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Income Taxes | 9 Months Ended
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Oct. 01, 2017
Income Taxes | Q. INCOME TAXES The effective tax rate for the three months ended October 1, 2017 and October 2, 2016 was 18.8% and (6.9%), respectively. The effective tax rate for the nine months ended October 1, 2017 and October 2, 2016 was 14.7% and 3.7%, respectively. The increase in the effective tax rate from the three and nine months ended October 2, 2016 to the three and nine months ended October 1, 2017 is primarily attributable to a shift in the geographic distribution of income which increased income subject to taxation in the U.S. relative to lower tax rate jurisdictions, the effect of a U.S. non-deductible goodwill impairment charge and decreases in discrete tax benefits. The effective tax rates for the three and nine months ended October 1, 2017 differed from the expected federal statutory rate of 35% primarily because of the favorable effect of statutory rates applicable to income earned outside the U.S. The tax rates for the three and nine months ended October 1, 2017 were also reduced by the benefit from U.S. research and development tax credits, partially offset by additions to the uncertain tax positions for transfer pricing, both of which are included in the projected annual effective tax rate. Discrete tax items recorded in the three and nine months ended October 1, 2017 amounted to expense of $0.3 million and benefit of $6.1 million, respectively. The $0.3 million of discrete tax expense recorded in the three months ended October 1, 2017 was primarily composed of $0.8 million of expense related to non-taxable foreign exchange loss, $0.2 million of benefit from reductions in tax reserves and $0.2 million of benefit from stock based compensation. The $6.1 million of discrete tax benefit recorded in the nine months ended October 1, 2017 was primarily composed of $6.7 million of benefit from stock-based compensation, $1.0 million of expense related to actuarial gains, $0.7 million of benefit related to U.S. research and development tax credits, $0.5 million of benefit from reductions in tax reserves and $1.1 million of expense related to non-taxable foreign exchange loss. 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 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. and the benefit of U.S. research and development tax credits, all of which were included in the projected annual effective tax rate. 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 were not material to the relevant prior periods. 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 1, 2017, Teradyne believes that it will ultimately realize the deferred tax assets recorded on the condensed consolidated balance sheets. 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 1, 2017 and December 31, 2016, Teradyne had $44.2 million and $39.0 million, respectively, of reserves for uncertain tax positions. The $5.2 million net increase in reserves for uncertain tax positions is primarily composed of additions related to transfer pricing exposures and tax credits. As of October 1, 2017, Teradyne estimates that there will be no material change in the balance of uncertain tax positions in the next twelve months. Teradyne recognizes interest and penalties related to income tax matters in income tax expense. As of October 1, 2017 and December 31, 2016, $0.4 million and $0.4 million, respectively, of interest and penalties were accrued for uncertain tax positions. For the nine months ended October 1, 2017, a benefit of $0.1 million was recorded for interest and penalties related to income tax items. 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. 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 1, 2017 was $20.5 million, or $0.10 per diluted share. 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 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 740 -URI http://asc.fasb.org/topic&trid=2144680 + Details
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