Item 8. Financial Statements and Supplementary Data

| --- | --- |

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Shareholders of Teradyne, Inc.:

In our opinion, the consolidated financial statements listed in the index appearing under Item 15(a) (1) present fairly, in all material respects, the financial position of Teradyne, Inc. and its subsidiaries (the “Company”) at December 31, 2015 and 2014, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2015 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the index appearing under Item 15(a)(2) presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2015, based on criteria established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for these financial statements and financial statement schedule, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Annual Report on Internal Control over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on these financial statements, on the financial statement schedule, and on the Company’s internal control over financial reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

As described in Management’s Annual Report on Internal Controls over Financial Reporting appearing under Item 9A, management has excluded Universal Robots A/S from its assessment of internal control over financial reporting as of December 31, 2015 because it was acquired by the Company in a purchase business combination on June 11, 2015. We have also excluded Universal Robots A/S from our audit of internal control over financial reporting. Universal Robots A/S is a wholly-owned subsidiary whose total assets and total revenues represent 14% and 3%, respectively, of the related consolidated financial statement amounts as of and for the year ended December 31, 2015.

/s/ PricewaterhouseCoopers LLP

Boston, Massachusetts

February 29, 2016

TERADYNE, INC.

CONSOLIDATED BALANCE SHEETS

December 31, 2015 and 2014


	2015			2014
	(in thousands, except per share information)
ASSETS
Current assets:
Cash and cash equivalents	$	264,705		$	294,256
Marketable securities		477,696			533,787
Accounts receivable, less allowance for doubtful accounts of $2,407 and $2,491 in 2015 and 2014, respectively		211,293			151,034
Inventories:
Parts		73,117			70,821
Assemblies in process		32,825			10,347
Finished goods		47,646			23,961

		153,588			105,129
Deferred tax assets		54,973			57,239
Prepayments		91,519			95,819
Other current assets		6,194			6,582

Total current assets		1,259,968			1,243,846

Property, plant and equipment, net		273,414			329,038
Marketable securities		265,928			470,789
Deferred tax assets		7,404			7,494
Other assets		13,080			10,419
Retirement plans assets		636			12,896
Intangible assets, net		239,831			190,600
Goodwill		488,413			273,438

Total assets	$	2,548,674		$	2,538,520

LIABILITIES
Current liabilities:
Accounts payable	$	92,358		$	47,763
Accrued employees’ compensation and withholdings		113,994			100,994
Deferred revenue and customer advances		85,527			71,603
Other accrued liabilities		43,727			50,247
Contingent consideration		15,500			895
Accrued income taxes		21,751			20,049

Total current liabilities		372,857			291,551
Long-term deferred revenue and customer advances		25,745			19,929
Retirement plans liabilities		103,531			108,460
Deferred tax liabilities		26,663			23,315
Long-term other accrued liabilities		32,156			13,830
Long-term contingent consideration		21,936			2,455

Total liabilities		582,888			459,540

Commitments and contingencies (Note J)
SHAREHOLDERS’ EQUITY
Common stock, $0.125 par value, 1,000,000 shares authorized, 203,641 and 216,613 shares issued and outstanding at December 31, 2015 and 2014, respectively		25,455			27,077
Additional paid-in capital		1,480,647			1,437,135
Accumulated other comprehensive (loss) income		(8,144	)		4,689
Retained earnings		467,828			610,079

Total shareholders’ equity		1,965,786			2,078,980

Total liabilities and shareholders’ equity	$	2,548,674		$	2,538,520

The accompanying notes are an integral part of the consolidated financial statements.

TERADYNE, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS


	Years Ended December 31,
	2015			2014			2013
	(in thousands, except per share amounts)
Revenues:
Products	$	1,340,566		$	1,364,024		$	1,154,922
Services		299,012			283,800			273,011

Total revenues		1,639,578			1,647,824			1,427,933
Cost of revenues:
Cost of products		591,772			640,787			499,030
Cost of services		132,163			128,229			120,102

Total cost of revenues (exclusive of acquired intangible assets amortization shown separately below)		723,935			769,016			619,132

Gross profit		915,643			878,808			808,801
Operating expenses:
Engineering and development		292,250			291,639			264,055
Selling and administrative		306,313			319,713			279,560
Goodwill impairment		—			98,897			—
Acquired intangible assets amortization		69,031			70,771			72,447
Restructuring and other		5,080			1,365			2,080

Total operating expenses		672,674			782,385			618,142

Income from operations		242,969			96,423			190,659
Non-operating (income) expenses:
Interest income		(7,214	)		(6,259	)		(4,129	)
Interest expense		1,876			6,934			26,097
Other (income) expense, net		(4,817	)		372			(33,231	)

Income before income taxes		253,124			95,376			201,922
Income tax provision		46,647			14,104			36,975

Net income	$	206,477		$	81,272		$	164,947

Net income per common share:
Basic	$	0.98		$	0.40		$	0.86

Diluted	$	0.97		$	0.37		$	0.70

Weighted average common shares—basic		211,544			202,908			190,772

Weighted average common shares—diluted		213,321			222,550			235,599

Cash dividend declared per common share	$	0.24		$	0.18		$	—

The accompanying notes are an integral part of the consolidated financial statements.

TERADYNE, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME


	Years Ended December 31,
	2015			2014			2013
	(in thousands)
Net income	$	206,477		$	81,272		$	164,947
Other comprehensive (loss) income, net of tax:
Foreign currency translation adjustment, net of tax of $0		(8,759	)		—			—
Available-for-sale marketable securities:
Unrealized (losses) gains on marketable securities:
Unrealized (losses) gains on marketable securities arising during period, net of tax of $(1,667), $1,449, $216, respectively		(3,075	)		2,417			(1,097	)
Less: Reclassification adjustment for gains included in net income, net of tax of $(390), $(645), $(257), respectively		(704	)		(1,433	)		(447	)

		(3,779	)		984			(1,544	)
Defined benefit pension and post-retirement plans:
Amortization of prior service (credit) cost included in net periodic pension and post-retirement expense/income, net of tax $(169), $(169), $(159), respectively		(295	)		(295	)		(276	)

Other comprehensive (loss) income		(12,833	)		689			(1,820	)

Comprehensive income	$	193,644		$	81,961		$	163,127

The accompanying notes are an integral part of the consolidated financial statements.

TERADYNE, INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

Years Ended December 31, 2015, 2014 and 2013


	Common Stock Shares Issued			Common Stock Par Value			Additional Paid-in Capital			Accumulated Other Comprehensive Income (Loss)			Retained Earnings			Total Shareholders’ Equity
	(in thousands)
Balance, December 31, 2012		187,908		$	23,488		$	1,347,762		$	5,820		$	401,285		$	1,778,355
Issuance of stock to employees under benefit plans, net of shares withheld for payroll tax of $12,192		3,823			478			4,926									5,404
Stock-based compensation expense								35,612									35,612
Tax benefit related to stock options and restricted stock units								2,596									2,596
Net income														164,947			164,947
Unrealized losses on marketable securities:
Unrealized losses on marketable securities, net of tax of $216											(1,097	)					(1,097	)
Less: reclassification adjustment for gains included in net income, net of tax $(257)											(447	)					(447	)
Amortization of prior service (credit) cost, net of tax of $(159)											(276	)					(276	)

Balance, December 31, 2013		191,731			23,966			1,390,896			4,000			566,232			1,985,094
Issuance of stock to employees under benefit plans, net of shares withheld for payroll tax of $12,018		3,661			458			8,815									9,273
Warrant settlement		21,221			2,653			(2,653	)								—
Stock-based compensation expense								39,868									39,868
Tax benefit related to stock options and restricted stock units								209									209
Cash dividends														(37,425	)		(37,425	)
Net income														81,272			81,272
Unrealized gains on marketable securities:
Unrealized gains on marketable securities, net of tax of $1,449											2,417						2,417
Less: reclassification adjustment for gains included in net income, net of tax $(645)											(1,433	)					(1,433	)
Amortization of prior service (credit) cost, net of tax of $(169)											(295	)					(295	)

Balance, December 31, 2014		216,613			27,077			1,437,135			4,689			610,079			2,078,980
Issuance of stock to employees under benefit plans, net of shares withheld for payroll tax of $10,597		2,649			331			8,602									8,933
Stock-based compensation expense								30,285									30,285
Repurchase of common stock		(15,621	)		(1,953	)								(297,996	)		(299,949	)
Tax benefit related to stock options and restricted stock units								4,625									4,625
Cash dividends														(50,732	)		(50,732	)
Net income														206,477			206,477
Foreign currency translation adjustment											(8,759	)					(8,759	)
Unrealized losses on marketable securities:
Unrealized losses on marketable securities, net of tax of $(1,667)											(3,075	)					(3,075	)
Less: reclassification adjustment for gains included in net income, net of tax $(390)											(704	)					(704	)
Amortization of prior service (credit) cost, net of tax of $(169)											(295	)					(295	)

Balance, December 31, 2015		203,641		$	25,455		$	1,480,647		$	(8,144	)	$	467,828		$	1,965,786

The accompanying notes are an integral part of the consolidated financial statements.

TERADYNE, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS


	Years Ended December 31,
	2015			2014			2013
	(in thousands)
Cash flows from operating activities:
Net income	$	206,477		$	81,272		$	164,947
Adjustments to reconcile net income from operations to net cash provided by operating activities:
Depreciation		68,181			73,390			57,317
Amortization		72,592			79,154			93,370
Stock-based compensation		30,451			40,307			36,612
Goodwill impairment		—			98,897			—
Provision for excess and obsolete inventory		21,332			22,193			16,592
Deferred taxes		(7,124	)		(19,928	)		(3,316	)
Gain from the sale of an equity investment		(5,406	)		—			(34,212	)
Tax benefit related to employee stock compensation awards		(4,715	)		(535	)		(2,675	)
Non-cash charge for the sale of inventories revalued at the date of acquisition		1,567			—			—
Retirement plans actuarial losses (gains)		17,732			46,564			(10,340	)
Contingent consideration adjustment		2,489			(630	)		—
Other		(34	)		2,874			(5	)
Changes in operating assets and liabilities, net of businesses acquired:
Accounts receivable		(57,267	)		8,060			(3,656	)
Inventories		15,559			51,803			22,282
Prepayments and other assets		3,034			41,537			(49,572	)
Accounts payable and other accrued expenses		48,213			(45,430	)		15,205
Deferred revenue and customer advances		17,011			22,033			(28,979	)
Retirement plan contributions		(12,095	)		(33,916	)		(5,540	)
Income taxes		(5,156	)		24,417			680

Net cash provided by operating activities		412,841			492,062			268,710

Cash flows from investing activities:
Purchases of property, plant and equipment		(89,878	)		(168,982	)		(106,731	)
Purchases of available-for-sale marketable securities		(1,424,002	)		(1,578,743	)		(1,170,506	)
Acquisition of businesses, net of cash acquired		(282,741	)		(19,419	)		(14,999	)
Proceeds from maturities of available-for-sale marketable securities		360,264			570,358			516,499
Proceeds from sales of available-for-sale marketable securities		1,316,131			859,729			458,491
Proceeds from (purchases of) life insurance		1,098			4,184			(307	)
Proceeds from the sale of an equity investment		5,406			—			34,212

Net cash used for investing activities		(113,722	)		(332,873	)		(283,341	)

Cash flows from financing activities:
Issuance of common stock under stock option and stock purchase plans		19,530			21,291			17,596
Repurchase of common stock		(299,949	)		—			—
Tax benefit related to employee stock compensation awards		4,715			535			2,675
Dividend payments		(50,713	)		(37,425	)		—
Payment of revolving credit facility costs		(2,253	)		—			—
Payments of long-term debt		—			(190,972	)		(2,534	)
Payments of contingent consideration		—			—			(388	)

Net cash (used for) provided by financing activities		(328,670	)		(206,571	)		17,349

(Decrease) increase in cash and cash equivalents		(29,551	)		(47,382	)		2,718
Cash and cash equivalents at beginning of year		294,256			341,638			338,920

Cash and cash equivalents at end of year	$	264,705		$	294,256		$	341,638

Supplementary disclosure of cash flow information:
Cash paid for:
Interest	$	301		$	4,294		$	8,590
Income taxes	$	35,218		$	25,893		$	38,156

The accompanying notes are an integral part of the consolidated financial statements.

TERADYNE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

A. THE COMPANY

Teradyne, Inc. (“Teradyne”) is a leading global supplier of automation equipment for test and industrial applications. Teradyne designs, develops, manufactures and sells automatic test systems used to test semiconductors, wireless products, data storage and complex electronics systems in the consumer electronics, wireless, automotive, industrial, computing, communications, and aerospace and defense industries. Teradyne’s industrial automation products include collaborative robots used by global manufacturing and light industrial customers to improve quality, increase manufacturing efficiency and decrease manufacturing costs. Teradyne’s automatic test equipment and industrial automation products and services include:

	•		semiconductor test (“Semiconductor Test”) systems;

	•		defense/aerospace (“Defense/Aerospace”) test instrumentation and systems, storage test (“Storage Test”) systems, and circuit-board test and inspection (“Production Board Test”) systems (collectively these products represent “System Test”);

	•		wireless test (“Wireless Test”) systems; and

	•		industrial automation (“Industrial Automation”) products.

On June 11, 2015, Teradyne acquired Universal Robots A/S (“Universal Robots”) for approximately $284 million of cash plus up to an additional $65 million of cash if certain performance targets are met extending through 2018. Universal Robots is the leading supplier of collaborative robots which are low-cost, easy-to-deploy and simple-to-program robots that work side by side with production workers. Universal Robots is a separate operating and reportable segment, Industrial Automation.

B. ACCOUNTING POLICIES

The consolidated financial statements include the accounts of Teradyne and its wholly-owned subsidiaries. All significant intercompany balances and transactions are eliminated. Certain prior years’ amounts were reclassified to conform to the current year presentation.

Preparation of Financial Statements and Use of Estimates

The preparation of consolidated financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent liabilities. On an on-going basis, management evaluates its estimates, including those related to inventories, investments, goodwill, intangible and other long-lived assets, accounts receivable, income taxes, deferred tax assets, pensions, warranties, and loss contingencies. Management bases its estimates on historical experience and on appropriate and customary assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ significantly from these estimates.

Revenue Recognition

Teradyne recognizes revenue when there is persuasive evidence of an arrangement, title and risk of loss have passed, delivery has occurred or the services have been rendered, the sales price is fixed or determinable and collection of the related receivable is reasonably assured. Title and risk of loss generally pass to Teradyne’s customers upon shipment or at delivery destination point. In circumstances where either title or risk of loss pass upon destination, acceptance or cash payment, Teradyne defers revenue recognition until such events occur except when title transfer is tied to cash payment outside the United States. Outside the United States, Teradyne

recognizes revenue upon shipment or at delivery destination point, even if Teradyne retains a form of title to products delivered to customers, provided the sole purpose is to enable Teradyne to recover the products in the event of customer payment default and the arrangement does not prohibit the customer’s use or resale of the product in the ordinary course of business.

Teradyne’s equipment has non-software and software components that function together to deliver the equipment’s essential functionality. Revenue is recognized upon shipment or at delivery destination point, provided that customer acceptance criteria can be demonstrated prior to shipment. Certain contracts require Teradyne to perform tests of the product to ensure that performance meets the published product specifications or customer requested specifications, which are generally conducted prior to shipment. Where the criteria cannot be demonstrated prior to shipment, revenue is deferred until customer acceptance has been received. Teradyne also defers the portion of the sales price that is not due until acceptance, which represents deferred profit.

For multiple element arrangements, Teradyne allocates revenue to all deliverables based on their relative selling prices. In such circumstances, a hierarchy is used to determine the selling price for allocating revenue to deliverables as follows: (i) vendor-specific objective evidence of selling price (“VSOE”), (ii) third-party evidence of selling price (“TPE”), and (iii) best estimate of the selling price (“BESP”). For a delivered item to be considered a separate unit the delivered item must have value to the customer on a standalone basis and the delivery or performance of the undelivered item must be considered probable and substantially in Teradyne’s control.

