TERADYNE INC. Overview
We are a leading global supplier of automated test equipment and robotics
products. We design, develop, manufacture and sell automatic test systems and
robotics products. Our automatic test systems are used to test semiconductors,
wireless products, data storage and complex electronics systems in many
industries including consumer electronics, wireless, automotive, industrial,
computing, communications, and aerospace and defense industries. Our Robotics
products include collaborative robotic arms and autonomous mobile robots
("AMRs") used by global manufacturing, logistics and industrial customers to
improve quality, increase manufacturing and
28--------------------------------------------------------------------------------
Table of Contents
material handling efficiency and decrease manufacturing and logistics costs. Our automatic test equipment and robotics products and services include:
• semiconductor test ("Semiconductor Test") systems;
• storage and system level test ("Storage Test") systems, defense/aerospace
("Defense/Aerospace") test instrumentation and systems and circuit-board
test and inspection ("Production Board Test") systems (collectively these
products represent "System Test");
• wireless test ("Wireless Test") systems; and
• robotics ("Robotics") products.
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.
In 2022, the demand in the mobility and compute segments of our Semiconductor
Test business was lower due to end market slowdown in these segments as well as
a slower technology transition in one of our largest end-markets. While the
depth of the slowdown and the timing of the recovery are uncertain, we expect
the ramp of 3 nanometer process technology starting in 2023 followed by
gate-all-around process technology, increasing multichip packaging, additional
device complexity and unit growth will drive additional demand for test over our
four year forecast period.
Our Robotics segment consists of Universal Robots A/S ("UR"), a leading supplier
of collaborative robotic arms and Mobile Industrial Robots A/S ("MiR"), a
leading maker of AMRs for industrial automation. In September 2022 , we merged
MiR and AutoGuide, LLC ("AutoGuide"), a maker of high payload AMRs, to become a
single supplier of AMRs. The market for our Robotics segment products is
dependent on the adoption of new automation technologies by large manufacturers
as well as small and medium enterprises ("SMEs") throughout the world. We expect
Robotics sales channel expansion combined with new products to drive the growth
in 2023.
Both our test and robotics businesses may continue to be influenced by supply
constraints, which could impact our revenue and costs in 2023. In 2022,
inflation had minimal effect on our results. In 2022, we were unable to supply
approximately $20 million of revenue in our test businesses for which we had
customer demand.
Our financial statements are denominated in U.S. dollars. While the majority of
our revenues are in U.S. dollars, approximately 70 percent of our Robotics
revenue is denominated in foreign currencies. In 2022, the strengthening of the
U.S. dollar was a factor in lower than forecasted revenues in our Robotics
segment. Continued strengthening of the U.S. dollar would negatively affect
Robotics revenue growth in 2023.
Our corporate strategy continues to focus on profitably gaining market share in
our test businesses through the introduction of differentiated products that
target expanding segments and accelerating growth through continued investment
in our Robotics businesses. We plan to continue investing in our growth while
balancing capital allocations between returning capital to our shareholders
through stock repurchases and dividends and using capital for acquisitions.
Impact of the COVID-19 Pandemic on our Business
During the novel coronavirus (COVID-19) pandemic, government authorities implemented numerous measures in an effort to contain the spread of the virus, such as travel bans and restrictions, limitations on
29--------------------------------------------------------------------------------
Table of Contents
gatherings or social distancing requirements, quarantines, shelter-in-place orders, vaccination and testing mandates, and business limitations and shutdowns. Additionally, we took proactive, aggressive action to protect the health and safety of our employees, customers, contract manufacturers and suppliers, and to comply with all government orders around the globe. The spread of COVID-19 caused us to modify our business practices, which included implementing social distancing protocols, limiting employee travel and requiring employees to work remotely. These measures 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. Due to the COVID-19 pandemic, there has also 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 ofFebruary 22, 2023 , the date of issuance of this Annual Report on Form 10-K. We believe the COVID-19 pandemic, and the numerous measures implemented by authorities in response, adversely impacted our results of operations, including by increasing costs, but we cannot accurately estimate the amount of the impact to our 2022 and 2021 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 a continuation 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. We experienced interruptions to our supply chain as a result of the COVID-19 pandemic. Our suppliers have faced and may continue to face difficulties maintaining operations in light of COVID-19 disruptions and government-ordered restrictions. Our supply chain team, and our suppliers, continue to manage numerous supply, production, and logistics obstacles caused by the pandemic. There is no assurance that these efforts will be successful. The COVID-19 pandemic may continue to disrupt our ability to obtain components required to manufacture our products, adversely affecting our operations and in some instances resulting in higher costs and delays, both for obtaining components and shipping finished goods to customers. We will continue to monitor the COVID-19 pandemic. 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. 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.
