Teradyne Reports Fourth Quarter and Fiscal Year 2018 Results

GAAP to Non-GAAP Earnings Reconciliation

(In millions, except per share amounts)
																		Quarter Ended
				December 31, 2018				% of Net Revenues										September 30, 2018			% of Net Revenues								December 31, 2017 (1)			% of Net Revenues

Net revenues				$	519.6													$	566.8										$	479.4

Gross profit GAAP and non-GAAP				$	309.5				59.6	%								$	333.7		58.9	%							$	270.9		56.5	%

Income from operations - GAAP				$	112.3				21.6	%								$	143.6		25.3	%							$	94.6		19.7	%
		Acquired intangible assets amortization			10.6				2.0	%									11.1		2.0	%								7.4		1.5	%
		Restructuring and other (2)			11.4				2.2	%									1.7		0.3	%								9.0		1.9	%
Income from operations - non-GAAP				$	134.3				25.8	%								$	156.4		27.6	%							$	111.0		23.2	%

												Net Income per Common Share											Net Income per Common Share											Net Income (Loss) per Common Share
				December 31, 2018				% of Net Revenues				Basic			Diluted			September 30, 2018			% of Net Revenues		Basic			Diluted			December 31, 2017			% of Net Revenues		Basic			Diluted
Net income (loss) – GAAP				$	143.8				27.7	%		$	0.80		$	0.79		$	120.0		21.2	%	$	0.65		$	0.63		$	(105.9	)	-22.1	%	$	(0.54	)	$	(0.54	)
		Acquired intangible assets amortization			10.6				2.0	%			0.06			0.06			11.1		2.0	%		0.06			0.06			7.4		1.5	%		0.04			0.04
		Interest and other (3)			3.3				0.6	%			0.02			0.02			3.3		0.6	%		0.02			0.02			3.2		0.7	%		0.02			0.02
		Restructuring and other (2)			11.4				2.2	%			0.06			0.06			1.7		0.3	%		0.01			0.01			9.0		1.9	%		0.05			0.05
		Pension mark-to-market adjustment (3)			(3.5	)			-0.7	%			(0.02	)		(0.02	)		0.3		0.1	%		0.00			0.00			(3.8	)	-0.8	%		(0.02	)		(0.02	)
		Exclude discrete tax adjustments (4)			(52.9	)			-10.2	%			(0.30	)		(0.29	)		0.3		0.1	%		0.00			0.00			184.4		38.5	%		0.94			0.94
		Non-GAAP tax adjustments			0.3				0.1	%			0.00			0.00			(3.4	)	-0.6	%		(0.02	)		(0.02	)		(2.9	)	-0.6	%		(0.01	)		(0.01	)
		Convertible share adjustment			-				-				-			-			-		-			-			0.01			-		-			-			-
Net income - non-GAAP				$	113.0				21.7	%		$	0.63		$	0.63		$	133.3		23.5	%	$	0.72		$	0.71		$	91.4		19.1	%	$	0.47		$	0.46

GAAP and non-GAAP weighted average common shares - basic					179.0														185.7											196.0
GAAP weighted average common shares - diluted					181.5														190.5											196.0
		Include dilutive shares			-														-											3.0
		Exclude dilutive shares related to convertible note transaction			(0.9	)													(3.1	)										-
Non-GAAP weighted average common shares - diluted					180.6														187.4											199.0


(1	)	Certain prior period amounts were reclassified to conform with the first quarter 2018 adoption of new accounting guidance for the presentation of pension and post retirement costs.

(2	)	Restructuring and other consists of:
				Quarter Ended
				December 31, 2018														September 30, 2018											December 31, 2017
			Contingent consideration fair value adjustment	$	10.2													$	(0.8	)									$	6.0
			Employee severance		0.8														1.7											1.8
			Acquisition related expenses and compensation		0.5														0.8											-
			Impairment of fixed assets		-														-											1.1
			Other		-														-											0.1
				$	11.4													$	1.7										$	9.0

(3	)	For the quarters ended December 31, 2018, September 30, 2018 and December 31, 2017, adjustment to exclude non-cash convertible debt interest expense and adjustment to exclude actuarial (gains)losses recognized under GAAP in accordance with Teradyne's mark-to-market pension accounting.

(4	)	For the quarters ended December 31, 2018, September 30, 2018 and December 31, 2017, adjustment to exclude discrete income tax items. For the quarter ended December 31, 2018, adjustment to treat the $52 million tax benefit related to the finalization of our U.S. toll tax liability as a discrete item. For the quarter ended December 31, 2017, adjustment to treat the $186 million expense related to the estimated impact of the U.S. Tax Reform Act, as a discrete item.