Teradyne’s post-shipment obligations include installation, training services, one-year standard warranties, and extended warranties. Installation does not alter the product capabilities, does not require specialized skills or tools and can be performed by the customers or other vendors. Installation is typically provided within five days of product shipment and is completed within one to two days thereafter. Training services are optional and do not affect the customers’ ability to use the product. Teradyne defers revenue for the selling price of installation and training. Extended warranties constitute warranty obligations beyond one year and Teradyne defers revenue in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 605-20, “Separately Priced Extended Warranty and Product Maintenance Contracts” and ASC 605-25, “Revenue Recognition Multiple-Element Arrangements.” Service revenue is recognized over the contractual period or as services are performed.

Teradyne’s products are generally subject to warranty and related costs of the warranty are provided for in cost of revenues when product revenue is recognized. Teradyne classifies shipping and handling costs in cost of revenue. Teradyne does not provide its customers with contractual rights of return for any of its products.

As of December 31, 2015 and 2014, deferred revenue and customer advances consisted of the following and are included in the short and long-term deferred revenue and customer advances:


	2015		2014
	(in thousands)
Extended warranty	$	46,499	$	43,300
Equipment maintenance and training		30,616		30,500
Customer advances		17,456		8,875
Undelivered elements and other		16,701		8,857

Total deferred revenue and customer advances	$	111,272	$	91,532

Product Warranty

Teradyne generally provides a one-year warranty on its products, commencing upon installation, acceptance or shipment. A provision is recorded upon revenue recognition to cost of revenues for estimated warranty

expense based on historical experience. Related costs are charged to the warranty accrual as incurred. The balance below is included in other accrued liabilities:


	Amount
	(in thousands)
Balance at December 31, 2012	$	9,786
Accruals for warranties issued during the period		10,574
Accruals related to pre-existing warranties		(3,534	)
Settlements made during the period		(10,166	)

Balance at December 31, 2013		6,660
Accruals for warranties issued during the period		15,406
Accruals related to pre-existing warranties		(2,008	)
Settlements made during the period		(11,116	)

Balance at December 31, 2014		8,942
Acquisition		409
Accruals for warranties issued during the period		11,539
Accruals related to pre-existing warranties		(3,159	)
Settlements made during the period		(10,806	)

Balance at December 31, 2015	$	6,925

When Teradyne receives revenue for extended warranties, beyond one year, it is deferred and recognized on a straight-line basis over the contract period. Related costs are expensed as incurred. The balance below is included in short and long-term deferred revenue and customer advances:


	Amount
	(in thousands)
Balance at December 31, 2012	$	28,044
Deferral of new extended warranty revenue		20,630
Recognition of extended warranty deferred revenue		(13,765	)

Balance at December 31, 2013		34,909
Deferral of new extended warranty revenue		29,519
Recognition of extended warranty deferred revenue		(21,128	)

Balance at December 31, 2014		43,300
Acquisition		870
Deferral of new extended warranty revenue		28,549
Recognition of extended warranty deferred revenue		(26,220	)

Balance at December 31, 2015	$	46,499

Accounts Receivable and Allowance for Doubtful Accounts

Trade accounts receivable are recorded at the invoiced amount and do not bear interest. The volatility of the industries that Teradyne serves can cause certain of its customers to experience shortages of cash flows, which can impact their ability to make required payments. Teradyne maintains allowances for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments. Estimated allowances for doubtful accounts are reviewed periodically taking into account the customer’s recent payment history, the customer’s current financial statements and other information regarding the customer’s credit worthiness. Account balances are written off against the allowance when it is determined the receivable will not be recovered.

Inventories

Inventories are stated at the lower of cost (first-in, first-out basis) or net realizable value. On a quarterly basis, Teradyne uses consistent methodologies to evaluate all inventories for net realizable value. Teradyne records a provision for both excess and obsolete inventory when such write-downs or write-offs are identified through the quarterly review process. The inventory valuation is based upon assumptions about future demand, product mix and possible alternative uses.

Investments

Teradyne accounts for its investments in debt and equity securities in accordance with the provisions of ASC 320-10, “Investments—Debt and Equity Securities.” ASC 320-10 requires that certain debt and equity securities be classified into one of three categories; trading, available-for-sale or held-to-maturity securities. On a quarterly basis, Teradyne reviews its investments to identify and evaluate those that have an indication of a potential other-than-temporary impairment. Factors considered in determining whether a loss is other-than-temporary include:

	•		The length of time and the extent to which the market value has been less than cost;

	•		The financial condition and near-term prospects of the issuer; and

	•		The intent and ability to retain the investment in the issuer for a period of time sufficient to allow for any anticipated recovery in market value.

As defined in ASC 820-10, “Fair Value Measurements and Disclosures,” fair value is the price that would be received from the sale of an asset or paid to transfer a liability in an orderly transaction between market participants. Teradyne uses the market and income approach techniques to value its financial instruments and there were no changes in valuation techniques during the years ended December 31, 2015, 2014 and 2013. ASC 820-10 requires that assets and liabilities carried at fair value be classified and disclosed in one of the following three categories:

Level 1: Quoted prices in active markets for identical assets as of the reporting date.

Level 2: Inputs other than Level 1, that are observable either directly or indirectly as of the reporting date. For example, a common approach for valuing fixed income securities is the use of matrix pricing. Matrix pricing is a mathematical technique used to value securities by relying on the securities’ relationship to other benchmark quoted prices, and therefore is considered a Level 2 input.

Level 3: Unobservable inputs that are not supported by market data. Unobservable inputs are developed based on the best information available, which might include Teradyne’s own data.

In accordance with ASC 820-10, Teradyne measures its debt and equity investments at fair value. Teradyne’s debt and equity investments are primarily classified within Level 1 and 2. Acquisition-related contingent consideration is classified within Level 3. Teradyne determines the fair value of acquisition-related contingent consideration based on an assessment of the probability that it would be required to make such payment.

Prepayments

Prepayments consist of the following and are included in prepayments on the balance sheet:


	2015		2014
	(in thousands)
Contract manufacturer prepayments	$	66,283	$	65,972
Prepaid maintenance and other services		8,481		7,343
Prepaid taxes		3,781		11,462
Other prepayments		12,974		11,042

Total prepayments	$	91,519	$	95,819

Retirement and Postretirement Plans

Teradyne recognizes net actuarial gains and losses and the change in the fair value of the plan assets in its operating results in the year in which they occur or upon any interim remeasurement of the plans. Teradyne calculates the expected return on plan assets using the fair value of the plan assets. Actuarial gains and losses are generally measured annually as of December 31 and, accordingly, recorded during the fourth quarter of each year or upon any interim remeasurement of the plans.

Goodwill, Intangible and Long-Lived Assets

Teradyne accounts for goodwill and intangible assets in accordance with ASC 350-10, “Intangibles-Goodwill and Other.” Intangible assets are amortized over their estimated useful economic life and are carried at cost less accumulated amortization. Goodwill is assessed for impairment at least annually in the fourth quarter, as of December 31, on a reporting unit basis, or more frequently when events and circumstances occur indicating that the recorded goodwill may be impaired. In accordance with ASC 350-10, Teradyne has the option to perform a qualitative assessment 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.

In accordance with ASC 360-10_, “Impairment or Disposal of Long-Lived 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. Each impairment test is based on a comparison of the estimated undiscounted cash flows to the recorded value of the asset. If impairment is indicated, the asset is written down to its estimated fair value based on a discounted cash flow analysis. The cash flow estimates used to determine the impairment, if any, contain management’s best estimates using appropriate assumptions and projections at that time. There were no events or circumstances indicating that the carrying value of intangible and long-lived assets may not be recoverable in 2015 or 2013. In 2014, as a result of the Wireless Test segment goodwill impairment charge in the fourth quarter of 2014, Teradyne performed an impairment test of the Wireless Test segment’s intangible and long-lived assets based on a comparison of the estimated undiscounted cash flows to the recorded value of the assets and there was no indication of impairment.

Property, Plant and Equipment

Property, plant and equipment are stated at cost and depreciated over the estimated useful lives of the assets. Leasehold improvements and major renewals are capitalized and included in property, plant and equipment accounts while expenditures for maintenance and repairs and minor renewals are charged to expense. When assets are retired, the assets and related accumulated depreciation are removed from the accounts and any resulting gain or loss is reflected in the statement of operations.

Teradyne provides for depreciation of its assets principally on the straight-line method with the cost of the assets being charged to expense over their useful lives as follows:


Buildings		40 years
Building improvements		5 to 10 years
Leasehold improvements		Lesser of lease term or 10 years
Furniture and fixtures		10 years
Test systems manufactured internally		6 years
Machinery and equipment		3 to 5 years
Software		3 to 5 years

Test systems manufactured internally are used by Teradyne for customer evaluations and manufacturing and support of its customers. Teradyne depreciates the test systems manufactured internally over a six-year life to cost of revenues, engineering and development, and selling and administrative expenses. Teradyne often sells internally manufactured test equipment to customers. Upon the sale of an internally manufactured test system, the net book value of the system is transferred to inventory and expensed as cost of revenues. The net book value of internally manufactured test systems sold in the years ended December 31, 2015, 2014 and 2013 was $50.7 million, $9.7 million and $9.0 million, respectively.

Engineering and Development Costs

Teradyne’s products are highly technical in nature and require a large and continuing engineering and development effort. Software development costs incurred prior to the establishment of technological feasibility are charged to expense. Software development costs incurred subsequent to the establishment of technological feasibility are capitalized until the product is available for release to customers. To date, the period between achieving technological feasibility and general availability of the product has been short and software development costs eligible for capitalization have not been material. Engineering and development costs are expensed as incurred and consist primarily of salaries, contractor fees, allocated facility costs, depreciation, and tooling costs.

Stock Compensation Plans and Employee Stock Purchase Plan

Stock-based compensation expense is based on the grant-date fair value estimated in accordance with the provisions of ASC 718-10, “Compensation-Stock Compensation.” As required by ASC 718-10, Teradyne has made an estimate of expected forfeitures and is recognizing compensation costs only for those stock-based compensation awards expected to vest.

Under its stock compensation plans, Teradyne has granted stock options, restricted stock units and performance-based restricted stock units, and employees are eligible to purchase Teradyne’s common stock through its Employee Stock Purchase Plan (“ESPP”).

Income Taxes

Deferred tax assets and liabilities are determined based on differences between financial reporting and tax basis of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. The measurement of deferred tax assets is reduced by a valuation allowance if it is more likely than not that some or all of the deferred tax assets will not be realized. Teradyne performed the required assessment of positive and negative evidence regarding the realization of the net deferred tax assets in accordance with ASC 740, “Accounting for Income Taxes.” This assessment included the evaluation of scheduled reversals of deferred tax liabilities, estimates of projected future taxable income and tax-planning strategies. Although realization is not assured, based on its assessment, Teradyne concluded that it is more likely than not that such assets, net of the existing valuation allowance, will be realized. U.S. income taxes are not provided for on the earnings of non-U.S. subsidiaries which are expected to be reinvested indefinitely in operations outside the U.S. For intra-period tax allocations, Teradyne first utilizes non-equity related tax attributes, such as net operating losses and credit carryforwards and then equity-related tax attributes. Teradyne uses the with-and-without method for calculating excess stock compensation deductions and does not take into account any indirect impacts of excess stock compensation deductions on its research and development tax credits, domestic production activities deduction, and other differences between financial reporting and tax reporting.

Advertising Costs

Teradyne expenses all advertising costs as incurred. Advertising costs were $3.3 million, $1.9 million and $1.7 million in 2015, 2014 and 2013, respectively.

Translation of Non-U.S. Currencies

The functional currency for all subsidiaries is the U.S. dollar, except for the Industrial Automation segment for which the local currency is its functional currency. All foreign currency denominated monetary assets and liabilities are remeasured on a monthly basis into the functional currency using exchange rates in effect at the end of the period. All foreign currency denominated non-monetary assets and liabilities are remeasured into the functional currency using historical exchange rates. Net foreign exchange gains and losses resulting from remeasurement are included in other (income) expense, net. For Industrial Automation, assets and liabilities are translated into U.S. dollars using exchange rates in effect at the end of the period. Revenue and expense amounts are translated using an average of exchange rates in effect during the period. Translation adjustments are recorded within accumulated other comprehensive income (loss).

Net foreign exchange gains and losses resulting from remeasurement are included in other (income) expense, net and were a gain of $2.5 million, a loss of $0.9 million and a loss of $6.9 million, respectively, for the years ended December 31, 2015, 2014 and 2013. These amounts do not reflect the corresponding gains (losses) from foreign exchange contracts. See Note F: “Financial Instruments” regarding foreign exchange contracts.

Net Income per Common Share

Basic net income per common share is calculated by dividing net income by the weighted average number of common shares outstanding during the period. Except where the result would be antidilutive, diluted net income per common share is calculated by dividing net income by the sum of the weighted average number of common shares plus common stock equivalents, if applicable.

Dilutive potential common shares included incremental shares from the assumed conversion of the convertible notes and the convertible notes hedge warrant shares, during the periods the convertible notes and warrants were outstanding. Incremental shares from the assumed conversion of the convertible notes were calculated using the difference between the average Teradyne stock price for the period and the conversion price of $5.48, multiplied by 34.7 million shares. The result of this calculation, representing the total intrinsic value of the convertible debt, was divided by the average Teradyne stock price for the period. Convertible notes hedge warrant shares were calculated using the difference between the average Teradyne stock price for the period and the warrant price of $7.67, multiplied by 34.7 million shares. The result of this calculation, representing the total intrinsic value of the warrant, was divided by the average Teradyne stock price for the period. Teradyne’s call option for 34.7 million shares at an exercise price of $5.48 was not used in the GAAP earnings per share calculation as its effect was anti-dilutive.

Teradyne settled its conversion spread (i.e., the intrinsic value of the embedded option feature contained in the convertible debt) in shares. Teradyne accounted for its conversion spread using the treasury stock method. Teradyne determined that it had the ability and intent to settle the principal amount of the convertible debt in cash; accordingly, the principal amount was excluded from the determination of diluted earnings per share.

Comprehensive Income (Loss)

Comprehensive income (loss) includes net income, unrealized pension and postretirement prior service costs and benefits, unrealized gains and losses on investments in debt and equity marketable securities and foreign currency translation adjustment.

C. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

In November 2015, the FASB issued Accounting Standards Update (“ASU”) 2015-17, “Balance Sheet Classification of Deferred Taxes.” ASU 2015-17 is aimed at reducing complexity in accounting standards.

Currently, GAAP requires the deferred taxes for each jurisdiction to be presented as a net current asset or liability and net noncurrent asset or liability. This requires a jurisdiction-by-jurisdiction analysis based on the classification of the assets and liabilities to which the underlying temporary differences relate, or, in the case of loss or credit carryforwards, based on the period in which the attribute is expected to be realized. Any valuation allowance is then required to be allocated on a pro rata basis, by jurisdiction, between current and noncurrent deferred tax assets. To simplify presentation, the new guidance requires that all deferred tax assets and liabilities, along with any related valuation allowance, be classified as noncurrent on the balance sheet. As a result, each jurisdiction will now only have one net noncurrent deferred tax asset or liability. The guidance does not change the existing requirement that only permits offsetting within a jurisdiction, companies are still prohibited from offsetting deferred tax liabilities from one jurisdiction against deferred tax assets of another jurisdiction. The new guidance is effective in fiscal years beginning after December 15, 2016, including interim periods within those years. Early adoption is permitted as of the beginning of an interim or annual reporting period. The guidance may be applied either prospectively, for all deferred tax assets and liabilities, or retrospectively by reclassifying the comparative balance sheet. Teradyne will early adopt this ASU prospectively in January 2016. This ASU is expected to have no impact on Teradyne’s results of operations.