Supply Chain Constraints and Inflationary Pressures
The global supply shortage of electrical components, including semiconductor
chips, continued to impact our supply chain in 2022. As a result, we
experienced, and expect to continue to experience, increases in our lead times
and costs for certain components for certain of our products. In addition, in
2022, inflationary pressures contributed to increased costs for product
components and wage inflation, which had minimal impact on our cost of products,
gross margin and profit for the year. Our supply chain team, and our suppliers,
continue to manage numerous supply, production, and logistics obstacles. In an
effort to mitigate these risks, in some cases, we have incurred higher costs due
to investment in supply chain resiliency and to secure available inventory or
have extended or placed non-cancellable purchase commitments with semiconductor
suppliers, which introduces inventory risk if our forecasts and assumptions
prove inaccurate. We have also sourced components from additional suppliers and
multi-sourced and pre-ordered components and finished goods inventory in some
cases in an effort to reduce the impact of the adverse supply chain conditions
we have experienced. However, if we are unable to secure manufacturing
capacities from our current or new suppliers and contract manufacturers, on
30--------------------------------------------------------------------------------
Table of Contents
acceptable terms or at all, or successfully manage our purchase commitments and inventory for components, our ability to deliver our products to our customers in the desired quantities, at competitive prices or in a timely manner may be negatively impacted for 2023.
Impact of
Russia's invasion ofUkraine , inFebruary 2022 , did not have a significant direct impact on our business as we have minimal business inRussia andUkraine . However, following the invasion, theU.S. and other countries imposed significant sanctions against the Russian government and many Russian companies and individuals. Although we do not have significant operations inRussia , the sanctions andRussia's response to the sanctions, have impacted our business in other countries and could have a negative impact on our future revenue and supply chain, either of which could adversely affect our business and financial results. In addition, the global economic uncertainty following the invasion, sanctions andRussia's response to the sanctions could impact demand for our products.
Impact of
OnOctober 7, 2022 , theU.S. Department of Commerce published new regulations restricting the export toChina of advanced semiconductors, supercomputer technology, equipment for the manufacturing of advanced semiconductors and components and technology for the manufacturing inChina of certain semiconductor manufacturing equipment. The new restrictions are lengthy and complex. We continue to assess the impact of these regulations on our business. We have determined that restrictions on the sale of semiconductor testers inChina to test certain advanced semiconductors will impact our sales to certain companies inChina . Several multinational companies manufacturing these advanced semiconductors inChina have obtained one-year licenses allowing suppliers such as Teradyne to continue to provide testers to the facilities operated by these companies. We expect that other companies manufacturing advanced semiconductors inChina will not receive licenses, thereby restricting our ability to provide testers to the facilities operated by these companies that do not receive a license. We are also filing license requests to sell to and support certain customers inChina for certain end uses that, if granted, may reduce the impact of these restrictions on our business. At this time, we do not know the impact these end user and end use restrictions will have on our business inChina or on future revenues. In addition to the specific restrictions impacting our business, the regulations may have an adverse impact on certain actual or potential customers and on the global semiconductor industry. To the extent the regulations impact actual and potential customers or disrupt the global semiconductor industry, our business and revenues will be adversely impacted. We also have determined that the restrictions on the export of certainU.S. origin components and technology for use in the development and production inChina of certain semiconductor manufacturing equipment impact our manufacturing and development operations inChina . We have received a temporary authorization from theU.S. Department of Commerce allowing us to continue our manufacturing and development operations inChina until theU.S. Department of Commerce issues a license to replace this temporary authorization. We cannot assess the likelihood or timing of receiving this license. In addition to requesting a license, we are implementing procedures for minimizing the impact of these new regulations on our operations inChina , but there is no assurance that these procedures will succeed.
