasurement gains and losses on monetary assets and liabilities are included in other (income) expense, net. The following table summarizes the fair value of derivative instruments as of December 31, 2020 and 2019: Derivatives not designated as hedging instruments: Foreign exchange contracts Foreign exchange contracts Total derivatives Balance Sheet Location Prepayments Other current liabilities December 31, 2020 December 31, 2019 (in thousands) $ $ 95 (504) (409) $ $ 528 (203) 325 The following table summarizes the effect of derivative instruments in the statements of operations recognized for the years ended December 31, 2020, 2019, and 2018. Location of (Gains) Losses Recognized in Statement of Operations December 31, 2020 December 31, 2019 (in thousands) December 31, 2018 Derivatives not designated as hedging instruments: Foreign exchange contracts Other (income) expense, net $ 3,515 $ 5,960 $ 7,386 (1) (2) (3) 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, 2020, net losses from remeasurement of monetary assets and liabilities denominated in foreign currencies were $2.6 million. For the year ended December 31, 2019 and 2018, net gains from the remeasurement of monetary assets and liabilities denominated in foreign currencies were $1.6 million and $2.5 million, respectively. See Note J: “Debt” regarding derivatives related to the convertible senior notes. Concentration of Credit Risk Financial instruments which potentially subject Teradyne to concentrations of credit risk consist principally of cash equivalents, marketable securities, forward currency contracts and accounts receivable. Teradyne’s cash equivalents consist primarily of money market funds invested in U.S. Treasuries and government agencies. Teradyne’s fixed income available-for-sale marketable securities have a minimum rating of AA by one or more of the major credit rating agencies. Teradyne places foreign currency forward contracts with high credit-quality financial institutions in order to minimize credit risk exposure. Concentrations of credit risk with respect to accounts receivable are limited due to the large number of geographically dispersed customers. Teradyne performs ongoing credit evaluations of its customers’ financial condition and from time to time may require customers to provide a letter of credit from a bank to secure accounts receivable. As of December 31, 2020, a customer of our Semiconductor Test segment, JA Mitsui Leasing, LTD, accounted for 25% of our accounts receivable balance. The balance was paid in full as of February 22, 2021. There were no customers who accounted for 10% or more of our accounts receivable balance as of December 31, 2019. I. LEASES Teradyne has facility and auto leases, which are accounted for as operating leases. Teradyne’s facility leases are primarily used for administrative functions, research and development, manufacturing, and storage and distribution. Remaining lease terms range from less than one year to twelve years. 75 Table of Contents Total lease expense for the year ended December 31, 2020 was $38.5 million and included $12.1 million of variable lease costs and $3.4 million of costs related to short-term leases, which are not recorded on the consolidated balance sheets. Total lease expense for the year ended December 31, 2019 was $35.6 million and included $11.1 million of variable lease costs and $2.6 million of costs related to short-term leases, which are not recorded on the consolidated balance sheets. At December 31, 2020, the weighted average remaining lease term and weighted average discount rate for operating leases was 4.2 years and 4.8%, respectively. At December 31, 2019, the weighted average remaining lease term and weighted average discount rate for operating leases was 4.5 years and 5.0%, respectively. Supplemental cash flows information related to leases was as follows: Cash paid for amounts included in the measurement of lease liabilities included in operating cash flows: Right-of-use assets obtained in exchange for new lease obligations Maturities of lease liabilities as of December 31, 2020 were as follows: 2021 2022 2023 2024 2025 Thereafter Total lease payments Less imputed interest Total lease liabilities J. DEBT Convertible Senior Notes For the Year Ended December 31, 2020 24,136 $ 14,801 Operating Lease (in thousands) 22,451 $ 16,798 9,727 7,215 5,715 6,149 68,055 (5,409) 62,646 $ On December 12, 2016, Teradyne completed a private offering of $460.0 million aggregate principal amount of 1.25% convertible senior unsecured notes (the “Notes”) due December 15, 2023 and received net proceeds, after issuance costs, of approximately $450.8 million, $33.0 million of which was used to pay the net cost of the convertible note hedge transactions and $50.1 million of which was used to repurchase 2.0 million shares of Teradyne’s common stock under its existing stock repurchase program from purchasers of the Notes in privately negotiated transactions effected through one of the initial purchasers or its affiliates conducted concurrently with the pricing of the Note offering. The Notes will mature on December 15, 2023, unless earlier repurchased or converted. The Notes bear interest at a rate of 1.25% per year payable semiannually in arrears on June 15 and December 15 of each year. The Notes will be convertible at the option of the noteholders at any time prior to the close of business on the business day immediately preceding September 15, 2023, only under the following circumstances: (1) during any calendar quarter beginning after March 31, 2017 (and only during such calendar quarter), if the closing sale price of Teradyne’s common stock, for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter is greater than 130% of the conversion price on each applicable trading day; 76 Table of Contents (2) during the five business day period after any five consecutive trading day period (the “measurement period”) in which the trading price (as defined in the Indenture) per $1,000 principal amount of Notes for each trading day of the measurement period was less than 98% of the product of the closing sale price of the Teradyne’s common stock and the conversion rate on each such trading day; and (3) upon the occurrence of specified corporate events. On or after September 15, 2023 until the close of business on the second scheduled trading day immediately preceding the maturity date, holders may convert their Notes at any time, regardless of the foregoing circumstances. Teradyne may satisfy its conversion obligation by paying or delivering cash, shares of its common stock or a combination of cash and shares of its common stock, at Teradyne’s election. As of December 31, 2020, the conversion price was approximately $31.56 per share of Teradyne’s common stock. The conversion rate is subject to adjustment under certain circumstances. As of February 22, 2021, twenty-four holders had exercised the option to convert $51.0 million worth of notes. Concurrent with the offering of the Notes, Teradyne entered into convertible note hedge transactions (the “Note Hedge Transactions”) with the initial purchasers or their affiliates (the “Option Counterparties”). The Note Hedge Transactions cover, subject to customary anti-dilution adjustments, the number of shares of the common stock that underlie the Notes, with a strike price equal to the conversion price of the Notes of $31.56. The Note Hedge Transactions cover, subject to customary anti-dilution adjustments, approximately 14.6 million shares of Teradyne’s common stock. Separately and concurrent with the pricing of the Notes, Teradyne entered into warrant transactions with the Option Counterparties (the “Warrant Transactions”) in which it sold net-share-settled (or, at its election subject to certain conditions, cash-settled) warrants to the Option Counterparties. The Warrant Transactions cover, subject to customary anti-dilution adjustments, approximately 14.6 million shares of common stock. As of December 31, 2020, the strike price of the warrants was approximately $39.60 per share. The strike price is subject to adjustment under certain circumstances. The Warrant Transactions could have a dilutive effect to Teradyne’s common stock to the extent that the market price per share of Teradyne’s common stock, as measured under the terms of the Warrant Transactions, exceeds the applicable strike price of the warrants. The Note Hedge Transactions are expected to reduce the potential dilution to Teradyne’s common stock upon any conversion of the Notes. However, the Warrant Transactions could separately have a dilutive effect to the extent that the market value per share of Teradyne’s common stock exceeds the applicable strike price of the warrant. The net cost of the Note Hedge Transactions, after being partially offset by the proceeds from the sale of the warrants, was approximately $33.0 million. In connection with establishing their initial hedge of these convertible note hedge and warrant transactions, the Option Counterparties have entered into various derivative transactions with respect to Teradyne’s common stock and/or purchased shares of Teradyne’s common stock or other securities, including the Notes, concurrent with, or shortly after, the pricing of the Notes. In addition, the Option Counterparties may modify their hedge positions by entering into or unwinding various derivative transactions with respect to Teradyne’s common stock or by selling Teradyne’s common stock or other securities, including the Notes, in secondary market transactions (and may do so during any observation period related to the conversion of the Notes). These activities could adversely affect the value of Teradyne’s common stock and the Notes. Teradyne considered the guidance of ASC 815-40, “Derivatives and Hedging—Contracts in Entity’s Own Equity,” and concluded that the convertible note hedge is both indexed to Teradyne’s stock and should be classified in stockholders’ equity in its statements of financial position. The convertible note hedge is considered indexed to Teradyne’s stock as the terms of the Note Hedge Transactions do not contain an exercise contingency and the settlement amount equals the difference between the fair value of a fixed number of Teradyne’s shares and a fixed strike price. Because the only variable that can affect the settlement amount is Teradyne’s stock price, which is an input to the fair value of a fixed-for-fixed option contract, the convertible note hedge is considered indexed to Teradyne’s stock. 77 Table of Contents Teradyne assessed whether the convertible note hedge should be classified as equity under ASC 815-40. In the Note Hedge Transactions contract the settlement terms permit net cash settlement or net share settlement, at the option of Teradyne. Therefore, the criteria as set forth in ASC 815-40 were evaluated by Teradyne. In reviewing the criteria, Teradyne noted the following: (1) the convertible note hedge does not require Teradyne to issue shares; (2) there is no requirement to net cash settle the convertible note hedge for failure to make timely filings with the SEC; (3) in the case of termination, the convertible note hedge is settled in the same consideration as the holders of the underlying stock; (4) the counterparty does not have rights that rank higher than those of a shareholder of the stock underlying the convertible note hedge; and (5) there is no requirement to post collateral. Based on its analysis of those criteria, Teradyne concluded that the convertible note hedge should be recorded in equity and no further adjustment should be made in future periods to adjust the value of the convertible note hedge. Teradyne analyzed the Warrant Transactions under ASC 815-40, “Derivatives and Hedging—Contracts in Entity’s Own Equity,” and other relevant literature, and determined that it met the criteria for classification as an equity transaction and is considered indexed to Teradyne’s stock. As a result, Teradyne recorded the proceeds from the warrants as an increase to additional paid-in capital. Teradyne does not recognize subsequent changes in fair value of the warrants in its financial statements. The provisions of ASC 470-20, “Debt with Conversion and Other Options,” are applicable to the Notes. ASC 470-20 requires Teradyne to separately account for the liability (debt) and equity (conversion feature) components of the Notes in a manner that reflects Teradyne’s nonconvertible debt borrowing rate at the date of issuance when interest cost is recognized in subsequent periods. Teradyne allocated $100.8 million of the $460.0 million principal amount of the Notes to the equity component, which represents a discount to the debt and will be amortized to interest expense using the effective interest method through December 2023. Accordingly, Teradyne’s effective annual interest rate on the Notes will be approximately 5.0%. The Notes are classified as long- term debt on the balance sheet based on their December 15, 2023 maturity date. Debt issuance costs of approximately $7.2 million are being amortized to interest expense using the effective interest method over the seven-year term of the Notes. As of December 31, 2020, debt issuance costs were approximately $3.3 million. The below tables represent the key components of Teradyne’s convertible senior notes: Debt principal Unamortized discount Net carrying amount of convertible debt Reported as follows: Current debt Long-term debt Net carrying amount of convertible debt 78 December 31, 2020 December 31, 2019 (in thousands) $ 459,971 49,860 $ 410,111 $ 460,000 65,313 $ 394,687 December 31, 2020 December 31, 2019 (in thousands) $ $ 33,343 376,768 $ 410,111 — 394,687 $ 394,687 Table of Contents For the year ended December 31, 2020 December 31, 2019 Contractual interest expense on the coupon Amortization of the discount component and debt issue fees recognized as interest expense Total interest expense on the convertible debt $ $ 5,750 15,454 21,204 5,750 14,706 20,456 $ (in thousands) $ As of December 31, 2020, the unamortized discount was $49.9 million, which will be amortized over three years using the effective interest rate method. The carrying amount of the equity component was $100.8 million. As of December 31, 2020, the conversion price was approximately $31.56 per share and if converted the value of the notes was $1,747.5 million. As of December 31, 2020, certain holders have elected to convert approximately $37 million of debt principal. Conversions will occur in the first quarter of 2021. The related liability component is included in current debt and the portion of the equity component is included in convertible common shares. Revolving Credit Facility On June 27, 2019, Teradyne terminated its credit agreement, which Teradyne entered into with Barclays Bank PLC on April 27, 2015. The terminated credit agreement, which was undrawn at termination, provided for a five-year, senior secured revolving credit facility of up to $350 million. 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”). The Credit Agreement further provides that, subject to customary conditions, Teradyne may seek to obtain from existing or new lenders incremental commitments under the Credit Facility in an aggregate principal amount not to exceed $150.0 million. The interest rate applicable to loans under the Credit Facility are, at Teradyne’s option, equal to either a base rate plus a margin ranging from 0.50% to 1.25% per annum or LIBOR, a minimum of 0.75%, plus a margin ranging from 1.50% to 2.25% per annum, based on the consolidated leverage ratio of Teradyne. In addition, Teradyne will pay a commitment fee on the unused portion of the commitments under the Credit Facility ranging from 0.25% to 0.40% per annum, based on the then applicable consolidated leverage ratio. Teradyne is not required to repay any loans under the Credit Facility prior to maturity, subject to certain customary exceptions. Teradyne is permitted to prepay all or any portion of the loans under the Credit Facility prior to maturity without premium or penalty, other than customary LIBOR breakage costs. The Credit Agreement contains customary events of default, representations, warranties and affirmative and negative covenants that, among other things, limit Teradyne’s ability to sell assets, grant liens on assets, incur other secured indebtedness and make certain investments and restricted payments, all subject to exceptions set forth in the Credit Agreement. The Credit Agreement also requires Teradyne to satisfy two financial ratios measured as of the end of each fiscal quarter; a consolidated leverage ratio and an interest coverage ratio. The Credit Facility is guaranteed by certain of Teradyne’s domestic subsidiaries and collateralized by assets of Teradyne and such subsidiaries, including a pledge of 65% of the capital stock of certain foreign subsidiaries. As of December 31, 2020, Teradyne was in compliance with all covenants under the Credit Agreement. 79 Table of Contents K. ACCUMULATED OTHER COMPREHENSIVE (LOSS) INCOME Changes in accumulated other comprehensive (loss) income, which is presented net of tax, consist of the following: Balance at December 31, 2018, net of tax of $0, $(521), $(1,081) Other comprehensive (loss) income before reclassifications, net of tax of $0, $1,659, $0 Amounts reclassified from accumulated other comprehensive income, net of tax of $0, $(192), $(43) Net current period other comprehensive (loss) income, net of tax of $0, $1,467, $(43) Balance at December 31, 2019, net of tax of $0, $946, $(1,124) Other comprehensive income before reclassifications, net of tax of $0, $1,629, $0 Amounts reclassified from accumulated other comprehensive income, net of tax of $0, $(665), $(2) Net current period other comprehensive income (loss), net of tax of $0, $964, $(2) Balance at December 31, 2020, net of tax of $0, $1,910, $(1,126) Foreign Currency Translation Adjustment $ (12,523) (10,991) — (10,991) $ (23,514) 48,903 — 48,903 $ 25,389 Unrealized (Losses) Gains on Marketable Securities Retirement Plans Prior Service Credit (in thousands) $ $ (1,845) 6,015 (690) 5,325 3,480 5,839 (2,365) 3,474 6,954 $ $ $ $ 1,328 — (148) (148) 1,180 — (7) (7) 1,173 Total $ (13,040) (4,976) (838) (5,814) $ (18,854) 54,742 (2,372) 52,370 $ 33,516 Reclassifications out of accumulated other comprehensive income to the statements of operations for the years ended December 31, 2020, 2019, and 2018, were as follows: Details about Accumulated Other Comprehensive Income Components Available-for-sale marketable securities Unrealized gains (losses), net of tax of $665, $192, $21 Defined benefit pension and postretirement plans: Amortization of prior service benefit, net of tax of $2, $43, $71 Total reclassifications, net of tax of $667, $235, $92 December 31, 2020 For the year ended December 31, 2019 (in thousands) December 31, 2018 Affected Line Item in the Statements of Operations $ 2,365 7 2,372 $ $ $ 690 $ (1,337) Interest income (expense) 148 838 245 (1,092) $ (a) 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.” 80 Table of Contents L. GOODWILL AND INTANGIBLE ASSETS Goodwill Teradyne performs its annual goodwill impairment test as required under the provisions of ASC 350-10, “Intangibles—Goodwill and Other,” on December 31 of each fiscal year unless interim indicators of impairment exist. Goodwill is considered to be impaired when the net book value of a reporting unit exceeds its estimated fair value. Teradyne has the option to perform a qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If Teradyne determines this is the case, Teradyne is required to perform a quantitative goodwill impairment test to identify potential goodwill impairment and measure the amount of goodwill impairment loss to be recognized. If Teradyne determines that it is more likely than not that the fair value of the reporting unit is greater than its carrying amounts, the quantitative goodwill impairment test is not required. In performing the quantitative goodwill impairment test, Teradyne determines the fair value of a reporting unit using the results derived from an income approach and a market approach, weighting the fair value determined under each approach to determine an estimated fair value for a reporting unit. The income approach is estimated through the discounted cash flows (“DCF”) analysis. Determining fair value requires the exercise of significant judgment, including judgments about appropriate discount rates, perpetual growth rates, and the amount and timing of expected future cash flows. Discount rates are based on a weighted average cost of capital (“WACC”), which represents the average rate a business must pay its providers of debt and equity, plus a risk premium. The WACC used to test goodwill is derived from a group of comparable companies. The cash flows employed in the DCF analysis are derived from internal forecasts and external market forecasts. The market approach estimates the fair value of the reporting unit by utilizing the market comparable method which is based on revenue and earnings multiples from comparable companies. If the estimated fair value of a reporting unit exceeds its carrying amount, goodwill of the reporting unit is not impaired. If the carrying amount of a reporting unit exceeds its estimated fair value, then the goodwill is written down by the amount that carrying value exceeds the fair value of the reporting unit, but not below zero. On September 15, 2020, Teradyne announced the appointment of Gregory Smith as President of Teradyne’s Industrial Automation reportable segment effective October 1, 2020. With the appointment of Gregory Smith, the Industrial Automation reportable segment, which includes UR, MiR and AutoGuide, is considered one operating segment and one reporting unit. Teradyne performed a goodwill impairment test at the time of the change in operating segments, which indicated the fair value of Teradyne’s reporting units exceeded their carrying values. In the fourth quarter of 2020, Teradyne performed the annual goodwill impairment test, completing a qualitative assessment for the Wireless Test, System Test, and Industrial Automation reporting units. There was no impairment as a result of the annual test performed in the fourth quarter of 2020. Key assumptions in the goodwill valuation model are forecasted revenues, discount rate, earnings before interest and taxes, and revenue multiples from comparable companies. A change in any of these key assumptions could result in the reporting unit being impaired in a future period. Based on Teradyne’s December 31, 2019 goodwill impairment test, the MiR reporting unit’s estimated fair value exceeded its carrying value by 14%. The MiR goodwill amount is $123.6 million as of December 31, 2019. Key assumptions in the goodwill valuation model are forecasted revenues, discount rate, earnings before interest and taxes, and revenue multiples from comparable companies. A change in any of these key assumptions could result in the reporting unit being impaired in a future period. In the fourth quarter of 2018, Teradyne performed the annual goodwill impairment test. Teradyne completed step one of the two-step impairment test for the Universal Robots reporting unit. Teradyne completed step zero for the Wireless Test and Defense/Aerospace, MiR, and Energid reporting units. There was no impairment as a result of the annual test performed in the fourth quarter of 2018. 