D. ACQUISITIONS

Business

Avionics Interface Technologies, LLC.

On October 31, 2014, Teradyne completed its acquisition 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 achievement of certain revenue and gross margin targets in 2015 and 2016. The maximum amount of contingent consideration that could be paid is $2.1 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, as 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 purchase price allocation is preliminary pending the final determination of the fair value of certain acquired assets and assumed liabilities.

The following represents the allocation of the purchase price:


	Purchase Price Allocation
	(in thousands)
Goodwill	$	10,516
Intangible assets		9,080
Tangible assets acquired and liabilities assumed:
Other 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. The following table lists these intangible assets and their estimated useful lives at the acquisition date:


	Fair Value		Estimated Useful Life
	(in thousands)		(in years)
Developed technology	$	2,580		4.8
Customer relationships		5,630		5.0
Trademark		380		5.0
Non-competes		320		4.0
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 from operations 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 completed its acquisition 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 be paid is $5.0 million. Based on the projected results for the acquisition, no value was assigned to the revenue component of the contingent consideration.

The valuation of the customer order component 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 5.2 percent was selected based on the cost of debt for the business, as a significant portion of the risk in achieving the customer order contingent consideration was captured in the probabilities assigned to meeting each target.

The ZTEC acquisition was accounted for as a purchase 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 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 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 from operations before income taxes.

The following unaudited pro forma information gives effect to the acquisition of ZTEC as if the acquisition occurred on January 1, 2012. 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		December 31, 2012
	(in thousands, except per share amounts)
Revenues	$	1,431,270	$	1,660,758
Net income	$	163,394	$	215,654
Income per common share:
Basic	$	0.86	$	1.15

Diluted	$	0.69	$	0.94