Performance-based restricted stock units (“PRSUs”) granted to Teradyne’s executive officers may have a performance metric based on relative total shareholder return (“TSR”). Teradyne’s three-year TSR performance is measured against the New York Stock Exchange (“NYSE”) Composite Index. The final number of TSR PRSUs that vest will vary based upon the level of performance achieved from 0% to 200% of the target shares. The TSR PRSUs will vest upon the three-year anniversary of the grant date. The TSR PRSUs are valued using a Monte Carlo simulation model. The number of units expected to be earned, based upon the achievement of the TSR market condition, is factored into the grant date Monte Carlo valuation. Compensation expense is recognized on a straight-line basis over the shorter of the three-year service period or the period from the grant to the date described in the retirement provisions below. Compensation expense for executive officers meeting the retirement provisions prior to the grant date is recognized during the year following the grant. Compensation expense is recognized regardless of the eventual number of units that are earned based upon the market condition, provided the executive officer remains an employee at the end of the three-year period. Compensation expense is reversed if at any time during the three-year service period the executive officer is no longer an employee, subject to the retirement and termination eligibility provisions noted below.

PRSUs granted to Teradyne’s executive officers may also have a performance metric based on three-year cumulative non-GAAP profit before interest and tax (“PBIT”) as a percent of Teradyne’s revenue. Non-GAAP PBIT is a financial measure equal to GAAP

income

from operations less restructuring and other, net; amortization of acquired intangible assets; acquisition and divestiture related charges or credits; pension actuarial gains and losses; non-cash convertible debt interest expense; and other non-recurring gains and charges. The final number of PBIT PRSUs that vest will vary based upon the level of performance achieved from 0% to 200% of the target shares. The PBIT PRSUs will vest upon the three-year anniversary of the grant date. Compensation expense is recognized on a straight-line basis over the shorter of the three-year service period or the period from the grant date to the date described in the retirement provisions below. Compensation expense for executive officers meeting the retirement provisions prior to the grant date is recognized during the year following the

grant. Compensation expense is recognized based on the number of units that are earned based upon the three-year Teradyne PBIT as a percent of Teradyne’s revenue, provided the executive officer remains an employee at the end of the three-year period subject to the retirement and

termination

eligibility provisions noted below.

If a PRSU recipient’s employment ends prior to the determination of the performance percentage due to (1) permanent disability or death or (2) retirement or termination other than for cause, after attaining both at least age sixty and at least ten years of service, then all or a portion of the recipient’s PRSUs (based on the actual performance percentage achieved on the determination date) will vest on the date the performance percentage is determined. Except as set forth in the preceding sentence, no PRSUs will vest if the executive officer is no longer an employee at the end of the three-year period. Stock options to purchase Teradyne’s common stock at 100% of the fair market value on the grant date vest in equal annual installments over four years from the grant date and have a maximum term of seven years.

During 2021, 2020 and 2019, Teradyne granted 0.3 million, 0.4 million and 0.8 million of service-based restricted stock unit awards to employees at a weighted average grant date fair value of $114.16, $71.31, and $37.65, respectively.

During 2021, 2020 and 2019, Teradyne granted 0.1 million of service-based restricted stock unit awards to non-employee directors at a weighted average grant date fair value of $128.70, $66.56, and $48.03, respectively.

During 2021, 2020 and 2019, Teradyne granted 0.1 million of PBIT PRSUs with a grant date fair value of $113.65, $70.94 and $36.88, respectively.

During 2021, 2020 and 2019, Teradyne granted 0.1 million TSR PRSUs, with a grant date fair value of $125.02, $89.93, and $51.51, respectively. The fair value was estimated using the Monte Carlo simulation model with the following assumptions:


	2021			2020			2019

Risk-free interest rate		0.2	%		1.5	%		2.6	%
Teradyne volatility-historical		43.9	%		34.9	%		31.9	%
NYSE Composite Index volatility-historical		22.9	%		11.4	%		11.9	%
Dividend yield		0.4	%		0.6	%		1.0	%

Expected volatility was based on the historical volatility of Teradyne’s stock and the NYSE Composite Index for each of the 2021, 2020 and 2019 grants over the most recent three-year period. The risk-free interest rate was determined using the U.S. Treasury yield curve in effect at the time of each of the grants. Dividend yield was based upon an estimated annual dividend amount of $0.40 per share for 2021, $0.40 per share for 2020 and $0.36 per share for 2019, divided by Teradyne’s stock price on the grant date of $113.48 for the 2021 grants, $72.10 for the 2020 grants and $37.95 for the 2019 grants.

