Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to the filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 ofRegulation S-T (232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files) Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act (check one):

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

The number of shares outstanding of the registrant’s only class of Common Stock as of ~~August 7, 2015~~May 6, 2016 was ~~210,834,989~~203,178,976 shares.


	July 5, 2015			December 31, 2014		April 3, 2016		December 31, 2015
	(in thousands, except per share information)					(in thousands, except per share amount)
ASSETS
Current assets:
Cash and cash equivalents	$	300,685		$	294,256	$	319,358	$	264,705
Marketable securities		452,040			533,787		410,003		477,696
Accounts receivable, less allowance for doubtful accounts of $2,424 and $2,491 at July 5, 2015 and December 31, 2014, respectively		296,654			151,034
Accounts receivable, less allowance for doubtful accounts of $2,385 and $2,407 at April 3, 2016 and December 31, 2015, respectively							253,976		211,293
Inventories, net:
Parts		67,285			70,821		59,425		73,117
Assemblies in process		17,376			10,347		38,490		32,825
Finished goods		37,156			23,961		62,772		47,646

		121,817			105,129		160,687		153,588
Deferred tax assets		58,345			57,239		—		54,973
Prepayments		80,249			95,819		95,185		91,519
Other current assets		6,596			6,582		3,513		6,194

Total current assets		1,316,386			1,243,846		1,242,722		1,259,968

Property, plant and equipment, net		291,929			329,038		266,907		273,414
Marketable securities		275,882			470,789		246,072		265,928
Deferred tax assets		6,836			7,494		59,119		7,404
Other assets		13,364			10,419		13,041		13,080
Retirement plans assets		13,850			12,896		1,968		636
Intangible assets, net		279,126			190,600		223,274		239,831
Goodwill		495,434			273,438		495,871		488,413

Total assets	$	2,692,807		$	2,538,520	$	2,548,974	$	2,548,674

LIABILITIES
Current liabilities:
Accounts payable	$	86,463		$	47,763	$	84,104	$	92,358
Accrued employees’ compensation and withholdings		94,544			100,994		71,838		113,994
Deferred revenue and customer advances		77,347			71,603		72,095		85,527
Other accrued liabilities		85,470			50,247		92,617		43,727
Contingent consideration		15,092			895		500		15,500
Accrued income taxes		43,163			20,049		23,368		21,751

Total current liabilities		402,079			291,551		344,522		372,857

Long-term deferred revenue and customer advances		25,354			19,929		25,468		25,745
Retirement plans liabilities		107,557			108,460		106,921		103,531
Deferred tax liabilities		38,624			23,315		18,300		26,663
Long-term other accrued liabilities		24,468			13,830		34,753		32,156
Long-term contingent consideration		20,503			2,455		23,109		21,936

Total liabilities		618,585			459,540		553,073		582,888

Commitments and contingencies (See Note P)

SHAREHOLDERS’ EQUITY

Common stock, $0.125 par value, 1,000,000 shares authorized, 212,507 shares and 216,613 shares issued and outstanding at July 5, 2015 and December 31, 2014, respectively		26,563			27,077
Common stock, $0.125 par value, 1,000,000 shares authorized; 203,707 and 203,641 shares issued and outstanding at April 3, 2016 and December 31, 2015, respectively							25,462		25,455
Additional paid-in capital		1,462,349			1,437,135		1,489,011		1,480,647
Accumulated other comprehensive (loss) income		(3,162	)		4,689
Accumulated other comprehensive income (loss)							5,035		(8,144	)
Retained earnings		588,472			610,079		476,393		467,828

Total shareholders’ equity		2,074,222			2,078,980		1,995,901		1,965,786

Total liabilities and shareholders’ equity	$	2,692,807		$	2,538,520	$	2,548,974	$	2,548,674

The accompanying notes, together with the Notes to Consolidated Financial Statements included in Teradyne’s Annual Report on Form 10-K for the year ended December 31, ~~2014,~~2015, are an integral part of the condensed consolidated financial statements.


	For the Three Months Ended						For the Six Months Ended						For the Three Months Ended
	July 5, 2015			June 29, 2014			July 5, 2015			June 29, 2014			April 3, 2016			April 5, 2015
	(in thousands, except per share amount)												(in thousands, except per share amount)
Revenues:
Products	$	437,243		$	452,488		$	709,568		$	707,874		$	358,139		$	272,325
Services		75,496			73,079			145,572			138,703			72,855			70,076

Total revenues		512,739			525,567			855,140			846,577			430,994			342,401
Cost of revenues:
Cost of products		181,491			202,411			300,487			326,859			167,555			118,996
Cost of services		32,680			32,743			63,662			62,258			33,107			30,982

Total cost of revenues (exclusive of acquired intangible assets amortization shown separately below)		214,171			235,154			364,149			389,117			200,662			149,978

Gross profit		298,568			290,413			490,991			457,460			230,332			192,423
Operating expenses:
Engineering and development		75,832			73,414			147,282			140,499			73,464			71,450
Selling and administrative		77,073			77,489			149,114			155,492			79,174			72,041
Acquired intangible assets amortization		15,258			18,271			29,066			36,542			19,994			13,808
Restructuring and other		(385	)		572			(385	)		572			1,587			—

Total operating expenses		167,778			169,746			325,077			333,105			174,219			157,299

Income from operations		130,790			120,667			165,914			124,355			56,113			35,124
Non-operating (income) expense:
Non-operating (income) expenses:
Interest income		(1,674	)		(1,266	)		(3,490	)		(2,302	)		(1,642	)		(1,816	)
Interest expense		444			159			606			6,576			710			162
Other (income) expense, net		(116	)		382			(5,776	)		562			(147	)		(5,660	)

Income before income taxes		132,136			121,392			174,574			119,519			57,192			42,438
Income tax provision		29,257			20,187			38,908			17,385			7,206			9,651

Net income	$	102,879		$	101,205		$	135,666		$	102,134		$	49,986		$	32,787

Net income per common share:
Basic	$	0.48		$	0.52		$	0.63		$	0.53		$	0.24		$	0.15