In September 2015, the FASB issued ASU 2015-16, “Business Combinations (Topic 805)—Simplifying the Accounting for Measurement-Period Adjustments.” ASU 2015-16 requires that an acquirer recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustments are identified, including the cumulative effect of the change in provisional amount as if the accounting had been completed at the acquisition date. ASU 2015-16 is effective for reporting periods beginning after December 15, 2015 and is applied prospectively. Early adoption is permitted. Teradyne early adopted this ASU in 2015. Adoption of this ASU did not have a material impact on Teradyne’s financial position and results of operations.

On April 7, 2015, the FASB issued ASU 2015-03, “Simplifying the Presentation of Debt Issuance Costs,” which requires debt issuance costs to be presented in the balance sheet as a direct deduction from the carrying value of the associated debt liability, consistent with the presentation for debt discount. ASU 2015-03 does not specifically address requirements for the presentation or subsequent measurement of debt issuance costs related to line-of-credit arrangements. On August 8, 2015, the FASB issued ASU 2015-15, “Interest—Imputation of Interest (Subtopic 835-30)” clarifying that debt issuance costs related to line-of-credit arrangements could be presented as an asset and amortized over the term of the line-of-credit arrangement, regardless of whether there are any outstanding borrowings on the line-of-credit arrangement. For Teradyne, the standard is effective for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within those years. This ASU is expected to have no impact on Teradyne’s financial position and results of operations.

In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers (Topic 606),” which will replace numerous requirements in U.S. GAAP, including industry-specific requirements, and provide companies with a single revenue recognition model for recognizing revenue from contracts with customers. The core principle of the new standard is that a company should recognize revenue to show the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled to in exchange for those goods or services. In August 2015, FASB issued ASU 2015-14, which deferred the effective date of the new revenue standard by one year. For Teradyne, the standard will be effective in the first quarter of 2018. Early adoption is permitted but not before the original effective date (that is, annual periods beginning after December 15, 2016). The two permitted transition methods under the new standard are the full retrospective method, in which case the standard would be applied to each prior reporting period presented, or the modified retrospective method, in which case the cumulative effect of applying the standard would be recognized at the date of initial application. Teradyne has not yet selected a transition method. Teradyne is currently evaluating the impact of this ASU on its financial position and results of operations.

D. ACQUISITIONS

Business

Universal Robots

On June 11, 2015, Teradyne acquired all of the outstanding equity of Universal Robots located in Odense, Denmark. Universal Robots is the leading supplier of collaborative robots which are low-cost, easy-to-deploy and simple-to-program robots that work side by side with production workers to improve quality, increase manufacturing efficiency and decrease manufacturing costs. Universal Robots is a separate operating and reportable segment, Industrial Automation. The total purchase price of $315.4 million consisted of $283.8 million of cash paid and $31.6 million of contingent consideration, measured at fair value. The contingent consideration was valued using a Monte Carlo simulation based on the following key inputs: (1) forecasted revenue (2) forecasted EBITDA (3) revenue volatility (4) EBITDA volatility; and (5) discount rate. The contingent consideration is payable upon the achievement of certain thresholds and targets for earnings before income taxes, depreciation and amortization (“EBITDA”) for calendar year 2015, revenue for the period from July 1, 2015 to December 31, 2017 and revenue for the period from July 1, 2015 to December 31, 2018. The maximum amount of contingent consideration that could be paid is $65 million. Based on Universal Robots’ calendar 2015 EBITDA results, Teradyne will pay, in the first quarter of 2016, $15 million or 100% of the eligible EBITDA contingent consideration amount.

In the fourth quarter of 2015, Teradyne finalized the valuation and purchase price allocation for the acquisition which resulted in a $5.4 million decrease in goodwill as a result of a $2.2 million decrease in the fair value of contingent consideration, a $1.6 million increase in intangible assets and a $1.6 million decrease in acquired liabilities.

The Universal Robots acquisition was accounted for as a business combination and, accordingly, the results have been included in Teradyne’s consolidated results of operations from the date of acquisition. The allocation of the total purchase price to Universal Robots’ net tangible liabilities and identifiable intangible assets was based on their estimated fair values as of the acquisition date. The excess of the purchase price over the identifiable intangible assets and net tangible liabilities in the amount of $221.1 million was allocated to goodwill, which is not deductible for tax purposes.

The following table represents the final allocation of the purchase price:


	Purchase Price Allocation
	(in thousands)
Goodwill	$	221,128
Intangible assets		121,590
Tangible assets acquired and liabilities assumed:
Current assets		10,853
Non-current assets		3,415
Accounts payable and current liabilities		(11,976	)
Long-term deferred tax liabilities		(26,653	)
Long-term other liabilities		(2,920	)

Total purchase price	$	315,437

Teradyne estimated the fair value of intangible assets using the income and cost approaches. Acquired intangible assets are amortized on a straight-line basis over their estimated useful lives. Components of these intangible assets and their estimated useful lives at the acquisition date are as follows:


	Fair Value		Estimated Useful Life
	(in thousands)		(in years)
Developed technology	$	89,240		4.9
Trademarks and tradenames		22,920		10.0
Customer relationships		9,430		2.0

Total intangible assets	$	121,590		5.6

For the period from June 12, 2015 to December 31, 2015, Universal Robots contributed $41.9 million of revenues and had a $7.6 million loss before income taxes.

The following unaudited pro forma information gives effect to the acquisition of Universal Robots as if the acquisition occurred on January 1, 2014. The unaudited pro forma results are not necessarily indicative of what actually would have occurred had the acquisition been in effect for the periods presented:


	For the Years Ended
	December 31, 2015		December 31, 2014
	(in thousands, except per share amounts)
Revenue	$	1,657,626	$	1,686,689
Net income		199,784		61,078
Net income per common share:
Basic	$	0.94	$	0.30

Diluted	$	0.94	$	0.27

Pro forma results for the year ended December 31, 2015 were adjusted to exclude $1.6 million of non-recurring expense related to the fair value adjustment to acquisition-date inventory and $1.0 million of acquisition related costs incurred in 2015.

Pro forma results for the year ended December 31, 2014, were adjusted to include $1.6 million of non-recurring expense related to the fair value adjustment to acquisition-date inventory and $1.0 million of acquisition related costs.

Avionics Interface Technologies, LLC.

On October 31, 2014, Teradyne acquired all of the assets and liabilities of Avionics Interface Technologies, LLC (“AIT”) located in Omaha, Nebraska and Dayton, Ohio. AIT is a supplier of equipment for testing state-of-the-art data communication buses. The acquisition of AIT complements Teradyne’s Defense/Aerospace line of bus test instrumentation for commercial and defense avionics systems. AIT is included in Teradyne’s System Test segment.

The total purchase price of $21.2 million consisted of $19.4 million of cash paid to acquire AIT’s assets and liabilities and $1.8 million in fair value of contingent consideration payable upon the achievement of certain revenue and gross margin targets in 2015 and 2016. No contingent consideration was paid for 2015. The maximum remaining contingent consideration that could be paid is $1.1 million.

The valuation of the contingent consideration utilized the following assumptions: (1) probability of meeting each target; (2) expected timing of meeting each target; and (3) discount rate reflecting the risk associated with

the expected payments. The probabilities and timing for each target were estimated based on a review of the historical and projected results. A discount rate of 4.7 percent was selected based on the cost of debt for the business. A significant portion of the risk in achieving the contingent consideration was captured in the probabilities assigned to meeting each target.

The AIT acquisition was accounted for as a business combination and, accordingly, the results have been included in Teradyne’s consolidated results of operations from the date of acquisition. The allocation of the total purchase price of AIT’s net tangible and identifiable intangible assets was based on their estimated fair values as of the acquisition date. The excess of the purchase price over the identifiable intangible and net tangible assets in the amount of $10.5 million was allocated to goodwill, which is deductible for tax purposes.

The following represents the final allocation of the purchase price:


	Purchase Price Allocation
	(in thousands)
Goodwill	$	10,516
Intangible assets		9,080
Tangible assets acquired and liabilities assumed:
Current assets		2,452
Non-current assets		359
Accounts payable and current liabilities		(1,164	)

Total purchase price	$	21,243

Teradyne estimated the fair value of intangible assets using the income approach. Acquired intangible assets are amortized on a straight-line basis over their estimated useful lives. Components of these intangible assets and their estimated useful lives at the acquisition date are as follows:


	Fair Value		Estimated Useful Life
	(in thousands)		(in years)
Customer relationships	$	5,630		5.0
Developed technology		2,580		4.8
Trademarks and tradenames		380		5.0
Non-compete agreement		320		4.0
Customer order backlog		170		0.3

Total intangible assets	$	9,080		4.8

For the period from October 31, 2014 to December 31, 2014, AIT contributed $0.6 million of revenues and had a $0.8 million loss before income taxes.

The following unaudited pro forma information gives effect to the acquisition of AIT as if the acquisition occurred on January 1, 2013. The unaudited pro forma results are not necessarily indicative of what actually would have occurred had the acquisition been in effect for the periods presented:


		For the Year Ended
	December 31, 2014			December 31, 2013
		(in thousands, except per share amounts)
Revenues		$	1,655,038		$	1,434,699
Net income		$	82,169		$	164,087
Income per common share:
Basic		$	0.40		$	0.86

Diluted		$	0.37		$	0.70

ZTEC Instruments, Inc.

On October 25, 2013, Teradyne acquired all of the outstanding equity of ZTEC Instruments, Inc. (“ZTEC”) located in Albuquerque, New Mexico. ZTEC is a supplier of modular wireless test instruments. The acquisition of ZTEC expands Teradyne’s Wireless Test segment into the design verification test of wireless components and chipsets.

The total purchase price of $17.3 million consisted of $15.1 million of cash paid to acquire the outstanding common and preferred stock of ZTEC and $2.2 million in fair value of contingent consideration payable upon achievement of certain customer order and revenue targets through 2015. The maximum amount of contingent consideration that could have been paid was $5.0 million. None of the contingent consideration was paid.

The ZTEC acquisition was accounted for as a business combination and, accordingly, the results have been included in Teradyne’s consolidated results of operation from the date of acquisition. The allocation of the total purchase price of ZTEC’s net tangible and identifiable intangible assets was based on their estimated fair values as of the acquisition date. The excess of the purchase price over the identifiable intangible and net tangible assets in the amount of $12.5 million was allocated to goodwill, which is not deductible for tax purposes.

The following represents the final allocation of the purchase price:


	Purchase Price Allocation
	(in thousands)
Goodwill	$	12,520
Intangible assets		4,870
Tangible assets acquired and liabilities assumed:
Cash		79
Other current assets		1,612
Non-current assets		1,757
Accounts payable and current liabilities		(1,811	)
Long-term deferred tax liabilities		(1,719	)

Total purchase price	$	17,308


	Fair Value		Estimated Useful Life
	(in thousands)		(in years)
Developed technology	$	3,500		5.0
Customer relationships		1,370		6.0

Total intangible assets	$	4,870		5.3

For the period from October 25, 2013 to December 31, 2013, ZTEC contributed $0.4 million of revenues and had a $0.8 million loss before income taxes.

The following unaudited pro forma information gives effect to the acquisition of ZTEC as if the acquisition occurred on January 1, 2013. The unaudited pro forma results are not necessarily indicative of what actually would have occurred had the acquisition been in effect for the periods presented:


		For the Year Ended
	December 31, 2013
		(in thousands, except per share amounts)
Revenues		$	1,431,270
Net income		$	163,394
Income per common share:
Basic		$	0.86

Diluted		$	0.69

E. PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment consist of the following:


	2015		2014
	(in thousands)
Land	$	16,561	$	16,561
Buildings		108,797		108,671
Machinery and equipment		595,445		659,743
Furniture and fixtures, and software		82,612		77,566
Leasehold improvements		43,328		31,981
Construction in progress		2,630		2,508

		849,373		897,030
Less: accumulated depreciation		575,959		567,992

	$	273,414	$	329,038

Depreciation of property, plant and equipment for the years ended December 31, 2015, 2014 and 2013 was $68.2 million, $73.4 million and $57.3 million, respectively. As of December 31, 2015 and 2014, the gross book value included in machinery and equipment for internally manufactured test systems being leased by customers was $20.4 million and $89.6 million, respectively. As of December 31, 2015 and 2014, the accumulated depreciation on these test systems was $8.5 million and $19.9 million, respectively.

F. FINANCIAL INSTRUMENTS

Cash Equivalents

Teradyne considers all highly liquid investments with maturities of three months or less at the date of acquisition to be cash equivalents.

Marketable Securities

Teradyne’s available-for-sale securities are classified as Level 1 and Level 2. Contingent consideration is classified as Level 3. The vast majority of Level 2 securities are fixed income securities priced by third party pricing vendors. These pricing vendors utilize the most recent observable market information in pricing these securities or, if specific prices are not available, use other observable inputs like market transactions involving identical or comparable securities.

Realized losses recorded in 2015 were $0.4 million. There were no realized losses recorded in 2014 and 2013. Realized gains recorded in 2015, 2014 and 2013 were $1.7 million, $2.4 million and $1.0 million,

respectively. Realized gains are included in interest income, and realized losses are included in interest expense. Unrealized gains and losses are included in accumulated other comprehensive income (loss). The cost of securities sold is based on the specific identification method.

During the years ended December 31, 2015 and 2014, there were no transfers in or out of Level 1, Level 2 or Level 3 financial instruments.

The following table sets forth by fair value hierarchy Teradyne’s financial assets and liabilities that were measured at fair value on a recurring basis as of December 31, 2015 and 2014:


	December 31, 2015
	Quoted Prices in Active Markets for Identical Instruments (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
	(in thousands)
Assets
Cash	$	213,336	$	—	$	—	$	213,336
Cash equivalents		49,241		2,128		—		51,369
Available for sale securities:
U.S. Treasury securities		—		419,958		—		419,958
Corporate debt securities		—		161,634		—		161,634
U.S. government agency securities		—		83,952		—		83,952
Certificates of deposit and time deposits		—		43,394		—		43,394
Commercial paper		—		20,308		—		20,308
Equity and debt mutual funds		13,954		—		—		13,954
Non-U.S. government securities		—		424		—		424

Total	$	276,531	$	731,798	$	—	$	1,008,329

Derivative assets		—		109		—		109

Total	$	276,531	$	731,907	$	—	$	1,008,438

Liabilities
Contingent consideration	$	—	$	—	$	37,436	$	37,436
Derivative liabilities		—		146		—		146

Total	$	—	$	146	$	37,436	$	37,582

Reported as follows:


	(Level 1)		(Level 2)		(Level 3)		Total
	(in thousands)
Assets
Cash and cash equivalents	$	262,577	$	2,128	$	—	$	264,705
Marketable securities		—		477,696		—		477,696
Long-term marketable securities		13,954		251,974		—		265,928
Prepayments		—		109		—		109

	$	276,531	$	731,907	$	—	$	1,008,438

Liabilities
Other current liabilities	$	—	$	146	$	—	$	146
Contingent consideration		—		—		15,500		15,500
Long-term contingent consideration		—		—		21,936		21,936

	$	—	$	146	$	37,436	$	37,582


	December 31, 2014
	Quoted Prices in Active Markets for Identical Instruments (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
	(in thousands)
Assets
Cash	$	111,471	$	—	$	—	$	111,471
Cash equivalents		160,218		22,567		—		182,785
Available for sale securities:
U.S. Treasury securities		—		402,154		—		402,154
U.S. government agency securities		—		258,502		—		258,502
Corporate debt securities		—		141,467		—		141,467
Commercial paper		—		140,638		—		140,638
Certificates of deposit and time deposits		—		49,036		—		49,036
Equity and debt mutual funds		12,333		—		—		12,333
Non-U.S. government securities		—		446		—		446

Total	$	284,022	$	1,014,810	$	—	$	1,298,832

Derivative assets		—		220		—		220

Total	$	284,022	$	1,015,030	$	—	$	1,299,052

Liabilities
Contingent consideration	$	—	$	—	$	3,350	$	3,350
Derivative liabilities		—		369		—		369

Total	$	—	$	369	$	3,350	$	3,719

Reported as follows:


	(Level 1)		(Level 2)		(Level 3)		Total
	(in thousands)
Assets
Cash and cash equivalents	$	271,689	$	22,567	$	—	$	294,256
Marketable securities		—		533,787		—		533,787
Long-term marketable securities		12,333		458,456		—		470,789
Prepayments		—		220		—		220

	$	284,022	$	1,015,030	$	—	$	1,299,052

Liabilities
Other current liabilities	$	—	$	369	$	—	$	369
Contingent consideration		—		—		895		895
Long-term other accrued liabilities		—		—		2,455		2,455

	$	—	$	369	$	3,350	$	3,719

Changes in the fair value of Level 3 contingent consideration for the years ended December 31, 2015 and 2014 were as follows:


	Contingent Consideration
	(in thousands)
Balance at December 31, 2013	$	2,230
Acquisition of AIT		1,750
Fair value adjustment of ZTEC		(630	)

Balance at December 31, 2014		3,350
Acquisition of Universal Robots		31,597
Fair value adjustment of ZTEC		(1,600	)
Fair value adjustment of AIT		(1,250	)
Fair value adjustment of Universal Robots		5,339

Balance at December 31, 2015	$	37,436

The following table provides quantitative information associated with the fair value measurement of Teradyne’s Level 3 financial instrument:


Liability	December 31, 2015 Fair Value		Valuation Technique		Unobservable Inputs		Weighted Average
	(in thousands)
Contingent consideration (Universal Robots)	$	21,936	Monte Carlo simulation		Revenue for the period July 1, 2015—December 31, 2017 volatility		15%
				Discount Rate		5.5%
				Revenue for the period July 1, 2015—December 31, 2018 volatility		15%
				Discount Rate		5.5%

Contingent consideration (AIT)	$	500	Income approach- discounted cash flow		Revenue for calendar year 2016 probability		48%
			Discount rate		4.7%

Based on Universal Robots’ calendar 2015 EBITDA results, Teradyne will pay, in first quarter of 2016, $15 million or 100% of the eligible EBITDA contingent consideration amount.