See Part II-Item 1A, "Risk Factors," included herein for updates to our risk factors regarding risks associated with the COVID-19 pandemic, supply chain issues and international conflicts.
Critical Accounting Policies and Estimates
We have identified the policies and estimates 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 estimates 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. For a full description of our
accounting policies related to the below items refer to Note B. Accounting
Policies, included in the Notes to Consolidated Financial Statements in this
Annual Report.
31
--------------------------------------------------------------------------------
Table of Contents
Critical accounting estimates are complex and may require significant judgment by management. Changes to the underlying assumptions may have a material impact on our financial condition and results of operations. These estimates may change, as new events occur, and additional information is obtained. Actual results could differ significantly from these estimates under different assumptions or conditions.
Revenue Recognition
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 requires judgment in the determination of performance
obligations and allocation of the transaction price to performance obligations.
We often sell bundled orders that include both product and services or multiple
different products within the same order. We evaluate each of the deliverables
to determine if it meets the definition of a performance obligation, which
requires that it is capable of being distinct and distinct within the context of
the contract. This determination is based on an assessment of contractual rights
of the contract and the ability of the performance obligation to perform on its
own or with readily available resources. In bundled transactions we estimate the
standalone selling price of each identified performance obligation and use that
estimate to allocate the transaction price among said performance obligations.
The estimated standalone selling price is determined using all information
reasonably available to us, including standalone transactions, market
information and other observable inputs.
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 evaluate all inventories for net realizable value. 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 within the forecasted demand window, is written down to estimated net realizable value. Forecasted demand information is obtained from the sales and marketing groups and incorporates factors such as backlog and future revenues. The demand forecast is based on assumptions around the product life and customer and market forecasts.
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. 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 onU.S. Qualified Pension Plan ("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 2.0% was an appropriate rate of return on assets to use for 2022. TheDecember 31, 2022 asset allocation for ourU.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. The discount rate that we utilized for determining future pension obligations for theU.S. Plan is based on the FTSE Pension Index adjusted for theU.S. Plan's expected cash flows and was 4.95% atDecember 31, 2022 , up from 2.65% atDecember 31, 2021 . We estimate that in 2023 we will recognize approximately$0.4 million of pension expense for theU.S. Plan. TheU.S. Plan pension expense estimate for 2023 is based on a 4.95% 32
--------------------------------------------------------------------------------
Table of Contents
discount rate and a 4.75% 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.
We assess goodwill for impairment at least annually in the fourth quarter, as ofDecember 31 , on a reporting unit basis, or more frequently, when events and circumstances occur indicating that the recorded goodwill may be impaired. We review intangible and 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.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. Impairment of intangible and long-lived assets would result in the asset being written down to its estimated fair value. The calculated fair value of a reporting unit or intangible or long-lived asset is dependent upon discounted cash flow ("DCF") models, discount rates, and market multiples. DCF models rely on our forecasted mid-term plans which are subjective based on customer or market conditions and can change materially. We utilize third party specialists when determining discount rates and selected market multiples. A change in any of these key assumptions could result in a reporting unit, intangible asset, or long-lived asset being impaired in a future period.
Convertible Debt
We adopted Accounting Standards Update ("ASU") ASU 2020-06 - "Debt-Debt with
Conversion and Other Options and Derivatives and Hedging-Contracts in Entity's
Own Equity," on January 1, 2022 using the modified retrospective method of
adoption. As a result of adoption, we recorded an increase of $1.4 million to
current debt for unsettled shares, an increase of $1.8 million to deferred tax
assets, an increase of $6.6 million to long-term debt for unamortized debt
discount, and an increase to retained earnings of $94.6 million for the
reclassification of the equity component. Mezzanine equity representing
unsettled shares value was reduced to zero and additional paid-in capital was
reduced by $100.8 million . In accordance with ASU 2020-06, we account for a
convertible debt instrument as a single liability measured at its amortized
cost, as long as no other features require bifurcation and recognition as
derivatives. Unsettled shares are recorded in current debt, and there is no
recognition of a debt discount, which was previously amortized to interest
expense. Settled shares reduce the outstanding debt balance in an amount equal
to the cash paid, but do not result in any gain or loss on extinguishment. We
use the if-converted method in the diluted EPS calculation for convertible
instruments.