Diluted	$	0.48		$	0.47		$	0.62		$	0.45		$	0.24		$	0.15


Weighted average common shares—basic		213,845			194,408			215,516			193,860			204,271			217,187

Weighted average common shares—diluted		215,496			216,568			217,154			226,526			205,732			218,812


Cash dividend declared per common share	$	0.06		$	—		$	0.12		$	0.06		$	0.06		$	0.06

The accompanying notes, together with the Notes to Consolidated Financial Statements included in Teradyne’s

Annual Report on Form 10-K for the year ended December 31, ~~2014,~~2015, are an integral part of the condensed

The accompanying notes, together with the Notes to Consolidated Financial Statements included in Teradyne’s

Annual Report on Form 10-K for the year ended December 31, ~~2014,~~2015, are an integral part of the condensed


	For the Six Months Ended						For the Three Months Ended
	July 5, 2015			June 29, 2014			April 3, 2016			April 5, 2015
	(in thousands)						(in thousands)
Cash flows from operating activities:
Net income	$	135,666		$	102,134		$	49,986		$	32,787
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		36,230			33,785			16,192			19,345
Amortization		31,395			42,990			20,470			15,139
Stock-based compensation		15,405			23,530			7,925			7,963
Provision for excess and obsolete inventory		15,881			15,071			4,373			1,440
Non cash charge for the sale of inventories revalued at the date of acquisition		595			—
Tax benefit related to employee stock compensation awards		(892	)		(1,671	)
Contingent consideration adjustment		(1,600	)		—			1,173			—
Deferred taxes								(5,496	)		(1,831	)
Retirement plans actuarial gains								(1,193	)		—
Gain from the sale of an equity investment		(5,406	)		—			—			(4,782	)
Deferred taxes		(10,371	)		(5,697	)
Other		1,154			1,165			484			(1,417	)
Changes in operating assets and liabilities, net of business acquired:
Changes in operating assets and liabilities:
Accounts receivable		(142,493	)		(143,125	)		(42,552	)		(24,749	)
Inventories		23,500			18,469			(702	)		5,960
Prepayments and other assets		14,054			27,000			(1,148	)		3,146
Accounts payable and other accrued expenses		53,392			52,796			(7,626	)		(20,150	)
Deferred revenue and customer advances		5,685			13,800			(13,836	)		1,038
Retirement plans contributions		(1,999	)		(2,388	)		(1,250	)		(1,019	)
Accrued income taxes		23,261			5,495
Income taxes								(52	)		4,662

Net cash provided by operating activities		193,457			183,354			26,748			37,532

Cash flows from investing activities:
Purchases of property, plant and equipment		(46,110	)		(91,389	)		(20,334	)		(21,149	)
Acquisition of business, net of cash acquired		(282,332	)		—
Purchases of available-for-sale marketable securities		(590,250	)		(523,306	)		(221,778	)		(335,635	)
Proceeds from sales of available-for-sale marketable securities		631,400			152,818			239,370			148,639
Proceeds from maturities of available-for-sale marketable securities		231,416			377,436			73,458			140,222
Proceeds from the sale of an equity investment		5,406			—			—			4,782
Proceeds from life insurance		1,098			4,391			—			1,098

Net cash used for investing activities		(49,372	)		(80,050	)
Net cash provided by (used for) investing activities								70,716			(62,043	)

Cash flows from financing activities:
Issuance of common stock under employee stock purchase and stock option plans		17,878			10,643			9,140			8,899
Tax benefit related to employee stock compensation awards		892			1,671
Repurchase of common stock		(128,316	)		—			(28,001	)		(46,650	)
Dividend payments		(25,857	)		(11,656	)		(12,253	)		(13,049	)
Payment of revolving credit facility costs		(2,253	)		—
Payments of long-term debt		—			(190,975	)
Payments of contingent consideration								(11,697	)		—

Net cash used for financing activities		(137,656	)		(190,317	)		(42,811	)		(50,800	)

Increase (decrease) in cash and cash equivalents		6,429			(87,013	)		54,653			(75,311	)
Cash and cash equivalents at beginning of period		294,256			341,638			264,705			294,256

Cash and cash equivalents at end of period	$	300,685		$	254,625		$	319,358		$	218,945

The accompanying notes, together with the Notes to Consolidated Financial Statements included in Teradyne’s

Annual Report on Form 10-K for the year ended December 31, ~~2014,~~2015, are an integral part of the condensed

Teradyne, Inc. (“Teradyne”) is a leading global supplier of automation equipment for test and industrial applications. Teradyne designs, develops, manufactures and sells automatic test ~~equipment~~systems used to test semiconductors, wireless products, data storage and complex electronics systems in the consumer electronics, wireless, automotive, industrial, computing, communications, and aerospace and defense industries. Teradyne’s industrial automation products include collaborative ~~robots.~~robots used by global manufacturing and light industrial customers to improve quality, increase manufacturing efficiency and decrease manufacturing costs. Teradyne’s automatic test equipment and ~~collaborative robots~~industrial automation products and services include:

On June 11, 2015, Teradyne acquired Universal Robots A/S (“Universal Robots”) for approximately $284 million of cash plus up to an additional $65 million of cash if certain performance targets are met extending through 2018. 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 and increase manufacturing efficiency.

The consolidated interim financial statements include the accounts of Teradyne and its wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated. These interim financial statements are unaudited and reflect all normal recurring adjustments that are, in the opinion of management, necessary for the fair presentation of such interim financial statements. Certain prior year amounts were reclassified to conform to the current year presentation. The December 31, ~~2014~~2015 condensed consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America.

The accompanying financial information should be read in conjunction with the consolidated financial statements and notes thereto contained in Teradyne’s Annual Report on Form 10-K, filed with the U.S. Securities and Exchange Commission (“SEC”) on February ~~27, 2015,~~29, 2016, for the year ended December 31, ~~2014.~~2015.

The preparation of consolidated financial statements requires management to make estimates and judgments that affect the amounts reported in the financial statements. Actual results may differ significantly from these estimates.

