Statements in this Quarterly Report on Form
10-Q
which are not historical facts, so called "forward-looking statements," are made
pursuant to the safe harbor provisions of Section 21E of the Securities Exchange
Act of 1934, as amended. Investors are cautioned that all forward-looking
statements involve risks and uncertainties, including those detailed in our
filings with the Securities and Exchange Commission. See also Part II, Item 1A
of this Quarterly Report on Form
10-Q
and Part I, Item 1A "Risk Factors" in our Annual Report on Form
10-K
for the year ended December 31, 2019. Readers are cautioned not to place undue
reliance on these forward-looking statements which reflect management's analysis
only as of the date hereof. We assume no obligation to update these
forward-looking statements to reflect actual results or changes in factors or
assumptions affecting forward-looking statements, except as may be required by
law.
Overview
We are a leading global supplier of 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 the 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
and light industrial customers to improve quality, increase manufacturing and
material handling efficiency and decrease manufacturing costs. Our automatic
test equipment and industrial automation products and services include:

  •   semiconductor test ("Semiconductor Test") systems;



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



  •   industrial automation ("Industrial Automation") products; and



  •   wireless test ("Wireless Test") systems.


We have a customer base which includes integrated device manufacturers ("IDMs"),
outsourced semiconductor assembly and test providers ("OSATs"), original
equipment manufacturers ("OEMs"), wafer foundries, fabless companies that
design, but contract with others for the manufacture of integrated circuits
("ICs"), developers of wireless devices and consumer electronics, manufacturers
of circuit boards, automotive suppliers, wireless product manufacturers, storage
device manufacturers, aerospace and military contractors, and distributors that
sell collaborative robots, autonomous mobile robots and wireless test systems.
The sales of our products and services are dependent, to a large degree, on
these customers who are subject to cyclical trends in the demand for their
products. These cyclical periods have had, and will continue to have, a
significant effect on our business because our customers often delay or
accelerate purchases in reaction to changes in their businesses and to demand
fluctuations in the semiconductor, electronics and industrial automation
industries. Historically, these demand fluctuations have resulted in significant
variations in our results of operations.
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 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.
On January 30, 2019, we acquired all of the issued and outstanding shares of
Lemsys SA ("Lemsys") for a total purchase price of approximately $9.1 million.
Lemsys strengthens our position in the electrification trends of vehicles,
solar, wind, and industrial applications. Lemsys is included in our
Semiconductor Test segment.
On November 13, 2019, we acquired 100% of the membership interests of AutoGuide,
LLC ("AutoGuide"), a maker of high payload AMRs, an emerging and fast-growing
segment of the global forklift market. The total purchase price was
approximately $81.6 million, which included cash paid of approximately
$57.6 million and $24.0 million in fair value of contingent consideration
payable upon achievement of certain performance targets, extending potentially
through 2022. The maximum contingent consideration that could be paid is
$106.9 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.
We believe our recent acquisitions have enhanced our opportunities for growth.
We intend to continue to invest in our business, grow market share in our
markets and expand further our addressable markets while tightly managing our
costs.

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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 could disrupt our business, workforce and operations, as well as
the operations of our customers, contract manufacturers and suppliers for an
uncertain period of time. We are continuing to monitor the rapidly evolving
situation regarding the
COVID-19
pandemic and its impact on our business, results of operations, financial
condition, liquidity and cash flows. However, despite careful tracking, 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, the duration and
continued spread of the outbreak, its severity, the 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' 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 third quarter 2020 financial
results or to our future financial results. In addition, restrictions on our
access to manufacturing facilities or on our support operations or workforce, or
similar limitations for our contract manufacturers and suppliers, and
restrictions or disruptions affecting transportation, such as reduced
availability of transportation and increased border controls or closures, could
limit our capacity to meet customer demand which could have a material adverse
effect on our financial condition and results of operations. These measures have
impacted and may further impact our workforce and operations, as well as those
of our customers, contract manufacturers and suppliers. The constraints and
limits imposed on our operations may slow or diminish our production and
research and development activities as well as application support projects with
our customers. At this time, application support projects are largely on track
with employees assisting customers
on-site
where necessary but with the use of enhanced safety protocols. Research and
development projects are, with minor exceptions, on schedule despite the rapid
shift of a significant number of our engineers working remotely. While
governmental measures may be modified or extended, we expect that our
manufacturing and research and development 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 yet 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. To mitigate the risk of any
potential supply interruptions, we may choose to increase certain inventory
levels during the quarter. Additionally, restrictions or disruptions affecting
transportation, such as reduced availability of air transport, port closures and
increased border controls or closures, have led in some instances to 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.

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  Table of Contents
Demand
The
COVID-19
pandemic has significantly increased economic uncertainty in our markets, which
could result in a significant decrease in demand for our products for an
uncertain period of time. Demand for our Test products was strong throughout the
third quarter and into the fourth quarter. While there is incremental softening
in the automotive sector, there is 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
third quarter from the low point in the second quarter. We anticipate that 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 uncertainty related to the anticipated impact of the
COVID-19
pandemic on our future results, we believe our business model, our current cash
reserves and the recent steps we have taken to manage our cash flow, such as
suspending our stock repurchase program, leave us well-positioned to manage our
business through this crisis as it continues to unfold. We have a strong balance
sheet as well as an operating model that can flex up and down with extreme
demand swings and still remain profitable. Based on our analysis, we believe our
existing balances of cash and cash equivalents and our currently anticipated
operating cash flows will be sufficient to meet our working capital needs and
other capital and liquidity requirements for the next twelve months. However,
due to the uncertainty related to the future impact of the
COVID-19
pandemic, in order to bolster our liquidity position, on May 1, 2020 we entered
into a credit agreement providing for a three-year, senior secured revolving
credit facility of $400 million as further described in Note H: "Debt." As of
November 2, 2020, we have not borrowed any funds under the credit facility.
While test demand remained strong at the beginning of our fourth quarter and our
balance sheet has over $1 billion in available cash and marketable securities
with no short-term debt as of November 2, 2020, the impact of the
COVID-19
pandemic on short-term Test and Industrial Automation demand remain uncertain.
We are continuing to monitor the rapidly evolving situation regarding the
COVID-19
pandemic and guidance from government authorities around the world, including
federal, state and local public health authorities and may take additional
actions based on their recommendations. 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 which are critical to understanding our business
and our results of operations. There have been no significant changes during the
nine months ended September 27, 2020 to the items disclosed as our critical
accounting policies and estimates in Management's Discussion and Analysis of
Financial Condition and Results of Operations in our Annual Report on Form
10-K
for the fiscal year ended December 31, 2019, except as noted below.
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 November 2, 2020, the date of issuance
of this Quarterly Report on Form
10-Q.
These estimates may change, as new events occur and additional information is
obtained. Actual results could differ significantly from these estimates under
different assumptions or conditions.
Goodwill
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.
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.

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Preparation of Financial Statements and Use of Estimates
The preparation of consolidated financial statements requires management to make
estimates and judgments that affect the amounts reported in the financial
statements. Due to the
COVID-19
pandemic, there has been uncertainty and disruption in the global economy and
our markets. Teradyne 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 November 2, 2020, the date of
issuance of this Quarterly Report on Form
10-Q.
These estimates may change, as new events occur and additional information is
obtained. Actual results may differ significantly from these estimates under
different assumptions or conditions.

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