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Income Taxes | 9 Months Ended
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Oct. 02, 2016
Income Taxes | Q. Income Taxes The effective tax rate for the three months ended October 2, 2016 and October 4, 2015 was (6.9)% and 18.3%, respectively. The effective tax rate for the nine months ended October 2, 2016 and October 4, 2015 was 3.7% and 20.9%, respectively. The effective tax rates for the three and nine months ended October 2, 2016 differed from the expected federal statutory rate of 35% as a result of a non-deductible goodwill impairment charge, which reduced the benefit of the projected annual U.S. loss before income taxes, and increases in uncertain tax positions for transfer pricing, offset by the effect of lower statutory rates applicable to income earned outside the U.S., the benefit of U.S. research and development tax credits, and discrete tax benefits. Discrete tax benefits recorded in the three and nine months ended October 2, 2016 amounted to $6.4 million and $13.3 million respectively. The $6.4 million of discrete tax benefits recorded in the three months ended October 2, 2016 included $3.1 million from out-of-period adjustments, $1.6 million related to tax credit carryforwards, $0.7 million from non-taxable foreign exchange gains and $1.0 million of benefit from other discrete tax items. The $13.3 million of discrete tax benefits recorded in the nine months ended October 2, 2016 included $4.1 million from non-taxable foreign exchange gains, $3.1 million from out-of-period adjustments, $2.6 million of tax reserve releases resulting from the settlement of a U.S. tax audit, $1.6 million related to tax credit carryforwards, $0.9 million related to marketable securities and $1.0 million of benefit from other discrete tax items. During the three and nine months ended October 2, 2016, Teradyne recorded out-of-period adjustments of approximately $3.1 million to increase deferred tax assets and decrease income tax expense related to alternative minimum tax credits and capitalized inventory costs that should have been recognized previously. The out-of-period adjustments are not material to the current period or the relevant prior periods. The effective tax rate for the three months ended October 4, 2015 differed from the expected federal statutory rate of 35% as a result of additions to the uncertain tax positions for transfer pricing, partially offset by $3.3 million of discrete tax benefits composed of $1.8 million of benefit attributable to a United States Tax Court opinion regarding intercompany cost sharing arrangements, $0.6 million of reductions in uncertain tax positions resulting from the expiration of statutes and $0.9 million from other discrete tax benefits. The effective tax rate for the nine months ended October 4, 2015 differed from the expected federal statutory rate of 35% primarily because of the favorable effect of statutory rates applicable to income earned outside the United States. The effective tax rate for the nine months ended October 4, 2015 was increased by additions to the uncertain tax positions for transfer pricing, partially offset by $5.0 million of discrete tax benefits composed of $1.8 million of benefit attributable to a United States Tax Court opinion regarding intercompany cost sharing arrangements, $1.3 million of reductions in uncertain tax positions resulting from the expiration of statutes and the settlement of an audit, $0.9 million from disqualifying dispositions of incentive stock options and employee stock purchase plan shares and $1.0 million from other discrete tax benefits. On a quarterly basis, Teradyne evaluates the realizability of the deferred tax assets by jurisdiction and assesses the need for a valuation allowance. As of October 2, 2016, Teradyne believes that it will ultimately realize the deferred tax assets recorded on the condensed consolidated balance sheet. However, should Teradyne believe that it is more-likely-than-not that the deferred tax assets would not be realized, the tax provision would increase in the period in which Teradyne determined that the realizability was not likely. Teradyne considers the probability of future taxable income and historical profitability, among other factors, in assessing the realizability of the deferred tax assets. As of October 2, 2016 and December 31, 2015, Teradyne had $34.7 million and $33.7 million, respectively, of reserves for uncertain tax positions. The $1.0 million net increase in reserves for uncertain tax positions is composed of additions related to transfer pricing exposures, partially offset by tax reserve releases resulting from the settlement of a U.S. tax audit. As of October 2, 2016, Teradyne estimates that it is reasonably possible that the balance of unrecognized tax benefits may decrease approximately $4.4 million in the next twelve months, as a result of a lapse of statutes of limitation. The estimated decrease is composed primarily of reserves relating to transfer pricing. Teradyne recognizes interest and penalties related to income tax matters in income tax expense. As of October 2, 2016 and December 31, 2015, $0.8 million and $0.5 million, respectively, of interest and penalties were accrued for uncertain tax positions. For the nine months ended October 2, 2016, an expense of $0.3 million was recorded for interest and penalties related to income tax items. For the nine months ended October 4, 2015, a benefit of $0.3 million was recorded for interest and penalties related to income tax items. 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 nine months ended October 2, 2016 was $25.2 million, or $0.12 per diluted share. The tax savings due to the tax holiday for the nine months ended October 4, 2015 was $9.9 million, or $0.05 per diluted share. The tax holiday is scheduled to expire on December 31, 2020.

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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 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 2: 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=65882285&loc=d3e32559-109319 Reference 3: 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=65882285&loc=d3e32718-109319 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=65882285&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=65882285&loc=d3e32537-109319 + Details
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