81 Table of Contents The changes in the carrying amount of goodwill by reportable segments for the years ended December 31, 2020 and 2019 are as follows: Balance at December 31, 2018: Goodwill Accumulated impairment losses Lemsys acquisition AutoGuide acquisition Foreign currency translation adjustment Balance at December 31, 2019: Goodwill Accumulated impairment losses AutoGuide acquisition Foreign currency translation adjustment Balance at December 31, 2020: Goodwill Accumulated impairment losses Intangible Assets Industrial Automation Wireless Test Semiconductor Test (in thousands) System Test Total $ 363,358 — 363,358 — 41,372 (8,247) 396,483 — 396,483 (149) 37,418 $ 361,819 (353,843) 7,976 — — — 361,819 (353,843) 7,976 — — $ 260,540 (260,540) — 1,428 — 28 261,996 (260,540) 1,456 — 159 $ 158,699 (148,183) 10,516 — — — 158,699 (148,183) 10,516 — — $1,144,416 (762,566) 381,850 1,428 41,372 (8,219) 1,178,997 (762,566) 416,431 (149) 37,577 433,752 — $ 433,752 361,819 (353,843) 7,976 $ 262,155 (260,540) 1,615 $ 158,699 (148,183) $ 10,516 1,216,425 (762,566) $ 453,859 Teradyne reviews long-lived assets for impairment whenever events or changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverable or that the useful lives of these assets are no longer appropriate. There were no events or circumstances indicating that the carrying value of intangible and long-lived assets may not be recoverable in 2020, 2019 and 2018. Amortizable intangible assets consist of the following and are included in intangible assets, net on the balance sheets: Developed technology Customer relationships Tradenames and trademarks Total intangible assets Gross Carrying Amount (1) $272,547 66,239 70,120 $408,906 December 31, 2020 Accumulated Amortization (1) Foreign Currency Translation Adjustment (in thousands) $ $ (210,479) (54,524) (42,344) (307,347) $ (1,610) 305 685 (620) $ Net Carrying Amount $ 60,458 12,020 28,461 $100,939 82 Table of Contents Developed technology Customer relationships Tradenames and trademarks Backlog Total intangible assets Gross Carrying Amount $361,787 75,669 70,120 260 $507,836 December 31, 2019 Accumulated Amortization Foreign Currency Translation Adjustment (in thousands) $ (279,000) (59,077) (36,671) (260) $ (375,008) $ (5,709) (455) (1,184) — $ (7,348) Net Carrying Amount $ 77,078 16,137 32,265 — $125,480 (1) In 2020, $98.9 million of amortizable intangible assets became fully amortized and have been eliminated from the gross carrying amount and accumulated amortization. Aggregate intangible assets amortization expense for the years ended December 31, 2020, 2019, and 2018, was $30.8 million, $40.1 million, and $39.2 million, respectively. Estimated intangible assets amortization expense for each of the five succeeding fiscal years is as follows: Year 2021 2022 2023 2024 2025 Thereafter Amortization Expense (in thousands) $ 21,893 21,000 20,504 20,192 11,922 5,428 M. COMMITMENTS AND CONTINGENCIES Purchase Commitments As of December 31, 2020, Teradyne had entered into non-cancelable purchase commitments for certain components and materials. The purchase commitments covered by the agreements aggregate to approximately $603.5 million, of which $592.1 million is for less than one year. Legal Claims Teradyne is subject to legal proceedings, claims and investigations that arise in the ordinary course of business such as, but not limited to, patent, employment, commercial and environmental matters. Teradyne believes that it has meritorious defenses against all pending claims and intends to vigorously contest them. While it is not possible to predict or determine the outcomes of any pending claims or to provide possible ranges of losses that may arise, Teradyne believes the potential losses associated with all of these actions are unlikely to have a material adverse effect on its business, financial position or results of operations. Guarantees and Indemnification Obligations Teradyne provides indemnification, to the extent permitted by law, to its officers, directors, employees and agents for liabilities arising from certain events or occurrences, while the officer, director, employee, or agent, is or was serving, at Teradyne’s request in such capacity. Teradyne may enter into indemnification agreements with certain of its officers and directors. With respect to acquisitions, Teradyne provides indemnifications to or assumes indemnification obligations for the current and former directors, officers and employees of the acquired companies in accordance with the acquired companies’ by-laws and charter. As a matter of practice, Teradyne has maintained directors’ and officers’ liability insurance coverage including coverage for directors and officers of acquired companies. 83 Table of Contents Teradyne enters into agreements in the ordinary course of business with customers, resellers, distributors, integrators and suppliers. Most of these agreements require Teradyne to defend and/or indemnify the other party against intellectual property infringement claims brought by a third party with respect to Teradyne’s products. From time to time, Teradyne also indemnifies customers and business partners for damages, losses and liabilities they may suffer or incur relating to personal injury, personal property damage, product liability, breach of confidentiality obligations and environmental claims relating to the use of Teradyne’s products and services or resulting from the acts or omissions of Teradyne, its employees, authorized agents or subcontractors. On occasion, Teradyne has also provided guarantees to customers regarding the delivery and performance of its products in addition to the warranty described below. As a matter of ordinary course of business, Teradyne warrants that its products will substantially perform in accordance with its standard published specifications in effect at the time of delivery. Most warranties have a one-year duration commencing from installation. A provision is recorded upon revenue recognition to cost of revenue for estimated warranty expense based upon historical experience. When Teradyne receives revenue for extended warranties beyond the standard duration, the revenue is deferred and recognized on a straight-line basis over the contract period. Related costs are expensed as incurred. As of December 31, 2020, and 2019, Teradyne had a product warranty accrual of $16.6 million and $9.0 million, respectively, included in other accrued liabilities, and revenue deferrals related to extended warranties of $51.9 million and $30.7 million, respectively, included in short and long-term deferred revenue and customer advances. In addition, in the ordinary course of business, Teradyne provides minimum purchase guarantees to certain vendors to ensure continuity of supply against the market demand. Although some of these guarantees provide penalties for cancellations and/or modifications to the purchase commitments as the market demand decreases, most of the guarantees do not. Therefore, as the market demand decreases, Teradyne re-evaluates these guarantees and determines what charges, if any, should be recorded. With respect to its agreements covering product, business or entity divestitures and acquisitions, Teradyne provides certain representations, warranties and covenants to purchasers and agrees to indemnify and hold such purchasers harmless against breaches of such representations, warranties and covenants. Many of the indemnification claims have a definite expiration date while some remain in force indefinitely. With respect to its acquisitions, Teradyne may, from time to time, assume the liability for certain events or occurrences that took place prior to the date of acquisition. As a matter of ordinary course of business, Teradyne occasionally guarantees certain indebtedness obligations of its subsidiary companies, limited to the borrowings from financial institutions, purchase commitments to certain vendors, and lease commitments to landlords. Based on historical experience and information known as of December 31, 2020, and 2019, except for product warranty, Teradyne has not recorded any liabilities for these guarantees and obligations because the amount would be immaterial. 84 Table of Contents N. NET INCOME PER COMMON SHARE The following table sets forth the computation of basic and diluted net income per common share: 2020 2019 (in thousands, except per share amounts) 2018 Net income for basic and diluted net income per share Weighted average common shares-basic Effect of dilutive potential common shares: Incremental shares from assumed conversion of convertible notes (1) Convertible note hedge warrant shares (2) Restricted stock units Stock options Employee stock purchase rights Dilutive potential common shares Weighted average common shares-diluted Net income per common share-basic Net income per common share-diluted $ 784,147 166,120 $ 467,468 170,425 $ 451,779 187,672 8,528 6,989 1,264 131 10 16,922 183,042 4.72 $ 4.28 $ 4,909 2,698 1,236 178 13 9,034 179,459 2.74 $ 2.60 $ 2,749 485 1,385 278 36 4,933 192,605 $ $ 2.41 2.35 (1) Incremental shares from the assumed conversion of the convertible notes was calculated using the difference between the average Teradyne stock price for the period and the conversion price of $31.56, multiplied by 14.6 million shares. The result of this calculation, representing the total intrinsic value of the convertible debt, was divided by the average Teradyne stock price for the period. (2) Convertible notes hedge warrant shares were calculated using the difference between the average Teradyne stock price for the period and the warrant price of $39.60, multiplied by 14.6 million shares. The result of this calculation, representing the total intrinsic value of the warrant, was divided by the average Teradyne stock price for the period. The computation of diluted net income per common share for 2020 excludes the effect of the potential exercise of stock options to purchase approximately 0.1 million shares and restricted stock units to purchase approximately 0.1 million shares because the effect would have been anti-dilutive. The computation of diluted net income per common share for 2018 excludes the effect of the potential exercise of restricted stock units to purchase approximately 0.5 million shares because the effect would have been anti-dilutive. O. RESTRUCTURING AND OTHER During the year ended December 31, 2020, Teradyne recorded a $19.7 million gain for the decrease in the fair value of the AutoGuide contingent consideration liability, and a $3.5 million gain for the decrease in the fair value of the MiR contingent consideration liability, partially offset by a $4.0 million contract termination settlement charge, $2.5 million of acquisition related compensation and expenses, $2.3 million of severance charges primarily in Industrial Automation, and $1.2 million of other expenses. During the year ended December 31, 2019, Teradyne recorded a $22.2 million gain for the decrease in the fair value of the MiR contingent consideration liability, partially offset by a $3.0 million gain for the increase in the fair value of the AutoGuide contingent consideration, $2.9 million of severance charges related to headcount reductions primarily in Semiconductor Test and Industrial Automation, and $2.5 million for acquisition related expenses and compensation. The remaining accrual for severance of $0.5 million is reflected in the accrued employees’ compensation and withholdings on the balance sheet and is expected to be paid by March 2021. 85 Table of Contents P. RETIREMENT PLANS ASC 715, “Compensation—Retirement Benefits,” requires an employer with defined benefit plans or other postretirement benefit plans to recognize an asset or a liability on its balance sheet for the overfunded or underfunded status of the plans as defined by ASC 715. The pension asset or liability represents a difference between the fair value of the pension plan’s assets and the projected benefit obligation at December 31. Teradyne uses a December 31 measurement date for all of its plans. Defined Benefit Pension Plans Teradyne has defined benefit pension plans covering a portion of domestic employees and employees of certain non-U.S. subsidiaries. Benefits under these plans are based on employees’ years of service and compensation. Teradyne’s funding policy is to make contributions to the plans in accordance with local laws and to the extent that such contributions are tax deductible. The assets of these plans consist primarily of fixed income and equity securities. In addition, Teradyne has an unfunded supplemental executive defined benefit plan in the United States to provide retirement benefits in excess of levels allowed by the Employment Retirement Income Security Act (“ERISA”) and the Internal Revenue Code (the “IRC”), as well as unfunded qualified foreign plans. In 2020, Teradyne’s projected benefit obligations increased primarily due to actuarial losses of approximately $27.6 million across all pension plans from decreases in discount rates, and approximately $4.0 million from unfavorable foreign exchange effects for the German plan, partially offset by a transfer of obligations for approximately 115 retiree participants to an insurance company which resulted in a $24.4 million reduction in the projected benefit obligations and pension assets. We also recorded a settlement loss of $0.5 million related to the retiree group annuity transaction. In 2019, Teradyne’s projected benefit obligations increased primarily due to actuarial losses of approximately $29.0 million across all pension plans from decreases in discount rates. The December 31 balances of these defined benefit pension plans assets and obligations are shown below: Assets and Obligations Change in benefit obligation: Projected benefit obligation: Beginning of year Service cost Interest cost Actuarial loss Benefits paid Retiree annuity purchase Liability loss due to settlement Non-U.S. currency movement End of year Change in plan assets: Fair value of plan assets: Beginning of year Actual return on plan assets Company contributions Benefits paid Retiree annuity purchase Non-U.S. currency movement End of year Funded status 2020 2019 United States Foreign United States Foreign (in thousands) $ 203,791 1,773 5,770 24,671 (9,844) (24,379) 451 — 202,233 166,932 23,048 3,098 (9,844) (24,379) — 158,855 $ (43,378) $ 43,952 907 516 2,951 (1,299) — — 3,961 50,988 1,586 67 1,079 (988) — 112 1,856 $ (49,132) $ 178,237 1,608 7,189 24,447 (7,690) — — — 203,791 144,301 27,516 2,805 (7,690) — — 166,932 $ (36,859) $ 39,146 751 691 4,520 (836) — — (320) 43,952 1,400 64 923 (836) — 35 1,586 $ (42,366) 86 Table of Contents The following table provides amounts recorded within the account line items of the statements of financial position as of December 31: Retirement plans assets Accrued employees’ compensation and withholdings Retirement plans liabilities Funded status 2020 2019 United States Foreign United States Foreign (in thousands) $ 17,468 (3,273) (57,573) $ (43,378) $ — (1,019) (48,113) $ (49,132) $ 18,457 (2,826) (52,490) $ (36,859) $ — (922) (41,444) $ (42,366) The following table provides amounts recognized in accumulated other comprehensive income as of December 31: Deferred taxes related to prior service cost recognized in other comprehensive income $ 560 (in thousands) $ $ — 560 $ — 2020 2019 United States Foreign United States Foreign The accumulated benefit obligation for the United States defined benefit pension plans was $196.7 million and $198.2 million at December 31, 2020 and 2019, respectively. The accumulated benefit obligation for foreign defined benefit pension plans was $46.5 million and $39.9 million at December 31, 2020 and 2019, respectively. Information for pension plans with an accumulated benefit obligation in excess of plan assets as of December 31: Projected benefit obligation Accumulated benefit obligation Fair value of plan assets 2020 2019 United States Foreign United States Foreign $ 60.8 58.5 — (in millions) $ $ 51.0 46.5 1.9 55.3 53.2 — $ 44.0 39.9 1.6 87 Table of Contents Expense For the years ended December 31, 2020, 2019, and 2018, Teradyne’s net periodic pension cost (income) was comprised of the following: Components of Net Periodic Pension Cost (Income): Service cost Interest cost Expected return on plan assets Amortization of prior service cost Net actuarial loss (gain) Settlement loss Total net periodic pension cost (income) Changes in Plan Assets and Benefit Obligations Recognized in Other Comprehensive Income: Reversal of amortization items: Prior service cost Total recognized in other comprehensive income Total recognized in net periodic pension cost (income) and other comprehensive 2020 United States Foreign 2019 United States Foreign 2018 United States Foreign (in thousands) $ 1,773 5,770 (4,840) — 6,463 451 $ 9,617 $ 907 516 (65) — 2,949 — $4,307 $ 1,608 7,189 (6,042) — 2,973 — $ 5,728 $ 751 691 (29) — 4,485 — $5,898 $ 2,196 8,940 (9,049) 58 (4,429) 345 $(1,939) $ 786 687 (19) — 743 — $2,197 — — — — — — — — (58) (58) — — income $ 9,617 $4,307 $ 5,728 $5,898 $(1,997) $2,197 Weighted Average Assumptions to Determine Net Periodic Pension Cost at January 1: Discount rate Expected return on plan assets Salary progression rate 2020 2019 2018 United States Foreign United States Foreign United States Foreign 2.8% 3.0 2.6 1.1% 3.8 2.5 4.1% 4.3 2.3 1.8% 2.0 2.5 3.4% 4.3 2.3 1.8% 1.5 2.7 Weighted Average Assumptions to Determine Pension Obligations at December 31: Discount rate Salary progression rate 2020 2019 United States Foreign United States Foreign 2.2% 2.4 0.7% 2.3 3.0% 2.6 1.1% 2.5 In developing the expected return on plan assets assumption, Teradyne evaluates input from its investment manager and pension consultants, including their forecast of asset class return expectations. Teradyne believes that 3.0% was an appropriate rate to use for fiscal 2020 for the U.S. Qualified Pension Plan (“U.S. Plan”). 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. 88 Table of Contents The discount rate utilized to determine future pension obligations for the U.S. Plan is based on FTSE Pension Index adjusted for the plan’s expected cash flows and was 2.3% at December 31, 2020, down from 3.10% at December 31, 2019. Plan Assets As of December 31, 2020, the fair value of Teradyne’s pension plans’ assets totaled $160.7 million of which $158.9 million was related to the U.S. Plan and $1.9 million was related to the Taiwan defined benefit pension plan. Substantially all of Teradyne’s pension plans’ assets are held in individual trusts, which were established for the investment of assets of Teradyne’s sponsored retirement plans. The following table provides weighted average pension asset allocation by asset category at December 31, 2020 and 2019: Fixed income securities Equity securities Other 2020 United States 94.0% 5.0 1.0 100.0% Foreign — % — 100.0 100.0% 2019 United States 94.0% 5.0 1.0 100.0% Foreign — % — 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: U.S. corporate fixed income Global equity U.S. government fixed income High yield fixed income Cash Policy Index: Bloomberg Barclays U.S. Corporate A or Better Index MSCI World Minimum Volatility Index Bloomberg Barclays U.S. Long Government Bond Index Bloomberg Barclays U.S. Corporate High Yield 2% Issuer Cap Index Citigroup Three Month U.S. Treasury Bill Index 89 Target Allocation 75% 5 14 5 1 Table of Contents Teradyne’s U.S. Plan invests primarily in common trust funds. Units held in the common trust funds are valued at the unit price as reported by the investment manager based on the asset value of the underlying investments; underlying investments in equity securities are valued at the last reported sales price, and underlying investments in fixed-income securities are generally valued using methods based upon market transactions for comparable securities. During the years ended December 31, 2020 and December 31, 2019, there were no transfers of pension assets in or out of Level 1, Level 2, and Level 3. The fair value of pension plan assets by asset category and by level at December 31, 2020 and December 31, 2019 were as follows: Fixed income securities: Corporate debt securities U.S. government securities Global equity Other Cash and cash equivalents Total Fixed income securities: Corporate debt securities U.S. government securities Global equity Other Cash and cash equivalents Total Contributions December 31, 2020 United States Foreign Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total (in thousands) $ — $127,098 $ — $127,098 $ — $ — $ — $ — — 22,250 — 22,250 — — — — 7,925 — — — — — — — 1,856 — 1,856 — 1,582 1,582 — — — — $1,582 $157,273 $ — $158,855 $ — $1,856 $ — $1,856 7,925 — — — — — December 31, 2019 United States Foreign Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total (in thousands) $ — $133,792 $ — $133,792 $ — $ — $ — $ — — 23,186 — 23,186 — — — — 8,344 — — — — — — — 1,586 — 1,586 — 1,610 1,610 — — — — $1,610 $165,322 $ — $166,932 $ — $1,586 $ — $1,586 8,344 — — — — — Teradyne’s funding policy is to make contributions to the plans in accordance with local laws and to the extent that such contributions are tax deductible. During 2020, Teradyne contributed $3.1 million to the U.S. supplemental executive defined benefit pension plan and $1.1 million to certain qualified plans for non-U.S. subsidiaries. During 2019, Teradyne contributed $2.8 million to the U.S. supplemental executive defined benefit pension plan and $0.9 million to certain qualified plans for non-U.S. subsidiaries. In 2021, contributions to the U.S. supplemental executive defined benefit pension plan and certain qualified plans from non-U.S. subsidiaries will be approximately $3.3 million and $1.1 million, respectively. 