~~Teradyne recognizes revenue when there is persuasive evidence of an arrangement, title and risk of loss have passed, delivery has occurred or~~In January 2016, the services have been rendered, the sales price is fixed or determinable and collection of the related receivable is reasonably assured. Title and risk of loss generally pass to Teradyne’s customers upon shipment or at delivery destination point. In circumstances where either title or risk of loss pass

upon destination, acceptance or cash payment, Teradyne defers revenue recognition until such events occur except when title transfer is tied to cash payment outside the United States. Outside the United States, Teradyne recognizes revenue even if it retains a form of title to products delivered to customers, provided the sole purpose is to enable Teradyne to recover the products in the event of customer payment default and the arrangement does not prohibit the customer’s use or resale of the product in the ordinary course of business.

Teradyne’s equipment has non-software and software components that function together to deliver the equipment’s essential functionality. Revenue is recognized upon shipment or at delivery destination point, provided that customer acceptance criteria can be demonstrated prior to shipment. Certain contracts require Teradyne to perform tests of the product to ensure that performance meets the published product specifications or customer requested specifications, which are generally conducted prior to shipment. Where the criteria cannot be demonstrated prior to shipment, revenue is deferred until customer acceptance has been received. Teradyne also defers the portion of the sales price that is not due until acceptance, which represents deferred profit.

For multiple element arrangements, Teradyne allocates revenue to all deliverables based on their relative selling prices. In such circumstances, a hierarchy is used to determine the selling price for allocating revenue to deliverables as follows: (i) vendor-specific objective evidence of selling price (“VSOE”), (ii) third-party evidence of selling price (“TPE”), and (iii) best estimate of the selling price (“BESP”). For a delivered item to be considered a separate unit the delivered item must have value to the customer on a standalone basis and the delivery or performance of the undelivered item must be considered probable and substantially in Teradyne’s control.

Teradyne’s post-shipment obligations include installation, training services, one-year standard warranties, and extended warranties. Installation does not alter the product capabilities, does not require specialized skills or tools and can be performed by the customers or other vendors. Installation is typically provided within five days of product shipment and is completed within one to two days thereafter. Training services are optional and do not affect the customers’ ability to use the product. Teradyne defers revenue for the selling price of installation and training. Extended warranties constitute warranty obligations beyond one year and Teradyne defers revenue in accordance with Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-01,“Financial Instruments—Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities.”This ASU provides guidance for the recognition, measurement, presentation, and disclosure of financial instruments. The new pronouncement revises accounting related to equity investments and the presentation of certain fair value changes for financial liabilities measured at fair value. Among other things, it amends the presentation and disclosure requirements of equity securities that do not

result in consolidation and are not accounted for under the equity method. Changes in the fair value of these equity securities will be recognized directly in net income. This pronouncement is effective for fiscal years and interim periods within those years beginning after December 15, 2017. Teradyne is currently evaluating the impact of this ASU on its financial position and results of operations.

On March 31, 2016, the FASB issued ASU 2016-09,“Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting.” This ASU changes how companies account for certain aspects of share-based payment awards to employees, including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classification in the statement of cash flows. This pronouncement is effective for annual periods beginning after December 15, 2016. Early adoption is permitted. Teradyne is currently evaluating the impact of this ASU on its financial position and results of operations.

In February 2016, the FASB issued ASU 2016-02,“Leases (Topic 842).” The guidance in this ASU supersedes the lease recognition requirements in Accounting Standards Codification (“ASC”) ~~605-20,~~Topic 840,“~~Separately Priced Extended Warranty~~Leases.” The new standard establishes a right-of-use (“ROU”) model that requires a lessee to record a ROU asset and ~~Product Maintenance Contracts”~~a lease liability on the balance sheet for all leases with terms longer than twelve months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. The new standard is effective for annual periods beginning after December 15, 2018, including interim periods within those years, with early adoption permitted. A modified retrospective transition approach is required for lessees for capital and ~~ASC 605-25, “Revenue Recognition Multiple-Element Arrangements.” Service revenue is recognized over~~operating leases existing at, or entered into after, the ~~contractual period or as services are performed.~~

~~Teradyne’s products are generally subject to warranty and related costs~~beginning of the ~~warranty are provided~~earliest comparative period presented in the financial statements. Teradyne is currently evaluating the impact of this ASU on its financial position and results of operations.

In November 2015, the FASB issued ASU 2015-17,“Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes.” ASU 2015-17 simplifies the presentation of deferred income taxes by eliminating the separate classification of deferred income tax liabilities and assets into current and noncurrent amounts in the balance sheet. The amendments in the update require that all deferred tax liabilities and assets be classified as noncurrent in the balance sheet. This ASU is effective for annual periods beginning after December 15, 2016, and interim periods within those years and may be applied either prospectively or retrospectively to all periods presented. Early adoption is permitted. Teradyne early adopted this ASU prospectively in ~~cost~~the first quarter of revenue when product revenue is recognized. Teradyne classifies shipping and handling costs in cost of revenue. Teradyne generally does not provide its customers with contractual rights of return for any of its products.

The functional currency for all non-U.S. subsidiaries is the U.S. dollar, except for the Industrial Automation segment for which the local currency is its functional currency. All foreign currency denominated monetary assets and liabilities are remeasured on a monthly basis into the functional currency using exchange rates in effect at the end of the period. All foreign currency denominated non-monetary assets and liabilities are remeasured into the functional currency using historical exchange rates. Net foreign exchange gains and losses resulting from remeasurement are included in other (income) expense, net. For Industrial Automation, assets and liabilities are translated into U.S. dollars using exchange rates in effect at the end of the period. Revenue and expense amounts are translated using an average of exchange rates in effect during the period. Translation adjustments are recorded within accumulated other comprehensive income (loss).