During 2021, 2020 and 2019, Teradyne granted 0.1 million of service-based stock options to executive officers at a weighted average grant date fair value of $36.60, $20.93, and $10.64, respectively.

The fair value of stock options was estimated using the Black-Scholes option-pricing model with the following assumptions:


	2021			2020			2019

Expected life (years)		5.0			5.0			5.0
Risk-free interest rate		0.4	%		1.5	%		2.5	%
Volatility-historical		37.8	%		32.0	%		30.1	%
Dividend yield		0.4	%		0.5	%		1.0	%

Teradyne determined the stock options’ expected life based upon historical exercise data for executive officers, the age of the executive officers and the terms of the stock option grant. Volatility was determined using historical volatility for a period equal to the expected life. The risk-free interest rate was determined using the U.S. Treasury yield curve in effect at the time of grant. Dividend yield was based upon an estimated annual dividend amount of $0.40 per share divided by Teradyne’s stock price on the grant date of $113.48 for the 2021 grants, $72.61 for the 2020 grants and $37.95 for the 2019 grants.

Stock compensation plan activity for the years 2021, 2020, and 2019, is as follows:


	2021			2020			2019

	(in thousands)
Restricted Stock Units:
Non-vested at January 1		1,789			2,269			2,454
Awarded		447			616			1,139
Vested		(749	)		(1,028	)		(1,237	)
Forfeited		(70	)		(68	)		(87	)

Non-vested at December 31		1,417			1,789			2,269

Stock Options:
Outstanding at January 1		216			319			506
Granted		34			56			102
Exercised		(78	)		(159	)		(280	)
Forfeited		(1	)		—			(7	)
Expired		—			—			(2	)

Outstanding at December 31		171			216			319

Vested and expected to vest at December 31		171			216			319

Exercisable at December 31		30			27			85

Total shares available for the years 2021, 2020, and 2019:


	2021			2020			2019

	(in thousands)
Shares available:
Available for grant at January 1		6,123			6,727			7,874
Options granted		(34	)		(56	)		(102	)
Options forfeited		1			—			7
Restricted stock units awarded		(447	)		(616	)		(1,139	)
Restricted stock units forfeited		70			68			87

Available for grant at December 31		5,713			6,123			6,727

Weighted average restricted stock unit award date fair value information for the years 2021, 2020, and 2019, is as follows:


	2021		2020		2019

Non-vested at January 1	$	47.84	$	35.58	$	29.22
Awarded		115.51		72.76		39.08
Vested		43.99		31.53		23.59
Forfeited		65.52		45.36		35.60
Non-vested at December 31	$	67.97	$	47.84	$	35.58

Restricted stock unit awards aggregate intrinsic value information at December 31 for the years 2021, 2020, and 2019 is as follows:


	2021		2020		2019
	(in thousands)
Vested	$	101,679	$	71,582	$	46,110
Outstanding		231,763		214,509		154,752
Expected to vest		231,246		210,301		152,374

Restricted stock units weighted average remaining contractual terms (in years) information at December 31 for the years 2021, 2020, and 2019 is as follows:


	2021		2020		2019

Outstanding		0.89		0.96		1.02
Expected to vest		0.89		0.96		1.02

Weighted average stock options exercise price information for the year ended December 31, 2021 is as follows:


	2021

Outstanding at January 1	$	45.59
Options granted		113.48
Options exercised		39.68
Options forfeited		—
Options cancelled		2.67
Outstanding at December 31		62.13
Exercisable at December 31		34.65

The total cash received from employees as a result of employee stock options exercised during the years ended December 31, 2021, 2020, and 2019, was $3.1 million, $3.8 million, and $3.7 million, respectively. In connection with these exercises, the tax benefit realized by Teradyne for the years ended December 31, 2021, 2020, and 2019, was $0.4 million, $1.5 million, and $2.0 million, respectively.