90 Table of Contents Expected Future Pension Benefit Payments Future benefit payments are expected to be paid as follows: 2021 2022 2023 2024 2025 2026-2030 Postretirement Benefit Plans United States Foreign $ (in thousands) 8,902 8,782 9,189 9,815 10,374 54,145 $1,058 1,063 1,313 1,192 1,140 7,053 In addition to receiving pension benefits, U.S. Teradyne employees who meet early retirement eligibility requirements as of their termination dates may participate in Teradyne’s Welfare Plan, which includes medical and dental benefits up to age 65. Death benefits provide a fixed sum to retirees’ survivors and are available to all retirees. Substantially all of Teradyne’s current U.S. employees could become eligible for these benefits, and the existing benefit obligation relates primarily to those employees. The December 31 balances of the postretirement assets and obligations are shown below: Assets and Obligations Change in benefit obligation: Projected benefit obligation: Beginning of year Service cost Interest cost Actuarial loss Benefits paid End of year Change in plan assets: Fair value of plan assets: Beginning of year Company contributions Benefits paid End of year Funded status The following table provides amounts recorded within the account line items of financial position as of December 31: Accrued employees’ compensation and withholdings Retirement plans liability Funded status 91 2020 2019 (in thousands) $ 9,003 57 240 421 (1,205) 8,515 $ 9,256 41 347 717 (1,358) 9,003 — 1,205 (1,205) — $(8,515) — 1,358 (1,358) — $(9,003) 2020 2019 (in thousands) $(1,161) (7,354) $(8,515) $(1,231) (7,772) $(9,003) Table of Contents The following table provides amounts recognized in accumulated other comprehensive income as of December 31: 2020 2019 Prior service credit, before tax Deferred taxes Total recognized in other comprehensive income, net of tax Expense $ (in thousands) (49) (1,686) $(1,735) $ (58) (1,684) $(1,742) For the years ended December 31, 2020, 2019, and 2018, Teradyne’s net periodic postretirement benefit cost (income) was comprised of the following: Components of Net Periodic Postretirement Benefit Cost (income): Service cost Interest cost Amortization of prior service credit Net actuarial loss Special termination benefits Total net periodic postretirement benefit cost Changes in Plan Assets and Benefit Obligations Recognized in Other Comprehensive Income: Reversal of amortization items: Prior service credit Total recognized in other comprehensive income Total recognized in net periodic postretirement cost and other comprehensive income Weighted Average Assumptions to Determine Net Periodic Postretirement Benefit Income as of January 1: Discount rate Initial health care cost trend rate Ultimate health care cost trend rate Year in which ultimate health care cost trend rate is reached Weighted Average Assumptions to Determine Postretirement Benefit Obligation as of December 31: Discount rate Initial medical trend Ultimate health care trend Medical cost trend rate decrease to ultimate rate in year 92 2020 2019 (in thousands) 2018 $ 57 240 (9) 421 — 709 $ 41 347 (191) 717 — 914 $ 39 196 (373) 25 3,708 3,595 9 9 $718 191 191 $1,105 373 373 $3,968 2018 2019 2020 3.0% 4.0% 3.4% 7.5 7.1 4.5 4.5 2026 2026 7.9 4.5 2026 2018 2020 2019 2.2% 3.0% 4.0% 7.1 7.3 4.5 4.5 2026 2029 7.5 4.5 2026 Table of Contents Expected Future Benefit Payments Future benefit payments are expected to be paid as follows: 2021 2022 2023 2024 2025 2026-2030 Q. STOCK-BASED COMPENSATION Stock Compensation Plans Benefit Payments (in thousands) $ 1,161 961 786 646 533 1,601 On July 17, 2019 (the “Retirement Date”), former Chief Financial Officer Gregory Beecher retired as Vice President and Senior Advisor of Teradyne, and Teradyne entered into an agreement (the “Retirement Agreement”) with Mr. Beecher. Under the Retirement Agreement, Mr. Beecher’s unvested time- based restricted stock units and stock options granted prior to 2019 were modified to allow continued vesting; unvested time-based restricted stock units and stock options granted in 2019 were modified to allow continued vesting through January 31, 2023 (the “Non-Competition Period”) in a pro-rated amount based on the number of days that Mr. Beecher was employed during 2019; unvested, performance-based restricted stock units awarded in 2019 will vest on the date the amount of shares underlying the performance-based restricted stock units are determined in a pro-rated amount of shares based on the number of days that Mr. Beecher was employed during 2019; vested options or options that vest during the Non-Competition Period may be exercised for the remainder of the applicable option term. During 2019, Teradyne recorded a stock-based compensation expense of $2.1 million related to the Retirement Agreement. Under Teradyne’s stock compensation plans, Teradyne grants time-based restricted stock units, performance-based restricted stock units, stock options and employees are eligible to purchase Teradyne’s common stock through its Employee Stock Purchase Plan (“ESPP”). Time-based restricted stock unit awards granted to employees vest in equal annual installments over four years. Restricted stock unit awards granted to non-employee directors vest after a one-year period, with 100% of the award vesting on the earlier of (a) the first anniversary of the grant date or (b) the date of the following year’s Annual Meeting of Shareholders. Teradyne expenses the cost of the restricted stock unit awards subject to time-based vesting, which is determined to be the fair market value of the shares at the date of grant, ratably over the period during which the restrictions lapse. Performance-based restricted stock units (“PRSUs”) granted to Teradyne’s executive officers may have a performance metric based on relative total shareholder return (“TSR”). Teradyne’s three-year TSR performance is measured against the New York Stock Exchange (“NYSE”) Composite Index. The final number of TSR PRSUs that vest will vary based upon the level of performance achieved from 200% to 0% of the target shares capped at four times the grant date value for grants prior to 2019. The TSR PRSUs will vest upon the three-year anniversary of the grant date. The TSR PRSUs are valued using a Monte Carlo simulation model. The number of units expected to be earned, based upon the achievement of the TSR market condition, is factored into the grant date Monte Carlo valuation. Compensation expense is recognized on a straight-line basis over the shorter of the three- year service period or the period from the grant to the date described in the retirement provisions below. Compensation expense for executive officers meeting the retirement provisions prior to the grant date is recognized during the year following the grant. Compensation expense is recognized regardless of the eventual number of units that are earned based upon the market condition, provided the executive officer remains an 93 Table of Contents employee at the end of the three-year period. Compensation expense is reversed if at any time during the three-year service period the executive officer is no longer an employee, subject to the retirement and termination eligibility provisions noted below. PRSUs granted to Teradyne’s executive officers may also have a performance metric based on three-year cumulative non-GAAP profit before interest and tax (“PBIT”) as a percent of Teradyne’s revenue. Non-GAAP PBIT is a financial measure equal to GAAP income from operations less restructuring and other, net; amortization of acquired intangible assets; acquisition and divestiture related charges or credits; pension actuarial gains and losses; non-cash convertible debt interest expense; and other non-recurring gains and charges. The final number of PBIT PRSUs that vest will vary based upon the level of performance achieved from 0% to 200% of the target shares. The PBIT PRSUs will vest upon the three-year anniversary of the grant date. Compensation expense is recognized on a straight-line basis over the shorter of the three-year service period or the period from the grant date to the date described in the retirement provisions below. Compensation expense for employees meeting the retirement provisions prior to the grant date will be recognized in full on the date of grant. Compensation expense is recognized based on the number of units that are earned based upon the three-year Teradyne PBIT as a percent of Teradyne’s revenue, provided the executive officer remains an employee at the end of the three-year period subject to the retirement and termination eligibility provisions noted below. If a PRSU recipient’s employment ends prior to the determination of the performance percentage due to (1) permanent disability or death or (2) retirement or termination other than for cause, after attaining both at least age sixty and at least ten years of service, then all or a portion of the recipient’s PRSUs (based on the actual performance percentage achieved on the determination date) will vest on the date the performance percentage is determined. Except as set forth in the preceding sentence, no PRSUs will vest if the executive officer is no longer an employee at the end of the three-year period. Stock options to purchase Teradyne’s common stock at 100% of the fair market value on the grant date vest in equal annual installments over four years from the grant date and have a maximum term of seven years. During 2020, 2019 and 2018, Teradyne granted 0.4 million, 0.8 million and 0.6 million of service-based restricted stock unit awards to employees at a weighted average grant date fair value of $71.31, $37.65, and $45.92, respectively. During 2020, 2019 and 2018, Teradyne granted 0.1 million of service-based restricted stock unit awards to non-employee directors at a weighted average grant date fair value of $66.56, $48.03, and $35.81, respectively. During 2020, 2019 and 2018, Teradyne granted 0.1 million TSR PRSUs, with a grant date fair value of $89.93, $51.51, and $54.85, respectively. The fair value was estimated using the Monte Carlo simulation model with the following assumptions: Risk-free interest rate Teradyne volatility-historical NYSE Composite Index volatility-historical Dividend yield 2020 1.5% 34.9% 11.4% 0.6% 2019 2.6% 31.9% 11.9% 1.0% 2018 2.2% 26.8% 12.4% 0.8% Expected volatility was based on the historical volatility of Teradyne’s stock and the NYSE Composite Index for each of the 2020, 2019 and 2018 grants over the most recent three-year period. The risk-free interest rate was determined using the U.S. Treasury yield curve in effect at the time of each of the grants. Dividend yield was based upon an estimated annual dividend amount of $0.40 per share for 2020 and $0.36 per share for 2019 and 2018, divided by Teradyne’s stock price on the grant date of $72.10 for the 2020 grants, $37.95 for the 2019 grants and $47.70 for the 2018 grants. 94 Table of Contents During 2020, 2019 and 2018, Teradyne granted 0.1 million of PBIT PRSUs with a grant date fair value of $70.94, $36.88 and $46.62, respectively. During 2020, 2019 and 2018, Teradyne granted 0.1 million of service-based stock options to executive officers at a weighted average grant date fair value of $20.93, $10.64, and $12.17, respectively. The fair value of stock options was estimated using the Black-Scholes option-pricing model with the following assumptions: Expected life (years) Risk-free interest rate Volatility-historical Dividend yield 2020 5.0 1.5% 32.0% 0.5% 2019 5.0 2.5% 30.1% 1.0% 2018 5.0 2.4% 26.4% 0.8% Teradyne determined the stock options’ expected life based upon historical exercise data for executive officers, the age of the executive officers and the terms of the stock option grant. Volatility was determined using historical volatility for a period equal to the expected life. The risk-free interest rate was determined using the U.S. Treasury yield curve in effect at the time of grant. Dividend yield was based upon an estimated annual dividend amount of $0.40 per share divided by Teradyne’s stock price on the grant date of $72.61 for the 2020 grants, $37.95 for the 2019 grants and $47.70 for the 2018 grants. Stock compensation plan activity for the years 2020, 2019, and 2018, is as follows: 2020 2019 (in thousands) 2018 Restricted Stock Units: Non-vested at January 1 Awarded Vested Forfeited Non-vested at December 31 Stock Options: Outstanding at January 1 Granted Exercised Forfeited Expired Outstanding at December 31 Vested and expected to vest at December 31 Exercisable at December 31 2,269 2,454 616 1,139 3,174 790 (1,028) (1,237) (1,382) (128) 2,454 (68) 1,789 2,269 (87) 319 56 (159) — — 216 216 27 95 506 102 (280) 531 69 (94) (7) — (2) — 506 319 319 85 506 256 Table of Contents Total shares available for the years 2020, 2019, and 2018: Shares available: Available for grant at January 1 Options granted Options forfeited Restricted stock units awarded Restricted stock units forfeited Available for grant at December 31 2020 2019 (in thousands) 2018 (102) 7 6,727 7,874 8,605 (69) (56) — (616) (1,139) (790) 87 128 6,123 6,727 7,874 68 Weighted average restricted stock unit award date fair value information for the years 2020, 2019, and 2018, is as follows: Non-vested at January 1 Awarded Vested Forfeited Non-vested at December 31 2020 2019 2018 $35.58 $29.22 $21.71 45.99 20.20 24.67 $47.84 $35.58 $29.22 39.08 23.59 35.60 72.76 31.53 45.36 Restricted stock unit awards aggregate intrinsic value information at December 31 for the years 2020, 2019, and 2018 is as follows: Vested Outstanding Expected to vest 2020 $ 71,582 214,509 210,301 2019 (in thousands) $ 46,110 154,752 152,374 2018 $63,688 77,015 77,187 Restricted stock units weighted average remaining contractual terms (in years) information at December 31 for the years 2020, 2019, and 2018 is as follows: Outstanding Expected to vest Weighted average stock options exercise price information for the year ended December 31, 2020 is as follows: Outstanding at January 1 Options granted Options exercised Options forfeited Options cancelled Outstanding at December 31 Exercisable at December 31 2020 2019 2018 0.96 1.02 0.92 0.96 1.02 0.91 2020 $29.91 72.61 23.77 — — 45.59 23.51 The total cash received from employees as a result of employee stock options exercises during the years ended December 31, 2020, 2019, and 2018, was $3.8 million, $3.7 million, and $1.0 million, respectively. In connection with these exercises, the tax benefit realized by Teradyne for the years ended December 31, 2020, 2019, and 2018, was $1.5 million, $2.0 million, and $0.4 million, respectively. 96 Table of Contents Stock option aggregate intrinsic value information for the years ended December 31, 2020, 2019, and 2018 is as follows: Exercised Outstanding Vested and expected to vest Exercisable 2020 $ 9,682 16,083 13,499 2,584 2019 (in thousands) $ 9,232 12,218 7,701 4,517 2018 $2,960 7,359 7,359 5,905 Stock options weighted average remaining contractual terms (in years) information at December 31, for the years 2020, 2019, and 2018 is as follows: Outstanding Vested and expected to vest Exercisable 2020 2019 2018 4.6 4.2 3.6 4.9 5.0 3.6 2.5 2.1 2.4 As of December 31, 2020, total unrecognized expense related to non-vested restricted stock unit awards and stock options was $44 million and is expected to be recognized over a weighted average period of 2.4 years. Employee Stock Purchase Plan Under the ESPP, eligible employees may purchase shares of common stock through regular payroll deductions of up to 10% of their compensation, to a maximum of shares with a fair market value of $25,000 per calendar year, not to exceed 6,000 shares. Under the plan, the price paid for the common stock is equal to 85% of the stock price on the last business day of the six-month purchase period. In July 2020, 0.2 million shares of common stock were issued to employees who participated in the plan during the first half of 2020 at the price of $71.83 per share. In January 2021, Teradyne issued 0.1 million shares of common stock to employees who participated in the plan during the second half of 2020 at the price of $101.91 per share. In July 2019, 0.3 million shares of common stock were issued to employees who participated in the plan during the first half of 2019 at the price of $40.72 per share. In January 2020, Teradyne issued 0.2 million shares of common stock to employees who participated in the plan during the second half of 2019 at the price of $57.96 per share. In July 2018, 0.3 million shares of common stock were issued to employees who participated in the plan during the first half of 2018 at the price of $32.36 per share. In January 2019, Teradyne issued 0.4 million shares of common stock to employees who participated in the plan during the second half of 2018 at the price of $26.67 per share. As of December 31, 2020, there were 1.4 million shares available for grant under the ESPP. The following table provides the effect to income from operations for recording stock-based compensation for the years ended December 31, 2020, 2019, and 2018: Cost of revenues Engineering and development Selling and administrative Stock-based compensation Income tax benefit Total stock-based compensation expense after income taxes 97 2020 $ 4,227 12,039 28,640 44,906 (13,060) $ 31,846 2019 (in thousands) $ 3,480 9,913 24,504 37,897 (8,360) $29,537 2018 $ 3,129 9,181 21,267 33,577 (12,036) $ 21,541 Table of Contents R. SAVINGS PLAN Teradyne sponsors a defined contribution employee retirement savings plan (“Savings Plan”) covering substantially all U.S. employees. Under the Savings Plan, employees may contribute up to 20% of their compensation (subject to Internal Revenue Service limitations). The Savings Plan provides for a discretionary employer match that is determined each year. In 2020, 2019 and 2018, Teradyne matched 100% of eligible employee contributions up to 4% of their compensation for employees not accruing benefits in the U.S. Qualified Pension Plan. There was no match for employees still actively accruing benefits in the U.S. Qualified Pension Plan. Teradyne’s contributions vest 25% per year for the first four years of employment, and contributions for those employees with four years of service vest immediately. In addition, Teradyne sponsors an unfunded U.S. Supplemental Savings Plan to provide savings benefits in excess of those allowed by the Employee Retirement Income Security Act of 1974 and the Internal Revenue Code. The provisions of this plan are the same as the Savings Plan. The liability for the U.S. Supplemental Savings Plan at December 31, 2020 and 2019, was $38.0 million and $32.7 million, respectively, and is included in retirement plan liabilities. Teradyne contributes to defined contributions savings plans for its foreign employees. Under Teradyne’s savings plans, amounts charged to the statements of operations for the years ended December 31, 2020, 2019, and 2018 were $21.7 million, $20.9 million, and $19.4 million, respectively. S. INCOME TAXES The components of income (loss) before income taxes and the provision (benefit) for income taxes as shown in the consolidated statements of operations were as follows: Income before income taxes: U.S. Non-U.S. Provision (benefit) for income taxes: Current: U.S. Federal Non-U.S. State Deferred: U.S. Federal Non-U.S. State Total provision for income taxes: 2020 2019 (in thousands) 2018 $312,153 588,862 $901,015 $192,442 333,330 $525,772 $189,691 278,110 $467,801 $ 58,678 75,193 (1,315) 132,556 $ 19,297 52,810 (4,347) 67,760 $ (59,122) 45,083 1,721 (12,318) (12,604) (5,127) 2,043 (15,688) $ 116,868 (4,522) (8,007) 3,073 (9,456) $ 58,304 29,252 (1,243) 331 28,340 $ 16,022 Income tax expense for 2020, 2019 and 2018 totaled $116.9 million, $58.3 million, and $16.0 million, respectively. The effective tax rate for 2020, 2019 and 2018 was 13.0%, 11.1% and 3.4%, respectively. On December 22, 2017, the U.S. enacted the Tax Cuts and Jobs Act of 2017 (the “Tax Reform Act”), making significant changes to the Internal Revenue Code. The Tax Reform Act has significant direct and indirect implications for accounting for income taxes under ASC 740, “Accounting for Income Taxes” some of which could not be calculated with precision until further clarification and guidance was made available from tax authorities, regulatory bodies or the FASB. In light of this uncertainty, on December 22, 2017 the SEC issued 98 Table of Contents Staff Accounting Bulletin (“SAB”) No. 118, “Income Tax Accounting Implications of the Tax Cuts and Jobs Act,” to address uncertainty in the application of U.S. GAAP when the registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the Tax Reform Act. In accordance with SAB 118, Teradyne recorded $186.0 million of additional income tax expense in the fourth quarter of 2017 which represented Teradyne’s best estimate of the impact of the Tax Reform Act in accordance with Teradyne’s understanding of the Tax Reform Act and available guidance as of that date. The $186.0 million was primarily composed of expense of $161.0 million related to the one-time transition tax on the mandatory deemed repatriation of foreign earnings, $33.6 million of expense related to the remeasurement of certain deferred tax assets and liabilities based on the rates at which they are expected to reverse in the future, and a benefit of $10.3 million associated with the impact of correlative adjustments on uncertain tax positions. In accordance with the requirements of SAB 118, in the fourth quarter of 2018, Teradyne completed its analysis of the effect of the Tax Reform Act based on the application of the most recently available guidance as of December 31, 2018 and recorded $49.5 million of net income tax benefit. The net benefit consisted of $51.7 million of benefit resulting from a reduction in the estimate of the one-time transition tax on the mandatory deemed repatriation of foreign earnings and an expense of $2.2 million associated with the impact of correlative adjustments on uncertain tax positions. Teradyne has made an accounting policy election to account for global intangible low-taxed income (“GILTI”) as a component of tax expense in the period in which Teradyne is subject to the rules and therefore did not provide any deferred tax impacts of GILTI in its consolidated financial statements. The increase in the effective tax rate from 2019 to 2020 is primarily attributable to a reduction in the benefit from releases of reserves for uncertain tax positions and a reduction in the benefit from foreign tax credits. These increases in expense were partially offset by a decrease in the transition tax on the mandatory deemed repatriation of foreign earnings and shift in the geographic distribution of income, which increases the income subject to taxation in lower tax rate jurisdictions relative to higher tax rate jurisdictions. On July 27, 2015, in Altera Corp. (“Altera”) v. Commissioner, the U.S. Tax Court issued an opinion invalidating the regulations relating to the treatment of stock-based compensation expense in an intercompany cost-sharing arrangement. A final decision was issued by the Tax Court in December 2015. The IRS appealed the decision in June 2016. On July 24, 2018, the U.S. Court of Appeals for the Ninth Circuit (“Ninth Circuit”) issued a decision that was subsequently withdrawn and a reconstituted panel conferred on the appeal. On June 7, 2019, the Ninth Circuit upheld the cost-sharing regulations. On November 12, 2019 the Ninth Circuit denied Altera’s petition for rehearing of its case. Altera’s application for certiorari to the Supreme Court was declined on June 22, 2020. In the fourth quarter of 2019 and 2020, Teradyne recognized tax expense of approximately $6.3 million and $2.3 million, respectively, related to the inclusion of stock-based compensation in its intercompany cost-sharing arrangement. The increase in the effective tax rate from 2018 to 2019 is primarily attributable to increases in expense associated with GILTI and the transition tax on the mandatory deemed repatriation of foreign earnings. These increases in expense were partially offset by increased benefit from the U.S. foreign derived intangible income deduction, foreign tax credits and a net reduction of reserves for uncertain tax positions. 