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Income Taxes | 12 Months Ended
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Dec. 31, 2023
Income Tax Disclosure [Abstract] |
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:
|  | 2023 |  |  | 2022 |  |  | 2021 |
|  | (in thousands) |
Income before income taxes: |  |  |  |  |  |  |  |  |
U.S. |  | $ | 307,997 |  |  | $ | 385,968 |  |  | $ | 403,451 |
Non-U.S. |  |  | 217,575 |  |  |  | 454,417 |  |  |  | 757,504 |
|  | $ | 525,572 |  |  | $ | 840,385 |  |  | $ | 1,160,955 |
Provision (benefit) for income taxes: |  |  |  |  |  |  |  |  |
Current: |  |  |  |  |  |  |  |  |
U.S. Federal |  | $ | 58,063 |  |  | $ | 86,692 |  |  | $ | 58,218 |
Non-U.S. |  |  | 54,037 |  |  |  | 74,204 |  |  |  | 105,153 |
State |  |  | 2,362 |  |  |  | 2,681 |  |  |  | 300 |
|  |  | 114,462 |  |  |  | 163,577 |  |  |  | 163,671 |
Deferred: |  |  |  |  |  |  |  |  |
U.S. Federal |  |  | (27,459 | ) |  |  | (36,739 | ) |  |  | (15,106 | )
Non-U.S. |  |  | (8,584 | ) |  |  | 1,232 |  |  |  | (4,300 | )
State |  |  | (1,599 | ) |  |  | (3,186 | ) |  |  | 2,101 |
|  |  | (37,642 | ) |  |  | (38,693 | ) |  |  | (17,305 | )
Total provision for income taxes: |  | $ | 76,820 |  |  | $ | 124,884 |  |  | $ | 146,366 |
Income tax expense for 2023, 2022 and 2021 totaled $76.8 million, $124.9 million, and $146.4 million, respectively. The effective tax rate for 2023, 2022 and 2021 was 14.6%, 14.9% and 12.6%, respectively. At December 31, 2023, Teradyne’s remaining tax liability resulting from the U.S. one-time transition tax on the mandatory deemed repatriation of foreign earnings amounts to $59.1 million. Teradyne will pay approximately $14.8 million related to the transition tax in 2024, and $44.3 million in 1 to 3 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 2021, Teradyne recognized approximately $2.5 million of tax benefit related to the inclusion of stock-based compensation in its intercompany cost-sharing arrangement. The decrease in the effective tax rate from 2022 to 2023 is primarily attributable to increases in benefit from tax credits and the U.S. foreign derived intangible income deduction. These decreases in expense were partially offset by 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 and a reduction in benefit from equity compensation. 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. A reconciliation of the effective tax rate for the years 2023, 2022 and 2021 is as follows:
|  | 2023 |  |  | 2022 |  |  | 2021 |
U.S. statutory federal tax rate |  |  | 21.0 | % |  |  | 21.0 | % |  |  | 21.0 | %
Foreign taxes |  |  | 2.5 |  |  |  | (1.9 | ) |  |  | (4.5 | )
Non-deductible officers’ compensation |  |  | 1.1 |  |  |  | 1.3 |  |  |  | 0.8 |
U.S. global intangible low-taxed income |  |  | 0.8 |  |  |  | 1.2 |  |  |  | 0.6 |
State income taxes, net of federal tax benefit |  |  | 0.1 |  |  |  | (0.1 | ) |  |  | 0.2 |
U.S. research and development credit |  |  | (4.2 | ) |  |  | (1.8 | ) |  |  | (1.4 | )
U.S. foreign derived intangible income |  |  | (3.9 | ) |  |  | (3.1 | ) |  |  | (2.3 | )
Foreign tax credits |  |  | (3.3 | ) |  |  | (1.0 | ) |  |  | (0.5 | )
Equity compensation |  |  | (0.4 | ) |  |  | (1.1 | ) |  |  | (1.0 | )
Other, net |  |  | 0.9 |  |  |  | 0.4 |  |  |  | (0.3 | )
|  |  | 14.6 | % |  |  | 14.9 | % |  |  | 12.6 | %
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, 2023, 2022 and 2021 were $1.4 million or $0.01 per diluted share, $16.0 million or $0.09 per diluted share, and $33.3 million or $0.18 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. Teradyne does not anticipate entering into a similar tax holiday agreement with the Singapore Economic Development Board when the current agreement expires. Significant components of Teradyne’s deferred tax assets (liabilities) as of December 31, 2023 and 2022 were as follows:
|  | 2023 |  |  | 2022 |
|  | (in thousands) |
Deferred tax assets: |  |  |  |  |  |
Tax credits |  | $ | 112,571 |  |  | $ | 105,503 |
Research and development |  |  | 82,571 |  |  |  | 47,760 |
Accruals |  |  | 25,644 |  |  |  | 30,747 |
Pension liabilities |  |  | 24,997 |  |  |  | 21,335 |
Lease liabilities |  |  | 21,167 |  |  |  | 18,679 |
Inventory valuations |  |  | 19,289 |  |  |  | 22,554 |
Deferred revenue |  |  | 13,807 |  |  |  | 14,909 |
Equity compensation |  |  | 7,179 |  |  |  | 6,578 |
Vacation accrual |  |  | 6,096 |  |  |  | 5,856 |
Net operating loss carryforwards |  |  | 5,737 |  |  |  | 1,857 |
Investment impairment |  |  | 3,292 |  |  |  | 3,292 |
Intangible assets |  |  | 2,323 |  |  |  | 350 |
Marketable securities |  |  | 128 |  |  |  | 2,283 |
Other |  |  | 953 |  |  |  | 2,520 |
Gross deferred tax assets |  |  | 325,754 |  |  |  | 284,223 |
Less: valuation allowance |  |  | (109,251 | ) |  |  | (103,807 | )
Total deferred tax assets |  | $ | 216,503 |  |  | $ | 180,416 |
Deferred tax liabilities: |  |  |  |  |  |
