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INCOME TAXES | 62 Months Ended
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Dec. 31, 2012
INCOME TAXES | R. INCOME TAXES The components of income (loss) from continuing operations before income taxes and the provision (benefit) for income taxes from continuing operations as shown in the consolidated statements of operations were as follows:
|  | 2012 |  |  | 2011 |  |  | 2010 |
|  | (in thousands) |
Income from continuing operations before income taxes: |  |  |  |  |  |  |  |  |  |  |  |
U.S. |  | $ | 112,008 |  |  | $ | 68,943 |  |  | $ | 120,330 |
Non-U.S. |  |  | 153,968 |  |  |  | 145,478 |  |  |  | 276,017 |
|  | $ | 265,976 |  |  | $ | 214,421 |  |  | $ | 396,347 |
Provision (benefit) for income taxes from continuing operations: |  |  |  |  |  |  |  |  |  |  |  |
Current: |  |  |  |  |  |  |  |  |  |  |  |
U.S. Federal |  | $ | 22,695 |  |  | $ | 3,668 |  |  | $ | (1,555 | )
Non-U.S. |  |  | 18,261 |  |  |  | 23,994 |  |  |  | 16,547 |
State |  |  | (12 | ) |  |  | 760 |  |  |  | 553 |
|  |  | 40,944 |  |  |  | 28,422 |  |  |  | 15,545 |
Deferred: |  |  |  |  |  |  |  |  |  |  |  |
U.S. Federal |  |  | 8,158 |  |  |  | (139,929 | ) |  |  | — |
Non-U.S. |  |  | 5,997 |  |  |  | (10,549 | ) |  |  | 1,110 |
State |  |  | (6,172 | ) |  |  | (7,480 | ) |  |  | — |
|  |  | 7,983 |  |  |  | (157,958 | ) |  |  | 1,110 |
Total provision (benefit) for income taxes from continuing operations: |  | $ | 48,927 |  |  | $ | (129,536 | ) |  | $ | 16,655 |
For the tax year ended December 31, 2012, the income tax expense from continuing operations for 2012 totaled $48.9 million, primarily attributable to a U.S. federal tax provision and tax provisions for foreign taxes. As of December 31, 2012, 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. Teradyne maintains a valuation allowance for certain deferred tax assets of $55.4 million, primarily related to excess stock compensation deductions associated with pre-2006 activity, 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. For the year ended December 31, 2011, income tax benefit from continuing operations totaled $129.5 million, primarily attributable to the reduction of Teradyne’s deferred income tax valuation allowance. As of December 31, 2011, 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. The evidence consisted primarily of its three year U.S. historical cumulative profitability, projected future taxable income, forecasted utilization of the deferred tax assets and the fourth quarter of 2011 acquisition of LitePoint, offset by the volatility of the industries Teradyne operates in, primarily the semiconductor industry. As such, Teradyne reduced the valuation allowance by $190.2 million, which was recorded as a tax benefit in the year ended December 31, 2011. At December 31, 2011, Teradyne maintained a valuation allowance for certain deferred tax assets of $51.1 million, primarily related to excess stock compensation deductions associated with pre-2006 activity, 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. For the year ended December 31, 2010, income tax expense from continuing operations totaled $16.7 million, primarily related to tax provisions for foreign taxes. The total income tax provision (benefit) for the years ended December 31, 2012, 2011 and 2010 was as follows:
|  | 2012 |  |  | 2011 |  |  | 2010 |
|  | (in thousands) |
Continuing operations |  | $ | 48,927 |  |  | $ | (129,536 | ) |  | $ | 16,655 |
Discontinued operations |  |  | — |  |  |  | 4,311 |  |  |  | 278 |
Total income tax provision (benefit) |  | $ | 48,927 |  |  | $ | (125,225 | ) |  | $ | 16,933 |
Significant components of Teradyne’s deferred tax assets (liabilities) as of December 31, 2012 and 2011 were as follows:
|  | 2012 |  |  | 2011 |
|  | (in thousands) |
Deferred tax assets: |  |  |  |  |  |  |  |
Net operating loss carryforwards |  | $ | 36,674 |  |  | $ | 37,899 |