As of December 31, 2015, the significant unobservable inputs used in the Monte Carlo simulation to fair value the Universal Robots contingent consideration include forecasted revenue, revenue volatility and discount rate. Increases or decreases in the inputs would result in a higher or lower fair value measurement.

The significant unobservable inputs used in the AIT fair value measurement of contingent consideration are the probabilities of successful achievement of calendar year 2016 revenue threshold and target, and a discount rate. Increases or decreases in the revenue probabilities would result in a higher or lower fair value measurement.

The carrying amounts and fair values of financial instruments at December 31, 2015 and 2014 were as follows:


	December 31, 2015				December 31, 2014
	Carrying Value		Fair Value		Carrying Value		Fair Value
	(in thousands)
Assets
Cash and cash equivalents	$	264,705	$	264,705	$	294,256	$	294,256
Marketable securities		743,624		743,624		1,004,576		1,004,576
Derivative assets		109		109		220		220
Liabilities
Contingent consideration		37,436		37,436		3,350		3,350
Derivative liabilities		146		146		369		369

The fair values of accounts receivable, net and accounts payable approximate the carrying amount due to the short term nature of these instruments.

The following tables summarize the composition of available for sale marketable securities at December 31, 2015 and 2014:


	December 31, 2015
	Available-for-Sale									Fair Market Value of Investments with Unrealized Losses
	Cost		Unrealized Gain		Unrealized (Loss)			Fair Market Value
	(in thousands)
U.S. Treasury securities	$	421,060	$	65	$	(1,167	)	$	419,958	$	379,434
Corporate debt securities		163,297		902		(2,565	)		161,634		145,373
U.S. government agency securities		84,032		42		(122	)		83,952		55,120
Certificates of deposit and time deposits		43,391		6		(3	)		43,394		10,527
Commercial paper		20,298		11		(1	)		20,308		8,646
Equity and debt mutual funds		12,996		1,119		(161	)		13,954		2,560
Non-U.S. government securities		424		—		—			424		—

	$	745,498	$	2,145	$	(4,019	)	$	743,624	$	601,660

Reported as follows:


	Cost		Unrealized Gain		Unrealized (Loss)			Fair Market Value		Fair Market Value of Investments with Unrealized Losses
	(in thousands)
Marketable securities	$	478,306	$	38	$	(648	)	$	477,696	$	374,785
Long-term marketable securities		267,192		2,107		(3,371	)		265,928		226,875

	$	745,498	$	2,145	$	(4,019	)	$	743,624	$	601,660


	December 31, 2014
	Available-for-Sale									Fair Market Value of Investments with Unrealized Losses
	Cost		Unrealized Gain		Unrealized (Loss)			Fair Market Value
	(in thousands)
U.S. Treasury securities	$	402,197	$	362	$	(405	)	$	402,154	$	317,771
U.S. government agency securities		258,452		135		(85	)		258,502		104,642
Corporate debt securities		139,374		2,414		(321	)		141,467		96,998
Commercial paper		140,616		26		(4	)		140,638		41,747
Certificates of deposit and time deposits		49,048		11		(23	)		49,036		20,684
Equity and debt mutual funds		10,492		1,870		(29	)		12,333		1,234
Non-U.S. government securities		446		—		—			446		—

	$	1,000,625	$	4,818	$	(867	)	$	1,004,576	$	583,076

Reported as follows:


	Cost		Unrealized Gain		Unrealized (Loss)			Fair Market Value		Fair Market Value of Investments with Unrealized Losses
	(in thousands)
Marketable securities	$	533,833	$	99	$	(145	)	$	533,787	$	240,234
Long-term marketable securities		466,792		4,719		(722	)		470,789		342,842

	$	1,000,625	$	4,818	$	(867	)	$	1,004,576	$	583,076

As of December 31, 2015, the fair market value of investments with unrealized losses totaled $601.7 million. Of this value, $0.9 million had unrealized losses of $0.5 million greater than one year and $600.8 million had unrealized losses of $3.6 million for less than one year.

As of December 31, 2014, the fair market value of investments with unrealized losses totaled $583.1 million. Of this value, $2.3 million had unrealized losses of $0.1 million greater than one year and $580.8 million had unrealized losses of $0.8 million for less than one year.

Teradyne reviews its investments to identify and evaluate investments that have an indication of possible impairment. Based on this review, Teradyne determined that the unrealized losses related to these investments, at December 31, 2015 and 2014, were temporary.

The contractual maturities of investments held at December 31, 2015 were as follows:


	Cost		Fair Value
	(in thousands)
Due within one year	$	478,306	$	477,696
Due after 1 year through 5 years		209,822		209,314
Due after 5 years through 10 years		5,183		5,179
Due after 10 years		39,191		37,481

Total	$	732,502	$	729,670

Contractual maturities of investments held at December 31, 2015, exclude $14 million of equity and debt mutual funds as they do not have a contractual maturity date.

Assets measured at fair value on a non-recurring basis as of December 31, 2014 are summarized as follows:


			Fair Value Measurements at Reporting Period
	December 31, 2014		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Other Unobservable Inputs (Level 3)		Total Losses
	(in thousands)
Assets
Goodwill	$	273,438	$	—	$	—	$	273,438	$	98,897
Definite lived intangible assets		158,237		—		—		158,237		—
Long-lived assets held and used		10,189		—		10,189		—		—

	$	441,864	$	—	$	10,189	$	431,675	$	98,897

In accordance with the provisions of ASC 350-10_, “Intangibles- Goodwill and Other_,” goodwill with a carrying amount of $372.3 million was written down in 2014 to its implied fair value of $273.4 million, resulting in an impairment charge of $98.9 million. See Note I: “Goodwill and Intangible Assets” regarding goodwill impairment.

Derivatives

Teradyne conducts business in a number of foreign countries, with certain transactions denominated in local currencies. The purpose of Teradyne’s foreign currency management is to minimize the effect of exchange rate fluctuations on certain foreign currency denominated monetary assets and liabilities. Teradyne does not use derivative financial instruments for trading or speculative purposes.

To minimize the effect of exchange rate fluctuations associated with the remeasurement of monetary assets and liabilities denominated in foreign currencies, Teradyne enters into foreign currency forward contracts. The change in fair value of these derivatives is recorded directly in earnings, and is used to offset the change in value of the monetary assets and liabilities denominated in foreign currencies.

At December 31, 2015 and 2014, Teradyne had the following contracts to buy and sell non-U.S. currencies for U.S. dollars and other non-U.S. currencies with the following notional amounts:


	December 31, 2015								December 31, 2014
	Buy Position			Sell Position		Net Total			Buy Position			Sell Position		Net Total
	(in millions)
Japanese Yen	$	(51.9	)	$	—	$	(51.9	)	$	—		$	19.7	$	19.7
British Pound Sterling		(9.5	)		—		(9.5	)		—			11.7		11.7
Korean Won		(5.5	)		—		(5.5	)		—			4.4		4.4
Taiwan Dollar		(5.0	)		—		(5.0	)		(0.9	)		5.7		4.8
Euro		—			27.2		27.2			(30.6	)		—		(30.6	)
Singapore Dollar		—			15.0		15.0			—			—		—

Total	$	(71.9	)	$	42.2	$	(29.7	)	$	(31.5	)	$	41.5	$	10.0

The fair value of the outstanding contracts was $0.0 million at December 31, 2015 and a loss of $0.1 million at December 31, 2014.

In 2015 and 2014, Teradyne recorded net realized losses related to foreign currency forward contracts hedging net monetary assets and liabilities of $3.0 million and $0.2 million, respectively.

In 2013, Teradyne recorded net realized gains related to foreign currency forward contracts hedging net monetary assets and liabilities of $5.9 million. Gains and losses on foreign currency forward contracts and foreign currency remeasurement gains and losses on monetary assets and liabilities are included in other (income) expense, net.

The following table summarizes the fair value of derivative instruments as of December 31, 2015 and 2014:


	Balance Sheet Location	December 31, 2015			December 31, 2014
		(in thousands)
Derivatives not designated as hedging instruments:
Foreign exchange contracts	Prepayments	$	109		$	220
Foreign exchange contracts	Other current liabilities		(146	)		(369	)

Total derivatives		$	(37	)	$	(149	)

The following table summarizes the effect of derivative instruments in the statement of operations recognized for the years ended December 31, 2015, 2014 and 2013. The table does not reflect the corresponding gains and losses from the remeasurement of the monetary assets and liabilities denominated in foreign currencies. For the years ended December 31, 2015, 2014, and 2013, gains (losses) from the remeasurement of the monetary assets and liabilities denominated in foreign currencies were $2.5 million, $(0.9) million, and $(6.9) million, respectively.


	Location of Losses (Gains) Recognized in Statement of Operations	December 31, 2015		December 31, 2014		December 31, 2013
		(in thousands)
Derivatives not designated as hedging instruments:
Foreign exchange contracts	Other (income) expense, net	$	3,047	$	237	$	(5,933	)

Total derivatives		$	3,047	$	237	$	(5,933	)

See Note G: “Debt” regarding derivatives related to the convertible senior notes.

Concentration of Credit Risk

Financial instruments which potentially subject Teradyne to concentrations of credit risk consist principally of cash equivalents, marketable securities, forward currency contracts and accounts receivable. Teradyne’s cash equivalents consist primarily of money market funds invested in U.S. Treasuries and government agencies. Teradyne’s fixed income available-for-sale marketable securities have a minimum rating of AA by one or more of the major credit rating agencies. Teradyne places foreign currency forward contracts with high credit-quality financial institutions in order to minimize credit risk exposure. Concentrations of credit risk with respect to accounts receivable are limited due to the large number of geographically dispersed customers. Teradyne performs ongoing credit evaluations of its customers’ financial condition and from time to time may require customers to provide a letter of credit from a bank to secure accounts receivable. One customer comprised 10% or more of Teradyne’s accounts receivable balance as of December 31, 2015. A different customer comprised 10% or more of Teradyne’s accounts receivable balance as of December 31, 2014.

Equity Interest

On November 1, 2013, in connection with the acquisition of Empirix, Inc. by Thoma Bravo LLC, Teradyne sold its equity interest in Empirix, Inc., a private company, and received cash proceeds of $34.2 million which was recorded as a gain in other (income) expense, net. An additional $5.4 million of cash proceeds that was held in escrow for 15 months, for potential indemnifications to the buyer, was paid to Teradyne in February 2015 and it was recorded as a gain in other (income) expense, net in the first quarter of 2015.

G. DEBT

Revolving Credit Facility

On April 27, 2015, Teradyne entered into a Credit Agreement (the “Credit Agreement”) with Barclays Bank PLC, as administrative agent and collateral agent, and the lenders party thereto. The Credit Agreement provides for a five-year, senior secured revolving credit facility of up to $350 million (the “Credit Facility”). The Credit Agreement further provides that, subject to customary conditions, Teradyne may seek to obtain from existing or new lenders incremental commitments under the Credit Facility in an aggregate principal amount not to exceed $150 million.

Proceeds from the Credit Facility may be used for general corporate purposes and working capital. Teradyne incurred $2.3 million in costs related to the revolving credit facility. These costs are being amortized over the five year term of the revolving credit facility and are included in interest expense in the statement of operations. As of February 29, 2016, Teradyne has not borrowed any funds under the Credit Facility.

The interest rates applicable to loans under the Credit Facility are, at Teradyne’s option, equal to either a base rate plus a margin ranging from 0.00% to 1.00% per annum or LIBOR plus a margin ranging from 1.00% to 2.00% per annum, based on the Consolidated Leverage Ratio of Teradyne and its Restricted Subsidiaries. In addition, Teradyne will pay a commitment fee on the unused portion of the commitments under the Credit Facility ranging from 0.125% to 0.350% per annum, based on the then applicable Consolidated Leverage Ratio.

Teradyne is not required to repay any loans under the Credit Facility prior to maturity, subject to certain customary exceptions. Teradyne is permitted to prepay all or any portion of the loans under the Credit Facility prior to maturity without premium or penalty, other than customary LIBOR breakage costs.

The Credit Agreement contains customary events of default, representations, warranties and affirmative and negative covenants that, among other things, limit Teradyne’s and its Restricted Subsidiaries’ ability to sell assets, grant liens on assets, incur other secured indebtedness and make certain investments and restricted payments, all subject to exceptions set forth in the Credit Agreement. The Credit Agreement also requires Teradyne to satisfy two financial ratios measured as of the end of each fiscal quarter: a consolidated leverage ratio and an interest coverage ratio. As of December 31, 2015, Teradyne was in compliance with all covenants.

The Credit Facility is guaranteed by certain of Teradyne’s domestic subsidiaries and collateralized by assets of Teradyne and such subsidiaries, including a pledge of 65% of the capital stock of certain foreign subsidiaries.

Loan Agreement

On March 31, 2009, Teradyne K.K., Teradyne’s wholly-owned subsidiary in Japan, entered into a loan agreement with a local bank in Japan to borrow approximately $10.0 million (the loan was denominated in Japanese Yen). The loan had a term of 5 years and a fixed interest rate of 0.8%. Approximately $6.0 million of the loan was collateralized by a real estate mortgage on Teradyne K.K.’s building and land in Kumamoto, Japan and approximately $4.0 million was unsecured. Teradyne, Inc. had guaranteed payment of the loan obligation. The principal was amortized over the term of the loan with semi-annual principal payments of approximately $1 million payable on September 30 and March 30 each year. The final principal and interest payments were made in March 2014.

Convertible Senior Notes

On March 31, 2009, Teradyne entered into an underwriting agreement regarding a public offering of $175.0 million aggregate principal amount of 4.50% convertible senior notes due March 15, 2014 (the “Notes”). On April 1, 2009, the underwriters exercised their option to purchase an additional $15.0 million aggregate principal amount of the Notes for a total aggregate principal amount of $190.0 million. The Notes bore interest at a rate of 4.50% per annum, payable semi-annually in arrears on March 15 and September 15 of each year, beginning on September 15, 2009. The Notes had a maturity date of March 15, 2014. Substantially all of the Notes were converted prior to March 15, 2014 and were “net share settled,” meaning that the holders received,

for each $1,000 in principal amount of Notes, $1,000 in cash and approximately 131.95 shares of Teradyne common stock (calculated by taking 182.65 shares, being the fixed number specified in the Notes purchase agreement, less 50.7 shares). The 50.7 shares were determined, as specified in the Notes purchase agreement, by dividing the $1,000 principal amount by the $19.74 average trading price of Teradyne’s common stock over the 25 day trading period from February 5, 2014 to March 12, 2014.