OnIn April 7, 2015, the FASB issued ASU 2015-03,“Simplifying the Presentation of Debt Issuance Costs,” which requires debt issuance costs to be presented in the balance sheet as a direct deduction from the carrying value of the associated debt liability, consistent with the presentation for debt discount. ~~The guidance in~~ASU 2015-03 does not specifically address requirements for the ~~new standard is limited to the~~ presentation or subsequent measurement of debt issuance costs ~~and does not affect~~related to line-of-credit arrangements. On August 8, 2015, the ~~recognition and measurement~~FASB issued ASU 2015-15, “Interest—Imputation of Interest (Subtopic 835-30)” clarifying that debt issuance ~~costs. Therefore~~costs related to line-of-credit arrangements could be presented as an asset and amortized over the ~~amortization~~term of ~~such costs should continue to be calculated using~~ the ~~interest method and be reported as interest expense. For~~line-of-credit arrangement, regardless of whether there are any outstanding borrowings on the line-of-credit arrangement. Teradyne adopted this ASU in the ~~standard is effective for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within those years. This~~first quarter of 2016. Adoption of this ASU ~~is expected to~~did not have noa material impact on Teradyne’s financial position and results of operations.

first quarter of 2018. Early adoption is permitted but not before the original effective date (that is, annual periods beginning after December 15, 2016). The two permitted transition methods under the new standard are the full retrospective method, in which case the standard would be applied to each prior reporting period presented, or the modified retrospective method, in which case the cumulative effect of applying the standard would be recognized at the date of initial application. Teradyne has not yet selected a transition method. Teradyne is currently evaluating the impact of this ASU on its financial position and results of operations.

On June 11, 2015, Teradyne acquired all of the outstanding equity of 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, ~~and~~ increase manufacturing ~~efficiency.~~efficiency and decrease manufacturing costs. Universal Robots is a separate operating and reportable segment, Industrial Automation.

The total purchase price of ~~$317.7~~$315.4 million consisted of ~~$283.9~~$283.8 million of cash paid and ~~$33.8~~$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.

~~The valuation~~ Based on Universal Robots’ calendar year 2015 EBITDA results, in the first quarter of 2016, Teradyne paid $15 million or 100% of the eligible EBITDA contingent consideration ~~utilized~~amount.

In the ~~following assumptions: (1) probability~~fourth quarter of ~~meeting each target; (2) expected timing of meeting each target;~~2015, Teradyne finalized the valuation 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. Discount rates of 6 percent, 8 percent and 10 percent, respectively, were based on corporate bond yields adjustedpurchase price allocation for the ~~level~~acquisition which resulted in a $5.4 million decrease in goodwill as a result of ~~difficulty to achieve and~~a $2.2 million decrease in the ~~term~~fair value of ~~the earn out payment. A significant portion of the risk in achieving the~~ contingent consideration, ~~was captured~~a $1.6 million increase in ~~the probabilities assigned to meeting each target.~~intangible assets and a $1.6 million decrease in acquired liabilities.

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 ~~$226.5~~$221.1 million was allocated to goodwill, which is not deductible for tax purposes. ~~The purchase price allocation is preliminary pending the final determination of the fair value of contingent consideration, acquired assets and assumed liabilities.~~

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


	Purchase Price Allocation			Purchase Price Allocation
	(in thousands)			(in thousands)
Goodwill	$	226,501		$	221,128
Intangible assets		119,950			121,590
Tangible assets acquired and liabilities assumed:
Current assets		10,853			10,853
Non-current assets		3,415			3,415
Accounts payable and current liabilities		(11,453	)		(11,976	)
Long-term deferred tax liabilities		(25,736	)		(26,653	)
Long-term other liabilities		(5,844	)		(2,920	)

Total purchase price	$	317,686		$	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:

~~For the period from June 12, 2015 to July 5, 2015, Universal Robots contributed $3.7 million of revenues and had a $(1.7) million loss from operations before income taxes.~~


	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

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:

Pro forma results for the three and six months ended July 5, 2015 were adjusted to exclude $1.0 million of acquisition related costs incurred in 2015, and $0.6 million of non-recurring expense related to the fair value adjustment to acquisition-date inventory.

Pro forma results for the six month ended June 29, 2014, were adjusted to include $1.6 million of non recurring expense related to fair value adjustment to acquisition-date inventory and $1.0 million of acquisition related costs.

On October 31, 2014, Teradyne acquired substantially all of the assets and liabilities of Avionics Interface Technologies, LLC (“AIT”) located in Omaha, Nebraska. 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 and $1.8 million of contingent consideration, measured at fair value. The contingent consideration is payable upon achievement of certain revenue and gross margin targets in 2015 and 2016. The maximum amount of contingent consideration that could be paid is $2.1 million.

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 estimated 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 to 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.

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:

Teradyne considers all highly liquid investments with maturities of three months or less at the date of acquisition to be cash equivalents.

Teradyne accounts for its investments in debt and equity securities in accordance with the provisions of Accounting Standards Codification (“ASC”) 320-10, “Investments—Debt and Equity Securities.” ASC 320-10 requires that certain debt and equity securities be classified into one of three categories; trading, available-for-sale or held-to-maturity securities. As of ~~July 5, 2015,~~April 3, 2016, Teradyne’s investments in debt and equity securities were classified as available-for-sale and recorded at their fair market value.

On a quarterly basis, Teradyne reviews its investments to identify and evaluate those that have an indication of a potential other-than-temporary impairment. Factors considered in determining whether a loss is other-than-temporary include:

Teradyne uses the market and income approach techniques to value its financial instruments and there were no changes in valuation techniques during the three ~~and six~~ months ended ~~July 5, 2015.~~April 3, 2016. As defined in ASC820-10,

“Fair Value Measurements and Disclosures,” fair value is the price that would be received from the sale of an asset or paid to transfer a liability in an orderly transaction between market participants. ASC 820-10 requires that assets and liabilities carried at fair value be classified and disclosed in one of the following three categories:

Level 1: Quoted prices in active markets for identical assets as of the reporting ~~date.~~date;

Level 2: Inputs other than Level 1, that are observable either directly or indirectly as of the reporting date. For example, a common approach for valuing fixed income securities is the use of matrix pricing. Matrix pricing is a mathematical technique used to value securities by relying on the securities’ relationship to other benchmark quoted prices, and is considered a Level 2 ~~input.~~input; or

Level 3: Unobservable inputs that are not supported by market data. Unobservable inputs are developed based on the best information available, which might include Teradyne’s own data.