Stock option aggregate intrinsic value information for the years ended December 31, 2021, 2020, and 2019 is as follows:


	2021		2020		2019

	(in thousands)
Exercised	$	6,345	$	9,682	$	9,232
Outstanding		17,356		16,083		12,218
Vested and expected to vest		13,500		13,499		7,701
Exercisable		3,856		2,584		4,517

Stock options weighted average remaining contractual terms (in years) information at December 31, for the years 2021, 2020, and 2019 is as follows:


	2021		2020		2019
Outstanding		4.4		4.6		4.2
Vested and expected to vest		4.8		4.9		5.0
Exercisable		2.5		2.5		2.1

As of December 31, 2021, total unrecognized expense related to non-vested restricted stock unit awards and stock options was $50.6 million and is expected to be recognized over a weighted average period of 2.4 years.

In 2021, 2020 and 2019, Teradyne recognized a discrete tax benefit of $14.7 million, $9.6 million and $4.9 million, respectively, related to net excess tax benefit.

On July 17, 2019 (the “Retirement Date”), former Chief Financial Officer Gregory Beecher retired as Vice President and Senior Advisor of Teradyne, and Teradyne entered into an agreement (the “Retirement Agreement”) with Mr. Beecher. Under the Retirement Agreement, Mr. Beecher’s unvested time-based restricted stock units and stock options granted prior to 2019 were modified to allow continued vesting; unvested time-based restricted stock units and stock options granted in 2019 were modified to allow continued vesting through January 31, 2023 (the

“Non-Competition

Period”) in a

pro-rated

amount based on the number of days that Mr. Beecher was employed during 2019; unvested, performance-based restricted stock units awarded in 2019 will vest on the date the amount of shares underlying the performance-based restricted stock units are determined in a

pro-rated

amount of shares based on the number of days that Mr. Beecher was empl

yed during 2019; vested options or options that vest during the

Non-Competition

Period may be exercised for the remainder of the applicable option ter

m. During 2019, Teradyne recorded a stock-based compensation expense of $2.1 million related to the Retirement Agreement.

Employee Stock Purchase Plan

Under the ESPP, eligible employees may purchase shares of common stock through regular payroll deductions of up to 10% of their compensation, to a maximum of shares with a fair market value of $25,000 per calendar year, not to exceed 6,000 shares. Under the plan, the price paid for the common stock is equal to 85% of the stock price on the last business day of the six-month purchase period.

In July 2021, 0.1 million shares of common stock were issued to employees who participated in the plan during the first half of 2021 at the price of $113.87 per share. In January 2022, Teradyne issued 0.1 million shares of common stock to employees who participated in the plan during the second half of 2021 at the price of $139.00 per share.

In July 2020, 0.2 million shares of common stock were issued to employees who participated in the plan during the first half of 2020 at the price of $71.83 per share. In January 2021, Teradyne issued 0.1 million shares of common stock to employees who participated in the plan during the second half of 2020 at the price of $101.91 per share.

In July 2019, 0.3 million shares of common stock were issued to employees who participated in the plan during the first half of 2019 at the price of $40.72 per share. In January 2020, Teradyne issued 0.2 million shares of common stock to employees who participated in the plan during the second half of 2019 at the price of $57.96 per share.

As of December 31, 2021, there were 4.2 million shares available for grant under the ESPP.

The following table provides the effect to income from operations for recording stock-based compensation for the years ended December 31, 2021, 2020, and 2019:


	2021			2020			2019

	(in thousands)
Cost of revenues	$	4,196		$	4,227		$	3,480
Engineering and development		9,783			12,039			9,913
Selling and administrativ e		31,664			28,640			24,504

Stock-based compensation		45,643			44,906			37,897
Income tax benefit		(14,389	)		(13,060	)		(8,360	)

Total stock-based compensation expense after income taxes	$	31,254		$	31,846		$	29,537