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. Evaluating the positive and negative evidence regarding the realization of the net deferred tax assets in accordance with ASC 740, "Accounting for Income Taxes" is a key judgment in the valuation of 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.
Results of Operations
Information pertaining to fiscal year 2020 results of operations, including a year-to-year comparison against fiscal year 2021, was included in our Annual Report on Form 10-K for the year endedDecember 31, 2021 under Part II, Item 7, "Management's Discussion and Analysis of Financial Position and Results of Operations," which was filed with theSEC onFebruary 23, 2022 . This information is incorporated by reference herein. 33
--------------------------------------------------------------------------------
Table of Contents
The following table sets forth the percentage of total net revenues included in our consolidated statements of operations:
Years Ended December 31,
2022 2021
Percentage of revenues:
Revenues:
Products 82.1 % 86.3 %
Services 17.9 13.7
Total revenues 100.0 100.0
Cost of revenues:
Cost of products 33.0 35.1
Cost of services 7.8 5.3
Total cost of revenues (exclusive of acquired
intangible assets amortization shown separately
below) 40.8 40.4
Gross profit 59.2 59.6
Operating expenses:
Selling and administrative 17.7 14.8
Engineering and development 14.0 11.5
Acquired intangible assets amortization 0.6 0.6
Restructuring and other 0.5 0.3
Total operating expenses 32.8 27.2
Income from operations 26.4 32.4
Non-operating (income) expenses:
Interest income (0.2 ) (0.1 )
Interest expense 0.1 0.5
Other (income) expense, net (0.2 ) 0.7
Income before income taxes 26.6 31.4
Income tax provision 4.0 4.0
Net income 22.7 % 27.4 %
Revenues
Revenues for our reportable segments were as follows:
2021-2022
Dollar
2022 2021 Change
(in millions)
Semiconductor Test $ 2,080.6 $ 2,642.3 $ (561.7 )
System Test 469.3 467.7 1.6
Robotics 403.1 375.9 27.2
Wireless Test 201.7 216.9 (15.2 )
Corporate and Eliminations 0.3 - 0.3
$ 3,155.0 $ 3,702.9 $ (547.9 )
34
--------------------------------------------------------------------------------
Table of Contents
The decrease in Semiconductor Test revenues of$561.7 million , or 21.3%, was driven primarily by lower tester sales in mobile and high performance compute processor applications, partially offset by an increase in advance driver assistance systems ("ADAS") tester sales. The increase in System Test revenues of$1.6 million , or 0.3%, was primarily due to higher sales in Defense/Aerospace and in Production Board Test, partially offset by a decline in Storage Test sales of system level testers. The rise in Robotics revenues of$27.2 million , or 7.2%, was driven primarily by higher demand for UR's collaborative robotic arms and MiR's autonomous mobile robots, partially offset by changes in foreign exchange rates. The decrease in Wireless Test revenues of$15.2 million , or 7.0%, was primarily due to a decrease in cellular test product sales, partially offset by an increase in ultra-wide band test product sales. Our reportable segments accounted for the following percentages of consolidated revenues: 2022 2021 Semiconductor Test 66 % 71 % System Test 15 13 Robotics 13 10 Wireless Test 6 6 100 % 100 %
Revenues by country as a percentage of total revenues were as follows (1):
2022 2021
Taiwan 20 % 30 %
Korea 17 14
China 16 17
United States 15 11
Europe 9 7
Japan 5 4
Malaysia 5 4
Thailand 4 4
Philippines 4 5
Singapore 3 3
Rest of the World 2 1
100 % 100 %
(1) Revenues attributable to a country are based on the location of the customer
site.