Teradyne’s available-for-sale ~~fixed income~~debt and equity securities are classified as Level 1 and Level 2. ~~Contingent~~Acquisition-related contingent consideration is classified as Level 3. Teradyne’s contingent consideration is valued using a Monte Carlo simulation model or a probability weighted discounted cash flow model. The ~~vast~~ majority of Level 2 securities are fixed income securities priced by third party pricing vendors. These pricing vendors utilize the most recent observable market information in pricing these securities or, if specific prices are not available, use other observable inputs like market transactions involving identical or comparable securities.

Realized gains recorded in the three months ended April 3, 2016 and April 5, 2015 were $0.2 million and $0.5 million, respectively. Realized losses recorded in the three ~~and six~~ months ended ~~July 5, 2015~~April 3, 2016 were ~~$0.1 million and $0.1 million, respectively.~~$0.2 million. There were no realized losses recorded in the three ~~and six~~ months ended ~~June 29, 2014.~~April 5, 2015. Realized gains ~~recorded~~are included in the three and six months ended July 5, 2015 were $0.4 million and $1.0 million, respectively. Realized gains recorded in the three and six months ended June 29, 2014 were $0.4 million and $0.7 million, respectively. Realized gainsinterest income and realized losses are included in interest ~~income and interest expense, respectively.~~expense. Unrealized gains and losses are included in accumulated other comprehensive income (loss). The cost of securities sold is based on the specific identification method.

During the ~~six~~three months ended ~~July~~April 3, 2016 and April 5, 2015, ~~and June 29, 2014,~~ there were no transfers in or out of Level 1, Level 2 or Level 3 financial instruments.

The following table sets forth by fair value hierarchy Teradyne’s financial assets and liabilities that were measured at fair value on a recurring basis as of ~~July 5, 2015~~April 3, 2016 and December 31, ~~2014.~~2015.


	July 5, 2015								April 3, 2016
	Quoted Prices in Active Markets for Identical Instruments (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total		Quoted Prices in Active Markets for Identical Instruments (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
	(in thousands)								(in thousands)
Assets
Cash	$	154,396	$	—	$	—	$	154,396	$	227,046	$	—	$	—	$	227,046
Cash equivalents		145,256		1,033		—		146,289		92,010		302		—		92,312
Available-for-sale securities:
U.S. Treasury securities		—		281,522		—		281,522		—		399,277		—		399,277
Corporate debt securities										—		161,590		—		161,590
Commercial paper										—		36,592		—		36,592
U.S. government agency securities		—		183,768		—		183,768		—		26,160		—		26,160
Corporate debt securities		—		122,696		—		122,696
Certificates of deposit and time deposits		—		76,876		—		76,876		—		15,653		—		15,653
Commercial paper		—		48,446		—		48,446
Equity and debt mutual funds		14,174		—		—		14,174		16,369		—		—		16,369
Non-U.S. government securities		—		440		—		440		—		434		—		434

Total	$	313,826	$	714,781	$	—	$	1,028,607	$	335,425	$	640,008	$	—	$	975,433

Liabilities
Contingent consideration	$	—	$	—	$	35,595	$	35,595	$	—	$	—	$	23,609	$	23,609
Derivatives		—		87		—		87
Derivative liabilities										—		193		—		193

Total	$	—	$	87	$	35,595	$	35,682	$	—	$	193	$	23,609	$	23,802


	(Level 1)		(Level 2)		(Level 3)		Total		(Level 1)		(Level 2)		(Level 3)		Total
	(in thousands)								(in thousands)
Assets
Cash and cash equivalents	$	299,652	$	1,033	$	—	$	300,685	$	319,056	$	302	$	—	$	319,358
Marketable securities		—		452,040		—		452,040		—		410,003		—		410,003
Long-term marketable securities		14,174		261,708		—		275,882		16,369		229,703		—		246,072

	$	313,826	$	714,781	$	—	$	1,028,607	$	335,425	$	640,008	$	—	$	975,433

Liabilities
Other current liabilities	$	—	$	87	$	—	$	87	$	—	$	193	$	—	$	193
Contingent consideration		—		—		15,092		15,092		—		—		500		500
Long-term contingent consideration		—		—		20,503		20,503		—		—		23,109		23,109

	$	—	$	87	$	35,595	$	35,682	$	—	$	193	$	23,609	$	23,802

   December 31, 2014
   Quoted Prices
in Active
Markets for
Identical
Instruments
(Level 1)    Significant
Other
Observable
Inputs
(Level 2)    Significant
Unobservable
Inputs
(Level 3)    Total
   (in thousands)
Assets

Cash
   $ 111,471       $ —      $ —      $ 111,471
Cash equivalents
   160,218       22,567       —      182,785
Available-for-sale securities:

U.S. Treasury securities
   —         402,154       —      402,154
U.S. government agency securities
   —      258,502       —      258,502
Corporate debt securities
   —      141,467       —      141,467
Commercial paper
   —      140,638       —      140,638
Certificates of deposit and time deposits
   —      49,036       —      49,036
Equity and debt mutual funds
   12,333       —      —      12,333
Non-U.S. government securities
   —      446       —      446








Total
   $ 284,022       $ 1,014,810       $ —      $ 1,298,832








Liabilities

Contingent consideration
   $ —      $ —      $ 3,350       $ 3,350
Derivatives
   —         149       —         149








Total
   $ —      $ 149    $ 3,350       $ 3,499


	(Level 1)		(Level 2)		(Level 3)		Total		(Level 1)		(Level 2)		(Level 3)		Total
	(in thousands)								(in thousands)
Assets
Cash and cash equivalents	$	271,689	$	22,567	$	—	$	294,256	$	262,577	$	2,128	$	—	$	264,705
Marketable securities		—		533,787		—		533,787		—		477,696		—		477,696
Long-term marketable securities		12,333		458,456		—		470,789		13,954		251,974		—		265,928
Prepayments										—		109		—		109