Teradyne satisfied the Notes “net share settlement” by paying the aggregate principal amount of $190 million in cash and issuing 25.1 million shares of common stock. On March 13, 2014, Teradyne exercised its call option agreement entered into with Goldman, Sachs & Co. (the “hedge counterparty”) at the time of issuance of the Notes and received 25.1 million shares of Teradyne’s common stock, which Teradyne retired.

From June 17, 2014 to September 17, 2014, the hedge counterparty exercised its warrant agreement entered into with Teradyne at the time of issuance of the Notes. The warrants were net share settled. In 2014, Teradyne issued 21.2 million shares of its common stock for warrants exercised at a weighted average strike price of $7.6348 per share.


	For the year ended
	December 31, 2015		December 31, 2014
	(in thousands)
Contractual interest expense on the coupon	$	—	$	1,757
Amortization of the discount component and debt issue fees recognized as interest expense		—		4,493

Total interest expense on the convertible debt	$	—	$	6,250

H. ACCUMULATED OTHER COMPREHENSIVE INCOME

Changes in accumulated other comprehensive income, which is presented net of tax, consists of the following:


	Foreign Currency Translation Adjustment			Unrealized Gains (Losses) on Marketable Securities			Retirement Plans Prior Service Credit			Total
	(in thousands)
Balance at December 31, 2013, net of tax of $794, $(284)	$	—		$	1,381		$	2,619		$	4,000

Other comprehensive income before reclassifications, net of tax of $1,449		—			2,417			—			2,417
Amounts reclassified from accumulated other comprehensive income, net of tax of $(645), $(169)		—			(1,433	)		(295	)		(1,728	)

Net current period other comprehensive income, net of tax of $804, $(169)		—			984			(295	)		689

Balance at December 31, 2014, net of tax of $1,598, $(453)	$	—		$	2,365		$	2,324		$	4,689

Other comprehensive loss before reclassifications, net of tax of $0, $(1,667)		(8,759	)		(3,075	)		—			(11,834	)
Amounts reclassified from accumulated other comprehensive income, net of tax of $(390), $(169)		—			(704	)		(295	)		(999	)

Net current period other comprehensive loss, net of tax of $0, $(2,057), $(169)		(8,759	)		(3,779	)		(295	)		(12,833	)

Balance at December 31, 2015, net of tax of $0, $(459), $(622)	$	(8,759	)	$	(1,414	)	$	2,029		$	(8,144	)

Reclassifications out of accumulated other comprehensive income to the statement of operations for the years ended December 31, 2015, 2014 and 2013, were as follows:


Details about Accumulated Other Comprehensive Income Components	For the year ended						Affected Line Item in the Statements of Operations
	December 31, 2015		December 31, 2014		December 31, 2013
	(in thousands)
Available-for-sale marketable securities
Unrealized gains, net of tax of $390, $645, $257	$	704	$	1,433	$	447		Interest income

Amortization of defined benefit pension and postretirement plans
Prior service benefit, net of tax of $169, $169, $159	$	295	$	295	$	276		(a)

Total reclassifications, net of tax of $559, $814, $416	$	999	$	1,728	$	723		Net income

(a)	The amortization of prior service benefit is included in the computation of net periodic pension cost and postretirement benefit; see Note M: “Retirement Plans.”

I. 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. 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 2015, Teradyne performed step one of the two step impairment test for the Wireless Test and Defense/Aerospace reporting units and the Step zero assessment for the Industrial Automation reporting unit. In 2015, there was no impairment.

In 2014, as a result of decreased projected demand attributable to an estimated smaller future wireless test market due to reuse of wireless test equipment, price competition and different testing techniques, Teradyne determined that for its Wireless Test reporting unit, the carrying amount of its net assets exceeded its respective fair value, indicating that a potential impairment existed. After completing the second step of the goodwill impairment test, Teradyne recorded a $98.9 million goodwill impairment charge in the fourth quarter of 2014.

The fourth quarter 2014 goodwill impairment test of Teradyne’s Defense/Aerospace reporting unit, which is included in Teradyne’s System Test reportable segment, did not identify any goodwill impairment.

The fourth quarter 2013 goodwill impairment test of Teradyne’s Wireless Test reporting unit did not identify any goodwill impairment.

The changes in the carrying amount of goodwill by reportable segments for the years ended December 31, 2015 and 2014 are as follows:


	Wireless Test			Industrial Automation			System Test			Semiconductor Test			Total
	(in thousands)
Balance at December 31, 2013:
Goodwill	$	361,792		$	—		$	148,183		$	260,540		$	770,515
Accumulated impairment losses		—			—			(148,183	)		(260,540	)		(408,723	)

ZTEC adjustment		27			—			—			—			27
AIT acquisition		—			—			10,516			—			10,516

Balance at December 31, 2014:
Goodwill		361,819			—			158,699			260,540			781,058
Accumulated impairment losses		(98,897	)		—			(148,183	)		(260,540	)		(507,620	)

Universal Robots acquisition		—			221,128			—			—			221,128
Foreign currency translation adjustment		—			(6,153	)		—			—			(6,153	)

Balance at December 31, 2015:
Goodwill		361,819			214,975			158,699			260,540			996,033
Accumulated impairment losses		(98,897	)		—			(148,183	)		(260,540	)		(507,620	)

	$	262,922		$	214,975		$	10,516		$	—		$	488,413

Intangible Assets

Amortizable intangible assets consist of the following and are included in intangible assets, net on the balance sheets:


	December 31, 2015
	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Weighted Average Useful Life
	(in thousands)
Developed technology	$	379,778	$	220,306	$	159,472		6.0 years
Customer relationships		110,340		63,718		46,622		7.9 years
Tradenames and trademarks		52,396		18,879		33,517		9.5 years
Non-compete agreement		320		100		220		4.0 years
Customer backlog		170		170		—		0.3 years

Total intangible assets	$	543,004	$	303,173	$	239,831		6.7 years


	December 31, 2014
	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Weighted Average Useful Life
	(in thousands)
Developed technology	$	345,513	$	224,059	$	121,454		6.2 years
Customer relationships		146,635		93,998		52,637		7.7 years
Tradenames and trademarks		30,414		14,205		16,209		9.0 years
Non-compete agreement		320		20		300		4.0 years
Customer backlog		170		170		—		0.3 years

Total intangible assets	$	523,052	$	332,452	$	190,600		6.8 years

During the year ended December 31, 2015, Teradyne recorded intangible assets in the amount of $121.6 million related to its Universal Robots acquisition and Teradyne wrote off $98.2 million of fully amortized intangible assets.

During the year ended December 31, 2014, Teradyne recorded intangible assets in the amount of $9.1 million related to its AIT acquisition.

Aggregate intangible assets amortization expense for the years ended December 31, 2015, 2014 and 2013 was $69.0 million, $70.8 million, and $72.4 million, respectively. Estimated intangible assets amortization expense for each of the five succeeding fiscal years is as follows:


Year	Amortization Expense
	(in thousands)
2016	$	79,874
2017		71,133
2018		44,464
2019		23,611
2020		9,990
Thereafter		10,759

J. COMMITMENTS AND CONTINGENCIES

Purchase Commitments

As of December 31, 2015, Teradyne had entered into non-cancelable purchase commitments for certain components and materials. The purchase commitments covered by the agreements aggregate to approximately $237.0 million, of which $230.3 million is for less than one year.

Commitments

Teradyne leases certain of its office buildings and other facilities under various operating lease arrangements that include renewal options and escalation clauses for adjusting rent payments to reflect changes in price indices. Rental expense for leases with fixed escalation clauses is recognized on a straight line basis over the lease term.

Rental expense for the years ended December 31, 2015, 2014 and 2013 was $15.9 million, $16.0 million and $16.5 million, respectively.

The following table reflects Teradyne’s non-cancelable operating lease commitments:


	Non-cancelable Lease Commitments
	(in thousands)
2016	$	15,665
2017		11,778
2018		9,559
2019		8,487
2020		7,222
Beyond 2021		16,009

Total	$	68,720

Legal Claims

Teradyne is subject to legal proceedings, claims and investigations that arise in the ordinary course of business such as, but not limited to, patent, employment, commercial and environmental matters. Teradyne believes that it has meritorious defenses against all pending claims and intends to vigorously contest them. While it is not possible to predict or determine the outcomes of any pending claims or to provide possible ranges of losses that may arise, Teradyne believes the potential losses associated with all of these actions are unlikely to have a material adverse effect on its business, financial position or results of operations.

Guarantees and Indemnification Obligations

Teradyne provides indemnification, to the extent permitted by law, to its officers, directors, employees and agents for liabilities arising from certain events or occurrences while the officer, director, employee, or agent, is or was serving, at Teradyne’s request in such capacity. Teradyne has entered into indemnification agreements with certain of its officers and directors. With respect to acquisitions, Teradyne provides indemnifications to or assumes indemnification obligations for the current and former directors, officers and employees of the acquired companies in accordance with the acquired companies’ by-laws and charter. As a matter of practice, Teradyne has maintained directors’ and officers’ liability insurance coverage including coverage for directors and officers of acquired companies.

Teradyne enters into agreements in the ordinary course of business with customers, resellers, distributors, integrators and suppliers. Most of these agreements require Teradyne to defend and/or indemnify the other party against intellectual property infringement claims brought by a third party with respect to Teradyne’s products. From time to time, Teradyne also indemnifies customers and business partners for damages, losses and liabilities they may suffer or incur relating to personal injury, personal property damage, product liability, breach of confidentiality obligations and environmental claims relating to the use of Teradyne’s products and services or resulting from the acts or omissions of Teradyne, its employees, authorized agents or subcontractors. On occasion, Teradyne has also provided guarantees to customers regarding the delivery and performance of its products in addition to the warranty described below.

As a matter of ordinary business course, Teradyne warrants that its products will substantially perform in accordance with its standard published specifications in effect at the time of delivery. Most warranties have a one year duration commencing from installation. A provision is recorded upon revenue recognition to cost of revenue for estimated warranty expense based upon historical experience. When Teradyne receives revenue for extended warranties beyond the standard duration, it is deferred and recognized on a straight line basis over the contract period. Related costs are expensed as incurred. As of December 31, 2015 and 2014, Teradyne had a product warranty accrual of $6.9 million and $8.9 million, respectively, included in other accrued liabilities, and revenue deferrals related to extended warranties of $46.5 million and $43.3 million, respectively, included in short and long-term deferred revenue and customer advances.

In addition, and in the ordinary course of business, Teradyne provides minimum purchase guarantees to certain vendors to ensure continuity of supply against the market demand. Although some of these guarantees provide penalties for cancellations and/or modifications to the purchase commitments as the market demand decreases, most of the guarantees do not. Therefore, as the market demand decreases, Teradyne re-evaluates these guarantees and determines what charges, if any, should be recorded.

With respect to its agreements covering product, business or entity divestitures and acquisitions, Teradyne provides certain representations, warranties and covenants to purchasers and agrees to indemnify and hold such purchasers harmless against breaches of such representations, warranties and covenants. Many of the indemnification claims have a definite expiration date while some remain in force indefinitely. With respect to its acquisitions, Teradyne may, from time to time, assume the liability for certain events or occurrences that took place prior to the date of acquisition.

As a matter of ordinary course of business, Teradyne occasionally guarantees certain indebtedness obligations of its subsidiary companies, limited to the borrowings from financial institutions, purchase commitments to certain vendors, and lease commitments to landlords.

Based on historical experience and information known as of December 31, 2015 and 2014, except for product warranty, Teradyne has not recorded any liabilities for these guarantees and obligations because the amount would be immaterial.

K. NET INCOME PER COMMON SHARE

The following table sets forth the computation of basic and diluted net income per common share:


	2015		2014		2013
	(in thousands, except per share amounts)
Net income for basic and diluted net income per share	$	206,477	$	81,272	$	164,947

Weighted average common shares-basic		211,544		202,908		190,772
Effect of dilutive potential common shares:
Incremental shares from assumed conversion of convertible notes (1)		—		5,013		23,341
Convertible note hedge warrant shares (2)		—		12,562		18,795
Restricted stock units		1,130		1,092		1,127
Stock options		606		944		1,528
Employee stock purchase rights		41		31		36

Dilutive potential common shares		1,777		19,642		44,827

Weighted average common shares-diluted		213,321		222,550		235,599

Net income per common share-basic	$	0.98	$	0.40	$	0.86

Net income per common share-diluted	$	0.97	$	0.37	$	0.70

(1)	Incremental shares from the assumed conversion of the convertible notes was calculated using the difference between the average Teradyne stock price for the period and the conversion price of $5.48, multiplied by 34.7 million shares. The result of this calculation, representing the total intrinsic value of the convertible debt, was divided by the average Teradyne stock price for the period.

(2)

Convertible notes hedge warrant shares were calculated using the difference between the average Teradyne stock price for the period and the warrant price of $7.67, multiplied by 34.7 million shares. The result of this calculation, representing the total intrinsic value of the warrant, was divided by the average Teradyne stock price for the period. Teradyne’s call option on its common stock (convertible note hedge transaction) was excluded from the calculation of diluted shares because the effect was anti-dilutive. See Note G: “Debt” regarding the convertible note hedge transaction.

The computation of diluted net income per common share for 2015 excludes the effect of the potential exercise of stock options to purchase approximately 0.2 million shares because the effect would have been anti-dilutive.

The computation of diluted net income per common share for 2014 excludes the effect of the potential exercise of stock options to purchase approximately 0.3 million shares because the effect would have been anti-dilutive.

The computation of diluted net income per common share for 2013 excludes the effect of the potential exercise of stock options to purchase approximately 0.4 million shares because the effect would have been anti-dilutive.

L. RESTRUCTURING AND OTHER

Other

During the year ended December 31, 2015, Teradyne recorded $3.6 million of other charges of which $5.3 million was an expense for the increase in the fair value of the Universal Robots contingent consideration liability and $1.0 million for acquisition costs related to Universal Robots, partially offset by a $2.9 million gain from fair value adjustments to decrease the acquisition contingent consideration liability related to ZTEC, $1.6 million, and AIT, $1.3 million.

During the year ended December 31, 2014, Teradyne recorded a $0.6 million gain from the fair value adjustment to decrease the ZTEC acquisition contingent consideration, partially offset by $0.4 million of acquisition costs related to AIT.

Restructuring

During the year ended December 31, 2015, Teradyne recorded $1.5 million of severance charges related to headcount reductions of 23 people, primarily in System Test and Semiconductor Test.

During the year ended December 31, 2014, Teradyne recorded $1.6 million of severance charges related to headcount reductions of approximately 43 people, primarily in Semiconductor Test and Wireless Test.

During the year ended December 31, 2013, Teradyne recorded $1.9 million of severance charges related to headcount reductions of 48 people primarily in System Test and Semiconductor Test and a $(0.4) million credit in Corporate related to a change in the estimated exit costs related to a leased facility.

The remaining accrual for severance of $0.4 million is reflected in the accrued employees’ compensation and withholdings on the balance sheet and is expected to be paid by March 2016.

M. RETIREMENT PLANS

ASC 715, “Compensation—Retirement Benefits” requires an employer with defined benefit plans or other postretirement benefit plans to recognize an asset or a liability on its balance sheet for the overfunded or underfunded status of the plans as defined by ASC 715. The pension asset or liability represents a difference between the fair value of the pension plan’s assets and the projected benefit obligation at December 31. Teradyne uses a December 31 measurement date for all of its plans.

Defined Benefit Pension Plans

Teradyne has defined benefit pension plans covering a portion of domestic employees and employees of certain non-U.S. subsidiaries. Benefits under these plans are based on employees’ years of service and

compensation. Teradyne’s funding policy is to make contributions to the plans in accordance with local laws and to the extent that such contributions are tax deductible. The assets of these plans consist primarily of fixed income and equity securities. In addition, Teradyne has an unfunded supplemental executive defined benefit plan in the United States to provide retirement benefits in excess of levels allowed by the Employment Retirement Income Security Act (“ERISA”) and the Internal Revenue Code (the “IRC”), as well as unfunded qualified foreign plans.