The breakout of product and service revenues was as follows:
2021-2022
Dollar
2022 2021 Change
(in millions)
Product revenues $ 2,591.6 $ 3,196.6 $ (605.0 )
Service revenues 563.5 506.3 57.2
$ 3,155.0 $ 3,702.9 $ (547.9 )
35
--------------------------------------------------------------------------------
Table of Contents
Our product revenues decreased$605.0 million , or 18.9%, primarily due to lower tester sales in Semiconductor Test for mobile and high performance compute processor applications, and a decrease in cellular test product sales in Wireless Test, partially offset by the rise in Robotics revenues driven primarily by elevated demand for collaborative robotic arms and autonomous mobile robots. Our service revenues increased$57.2 million or 11.3% primarily in Semiconductor Test and Storage Test. In 2021, revenues from Taiwan Semiconductor Manufacturing Company Ltd., a customer of our Semiconductor Test segment, accounted for 12% of our consolidated revenues. In 2022 and 2021, our five largest direct customers in aggregate accounted for 26% and 33% of our consolidated revenues, respectively. We estimate consolidated revenues driven by Qualcomm, a customer of our Semiconductor Test, System Test and Wireless Test segments, combining direct and indirect sales, accounted for approximately 11% of our consolidated revenues in 2022 and less than 10% in 2021. We estimate consolidated revenues driven by one OEM customer, of our Semiconductor Test and Wireless Test segments, combining direct sales to that customer with sales to the customer's OSATs, accounted for less than 10% of our consolidated revenues in 2022 and 19% of our consolidated revenues in 2021. Gross Profit 2021-2022 Dollar / Point 2022 2021 Change (in millions) Gross profit$ 1,867.2 $ 2,206.7 $ (339.5 ) Percent of total revenues 59.2 % 59.6 % (0.4 ) Gross profit as a percent of total revenues decreased by 0.4 points, primarily due to higher service costs partially offset by favorable product mix and lower variable compensation.
The breakout of product and service gross profit was as follows:
2021-2022
Dollar /
Point
2022 2021 Change
(in millions)
Product gross profit
0.5
Service gross profit
(4.8 )
Service revenues gross profit percentage decreased 4.8% primarily due to lower margins in Semiconductor Test driven by an increase in headcount.
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 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 within the forecasted demand window, is written down to estimated net realizable value. During the year endedDecember 31, 2022 , we recorded an inventory provision of$31.5 million included in cost of revenues, primarily due to downward revisions to previously forecasted demand levels for certain products. Of the$31.5 million of total excess and obsolete provisions,$21.5 million was related to Semiconductor Test,$4.6 million was related to Wireless Test,$3.7 million was related to Robotics, and$1.7 million was related to System Test. 36
--------------------------------------------------------------------------------
Table of Contents
During the year endedDecember 31, 2021 , we recorded an inventory provision of$15.5 million included in cost of revenues, primarily due to downward revisions to previously forecasted demand levels for certain products. Of the$15.5 million of total excess and obsolete provisions,$6.7 million was related to Semiconductor Test,$6.4 million was related to Robotics,$1.8 million was related to Wireless Test, and$0.6 million was related to System Test. During the years endedDecember 31, 2022 and 2021, we scrapped$8.8 million and$10.9 million of inventory, respectively, and sold$1.8 million and$2.5 million of previously written-down or written-off inventory, respectively. As ofDecember 31, 2022 , we had inventory related reserves for amounts which had been written-down or written-off totaling$136.8 million . We have no pre-determined timeline to scrap the remaining inventory.