	$	284,022	$	1,014,810	$	—	$	1,298,832	$	276,531	$	731,907	$	—	$	1,008,438

Liabilities
Other current liabilities	$	—	$	149	$	—	$	149	$	—	$	146	$	—	$	146
Contingent consideration		—		—		895		895		—		—		15,500		15,500
Long-term contingent consideration		—		—		2,455		2,455		—		—		21,936		21,936

	$	—	$	149	$	3,350	$	3,499	$	—	$	146	$	37,436	$	37,582

Changes in the fair value of Level 3 contingent consideration for the three ~~and six~~ months ended ~~July~~April 3, 2016 and April 5, 2015 ~~and June 29, 2014~~ were as follows:


	For the Three Months Ended
	April 3, 2016			April 5, 2015
	(in thousands)
Balance at beginning of period	$	37,436		$	3,350
Payments (a)		(15,000	)		—
Fair value adjustment (b)		1,173			—

Balance at end of period	$	23,609		$	3,350

The following table provides quantitative information associated with the fair value measurement of Teradyne’s Level 3 financial instruments:


Liability	July 5, 2015 Fair Value	Valuation Technique		Unobservable Inputs		Weighted Average				April 3, 2016 Fair Value		Valuation Technique		Unobservable Inputs		Weighted Average
	(in thousands)									(in thousands)
Contingent consideration (Universal Robots)	$33,845	Income approach- discounted cash flow		EBITDA earn-out for calendar year 2015 probability			99	%		td6,349		Monte Carlo Simulation		Revenue for the period July 1, 2015—December 31, 2017 volatility			15.4	%
			Discount rate			6.0	%				Discount Rate	Monte Carlo Simulation			4.7	%
			Revenue earn-out for period July 1, 2015—December 31, 2017 probability			72	%			td6,349
					Discount rate			8.0	%
					Revenue earn-out for period July 1, 2015—December 31, 2018 probability			29	%		$6,760		Monte Carlo Simulation		Revenue for the period July 1, 2015—December 31, 2018 volatility			15.4	%
				Discount rate			10.0	%						Discount Rate			4.7	%

Contingent consideration (AIT)	td,750	Income approach- discounted cash flow		Revenue earn-out for calendar years 2015 and 2016 probability			90	%		$500		Income approach- discounted cash flow		Revenue for calendar year 2016 probability Discount rate			48 4.7	% %
Contingent consideration (AIT)	td,750		Discount rate			4.7	%

As of April 3, 2016, the significant unobservable inputs used in the Monte Carlo simulation to fair value the Universal Robots ~~fair value measurement of~~ contingent consideration ~~are the probabilities of successful achievement of~~include forecasted revenue, ~~thresholds~~revenue volatility and ~~targets in the periods July 1, 2015—December 31, 2017 and July 1, 2015—December 31, 2018 and EBITDA threshold and target for calendar year 2015, and respective~~ discount ~~rates.~~rate. Increases or decreases in the ~~revenue and EBITDA probabilities and the period in which results will be achieved~~inputs would result in a higher or lower fair value measurement. The maximum ~~amount~~payment for each of ~~contingent consideration in connection with~~ the ~~acquisition of~~two Universal Robots ~~that could be paid~~revenue earn-outs is ~~$65~~$25.0 million. ~~The earn-out periods in connection with the Universal Robots acquisition end on December 31, 2015, December 31, 2017 and December 31, 2018.~~

The significant unobservable inputs used in the ~~AIT~~Avionics Interface Technology, LLC (“AIT”) fair value measurement of contingent consideration are the probabilities of successful achievement of calendar year ~~2015 and~~ 2016 revenue ~~thresholds~~threshold and ~~targets,~~target, and a discount rate. Increases or decreases in the revenue probabilities ~~and the period in which results will be achieved~~ would result in a higher or lower fair value measurement. The maximum ~~amount of contingent consideration in connection with the acquisition of AIT that could be paid is $2.1 million. The earn-out periods in connection with~~payment for the AIT ~~acquisition end on December 31, 2015 and December 31, 2016.~~earn-out is $1.1 million.

The carrying amounts and fair values of Teradyne’s financial instruments at ~~July 5, 2015~~April 3, 2016 and December 31, ~~2014~~2015 were as follows:


	July 5, 2015				December 31, 2014				April 3, 2016				December 31, 2015
	Carrying Value		Fair Value		Carrying Value		Fair Value		Carrying Value		Fair Value		Carrying Value		Fair Value
	(in thousands)								(in thousands)
Assets
Cash and cash equivalents	$	300,685	$	300,685	$	294,256	$	294,256	$	319,358	$	319,358	$	264,705	$	264,705
Marketable securities		727,922		727,922		1,004,576		1,004,576		656,075		656,075		743,624		743,624
Derivative assets										—		—		109		109
Liabilities
Contingent consideration		35,595		35,595		3,350		3,350		23,609		23,609		37,436		37,436
Liabilities
Derivatives	$	87	$	87	$	149	$	149
Derivative liabilities										193		193		146		146

The fair values of accounts receivable, net and accounts payable approximate the carrying value due to the short-term nature of these instruments.

