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 theSecurities 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 endedDecember 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. OnJanuary 30, 2019 , we acquired all of the issued and outstanding shares ofLemsys 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. OnNovember 13, 2019 , we acquired 100% of the membership interests ofAutoGuide, 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. 30
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Table of Contents 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. 31
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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, onMay 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 ofNovember 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 ofNovember 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 endedSeptember 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 endedDecember 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 ofNovember 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 OnJanuary 26, 2017 , theFinancial 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 onJanuary 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 ofDecember 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 InJune 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 onJanuary 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. 32
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Table of Contents 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 ofNovember 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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