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Income Taxes | 12 Months Ended
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Dec. 31, 2013
Income Taxes | Q. INCOME TAXES The components of income 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:
|  | 2013 |  |  | 2012 |  |  | 2011 |
|  | (in thousands) |
Income from continuing operations before income taxes: |  |  |  |  |  |  |  |  |  |  |  |
U.S. |  | $ | 79,229 |  |  | $ | 112,008 |  |  | $ | 68,943 |
Non-U.S. |  |  | 122,693 |  |  |  | 153,968 |  |  |  | 145,478 |
|  | $ | 201,922 |  |  | $ | 265,976 |  |  | $ | 214,421 |
Provision (benefit) for income taxes from continuing operations: |  |  |  |  |  |  |  |  |  |  |  |
Current: |  |  |  |  |  |  |  |  |  |  |  |
U.S. Federal |  | $ | 18,051 |  |  | $ | 22,695 |  |  | $ | 3,668 |
Non-U.S. |  |  | 22,509 |  |  |  | 18,261 |  |  |  | 23,994 |
State |  |  | (269 | ) |  |  | (12 | ) |  |  | 760 |
|  |  | 40,291 |  |  |  | 40,944 |  |  |  | 28,422 |
Deferred: |  |  |  |  |  |  |  |  |  |  |  |
U.S. Federal |  |  | (1,692 | ) |  |  | 8,158 |  |  |  | (139,929 | )
Non-U.S. |  |  | (1,386 | ) |  |  | 5,997 |  |  |  | (10,549 | )
State |  |  | (238 | ) |  |  | (6,172 | ) |  |  | (7,480 | )
|  |  | (3,316 | ) |  |  | 7,983 |  |  |  | (157,958 | )
Total provision (benefit) for income taxes from continuing operations: |  | $ | 36,975 |  |  | $ | 48,927 |  |  | $ | (129,536 | )
The total income tax provision (benefit) for the years ended December 31, 2013, 2012 and 2011 was as follows:
|  | 2013 |  |  | 2012 |  |  | 2011 |
|  | (in thousands) |
Continuing operations |  | $ | 36,975 |  |  | $ | 48,927 |  |  | $ | (129,536 | )
Discontinued operations |  |  | — |  |  |  | — |  |  |  | 4,311 |
Total income tax provision (benefit) |  | $ | 36,975 |  |  | $ | 48,927 |  |  | $ | (125,225 | )
For the tax years ended December 31, 2013 and December 31, 2012, the income tax expense from continuing operations totaled $37.0 million and $48.9 million, respectively, primarily attributable to a U.S. federal tax provision and tax provisions for foreign taxes. The decrease in income tax expense from 2012 to 2013 was due to the reinstatement of the U.S. research and development tax credit in 2013 for fiscal years 2012 and 2013, lower pre-tax income, partially offset by higher tax expense for uncertain tax positions and state taxes. For the tax year ended December 31, 2011, the income tax benefit from continuing operations totaled $129.5 million, primarily attributable to the reduction of Teradyne’s deferred income tax valuation allowance. A reconciliation of the effective tax rate for the years 2013, 2012 and 2011 follows:
|  | 2013 |  |  | 2012 |  |  | 2011 |
U.S. statutory federal tax rate |  |  | 35.0 | % |  |  | 35.0 | % |  |  | 35.0 | %
Foreign taxes |  |  | (10.8 | ) |  |  | (11.5 | ) |  |  | (12.6 | )
U.S. research and development credit |  |  | (7.2 | ) |  |  | — |  |  |  | (1.1 | )
Other U.S. permanent items |  |  | 1.1 |  |  |  | (2.8 | ) |  |  | 5.7 |
Valuation allowance |  |  | 0.4 |  |  |  | (0.5 | ) |  |  | (86.6 | )
State income taxes, net of federal tax benefit |  |  | 0.1 |  |  |  | (1.7 | ) |  |  | — |
Other, net |  |  | (0.3 | ) |  |  | (0.1 | ) |  |  | (0.8 | )
|  |  | 18.3 | % |  |  | 18.4 | % |  |  | (60.4 | )%
U.S. research and development tax credits provided a 7.2% reduction to the 2013 U.S. statutory federal tax rate of 35.0%. The research and development tax credit expired at the end of 2013; therefore if the credit is not legislatively re-enacted there could be an unfavorable impact on Teradyne’s 2014 effective income tax rate. 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, 2013, 2012 and 2011 were $4.7 million or $0.02 per diluted share, $10.9 million or $0.05 per diluted share and $0.2 million or $0.00 per diluted share, respectively. 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, 2013 were $0.4 million. Significant components of Teradyne’s deferred tax assets (liabilities) as of December 31, 2013 and 2012 were as follows:
|  | 2013 |  |  | 2012 |
|  | (in thousands) |
Deferred tax assets: |  |  |  |  |  |  |  |
Net operating loss carryforwards |  | $ | 14,679 |  |  | $ | 36,674 |
Tax credits |  |  | 65,210 |  |  |  | 64,123 |
Inventory valuations |  |  | 38,452 |  |  |  | 50,886 |
Pension liability |  |  | 22,966 |  |  |  | 28,674 |
Research and development |  |  | — |  |  |  | 284 |
Accruals |  |  | 17,828 |  |  |  | 14,246 |
Equity compensation |  |  | 10,498 |  |  |  | 9,355 |
Vacation accrual |  |  | 7,291 |  |  |  | 6,452 |
Other |  |  | 2,613 |  |  |  | 282 |
Deferred revenue |  |  | 12,379 |  |  |  | 15,118 |
Gross deferred tax assets |  |  | 191,916 |  |  |  | 226,094 |
Less: valuation allowance |  |  | (40,386 | ) |  |  | (55,446 | )
Total deferred tax assets |  |  | 151,530 |  |  |  | 170,648 |
Deferred tax liabilities: |  |  |  |  |  |  |  |
Marketable securities |  |  | (794 | ) |  |  | (996 | )
