Income Taxes

9 Months Ended

Oct. 01, 2023

Income Taxes

Q. INCOME TAXES

A reconciliation of the United States federal statutory corporate tax rate to Teradyne’s effective tax rate was as follows:

	For the Three Months  Ended						For the Nine Months  Ended
	October 1, 2023			October 2, 2022			October 1, 2023			October 2, 2022
U.S. statutory federal tax rate		21.0	%		21.0	%		21.0	%		21.0	%
Non-deductible officers' compensation		1.3			1.8			1.1			1.4
Tax credits		(4.9	)		(2.1	)		(3.4	)		(1.9	)
International provisions of the U.S. Tax Cuts and Jobs Act of 2017		(3.4	)		(1.4	)		(3.0	)		(1.2	)
Foreign taxes		(0.6	)		(0.6	)		(0.8	)		(2.4	)
Discrete expense related to foreign currency gain or loss		0.9			0.1			0.8			0.4
Discrete benefit related to tax credits		(4.4	)		—			(1.6	)		—
Discrete benefit related to equity compensation		(0.3	)		(0.1	)		(1.0	)		(1.9	)
Other, net		1.6			0.2			0.9			0.4
Effective tax rate		11.2	%		18.9	%		14.0	%		15.8	%

On a quarterly basis, Teradyne evaluates the realizability of the deferred tax assets by jurisdiction and assesses the need for a valuation allowance. As of October 1, 2023, Teradyne believes that it will ultimately realize the deferred tax assets recorded on the condensed consolidated balance sheet. However, should Teradyne believe that it is more-likely-than-not that the deferred tax assets would not be realized, the tax provision would increase in the period in which Teradyne determined that the realizability was not likely. Teradyne considers the probability of future taxable income and historical profitability, among other factors, in assessing the realizability of the deferred tax assets.

As of October 1, 2023 and December 31, 2022, Teradyne had $16.5 million and $15.6 million, respectively, of reserves for uncertain tax positions. The $0.9 million net increase in reserves for uncertain tax positions is related to U.S. federal research and development credits generated in the current year.

As of October 1, 2023, Teradyne estimates that it is reasonably possible that the balance of unrecognized tax benefits may decrease approximately $0.1 million in the next twelve months because of a lapse of statutes of limitation. The estimated decrease relates to U.S. state research and development credits.

Teradyne recognizes interest and penalties related to income tax matters in income tax expense. As of October 1, 2023 and December 31, 2022, $0.6 million and $0.4 million, respectively, of interest and penalties were accrued for uncertain tax positions. For the nine months ended October 1, 2023 and October 2, 2022, an expense of $0.2 million and $0.1 million, respectively, was recorded for interest and penalties related to income tax items.

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 due to the tax holiday for the nine months ended October 1, 2023, was $1.7 million, or $0.01 per diluted share. The tax savings due to the tax holiday for the

nine months ended October 2, 2022, was $9.7 million, or $0.05 per diluted share. 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.

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