Selling and Administrative
Selling and administrative expenses were as follows:
2021-2022
2022 2021 Change
(in millions)
Selling and administrative $ 558.1 $ 547.6 $ 10.5
Percent of total revenues 17.7 % 14.8 %
The increase of
Engineering and Development
Engineering and development expenses were as follows:
2021-2022
2022 2021 Change
(in millions)
Engineering and development
The increase of
Restructuring and Other
During the year endedDecember 31, 2022 , we recorded a charge of$14.7 million related to the arbitration claim filed against Teradyne andAutoGuide related to an earn-out dispute, which was settled onMarch 25, 2022 for$26.7 million ,$2.9 million of severance charges primarily in Robotics, and a charge of$2.7 million for an increase in environmental and legal liabilities, partially offset by a$3.4 million gain on sale of an asset. During the year endedDecember 31, 2021 , we recorded a charge of$12.0 million related to the arbitration claim filed against Teradyne andAutoGuide related to an earn-out dispute,$1.5 million of severance charges primarily in Robotics,$0.5 million of acquisition related compensation and expenses and$2.5 million for an increase in environmental and legal liabilities, offset by a$7.2 million gain for the decrease in the fair value of theAutoGuide contingent consideration liability. 37
--------------------------------------------------------------------------------
Table of Contents
Interest and Other
2021-2022
2022 2021 Change
(in millions)
Interest income $ (6.4 ) $ (2.6 ) $ (3.8 )
Interest expense 3.7 17.8 (14.1 )
Other (income) expense, net (5.8 ) 24.6 (30.4 )
Interest income increased $3.8 million due to higher interest rates. Interest
expense decreased $14.1 million primarily due to the January 1, 2022 adoption of
ASU 2020-06 which eliminated the amortization of the debt discount which was
$10.3 million in 2021. Other (income) expense, net decreased by $30.4 million
primarily due to $28.8 million losses on convertible debt conversions recognized
in 2021 and an increase in pension actuarial gains, from $2.2 million gain in
2021 to $25.6 million gain in 2022, partially offset by changes in gains/losses
on equity securities, from a $7.2 million gain in 2021 to a $9.0 million loss in
2022, and a $4 million increase in foreign exchange losses.
Income (Loss) Before Income Taxes
2021-2022
2022 2021 Change
(in millions)
Semiconductor Test $ 634.5 $ 977.0 $ (342.5 )
System Test 166.9 163.1 3.8
Wireless Test 66.8 83.5 (16.7 )
Robotics (16.2 ) (8.2 ) (8.0 )
Corporate and Eliminations (1) (11.6 ) (54.5 ) 42.9
$ 840.4 $ 1,161.0 $ (320.6 ) (1) Included in Corporate and Eliminations are interest income, interest expense,
net foreign exchange gains (losses), intercompany eliminations, pension and
postretirement plan actuarial gains (losses), legal and environmental fees,
contingent consideration adjustments, acquisition related charges and
compensation and loss on convertible debt conversions in 2021.
The decrease in income before income taxes in Semiconductor Test was driven primarily by lower revenues in mobile and high performance compute processor applications, partially offset by lower variable compensation. The increase in income before income taxes in System Test was primarily due to higher sales in Defense/Aerospace and in Production Board Test, partially offset by a decline in Storage Test sales of system level testers. The decrease in income before income taxes in Wireless Test was driven primarily by lower sales in cellular test products partially offset by elevated sales in ultra-wide band test products. The decrease in income before income taxes in Robotics, was driven primarily by an increase in headcount and greater spending, partially offset by higher revenue for collaborative robotic arms and autonomous mobile robots. The change in income before income taxes in Corporate and Eliminations of$42.9 million was due primarily to$28.8 million of losses on convertible debt conversions recognized in 2021 and an increase of$23.4 million in pension actuarial gains in 2022. Income Taxes
Income tax expense for 2022 and 2021, totaled
The increase in the effective tax rate from 2021 to 2022 is primarily
attributable to a shift in the geographic distribution of income, which
increased the income subject to taxation in higher tax rate jurisdictions
relative to lower tax rate jurisdictions, increases in expense from
38--------------------------------------------------------------------------------
Table of Contents
from non-deductible officer compensation. These increases in expense were
partially offset by increases in benefits from the
We qualify for a tax holiday inSingapore by fulfilling the requirements of an agreement with theSingapore Economic Development Board under which certain headcount and spending requirements must be met. The tax savings attributable to theSingapore tax holiday for the years endedDecember 31, 2022 and 2021 were$16.0 million or$0.09 per diluted share and$33.3 million or$0.18 per diluted share, respectively. InNovember 2020 , we entered into an agreement with theSingapore Economic Development Board which extended ourSingapore tax holiday under substantially similar terms to the agreement which expired onDecember 31, 2020 . The new tax holiday is scheduled to expire onDecember 31, 2025 .