99 Table of Contents A reconciliation of the effective tax rate for the years 2020, 2019 and 2018 is as follows: U.S. statutory federal tax rate U.S. global intangible low-taxed income State income taxes, net of federal tax benefit Foreign taxes Foreign tax credits U.S. foreign derived intangible income U.S. research and development credit Equity compensation Uncertain tax positions U.S. transition tax Impact of rate change on deferred taxes Other, net 2020 21.0% 5.7 0.3 (5.6) (4.8) (2.2) (1.3) (0.6) (0.1) — — 0.6 13.0% 2019 21.0% 6.2 0.5 (4.0) (5.9) (2.6) (1.8) (0.7) (4.3) 1.9 — 0.8 11.1% 2018 21.0% 0.3 0.1 (2.0) (2.2) (1.8) (2.2) (1.2) 1.0 (10.5) 0.3 0.6 3.4% Teradyne qualifies for a tax holiday in Singapore by fulfilling the requirements of an agreement with the Singapore Economic Development Board under which certain headcount and spending requirements must be met. The tax savings attributable to the Singapore tax holiday for the years ended December 31, 2020, 2019 and 2018 were $29.9 million or $0.16 per diluted share, $15.1 million or $0.08 per diluted share and $11.9 million or $0.06 per diluted share, respectively. In November 2020, Teradyne entered into an agreement with the Singapore Economic Development Board which extended our Singapore tax holiday under substantially similar terms to the agreement which expired on December 31, 2020. The new tax holiday is scheduled to expire on December 31, 2025. Significant components of Teradyne’s deferred tax assets (liabilities) as of December 31, 2020 and 2019 were as follows: Deferred tax assets: Tax credits Accruals Pension liabilities Inventory valuations Lease liability Deferred revenue Equity compensation Vacation accrual Investment impairment Net operating loss carryforwards Other Gross deferred tax assets Less: valuation allowance Total deferred tax assets Deferred tax liabilities: Depreciation Intangible assets Right of use assets Contingent consideration Marketable securities Other Total deferred tax liabilities Net deferred assets 100 2020 2019 (in thousands) $ 87,595 33,156 28,348 18,427 12,627 9,235 6,543 5,890 3,292 1,823 626 207,562 (84,962) $122,600 $ (14,525) (12,726) (10,688) (3,515) (3,344) (710) $ (45,508) $ 77,092 $ 79,480 25,424 24,459 18,572 13,093 7,622 7,042 4,768 3,292 2,705 187 186,644 (77,177) $109,467 $ (18,238) (16,705) (11,197) — (1,601) (611) $ (48,352) $ 61,115 Table of Contents As of December 31, 2020 and 2019, Teradyne evaluated the likelihood that it would realize deferred income taxes to offset future taxable income and concluded that it is more likely than not that a substantial majority of its deferred tax assets will be realized through consideration of both the positive and negative evidence. At December 31, 2020 and 2019, Teradyne maintained a valuation allowance for certain deferred tax assets of $85.0 million and $77.2 million, respectively, primarily related to state net operating losses and state tax credit carryforwards, due to the uncertainty regarding their realization. Adjustments could be required in the future if Teradyne estimates that the amount of deferred tax assets to be realized is more or less than the net amount recorded. At December 31, 2020, Teradyne had operating loss carryforwards that expire in the following years: State Operating Loss Carryforwards Foreign Operating Loss Carryforwards 2021 2022 2023 2024 2025 2026-2030 2031-2035 Beyond 2035 Non-expiring Total $ $ 333 2,203 3,368 812 191 7,452 2,147 73 870 17,449 — — — — — — 68 — 3,923 3,991 $ (in thousands) $ Teradyne has approximately $116.3 million of tax credit carryforwards including federal business tax credits of approximately $1.9 million which expire in 2028 through 2030, and state tax credits of $114.3 million, of which $63.8 million do not expire and the remainder expires in the years 2021 through 2040. Teradyne’s gross unrecognized tax benefits for the years ended December 31, 2020, 2019 and 2018 were as follows: Beginning balance as of January 1 Additions: Tax positions for current year Tax positions for prior years Reductions: Tax positions for prior years Expiration of statutes Ending balance as of December 31 2020 $21,180 2019 (in thousands) $ 43,395 2018 $36,263 1,082 66 1,322 8,043 4,716 2,626 (2,989) (1,436) $17,903 (31,397) (183) $ 21,180 (153) (57) $43,395 Current year additions relate to federal and state research credits. Prior year additions primarily relate to stock-based compensation. Prior year reductions are primarily composed of federal and state reserves related to transfer pricing and research credits and resulted from the completion of the 2015 U.S. federal audit in the first quarter of 2019. Of the $17.9 million of unrecognized tax benefits as of December 31, 2020, $12.0 million would impact the consolidated income tax rate if ultimately recognized. The remaining $5.9 million would impact deferred taxes if recognized. 101 Table of Contents As of December 31, 2020, Teradyne estimates that it is reasonably possible that the balance of unrecognized tax benefits may decrease approximately $1.6 million in the next twelve months as a result of a lapse of statutes of limitation. The estimated decrease relates to loss carryforwards, research credits and U.S. manufacturing activities deductions. Teradyne records all interest and penalties related to income taxes as a component of income tax expense. Accrued interest and penalties related to income tax items at December 31, 2020 and 2019 amounted to $1.2 million and $1.4 million, respectively. For the years ended December 31, 2020, 2019 and 2018, benefit of $0.2 million, expense of $1.1 million and benefit of $0.1 million, respectively, was recorded for interest and penalties related to income tax items. Teradyne is subject to U.S. federal income tax, as well as income tax in multiple state, local and foreign jurisdictions. As of December 31, 2020, all material state and local income tax matters have been concluded through 2015, all material federal income tax matters have been concluded through 2016 and all material foreign income tax matters have been concluded through 2012. However, in some jurisdictions, including the United States, operating losses and tax credits may be subject to adjustment until such time as they are utilized and the year of utilization is closed to adjustment. As of December 31, 2020, Teradyne is not permanently reinvested with respect to the unremitted earnings of non-U.S. subsidiaries to the extent that those earnings exceed local statutory and operational requirements. Remittance of those earnings is not expected to result in material income tax. T. OPERATING SEGMENT, GEOGRAPHIC AND SIGNIFICANT CUSTOMER INFORMATION Teradyne has four reportable segments (Semiconductor Test, System Test, Wireless Test and Industrial Automation). Each of the reportable segment represents an individual operating segment. On September 15, 2020, Teradyne announced the appointment of Gregory Smith as President of Teradyne’s Industrial Automation reportable segment effective October 1, 2020. With the appointment of Gregory Smith, the Industrial Automation reportable segment is considered one operating segment and one reporting unit. The Semiconductor Test segment includes operations related to the design, manufacturing and marketing of semiconductor test products and services. The System Test segment includes operations related to the design, manufacturing and marketing of products and services for storage and system level test, defense/aerospace instrumentation test, and circuit-board test. The Wireless Test segment includes operations related to the design, manufacturing and marketing of wireless test products and services. The Industrial Automation segment includes operations related to the design, manufacturing and marketing of collaborative robotic arms, autonomous mobile robots and advanced robotic control software. Teradyne evaluates performance based on several factors, of which the primary financial measure is business segment income (loss) before income taxes. The accounting policies of the business segments are the same as those described in Note B: “Accounting Policies.” 102 Table of Contents Segment information for the years ended December 31, 2020, 2019, and 2018 is as follows: Semiconductor Test System Test Industrial Automation Wireless Test Corporate and Other Consolidated (in thousands) 2020 2019 2018 Revenues Income (loss) before taxes (1)(2) Total assets (3) Property additions Depreciation and amortization expense Revenues Income (loss) before taxes (1)(2) Total assets (3) Property additions Depreciation and amortization expense Revenues Income (loss) before taxes (1)(2) Total assets (3) Property additions Depreciation and amortization expense 739,695 152,092 $ 2,259,597 $409,729 $ 279,731 $173,016 $ (24,019) 41,950 (604) $ 3,121,469 901,015 1,070,378 138,295 712,936 106,273 1,624,464 3,652,346 184,977 126,743 3,092 8,899 3,426 36,242 — 15,819 168,055 64,998 4,931 6,258 (8,703) (515) $ 2,294,965 $ 1,552,571 $287,455 $ 298,139 $157,315 $ 416,973 93,543 525,772 (5,916) 35,585 784,808 131,428 671,559 97,299 1,101,920 2,787,014 134,642 9,076 10,362 112,145 120,655 5,365 59,197 3,059 5,518 40,904 — 9,671 (14,413) (1,205) $ 2,100,802 $ 1,492,417 $216,132 $ 261,452 $132,006 $ 397,645 48,857 467,801 (15,423) 7,670 29,052 669,452 88,098 607,502 77,570 1,263,984 2,706,606 114,379 94,496 113,224 58,095 11,188 3,469 6,430 36,755 — 6,616 5,226 5,328 (1) (2) (3) Included in Corporate and Other are: contingent consideration adjustments, investment impairment, pension and postretirement plans actuarial gains (losses), severance charges, interest income, interest expense, net foreign exchange gains (losses), intercompany eliminations and acquisition related charges. Included in income (loss) before taxes are charges and credits related to restructuring and other, and inventory charges. Total assets are attributable to each segment. Corporate assets consist of cash and cash equivalents, marketable securities and certain other assets. 103 Table of Contents Included in each segment are charges and credits in the following line items in the statements of operations: 2020 For the Year Ended December 31, 2019 (in thousands) 2018 Semiconductor Test: Cost of revenues—inventory charge Contract termination settlement fee Restructuring and other—employee severance System Test: Cost of revenues—inventory charge Industrial Automation: Restructuring and other—acquisition related expenses and compensation Cost of revenues—inventory charge Restructuring and other—employee severance Wireless: Cost of revenues—inventory charge Corporate and Other: Restructuring and other—AutoGuide contingent consideration adjustment Restructuring and other—MiR contingent consideration adjustment Restructuring and other—acquisition related expenses and compensation Other (income) expense, net—investment impairment charge Selling and administrative—equity modification charge Restructuring and other—Universal Robots contingent consideration adjustment Information as to Teradyne’s revenues by country is as follows: Revenues from customers (1): Taiwan China Korea United States Europe Japan Thailand Singapore Philippines Malaysia Rest of the World $ $ $ $ $ $ 11,013 4,000 — $ 8,731 — 1,277 6,822 — 8,429 887 $ 2,000 $ 1,175 $ 985 834 1,584 $ 741 508 796 1,163 680 — 4,800 $ 4,005 $ 2,565 (19,724) $ (3,546) 1,728 — 766 — 2,976 $ (22,199) 1,765 15,000 2,108 — — 17,666 3,422 — — (16,679) 2020 2019 (in thousands) 2018 $ 1,178,068 $ 516,322 348,942 163,224 282,869 223,207 158,281 59,184 108,618 77,996 122,797 39,362 $ 3,121,469 $ 2,294,965 $ 2,100,802 485,681 $ 514,327 239,504 333,059 219,015 175,322 87,503 84,111 54,560 58,200 43,683 465,722 391,571 321,674 205,587 143,983 138,787 76,460 68,887 56,096 74,634 (1) Revenues attributable to a country are based on location of customer site. In 2020, revenues from Taiwan Semiconductor Manufacturing Company Ltd., a customer of Teradyne’s Semiconductor Test segment, accounted for 15% of Teradyne’s consolidated revenues. In 2019 and 2018, no single direct customer accounted for more than 10% of Teradyne’s consolidated revenues. Teradyne estimates consolidated revenues driven by one OEM customer, combining direct sales to that customer with sales to the customer’s OSATs (which include Taiwan Semiconductor Manufacturing Company Ltd.), accounted for approximately 25%, 10% and 13% of its consolidated revenues in 2020, 2019 and 2018, respectively. Teradyne 104 Table of Contents estimates consolidated revenues driven by Huawei Technologies Co., Ltd. (“Huawei”), combining direct sales to that customer with sales to the customer’s OSATs, accounted for approximately 3% and 11% of its consolidated revenues in 2020 and 2019, respectively. Long-lived assets by geographic area: December 31, 2020 December 31, 2019 United States Foreign(1) Total $ 291,234 $ 252,812 (in thousands) $ 158,135 $ 124,943 $ 449,369 $ 377,755 (1) As of December 31, 2020 and 2019, long-lived assets attributable to Singapore were $62.5 million and $35.2 million, respectively. U. STOCK REPURCHASE PROGRAM In 2018, Teradyne repurchased 21.6 million shares of common stock for $823.5 million at an average price per share of $38.06. In 2019, Teradyne repurchased 10.9 million shares of common stock for $500.0 million at an average price per share of $45.89. The cumulative repurchases as of December 31, 2019, for the 2018 stock repurchase program, totaled 32.5 million shares of common stock for $1,323.0 million at an average price per share of $40.68. In January 2020, Teradyne’s Board of Directors cancelled the January 2018 repurchase program and approved a new stock repurchase program for up to $1.0 billion of common stock. On April 1, 2020, Teradyne suspended its share repurchase program. In 2020, Teradyne repurchased 1.5 million shares of common stock for $88.5 million at an average price of $58.33 per share. In January 2021, Teradyne’s Board of Directors cancelled the January 2020 repurchase program and approved a new repurchase program for up to $2.0 billion of common stock. Teradyne intends to repurchase a minimum of $600 million in 2021. V. SUBSEQUENT EVENTS In January 2021, Teradyne’s Board of Directors declared a quarterly cash dividend of $0.10 per share to be paid on March 19, 2021 to shareholders of record as of February 19, 2021. While Teradyne declared a quarterly cash dividend and authorized a share repurchase program, it may reduce or eliminate the cash dividend or share repurchase program in the future. Future cash dividends and stock repurchases are subject to the discretion of Teradyne’s Board of Directors which will consider, among other things, Teradyne’s earnings, capital requirements and financial condition. Table of Contents 105 SUPPLEMENTARY INFORMATION (Unaudited) The following sets forth certain unaudited consolidated quarterly statements of operations data for each of Teradyne’s last eight quarters. In management’s opinion, this quarterly information reflects all adjustments, consisting only of normal recurring adjustments, necessary for a fair statement for the periods presented. Such quarterly results are not necessarily indicative of future results of operations and should be read in conjunction with the audited consolidated financial statements of Teradyne and the notes thereto included elsewhere herein. Revenues: Products Services Total revenues Cost of revenues: Cost of products Cost of services Total cost of revenues (exclusive of acquired intangible assets amortization shown separately below) Gross profit Operating expenses: Selling and administrative Engineering and development Acquired intangible assets amortization Restructuring and other Total operating expenses Income from operations Non-operating (income) expense: Interest income Interest expense Other (income) expense, net Income before income taxes 2020 1st Quarter (1) 2nd Quarter (2)(5) 3rd Quarter (3)(5) 4th Quarter (4)(5) (in thousands, except per share amounts) $610,906 93,449 704,355 $ 734,630 104,031 838,661 $ 697,745 121,739 819,484 $ 647,625 111,343 758,968 259,996 38,809 322,732 44,456 300,174 60,382 274,574 34,605 298,805 405,550 367,188 471,473 360,556 458,928 309,179 449,789 111,388 85,159 9,891 (7,606) 198,832 206,718 (2,751) 5,551 6,849 197,069 113,259 94,102 8,941 37,222 253,524 217,949 (1,368) 6,043 (4,017) 217,291 115,840 94,909 6,219 (27,701) 189,267 269,661 (1,071) 6,237 764 263,731 124,279 100,795 5,752 (15,117) 215,709 234,080 (793) 6,351 5,597 222,925 Income tax provision Net income Net income per common share—basic Net income per common share—diluted Cash dividend declared per common share 20,878 $176,191 1.06 $ 0.97 0.10 $ $ 28,383 $ 188,908 1.14 $ 1.05 0.10 $ $ 41,013 $ 222,718 1.34 $ 1.21 0.10 $ $ 26,595 $ 196,330 $ $ $ 1.18 1.05 0.10 (1) Restructuring and other includes a $10.0 million gain for the decrease in the fair value of the AutoGuide and MiR contingent consideration liabilities, partially offset by $1.4 million of acquisition related compensation and expenses and $0.7 million of severance charges related to headcount reductions primarily in Industrial Automation and Semiconductor Test. (2) Restructuring and other includes a $29.9 million charge for the increase in the fair value of the AutoGuide contingent consideration liability, a $4.0 million contract termination settlement charge, $3.1 million of 106 Table of Contents acquisition related compensation and expense and $0.8 million of other expenses, partially offset by a $0.6 million gain for the decrease in the fair value of MiR contingent consideration liability. (3) Restructuring and other includes a $27.2 million gain for the decrease in the fair value of AutoGuide contingent consideration liability, and a $1.1 million gain for the decrease in acquisition related compensation liability, partially offset by $0.5 million recorded for employee severance charges primarily in Industrial Automation. (4) Restructuring and other includes a $15.3 million gain for the decrease in the fair value adjustment to the AutoGuide acquisition contingent consideration liability, and a $0.9 million gain for the decrease in acquisition related compensation liability, partially offset by $1.1 million of employee severance charges primarily in Industrial Automation. Teradyne recorded pension and post retirement net actuarial (gains) losses of $(0.1) million, $2.7 million, $7.7 million for the second, third and fourth quarter in 2020, respectively. See Note B: “Accounting Policies” for a discussion of Teradyne’s accounting policy. (5) Revenues: Products Services Total revenues Cost of revenues: Cost of products Cost of services Total cost of revenues (exclusive of acquired intangible assets amortization shown separately below) Gross profit Operating expenses: Selling and administrative Engineering and development Acquired intangible assets amortization Restructuring and other Total operating expenses Income from operations Non-operating (income) expense: Interest income Interest expense Other (income) expense, net Income before income taxes Income tax provision (benefit) Net income Net income per common share—basic Net income per common share—diluted Cash dividend declared per common share 107 2019 1st Quarter (1) 2nd Quarter (2) 3rd Quarter (3) 4th Quarter (4)(5)(6) (in thousands, except per share amounts) $393,442 100,657 494,099 $ 457,511 106,667 564,178 $ 488,170 93,868 582,038 $ 548,552 106,098 654,650 165,368 41,096 193,299 46,961 197,196 39,804 226,184 45,228 206,464 287,635 240,260 323,918 237,000 345,038 271,412 383,238 102,013 76,791 10,634 5,112 194,550 93,085 108,811 81,434 10,083 (10,404) 189,924 133,994 109,166 77,804 9,647 (6,500) 190,117 154,921 (4,989) 5,520 (1,425) 93,979 (15,159) $109,138 0.63 $ 0.62 0.09 $ $ (4,384) 5,800 1,401 131,177 33,780 $ 97,397 0.57 $ 0.55 0.09 $ $ (4,433) 5,463 2,158 151,733 15,873 $ 135,860 0.80 $ 0.75 0.09 $ $ 117,092 86,794 9,784 (2,088) 211,582 171,656 (3,185) 5,441 20,514 148,886 23,811 $ 125,075 $ $ $ 0.75 0.69 0.09 Table of Contents (1) Restructuring and other includes a $3.0 million fair value adjustment to increase the MiR acquisition contingent consideration, $1.3 million of acquisition related expenses and compensation and $0.8 million of employee severance charges. (2) Restructuring and other includes a $11.7 million gain for the decrease in the fair value of the MiR contingent consideration liability, partially offset by $0.8 million of employee severance charges and $0.5 million of acquisition related expenses and compensation. (3) Restructuring and other includes a $7.8 million gain for the decrease in the fair value of MiR contingent consideration liability, partially offset by $0.8 million of employee severance charges and $0.5 million of acquisition related expenses and compensation. (4) Restructuring and other includes a $5.8 million gain for the decrease in the fair value adjustment to the MiR acquisition contingent consideration, partially offset by a $3.0 million fair value adjustment to increase the AutoGuide acquisition contingent consideration, $0.5 million of employee severance charges and $0.2 million of acquisition related expenses and compensation. Teradyne recorded pension and post retirement net actuarial losses of $7.7 million for the fourth quarter in 2019. See Note B: “Accounting Policies” for a discussion of Teradyne’s accounting policy. (5) (6) Other (income) expense, net includes a $15.0 million charge for the impairment of the investment in RealWear. Item 9: Changes in and disagreements with accountants on accounting and financial disclosure None. Item 9A: Controls and procedures Disclosure Controls and Procedures As of the end of the period covered by this report, our management, with the participation of our CEO and CFO, evaluated the effectiveness of our disclosure controls and procedures pursuant to Rule 13a-15(b) promulgated under the Exchange Act. Based upon that evaluation, our CEO and CFO concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were effective in ensuring that material information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, including ensuring that such material information is accumulated and communicated to our management, including our CEO and CFO, as appropriate to allow timely decisions regarding required disclosure. Changes in Internal Control over Financial Reporting There was no change in our internal control over financial reporting during the fourth fiscal quarter ended December 31, 2020 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. Management’s Annual Report on Internal Control over Financial Reporting Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). Under the supervision and with the participation of our management, including our CEO and CFO, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our evaluation under the framework in Internal Control—Integrated Framework (2013), our management concluded that our internal control over financial reporting was effective as of December 31, 2020. 