Tax credits |  |  | 64,123 |  |  |  | 76,248 |
Inventory valuations |  |  | 50,886 |  |  |  | 42,760 |
Pension liability |  |  | 28,674 |  |  |  | 21,119 |
Research and development |  |  | 284 |  |  |  | 10,028 |
Accruals |  |  | 14,246 |  |  |  | 13,817 |
Equity compensation |  |  | 9,355 |  |  |  | 8,729 |
Vacation accrual |  |  | 6,452 |  |  |  | 6,267 |
Other |  |  | 282 |  |  |  | 398 |
Deferred revenue |  |  | 15,118 |  |  |  | 35,869 |
Gross deferred tax assets |  |  | 226,094 |  |  |  | 253,134 |
Less: valuation allowance |  |  | (55,446 | ) |  |  | (51,066 | )
Total deferred tax assets |  |  | 170,648 |  |  |  | 202,068 |
Deferred tax liabilities: |  |  |  |  |  |  |  |
Marketable securities |  |  | (996 | ) |  |  | (827 | )
Intangible assets |  |  | (114,730 | ) |  |  | (144,925 | )
Excess of tax over book depreciation |  |  | (22,446 | ) |  |  | (18,417 | )
Total deferred tax liabilities |  |  | (138,172 | ) |  |  | (164,169 | )
Net deferred assets |  | $ | 32,476 |  |  | $ | 37,899 |
At December 31, 2012, Teradyne had operating loss carryforwards that expire in the following years:
|  | U.S. Federal Operating Loss Carryforwards |  |  | State Net Operating Loss Carryforwards |  |  | Foreign Net Operating Loss Carryforwards |
|  | (in thousands) |
2013 |  | $ | — |  |  | $ | 2,708 |  |  | $ | — |
2014 |  |  | — |  |  |  | 2 |  |  |  | — |
2015 |  |  | — |  |  |  | 2 |  |  |  | — |
2016 |  |  | — |  |  |  | 58 |  |  |  | — |
2017 |  |  | — |  |  |  | 847 |  |  |  | — |
2018-2023 |  |  | 22,354 |  |  |  | 3,592 |  |  |  | — |
2024-2026 |  |  | — |  |  |  | 269 |  |  |  | 9 |
Beyond 2026 |  |  | — |  |  |  | 3,667 |  |  |  | 622 |
Non-expiring |  |  | — |  |  |  | — |  |  |  | 8,038 |
Total |  | $ | 22,354 |  |  | $ | 11,145 |  |  | $ | 8,669 |
Of the U.S. federal operating loss carryforwards, $22.4 million relates to the acquisition of GenRad, Inc. in 2001. The GenRad losses are limited in the amount that can be used as a result of “change in ownership” rules as defined in the Internal Revenue Code of 1986. The net operating loss carryforward does not include any excess tax deduction related to stock based compensation which has not been recognized for financial statement purposes. Certain of the above tax attribute carryovers included in deferred tax assets, primarily the net operating loss carryovers, will be recorded through additional paid-in capital when realized, with the exception of the GenRad net operating losses. Teradyne has approximately $119.0 million of tax credit carry forwards. Federal business tax credits of approximately $15.5 million expire in the years 2028 through 2031. Teradyne has foreign tax credits of approximately $42.5 million expiring in the years 2013 through 2022 and alternative minimum tax credits of approximately $6.6 million, which do not expire. In addition, there are state tax credits of $54.4 million which begin to expire in 2013. During 2012, Teradyne’s valuation allowance increased by $4.4 million primarily due to the increase in the deferred tax assets related to state tax credits generated in 2012. During 2011, Teradyne’s beginning of the year valuation allowance decreased by $190.2 million due to a release of the valuation allowance. During 2010, Teradyne’s valuation allowance decreased by $60.0 million primarily due to the reduction in the deferred tax assets related to the decrease in net operating loss carryovers used in 2010. A reconciliation of the effective tax rate for the years 2012, 2011 and 2010 follows:
|  | 2012 |  |  | 2011 |  |  | 2010 |
U.S. statutory federal tax rate |  |  | 35.0 | % |  |  | 35.0 | % |  |  | 35.0 | %
State income taxes, net of federal tax benefit |  |  | (1.7 | ) |  |  | — |  |  |  | 0.4 |
Foreign taxes |  |  | (11.5 | ) |  |  | (12.6 | ) |  |  | (13.9 | )
Valuation allowance |  |  | (0.5 | ) |  |  | (87.7 | ) |  |  | (17.4 | )
Other U.S. permanent items |  |  | (2.8 | ) |  |  | 5.7 |  |  |  | — |
Other, net |  |  | (0.1 | ) |  |  | (0.8 | ) |  |  | 0.1 |