Capital Resources and Material Cash Requirements
Our cash, cash equivalents and marketable securities balance decreased by$495 million in 2022 to$1,005 million . Cash decreased due to stock repurchases in the amount of$752 million , quarterly cash dividend payments in the amount of$70 million , payments of convertible debt principal in the amount of$67 million partially offset by cash generated by our global operations. Operating activities during 2022 provided cash of$577.9 million . Changes in operating assets and liabilities used cash of$272.6 million . This was due to a$170.9 million increase in operating assets and a$101.7 million decrease in operating liabilities. The increase in operating assets was due to a$140.7 million increase in prepayments and other assets due to prepayments to our contract manufacturers, an$80.8 million increase in inventories, partially offset by a$50.6 million decrease in accounts receivable due to lower sales. The decrease in operating liabilities was due to a$40.3 million decrease in accrued employee compensation, a$29.8 million decrease in income taxes, a$10.8 million decrease in accounts payable, a$9.3 million decrease in other accrued liabilities, a$6.2 million decrease in deferred revenue and customer advance payments, and$5.1 million of retirement plan contributions.
Investing activities during 2022 provided cash of
Financing activities during 2022 used cash of$893.0 million , due to$752.1 million used for the repurchase of 7.3 million shares of common stock at an average price of$103.69 per share,$69.7 million used for dividend payments,$66.8 million used for the payments of convertible debt principal, and$33.2 million used for payments related to net settlement of employee stock compensation awards, partially offset by$28.7 million from the issuance of common stock under employee stock purchase and stock option plans. Operating activities during 2021 provided cash of$1,098.4 million . Changes in operating assets and liabilities used cash of$98.8 million . This was due to a$227.1 million increase in operating assets and a$128.4 million increase in operating liabilities. The increase in operating assets was due to a$175.8 million increase in prepayments and other assets due to prepayments to our contract manufacturers, a$57.8 million increase in accounts receivable due to greater sales, partially offset by a$6.5 million decrease in inventories. The increase in operating liabilities was due to a$63.5 million increase in other accrued liabilities, a$35.1 million increase in accrued employee compensation, a$22.9 million increase in accounts payable, and a$9.9 million increase in deferred revenue and customer advance payments, partially offset by a$5.6 million decrease in income taxes, and$5.4 million of retirement plan contributions. 39
--------------------------------------------------------------------------------
Table of Contents
Investing activities during 2021 provided cash of
Financing activities during 2021 used cash of$1,008.6 million , due to$600.0 million used for the repurchase of 4.8 million shares of common stock at an average price of$125.74 per share,$343.0 million used for the payments of convertible debt principal,$66.0 million used for dividend payments, and$32.3 million used for payments related to net settlement of employee stock compensation awards, partially offset by$32.7 million from the issuance of common stock under employee stock purchase and stock option plans. InJanuary 2022 ,May 2022 ,August 2022 andNovember 2022 , our Board of Directors declared a quarterly cash dividend of$0.11 per share. Total dividend payments in 2022 were$69.7 million . InJanuary 2021 ,May 2021 ,August 2021 andNovember 2021 , our Board of Directors declared a quarterly cash dividend of$0.10 per share. Total dividend payments in 2021 were$66.0 million . InJanuary 2021 , our Board of Directors approved a repurchase program for up to$2.0 billion of common stock. In 2022, we repurchased 7.3 million shares of common stock for$752.1 million at an average price of$103.69 per share. In 2021, we repurchased 4.8 million shares of common stock for$600.0 million at an average price of$125.74 per share. The cumulative repurchases as ofDecember 31, 2022 , under this repurchase program were 12.0 million shares of common stock for$1,352.1 million at an average price per share of$112.44 . InJanuary 2023 , our Board of Directors cancelled the 2021 repurchase program and approved a new repurchase program for up to$2.0 billion of common stock. We intend to repurchase up to$500.0 million of common stock in 2023 subject to market conditions. 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. OnMay 1, 2020 , we entered into a credit agreement providing a three-year, senior secured revolving credit facility of$400 million . OnDecember 10, 2021 , the credit agreement was amended to extend the senior secured revolving credit facility toDecember 10, 2026 . OnOctober 5, 2022 , the credit agreement was amended to increase the amount of the credit facility to$750.0 million from$400.0 million . As ofFebruary 22, 2023 , we have not borrowed any funds under the credit facility. We expect operations to continue to be the primary source of cash to operate the business and meet material cash commitments, including any payments of convertible debt principal, our stock repurchase program, our quarterly dividends, our office lease obligations, contractual obligations related to inventory purchases and the construction of new facilities. 