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Income Taxes | 12 Months Ended
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Dec. 31, 2016
Income Taxes | Q. INCOME TAXES The components of (loss) income before income taxes and the (benefit) provision for income taxes as shown in the consolidated statements of operations were as follows:
|  | 2016 |  |  | 2015 |  |  | 2014 |
|  | (in thousands) |
(Loss) income before income taxes: |  |  |  |  |  |  |  |  |  |  |  |
U.S. |  | $ | (341,018 | ) |  | $ | 56,270 |  |  | $ | (151,889 | )
Non-U.S. |  |  | 285,958 |  |  |  | 196,854 |  |  |  | 247,265 |
|  | $ | (55,060 | ) |  | $ | 253,124 |  |  | $ | 95,376 |
(Benefit) provision for income taxes: |  |  |  |  |  |  |  |  |  |  |  |
Current: |  |  |  |  |  |  |  |  |  |  |  |
U.S. Federal |  | $ | 7,750 |  |  | $ | 16,635 |  |  | $ | 5,197 |
Non-U.S. |  |  | 41,579 |  |  |  | 35,707 |  |  |  | 28,157 |
State |  |  | 1,968 |  |  |  | 1,429 |  |  |  | 678 |
|  |  | 51,297 |  |  |  | 53,771 |  |  |  | 34,032 |
Deferred: |  |  |  |  |  |  |  |  |  |  |  |
U.S. Federal |  |  | (51,482 | ) |  |  | (574 | ) |  |  | (20,449 | )
Non-U.S. |  |  | (9,240 | ) |  |  | (7,761 | ) |  |  | (404 | )
State |  |  | (2,214 | ) |  |  | 1,211 |  |  |  | 925 |
|  |  | (62,936 | ) |  |  | (7,124 | ) |  |  | (19,928 | )
Total (benefit) provision for income taxes: |  | $ | (11,639 | ) |  | $ | 46,647 |  |  | $ | 14,104 |
Income tax benefit for 2016 totaled $11.6 million. Income tax expense for 2015 and 2014 totaled $46.6 million and $14.1 million, respectively. The effective tax rate for 2016, 2015 and 2014 was 21.1%, 18.4% and 14.8%, respectively. The increase in the effective tax rate from 2015 to 2016 resulted from a shift in the geographic distribution of income which decreased income subject to taxation in the U.S. relative to lower tax rate jurisdictions, reductions in uncertain tax positions resulting from the expiration of statutes and the settlement of an audit, and an increase in non-taxable foreign exchange gains. These increases in the effective tax rate were partially offset by the effect of the non-deductible goodwill impairment charge, which reduced the benefit of the loss before income taxes in the U.S. The increase in the effective tax rate from 2014 to 2015 resulted from a shift in the geographic distribution of income which increased income subject to taxation in the U.S. relative to lower tax rate jurisdictions and a reduction in the benefit from U.S. research and development tax credits. These increases in the effective tax rate were partially offset by decreases associated with uncertain tax positions and a non-deductible goodwill impairment charge. A reconciliation of the effective tax rate for the years 2016, 2015 and 2014 follows:
|  | 2016 |  |  | 2015 |  |  | 2014 |
U.S. statutory federal tax rate |  |  | 35.0 | % |  |  | 35.0 | % |  |  | 35.0 | %
Foreign taxes |  |  | 127.1 |  |  |  | (16.5 | ) |  |  | (58.1 | )
U.S. research and development credit |  |  | 15.8 |  |  |  | (3.0 | ) |  |  | (7.9 | )
Domestic production activities deduction |  |  | 2.3 |  |  |  | (1.0 | ) |  |  | (0.5 | )
State income taxes, net of federal tax benefit |  |  | 2.3 |  |  |  | 0.4 |  |  |  | (0.1 | )
Equity compensation |  |  | (2.7 | ) |  |  | 0.6 |  |  |  | (1.8 | )
Uncertain tax positions |  |  | (2.6 | ) |  |  | 2.2 |  |  |  | 7.9 |
Goodwill impairment |  |  | (162.1 | ) |  |  | — |  |  |  | 36.3 |
Other, net |  |  | 6.0 |  |  |  | 0.7 |  |  |  | 4.0 |
|  |  | 21.1 | % |  |  | 18.4 | % |  |  | 14.8 | %
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, 2016, 2015 and 2014 were $17.0 million or $0.08 per diluted share, $11.5 million or $0.05 per diluted share and $13.2 million or $0.06 per diluted share, respectively. The tax holiday is scheduled to expire on December 31, 2020. Significant components of Teradyne’s deferred tax assets (liabilities) as of December 31, 2016 and 2015 were as follows:
|  | 2016 |  |  | 2015 |
|  | (in thousands) |
Deferred tax assets: |  |  |  |  |  |  |  |
Tax credits |  | $ | 57,313 |  |  | $ | 44,684 |
Pension liabilities |  |  | 31,581 |  |  |  | 31,742 |
Inventory valuations |  |  | 31,227 |  |  |  | 29,445 |
Accruals |  |  | 27,247 |  |  |  | 26,563 |
Deferred revenue |  |  | 12,806 |  |  |  | 10,232 |
Equity compensation |  |  | 9,922 |  |  |  | 9,674 |
Vacation accrual |  |  | 7,874 |  |  |  | 7,354 |
Net operating loss carryforwards |  |  | 5,244 |  |  |  | 7,989 |
Other |  |  | 630 |  |  |  | 502 |
Gross deferred tax assets |  |  | 183,844 |  |  |  | 168,185 |
Less: valuation allowance |  |  | (48,369 | ) |  |  | (43,039 | )
Total deferred tax assets |  | $ | 135,475 |  |  | $ | 125,146 |
Deferred tax liabilities: |  |  |  |  |  |  |  |
