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v3.22.4

Income Taxes | 12 Months Ended
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Dec. 31, 2022
Income Taxes |
S. | INCOME TAXES
The components of income before income taxes and the provision (benefit) for income taxes as shown in the consolidated statements of operations were as follows:
|  | 2022 |  |  | 2021 |  |  | 2020 |
|  | (in thousands) |
Income before income taxes: |  |  |  |  |  |  |  |  |  |  |  |
U.S. |  | $ | 385,968 |  |  | $ | 403,451 |  |  | $ | 312,153 |
Non-U.S. |  |  | 454,417 |  |  |  | 757,504 |  |  |  | 588,862 |
|  | $ | 840,385 |  |  | $ | 1,160,955 |  |  | $ | 901,015 |
Provision (benefit) for income taxes: |  |  |  |  |  |  |  |  |  |  |  |
Current: |  |  |  |  |  |  |  |  |  |  |  |
U.S. Federal |  | $ | 86,692 |  |  | $ | 58,218 |  |  | $ | 58,678 |
Non-U.S. |  |  | 74,204 |  |  |  | 105,153 |  |  |  | 75,193 |
State |  |  | 2,681 |  |  |  | 300 |  |  |  | (1,315 | )
|  |  | 163,577 |  |  |  | 163,671 |  |  |  | 132,556 |
Deferred: |  |  |  |  |  |  |  |  |  |  |  |
U.S. Federal |  |  | (36,739 | ) |  |  | (15,106 | ) |  |  | (12,604 | )
Non-U.S. |  |  | 1,232 |  |  |  | (4,300 | ) |  |  | (5,127 | )
State |  |  | (3,186 | ) |  |  | 2,101 |  |  |  | 2,043 |
|  |  | (38,693 | ) |  |  | (17,305 | ) |  |  | (15,688 | )
Total provision for income taxes: |  | $ | 124,884 |  |  | $ | 146,366 |  |  | $ | 116,868 |
Income tax expense for 2022, 2021 and 2020 totaled $124.9 million, $146.4 million, and $116.9 million, respectively. The effective tax rate for 2022, 2021 and 2020 was 14.9%, 12.6% and 13.0%, respectively. At December 31, 2022, Teradyne’s remaining tax liability resulting from the U.S. one-time transition tax on the mandatory deemed repatriation of foreign earnings amounts to $67.0 million. Teradyne will pay approximately $7.9 million related to the transition tax in 2023, $34.5 million in 1 to 3 years, and $24.6 million in 3 to 5 years. Teradyne has made an accounting policy election to account for global intangible low-taxed income (“GILTI”) as a component of tax expense in the period in which Teradyne is subject to the rules and therefore did not provide any deferred tax impacts of GILTI in its consolidated financial statements. On July 27, 2015, in Altera Corp. (“Altera”) v. Commissioner, the U.S. Tax Court issued an opinion invalidating the regulations relating to the treatment of stock-based compensation expense in an intercompany cost-sharing arrangement. A final decision was issued by the Tax Court in December 2015. The IRS appealed the decision in June 2016. On July 24, 2018, the U.S. Court of Appeals for the Ninth Circuit (“Ninth Circuit”) issued a decision that was subsequently withdrawn and a reconstituted panel conferred on the appeal. On June 7, 2019, the Ninth Circuit upheld the cost-sharing regulations. On November 12, 2019 , the Ninth Circuit denied Altera’s petition for rehearing of its case. Altera’s application for certiorari to the Supreme Court was declined on June 22, 2020. In the fourth quarter of 2020 and 2021, Teradyne recognized approximately $2.3 million of tax expense and $2.5 million of tax benefit in 2020 and 2021, respectively, related to the inclusion of stock-based compensation in its intercompany cost-sharing arrangement. 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 U.S. global low-taxed income and increases in expense from non-deductible officer compensation. These increases in expense were partially offset by increases in benefits from the U.S. foreign derived intangible income deduction and tax credits. The decrease in the effective tax rate from 2020 to 2021 is primarily attributable to a decrease in the expense from U.S. global low-taxed income partially offset by a decrease in the benefit from foreign tax credits and 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. A reconciliation of the effective tax rate for the years 2022, 2021 and 2020 is as follows:
|  | 2022 |  |  | 2021 |  |  | 2020 |
U.S. statutory federal tax rate |  |  | 21.0 | % |  |  | 21.0 | % |  |  | 21.0 | %
Non-deductible officers’ compensation |  |  | 1.3 |  |  |  | 0.8 |  |  |  | 0.5 |
U.S. global intangible low-taxed income |  |  | 1.2 |  |  |  | 0.6 |  |  |  | 2.1 |