108 Table of Contents The effectiveness of our internal control over financial reporting as of December 31, 2020 has been audited by PricewaterhouseCoopers LLP, our independent registered public accounting firm, as stated in their report which is included under Item 8 of this Annual Report. Inherent Limitations on Effectiveness of Controls 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. Item 9B: Other Information None. 109 Table of Contents PART III Item 10: Directors, Executive Officers and Corporate Governance Certain information relating to our directors and executive officers, committee information, reports and charters, executive compensation, security ownership of certain beneficial owners and management and related stockholder matters, and certain relationships and related transactions is incorporated by reference herein from our definitive proxy statement in connection with our Annual Meeting of Shareholders to be held on May 7, 2021. The proxy statement will be filed with the SEC not later than 120 days after the close of the fiscal year. For this purpose, the Compensation Committee Report included in such proxy statement is specifically not incorporated herein. Also see “Item 1: Business—Our Executive Officers.” Item 11: Executive Compensation Certain information relating to our directors and executive officers, executive compensation, security ownership of certain beneficial owners and management and related stockholder matters, and certain relationships and related transactions is incorporated by reference herein from our definitive proxy statement in connection with our Annual Meeting of Shareholders to be held on May 7, 2021. The proxy statement will be filed with the SEC not later than 120 days after the close of the fiscal year. For this purpose, the Compensation Committee Report included in such proxy statement is specifically not incorporated herein. Item 12: Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Certain information relating to our directors and executive officers, executive compensation, security ownership of certain beneficial owners and management and related stockholder matters, and certain relationships and related transactions is incorporated by reference herein from our definitive proxy statement in connection with our Annual Meeting of Shareholders to be held May 7, 2021. The proxy statement will be filed with the SEC not later than 120 days after the close of the fiscal year. For this purpose, the Compensation Committee Report included in such proxy statement is specifically not incorporated herein. Also see “Item 7: Management’s Discussion and Analysis of Financial Condition and Results of Operations—Equity Compensation Plans.” Item 13: Certain Relationships and Related Transactions, and Director Independence Certain information relating to our directors and executive officers, executive compensation, security ownership of certain beneficial owners and management and related stockholder matters, and certain relationships and related transactions is incorporated by reference herein from our definitive proxy statement in connection with our Annual Meeting of Shareholders to be held on May 7, 2021. The proxy statement will be filed with the SEC not later than 120 days after the close of the fiscal year. For this purpose, the Compensation Committee Report included in such proxy statement is specifically not incorporated herein. Item 14: Principal Accountant Fees and Services Certain information relating to audit fees and other of Teradyne’s independent registered public accounting firm is incorporated by reference herein from our definitive proxy statement in connection with our Annual Meeting of Shareholders to be held on May 7, 2021. The proxy statement will be filed with the SEC not later than 120 days after the close of the fiscal year. For this purpose, the Audit Committee Report included in such proxy statement is specifically not incorporated herein. 110 Table of Contents Item 15: Exhibits and Financial Statement Schedule. 15(a)(1) Financial Statements The following consolidated financial statements are included in Item 8: PART IV Report of Independent Registered Public Accounting Firm Consolidated Balance Sheets as of December 31, 2020 and 2019 Consolidated Statements of Operations for the years ended December 31, 2020, 2019 and 2018 Consolidated Statements of Comprehensive Income for the years ended December 31, 2020, 2019 and 2018 Consolidated Statements of Convertible Common Shares and Shareholders’ Equity for the years ended December 31, 2020, 2019 and 2018 Consolidated Statements of Cash Flows for the years ended December 31, 2020, 2019 and 2018 Page 46 49 50 51 52 53 15(a)(2) Financial Statement Schedule The following consolidated financial statement schedule is included in Item 15(c): Schedule II—Valuation and Qualifying Accounts Schedules other than those listed above have been omitted since they are either not required or information is otherwise included. 15(a)(3) Listing of Exhibits The Exhibits which are filed with this report or which are incorporated by reference herein are set forth in the Exhibit Index. 15(c) Financial Statement Schedules 111 Table of Contents Column A Description TERADYNE, INC. SCHEDULE II—VALUATION AND QUALIFYING ACCOUNTS Column B Balance at Beginning of Period Column C Additions Charged to Cost and Expenses Column D Column E Column F Other Deductions Balance at End of Period (in thousands) Valuation reserve deducted in the balance sheet from the asset to which it applies: Accounts receivable: 2020 Allowance for doubtful account 2019 Allowance for doubtful account 2018 Allowance for doubtful account Column A Description Valuation reserve deducted in the balance sheet from the asset to which it applies: Inventory: 2020 Inventory reserve 2019 Inventory reserve 2018 Inventory reserve Column A Description Valuation reserve deducted in the balance sheet from the asset to which it applies: Deferred taxes: 2020 Valuation allowance 2019 Valuation allowance 2018 Valuation allowance Item 16: Form 10-K Summary Not applicable. $ $ $ 1,736 1,673 2,219 $ $ $ 356 87 — $ $ $ 32 28 20 $ $ $ 90 52 566 $ $ $ 2,034 1,736 1,673 Column B Balance at Beginning of Period Column C Additions Charged to Cost and Expenses Column D Column E Column F Other Deductions Balance at End of Period (in thousands) $ $ $ 103,556 100,779 102,896 $ $ $ 17,534 15,244 11,242 $ $ $ (521) (85) 368 $ 9,982 $ 12,382 $ 13,727 $ 110,587 $ 103,556 $ 100,779 Column B Balance at Beginning of Period Column C Additions Charged to Cost and Expenses Column D Column E Column F Other Deductions Balance at End of Period (in thousands) $ $ $ 77,177 69,852 63,919 $ $ $ 7,785 7,325 6,333 $ — $ — $ — $ — $ — 400 $ $ $ $ 84,962 77,177 69,852 112 Table of Contents EXHIBIT INDEX The following designated exhibits are, as indicated below, either filed herewith or have heretofore been filed with the Securities and Exchange Commission and are referred to and incorporated by reference to such filings. Exhibit No. 2.1 3.1 3.2 4.1 4.2 Description SEC Document Reference Share Sale and Purchase Agreement to and among Teradyne Robotics Holdings Denmark ApS, Teradyne, Inc. and the shareholders of Mobile Industrial Robots ApS dated April 25, 2018. Exhibit 2.1 to Teradyne’s Quarterly Report on Form 10-Q for the quarter ended April 1, 2018. Restated Articles of Organization. Exhibit 3.1 to Teradyne’s Annual Report on Form 10-K for the fiscal year ended December 31, 2018. Amended and Restated By-laws, as amended. Exhibit 3.1 to Teradyne’s Current Report on Form 8-K filed on January 28, 2021. Indenture dated as of December 12, 2016, between Teradyne Inc. and Exhibit 4.1 to Teradyne’s Current Report on Form 8-K filed on Wilmington Trust, National Association, as trustee. December 12, 2016. Description of Teradyne, Inc. Securities Registered under Section 12 of Filed herewith. the Exchange Act. 10.1† Standard Manufacturing Agreement entered into as of November 24, Exhibit 10.1 to Teradyne’s Quarterly Report on Form 10-Q for the 2003 by and between Teradyne and Solectron. quarter ended September 30, 2007. 10.2† Second Amendment to Standard Manufacturing Agreement, dated as of Exhibit 10.3 to Teradyne’s Quarterly Report on Form 10-Q for the August 27, 2007, by and between Teradyne and Solectron. quarter ended September 30, 2007. 10.3† Sixth Amendment to Standard Manufacturing Agreement, dated as of Exhibit 10.5 to Teradyne’s Annual Report on Form 10-K for the fiscal July 27, 2009, by and between Teradyne and Flextronics Corporation. year ended December 31, 2009. 10.4 Addendum to Standard Manufacturing Agreement (Authorized Exhibit 10.6 to Teradyne’s Annual Report on Form 10-K for the fiscal Purchase Agreement)—Revised July 1, 2010. year ended December 31, 2010. 10.5 10.6† Eighth Amendment to Standard Manufacturing Agreement, dated as of April 13, 2012, by and between Teradyne and Flextronics Sales & Marketing North Asia (L) LTD. Ninth Amendment to Standard Manufacturing Agreement, dated as of September 17, 2012, by and between Teradyne and Flextronics Sales & Marketing North Asia (L) LTD. Exhibit 10.7 to Teradyne’s Annual Report on Form 10-K for the fiscal year ended December 31, 2012. Exhibit 10.8 to Teradyne’s Annual Report on Form 10-K for the fiscal year ended December 31, 2012. 10.7 2006 Equity and Cash Compensation Incentive Plan, as amended. * Exhibit 10.9 to Teradyne’s Annual Report on Form 10-K for the fiscal year ended December 31, 2018. 113 Table of Contents Exhibit No. 10.8 10.9 10.10 Description SEC Document Reference Danish Sub-Plan to the 2006 Equity and Cash Compensation Incentive Exhibit 10.10 to Teradyne’s Annual Report on Form 10-K for the Plan. fiscal year ended December 31, 2018. Form of Performance-Based Restricted Stock Unit Agreement for Executive Officers under 2006 Equity and Cash Compensation Incentive Plan.* Form of Time-Based Restricted Stock Unit Agreement for Executive Officers under 2006 Equity and Cash Compensation Incentive Plan.* Filed herewith. Filed herewith. 10.11 Form of Executive Officer Stock Option Agreement under 2006 Equity Filed herewith. and Cash Compensation Incentive Plan, as amended. * 10.12 Form of Restricted Stock Unit Agreement for Directors under 2006 Exhibit 10.12 to Teradyne’s Annual Report on Form 10-K for the Equity and Cash Compensation Incentive Plan.* fiscal year ended December 31, 2016. 10.13 1996 Employee Stock Purchase Plan, as amended.* Exhibit 10.15 to Teradyne’s Annual Report on Form 10-K for the fiscal year ended December 31, 2018. 10.14 Danish Sub-Plan to the 1996 Employee Stock Purchase Plan. Exhibit 10.15 to Teradyne’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019 10.15 Deferral Plan for Non-Employee Directors, as amended.* Exhibit 10.2 to Teradyne’s Quarterly Report on form 10-Q for the quarter ended September 28, 2008. 10.16 Supplemental Savings Plan, as amended and restated.* Exhibit 10.18 to Teradyne’s Annual Report on Form 10-K for the fiscal year ended December 31, 2008. 10.17 Supplemental Executive Retirement Plan, as restated.* Exhibit 10.19 to Teradyne’s Annual Report on Form 10-K for the fiscal year ended December 31, 2008. 10.18 Agreement Regarding Termination Benefits dated January 22, 2014 Exhibit 10.24 to Teradyne’s Annual Report on Form 10-K for the between Teradyne and Mark Jagiela.* fiscal year ended December 31, 2013. 10.19 Employment Agreement dated May 7, 2004 between Teradyne and Exhibit 10.37 to Teradyne’s Quarterly Report on Form 10-Q for the Mark Jagiela.* quarter ended July 4, 2004. 10.20 Executive Officer Retirement Agreement dated July 17, 2019 between Exhibit 10.1 to Teradyne’s Quarterly Report on Form 10-Q for the Teradyne and Gregory R. Beecher.* quarter ended June 30, 2019. 10.21 Executive Officer Change in Control Agreement dated January 22, Exhibit 10.29 to Teradyne’s Annual Report on Form 10-K for the 2014 between Teradyne and Mark Jagiela, as amended.* fiscal year ended December 31, 2013. 114 Table of Contents Exhibit No. 10.22 Description SEC Document Reference Amended and Restated Executive Officer Change in Control Exhibit 10.30 to Teradyne’s Annual Report on Form 10-K for the Agreement dated May 26, 2009 between Teradyne and Charles J. Gray, as amended.* fiscal year ended December 31, 2012. 10.23 Employment Agreement dated July 24, 2009 between Teradyne and Exhibit 10.1 to Teradyne’s Quarterly Report on Form 10-Q for the Charles J. Gray.* quarter ended April 4, 2010. 10.24 Amended and Restated Executive Officer Change in Control Exhibit 10.32 to Teradyne’s Annual Report on Form 10-K for the Agreement dated June 30, 2012 between Teradyne and Walter G. Vahey, as amended.* fiscal year ended December 31, 2012. 10.25 Employment Agreement dated February 6, 2013 between Teradyne and Exhibit 10.33 to Teradyne’s Annual Report on Form 10-K for the Walter G. Vahey.* fiscal year ended December 31, 2012. 10.26 Executive Officer Change in Control Agreement dated September 1, Exhibit 10.1 to Teradyne’s Quarterly Report on Form 10-Q for the 2014 between Teradyne, Inc. and Bradford Robbins.* quarter ended September 28, 2014. 10.27 Employment Agreement dated September 1, 2014 between Teradyne, Exhibit 10.2 to Teradyne’s Quarterly Report on Form 10-Q for the Inc. and Bradford Robbins.* quarter ended September 28, 2014. 10.28 Executive Change in Control Agreement dated February 8, 2016 Exhibit 10.1 to Teradyne’s Quarterly Report on Form 10-Q for the between Teradyne, Inc. and Greg Smith.* quarter ended April 3, 2016. 10.29 Employment Agreement dated February 8, 2016 between Teradyne, Exhibit 10.2 to Teradyne’s Quarterly Report on Form 10-Q for the Inc. and Greg Smith.* quarter ended April 3, 2016. 10.30 Teradyne Offer of Employment dated February 8, 2019 for Sanjay Exhibit 10.1 to Teradyne’s Quarterly Report on Form 10-Q for the Mehta.* quarter ended March 31, 2019. 10.31 Executive Officer Change in Control Agreement dated April 25, 2019 Exhibit 10.2 to Teradyne’s Quarterly Report on Form 10-Q for the between Teradyne, Inc. and Sanjay Mehta.* quarter ended March 31, 2019. 10.32 Employment Agreement dated April 25, 2019 between Teradyne, Inc. Exhibit 10.3 to Teradyne’s Quarterly Report on Form 10-Q for the and Sanjay Mehta.* quarter ended March 31, 2019. 10.33 Agreement Regarding Termination Benefits dated April 25, 2019 Exhibit 10.4 to Teradyne’s Quarterly Report on Form 10-Q for the between Teradyne, Inc. and Sanjay Mehta.* quarter ended March 31, 2019. 10.34 Executive Officer Change in Control Agreement dated October 1, 2020 Exhibit 10.1 to Teradyne’s Quarterly Report on Form 10-Q for the between Teradyne, Inc. and Richard Burns.* quarter ended September 27, 2020. 10.35 Employment Agreement dated October 1, 2020 between Teradyne, Inc. Exhibit 10.2 to Teradyne’s Quarterly Report on Form 10-Q for the and Richard Burns.* quarter ended September 27, 2020. 10.36 Time-Based Restricted Stock Unit Agreement dated May 1, 2019 for Sanjay Mehta under 2006 Equity and Cash Compensation Plan.* Exhibit 10.5 to Teradyne’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2019. 115 Table of Contents Exhibit No. 10.37 Description SEC Document Reference Form of Indemnification Agreement.* Exhibit 10.24 to Teradyne’s Annual Report on Form 10-K for the fiscal year ended December 31, 2006. 10.38 LitePoint Corporation 2002 Stock Plan. Exhibit 10.43 to Teradyne’s Annual Report on Form 10-K for the fiscal year ended December 31, 2011. 10.39 Letter Agreement, dated December 6, 2016, between Barclays Bank Exhibit 10.1 to Teradyne’s Current Report on Form 8-K filed PLC and Teradyne, Inc., regarding the Base Warrants. December 12, 2016. 10.40 Letter Agreement, dated December 6, 2016, between Bank of America, Exhibit 10.2 to Teradyne’s Current Report on Form 8-K filed N.A., and Teradyne, Inc. regarding the Base Warrants. December 12, 2016. 10.41 Letter Agreement, dated December 6, 2016, between Wells Fargo Exhibit 10.3 to Teradyne’s Current Report on Form 8-K filed Bank, National Association and Teradyne, Inc. regarding the Base Warrants. December 12, 2016. 10.42 Letter Agreement, dated December 6, 2016, between Barclays Bank Exhibit 10.4 to Teradyne’s Current Report on Form 8-K filed PLC and Teradyne, Inc. regarding the Base Call Option Transaction. December 12, 2016. 10.43 Letter Agreement, dated December 6, 2016, between Bank of America, Exhibit 10.5 to Teradyne’s Current Report on Form 8-K filed N.A. and Teradyne, Inc. regarding the Base Call Option Transaction. December 12, 2016. 10.44 Letter Agreement, dated December 6, 2016, between Wells Fargo Exhibit 10.6 to Teradyne’s Current Report on Form 8-K filed Bank, National Association and Teradyne, Inc. regarding the Base Call Option Transaction. December 12, 2016. 10.45 Letter Agreement, dated December 9, 2016, between Barclays Bank Exhibit 10.7 to Teradyne’s Current Report on Form 8-K filed PLC and Teradyne, Inc., regarding the Additional Warrants December 12, 2016. 10.46 Letter Agreement, dated December 9, 2016, between Bank of America, Exhibit 10.8 to Teradyne’s Current Report on Form 8-K filed N.A., and Teradyne, Inc. regarding the Additional Warrants. December 12, 2016. 10.47 10.48 Letter Agreement, dated December 9, 2016, between Wells Fargo Bank, National Association and Teradyne, Inc. regarding the Additional Warrants. Letter Agreement, dated December 9, 2016, between Barclays Bank PLC and Teradyne, Inc. regarding the Additional Call Option Transaction. Exhibit 10.9 to Teradyne’s Current Report on Form 8-K filed December 12, 2016. Exhibit 10.10 to Teradyne’s Current Report on Form 8-K filed December 12, 2016. 10.49 Letter Agreement, dated December 9, 2016, between Bank of America, Exhibit 10.11 to Teradyne’s Current Report on Form 8-K filed N.A. and Teradyne, Inc. regarding the Additional Call Option Transaction December 12, 2016. 116 Table of Contents Exhibit No. 10.50 10.51 21.1 23.1 31.1 31.2 32.1 32.2 101 Description SEC Document Reference Letter Agreement, dated December 9, 2016, between Wells Fargo Bank, National Association and Teradyne, Inc. regarding the Additional Call Option Transaction. Credit Agreement dated May 1, 2020 among Teradyne, Inc., Truist Bank, as the administrative agent, issuing bank and swingline lender, and other lenders party thereto. Subsidiaries of Teradyne. Consent of PricewaterhouseCoopers LLP. Rule 13a-14(a) Certification of Principal Executive Officer. Rule 13a-14(a) Certification of Principal Financial Officer. Exhibit 10.12 to Teradyne’s Current Report on Form 8-K filed December 12, 2016. Exhibit 10.1 to Teradyne’s Current Report on Form 8-K filed May 5, 2020. Filed herewith. Filed herewith. Filed herewith. Filed herewith. Section 1350 Certification of Principal Executive Officer. Section 1350 Certification of Principal Financial Officer. Furnished herewith. Furnished herewith. The following financial information from Teradyne, Inc.’s Annual Report on Form 10-K for the fiscal year ended December 31, 2020, formatted in Inline XBRL (eXtensible Business Reporting Language): (i) Consolidated Balance Sheets as of December 31, 2020 and December 31, 2019, (ii) Consolidated Statements of Operations for the years ended December 31, 2020, 2019 and 2018, (iii) Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 2020, 2019 and 2018 (iv) Consolidated Statements of Shareholders’ Equity for the years ended December 31, 2020, 2019 and 2018, (v) Consolidated Statements of Cash Flows for the years ended December 31, 2020, 2019 and 2018, and (vi) the Notes to Consolidated Financial Statements. 104 The cover page of the Annual Report on Form 10-K formatted in Inline XBRL (included in Exhibit 101). † * -Confidential treatment granted. -Management contract or compensatory plan. 117 Table of Contents SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized this 22nd day of February, 2021. TERADYNE, INC. By: /S/ SANJAY MEHTA Sanjay Mehta, Vice President, Chief Financial Officer and Treasurer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Signature Title Date /S/ ROY A. VALLEE Roy A. Vallee /S/ MARK E. JAGIELA Mark E. Jagiela Chair of the Board February 22, 2021 Chief Executive Officer (Principal Executive Officer) February 22, 2021 and Director /S/ SANJAY MEHTA Sanjay Mehta Vice President, Chief Financial Officer and Treasurer (Principal Financial and Accounting Officer) /S/ MICHAEL A. BRADLEY Michael A. Bradley /S/ EDWIN J. GILLIS Edwin J. Gillis /S/ TIMOTHY E. GUERTIN Timothy E. Guertin /S/ PETER HERWECK Peter Herweck /S/ MERCEDES JOHNSON Mercedes Johnson /S/ MARILYN MATZ Marilyn Matz /S/ PAUL J. TUFANO Paul J. Tufano Director Director Director Director Director Director Director 118 February 22, 2021 February 22, 2021 February 22, 2021 February 22, 2021 February 22, 2021 February 22, 2021 February 22, 2021 February 22, 2021 DESCRIPTION OF COMMON STOCK Exhibit 4.2 As of December 31, 2020, Teradyne, Inc. (“Teradyne” or the “Company”) has its common stock as the only class of securities under Section 12 of the Securities Exchange Act of 1934, as amended. The following is a description of the material terms and provisions of the Company’s common stock and may not contain all the information that is important to you. Please refer to the Company’s Restated Articles of Organization (the “Articles of Organization”) and Amended and Restated Bylaws (the “Bylaws”) for complete information. Under the Company’s Articles of Organization, it has authority to issue 1,000,000,000 shares of common stock, par value $0.125 per share. As of December 31, 2020, there were 166,297,425 shares of common stock outstanding. Common Stock Holders of Teradyne common stock are entitled to one vote for each share held on all matters submitted to a vote of stockholders. Since holders of Teradyne common stock do not have cumulative voting rights, the holders of more than 50% of Teradyne common stock can elect all the directors if they so choose. Holders of Teradyne common stock are entitled to receive ratably dividends, if any, as may be declared by the Teradyne board of directors out of funds legally available for payment of dividends. Upon the liquidation, dissolution or winding up of Teradyne, holders of Teradyne common stock are entitled to receive ratably the net assets of Teradyne available after the payment of all debts and other liabilities of Teradyne. Holders of Teradyne common stock have no preemptive, subscription, redemption or conversion rights, nor are they entitled to the benefit of any sinking fund. The outstanding shares of common stock are fully paid and non-assessable. The transfer agent and registrar for the common stock is Broadridge Corporate Issuer Solutions, Inc., P.O. Box 1342, Brentwood, NY 11717. The common stock is listed on the Nasdaq Global Select Market under the trading symbol “TER.” Anti-Takeover Effects of Massachusetts Law and Provisions of our Charter Documents Certain provisions in the Massachusetts General Laws, the Articles of Organization and the Bylaws may have the effect of delaying, deferring or preventing a change in control of Teradyne, including: Special Meetings of Stockholders. Special meetings of our stockholders may be called only by the Chief Executive Officer, the President, by the directors or by the Secretary, or in case of the death, absence, incapacity or refusal of the Secretary, by any other officer, upon written application of one or more stockholders who hold at least a majority of the shares of our capital stock entitled to vote at such a meeting (or such lesser percentage in interest as shall be the maximum percentage permitted under Massachusetts law). Advance Notice Procedures. The Bylaws establish an advance notice procedure for stockholder proposals to be brought before an annual meeting of the Company’s stockholders, including proposed nominations of persons for election to the board of directors. Stockholders at an annual meeting may only consider proposals or nominations specified in the written notice of meeting or brought before the meeting by or at the direction of the board of directors, the Chief Executive Officer or the President or by a stockholder who was a stockholder of record on the record date for the meeting, who is entitled to vote at the meeting and who has given our Secretary timely written notice, in proper form, of the stockholder’s intention to bring that business before the meeting, or pursuant to the proxy access nomination procedures in the Bylaws. Proxy Access Nominations. Under the Bylaws, the Company will include in its proxy statement for an annual meeting the name, together with certain other required information, of any person nominated for the election of to the board of directors in compliance with specified provisions in the Bylaws by a single stockholder that satisfies (or by a group of no more than 20 stockholders that satisfy) various notice and other requirements specified in the Bylaws. Among other requirements in the Bylaws, such stockholder or group of stockholders would need to provide evidence verifying that the stockholder or group owns, and has owned continuously for the preceding three years, at least 3% of the issued and outstanding voting shares of the Company. The Bylaws contain limitations on the maximum number of nominees submitted by stockholders that the Company would be required to include in its proxy statement for an annual meeting. 