|  |  | 18.4 | % |  |  | (60.4 | )% |  |  | 4.2 | %
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 due to the tax holiday for the years ended December 31, 2012 and 2011 were $10.9 million or $0.05 per diluted share and $0.2 million or $0.00 per diluted share, respectively. There were no tax savings from the tax holiday for the year ended December 31, 2010. The tax holiday is currently expected to expire on December 31, 2015. 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, 2012 were not material. Teradyne’s gross unrecognized tax benefits for the years ended December 31, 2012, 2011 and 2010 were as follows:
|  | 2012 |  |  | 2011 |  |  | 2010 |
|  | (in thousands) |
Beginning balance, as of January 1 |  | $ | 19,678 |  |  | $ | 12,028 |  |  | $ | 12,767 |
Additions: |  |  |  |  |  |  |  |  |  |  |  |
Tax positions for current year |  |  | 459 |  |  |  | 6,131 |  |  |  | 106 |
Tax positions for prior years |  |  | 1,402 |  |  |  | 1,296 |  |  |  | 2,435 |
Acquired tax positions |  |  | — |  |  |  | 1,388 |  |  |  | — |
Reductions: |  |  |  |  |  |  |  |  |  |  |  |
Tax positions for prior years |  |  | (4,072 | ) |  |  | (1,165 | ) |  |  | (3,280 | )
Settlements with tax authorities |  |  | — |  |  |  | — |  |  |  | — |
Ending Balance as of December 31 |  | $ | 17,467 |  |  | $ | 19,678 |  |  | $ | 12,028 |
Current year and prior year additions include assessment of potential transfer pricing issues worldwide, federal tax credits, state tax credits, and domestic production activities deduction. Reductions for tax positions for prior years primarily relate to statute expiration and the effective settlement of a state tax audit. Of the $17.5 million of unrecognized tax benefits as of December 31, 2012, $14.8 million would impact the consolidated income tax rate if ultimately recognized. The remaining $2.7 million would impact the valuation allowance if recognized. As of December 31, 2012, Teradyne has open tax years beginning in 2006 for major jurisdictions including the U.S., Japan, Singapore and the United Kingdom. Teradyne estimates that it is reasonably possible that the balance of unrecognized tax benefits as of December 31, 2012 may decrease approximately $0.3 million in the next twelve months, as a result of a lapse of statutes of limitation. As of December 31, 2012, a deferred tax liability has not been established for approximately $10.6 million of cumulative undistributed earnings of non-U.S. subsidiaries, which are expected to be reinvested indefinitely in operations outside the U.S. Determination of the unrecognized deferred tax liability on unremitted earnings is not practical. On January 2, 2013, the American Taxpayer Relief Act of 2012 was enacted which retrospectively reinstated the research and development tax credit for 2012 and extended it through December 31, 2013. As a result, in the first quarter of 2013, Teradyne expects to record a discrete benefit related to 2012 of approximately $7.0 million.

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- Definition The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 109 -Paragraph 136, 172 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.4-08.(h)) -URI http://asc.fasb.org/extlink&oid=6881521&loc=d3e23780-122690 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Regulation S-X (SX) -Number 210 -Section 08 -Paragraph h -Article 4 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 15 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32718-109319 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 109 -Paragraph 43, 44, 45, 46, 47, 48, 49 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32537-109319 Reference 7: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 9 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32639-109319 Reference 8: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32559-109319 + Details
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