The following tables summarize the composition of available-for-sale marketable securities at ~~July 5, 2015~~April 3, 2016 and December 31, ~~2014:~~2015:


	July 5, 2015											April 3, 2016
	Available-for-Sale									Fair Market Value of Investments with Unrealized Losses		Available-for-Sale									Fair Market Value of Investments with Unrealized Losses
	Cost		Unrealized Gain		Unrealized (Loss)			Fair Market Value		Fair Market Value of Investments with Unrealized Losses		Cost		Unrealized Gain		Unrealized (Loss)			Fair Market Value		Fair Market Value of Investments with Unrealized Losses
	(in thousands)											(in thousands)
U.S. Treasury securities	$	281,963	$	221	$	(662	)	$	281,522	$	21,403	$	398,832	$	620	$	(175	)	$	399,277	$	204,136
Corporate debt securities													161,005		1,861		(1,276	)		161,590		73,165
Commercial paper													36,563		29		—			36,592		6,475
U.S. government agency securities		183,601		170		(3	)		183,768		10,341		26,107		57		(4	)		26,160		9,747
Corporate debt securities		123,176		1,021		(1,501	)		122,696		61,348
Equity and debt mutual funds													15,110		1,328		(69	)		16,369		746
Certificates of deposit and time deposits		76,849		32		(5	)		76,876		11,009		15,651		2		—			15,653		—
Commercial paper		48,438		10		(2	)		48,446		13,233
Equity and debt mutual funds		12,083		2,118		(27	)		14,174		1,074
Non-U.S. government securities		440		—		—			440		—		434		—		—			434		—

	$	726,550	$	3,572	$	(2,200	)	$	727,922	$	118,408	$	653,702	$	3,897	$	(1,524	)	$	656,075	$	294,269


	Cost		Unrealized Gain		Unrealized (Loss)			Fair Market Value		Fair Market Value of Investments with Unrealized Losses		Cost		Unrealized Gain		Unrealized (Loss)			Fair Market Value		Fair Market Value of Investments with Unrealized Losses
	(in thousands)											(in thousands)
Marketable securities	$	451,854	$	196	$	(10	)	$	452,040	$	53,028	$	409,971	$	146	$	(114	)	$	410,003	$	204,024
Long-term marketable securities		274,696		3,376		(2,190	)		275,882		65,380		243,731		3,751		(1,410	)		246,072		90,245

	$	726,550	$	3,572	$	(2,200	)	$	727,922	$	118,408	$	653,702	$	3,897	$	(1,524	)	$	656,075	$	294,269


	December 31, 2014											December 31, 2015
	Available-for-Sale									Fair Market Value of Investments with Unrealized Losses		Available-for-Sale									Fair Market Value of Investments with Unrealized Losses
	Cost		Unrealized Gain		Unrealized (Loss)			Fair Market Value		Fair Market Value of Investments with Unrealized Losses		Cost		Unrealized Gain		Unrealized (Loss)			Fair Market Value		Fair Market Value of Investments with Unrealized Losses
	(in thousands)											(in thousands)
U.S. Treasury securities	$	402,197	$	362	$	(405	)	$	402,154	$	317,771	$	421,060	$	65	$	(1,167	)	$	419,958	$	379,434
Corporate debt securities													163,297		902		(2,565	)		161,634		145,373
U.S. government agency securities		258,452		135		(85	)		258,502		104,642		84,032		42		(122	)		83,952		55,120
Corporate debt securities		139,374		2,414		(321	)		141,467		96,998
Certificates of deposit and time deposits													43,391		6		(3	)		43,394		10,527
Commercial paper		140,616		26		(4	)		140,638		41,747		20,298		11		(1	)		20,308		8,646
Certificates of deposit and time deposits		49,048		11		(23	)		49,036		20,684
Equity and debt mutual funds		10,492		1,870		(29	)		12,333		1,234		12,996		1,119		(161	)		13,954		2,560
Non-U.S. government securities		446		—		—			446		—		424		—		—			424		—

	$	1,000,625	$	4,818	$	(867	)	$	1,004,576	$	583,076	$	745,498	$	2,145	$	(4,019	)	$	743,624	$	601,660


	Cost		Unrealized Gain		Unrealized (Loss)			Fair Market Value		Fair Market Value of Investments with Unrealized Losses
	(in thousands)
Marketable securities	$	478,306	$	38	$	(648	)	$	477,696	$	374,785
Long-term marketable securities		267,192		2,107		(3,371	)		265,928		226,875

	$	745,498	$	2,145	$	(4,019	)	$	743,624	$	601,660

As of ~~July 5,~~April 3, 2016, the fair market value of investments with unrealized losses totaled $294.3 million. Of this value, $2.8 million had unrealized losses of $0.5 million greater than one year and $291.5 million had unrealized losses of $1.1 million for less than one year.

As of December 31, 2015, the fair market value of investments with unrealized losses ~~was $118.4~~totaled $601.7 million. Of this value, ~~$0.2~~$0.9 million had unrealized losses of $0.5 million greater than one year and ~~$118.2~~$600.8 million had unrealized losses ~~less than one year. As~~ of ~~December 31, 2014, the fair market value of investments with unrealized losses was $583.1 million. Of this value, $2.3~~$3.6 million ~~had unrealized losses greater than one year and $580.8 million had unrealized losses~~for less than one year.

Teradyne reviews its investments to identify and evaluate investments that have an indication of possible impairment. Based on this review, Teradyne determined that the unrealized losses related to these investments, at ~~July 5, 2015~~April 3, 2016 and December 31, ~~2014,~~2015, were temporary.

The contractual maturities of investments held at ~~July 5, 2015~~April 3, 2016 were as follows:


	July 5, 2015				April 3, 2016
	Cost		Fair Market Value		Cost		Fair Market Value
	(in thousands)				(in thousands)
Due within one year	$	451,854	$	452,040	$	409,971	$	410,003
Due after 1 year through 5 years		218,798		219,045		184,645		184,852
Due after 5 years through 10 years		6,481		6,512		4,432		4,546
Due after 10 years		37,334		36,151		39,544		40,305

Total	$	714,467	$	713,748	$	638,592	$	639,706

Contractual maturities of investments held at ~~July 5, 2015~~April 3, 2016 exclude equity and debt mutual funds as they do not have contractual maturity dates.

Teradyne conducts business in a number of foreign countries, with certain transactions denominated in local currencies. The purpose of Teradyne’s foreign currency management is to minimize the effect of exchange rate fluctuations on certain foreign currency denominated monetary assets and liabilities. Teradyne does not use derivative financial instruments for trading or speculative purposes.

To minimize the effect of exchange rate fluctuations associated with the remeasurement of monetary assets and liabilities denominated in foreign currencies, Teradyne enters into foreign currency forward contracts. The change in fair value of these derivatives is recorded directly in earnings, and is used to offset the change in value of monetary assets and liabilities denominated in foreign currencies.