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. AtDecember 31, 2022 , our future contractual obligations were related to debt, leases, retirement plan liabilities, deferred tax benefits, and purchase obligations. See Note J. "Debt", Note I. "Leases", Note P. "Retirement Plans", and Note S. "Income Taxes" of Notes to Consolidated Financial Statements in this Annual Report for information about those obligations, which Notes are incorporated by reference into this section. Our purchase obligations were approximately$654.8 million , with$570.3 million expected to be paid within twelve months. 40
--------------------------------------------------------------------------------
Table of Contents
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 ofDecember 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 ofDecember 31 . For the year endedDecember 31, 2022 , our pension income, which includes theU.S. Qualified Pension Plan ("U.S. Plan"), certain qualified plans for non-U.S. subsidiaries, and aU.S. Supplemental Executive Defined Benefit Plan, was approximately$19.7 million . Pension income/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 onU.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 2.0% was an appropriate rate of return on assets to use for 2022. TheDecember 31, 2022 asset allocation for ourU.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 ofDecember 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 theU.S. Plan is based on the FTSE Pension Index adjusted for theU.S. Plan's expected cash flows and was 4.95% atDecember 31, 2022 , up from 2.65% atDecember 31, 2021 . We estimate that in 2023, we will recognize approximately$0.4 million of pension expense for theU.S. Plan. TheU.S. Plan pension expense estimate for 2023 is based on a 4.95% discount rate and a 4.75% 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
The assets of theU.S. Plan consist substantially of fixed income securities.U.S. Plan assets have decreased from$149.6 million atDecember 31, 2021 to$111.8 million atDecember 31, 2022 , while theU.S. Plan's liability decreased from$134.5 million atDecember 31, 2021 to$100.0 million atDecember 31, 2022 . In 2022, the decrease in plan assets and plan liability was due to an increase in interest rates. 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 2022, we made contributions of$3.2 million to theU.S. supplemental executive defined benefit pension plan, and$0.9 million to certain qualified plans for non-U.S. 41
--------------------------------------------------------------------------------
Table of Contents
subsidiaries. In 2023, we expect to contribute approximately$3.1 million to theU.S. supplemental executive defined benefit pension plan. Contributions to be made in 2023 to certain qualified plans for non-U.S. subsidiaries are based on local statutory requirements and are estimated at approximately$1.3 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 onMay 25, 2006 . At our annual meeting of stockholders heldMay 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 heldMay 12, 2015 , our stockholders approved an amendment to the 2006 Equity Plan to extend its term untilMay 12, 2025 . At our annual meeting of stockholders heldMay 7, 2021 , our stockholders approved an amendment to our 1996 Employee Stock Purchase Plan to increase the number of shares issuable thereunder by 3.0 million, for an aggregate of 33.4 million shares issuable thereunder.
The following table presents information about these plans as of
Number of securities Number of securities remaining
to be issued upon Weighted average available for future issuance
exercise of exercise price of under equity compensation
outstanding options, outstanding options, plans (excluding securities
Plan category warrants and rights warrants and rights reflected in column one)
Equity plans
approved by
shareholders 1,505 (1) $ 55.90 8,954 (2)
(1) Includes 1,317,544 shares of restricted stock units that are not included in
the calculation of the weighted average exercise price.
(2) Consists of 5,060,445 securities available for issuance under the 2006 Equity
Plan and 3,893,933 of securities available for issuance under the Employee
Stock Purchase Plan.
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 ofDecember 31, 2022 was 5,060,445 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
42--------------------------------------------------------------------------------
Table of Contents
Performance Graph
The following graph compares the change in our cumulative total shareholder return in our common stock with (i) theStandard & Poor's 500 Index and (ii) theMorningstar Global Semiconductor Equipment & Materials GR USD Industry Group . The comparison assumes$100.00 was invested onDecember 31, 2017 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. [[Image Removed: LOGO]]
Recently Issued Accounting Pronouncements
For the year ended
© Edgar Online, source
