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Income Taxes | 12 Months Ended
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Dec. 31, 2014
Income Taxes | 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:
|  | 2014 |  |  | 2013 |  |  | 2012 |
|  | (in thousands) |
Income (loss) before income taxes: |  |  |  |  |  |  |  |  |  |  |  |
U.S. |  | $ | (151,889 | ) |  | $ | 79,229 |  |  | $ | 112,008 |
Non-U.S. |  |  | 247,265 |  |  |  | 122,693 |  |  |  | 153,968 |
|  | $ | 95,376 |  |  | $ | 201,922 |  |  | $ | 265,976 |
Provision (benefit) for income taxes: |  |  |  |  |  |  |  |  |  |  |  |
Current: |  |  |  |  |  |  |  |  |  |  |  |
U.S. Federal |  | $ | 5,197 |  |  | $ | 18,051 |  |  | $ | 22,695 |
Non-U.S. |  |  | 28,157 |  |  |  | 22,509 |  |  |  | 18,261 |
State |  |  | 678 |  |  |  | (269 | ) |  |  | (12 | )
|  |  | 34,032 |  |  |  | 40,291 |  |  |  | 40,944 |
Deferred: |  |  |  |  |  |  |  |  |  |  |  |
U.S. Federal |  |  | (20,449 | ) |  |  | (1,692 | ) |  |  | 8,158 |
Non-U.S. |  |  | (404 | ) |  |  | (1,386 | ) |  |  | 5,997 |
State |  |  | 925 |  |  |  | (238 | ) |  |  | (6,172 | )
|  |  | (19,928 | ) |  |  | (3,316 | ) |  |  | 7,983 |
Total provision for income taxes: |  | $ | 14,104 |  |  | $ | 36,975 |  |  | $ | 48,927 |
For the years ended December 31, 2014, 2013 and 2012, income tax expense totaled $14.1 million, $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 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 an increase in income tax expense associated with uncertain tax positions and a reduction in the benefit from U.S. research and development tax credits. The decrease in income tax expense from 2012 to 2013 resulted from the reinstatement of the U.S. research and development tax credit in 2013 for fiscal years 2012 and 2013 and lower pre-tax income, partially offset by higher tax expense for uncertain tax positions and state taxes. A reconciliation of the effective tax rate for the years 2014, 2013 and 2012 follows:
|  | 2014 |  |  | 2013 |  |  | 2012 |
U.S. statutory federal tax rate |  |  | 35.0 | % |  |  | 35.0 | % |  |  | 35.0 | %
Foreign taxes |  |  | (58.1 | ) |  |  | (11.4 | ) |  |  | (10.5 | )
Goodwill impairment |  |  | 36.3 |  |  |  | — |  |  |  | — |
U.S. research and development credit |  |  | (7.9 | ) |  |  | (7.2 | ) |  |  | — |
Uncertain tax positions |  |  | 7.9 |  |  |  | 4.2 |  |  |  | (1.2 | )
Other permanent items |  |  | 3.4 |  |  |  | (0.1 | ) |  |  | (2.8 | )
Valuation allowance |  |  | — |  |  |  | 0.4 |  |  |  | (0.5 | )
State income taxes, net of federal tax benefit |  |  | (0.1 | ) |  |  | 0.1 |  |  |  | (1.7 | )
Other, net |  |  | (1.7 | ) |  |  | (2.7 | ) |  |  | 0.1 |
|  |  | 14.8 | % |  |  | 18.3 | % |  |  | 18.4 | %
U.S. research and development tax credits provided a 7.9% and 7.2% reduction to the 2014 and 2013 U.S. statutory federal tax rate of 35.0%, respectively. The research and development tax credit expired at the end of 2014. 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, 2014, 2013 and 2012 were $13.2 million or $0.06 per diluted share, $4.7 million or $0.02 per diluted share and $10.9 million or $0.05 per diluted share, respectively. The tax holiday is currently expected to expire on December 31, 2015. Teradyne is in discussions with the Singapore Economic Development Board with respect to extension of the tax holiday for periods after 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, 2014 and 2013 amounted to $0.6 million and $0.4 million respectively. For the years ended December 31, 2014, 2013 and 2012 expense of $0.2 million, $0.2 million and $0.1 million respectively, was recorded for interest and penalties related to income tax items. Significant components of Teradyne’s deferred tax assets (liabilities) as of December 31, 2014 and 2013 were as follows:
|  | 2014 |  |  | 2013 |
|  | (in thousands) |
Deferred tax assets: |  |  |  |  |  |  |  |
Net operating loss carryforwards |  | $ | 10,989 |  |  | $ | 14,679 |
Tax credits |  |  | 50,554 |  |  |  | 65,210 |
Pension liability |  |  | 30,036 |  |  |  | 22,966 |
Inventory valuations |  |  | 29,105 |  |  |  | 38,452 |
Accruals |  |  | 23,323 |  |  |  | 17,828 |
Equity compensation |  |  | 11,131 |  |  |  | 10,498 |
Deferred revenue |  |  | 10,242 |  |  |  | 12,379 |
Vacation accrual |  |  | 7,425 |  |  |  | 7,291 |