The December 31 balances of these defined benefit pension plans assets and obligations are shown below:


	2015						2014
	United States			Foreign			United States			Foreign
	(in thousands)
*Assets and Obligations*
Change in benefit obligation:
Projected benefit obligation:
Beginning of year	$	367,619		$	58,210		$	293,912		$	52,182
Service cost		2,462			1,006			2,218			897
Interest cost		13,142			1,444			12,875			1,837
Actuarial (gain) loss		(13,221	)		7,498			72,596			8,975
Benefits paid		(18,885	)		(859	)		(13,982	)		(1,265	)
Curtailment		—			(634	)		—			—
Plan participants’ contributions		—			64			—			88
Non-U.S. currency movement		—			(4,439	)		—			(4,504	)

End of year		351,117			62,290			367,619			58,210

Change in plan assets:
Fair value of plan assets:
Beginning of year		316,072			29,511			256,373			25,756
Company contributions		10,517			808			31,753			1,168
Plan participants’ contributions		—			64			—			88
Actual return on plan assets		(9,300	)		(136	)		41,928			5,192
Benefits paid		(18,885	)		(859	)		(13,982	)		(1,265	)
Admin expenses paid		—			(43	)		—			—
Non-U.S. currency movement		—			(1,204	)		—			(1,428	)

End of year		298,404			28,141			316,072			29,511

Funded status	$	(52,713	)	$	(34,149	)	$	(51,547	)	$	(28,699	)

The following table provides amounts recorded within the account line items of the statement of financial position as of December 31:


	2015						2014
	United States			Foreign			United States			Foreign
	(in thousands)
Retirement plans assets	$	636		$	—		$	3,090		$	9,806
Accrued employees’ compensation and withholdings		(2,564	)		(695	)		(2,492	)		(906	)
Retirement plans liabilities		(50,785	)		(33,454	)		(52,145	)		(37,599	)

Funded status	$	(52,713	)	$	(34,149	)	$	(51,547	)	$	(28,699	)

The following table provides amounts recognized in accumulated other comprehensive income as of December 31:


	2015				2014
	United States		Foreign		United States		Foreign
	(in thousands)
Prior service cost, before tax	$	224	$	—	$	358	$	—
Deferred taxes		479		—		429		—

Total recognized in other comprehensive income, net of tax	$	703	$	—	$	787	$	—

The estimated portion of prior service cost remaining in accumulated other comprehensive income that is expected to be recognized as a component of net periodic pension cost in 2016 is $0.1 million.

The accumulated benefit obligation for the United States defined benefit pension plans was $340.1 million and $357.0 million at December 31, 2015 and 2014, respectively. The accumulated benefit obligation for foreign defined benefit pension plans was $56.6 million and $49.8 million at December 31, 2015 and 2014, respectively.

Information for pension plans with an accumulated benefit obligation in excess of plan assets as of December 31:


	2015				2014
	United States		Foreign		United States		Foreign
	(in millions)
Projected benefit obligation	$	53.3	$	35.2	$	54.6	$	39.5
Accumulated benefit obligation		47.3		29.5		48.5		32.7
Fair value of plan assets		—		1.0		—		1.0

Expense

For the years ended December 31, 2015, 2014 and 2013, Teradyne’s net periodic pension cost (income) was comprised of the following:


	2015						2014						2013
	United States			Foreign			United States			Foreign			United States			Foreign
	(in thousands)
Components of Net Periodic Pension Cost (Income):
Service cost	$	2,462		$	1,006		$	2,218		$	897		$	2,393		$	1,034
Interest cost		13,142			1,444			12,875			1,837			11,318			1,948
Expected return on plan assets		(14,517	)		(781	)		(12,500	)		(868	)		(13,632	)		(959	)
Amortization of prior service cost		134			—			135			—			164			—
Net actuarial loss (gain)		10,596			8,415			43,168			4,651			(7,063	)		(1,252	)
Curtailment		—			(634	)		—			—			—			—

Total net periodic pension cost (income)	$	11,817		$	9,450		$	45,896		$	6,517		$	(6,820	)	$	771

Changes in Plan Assets and Benefit Obligations Recognized in Other Comprehensive Income:
Reversal of amortization items:
Prior service cost		(134	)		—			(135	)		—			(164	)		—

Total recognized in other comprehensive income		(134	)		—			(135	)		—			(164	)		—

Total recognized in net periodic pension cost (income) and other comprehensive income	$	11,683		$	9,450		$	45,761		$	6,517		$	(6,984	)	$	771

Weighted Average Assumptions to Determine Net Periodic Pension Cost at January 1:


	2015						2014						2013
	United States			Foreign			United States			Foreign			United States			Foreign
Discount rate		3.7	%		2.6	%		4.5	%		3.8	%		3.6	%		3.7	%
Expected return on plan assets		4.8			2.6			5.0			3.4			5.0			3.7
Salary progression rate		2.9			3.2			3.0			3.5			3.0			3.5

Weighted Average Assumptions to Determine Pension Obligations at December 31:


	2015						2014
	United States			Foreign			United States			Foreign
Discount rate		4.0	%		2.3	%		3.7	%		2.6	%
Salary progression rate		2.7			3.2			2.9			3.2

In developing the expected return on plan assets assumption, Teradyne evaluates input from its investment manager and pension consultants, including their review of asset class return expectations. Based on this review, Teradyne believes that 4.8% was an appropriate rate to use for fiscal 2015 for the U.S. Qualified Pension Plan (“U.S. Plan”).

The discount rate utilized to determine future pension obligations for the U.S. Plan is based on Citigroup Pension Index adjusted for the plan’s expected cash flows and was 4.0% at December 31, 2015, up from 3.7% at December 31, 2014.

Plan Assets

As of December 31, 2015, the fair value of Teradyne’s pension plans’ assets totaled $326.6 million of which $298.4 million was related to the U.S. Plan, $27.1 million was related to the U.K. defined benefit pension plan, and $1.0 million was related to the Taiwan defined benefit pension plan. Substantially all Teradyne’s pension plans’ assets are held in individual trusts, which were established for the investment of assets of Teradyne’s sponsored retirement plans.

Teradyne’s weighted average pension asset allocation at December 31, 2015 and 2014, by asset category is as follows:


	2015						2014
	United States			Foreign			United States			Foreign
Fixed income securities		88.6	%		—	%		83.3	%		77.3	%
Equity securities		9.8			—			15.4			19.0
Other		1.6			100.0			1.3			3.7

		100.0	%		100.0	%		100.0	%		100.0	%

The assets of the U.S. Plan are overseen by the Teradyne Fiduciary Committee which is comprised of members of senior management drawn from appropriate diversified levels of the management team. The

Fiduciary Committee is responsible for setting the policy that provides the framework for management of the U.S. Plan assets. In accordance with its responsibilities, the Fiduciary Committee meets on a regular basis to review the performance of the U.S. Plan assets and compliance with the investment policy. The policy sets forth an investment structure for managing U.S. Plan assets, including setting the asset allocation ranges, which are expected to provide an appropriate level of overall diversification required to maximize the long-term return on plan assets for a prudent and reasonable level of risk given prevailing market conditions, total investment return over the long term, and preservation of capital, while maintaining sufficient liquidity to pay the benefits of the U.S. Plan. The investment portfolio will not, at any time, have a direct investment in Teradyne stock. It may have indirect investment in Teradyne stock, if one of the funds selected by the investment manager invests in Teradyne stock. In developing the asset allocation ranges, third party asset allocation studies are periodically performed that consider the current and expected positions of the plan assets and funded status. Based on this study and other appropriate information, the Fiduciary Committee establishes asset allocation ranges taking into account acceptable risk targets and associated returns. The investment return objectives are to avoid excessive volatility and produce a rate of return that at least matches the Policy Index identified below. The manager’s investment performance is reviewed at least annually. Results for the total portfolio and for each major category of assets are evaluated in comparison with appropriate market indices and the Policy Index.

The target asset allocation and the index for each asset category for the U.S. Plan, per the investment policy, are as follows:


Asset Category:	Policy Index:	Target Allocation
U.S. corporate fixed income	Barclays U.S. Corporate A or Better Index		76	%
Global equity	MSCI World Minimum Volatility Index		10
U.S. government fixed income	Barclays U.S. Long Government Bond Index		8
High yield fixed income	Barclays U.S. Corporate High Yield 2% Issuer Cap Index		5
Cash	Citigroup Three Month U.S. Treasury Bill Index		1

Teradyne’s U.S. Plan invests primarily in common trust funds. Units held in the common trust funds are valued at the unit price as reported by the investment manager based on the asset value of the underlying investments; underlying investments in equity securities are valued at the last reported sales price, and underlying investments in fixed-income securities are generally valued using methods based upon market transactions for comparable securities.

In the fourth quarter of 2015, the Trustees of the U.K. defined benefit pension plan purchased group annuity insurance contracts. The cash flows from the contracts are intended to match the plan’s obligations.

During the years ended December 31, 2015 and 2014, there were no transfers of pension assets in or out of Level 1, Level 2 or Level 3.

The fair value of pension plan assets by asset category and by level at December 31, 2015 and December 31, 2014 were as follows:


	December 31, 2015
	United States								Foreign
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
	(in thousands)
Fixed income securities:
Corporate debt securities	$	—	$	240,695	$	—	$	240,695	$	—	$	—	$	—	$	—
U.S. government securities		—		23,761		—		23,761		—		—		—		—
Global equity		—		29,193		—		29,193		—		—		—		—
Group annuity insurance contracts		—		—		2,982		2,982		—		—		26,410		26,410
Other		—		—		—		—		—		1,029		—		1,029
Cash and cash equivalents		1,773		—		—		1,773		702		—		—		702

Total	$	1,773	$	293,649	$	2,982	$	298,404	$	702	$	1,029	$	26,410	$	28,141


	December 31, 2014
	United States								Foreign
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
	(in thousands)
Fixed income securities:
Corporate debt securities	$	—	$	193,741	$	—	$	193,741	$	—	$	—	$	—	$	—
U.S. government securities		—		65,830		—		65,830		—		—		—		—
U.K. government securities		—		—		—		—		—		22,811		—		22,811
Asset backed securities		—		3,747		—		3,747		—		—		—		—
U.S. equity (large cap)		—		33,970		—		33,970		—		—		—		—
International equity		—		14,631		—		14,631		—		5,610		—		5,610
Group annuity insurance contracts		—		—		2,990		2,990		—		—		—		—
Other		—		65		—		65		—		957		—		957
Cash and cash equivalents		1,098		—		—		1,098		133		—		—		133

Total	$	1,098	$	311,984	$	2,990	$	316,072	$	133	$	29,378	$	—	$	29,511

The pension plan assets identified as level 3 above are related to group annuity insurance contracts held by the U.K. defined benefit pension plan and the U.S. Plan. The fair value of these assets was calculated using the present value of future pension payments due under the group annuity insurance contracts. The table below indicates the change in value related to these level 3 assets during 2015 and 2014:


	Group Annuity Insurance Contracts
	(in thousands)
Balance at December 31, 2013	$	2,985
Interest and market value adjustments		152
Benefits paid		(125	)
Other		(22	)

Balance at December 31, 2014	$	2,990
Purchases of group annuity insurance contracts		27,313
Interest and market value adjustments		(825	)
Benefits paid		(67	)
Other		(19	)

Balance at December 31, 2015	$	29,392

Contributions

Teradyne’s funding policy is to make contributions to the plans in accordance with local laws and to the extent that such contributions are tax deductible. During 2015, Teradyne contributed $8.0 million to the U.S Plan, $2.5 million to the U.S. supplemental executive defined benefit pension plan and $0.8 million to certain qualified plans for non-U.S. subsidiaries. During 2014, Teradyne contributed $30.0 million to the U.S Plan, $1.8 million to the U.S. supplemental executive defined benefit pension plan and $1.2 million to certain qualified plans for non-U.S. subsidiaries. In 2016, contributions to the U.S. supplemental executive defined benefit pension plan and non U.S. plans will be approximately $2.6 million and $0.8 million, respectively. Teradyne does not expect to make any contributions to the U.S. Plan in 2016.

Expected Future Pension Benefit Payments

Future benefit payments are expected to be paid as follows:


	United States		Foreign
	(in thousands)
2016	$	19,696	$	1,062
2017		18,346		1,032
2018		18,836		1,021
2019		19,453		1,477
2020		20,129		1,266
2021-2025		109,860		8,561

Postretirement Benefit Plans

In addition to receiving pension benefits, U.S. Teradyne employees who meet early retirement eligibility requirements as of their termination dates may participate in Teradyne’s Welfare Plan, which includes medical and dental benefits up to age 65. Death benefits provide a fixed sum to retirees’ survivors and are available to all retirees. Substantially all of Teradyne’s current U.S. employees could become eligible for these benefits, and the existing benefit obligation relates primarily to those employees.

The December 31 balances of the postretirement assets and obligations are shown below:


	2015			2014
	(in thousands)
*Assets and Obligations*
Change in benefit obligation:
Projected benefit obligation:
Beginning of year	$	7,162		$	9,019
Service cost		48			59
Interest cost		237			335
Actuarial (gain) loss		(648	)		(1,255	)
Benefits paid		(769	)		(996	)

End of year		6,030			7,162

Change in plan assets:
Fair value of plan assets:
Beginning of year		—			—
Company contributions		769			996
Benefits paid		(769	)		(996	)

End of year		—			—

Funded status	$	(6,030	)	$	(7,162	)

The following table provides amounts recorded within the account line items of financial position as of December 31:


	2015			2014
	(in thousands)
Accrued employees’ compensation and withholdings	$	(692	)	$	(780	)
Retirement plans liability		(5,338	)		(6,382	)

Funded status	$	(6,030	)	$	(7,162	)

The following table provides amounts recognized in accumulated other comprehensive income as of December 31:


	2015			2014
	(in thousands)
Prior service credit, before tax	$	(1,632	)	$	(2,230	)
Deferred taxes		(1,100	)		(882	)

Total recognized in other comprehensive income, net of tax	$	(2,732	)	$	(3,112	)

The estimated portion of prior service credit remaining in accumulated other comprehensive income that is expected to be recognized as a component of net periodic postretirement benefit (income) expense in 2016 is $(0.6) million.

Expense

For the years ended December 31, 2015, 2014 and 2013, Teradyne’s net periodic postretirement benefit income was comprised of the following:


	2015			2014			2013
	(in thousands)
Components of Net Periodic Postretirement Benefit Income:
Service cost	$	48		$	59		$	75
Interest cost		237			335			342
Amortization of prior service credit		(598	)		(598	)		(598	)
Net actuarial gain		(648	)		(1,255	)		(2,025	)

Total net periodic postretirement benefit income		(961	)		(1,459	)		(2,206	)

Changes in Plan Assets and Benefit Obligations Recognized in Other Comprehensive Income:
Reversal of amortization items:
Prior service credit		598			598			598

Total recognized in other comprehensive income		598			598			598

Total recognized in net periodic postretirement benefit income and other comprehensive income	$	(363	)	$	(861	)	$	(1,608	)

Weighted Average Assumptions to Determine Net Periodic Postretirement Benefit Income as of January 1:


	2015			2014			2013
Discount rate		3.5	%		4.1	%		3.1	%
Initial health care cost trend rate		7.5			8.0			8.5
Ultimate health care cost trend rate		5.0			5.0			5.0
Year in which ultimate health care cost trend rate is reached		2022			2020			2020

Weighted Average Assumptions to Determine Postretirement Benefit Obligation as of December 31:


	2015			2014			2013
Discount rate		3.9	%		3.5	%		4.1	%
Initial medical trend		7.5			7.5			8.0
Ultimate health care trend		5.0			5.0			5.0
Medical cost trend rate decrease to ultimate rate in year		2023			2022			2020

Assumed health care trend rates could have a significant effect on the amounts reported for health care plans. A one percentage point change in the assumed health care cost trend rates for the year ended December 31, 2015, would have the following effects:


	1 Percentage Point Increase		1 Percentage Point Decrease
	(in thousands)
Effect on total service and interest cost components	$	3	$	(2	)
Effect on postretirement benefit obligations		59		(56	)

Expected Future Benefit Payments

Future benefit payments are expected to be paid as follows:


	Benefit Payments
	(in thousands)
2016	$	692
2017		587
2018		553
2019		492
2020		410
2021-2025		1,654

N. STOCK-BASED COMPENSATION

Stock Compensation Plans

At Teradyne’s annual meeting of stockholders held May 21, 2013, Teradyne’s stockholders approved an amendment to Teradyne’s 2006 Equity and Cash Compensation Incentive Plan to increase the number of shares issuable by 10.0 million for an aggregate of 32.0 million shares issuable thereunder. Teradyne’s stockholders also approved an amendment to Teradyne’s 1996 Employee Stock Purchase Plan to increase the number of shares issuable by 5.0 million, for an aggregate of 30.4 million shares issuable thereunder.