1 Removal of Directors and Vacancies. The Bylaws provide that any director may be removed from office only (a) for cause as defined in the Massachusetts General Laws and by the affirmative vote of a majority of our outstanding shares and entitled to vote in the election of directors or (b) for cause by vote of a majority of the directors then in office. Vacancies and newly created directorships, whether resulting from an increase in the size of the board of directors, from the death, resignation, disqualification or removal of a director or otherwise, shall be filled solely by the affirmative vote of a majority of the remaining directors then in office, even though less than a quorum of the board of directors. Indemnification of Directors, Officers and Employees. Pursuant to the Articles of Organization and Bylaws, Teradyne shall indemnify, to the full extent authorized by law, any person made or threatened to be made a party to an action, suit or proceeding, whether criminal, civil, administrative or investigative, by reason of the fact that he or she is or was a director, officer, employee or agent of Teradyne or is or was serving, at the request of the Teradyne, as a director, officer, employee or agent of another organization. The board of directors may, without stockholder approval, authorize Teradyne to enter into agreements, including any amendments or modifications thereto, with any of its directors, officers, employees or other agents providing for indemnification of such persons to the maximum extent permitted under applicable law and Teradyne’s Articles of Organization and Bylaws. Business Combinations with Interested Stockholders. The Massachusetts General Laws contain anti-takeover provisions regarding, among other things, business combinations with an affiliated stockholder. In general, the Massachusetts General Laws prevent a publicly held Massachusetts corporation from engaging in a business combination, as defined in the Massachusetts General Laws, with an interested stockholder for a period of three years after the date of the transaction in which the person became an interested stockholder, unless: • • • before the date on which the person became an interested stockholder, the board of directors of the corporation approved either the business combination or the transaction in which the person became an interested stockholder; the interested stockholder acquires at least 90% of the outstanding voting stock of the corporation at the time it becomes an interested stockholder; or the business combination is approved by the board of directors and the holders of at least two-thirds of the outstanding voting stock of the corporation voting at a meeting, excluding the voting stock owned by the interested stockholder. An interested stockholder is generally a person owning 5% or more of the outstanding voting stock of the corporation. A business combination includes mergers, consolidations, stock and asset sales and other transactions with the interested stockholder that result in a financial benefit to the interested stockholder. Control Share Acquisitions. Teradyne has elected to opt out of the control share acquisitions provisions of the Massachusetts General Laws. Teradyne could, however, opt into these control share acquisitions provisions at any time by amending our Bylaws. In general, the control share acquisitions provisions of the Massachusetts General Laws provide that any person, including his, her or its affiliates, who acquires shares of a corporation that are subject to the control share acquisitions statute and whose shares represent one-fifth or more, one-third or more, or a majority or more of the voting power of the corporation in the election of directors cannot exercise any voting power with respect to those shares, or any shares acquired by the person within 90 days before or after an acquisition of this nature, unless these voting rights are authorized by the stockholders of the corporation. The authorization of voting rights requires the affirmative vote of the holders of a majority of the outstanding voting shares, excluding shares owned by: • • • the person making an acquisition of this nature; any officer of the corporate; and any employee who is also a director of the corporation. There are several other types of share acquisitions that are not subject to these provisions of the Massachusetts General Laws, including acquisitions of shares under a tender offer, merger or consolidation which is made in connection with an agreement to which the corporation is a party and acquisitions of shares directly from the corporation or a wholly owned subsidiary of the corporation. 2 Exhibit 10.9 TERADYNE, INC. 2006 EQUITY AND CASH COMPENSATION INCENTIVE PLAN NOTICE OF PERFORMANCE-BASED RESTRICTED STOCK UNIT GRANT AND TERMS FOR U.S. RECIPIENTS Name: Employee ID: In granting restricted stock units, Teradyne, Inc. (“Teradyne”) seeks to provide employees of Teradyne and its subsidiaries with incentive to help drive Teradyne’s future success and to share in the economic benefits of that success. We all look forward to your contributions to that effort. In recognition of your contributions to Teradyne, you have been granted an award consisting of the right to receive a target of xx shares of Teradyne common stock (“Target Performance-Based Shares”), which final number of shares shall be determined by the Committee or Teradyne’s Board of Directors (“Actual Performance-Based Shares”) and based upon achieving certain Performance Criteria over a performance period established by the Committee or Teradyne’s Board of Directors as of the Effective Date (the “Performance Period”). This grant was approved [ ] (the “Effective Date”). This award is subject to the Performance-Based Restricted Stock Unit Terms for U.S. Recipients attached hereto and the terms of the Teradyne, Inc. 2006 Equity and Cash Compensation Incentive Plan (the “Plan”). The shares covered by this award will be delivered upon attainment of certain Performance Criteria as described in and subject to the vesting conditions of the Performance-Based Restricted Stock Unit Terms for U.S. Recipients. The Plan prospectus, consisting of a “Participant Information” document that summarizes the Plan and the complete Plan, is available on “In-Site,” Teradyne’s internal Web site: https://connections.teradyne.com/wikis/home?lang=en-us#!/wiki/W9b0680839aea_4363_99d5_8cc385adc48f/page/Equity%20Compensation%20(Options%20%26%20RSU’s) Please note that printed versions of the Plan prospectus documents are available to you, at no charge, upon request to the HR Service Center, Teradyne, Inc., 600 Riverpark Drive, North Reading, MA 01864, (978) 370-3041 or hr.service.center@teradyne.com TERADYNE, INC. Charles J. Gray V.P., General Counsel and Secretary (2021 Performance-based RSU) Grant # 1 PERFORMANCE-BASED RESTRICTED STOCK UNIT TERMS FOR U.S. RECIPIENTS 1. Award Grant, Vesting and Transfer (a) Award Grant. Teradyne, Inc. hereby grants to the recipient an award (this “Award”) of performance-based restricted stock units (the “RSUs”) under the Teradyne, Inc. 2006 Equity and Cash Compensation Incentive Plan (the “Plan”). The RSUs represent the right of the recipient to receive that number of shares of Teradyne common stock set forth in the Notice of Performance-Based Restricted Stock Unit Grant and Terms for U.S. Recipients (the “Notice of Grant”) attached hereto upon satisfaction of the terms set forth in these Performance-Based Restricted Stock Unit Terms for U.S. Recipients (this “Agreement”). This Award is governed by and subject to the terms of the Plan, the Notice of Grant and this Agreement. Capitalized terms used but not otherwise defined herein will have the meaning set forth in the Notice of Grant or the Plan. In the event of any inconsistencies or differences between the Plan and this Agreement, the Plan shall prevail. The terms governing this Award are intended to comply with all applicable laws and regulations. (b) Vesting of Award. None of the RSUs subject to this Award will be vested on the Effective Date. The number of RSUs that ultimately may vest and, accordingly, the number of Actual Performance-Based Shares that may be issued to you is uncertain at the time of the grant but is expected to be determined near the three-year anniversary of the grant date, based on the determination by the Committee or Teradyne’s Board of Directors of the Performance Percentage. The “Performance Percentage” is a percentage ranging from 0-200% determined using Performance Criteria approved by the Committee or Teradyne’s Board of Directors for the Award. The Performance Percentage shall be multiplied against the number of Target Performance-Based Shares underlying the RSUs granted to you to derive the number of Actual Performance-Based Shares to be issued upon settlement of the Award. Except as provided in (c) below, this Award shall vest with respect to one hundred percent of the Actual Performance-Based Shares on the later of the third anniversary of the Effective Date or the date the Board determines the number of Actual Performance-Based Shares. The portion of the Award that is not allowed to vest will be forfeited. Subject to the terms of the Plan, the Committee shall have the right to accelerate the date that any portion of this Award becomes vested, including, but not limited to, events such as disability, death or upon the acquisition of control of Teradyne by another entity. (c) This Award will not vest further after termination of employment or other business relationship except in limited certain circumstances. This Award will not vest after the recipient’s employment or other business relationship with Teradyne or, if different, the recipient’s employer (the “Employer”) or any of the other Subsidiaries of Teradyne ends, regardless of the reason, provided, however, that if the recipient’s employment or other business relationship with Teradyne, the Employer or one the Subsidiaries of Teradyne ends prior to the determination of the Performance Percentage on account of (1) 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 (a) one hundred percent of the Actual Performance-Based Shares underlying any Award granted at least 365 calendar days prior to the death, retirement or termination without cause shall vest on the date the Performance Percentage is determined by the Committee or the Board of Directors and (b) a pro-rated portion of the Actual Performance-Based Shares underlying any Award granted within 365 calendar days of the death, retirement or termination without cause based on the number of days of employment or other business relationship during the 365 calendar day period from the grant date shall vest on the date the Performance Percentage is determined by the Committee or the Board of Directors. Continued vesting following retirement or termination, other than for cause, is subject to recipient’s continued compliance with any post-employment obligations to Teradyne. If recipient violates any post-employment obligations, Teradyne shall be entitled to discontinue any continued vesting under this paragraph and all equity granted under this Agreement that is unvested as of the date of the violation shall be forfeited. The recipient’s employment or other business relationship shall be considered as continuing uninterrupted during any bona fide approved leave of absence provided (i) that the period of such leave does not exceed 90 days and is not a personal leave unless the personal leave is based on recipient’s accrued, unused personal paid time-off benefits provided under a program sponsored by Teradyne, the Employer or any other Subsidiary of Teradyne, (ii) the recipient’s right to reemployment is guaranteed by statute following the approved leave of absence, or (iii) the Committee has agreed in writing that Teradyne, the Employer or any other Subsidiary of Teradyne is contractually obligated to continue the recipient’s employment or other business relationship after the approved leave 2 of absence period. Notwithstanding the foregoing leave of absence provision, vesting of this Award shall continue during the period a recipient is determined to be disabled under the Teradyne Short-Term Disability program and Long-Term Disability Plan, provided that such vesting shall cease upon the earlier to occur of the recipient’s (A) termination of employment from Teradyne, the Employer or any other Subsidiary of Teradyne and (B) the last day of the twenty-four (24) month period beginning on the date on which Long-Term Disability benefits commenced. (d) No rights as stockholder; Issuance. The recipient shall not have any rights as a stockholder in, to or with respect to any shares which may be covered by this Award (including but not limited to the right to vote or to receive dividends) until this Award is settled by issuance of shares to the recipient. All shares issued in respect of this Award will be transferred or issued to the recipient (or his or her estate, in the event of his or her death) as soon as is practicable after the date the Actual Performance-Based Shares vest but, in any event, within 60 days of the end of the Performance Period. Teradyne will not be required to transfer or issue any shares upon vesting of the Actual Performance-Based Shares until arrangements satisfactory to it have been made by the recipient to address any Tax-Related Items (as defined in Section 4 below) which might arise by reason of the vesting of the Actual Performance-Based Shares and/or transfer or issuance of shares. (e) This Award may not be assigned or transferred. Other than as provided in Section 11(a) of the Plan, this Award is not assignable or transferable (except by will or the laws of descent and distribution). 2. Capital Changes and Business Succession. Section 3(c) of the Plan contains provisions for adjusting (or substituting) the number and class of securities, vesting schedule, and other terms of outstanding stock-based awards granted under the Plan if a recapitalization, stock split, merger, or other specified event occurs, and the Committee determines that an adjustment (or substitution) is appropriate. In that event, the recipient of this Award will be notified of the adjustment (or substitution), if any, to this Award. 3. Employment or Business Relationship. This Award and the recipient’s participation in the Plan shall not create any right of continued employment or business relationship or be interpreted as forming or amending an employment contract or business relationship with Teradyne or its Subsidiaries, and does not affect the right of the recipient, Teradyne or the Employer to terminate the recipient’s employment or a business relationship at any time. 4. Tax Obligations. (a) Responsibility for Taxes. The recipient acknowledges that, regardless of any action taken by Teradyne or the Employer, the ultimate liability for all income tax, social insurance, payroll tax, fringe benefits tax, payment on account or other tax-related items related to the recipient’s participation in the Plan and legally applicable to the recipient (“Tax-Related Items”), is and remains the recipient’s responsibility and may exceed the amount actually withheld by Teradyne or the Employer. The recipient further acknowledges that Teradyne and/or the Employer (1) make no representations or undertakings regarding the treatment of any Tax-Related Items in connection with any aspect of this Award, including, but not limited to, the grant, vesting or settlement of the RSUs, the subsequent sale of shares acquired pursuant to such settlement and the receipt of any dividends or other distributions, and (2) do not commit to and are under no obligation to structure the terms of the grant or any aspect of this Award to reduce or eliminate the recipient’s liability for Tax-Related Items or achieve any particular tax result. Further, if the recipient is subject to Tax-Related Items in more than one jurisdiction, the recipient acknowledges that Teradyne and/or the Employer (or former employer, as applicable) may be required to withhold or account for Tax-Related Items in more than one jurisdiction. (b) Tax Withholding. Prior to any relevant taxable or tax withholding event, as applicable, the recipient agrees to make adequate arrangements satisfactory to Teradyne and/or the Employer to satisfy all Tax-Related Items. The recipient authorizes Teradyne and/or the Employer, or their respective agents, to satisfy any applicable withholding obligations with regard to all Tax-Related Items by withholding in shares to be issued upon settlement of the RSUs; provided, however, that the number of shares withheld will be determined using rates that do not exceed the maximum statutory tax rates for the jurisdiction(s) applicable to the recipient. For tax purposes, the recipient is deemed to have been issued the full number of shares subject to the vested RSUs, notwithstanding that a number of the shares are held back solely for the purpose of paying the Tax-Related Items. Alternatively, a recipient may elect to satisfy his or her obligations for Tax-Related Items by delivery of cash or check to Teradyne or the Employer. In the event that withholding in shares is problematic under applicable tax or securities law or has materially adverse accounting consequences and the recipient does not satisfy his or her obligations for Tax-Related Items by delivery of cash or check, the recipient (1) authorizes and directs Teradyne and any brokerage firm 3 determined acceptable to Teradyne to sell on the recipient’s behalf a whole number of shares from those shares issuable to the recipient as Teradyne determines to be appropriate to generate cash proceeds sufficient to satisfy any applicable withholding obligation for Tax-Related Items; (2) authorizes Teradyne or the Employer to withhold the Tax-Related Items from the recipient’s wages or other compensation; and (3) agrees, upon request from Teradyne or the Employer, to make a cash payment in an amount equal to the withholding obligations for any Tax-Related Items. Teradyne may refuse to issue or deliver the shares or the proceeds of the sale of shares if the recipient fails to comply with his or her obligations in connection with the Tax-Related Items. 5. Compliance with Laws. Shares to be issued under this Award are currently registered under the United States Securities Act of 1933, as amended. If such registration is not in effect at the time of vesting, the recipient will be required to represent to Teradyne that he or she is acquiring such shares as an investment and not with a view to the sale of those shares. Notwithstanding any other provision of the Plan or the Agreement, unless there is an available exemption from any registration, qualification or other legal requirement applicable to the shares of common stock, Teradyne shall not be required to deliver any shares of common stock issuable upon settlement of the RSUs prior to the completion of any registration or qualification of the shares under any local, state, federal or foreign securities or exchange control law or under rulings or regulations of the United States Securities and Exchange Commission (“SEC”) or of any other governmental regulatory body, or prior to obtaining any approval or other clearance from any local, state, federal or foreign governmental agency, which registration, qualification or approval Teradyne shall, in its absolute discretion, deem necessary or advisable. The recipient understands that Teradyne is under no obligation to register or qualify the shares with the SEC or any state or foreign securities commission or to seek approval or clearance from any governmental authority for the issuance or sale of the shares. Further, the recipient agrees that Teradyne shall have unilateral authority to amend the Plan and the Agreement without the recipient’s consent to the extent necessary to comply with securities or other laws applicable to issuance of shares. 6. Code Section 409A. Teradyne intends that this Award will either comply with or be exempt from Section 409A of the Code and the regulations and guidance promulgated thereunder and, accordingly, to the maximum extent permitted, any ambiguities herein will be interpreted to be exempt from Section 409A of the Code or in compliance therewith, as applicable. To the extent that Teradyne determines that the Award is subject to Section 409A of the Code, but does not conform with Section 409A of the Code, Teradyne reserves the right, to the extent Teradyne deems necessary or advisable in its sole discretion, to amend or modify the terms of this Award (or the Plan) or adopt other policies and procedures (including amendments, policies and procedures with retroactive effect), or take other actions, including any amendments or actions that would result in a reduction to the benefit payable under this Award, in each case, without the consent of the recipient of the Award, as may be necessary to ensure that all vesting or settlement provided under this Award are made in a manner that complies with Section 409A of the Code or to mitigate any additional tax, interest and/or penalties or other adverse tax consequences that may apply under Section 409A of the Code; provided, however, that nothing in this Section 6 creates an obligation on the part of Teradyne to modify the terms of this Award or the Plan. In that light, Teradyne makes no representation that the terms of this Award will comply with Section 409A of the Code or that the settlement of this Award will not be subject to taxes, interest and penalties or other adverse tax consequences under Section 409A of the Code. In no event whatsoever shall Teradyne or any of its affiliates be liable to the recipient of this Award or any other party for any additional tax, interest, penalties or other liability that may be imposed on the recipient of this Award by Section 409A of the Code or for any action taken by Teradyne with respect thereto. 