Other |  |  | 1,725 |  |  |  | 2,613 |
Gross deferred tax assets |  |  | 174,530 |  |  |  | 191,916 |
Less: valuation allowance |  |  | (41,737 | ) |  |  | (40,386 | )
Total deferred tax assets |  |  | 132,793 |  |  |  | 151,530 |
Deferred tax liabilities: |  |  |  |  |  |  |  |
Marketable securities |  |  | (1,599 | ) |  |  | (794 | )
Intangible assets |  |  | (64,871 | ) |  |  | (89,268 | )
Excess of tax over book depreciation |  |  | (24,905 | ) |  |  | (24,458 | )
Total deferred tax liabilities |  |  | (91,375 | ) |  |  | (114,520 | )
Net deferred assets |  | $ | 41,418 |  |  | $ | 37,010 |
During 2014, 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 2014. 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 based compensation 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, 2014 and 2013, these windfall stock option deductions were tracked off balance sheet in accordance with ASC 718, “Compensation—Stock Compensation.” As of December 31, 2014 and 2013, 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, 2014 and 2013, Teradyne maintained a valuation allowance for certain deferred tax assets of $41.7 million and $40.4 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. At December 31, 2014, 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) |
2015 |  | $ | — |  |  | $ | 1 |  |  | $ | — |
2016 |  |  | — |  |  |  | 56 |  |  |  | — |
2017 |  |  | — |  |  |  | 738 |  |  |  | — |
2018 |  |  | — |  |  |  | 679 |  |  |  | — |
2019 |  |  | — |  |  |  | 133 |  |  |  | — |
2020-2025 |  |  | 10,698 |  |  |  | 2,686 |  |  |  | — |
2026-2028 |  |  | — |  |  |  | 676 |  |  |  | — |
Beyond 2028 |  |  | 806 |  |  |  | 3,055 |  |  |  | 115 |
Non-expiring |  |  | — |  |  |  | — |  |  |  | 8,460 |
Total |  | $ | 11,504 |  |  | $ | 8,024 |  |  | $ | 8,575 |
Of the U.S. federal operating loss carryforwards, $10.7 million relates to the acquisition of GenRad, Inc. (“GenRad”) in 2001 and $0.8 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 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 $140.8 million of tax credit carry forwards. Federal business tax credits of approximately $37.0 million expire in the years 2017 through 2034. Teradyne has foreign tax credits of approximately $27.5 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 $69.7 million which begin to expire in 2015. Teradyne has federal tax credits of $46.6 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, 2014, 2013 and 2012 were as follows:
|  | 2014 |  |  | 2013 |  |  | 2012 |
|  | (in thousands) |
Beginning balance, as of January 1 |  | $ | 21,203 |  |  | $ | 18,666 |  |  | $ | 19,391 |
Additions: |  |  |  |  |  |  |  |  |  |  |  |
Tax positions for current year |  |  | 8,414 |  |  |  | 4,586 |  |  |  | 459 |
Tax positions for prior years |  |  | 3,781 |  |  |  | 2,112 |  |  |  | 2,259 |
Reductions: |  |  |  |  |  |  |  |  |  |  |  |
Tax positions for prior years |  |  | (2,480 | ) |  |  | (4,161 | ) |  |  | (3,443 | )
Settlements with tax authorities |  |  | (500 | ) |  |  | — |  |  |  | — |
Ending Balance as of December 31 |  | $ | 30,418 |  |  | $ | 21,203 |  |  | $ | 18,666 |
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, stock-based compensation deduction in a foreign jurisdiction, and the settlement of a foreign tax audit. Of the $30.4 million of unrecognized tax benefits as of December 31, 2014, $24.1 million would impact the consolidated income tax rate if ultimately recognized. The remaining $6.3 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, 2014 may decrease approximately $0.8 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 state 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, 2014, all material state and local income tax matters have been concluded through 2009, all material federal income tax matters have been concluded through 2010 and all material foreign income tax matters have been concluded through 2008. 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, 2014, a deferred tax liability has not been established for approximately $556.9 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 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.

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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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