Intangible assets |  | $ | (22,887 | ) |  | $ | (68,433 | )
Depreciation |  |  | (17,117 | ) |  |  | (20,541 | )
Marketable securities |  |  | (210 | ) |  |  | (458 | )
Total deferred tax liabilities |  | $ | (40,214 | ) |  | $ | (89,432 | )
Net deferred assets |  | $ | 95,261 |  |  | $ | 35,714 |
During 2016, Teradyne’s valuation allowance increased by $5.3 million primarily due to the increase in the deferred tax assets related to state tax credits generated in 2016. As of December 31, 2016 and 2015, 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, 2016 and 2015, Teradyne maintained a valuation allowance for certain deferred tax assets of $48.4 million and $43.0 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, 2016, Teradyne had operating loss carryforwards that expire in the following years:
|  | State Operating Loss Carryforwards |  |  | Foreign Operating Loss Carryforwards |
|  | (in thousands) |
2017 |  | $ | 10,245 |  |  | $ | — |
2018 |  |  | 8,562 |  |  |  | — |
2019 |  |  | 983 |  |  |  | — |
2020 |  |  | 1,248 |  |  |  | — |
2021 |  |  | 3,549 |  |  |  | — |
2022-2026 |  |  | 18,044 |  |  |  | — |
2027-2031 |  |  | 38,498 |  |  |  | — |
Beyond 2031 |  |  | 5,464 |  |  |  | 129 |
Non-expiring |  |  | — |  |  |  | 6,400 |
Total |  | $ | 86,593 |  |  | $ | 6,529 |
The operating loss carryforwards do not include any excess tax deduction related to stock-based compensation, which has not been recognized for financial statements purposes. Teradyne has approximately $134.6 million of tax credit carryforwards including federal business tax credits of approximately $45.3 million which expire in the years 2017 through 2036, alternative minimum tax credits of approximately $8.7 million which do not expire, and state tax credits of $80.6 million, of which $47.4 million do not expire and the remainder expires in the years 2017 through 2031. Teradyne has federal tax credits of $39.1 million, that are attributable to stock-based compensation deductions, which will be recorded as an increase to retained earnings and deferred tax assets upon adoption, in the first quarter of 2017, of ASU 2016-09, “Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting.” Teradyne’s gross unrecognized tax benefits for the years ended December 31, 2016, 2015 and 2014 were as follows:
|  | 2016 |  |  | 2015 |  |  | 2014 |
|  | (in thousands) |
Beginning balance as of January 1 |  | $ | 36,792 |  |  | $ | 30,418 |  |  | $ | 21,203 |
Additions: |  |  |  |  |  |  |  |  |  |  |  |
Tax positions for current year |  |  | 9,766 |  |  |  | 6,626 |  |  |  | 8,414 |
Tax positions for prior years |  |  | 187 |  |  |  | 792 |  |  |  | 3,781 |
Reductions: |  |  |  |  |  |  |  |  |  |  |  |
Expiration of statutes |  |  | (3,532 | ) |  |  | — |  |  |  | — |
Settlements with tax authorities |  |  | (2,295 | ) |  |  | (336 | ) |  |  | (500 | )
Tax positions for prior years |  |  | (1,960 | ) |  |  | (708 | ) |  |  | (2,480 | )
Ending balance as of December 31 |  | $ | 38,958 |  |  | $ | 36,792 |  |  | $ | 30,418 |
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 and the settlement tax audits. Of the $39.0 million of unrecognized tax benefits as of December 31, 2016, $27.6 million would impact the consolidated income tax rate if ultimately recognized. The remaining $11.4 million would impact deferred taxes if recognized. Teradyne estimates that it is reasonably possible that the balance of unrecognized tax benefits as of December 31, 2016 may decrease approximately $0.8 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 the U.S. research and development credits. 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, 2016 and 2015 amounted to $0.4 million and $0.5 million respectively. For the years ended December 31, 2016, 2015 and 2014, benefit of $0.1 million, benefit of $0.2 million and expense of $0.2 million respectively, was recorded for interest and penalties related to income tax items. 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, 2016, all material state and local income tax matters have been concluded through 2008, all material federal income tax matters have been concluded through 2012 and all material foreign income tax matters have been concluded through 2009. 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, 2016, a deferred tax liability has not been established for approximately $1,020 million of cumulative undistributed earnings of non-U.S. subsidiaries, which are expected to be reinvested indefinitely in operations outside the U.S. except for instances where Teradyne can remit such earnings to the U.S. without an associated net tax cost. 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 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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