				Twelve Months Ended
				December 31, 2018				% of Net Revenues										December 31, 2017 (1)			% of Net Revenues

Net Revenues				$	2,100.8													$	2,136.6

Gross profit GAAP				$	1,220.4				58.1	%								$	1,221.5		57.2	%
		Inventory step-up			0.4				0.0	%									-		-
Gross profit non-GAAP				$	1,220.8				58.1	%								$	1,221.5		57.2	%

Income from operations - GAAP				$	473.8				22.6	%								$	525.3		24.6	%
		Acquired intangible assets amortization			39.2				1.9	%									30.5		1.4	%
		Restructuring and other (2)			15.2				0.7	%									9.4		0.4	%
		Inventory step-up			0.4				0.0	%									-		-
Income from operations - non-GAAP				$	528.6				25.2	%								$	565.2		26.5	%

												Net Income per Common Share											Net Income per Common Share
				December 31, 2018				% of Net Revenues				Basic			Diluted			December 31, 2017			% of Net Revenues		Basic			Diluted
Net income - GAAP				$	451.8				21.5	%		$	2.41		$	2.35		$	257.7		12.1	%	$	1.30		$	1.28
		Acquired intangible assets amortization			39.2				1.9	%			0.21			0.20			30.5		1.4	%		0.15			0.15
		Interest and other (3)			13.1				0.6	%			0.07			0.07			12.4		0.6	%		0.06			0.06
		Restructuring and other (2)			15.2				0.7	%			0.08			0.08			9.4		0.4	%		0.05			0.05
		Inventory step-up			0.4				0.0	%			0.00			0.00			-		-			-			-
		Pension mark-to-market adjustment (3)			(3.3	)			-0.2	%			(0.02	)		(0.02	)		(6.3	)	-0.3	%		(0.03	)		(0.03	)
		Exclude discrete tax adjustments (4)			(59.4	)			-2.8	%			(0.32	)		(0.31	)		178.3		8.3	%		0.90			0.88
		Non-GAAP tax adjustments			(8.4	)			-0.4	%			(0.04	)		(0.04	)		(12.8	)	-0.6	%		(0.06	)		(0.06	)
		Convertible share adjustment			-				-				-			0.04			-		-			-			0.01
Net income - non-GAAP				$	448.6				21.4	%		$	2.39		$	2.37		$	469.2		22.0	%	$	2.37		$	2.34

GAAP and non-GAAP weighted average common shares - basic					187.7														198.1
GAAP weighted average common shares - diluted					192.6														201.6
		Exclude dilutive shares from convertible note			(3.2	)													(1.3	)
Non-GAAP weighted average common shares - diluted					189.4														200.3

(1	)	Certain prior period amounts were reclassified to conform with the first quarter 2018 adoption of new accounting guidance for the presentation of pension and post retirement costs.

(2	)	Restructuring and other consists of:
				Twelve Months Ended
				December 31, 2018														December 31, 2017
			Employee severance	$	8.7													$	3.8
			Acquisition related expenses and compensation		4.6														-
			Contingent consideration fair value adjustment		1.0														7.8
			Other		0.9														1.0											-
			Impairment of fixed assets		-														1.1
			Property insurance recovery, net		-														(4.3	)
				$	15.2													$	9.4

(3	)	For the twelve months ended December 31, 2018 and December 31, 2017, interest and other included non-cash convertible debt interest expense. For the twelve months ended December 31, 2018 and December 31, 2017, adjustments to exclude actuarial gains recognized under GAAP in accordance with Teradyne's mark-to-market pension accounting.

(4	)	For the twelve months ended December 31, 2018 and December 31, 2017, adjustment to exclude discrete income tax items. For the twelve months ended December 31, 2018, adjustment to treat the $52 million tax benefit related to the finalization of our U.S. toll tax liability as a discrete item. For the twelve months ended December 31, 2017, adjustment to treat the $186 million expense related to the estimated impact of the U.S. Tax Reform Act, as a discrete item.


GAAP to Non-GAAP Reconciliation of First Quarter 2019 guidance:

GAAP and non-GAAP first quarter revenue guidance:							$460 million				to	$490 million
GAAP net income per diluted share								$	0.31			$	0.39
		Exclude acquired intangible assets amortization							0.06				0.06
		Exclude non-cash convertible debt interest							0.02				0.02
		Tax effect of non-GAAP adjustments							(0.02	)			(0.02	)
		Convertible share adjustment							0.01				0.01
Non-GAAP net income per diluted share								$	0.39			$	0.47

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