Goodwill and Intangible Assets

12 Months Ended

Dec. 31, 2021

Goodwill and Intangible Assets

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 2021, Teradyne performed the annual goodwill impairment test, completing a quantitative assessment for the Wireless Test, and System Test reporting units and qualitative assessment for the Industrial Automation reporting unit. There was no impairment as a result of the annual test performed in the fourth quarter of 2021. 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 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.

The changes in the carrying amount of goodwill by reportable segments for the years ended December 31, 2021 and 2020 are as follows:

	Industrial Automation			Wireless Test			Semiconductor Test			System Test			Total
	(in thousands)
Balance at December 31, 2019:
Goodwill	$	396,483		$	361,819		$	261,996		$	158,699		$	1,178,997
Accumulated impairment losses		—			(353,843	)		(260,540	)		(148,183	)		(762,566	)
		396,483			7,976			1,456			10,516			416,431
AutoGuide acquisition		(149	)		—			—			—			(149	)
Foreign currency translation adjustment		37,418			—			159			—			37,577
Balance at December 31, 2020:
Goodwill		433,752			361,819			262,155			158,699			1,216,425
Accumulated impairment losses		—			(353,843	)		(260,540	)		(148,183	)		(762,566	)
		433,752			7,976			1,615			10,516			453,859
Foreign currency translation adjustment		(27,781	)		—			(54	)		—			(27,835	)
Balance at December 31, 2021:
Goodwill		405,971			361,819			262,101			158,699			1,188,590
Accumulated impairment losses		—			(353,843	)		(260,540	)		(148,183	)		(762,566	)
	$	405,971		$	7,976		$	1,561		$	10,516		$	426,024

Intangible 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.

There were no events or circumstances indicating that the carrying value of intangible and long-lived assets may not be recoverable in 2021, 2020 and 2019.

Amortizable intangible assets consist of the following and are included in intangible assets, net on the balance sheets:

	December 31, 2021
	Gross Carrying Amount (1)		Accumulated Amortization (1)			Foreign Currency Translation Adjustment			Net Carrying Amount
	(in thousands)
Developed technology	$	272,547	$	(223,413	)	$	(4,093	)	$	45,041
Customer relationships		57,739		(48,921	)		209			9,027
Tradenames and trademarks		59,387		(37,237	)		(583	)		21,567
Total intangible assets	$	389,673	$	(309,571	)	$	(4,467	)	$	75,635

	December 31, 2020
	Gross Carrying Amount		Accumulated Amortization			Foreign Currency Translation Adjustment			Net Carrying Amount
	(in thousands)
Developed technology	$	272,547	$	(210,479	)	$	(1,610	)	$	60,458
Customer relationships		66,239		(54,524	)		305			12,020
Tradenames and trademarks		70,120		(42,344	)		685			28,461
Total intangible assets	$	408,906	$	(307,347	)	$	(620	)	$	100,939

(1) In 2021, $19.2 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, 2021, 2020, and 2019, was $21.5 million, $30.8 million, and $40.1 million, respectively. Estimated intangible assets amortization expense for each of the five succeeding fiscal years is as follows:

Year	Amortization Expense
	(in thousands)
2022	$	20,081
2023		19,592
2024		19,283
2025		11,546
2026		2,423
Thereafter		2,710