D. ACQUISITIONS

Business

Universal Robots

On June 11, 2015, Teradyne acquired all of the outstanding equity of Universal Robots A/S (“Universal Robots”) located in Odense, Denmark. Universal Robots is the leading supplier of collaborative robots which are low-cost, easy-to-deploy and simple-to-program robots that work side by side with production workers to improve quality, increase manufacturing efficiency and decrease manufacturing costs. Universal Robots is a separate operating and reportable segment, Industrial Automation. The total purchase price of $315.4 million consisted of $283.8 million of cash paid and $31.6 million of contingent consideration, measured at fair value. The contingent consideration was valued using a Monte Carlo simulation based on the following key inputs: (1) forecasted revenue (2) forecasted EBITDA (3) revenue volatility (4) EBITDA volatility; and (5) discount rate. The contingent consideration is payable upon the achievement of certain thresholds and targets for earnings before income taxes, depreciation and amortization (“EBITDA”) for calendar year 2015, revenue for the period from July 1, 2015 to December 31, 2017 and revenue for the period from July 1, 2015 to December 31, 2018. The maximum amount of contingent consideration that could be paid is $65 million. Based on Universal Robots’ calendar 2015 EBITDA results, Teradyne paid $15 million or 100% of the eligible EBITDA contingent consideration amount in the first quarter of 2016. The maximum payment for each of the two remaining Universal Robots earn-outs is $25.0 million.

The Universal Robots 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 to Universal Robots’ net tangible liabilities 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 assets and net tangible liabilities in the amount of $221.1 million was allocated to goodwill, which is not deductible for tax purposes.

The following table represents the final allocation of the purchase price:


	Purchase Price Allocation
	(in thousands)
Goodwill	$	221,128
Intangible assets		121,590
Tangible assets acquired and liabilities assumed:
Current assets		10,853
Non-current assets		3,415
Accounts payable and current liabilities		(11,976	)
Long-term deferred tax liabilities		(26,653	)
Long-term other liabilities		(2,920	)

Total purchase price	$	315,437

Teradyne estimated the fair value of intangible assets using the income and cost approaches. Acquired intangible assets are amortized on a straight-line basis over their estimated useful lives. Components of these intangible assets and their estimated useful lives at the acquisition date are as follows:


	Fair Value		Estimated Useful Life
	(in thousands)		(in years)
Developed technology	$	89,240		4.9
Trademarks and tradenames		22,920		10.0
Customer relationships		9,430		2.0

Total intangible assets	$	121,590		5.6

For the period from June 12, 2015 to December 31, 2015, Universal Robots contributed $41.9 million of revenues and had a $7.6 million loss before income taxes.

The following unaudited pro forma information gives effect to the acquisition of Universal Robots as if the acquisition occurred on January 1, 2014. 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 Years Ended
	December 31, 2015		December 31, 2014
	(in thousands, except per share amounts)
Revenue	$	1,657,626	$	1,686,689
Net income	$	199,784	$	61,078
Net income per common share:
Basic	$	0.94	$	0.30

Diluted	$	0.94	$	0.27

Pro forma results for the year ended December 31, 2015 were adjusted to exclude $1.6 million of non-recurring expense related to the fair value adjustment to acquisition-date inventory and $1.0 million of acquisition related costs incurred in 2015.

Pro forma results for the year ended December 31, 2014 were adjusted to include $1.6 million of non-recurring expense related to the fair value adjustment to acquisition-date inventory and $1.0 million of acquisition related costs.

Avionics Interface Technologies, LLC.

On October 31, 2014, Teradyne acquired all of the assets and liabilities 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 the achievement of certain revenue and gross margin targets in 2015 and 2016. The total amount of contingent consideration paid was $1.1 million, which was paid in January 2017.

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. 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 following represents the final allocation of the purchase price:


	Purchase Price Allocation
	(in thousands)
Goodwill	$	10,516
Intangible assets		9,080
Tangible assets acquired and liabilities assumed:
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. Components of these intangible assets and their estimated useful lives at the acquisition date are as follows:


	Fair Value		Estimated Useful Life
	(in thousands)		(in years)
Customer relationships	$	5,630		5.0
Developed technology		2,580		4.8
Trademarks and tradenames		380		5.0
Non-compete agreement		320		4.0
Customer order 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 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
	(in thousands, except per share amounts)
Revenues	$	1,655,038
Net income	$	82,169
Income per common share:
Basic	$	0.40

Diluted	$	0.37