Right of use assets |  | $ | (19,016 | ) |  | $ | (16,607 | )
Depreciation |  |  | (16,681 | ) |  |  | (19,078 | )
Contingent consideration |  |  | (5,214 | ) |  |  | (5,214 | )
Total deferred tax liabilities |  | $ | (40,911 | ) |  | $ | (40,899 | )
Net deferred assets |  | $ | 175,592 |  |  | $ | 139,517 |
As of December 31, 2023 and 2022, 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 the majority of its deferred tax assets will be realized through consideration of both the positive and negative evidence. At December 31, 2023 and 2022, Teradyne maintained a valuation allowance for certain deferred tax assets of $109.3 million and $103.8 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, 2023, Teradyne had tax effected operating loss carryforwards that expire in the following years:
|  | State Operating Loss Carryforwards |  |  | Foreign Operating Loss Carryforwards |
|  | (in thousands) |
2024 |  | $ | 6 |  |  | $ | — |
2025 |  |  | 4 |  |  |  | — |
2026 |  |  | — |  |  |  | — |
2027 |  |  | — |  |  |  | — |
2028 |  |  | 23 |  |  |  | 83 |
2029-2033 |  |  | 121 |  |  |  | 500 |
2034-2038 |  |  | 31 |  |  |  | — |
Beyond 2038 |  |  | — |  |  |  | — |
Non-expiring |  |  | 30 |  |  |  | 4,939 |
Total |  | $ | 215 |  |  | $ | 5,522 |
Teradyne has approximately $147.1 million of tax credit carryforwards including federal business tax credits of approximately $3.4 million which expire in 2028 through 2033, and state tax credits of $143.8 million, of which $76.5 million do not expire and the remainder expires in the years 2023 through 2043. Teradyne’s gross unrecognized tax benefits for the years ended December 31, 2023, 2022 and 2021 were as follows:
|  | 2023 |  |  | 2022 |  |  | 2021 |
|  | (in thousands) |
Beginning balance as of January 1 |  | $ | 15,608 |  |  | $ | 14,465 |  |  | $ | 17,903 |
Additions: |  |  |  |  |  |  |  |  |
Tax positions for current year |  |  | — |  |  |  | 1,398 |  |  |  | 1,417 |
Tax positions for prior years |  |  | 3,024 |  |  |  | 13 |  |  |  | 30 |
Reductions: |  |  |  |  |  |  |  |  |
Tax positions for prior years |  |  | (26 | ) |  |  | (56 | ) |  |  | (1,639 | )
Expiration of statutes |  |  | — |  |  |  | (212 | ) |  |  | (3,246 | )
Ending balance as of December 31 |  | $ | 18,606 |  |  | $ | 15,608 |  |  | $ | 14,465 |
Current year additions primarily relate to foreign transfer pricing and prior year reductions relate to state research credits. Of the $18.6 million of unrecognized tax benefits as of December 31, 2023, $12.9 million would impact the consolidated income tax rate if ultimately recognized. The remaining $5.7 million would impact deferred taxes if recognized. As of December 31, 2023, Teradyne estimates that it is reasonably possible that the balance of unrecognized tax benefits may decrease approximately $2.8 million in the next twelve months as a result of the resolution of an audit and a lapse of statutes of limitation. The estimated decrease relates to transfer pricing and state research credits. 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, 2023 and 2022 amounted to $1.3 million and $0.4 million, respectively. For the years ended December 31, 2023, 2022 and 2021, expense of $0.9 million, expense of $0.1 million, and benefit of $0.9 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, 2023, all material state and local income tax matters have been concluded through 2018, all material federal income tax matters have been concluded through 2017 and all material foreign income tax matters have been concluded through 2015. 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, 2023, 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. 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. On December 15, 2022, the European Union ("EU") Member States formally adopted the EU’s Pillar Two Directive, which generally provides for a minimum effective tax rate of 15%, as established by the Organization for Economic Co-operation and Development ("OECD") Pillar Two Framework. The EU’s Pillar Two Directive effective dates are January 1, 2024, and January 1, 2025, for different aspects of the directive. On July 17, 2023, the OECD published Administrative Guidance proposing certain safe harbor rules that effectively extend certain effective dates to January 1, 2027. Certain EU Member States where Teradyne has a legal presence have recently enacted the directive and administrative guidance into their local tax legislation. Additionally, countries outside the EU where Teradyne has a legal presence have enacted similar language as the EU Members States in their local tax legislation. Teradyne is closely monitoring these developments and evaluating the potential financial impact on future periods. Based upon preliminary calculations for calendar year 2024, Teradyne anticipates it will meet the safe harbors in most jurisdictions, and any remaining tax under the rules should be immaterial.

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