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Income Taxes | 6 Months Ended
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Jul. 01, 2018
Income Taxes | R. INCOME TAXES The effective tax rate for the three months ended July 1, 2018 and July 2, 2017 was 15.8% and 15.4%, respectively. The effective tax rate for the six months ended July 1, 2018 and July 2, 2017 was 12.9%. The increase in the effective tax rate from the three months ended July 2, 2017 to the three months ended July 1, 2018 primarily resulted from a projected shift in the geographic distribution of income, which increased income subject to taxation in the U.S. relative to lower tax rate jurisdictions. This increase was partially offset by an increase in discrete tax benefits recognized, the benefit of the reduction in the U.S. corporate tax rate from 35% to 21%, and the U.S. foreign derived intangible income deduction. The effective tax rate for the six months ended July 1, 2018 and July 2, 2017 was unchanged notwithstanding a projected shift in the geographic distribution of income, which increased income subject to taxation in the U.S. relative to lower tax rate jurisdictions. The impact of the shift in income distribution was offset by the benefit of the reduction in the U.S. corporate tax rate from 35% to 21% and the U.S. foreign derived intangible income deduction. The effective tax rates for the three and six months ended July 1, 2018 and July 2, 2017 differed from the expected federal statutory rate primarily because of the favorable effect of statutory rates applicable to income earned outside the United States. The tax rate for the three and six months ended July 1, 2018 and July 2, 2017 was 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 benefits recorded in the three and six months ended July 1, 2018 amounted to $0.7 million and $6.7 million respectively. The $0.7 million of discrete tax benefit recorded in the three months ended July 1, 2018 consisted primarily of non-taxable foreign exchange gains. The $6.7 million of discrete benefits recorded in the six months ended July 2, 2018 consisted of $9.1 million of discrete tax benefit net of $2.4 million of discrete tax expense. The $9.1 million of discrete tax benefit was composed of $7.6 million from stock based compensation, $1.1 million of non-taxable foreign exchange gains and $0.4 million of other discrete tax benefit. The $2.4 million of discrete tax expense was composed of $1.7 million from the remeasurement of deferred tax assets as a result of reductions in tax rates and $0.7 million of other discrete tax expenses. Discrete tax items recorded in the three and six months ended July 2, 2017 amounted to expense of $0.5 million and benefit of $6.5 million, respectively. The $0.5 million of discrete tax expense recorded in the three months ended July 2, 2017 was primarily composed of $1.0 million of expense related to actuarial gains, $0.7 million of expense from non-taxable foreign exchange loss and $1.0 million of benefit from stock based compensation, and $0.2 million of other discrete tax benefit. The $6.5 million of discrete tax benefit recorded in the six months ended July 2, 2017 was primarily composed of $6.5 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 and $0.3 million of expense from non-taxable foreign exchange loss, and $0.6 million of other discrete benefit. 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 July 1, 2018, 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 July 1, 2018 and December 31, 2017, Teradyne had $37.9 million and $36.3 million, respectively, of reserves for uncertain tax positions. The $1.6 million net increase in reserves for uncertain tax positions is primarily composed of additions related to transfer pricing exposures and U.S. research and development tax credits. Teradyne is currently under examination by the Internal Revenue Service. The timing of resolution and closure of the tax audit is highly unpredictable. Given the uncertainty, it is reasonably possible that the balance of unrecognized tax benefits could significantly change within the next twelve months. However, an estimate of the range of reasonably possible adjustments cannot presently be made. Teradyne recognizes interest and penalties related to income tax matters in income tax expense. As of July 1, 2018 and December 31, 2017, $0.3 million and $0.3 million, respectively, of interest and penalties were accrued for uncertain tax positions. For the six months ended July 1, 2018, an expense of $0.1 million was recorded for interest and penalties related to income tax items. For the six months ended July 2, 2017, a benefit of $0.1 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 six months ended July 1, 2018 was $4.8 million, or $0.02 per diluted share. The tax savings due to the tax holiday for the six months ended July 2, 2017 was $15.1 million, or $0.07 per diluted share. The tax holiday is scheduled to expire on December 31, 2020. In the fourth quarter of 2017, Teradyne recorded a provisional amount of $186.0 million of additional income tax expense, which represents Teradyne’s best estimate of the impact of the Tax Cuts and Jobs Act of 2017 (the “Tax Reform Act”) in accordance with Teradyne’s understanding of the Tax Reform Act and guidance available at that time. The $186.0 million is composed of expense of $161.0 million related to the one-time transition tax on the mandatory deemed repatriation of foreign earnings, $33.6 million of expense related to the remeasurement of certain deferred tax assets and liabilities based on the rates at which they are expected to reverse in the future, a benefit of $10.3 million associated with the impact of correlative adjustments on uncertain tax positions, and $1.7 million of expense related to the remeasurement of certain uncertain tax positions resulting from the reduction in the federal tax rate. Although the provisional estimates are based on the best available interpretations of the Tax Reform Act, the final impacts may differ from the estimates due to, among other things, the issuance of additional regulatory and legislative guidance related to the Tax Reform Act. As of July 1, 2018, there has been no material change to the provisional amount recorded. Any adjustment to the provisional amounts will be recorded in 2018 when the analysis is complete.

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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://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI http://asc.fasb.org/topic&trid=2144680 + Details
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