7. Governing Law and Venue. The Award and the provisions of this Agreement are governed by, and subject to, the laws of the Commonwealth of Massachusetts, without regard to the conflict of law provisions, as provided in the Plan. For purposes of litigating any dispute that arises under this Award or this Agreement, the parties hereby submit to and consent to the jurisdiction of the Commonwealth of Massachusetts, agree that such litigation shall be conducted in the courts of Middlesex County, or the federal courts for the United States for the District of Massachusetts, where this grant is made and/or to be performed. 8. Electronic Delivery and Acceptance. Teradyne may, in its sole discretion, decide to deliver any documents related to current or future participation in the Plan by electronic means. The recipient hereby consents to receive such documents by electronic delivery and agrees to participate in the Plan through an on-line or electronic system established and maintained by Teradyne or a third party designated by Teradyne. 9. Severability. The provisions of this Agreement are severable and if any one or more provisions are determined to be illegal or otherwise unenforceable, in whole or in part, the remaining provisions shall nevertheless be binding and enforceable. 4 10. Imposition of Other Requirements. Teradyne reserves the right to impose other requirements on the recipient’s participation in the Plan, on the RSUs and on any shares of common stock acquired under the Plan, to the extent Teradyne determines it is necessary or advisable for legal or administrative reasons, and to require the recipient to sign any additional agreements or undertakings that may be necessary to accomplish the foregoing. 11. Waiver. The recipient acknowledges that a waiver by Teradyne of breach of any provision of this Agreement shall not operate or be construed as a waiver of any other provision of this Agreement, or of any subsequent breach by the recipient or any other recipient. 12. No Advice Regarding Grant. Teradyne is not providing any tax, legal or financial advice, nor is Teradyne making any recommendations regarding the recipient’s participation in the Plan, or the recipient’s acquisition or sale of the underlying shares of common stock. The recipient is hereby advised to consult with his or her own personal tax, legal and financial advisors regarding his or her participation in the Plan before taking any action related to the Plan. 13. Insider Trading Restrictions/Market Abuse Laws. The recipient acknowledges that, depending on the recipient’s or his or her broker’s country of residence or where the shares of common stock are listed, the recipient may be subject to insider trading restrictions and/or market abuse laws which may affect the recipient’s ability to accept, acquire, sell or otherwise dispose of shares of common stock, rights to shares of common stock (e.g., RSUs) or rights linked to the value of shares of common stock under the Plan during such times the recipient is considered to have “inside information” regarding Teradyne (as defined by the laws or regulations in the recipient’s country). The recipient is responsible for ensuring compliance with any restrictions and should consult his or her personal legal advisor on this matter. 14. Recoupment. The recipient agrees that the RSUs and any financial gain realized by the recipient through settlement of the RSUs or sale of any shares of common stock acquired shall be subject to forfeiture and/or repayment to the Company to the extent required to comply with any applicable laws or the rules and regulations of the securities exchange or inter-dealer quotation system on which the shares of common stock are listed or quoted, including, without limitation, pursuant to Section 954 of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. 5 TERADYNE, INC. 2006 EQUITY AND CASH COMPENSATION INCENTIVE PLAN NOTICE OF RESTRICTED STOCK UNIT GRANT AND TERMS FOR U.S. RECIPIENTS Exhibit 10.10 Name: Employee ID: In granting restricted stock units, Teradyne, Inc. (“Teradyne”) seeks to provide employees of Teradyne and its subsidiaries with incentive to help drive Teradyne’s future success and to share in the economic benefits of that success. We all look forward to your contributions to that effort. You have been granted a restricted stock unit award consisting of the right to receive up to xx shares of Teradyne common stock. This grant was approved effective [ ] (the “Effective Date”). This award is subject to the Restricted Stock Unit Terms for U.S. Recipients attached hereto and the terms of the Teradyne, Inc. 2006 Equity and Cash Compensation Incentive Plan (the “Plan”). The shares covered by this award will be delivered over time as described in and subject to the vesting conditions of the Restricted Stock Unit Terms for U.S. Recipients. The Plan prospectus, consisting of a “Participant Information” document that summarizes the Plan and the complete Plan, is available on “In-Site,” Teradyne’s internal Web site: https://connections.teradyne.com/wikis/home?lang=en-us#!/wiki/W9b0680839aea_4363_99d5_8cc385adc48f/page/Equity%20Compensation%20(Options%20%26%20RSU’s) Please note that printed versions of the Plan prospectus documents are available to you, at no charge, upon request to the HR Service Center, Teradyne, Inc., 600 Riverpark Drive, North Reading, MA 01864, (978) 370-3041 or hr.service.center@teradyne.com TERADYNE, INC Charles J. Gray V.P., General Counsel and Secretary (2021 RSU) Grant # 1 RESTRICTED STOCK UNIT TERMS FOR U.S. RECIPIENTS 15. Award Grant, Vesting and Transfer (a) Award Grant. Teradyne, Inc. hereby grants to the recipient an award (this “Award”) of restricted stock units (the “RSUs”) under the Teradyne, Inc. 2006 Equity and Cash Compensation Incentive Plan (the “Plan”). The RSUs represent the right of the recipient to receive that number of shares of Teradyne common stock set forth in the Notice of Restricted Stock Unit Grant and Terms for U.S. Recipients (the “Notice of Grant”) attached hereto upon satisfaction of the terms set forth in these Restricted Stock Unit Terms for U.S. Recipients (this “Agreement”). This Award is governed by and subject to the terms of the Plan, the Notice of Grant and this Agreement. Capitalized terms used but not otherwise defined herein will have the meaning set forth in the Notice of Grant or the Plan. In the event of any inconsistencies or differences between the Plan and this Agreement, the Plan shall prevail. The terms governing this Award are intended to comply with all applicable laws and regulations. (b) This Award vests yearly on the anniversary of the Effective Date. None of the RSUs subject to this Award will be vested on the Effective Date. Except as provided in (c) below, 25% of the RSUs granted will vest on the first and each of the three subsequent anniversaries of the Effective Date until the total grant is fully vested on the fourth anniversary of the Effective Date. The Committee shall have the right to accelerate the date that any installment of this Award becomes vested, including, but not limited, to events such as disability, death or upon the acquisition of control of Teradyne by another entity. (c) This Award will not vest further after termination of employment or other business relationship except in limited certain circumstances. This Award will not vest after the recipient’s employment or other business relationship ends, regardless of the reason, provided, however, that if the recipient’s employment or other business relationship with Teradyne or, if different, the recipient’s employer (the “Employer”) or any of the other Subsidiaries of Teradyne ends on account of death, the unvested portion of this Award which would have vested under the applicable rule stated in (b) above shall automatically become vested in full on the date of his or her termination of employment or business relationship on account of death. The recipient’s employment or other business relationship shall be considered as continuing uninterrupted during any bona fide approved leave of absence provided (i) that the period of such leave does not exceed 90 days and is not a personal leave unless the personal leave is based on recipient’s accrued, unused personal paid time-off benefits provided under a program sponsored by Teradyne, the Employer or any other Subsidiary of Teradyne, (ii) the recipient’s right to reemployment is guaranteed by statute following the approved leave of absence, or (iii) the Committee has agreed in writing that Teradyne, the Employer or any other Subsidiary of Teradyne is contractually obligated to continue the recipient’s employment or other business relationship after the approved leave of absence period. Notwithstanding the foregoing leave of absence provision, vesting of this Award shall continue during the period a recipient is determined to be disabled under the Teradyne Short-Term Disability program and Long-Term Disability Plan, provided that such vesting shall cease upon the earlier to occur of the recipient’s (A) termination of employment from Teradyne, the Employer or any other Subsidiary of Teradyne and (B) the last day of the twenty-four (24) month period beginning on the date on which Long-Term Disability benefits commenced. (d) No rights as stockholder; Issuance. The recipient shall not have any rights as a stockholder in, to or with respect to any shares which may be covered by this Award (including but not limited to the right to vote or to receive dividends) until this Award is settled by issuance of shares to the recipient. All shares issued in respect of this Award will be transferred or issued to the recipient (or his or her estate, in the event of his or her death) as soon as is practicable after the date the RSUs vest but, in any event, within 21⁄2 months following the calendar year in which the RSUs become vested (or any earlier date, after vesting, as required to avoid characterization as non-qualified deferred compensation under Section 409A of the Code). Teradyne will not be required to transfer or issue any shares upon vesting of the RSUs until arrangements satisfactory to it have been made by the recipient to address any Tax-Related Items (as defined in Section 4 below) which might arise by reason of the vesting of the RSUs and/or transfer or issuance of shares. 2 (e) This Award may not be assigned or transferred. Other than as provided in Section 11(a) of the Plan, this Award is not assignable or transferable (except by will or the laws of descent and distribution). 16. Capital Changes and Business Succession. Section 3(c) of the Plan contains provisions for adjusting (or substituting) the number and class of securities, vesting schedule and other terms of outstanding stock-based awards granted under the Plan if a recapitalization, stock split, merger, or other specified event occurs and the Committee determines that an adjustment (or substitution) is appropriate. In that event, the recipient of this Award will be notified of the adjustment (or substitution), if any, to this Award. 17. Employment or Business Relationship. This Award and the recipient’s participation in the Plan shall not create any right of continued employment or business relationship or be interpreted as forming or amending an employment contract or business relationship with Teradyne or its Subsidiaries, and does not affect the right of the recipient, Teradyne or the Employer to terminate the recipient’s employment or a business relationship at any time. 18. Tax Obligations. (a) Responsibility for Taxes. The recipient acknowledges that, regardless of any action taken by Teradyne or the Employer, the ultimate liability for all income tax, social insurance, payroll tax, fringe benefits tax, payment on account or other tax-related items related to the recipient’s participation in the Plan and legally applicable to the recipient (“Tax-Related Items”), is and remains the recipient’s responsibility and may exceed the amount actually withheld by Teradyne or the Employer. The recipient further acknowledges that Teradyne and/or the Employer (1) make no representations or undertakings regarding the treatment of any Tax-Related Items in connection with any aspect of this Award, including, but not limited to, the grant, vesting or settlement of the RSUs, the subsequent sale of shares acquired pursuant to such settlement and the receipt of any dividends or other distributions, and (2) do not commit to and are under no obligation to structure the terms of the grant or any aspect of this Award to reduce or eliminate the recipient’s liability for Tax-Related Items or achieve any particular tax result. Further, if the recipient is subject to Tax-Related Items in more than one jurisdiction, the recipient acknowledges that Teradyne and/or the Employer (or former employer, as applicable) may be required to withhold or account for Tax-Related Items in more than one jurisdiction. (b) Tax Withholding. Prior to any relevant taxable or tax withholding event, as applicable, the recipient agrees to make adequate arrangements satisfactory to Teradyne and/or the Employer to satisfy all Tax-Related Items. The recipient authorizes Teradyne and/or the Employer, or their respective agents, to satisfy any applicable withholding obligations with regard to all Tax-Related Items by withholding in shares to be issued upon settlement of the RSUs; provided, however, that the number of shares withheld will be determined using rates that do not exceed the maximum statutory tax rates for the jurisdiction(s) applicable to the recipient. For tax purposes, the recipient is deemed to have been issued the full number of shares subject to the vested RSUs, notwithstanding that a number of the shares are held back solely for the purpose of paying the Tax-Related Items. Alternatively, a recipient may elect to satisfy his or her obligations for Tax-Related Items by delivery of cash or check to Teradyne or the Employer. In the event that withholding in shares is problematic under applicable tax or securities law or has materially adverse accounting consequences and the recipient does not satisfy his or her obligations for Tax-Related Items by delivery of cash or check, the recipient (1) authorizes and directs Teradyne and any brokerage firm determined acceptable to Teradyne to sell on the recipient’s behalf a whole number of shares from those shares issuable to the recipient as Teradyne determines to be appropriate to generate cash proceeds sufficient to satisfy any applicable withholding obligation for Tax-Related Items; (2) authorizes Teradyne or the Employer to withhold the Tax-Related Items from the recipient’s wages or other compensation; and (3) agrees, upon request from Teradyne or the Employer, to make a cash payment in an amount equal to the withholding obligations for any Tax-Related Items. Teradyne may refuse to issue or deliver the shares or the proceeds of the sale of shares if the recipient fails to comply with his or her obligations in connection with the Tax-Related Items. 19. Compliance with Laws. Shares to be issued under this Award are currently registered under the United States Securities Act of 1933, as amended. If such registration is not in effect at the time of vesting, the recipient will be required to represent to Teradyne that he or she is acquiring such shares as an investment and not with a view to the sale of those shares. Notwithstanding any other provision of the Plan or the Agreement, unless there is an available exemption from any registration, qualification or other legal requirement applicable to the shares of common stock, Teradyne shall not be required to deliver any shares of common stock issuable upon settlement of the RSUs prior to the completion of any registration or qualification of the shares under any local, state, federal or foreign securities or exchange control law or under rulings or regulations of the United States Securities and Exchange Commission (“SEC”) or of any other governmental regulatory body, or prior to obtaining any approval or other 3 clearance from any local, state, federal or foreign governmental agency, which registration, qualification or approval Teradyne shall, in its absolute discretion, deem necessary or advisable. The recipient understands that Teradyne is under no obligation to register or qualify the shares with the SEC or any state or foreign securities commission or to seek approval or clearance from any governmental authority for the issuance or sale of the shares. Further, the recipient agrees that Teradyne shall have unilateral authority to amend the Plan and the Agreement without the recipient’s consent to the extent necessary to comply with securities or other laws applicable to issuance of shares. 20. Code Section 409A. This Award is intended to be exempt from the application of Section 409A of the Code, and any ambiguities herein will be interpreted to so comply. Teradyne reserves the right, to the extent Teradyne deems necessary or advisable in its sole discretion, to amend or modify the terms of this Award (or the Plan) or adopt other policies and procedures (including amendments, policies and procedures with retroactive effect), or take other actions, including any amendments or actions that would result in a reduction to the benefit payable under this Award, in each case, without the consent of the recipient of the Award, as may be necessary to ensure that all vesting or settlement provided under this Award are made in a manner that complies with Section 409A of the Code or to mitigate any additional tax, interest and/or penalties or other adverse tax consequences that may apply under Section 409A of the Code if compliance is not practical; provided, however, that nothing in this Section 6 creates an obligation on the part of Teradyne to modify the terms of this Award or the Plan. In that light, Teradyne makes no representation that the terms of this Award will comply with Section 409A of the Code or that the settlement of this Award will not be subject to taxes, interest and penalties or other adverse tax consequences under Section 409A of the Code. In no event whatsoever shall Teradyne or any of its affiliates be liable to the recipient of this Award or any other party for any additional tax, interest, penalties or other liability that may be imposed on the recipient of this Award by Section 409A of the Code or for any action taken by Teradyne with respect thereto. 21. Governing Law and Venue. The Award and the provisions of this Agreement are governed by, and subject to, the laws of the Commonwealth of Massachusetts, without regard to the conflict of law provisions, as provided in the Plan. For purposes of litigating any dispute that arises under this Award or this Agreement, the parties hereby submit to and consent to the jurisdiction of the Commonwealth of Massachusetts, agree that such litigation shall be conducted in the courts of Middlesex County, or the federal courts for the United States for the District of Massachusetts, where this grant is made and/or to be performed. 22. Electronic Delivery and Acceptance. Teradyne may, in its sole discretion, decide to deliver any documents related to current or future participation in the Plan by electronic means. The recipient hereby consents to receive such documents by electronic delivery and agrees to participate in the Plan through an on-line or electronic system established and maintained by Teradyne or a third party designated by Teradyne. 23. Severability. The provisions of this Agreement are severable and if any one or more provisions are determined to be illegal or otherwise unenforceable, in whole or in part, the remaining provisions shall nevertheless be binding and enforceable. 24. Imposition of Other Requirements. Teradyne reserves the right to impose other requirements on the recipient’s participation in the Plan, on the RSUs and on any shares of common stock acquired under the Plan, to the extent Teradyne determines it is necessary or advisable for legal or administrative reasons, and to require the recipient to sign any additional agreements or undertakings that may be necessary to accomplish the foregoing. 25. Waiver. The recipient acknowledges that a waiver by Teradyne of breach of any provision of this Agreement shall not operate or be construed as a waiver of any other provision of this Agreement, or of any subsequent breach by the recipient or any other recipient. 26. No Advice Regarding Grant. Teradyne is not providing any tax, legal or financial advice, nor is Teradyne making any recommendations regarding the recipient’s participation in the Plan, or the recipient’s acquisition or sale of the underlying shares of common stock. The recipient should consult with his or her own personal tax, legal and financial advisors regarding his or her participation in the Plan before taking any action related to the Plan. 27. Insider Trading Restrictions/Market Abuse Laws. The recipient acknowledges that, depending on the recipient’s or his or her broker’s country of residence or where the shares of common stock are listed, the recipient may be subject to insider trading restrictions and/or market abuse laws which may affect the recipient’s ability to accept, acquire, sell or otherwise dispose of shares of common stock, rights to shares of common stock (e.g., RSUs) or rights linked to the value of shares of common stock under the Plan during such times the recipient is considered to have “inside information” regarding Teradyne (as defined by the laws or regulations in the recipient’s country). The recipient is responsible for ensuring compliance with any restrictions and should consult his or her personal legal advisor on this matter. 