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.

Time-based restricted stock unit awards granted to employees vest in equal annual installments over four years. Restricted stock unit awards granted to non-employee directors vest after a one year period, with 100% of the award vesting on the first anniversary of the grant date. Teradyne expenses the cost of the restricted stock unit awards subject to time-based vesting, which is determined to be the fair market value of the shares at the date of grant, ratably over the period during which the restrictions lapse.

For grants prior to January 2014, performance-based restricted stock units (“PRSUs”) granted to executive officers were subject to time-based vesting and performance-based vesting. The percentage level of performance satisfied for performance-based grants was assessed on or near the anniversary of the grant date and, in turn, that percentage level determined the number of performance-based restricted stock units available for vesting over a four-year vesting period; portions of the performance-based grants not available for vesting were forfeited.

Commencing in January 2014, Teradyne granted PRSUs to its executive officers with a performance metric based on relative total shareholder return (“TSR”). Teradyne’s three-year TSR performance will be measured against the Philadelphia Semiconductor Index, which consists of thirty companies in the semiconductor device and capital equipment industries. The final number of TSR PRSUs that vest will vary based upon the level of performance achieved from 200% of the target shares to 0% of the target shares. The TSR PRSUs will vest upon the three-year anniversary of the grant date. No TSR PRSUs will vest if the executive officer is no longer an employee at the end of the three-year period. Beginning with PRSUs granted in January 2014, if the 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 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.

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 three-year service period. 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 above. During 2015 and 2014, Teradyne granted 0.2 million and 0.1 million TSR PRSUs, respectively, with a grant date fair value of $18.21 and $22.06, respectively. The fair value was estimated using the Monte Carlo simulation model with the following assumptions:


	2015			2014
Risk-free interest rate		0.77	%		0.75	%
Teradyne volatility-historical		28.2	%		36.1	%
Philadelphia Semiconductor Index volatility-historical		19.7	%		24.6	%
Dividend yield		1.33	%		1.25	%

Expected volatility was based on the historical volatility of Teradyne’s stock and the Philadelphia Semiconductor Index 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 grant. Dividend yield for 2015 and 2014 was based upon an estimated annual dividend amount of $0.24 per share divided by Teradyne’s stock price on the grant date of $18.10 for 2015 grants and $19.16 for 2014 grants.

Stock Options Valuation Assumptions:

The total number of stock options granted in 2015, 2014 and 2013 were 0.1 million, 0.1 million and 0.2 million, respectively, at the weighted average grant date fair value of $4.43, $5.49 and $6.09 per share, respectively. The fair value of the stock options at grant date was estimated using the Black-Scholes option-pricing model with the following assumptions:


	2015			2014			2013
Expected life (years)		4.0			4.0			4.0
Risk-free interest rate		1.1	%		1.2	%		0.6	%
Volatility-historical		33.4	%		38.8	%		46.8	%
Dividend yield		1.33	%		1.25	%		0.0	%

Teradyne determined the stock option’s expected life based upon historical exercise data for executive officers, the age of executives and the terms of the stock option award. Volatility was determined using historical volatility for a period equal to the expected life. The interest rate was determined using the U.S. Treasury yield curve in effect at the time of grant.

Stock compensation plan activity for the years 2015, 2014 and 2013 follows:


	2015			2014			2013
	(in thousands)
Restricted Stock Units:
Non-vested at January 1		4,352			4,636			4,970
Awarded		1,681			1,870			2,110
Vested		(1,679	)		(1,965	)		(2,322	)
Forfeited		(284	)		(189	)		(122	)

Non-vested at December 31		4,070			4,352			4,636

Stock Options:
Outstanding at January 1		1,507			2,706			3,841
Granted		132			89			213
Exercised		(518	)		(1,248	)		(1,220	)
Forfeited		—			(38	)		(104	)
Expired		—			(2	)		(24	)

Outstanding at December 31		1,121			1,507			2,706

Vested and expected to vest at December 31		1,121			1,507			2,694

Exercisable at December 31		779			1,089			1,814

Total shares available for the years 2015, 2014 and 2013:


	2015			2014			2013
	(in thousands)
Shares available:
Available for grant at January 1		12,443			14,213			6,414
Options granted		(132	)		(89	)		(213	)
Restricted stock units awarded		(1,681	)		(1,870	)		(2,110	)
Restricted stock units forfeited		284			189			122
Additional shares reserved		—			—			10,000

Available for grant at December 31		10,914			12,443			14,213

Weighted average restricted stock unit award date fair value information for the years 2015, 2014 and 2013 follows:


	2015		2014		2013
Non-vested at January 1	$	17.24	$	15.60	$	12.72
Awarded		17.36		18.41		16.62
Vested		16.85		14.38		10.40
Forfeited		17.08		16.97		15.48
Non-vested at December 31	$	17.46	$	17.24	$	15.60

Restricted stock unit awards aggregate intrinsic value information at December 31 for the years 2015, 2014 and 2013 follows:


	2015		2014		2013
	(in thousands)
Outstanding	$	84,129	$	86,113	$	81,680
Expected to vest		79,611		81,582		77,388

Restricted stock units weighted average remaining contractual terms (in years) information at December 31, for the years 2015, 2014 and 2013 follows:


	2015		2014		2013
Outstanding		1.09		1.11		1.14
Expected to vest		1.08		1.10		1.13

Weighted average stock options exercise price information for the years 2015, 2014 and 2013 follows:


	2015		2014		2013
Outstanding at January 1	$	7.89	$	6.29	$	4.64
Options granted		18.10		19.16		16.56
Options exercised		5.49		5.34		3.28
Options forfeited		8.67		3.59		2.57
Options cancelled		3.28		2.21		8.05
Outstanding at December 31		10.21		7.89		6.29
Exercisable at December 31		6.92		5.00		4.55

Stock option aggregate intrinsic value information for the years ended December 31, 2015, 2014 and 2013 follows:


	2015		2014		2013
	(in thousands)
Exercised	$	7,255	$	17,847	$	16,848
Outstanding		11,729		17,936		30,673
Vested and expected to vest		11,729		17,936		30,512
Exercisable		10,716		16,101		23,707

Stock options weighted average remaining contractual terms (in years) information at December 31, for the years 2015, 2014 and 2013 follows:


	2015		2014		2013
Outstanding		4.2		4.5		4.9
Vested and expected to vest		4.2		4.5		4.9
Exercisable		3.9		4.2		4.3

Significant option groups outstanding at December 31, 2015 and related weighted average price and remaining contractual life information follow:


	Options Outstanding						Options Exercisable
Range Of Exercise Prices	Weighted- Average Remaining Contractual Life (Years)		Shares		Weighted- Average Exercise Price		Shares		Weighted- Average Exercise Price
	(shares in thousands)
$1.48 – $2.67		4.58		416	$	2.33		416	$	2.33
$3.23 – $7.71		2.71		139		4.60		139		4.60
$11.37 – $16.95		3.54		345		16.63		202		16.62
$18.10 – $19.16		5.68		221		18.53		22		19.16

				1,121	$	10.21		779	$	6.92

As of December 31, 2015, total unrecognized expense related to non-vested restricted stock unit awards and stock options was $44.9 million, and is expected to be recognized over a weighted average period of 2.3 years.

Effective January 31, 2014, Michael Bradley retired as Chief Executive Officer of Teradyne. On January 22, 2014, Teradyne entered into an agreement (the “Retirement Agreement”) with Mr. Bradley. Under the Retirement Agreement, Mr. Bradley’s unvested restricted stock units and stock options granted prior to his retirement date will continue to vest in accordance with their terms through January 31, 2017; and any vested options or options that vest during that period may be exercised for the remainder of the applicable option term. In the Retirement Agreement, Mr. Bradley agreed to be bound by non-competition and non-solicitation restrictions through January 31, 2017. In January 2014, Teradyne recorded a one-time charge to stock-based compensation expense of $6.6 million related to the Retirement Agreement.

Employee Stock Purchase Plan

Under the Teradyne 1996 Employee Stock Purchase Plan (“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 2015, 0.5 million shares of common stock were issued to employees who participated in the plan during the first half of 2015, at the price of $16.40 per share. In January 2016, Teradyne issued 0.5 million shares of common stock to employees who participated in the plan during the second half of 2015, at the price of $17.57 per share.

In July 2014, 0.5 million shares of common stock were issued to employees who participated in the plan during the first half of 2014, at the price of $16.66 per share. In January 2015, Teradyne issued 0.5 million shares of common stock to employees who participated in the plan during the second half of 2014, at the price of $16.82 per share.

In July 2013, 0.4 million shares of common stock were issued to employees who participated in the plan during the first half of 2013, at the price of $14.94 per share. In January 2014, Teradyne issued 0.4 million shares of common stock to employees who participated in the plan during the second half of 2013, at the price of $14.98 per share.

As of December 31, 2015, there were 4.9 million shares available for grant under the ESPP.

The effect to income from operations for recording stock-based compensation for the years ended December 31 was as follows:


	2015			2014			2013
	(in thousands)
Cost of revenues	$	3,065		$	3,675		$	4,338
Engineering and development		9,362			10,146			12,452
Selling and administrative		18,024			26,486			19,822

Stock-based compensation		30,451			40,307			36,612
Income tax benefit		(8,528	)		(11,537	)		(9,762	)

Total stock-based compensation expense after income taxes	$	21,923		$	28,770		$	26,850

O. SAVINGS PLAN

Teradyne sponsors a defined contribution employee retirement savings plan (“Savings Plan”) covering substantially all U.S. employees. Under the Savings Plan, employees may contribute up to 20% of their compensation (subject to Internal Revenue Service limitations). The Savings Plan provides for a discretionary employer match that is determined each year. In 2015, 2014 and 2013, Teradyne matched 100% of eligible employee contributions up to 4% of their compensation for employees not accruing benefits in the U.S. Qualified Pension Plan. There was no match for employees still actively accruing benefits in the U.S. Qualified Pension Plan. Teradyne’s contributions vest 25% per year for the first four years of employment, and contributions for those employees with four years of service vest immediately.

In addition, Teradyne established an unfunded U.S. Supplemental Savings Plan to provide savings benefits in excess of those allowed by Employee Retirement Income Security Act of 1974 and the Internal Revenue Code. The provisions of this plan are the same as the Savings Plan. Teradyne also established defined contribution savings plans for its foreign employees. Under Teradyne’s savings plans, amounts charged to the statement of operations for the years ended December 31, 2015, 2014 and 2013 were $13.5 million, $12.8 million and $12.0 million, respectively.

P. INCOME TAXES

The components of income (loss) before income taxes and the provision for income taxes as shown in the consolidated statements of operations were as follows:


	2015			2014			2013
	(in thousands)
Income (loss) before income taxes:
U.S.	$	56,270		$	(151,889	)	$	79,229
Non-U.S.		196,854			247,265			122,693

	$	253,124		$	95,376		$	201,922

Provision (benefit) for income taxes:
Current:
U.S. Federal	$	16,635		$	5,197		$	18,051
Non-U.S.		35,707			28,157			22,509
State		1,429			678			(269	)

		53,771			34,032			40,291

Deferred:
U.S. Federal		(574	)		(20,449	)		(1,692	)
Non-U.S.		(7,761	)		(404	)		(1,386	)
State		1,211			925			(238	)

		(7,124	)		(19,928	)		(3,316	)

Total provision for income taxes:	$	46,647		$	14,104		$	36,975

Income tax expense for 2015, 2014 and 2013 totaled $46.6 million, $14.1 million and $37.0 million, respectively. The effective tax rate for 2015, 2014 and 2013 was 18.4%, 14.8% and 18.3%, respectively. The increase in the effective tax rate from 2014 to 2015 resulted from a shift in the geographic distribution of income which increased income subject to taxation in the United States relative to lower tax rate jurisdictions and a reduction in the benefit from U.S. research and development tax credits. These increases in the effective tax rate were partially offset by decreases associated with uncertain tax positions and a non-deductible goodwill impairment charge. The decrease in the effective tax rate from 2013 to 2014 was primarily attributable to a shift in the geographic distribution of income which decreased income subject to taxation in the United States relative to lower tax rate jurisdictions, partially offset by increases in the effective tax rate associated with uncertain tax positions and a non-deductible goodwill impairment charge.

A reconciliation of the effective tax rate for the years 2015, 2014 and 2013 follows:


	2015			2014			2013
U.S. statutory federal tax rate		35.0	%		35.0	%		35.0	%
Foreign taxes		(16.5	)		(58.1	)		(11.4	)
Goodwill impairment		—			36.3			—
U.S. research and development credit		(3.0	)		(7.9	)		(7.2	)
Uncertain tax positions		2.1			7.9			4.2
Valuation allowance		—			—			0.4
State income taxes, net of federal tax benefit		0.4			(0.1	)		0.1
Other, net		0.4			1.7			(2.8	)

		18.4	%		14.8	%		18.3	%

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 tax holiday for the years ended December 31, 2015, 2014 and 2013 were $11.5 million or $0.05 per diluted share, $13.2 million or $0.06 per diluted share and $4.7 million or $0.02 per diluted share, respectively. In December 2015, Teradyne entered into an agreement with the Singapore Economic Development Board which extended the tax holiday under substantially similar terms to the agreement which expired on December 31, 2015. The new tax holiday is scheduled to expire on December 31, 2020.

Significant components of Teradyne’s deferred tax assets (liabilities) as of December 31, 2015 and 2014 were as follows:


	2015			2014
	(in thousands)
Deferred tax assets:
Tax credits	$	44,684		$	50,554
Pension liabilities		31,742			30,036
Inventory valuations		29,445			29,105
Accruals		26,563			23,323
Deferred revenue		10,232			10,242
Equity compensation		9,674			11,131
Net operating loss carryforwards		7,989			10,989
Vacation accrual		7,354			7,425
Other		502			1,725

Gross deferred tax assets		168,185			174,530
Less: valuation allowance		(43,039	)		(41,737	)

Total deferred tax assets	$	125,146		$	132,793

Deferred tax liabilities:
Intangible assets	$	(68,433	)	$	(64,871	)
Depreciation		(20,541	)		(24,905	)
Marketable securities		(458	)		(1,599	)

Total deferred tax liabilities	$	(89,432	)	$	(91,375	)

Net deferred assets	$	35,714		$	41,418

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, 2015 and 2014 amounted to $0.5 million and $0.6 million respectively. For the years ended December 31, 2015, 2014 and 2013, benefit of $0.2 million, expense of $0.2 million and expense of $0.2 million respectively, was recorded for interest and penalties related to income tax items.

During 2015, Teradyne’s valuation allowance increased by $1.3 million primarily due to the increase in the deferred tax assets related to state tax credits generated in 2015.