U.S. foreign derived intangible income |  |  | (3.1 | ) |  |  | (2.3 | ) |  |  | (2.2 | )
Foreign taxes |  |  | (1.9 | ) |  |  | (4.5 | ) |  |  | (5.6 | )
U.S. research and development credit |  |  | (1.8 | ) |  |  | (1.4 | ) |  |  | (1.3 | )
Equity compensation |  |  | (1.1 | ) |  |  | (1.0 | ) |  |  | (0.8 | )
Foreign tax credits |  |  | (1.0 | ) |  |  | (0.5 | ) |  |  | (1.2 | )
State income taxes, net of federal tax benefit |  |  | (0.1 | ) |  |  | 0.2 |  |  |  | 0.3 |
Other, net |  |  | 0.4 |  |  |  | (0.3 | ) |  |  | 0.2 |
|  |  | 14.9 | % |  |  | 12.6 | % |  |  | 13.0 | %
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 attributable to the Singapore tax holiday for the years ended December 31, 2022, 2021 and 2020 were $16.0 million or $0.09 per diluted share, $33.3 million or $0.18 per diluted share, and $29.9 million or $0.16 per diluted share, respectively. 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. Significant components of Teradyne’s deferred tax assets (liabilities) as of December 31, 2022 and 2021 were as follows:
|  | 2022 |  |  | 2021 |
|  | (in thousands) |
Deferred tax assets: |  |  |  |  |  |  |  |
Tax credits |  | $ | 105,503 |  |  | $ | 98,378 |
Research and development |  |  | 47,760 |  |  |  | — |
Accruals |  |  | 30,747 |  |  |  | 41,459 |
Inventory valuations |  |  | 22,554 |  |  |  | 20,991 |
Pension liabilities |  |  | 21,335 |  |  |  | 28,722 |
Lease liability |  |  | 18,679 |  |  |  | 16,484 |
Deferred revenue |  |  | 14,909 |  |  |  | 11,164 |
Equity compensation |  |  | 6,578 |  |  |  | 6,630 |
Vacation accrual |  |  | 5,856 |  |  |  | 6,050 |
Investment impairment |  |  | 3,292 |  |  |  | 3,292 |
Marketable securities |  |  | 2,283 |  |  |  | — |
Net operating loss carryforwards |  |  | 1,857 |  |  |  | 1,721 |
Intangible assets |  |  | 350 |  |  |  | — |
Other |  |  | 2,520 |  |  |  | 774 |
Gross deferred tax assets |  |  | 284,223 |  |  |  | 235,665 |
Less: valuation allowance |  |  | (103,807 | ) |  |  | (97,170 | )
Total deferred tax assets |  | $ | 180,416 |  |  | $ | 138,495 |
Deferred tax liabilities: |  |  |  |  |  |  |  |
Depreciation |  | $ | (19,078 | ) |  | $ | (10,691 | )
Right-of-use assets |  |  | (16,607 | ) |  |  | (14,738 | )
Contingent consideration |  |  | (5,214 | ) |  |  | (5,214 | )
Intangible assets |  |  | — |  |  |  | (8,531 | )
Marketable securities |  |  | — |  |  |  | (3,220 | )
Total deferred tax liabilities |  | $ | (40,899 | ) |  | $ | (42,394 | )
Net deferred assets |  | $ | 139,517 |  |  | $ | 96,101 |
As of December 31, 2022 and 2021, Teradyne evaluated the likelihood that it would realize deferred income taxes to offset future taxable income and concluded that it is more likely than not that a substantial majority of its deferred tax assets will be realized through consideration of both the positive and negative evidence. At December 31, 2022 and 2021, Teradyne maintained a valuation allowance for certain deferred tax assets of $103.8 million and $97.2 million, respectively, primarily related to state net operating losses and state tax credit carryforwards, due to the uncertainty regarding their realization. Adjustments could be required in the future if Teradyne estimates that the amount of deferred tax assets to be realized is more or less than the net amount recorded. At December 31, 2022, Teradyne had tax effected operating loss carryforwards that expire in the following years:
|  | State Operating Loss Carryforwards |  |  | Foreign Operating Loss Carryforwards |
|  | (in thousands) |
2023 |  | $ | 222 |  |  | $ | — |
2024 |  |  | 6 |  |  |  | — |
2025 |  |  | 4 |  |  |  | — |
2026 |  |  | — |  |  |  | — |
2027 |  |  | — |  |  |  | — |
2028-2032 |  |  | 299 |  |  |  | 676 |
2033-2037 |  |  | 44 |  |  |  | 3 |
Beyond 2037 |  |  | 24 |  |  |  | — |
Non-expiring |  |  | 29 |  |  |  | 550 |
Total |  | $ | 628 |  |  | $ | 1,229 |
Teradyne has approximately $138.4 million of tax credit carryforwards including federal business tax credits of approximately $2.4 million which expire in 2028 through 2032, and state tax credits of $136.1 million, of which $72.0 million do not expire and the remainder expires in the years 2023 through 2042. Teradyne’s gross unrecognized tax benefits for the years ended December 31, 2022, 2021 and 2020 were as follows:
|  | 2022 |  |  | 2021 |  |  | 2020 |
|  | (in thousands) |
Beginning balance as of January 1 |  | $ | 14,465 |  |  | $ | 17,903 |  |  | $ | 21,180 |
Additions: |  |  |  |  |  |  |  |  |  |  |  |
Tax positions for current year |  |  | 1,398 |  |  |  | 1,417 |  |  |  | 1,082 |
Tax positions for prior years |  |  | 13 |  |  |  | 30 |  |  |  | 66 |
Reductions: |  |  |  |  |  |  |  |  |  |  |  |
Tax positions for prior years |  |  | (56 | ) |  |  | (1,639 | ) |  |  | (2,989 | )
Expiration of statutes |  |  | (212 | ) |  |  | (3,246 | ) |  |  | (1,436 | )
Ending balance as of December 31 |  | $ | 15,608 |  |  | $ | 14,465 |  |  | $ | 17,903 |
Current year additions and prior year reductions relate to federal and state research credits. Prior year reductions and expirations of statute relate to foreign net operating loss carryforwards. Of the $15.6 million of unrecognized tax benefits as of December 31, 2022, $10.1 million would impact the consolidated income tax rate if ultimately recognized. The remaining $5.5 million would impact deferred taxes if recognized. As of December 31, 2022, Teradyne does not anticipate a material change in the balance of unrecognized tax benefits during the next twelve months. Teradyne records all interest and penalties related to income taxes as a component of income tax expense. Accrued interest and penalties related to income tax items at December 31, 2022 and 2021 amounted to $0.4 million and $0.3 million, respectively. For the years ended December 31, 2022, 2021 and 2020, expense of $0.1 million, benefit of $0.9 million, and expense of $0.2 million, respectively, was recorded for interest and penalties related to income tax items. Teradyne is subject to U.S. federal income tax, as well as income tax in multiple state, local and foreign jurisdictions. As of December 31, 2022, all material state and local income tax matters have been concluded through 2017, all material federal income tax matters have been concluded through 2017 and all material foreign income tax matters have been concluded through 2016. However, in some jurisdictions, including the United States, operating losses and tax credits may be subject to adjustment until such time as they are utilized and the year of utilization is closed to adjustment. As of December 31, 2022, Teradyne is not permanently reinvested with respect to the unremitted earnings of non-U.S. subsidiaries to the extent that those earnings exceed local statutory and operational requirements. Remittance of those earnings is not expected to result in material income tax.

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- Definition The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information. + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 21 -URI https://asc.fasb.org/extlink&oid=121826272&loc=d3e32857-109319 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section S99 -Paragraph 2 -Subparagraph (SAB Topic 11.C) -URI https://asc.fasb.org/extlink&oid=122134291&loc=d3e330215-122817 Reference 3: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 17 -Subparagraph (b) -URI https://asc.fasb.org/extlink&oid=121826272&loc=d3e32809-109319 Reference 4: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SAB TOPIC 6.I.5.Q1) -URI https://asc.fasb.org/extlink&oid=122134291&loc=d3e330036-122817 Reference 5: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 14 -URI https://asc.fasb.org/extlink&oid=121826272&loc=d3e32705-109319 Reference 6: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 270 -Section 50 -Paragraph 1 -URI https://asc.fasb.org/extlink&oid=6424409&loc=d3e44925-109338 Reference 7: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI https://asc.fasb.org/topic&trid=2144680 Reference 8: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 30 -Section 50 -Paragraph 2 -Subparagraph (a) -URI https://asc.fasb.org/extlink&oid=6424122&loc=d3e41874-109331 Reference 9: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.4-08(h)(2)) -URI https://asc.fasb.org/extlink&oid=120395691&loc=d3e23780-122690 + Details
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