Intangible assets |  |  | (89,268 | ) |  |  | (114,730 | )
Excess of tax over book depreciation |  |  | (24,458 | ) |  |  | (22,446 | )
Total deferred tax liabilities |  |  | (114,520 | ) |  |  | (138,172 | )
Net deferred assets |  | $ | 37,010 |  |  | $ | 32,476 |
During 2013, Teradyne reduced both its net operating loss deferred tax asset and related valuation allowance by approximately $19.5 million which was attributable to pre-2006 windfall stock option deductions, the benefit of which will be credited to additional paid-in capital if and when realized through a reduction in Teradyne’s income tax payable. As of December 31, 2013, these windfall stock option deductions will be tracked off balance sheet in accordance with ASC 718. 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. As of December 31, 2013 and 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. At December 3,1 2013 and December 31, 2012, Teradyne maintained a valuation allowance for certain deferred tax assets of $40.4 million and $55.4 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. 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, 2013, 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) |
2014 |  | $ | — |  |  | $ | 335 |  |  | $ | — |
2015 |  |  | — |  |  |  | 2 |  |  |  | — |
2016 |  |  | — |  |  |  | 843 |  |  |  | — |
2017 |  |  | — |  |  |  | 831 |  |  |  | — |
2018 |  |  | — |  |  |  | 706 |  |  |  | — |
2019-2024 |  |  | 16,600 |  |  |  | 2,791 |  |  |  | — |
2025-2027 |  |  | 300 |  |  |  | 52 |  |  |  | — |
Beyond 2027 |  |  | 2,454 |  |  |  | 3,673 |  |  |  | — |
Non-expiring |  |  | — |  |  |  | — |  |  |  | 10,380 |
Total |  | $ | 19,354 |  |  | $ | 9,233 |  |  | $ | 10,380 |
Of the U.S. federal operating loss carryforwards, $16.5 million relates to the acquisition of GenRad, Inc. (“GenRad”) in 2001 and $2.8 million relates to the acquisition of ZTEC in 2013. Both GenRad and ZTEC 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 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. Teradyne has approximately $133.4 million of tax credit carry forwards. Federal business tax credits of approximately $27.7 million expire in the years 2017 through 2033. Teradyne has foreign tax credits of approximately $34.5 million expiring in the years 2018 through 2022 and alternative minimum tax credits of approximately $6.6 million, which do not expire. In addition, there are state tax credits of $64.6 million which begin to expire in 2014. Teradyne has federal tax credits of $41.1 million, that are attributable to stock option exercises 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, 2013, 2012 and 2011 were as follows:
|  | 2013 |  |  | 2012 |  |  | 2011 |
|  | (in thousands) |
Beginning balance, as of January 1 |  | $ | 18,666 |  |  | $ | 19,391 |  |  | $ | 11,777 |
Additions: |  |  |  |  |  |  |  |  |  |  |  |
Tax positions for current year |  |  | 4,586 |  |  |  | 459 |  |  |  | 6,131 |
Tax positions for prior years |  |  | 2,112 |  |  |  | 2,259 |  |  |  | 1,065 |
Acquired tax positions |  |  | — |  |  |  | — |  |  |  | 1,388 |
Reductions: |  |  |  |  |  |  |  |  |  |  |  |
Tax positions for prior years |  |  | (4,161 | ) |  |  | (3,443 | ) |  |  | (970 | )
Settlements with tax authorities |  |  | — |  |  |  | — |  |  |  | — |
Ending Balance as of December 31 |  | $ | 21,203 |  |  | $ | 18,666 |  |  | $ | 19,391 |
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 $21.2 million of unrecognized tax benefits as of December 31, 2013, $16.0 million would impact the consolidated income tax rate if ultimately recognized. The remaining $5.2 million would impact the valuation allowance if recognized. As of December 31, 2013, Teradyne has open tax years beginning in 2007 for major jurisdictions including the U.S., Japan, Singapore, Germany and the United Kingdom. Teradyne estimates that it is reasonably possible that the balance of unrecognized tax benefits as of December 31, 2013 may decrease approximately $1.0 million in the next twelve months, as a result of a lapse of statutes of limitation and the effective settlement of a tax audit. As of December 31, 2013, a deferred tax liability has not been established for approximately $320.0 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 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.

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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 Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 15 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32718-109319 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=26873400&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 9 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32639-109319 Reference 5: 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 6: 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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