As of December 31, 2015 and 2014, Teradyne evaluated the likelihood that it would realize the 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, 2015 and 2014, Teradyne maintained a valuation allowance for certain deferred tax assets of $43.0 million and $41.7 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, 2015, Teradyne had operating loss carryforwards that expire in the following years:


	U.S. Federal Operating Loss Carryforwards		State Operating Loss Carryforwards		Foreign Operating Loss Carryforwards
	(in thousands)
2016	$	—	$	925	$	—
2017		—		10,649		—
2018		—		8,563		—
2019		—		1,203		—
2020		—		269		—
2021-2025		4,870		35,777		—
2026-2030		—		39,411		—
Beyond 2030		—		6,359		143
Non-expiring		—		—		8,202

Total	$	4,870	$	103,156	$	8,345

Of the U.S. federal operating loss carryforwards, $4.9 million relates to the acquisition of GenRad, Inc. (“GenRad”) in 2001. GenRad losses are limited in the annual amount that can be used as a result of “change in ownership” rules as defined in the Internal Revenue Code of 1986. The operating loss carryforward does not include any excess tax deduction related to stock based compensation which has not been recognized for financial statement purposes.

Teradyne has approximately $121.2 million of tax credit carryforwards. Federal business tax credits of approximately $43.2 million expire in the years 2017 through 2035. Teradyne has alternative minimum tax credits of approximately $6.6 million, which do not expire. In addition, there are state tax credits of $71.4 million of which $42.4 million do not expire and the remainder of which expires in the years 2016 through 2030. Teradyne has federal tax credits of $42.9 million, that are attributable to stock based compensation deductions which will be recorded as an increase in additional paid in capital on the consolidated balance sheet if and when they are “realized” in accordance with ASC 718-10, “Compensation—Stock Compensation.”

Teradyne’s gross unrecognized tax benefits for the years ended December 31, 2015, 2014 and 2013 were as follows:


	2015			2014			2013
	(in thousands)
Beginning balance, as of January 1	$	30,418		$	21,203		$	18,666
Additions:
Tax positions for current year		6,626			8,414			4,586
Tax positions for prior years		792			3,781			2,112
Reductions:
Tax positions for prior years		(708	)		(2,480	)		(4,161	)
Settlements with tax authorities		(336	)		(500	)		—

Ending balance as of December 31	$	36,792		$	30,418		$	21,203

Current year and prior year additions include assessment of potential transfer pricing issues worldwide, federal and state tax credits and incentives, capitalization rules, and domestic production activities deductions. Reductions for tax positions for prior years primarily relate to statute expiration and the settlement of a foreign tax audit. Of the $36.8 million of unrecognized tax benefits as of December 31, 2015, $29.2 million would impact the consolidated income tax rate if ultimately recognized. The remaining $7.6 million would impact the valuation allowance if recognized. Teradyne estimates that it is reasonably possible that the balance of unrecognized tax benefits as of December 31, 2015 may decrease approximately $7.6 million in the next twelve

months, as a result of a lapse of statutes of limitation and the settlement of a tax audit. The estimated decrease is composed primarily of reserves relating to federal tax credits and transfer pricing.

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, 2015, all material state and local income tax matters have been concluded through 2008, all material federal income tax matters have been concluded through 2011 and all material foreign income tax matters have been concluded through 2009. 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, 2015, a deferred tax liability has not been established for approximately $783 million of cumulative undistributed earnings of non-U.S. subsidiaries, which are expected to be reinvested indefinitely in operations outside the U.S. except for instances where Teradyne can remit such earnings to the U.S. without an associated net tax cost. Determination of the unrecognized deferred tax liability on unremitted earnings is not practicable due to uncertainty regarding the remittance structure, the mix of earnings and earnings and profit pools in the year of remittance, and overall complexity of the calculation.

Q. OPERATING SEGMENT, GEOGRAPHIC AND SIGNIFICANT CUSTOMER INFORMATION

Teradyne has four operating segments (Semiconductor Test, System Test, Wireless Test and Industrial Automation), which are its reportable segments. The Semiconductor Test segment includes operations related to the design, manufacturing and marketing of semiconductor test products and services. The System Test segment includes operations related to the design, manufacturing and marketing of products and services for defense/aerospace instrumentation test, storage test and circuit-board test. The Wireless Test segment includes operations related to the design, manufacturing and marketing of wireless test products and services. The Industrial Automation segment includes operations related to the design, manufacturing and marketing of collaborative robots. Each operating segment has a segment manager who is directly accountable to and maintains regular contact with Teradyne’s chief operating decision maker (Teradyne’s chief executive officer) to discuss operating activities, financial results, forecasts, and plans for the segment.

Teradyne evaluates performance using several factors, of which the primary financial measure is business segment income (loss) from operations before taxes. The accounting policies of the business segments are the same as those described in Note B: “Accounting Policies.”

Segment information for the years ended December 31, 2015, 2014 and 2013 is as follows:


	Semiconductor Test		Wireless Test			System Test		Industrial Automation			Corporate And Eliminations			Consolidated
	(in thousands)
2015
Revenues	$	1,201,530	$	184,572		$	211,584	$	41,892		$	—		$	1,639,578
Income (loss) before taxes (1)(2)		260,154		(13,830	)		25,101		(7,574	)		(10,727	)		253,124
Total assets (3)		610,869		427,880			102,547		344,260			1,063,118			2,548,674
Property additions		79,052		3,133			6,228		1,465			—			89,878
Depreciation and amortization expense		64,415		53,440			4,390		14,500			4,027			140,772
2014
Revenues	$	1,300,790	$	184,535		$	162,499	$	—		$	—		$	1,647,824
Income (loss) before taxes (1)(2)		255,803		(116,196	)		12,116		—			(56,347	)		95,376
Total assets (3)		580,501		478,974			95,105		—			1,383,940			2,538,520
Property additions		159,783		3,730			5,469		—			—			168,982
Depreciation and amortization expense		84,990		53,308			5,399		—			8,847			152,544
2013
Revenues	$	1,023,041	$	251,871		$	153,021	$	—		$	—		$	1,427,933
Income before taxes (1)(2)		153,797		23,153			3,115		—			21,857			201,922
Total assets (3)		632,840		645,001			79,983		—			1,272,000			2,629,824
Property additions		94,303		5,358			7,070		—			—			106,731
Depreciation and amortization expense		72,472		51,675			5,180		—			21,360			150,687

(1)	Interest income, interest expense, other (income) expense, net, contingent consideration adjustments and pension and postretirement plans actuarial gains and losses are included in Corporate and Eliminations.

(2)	Included in income (loss) before taxes are charges and credits related to restructuring and other, inventory charges and goodwill impairment charges.

(3)	Total business assets are directly attributable to each business. Corporate assets consist of cash and cash equivalents, marketable securities and certain other assets.

Included in the Semiconductor Test segment are charges in the following accounts:


	For the Year Ended December 31,
	2015		2014		2013
	(in thousands)
Cost of revenues—inventory charge	$	10,508	$	14,389	$	5,218
Restructuring and other		499		490		1,016

Included in the System Test segment are charges in the following accounts:


	For the Year Ended December 31,
	2015		2014		2013
	(in thousands)
Cost of revenues—inventory charge	$	8,324	$	2,125	$	4,168
Restructuring and other		1,037		742		1,431

Included in the Wireless Test segment are charges in the following accounts:


	For the Year Ended December 31,
	2015		2014		2013
	(in thousands)
Cost of revenues—inventory charge	$	2,500	$	5,679	$	7,206
Restructuring and other		—		565		82
Goodwill impairment charge		—		98,897		—

Included in the Industrial Automation segment are charges in the following account:


	For the Year Ended December 31,
	2015		2014		2013
	(in thousands)
Cost of revenues—inventory step-up (1)	$	1,567	$	—	$	—

(1)	Included in the cost of revenues for the years ended December 31, 2015 is the cost for purchase accounting inventory step-up.

Included in the Corporate and Eliminations segment are charges and credits in the following accounts:


	For the Year Ended December 31,
	2015			2014			2013
	(in thousands)
Restructuring and other—Universal Robots contingent consideration adjustment	$	5,339		$	—		$	—
Restructuring and other—ZTEC contingent consideration adjustment		(1,600	)		(630	)		—
Restructuring and other—AIT contingent consideration adjustment		(1,250	)		—			—
Restructuring and other—acquisition costs		1,104			372			—
Restructuring and other		—			198			(449	)
Other (income) expense, net—gain from the sale of an equity investment		(5,406	)		—			(34,212	)
Selling and administrative—stock based compensation expense (1)		—			6,598			—

(1)	Expense related to the January 2014 retirement of Teradyne’s former chief executive officer; see Note N: “Stock-Based Compensation.”

Information as to Teradyne’s revenues by country is as follows:


	2015		2014		2013
	(in thousands)
Revenues from customers (1):
Taiwan	$	436,389	$	495,942	$	265,472
China		264,898		292,145		323,564
United States		217,386		213,104		230,178
Japan		128,228		63,761		81,806
Korea		120,224		145,608		119,286
Europe		111,903		111,043		90,797
Singapore		105,216		119,421		114,765
Philippines		96,103		68,662		63,392
Malaysia		76,707		83,910		86,900
Thailand		59,104		44,117		32,209
Rest of the World		23,420		10,111		19,564

	$	1,639,578	$	1,647,824	$	1,427,933

(1)	Revenues attributable to a country are based on location of customer site.

In 2015, one customer of Teradyne’s Semiconductor Test segment accounted for 13% of total consolidated revenues. In 2014, no single customer accounted for more than 10% of total consolidated revenues. In 2013, one customer of Teradyne’s Wireless Test and Semiconductor Test segments, accounted for 12% of total consolidated revenues.

Long-lived assets by geographic area:


	United States		Foreign(1)		Total
	(in thousands)
December 31, 2015	$	198,424	$	74,990	$	273,414
December 31, 2014	$	206,334	$	122,704	$	329,038

(1)	As of December 31, 2015 and 2014, long-lived assets attributable to Singapore were $39.9 million and $99.2 million, respectively.

R. STOCK REPURCHASE PROGRAM

In January 2015, the Board of Directors cancelled the November 2010 stock repurchase program and authorized a new stock repurchase program for up to $500 million of common stock. The cumulative repurchases as of December 31, 2015 totaled 15.6 million shares of common stock for a total purchase price of $300 million at an average price per share of $19.20. The total price includes commissions and is recorded as a reduction to retained earnings.

In November 2010, the Board authorized a stock repurchase program for up to $200 million. Under the November 2010 plan, Teradyne repurchased 2.6 million shares of common stock for $31.2 million at an average price of $11.84.

S. SUBSEQUENT EVENTS

In January 2016, Teradyne’s Board of Directors declared a quarterly dividend of $0.06 per share to be paid on March 21, 2016 to shareholders of record as of February 26, 2016.

While Teradyne declared a quarterly cash dividend and authorized a share repurchase program, it may reduce or eliminate the cash dividend or share repurchase program in the future. Future cash dividends and stock repurchases are subject to the discretion of Teradyne’s Board of Directors which will consider, among other things, Teradyne’s earnings, capital requirements and financial condition.

SUPPLEMENTARY INFORMATION

(Unaudited)

The following sets forth certain unaudited consolidated quarterly statements of operations data for each of Teradyne’s last eight quarters. In management’s opinion, this quarterly information reflects all adjustments, consisting only of normal recurring adjustments, necessary for a fair statement for the periods presented. Such quarterly results are not necessarily indicative of future results of operations and should be read in conjunction with the audited consolidated financial statements of Teradyne and the notes thereto included elsewhere herein.


	2015
	1st Quarter			2nd Quarter			3rd Quarter			4th Quarter
				(3)			(4)			(1)(2)
	(in thousands, except per share amounts)
Revenues:
Products	$	272,325		$	437,243		$	386,488		$	244,510
Services		70,076			75,496			79,506			73,934

Total revenues		342,401			512,739			465,994			318,444
Cost of revenues:
Cost of products		118,996			181,491			170,963			120,322
Cost of services		30,982			32,680			36,405			32,096

Total cost of revenues (exclusive of acquired intangible assets amortization shown separately below)		149,978			214,171			207,368			152,418

Gross profit		192,423			298,568			258,626			166,026

Operating expenses:
Engineering and development		71,450			75,832			74,027			70,941
Selling and administrative		72,041			77,073			77,481			79,718
Acquired intangible assets amortization		13,808			15,258			20,053			19,911
Restructuring and other		—			(385	)		261			5,204

Total operating expenses		157,299			167,778			171,822			175,774

Income (loss) from operations		35,124			130,790			86,804			(9,748	)
Non-operating (income) expense:
Interest income		(1,816	)		(1,674	)		(1,708	)		(2,017	)
Interest expense		162			444			508			762
Other (income) expense, net		(5,660	)		(116	)		596			364

Income (loss) before income taxes		42,438			132,136			87,408			(8,857	)
Income tax provision (benefit)		9,651			29,257			15,955			(8,216	)

Net income (loss)	$	32,787		$	102,879		$	71,453		$	(641	)

Net income (loss) per common share—basic	$	0.15		$	0.48		$	0.34		$	(0.00	)

Net income (loss) per common share—diluted	$	0.15		$	0.48		$	0.34		$	(0.00	)

Cash dividend declared per common share	$	0.06		$	0.06		$	0.06		$	0.06

(1)	Restructuring and other includes a $5.3 million fair value adjustment to increase the Universal Robots acquisition contingent consideration, and a $(0.3) million fair value adjustment to decrease the AIT acquisition contingent consideration.

(2)	In the fourth quarter ended December 31, 2015, Teradyne recorded pension and post retirement net actuarial losses of $17.7 million. See Note B: “Accounting Policies” for a discussion of our accounting policy.

(3)	Restructuring and other includes a $(1.6) million fair value adjustment to decrease the ZTEC acquisition contingent consideration.

(4)	Restructuring and other includes a $(1.0) million fair value adjustment to decrease the AIT acquisition contingent consideration.


	2014
	1st Quarter			2nd Quarter			3rd Quarter			4th Quarter
				(1)			(1)(2)			(1)(3)(4)
	(in thousands, except per share amounts)
Revenues:
Products	$	255,386		$	452,488		$	402,987		$	253,162
Services		65,624			73,079			75,023			70,074

Total revenues		321,010			525,567			478,010			323,236
Cost of revenues:
Cost of products		124,448			202,411			182,591			131,337
Cost of services		29,515			32,743			34,298			31,673

Total cost of revenues (exclusive of acquired intangible assets amortization shown separately below)		153,963			235,154			216,889			163,010

Gross profit		167,047			290,413			261,121			160,226

Operating expenses:
Engineering and development		67,085			73,414			71,953			79,188
Selling and administrative		78,003			77,489			73,064			91,157
Goodwill impairment		—			—			—			98,897
Acquired intangible assets amortization		18,271			18,271			18,271			15,957
Restructuring and other		—			572			(405	)		1,198

Total operating expenses		163,359			169,746			162,883			286,397

Income (loss) from operations		3,688			120,667			98,238			(126,171	)
Non-operating (income) expense:
Interest income		(1,036	)		(1,266	)		(1,922	)		(2,035	)
Interest expense		6,417			159			144			214
Other (income) expense, net		180			382			(654	)		463

(Loss) income before income taxes		(1,873	)		121,392			100,670			(124,813	)
Income tax (benefit) provision		(2,802	)		20,187			17,721			(21,002	)

Net income (loss)	$	929		$	101,205		$	82,949		$	(103,811	)

Net income (loss) per common share—basic	$	0.00		$	0.52		$	0.40		$	(0.48	)

Net income (loss) per common share—diluted	$	0.00		$	0.47		$	0.38		$	(0.48	)

Cash dividend declared per common share	$	0.00		$	0.06		$	0.06		$	0.06

(1)	Dividends declared by Teradyne’s Board of Directors were paid in the second, third and fourth quarters of 2014.

(2)	Restructuring and other includes a $(0.6) million fair value adjustment to decrease the ZTEC acquisition contingent consideration.

(3)	In the fourth quarter ended December 31, 2014, Teradyne recorded pension and post retirement net actuarial losses of $46.6 million. See Note B: “Accounting Policies” for a discussion of our accounting policy.

(4)	In the fourth quarter ended December 31, 2014, Teradyne recorded a goodwill impairment charge of $98.9 million in its Wireless Test segment.

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