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Goodwill And Intangible Assets
 12 Months Ended
Dec. 31, 2019
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 (“Step zero”) 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 the
two-step
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
two-step
goodwill impairment test is not required. When performing the
two-step
process, the first step involves a comparison of the estimated fair value of a reporting unit to its carrying amount, including goodwill. In performing the first step, 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 report
ing unit
. The income approach is estimated through the discounted cash flow (“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 and the second step of the impairment test is not necessary. If the carrying amount of a reporting unit exceeds its estimated fair value, then the second step of the goodwill impairment test must be performed. The second step of the goodwill impairment test compares the implied fair value of the reporting unit’s goodwill with its carrying amount of goodwill to measure the amount of impairment loss, if any. The implied fair value of goodwill is determined in the same manner as the amount of goodwill recognized in a 
business combination, whereby the estimated fair value of the reporting unit is allocated to all of the assets and
 
liabilities of that unit (including any unrecognized intangible assets) as if the reporting unit had been acquired in
a business combination and the fair value of the reporting unit was the purchase price paid. If the carrying amount of the reporting unit’s goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized in an amount equal to that excess.
In the fourth quarter of 201
9
, Teradyne performed the annual goodwill impairment test. Teradyne completed step one of the
two-step
impairment test for the Universal Robots
, MiR and Energid
reporting
units
. Teradyne completed step zero for the Wireless Test
,
 Defense/Aerospace and
AutoGuide
reporting units. There was no impairment as a result of the annual test performed in the fourth quarter of 201
9
.
Based on Teradyne’s December 31, 2019 goodwill impairment test, the MiR reporting unit’s estimated fair value exceeded its carrying value by 14%. The MiR goodwill amount is $123.6 million as of December 31, 2019. 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 201
8
, Teradyne performed the annual goodwill impairment test. Teradyne completed step one of the
two-step
impairment test for the Universal Robots reporting unit. Teradyne completed step zero for the Wireless Test and Defense/Aerospace
,
MiR
,
and Energi
d
reporting units. There was no impairment as a result of the annual test performed in the fourth quarter of 201
8
.
In the fourth quarter of 2017, Teradyne performed the annual goodwill impairment test. Teradyne completed step one of the
two-step
impairment test for the Universal Robots reporting unit. Teradyne completed step zero for the Wireless Test and Defense/Aerospace reporting units. There was no impairment as a result of the annual test performed in the fourth quarter of 2017.
 
The changes in the carrying amount of goodwill by reportable segments for the years ended December 31, 2019 and 2018 are as follows:
 
Industrial
Automation
 
  
Wireless
Test
 
  
Semiconductor
Test
 
  
System
Test
 
  
Total
 
  
(in thousands)
 
Balance at December 31, 2017:
   
     
     
     
     
 
Goodwill
  $
233,519
    $
361,819
    $
260,540
    $
158,699
    $
1,014,577
 
Accumulated impairment losses
   
—  
      
(353,843
 )    
(260,540
 )    
(148,183
 )    
(762,566
 )
                                         
    
233,519
     
7,976
     
—  
      
10,516
     
252,011
 
MiR acquisition
   
135,976
     
—  
      
—  
      
—  
      
135,976
 
Energid acquisition
   
14,394
     
—  
      
—  
      
—  
      
14,394
 
Foreign currency translation adjustment
   
(20,531
 )    
—  
      
—  
      
—  
      
(20,531
 )
                                         
Balance at December 31, 2018:
   
     
     
     
     
 
Goodwill
   
363,358
     
361,819
     
260,540
     
158,699
     
1,144,416
 
Accumulated impairment losses
   
—  
      
(353,843
 )    
(260,540
 )    
(148,183
 )    
(762,566
 )
                                         
    
363,358
     
7,976
     
—  
      
10,516
     
381,850
 
Lemsys acquisition
   
—  
      
—  
      
1,428
     
—  
      
1,428
 
Auto
G
uide acquisition
   
41,372
     
—  
      
—  
      
—  
      
41,372
 
Foreign currency translation adjustment
   
(8,247
 )    
—  
      
28
      
—  
      
(8,219
 )
                                         
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
 
                                         
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 2019
, 2018
and
2017
.
Amortizable intangible assets consist of the following and are included in intangible assets, net on the balance sheets:
 
December 31, 2019
 
  
Gross
Carrying
Amount
 
(1
)

(2)
 
  
Accumulated
Amortization
 (2)
 
  
Foreign
Currency
Translation
Adjustment
 
  
Net
Carrying
Amount
 
  
(in thousands)
 
Developed technology
  $
361,787
    $
(279,000
 )   $
(5,709
 )   $
77,078
 
Customer relationships
   
75,669
     
(59,077
 )    
(455
 )    
16,137
 
Tradenames and trademarks
   
70,120
     
(36,671
 )    
(1,184
 )    
32,265
 
Backlog
    
260
     
(260
 )    
—  
      
—  
  
Total intangible assets
 
$
 
507,836
   
$
 
(375,008
 )  
$
 
(7,348
)
 		  
$
125,480
  
                                 
  
December 31, 2018
 
  
Gross
Carrying
Amount
 
  
Accumulated
Amortization
 
  
Foreign
Currency
Translation
Adjustment
 
  
Net
Carrying
Amount
 
  
(in thousands)
 
Developed technology
  $
336,308
    $
(252,080
 )   $
(4,079
 )   $
80,149
 
Customer relationships
   
97,153
     
(83,448
 )    
(340
 )    
13,365
 
Tradenames and trademarks
   
64,420
     
(31,653
 )    
(799
 )    
31,968
 
Non-compete
agreement
    
320
     
(320
 )    
—  
      
—  
  
Backlog
   
30
     
(30
 )    
—  
      
—  
  
                                 
Total intangible assets
  $
498,231
    $
(367,531
 )   $
(5,218
 )   $
125,482
 
                                 
 
(1) Includes intangible assets acquired in 2019, $37.7 million from the 
AutoGuide
acquisition and $4.6 million from the 
Lemsys
acquisition.
(2) In 2019, $32.7 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, 2019, 2018, and 2017, was $40.1 million, $39.2 million, and $30.5 million, respectively. Estimated intangible assets amortization expense for each of the five succeeding fiscal years is as follows:
Year
 
Amortization Expense
 
  
(in thousands)
 
2020
 
$
30,606
 
2021
   
20,593
 
2022
   
19,700
 
2023
   
19,226
 
2024
   
18,921
  
Thereafter
   
16,434