4 28. Recoupment. The recipient agrees that the RSUs and any financial gain realized by the recipient through settlement of the RSUs or sale of any shares of common stock acquired shall be subject to forfeiture and/or repayment to the Company to the extent required to comply with any applicable laws or the rules and regulations of the securities exchange or inter-dealer quotation system on which the shares of common stock are listed or quoted, including, without limitation, pursuant to Section 954 of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. TERADYNE, INC. 2006 EQUITY AND CASH COMPENSATION INCENTIVE PLAN NOTICE OF STOCK OPTION GRANT AND TERMS FOR U.S. RECIPIENTS Name: Employee Number: In granting stock options, Teradyne, Inc. (“Teradyne”) seeks to provide employees with incentive to help drive Teradyne’s future success and to share in the economic benefits of that success. We all look forward to your contributions to that effort. In recognition of your contributions to Teradyne, you have been granted a stock option award consisting of the right to receive up to xx shares of Teradyne common stock upon exercise of this option in accordance with its terms. This stock option grant was approved effective [ ] (the “Effective Date”). The Stock Option Grant Details applicable to this stock option grant are listed below. This stock option grant is subject to the Stock Option Terms for U.S. Recipients attached hereto and the terms of the Teradyne, Inc. 2006 Equity and Cash Compensation Incentive Plan (the “Plan”). Stock options covered by this award will be exercisable over time as described in and subject to the vesting conditions of the attached Stock Option Terms for U.S. Recipients. The Plan prospectus, consisting of a “Participant Information” document that summarizes the Plan and the complete Plan, is available on “In-Site,” Teradyne’s internal Web site. To access the information, go to: https://connections.teradyne.com/wikis/home?lang=en-us#!/wiki/W9b0680839aea_4363_99d5_8cc385adc48f/page/Equity%20Compensation%20(Options%20%26%20RSU’s) Please note that printed versions of the Plan prospectus documents are available to you, at no charge, upon request to the HR Service Center, Teradyne, Inc., 600 Riverpark Drive, North Reading, MA 01864, (978) 370-3041 or hr.service.center@teradyne.com Stock Option Grant Details: Grant Date/Effective Date: [ ] Number of Shares under Option: [xx] Per Share Exercise Price/FMV on Grant Date: [$•] (2021 Stock Option) Grant # TERADYNE, INC. Charles J. Gray V.P., General Counsel and Secretary 5 STOCK OPTION TERMS FOR U.S. RECIPIENTS Exhibit 10.11 1. Option Grant, Exercise and Vesting. (f) Stock Option Grant. Teradyne, Inc. hereby grants to the recipient an award (this “Award”) of nonstatutory stock options (the “Stock Options”) under the Teradyne, Inc. 2006 Equity and Cash Compensation Incentive Plan (the “Plan”). The Stock Options represent the right of the recipient to purchase that number of shares of Teradyne common stock set forth in the Notice of Stock Option Grant and Terms for U.S. Recipients (the “Notice of Grant”) attached hereto upon satisfaction of the terms set forth in these Stock Option Terms for U.S. Recipients (this “Agreement”). This Award is governed by and subject to the terms of the Plan, the Notice of Grant and this Agreement. Capitalized terms used but not otherwise defined herein will have the meaning set forth in the Notice of Grant or the Plan. In the event of any inconsistencies or differences between the Plan and this Agreement, the Plan shall prevail. The terms governing this Award are intended to comply with all applicable laws and regulations. (g) These Stock Options vest and become exercisable yearly on the anniversary of the Effective Date. None of the Stock Options subject to this Award will be vested or exercisable on the Effective Date. Except as provided in (d) below, 25% of the Stock Options granted will vest and become exercisable on the first and each of the three subsequent anniversaries of the Effective Date until the total grant is fully vested and exercisable on the fourth anniversary of the Effective Date. The Committee shall have the right to accelerate the date that any installment of this Award becomes vested and exercisable, including, but not limited, to events such as disability, death or upon the acquisition of control of Teradyne by another entity. (h) After Stock Options become exercisable, they can be exercised at any time prior to and on the Option Expiration Date. This Award expires at the close of business at Teradyne’s headquarters on the date that is seven years from the Effective Date (the “Option Expiration Date”). This Award may expire earlier if the recipient’s employment or other business relationship terminates, as described below. (i) The Stock Options will not vest further after termination of employment or other business relationship except in limited certain circumstances. If the recipient’s employment or business relationship with Teradyne or, if different, the recipient’s employer (the “Employer”) or any Subsidiary of Teradyne terminates for any reason except death, then this Award will not vest after the recipient’s employment or other business relationship ends and this Award will automatically expire at the close of business at Teradyne’s headquarters on the date ninety (90) days after the recipient’s termination date, or if earlier, the Option Expiration Date. If the recipient’s employment or other business relationship with Teradyne, the Employer or any Subsidiary of Teradyne ends on account of death, the unvested portion of this Award which would have vested under the applicable rule stated in (b) above shall automatically become vested in full on the date of the recipient’s termination of employment or business relationship on account of death and the vested portion of this Award may be exercised in accordance with Section 11(a) of the Plan until the earlier of (1) the close of business at Teradyne’s headquarters on the date that is one year subsequent to the recipient’s termination due to death or (2) the Option Expiration Date. The recipient’s employment or other business relationship shall be considered as continuing uninterrupted during any bona fide approved leave of absence provided (i) that the period of such leave does not exceed 90 days and is not a personal leave unless the personal leave is based on recipient’s accrued, unused personal paid time-off benefits provided under a program sponsored by Teradyne, the Employer or any other Subsidiary of Teradyne, (ii) the recipient’s right to reemployment is guaranteed by statute following the approved leave of absence, or (iii) the Committee has agreed in writing that Teradyne, the Employer or any other Subsidiary of Teradyne is contractually obligated to continue the recipient’s employment or other business relationship after the approved leave of absence period. Notwithstanding the foregoing leave of absence provision, vesting of this Award shall continue during the period a recipient is determined to be disabled under the Teradyne Short-Term Disability program and Long-Term Disability Plan, provided that such vesting shall cease upon the earlier to occur of the recipient’s (A) termination of employment from Teradyne, the Employer or any other Subsidiary of Teradyne and (B) the last day of the twenty-four (24) month period beginning on the date on which Long-Term Disability benefits commenced. 2. Procedure for Exercising Stock Options. (a) Stock Options are exercised by giving written notice to Teradyne in the form (or by such other procedures as) specified by the Committee stating the election to exercise, specifying the number of shares as to which Stock Options are being exercised and paying Teradyne the full exercise price for such shares, plus any applicable Tax-Related Items (as defined in Section 6 below). Payment can be made to Teradyne by a combination of cash, certified or bank check, or personal check (in each case in United States dollars), or by delivery of shares of Teradyne common stock having a Fair Market Value equal as of the date of the exercise to the cash exercise price of the Option, provided that such shares were not acquired by the Participant in the prior six months, or through a broker-dealer sale and remittance procedure pursuant to which the recipient shall provide written irrevocable instructions to a brokerage firm to effect the immediate sale of some or all of the purchased shares and remit to Teradyne sufficient funds to cover the aggregate exercise price payable for the purchased shares, plus any applicable Tax-Related Items designated by Teradyne, and shall provide written directives to Teradyne to deliver the purchased shares directly to such brokerage firm to complete the sale transaction, provided that such process is consistent with and permissible under applicable law. (b) The recipient shall not have any rights as a stockholder in, to or with respect to any shares which may be covered by this Award (including but not limited to the right to vote or to receive dividends) until the issuance of shares to the recipient upon exercise of the Stock Options. All shares issuable upon exercise of the Stock Options will be transferred or issued to the recipient (or his or her estate, in the event of death) promptly upon exercise. (c) With regard to any Stock Option exercises, Teradyne will not be required to transfer or issue any shares until arrangements satisfactory to it have been made to address any Tax-Related Items and withholding requirements which might arise by reason of the Stock Option exercise. Teradyne will pay any transfer or issue tax and deliver the shares purchased. 3. Assignment and Transferability. This Stock Option may not be assigned or transferred (except by will or the laws of descent and distribution) other than as provided in Section 11(a) of the Plan. 4. Capital Changes and Business Succession. Section 3(c) of the Plan contains provisions for adjusting (or substituting) the number and class of securities, vesting schedule, exercise price and other terms of outstanding stock-based awards granted under the Plan if a recapitalization, stock split, merger, or other specified event occurs and the Committee determines that an adjustment (or substitution) is appropriate. In that event, the recipient will be notified of the adjustment (or substitution), if any, to this Award. 5. Employment or Business Relationship. This Award and the recipient’s participation in the Plan shall not create any right of continued employment or business relationship or be interpreted as forming or amending an employment contract or business relationship with Teradyne or its Subsidiaries, and does not affect the right of the recipient, Teradyne or the Employer to terminate the recipient’s employment or a business relationship at any time. 6. Tax Obligations. (a) Responsibility for Taxes. The recipient acknowledges that, regardless of any action taken by Teradyne or the Employer, the ultimate liability for all income tax, social insurance, payroll tax, fringe benefits tax, payment on account or other tax-related items related to the recipient’s participation in the Plan and legally applicable to the recipient (“Tax-Related Items”), is and remains the recipient’s responsibility and may exceed the amount actually withheld by Teradyne or the Employer. The recipient further acknowledges that Teradyne and/or the Employer (1) make no representations or undertakings regarding the treatment of any Tax-Related Items in connection with any aspect of the Stock Options, including, but not limited to, the grant, vesting or exercise of the Stock Options, the subsequent sale of shares acquired pursuant to such exercise and the receipt of any dividends or other distributions, and (2) do not commit to and are under no obligation to structure the terms of the grant or any aspect of the Stock Option to reduce or eliminate the recipient’s liability for Tax-Related Items or achieve any particular tax result. Further, if the recipient is subject to Tax-Related Items in more than one jurisdiction, the recipient acknowledges that Teradyne and/or the Employer (or former employer, as applicable) may be required to withhold or account for Tax-Related Items in more than one jurisdiction. (b) Tax Withholding. Prior to any relevant taxable or tax withholding event, as applicable, the recipient agrees to make adequate arrangements satisfactory to Teradyne and/or the Employer to satisfy all Tax-Related Items. In this regard, the recipient authorizes Teradyne and/or the Employer, or their respective agents, to satisfy any applicable withholding obligations with regard to all Tax-Related Items by withholding from proceeds of the sale of shares acquired at exercise of the Stock Options either through a voluntary sale or through a mandatory sale arranged by Teradyne (on the recipient’s behalf pursuant to this authorization) without further consent. Teradyne may withhold or account for Tax-Related Items by considering maximum applicable rates, in which case the recipient will receive a refund of any over-withheld amount in cash and will have no entitlement to the common stock equivalent. Alternatively, the recipient may elect to satisfy the recipient’s obligations for Tax-Related Items by delivery of cash or check to Teradyne or the Employer. 7. Compliance with Laws. Shares to be issued under this Award are currently registered under the United States Securities Act of 1933, as amended. If such registration is not in effect at the time of vesting, the recipient will be required to represent to Teradyne that the recipient is acquiring such shares as an investment and not with a view to the sale of those shares. Notwithstanding any other provision of the Plan or the Agreement, unless there is an available exemption from any registration, qualification or other legal requirement applicable to the shares of common stock, Teradyne shall not be required to deliver any shares of common stock issuable upon exercise of the Stock Options prior to the completion of any registration or qualification of the shares under any local, state, federal or foreign securities or exchange control law or under rulings or regulations of the United States Securities and Exchange Commission (“SEC”) or of any other governmental regulatory body, or prior to obtaining any approval or other clearance from any local, state, federal or foreign governmental agency, which registration, qualification or approval Teradyne shall, in its absolute discretion, deem necessary or advisable. The recipient understands that Teradyne is under no obligation to register or qualify the shares with the SEC or any state or foreign securities commission or to seek approval or clearance from any governmental authority for the issuance or sale of the shares. Further, the recipient agrees that Teradyne shall have unilateral authority to amend the Plan and the Agreement without the recipient’s consent to the extent necessary to comply with securities or other laws applicable to issuance of shares. 8. Governing Law and Venue. The Award and the provisions of this Agreement are governed by, and subject to, the laws of the Commonwealth of Massachusetts, without regard to the conflict of law provisions, as provided in the Plan. For purposes of litigating any dispute that arises under this Award or this Agreement, the parties hereby submit to and consent to the jurisdiction of the Commonwealth of Massachusetts, agree that such litigation shall be conducted in the courts of Middlesex County, or the federal courts for the United States for the District of Massachusetts, where this grant is made and/or to be performed. 9. Electronic Delivery and Acceptance. Teradyne may, in its sole discretion, decide to deliver any documents related to current or future participation in the Plan by electronic means. The recipient hereby consents to receive such documents by electronic delivery and agrees to participate in the Plan through an on-line or electronic system established and maintained by Teradyne or a third party designated by Teradyne. 10. Severability. The provisions of this Agreement are severable and if any one or more provisions are determined to be illegal or otherwise unenforceable, in whole or in part, the remaining provisions shall nevertheless be binding and enforceable. 11. Imposition of Other Requirements. Teradyne reserves the right to impose other requirements on the recipient’s participation in the Plan, on the Stock Options and on any shares of common stock acquired under the Plan, to the extent Teradyne determines it is necessary or advisable for legal or administrative reasons, and to require the recipient to sign any additional agreements or undertakings that may be necessary to accomplish the foregoing. 12. Waiver. The recipient acknowledges that a waiver by Teradyne of breach of any provision of this Agreement shall not operate or be construed as a waiver of any other provision of this Agreement, or of any subsequent breach by the recipient or any other recipient. 13. No Advice Regarding Grant. Teradyne is not providing any tax, legal or financial advice, nor is Teradyne making any recommendations regarding the recipient’s participation in the Plan, or the recipient’s acquisition or sale of the underlying shares of common stock. The recipient should consult with his or her own personal tax, legal and financial advisors regarding his or her participation in the Plan before taking any action related to the Plan. 14. Insider Trading Restrictions/Market Abuse Laws. The recipient acknowledges that, depending on the recipient’s or his or her broker’s country of residence or where the shares of common stock are listed, the recipient may be subject to insider trading restrictions and/or market abuse laws which may affect the recipient’s ability to accept, acquire, sell or otherwise dispose of shares of common stock, rights to shares of common stock (e.g., Stock Options) or rights linked to the value of shares of common stock under the Plan during such times the recipient is considered to have “inside information” regarding Teradyne (as defined by the laws or regulations in the recipient’s country). The recipient is responsible for ensuring compliance with any restrictions and should consult his or her personal legal advisor on this matter. 15. Recoupment. The recipient agrees that the Stock Option and any financial gain realized by the recipient through exercise of the Stock Option or sale of any shares of common stock acquired shall be subject to forfeiture and/or repayment to the Company to the extent required to comply with any applicable laws or the rules and regulations of the securities exchange or inter-dealer quotation system on which the shares of common stock are listed or quoted, including, without limitation, pursuant to Section 954 of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 Entity Name: Teradyne (Asia) Pte., Ltd. Teradyne Canada Limited Teradyne de Costa Rica S.R.L. Teradyne GmbH Teradyne Holdings Denmark ApS Teradyne (India) Engineering Private Ltd. Teradyne International Holdings B.V. Teradyne International UK Holdings Ltd. Teradyne Italia SrL Teradyne K.K. Teradyne Korea Ltd. Teradyne Limited Teradyne Malaysia Sdn. Bhd. Teradyne Philippines Limited Teradyne Robotics Holdings Denmark ApS Teradyne SAS Teradyne (Shanghai) Co., Ltd Teradyne Taiwan LLC Teradyne Thailand Limited. Energid Technologies Corporation GenRad, LLC Herco Technology Corp. P.L.S.T., Inc. (f/k/a Perception Laminates, Inc.) Eagle Test Systems, Inc. Nextest Systems Corporation Lemsys SA LitePoint Corporation LitePoint Europe A/S LitePoint Technology Limited LitePoint Technology (Shanghai) Company Ltd. LitePoint Vietnam Limited Mobile Industrial Robots A/S Mobile Industrial Robots, Inc. Mobile Industrial Robots GmbH Mobile Industrial Robots Pte. Ltd. MiR Robots S.L. MiR Robots (Shanghai) Co. Ltd. Universal Robots A/S Universal Robots (Spain) S.L. Universal Robots (Singapore) Pte. Ltd. Universal Robots (India) Pte. Ltd. Universal Robots (Shanghai) Co. Ltd. Universal Robots (USA), Inc. Universal Robots GmbH Universal Robots Mexico S.A. de C.V. Universal Robots (UK) Ltd UR Technology (Shanghai) Co. Ltd. AutoGuide, LLC Present Subsidiaries State or Jurisdiction Of Incorporation Singapore Canada Costa Rica Germany Denmark India The Netherlands United Kingdom Italy Japan Korea United Kingdom Malaysia Delaware Denmark France Peoples Republic of China Delaware Delaware Florida Delaware California California Delaware Delaware Switzerland Delaware Denmark Hong Kong Peoples Republic of China Socialist Republic of Vietnam Denmark Delaware Germany Singapore Spain Peoples Republic of China Denmark Spain Singapore India Peoples Republic of China Delaware Germany Mexico United Kingdom People Republic of China Delaware * Indirect subsidiaries whose voting securities are 100% controlled by Teradyne, Inc. Exhibit 21.1 Percentage of Voting Securities Owned 100%* 100% 100% 100%* 100%* 100%* 100% 100%* 100%* 100% 100%* 100%* 100%* 100% 100%* 100% 100%* 100%* 100% 100% 100% 100% 100% 100% 100% 100%* 100% 100%* 100%* 100%* 100%* 100%* 100%* 100%* 100%* 100%* 100%* 100%* 100%* 100%* 100%* 100%* 100%* 100%* 100%* 100%* 100%* 100% CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (Nos. 333-188824; 333-177246; 333-159723; 333-155564; 333-149017; 333-143231; 333-134519; 333-116632; 333-101983; 333-68074; 333-56373; 333-32547; and 333-07177) of Teradyne, Inc. of our report dated February 22, 2021 relating to the consolidated financial statements and financial statement schedule and the effectiveness of internal control over financial reporting, which appears in this Form 10-K. Exhibit 23.1 /s/ PricewaterhouseCoopers LLP Boston, Massachusetts February 22, 2021 EXHIBIT 31.1 I, Mark E. Jagiela, certify that: 1. I have reviewed this annual report on Form 10-K of Teradyne, Inc.; CERTIFICATIONS 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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; (c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and (d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and 5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. Date: February 22, 2021 By: /s/ MARK E. JAGIELA Mark E. Jagiela Chief Executive Officer EXHIBIT 31.2 I, Sanjay Mehta, certify that: 1. I have reviewed this annual report on Form 10-K of Teradyne, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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; (c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and (d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and 5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. Date: February 22, 2021 By: /s/ SANJAY MEHTA Sanjay Mehta Chief Financial Officer CERTIFICATION PURSUANT TO 18 U.S.C SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 EXHIBIT 32.1 In connection with the Annual Report of Teradyne, Inc. (the “Company”) on Form 10-K for the period ending December 31, 2020 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Mark E. Jagiela, Chief Executive Officer of the Company, certify pursuant to 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ MARK E. JAGIELA Mark E. Jagiela Chief Executive Officer February 22, 2021 CERTIFICATION PURSUANT TO 18 U.S.C SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 EXHIBIT 32.2 In connection with the Annual Report of Teradyne, Inc. (the “Company”) on Form 10-K for the period ending December 31, 2020 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Sanjay Mehta, Chief Financial Officer of the Company, certify pursuant to 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ SANJAY MEHTA Sanjay Mehta Chief Financial Officer February 22, 2021 

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