The notional amount of foreign currency forward contracts was ~~$100.7~~$138.5 million and ~~$73.0~~$114.1 million at ~~July 5, 2015~~April 3, 2016 and December 31, ~~2014,~~2015, respectively. The fair value of the outstanding contracts was a loss of $0.2 million and $0.0 million at ~~July 5, 2015~~April 3, 2016 and December 31, ~~2014 were losses of $0.1 million and $0.1 million,~~2015, respectively.

InFor the three months ended ~~July~~April 3, 2016 and April 5, 2015, Teradyne recorded a net realized gain of $1.6 million related to foreign currency forward contracts hedging net monetary positions. In the six months ended July 5, 2015, Teradyne recorded a net realized loss of $1.9 million related to foreign currency forward contracts hedging net monetary positions.

~~In the three and six months ended June 29, 2014,~~ Teradyne recorded net realized losses of ~~$1.1~~$3.3 million and ~~$1.9~~$3.4 million, respectively, related to foreign currency forward contracts hedging net monetary positions. Gains and losses on foreign currency forward contracts and foreign currency remeasurement gains and losses on monetary assets and liabilities are included in other (income) expense, net.

The following table summarizes the fair value of derivative instruments at ~~July 5, 2015~~April 3, 2016 and December 31, ~~2014:~~2015:


	Balance Sheet Location	July 5, 2015		December 31, 2014		Balance Sheet Location	April 3, 2016			December 31, 2015
		(in thousands)					(in thousands)
Derivatives not designated as hedging instruments:
Foreign exchange contracts	Other current liabilities	$	87	$	149
Foreign exchange contracts assets						Prepayments	$	—		$	109
Foreign exchange contracts liabilities						Other current liabilities		(193	)		(146	)

Total derivatives		$	87	$	149		$	(193	)	$	(37	)

~~Teradyne had no offsetting~~Teradyne’s foreign exchange contracts ~~at July 5, 2015 and December 31, 2014.~~are subject to master netting agreements.

The following table summarizes the effect of derivative instruments recognized in the statement of operations during the three ~~and six~~ months ended ~~July~~April 3, 2016 and April 5, ~~2015 and June 29, 2014.~~2015. The table does not reflect the corresponding gains and losses from the remeasurement of monetary assets and liabilities denominated in foreign currencies. For the three months ended ~~July 5, 2015, net losses from the remeasurement of monetary assets~~April 3, 2016 and ~~liabilities denominated in foreign currencies were $2.1 million. For the six months ended July~~April 5, 2015, net gains from the remeasurement of monetary assets and liabilities denominated in foreign currencies were ~~$2.2 million. For the three and six months ended June 29, 2014, net gains from the remeasurement of monetary assets and liabilities denominated in foreign currencies were $0.7~~$3.4 million and ~~$1.3~~$4.3 million, respectively.

~~See Note F: “Debt” regarding derivatives related to the convertible senior notes.~~

On April 27, 2015, Teradyne entered into a Credit Agreement (the “Credit Agreement”) with Barclays Bank PLC, as administrative agent and collateral agent, and the lenders party thereto. The Credit Agreement provides for a five-year, senior secured revolving credit facility of up to $350 million (the “Credit Facility”). The Credit Agreement further provides that, subject to customary conditions, Teradyne may seek to obtain from existing or new lenders incremental commitments under the Credit Facility in an aggregate principal amount not to exceed ~~$150.0~~$150 million.

Proceeds from the Credit Facility may be used for general corporate purposes and working capital. ~~During the three months ended July 5, 2015,~~ Teradyne incurred $2.3 million in costs related to the revolving credit facility. These costs are being amortized over the five year term of the revolving credit facility and are included in interest expense in the statement of operations. As of ~~August 14, 2015,~~May 13, 2016, Teradyne has not borrowed any funds under the Credit Facility.

The interest rates applicable to loans under the Credit Facility are, at Teradyne’s option, equal to either a base rate plus a margin ranging from 0.00% to 1.00% per annum or LIBOR plus a margin ranging from 1.00% to 2.00% per annum, based on the Consolidated Leverage Ratio of Teradyne and its Restricted Subsidiaries. In

addition, Teradyne will pay a commitment fee on the unused portion of the commitments under the Credit Facility ranging from 0.125% to 0.350% per annum, based on the then applicable Consolidated Leverage Ratio.

Teradyne is not required to repay any loans under the Credit Facility prior to maturity, subject to certain customary exceptions. Teradyne is permitted to prepay all or any portion of the loans under the Credit Facility prior to maturity without premium or penalty, other than customary LIBOR breakage costs.

The Credit Agreement contains customary events of default, representations, warranties and affirmative and negative covenants that, among other things, limit Teradyne’s and its Restricted Subsidiaries’ ability to sell assets, grant liens on assets, incur other secured indebtedness and make certain investments and restricted payments, all subject to exceptions set forth in the Credit Agreement. The Credit Agreement also requires Teradyne to satisfy two financial ratios measured as of the end of each fiscal quarter: a consolidated leverage ratio and an interest coverage ratio. As of ~~July 5, 2015, we were~~April 3, 2016, Teradyne was in compliance with all covenants.

The Credit Facility is guaranteed by certain of Teradyne’s domestic subsidiaries and collateralized by assets of Teradyne and such subsidiaries, including a pledge of 65% of the capital stock of certain foreign subsidiaries.

On March 31, 2009, Teradyne entered into an underwriting agreement regarding a public offering of $175.0 million aggregate principal amount of 4.50% convertible senior notes due March 15, 2014 (the “Notes”). On April 1, 2009, the underwriters exercised their option to purchase an additional $15.0 million aggregate principal amount of the Notes for a total aggregate principal amount of $190.0 million. The Notes bore interest at a rate of 4.50% per annum, payable semiannually in arrears on March 15 and September 15 of each year, beginning on September 15, 2009. The Notes had a maturity date of March 15, 2014. Substantially all of the Notes were converted prior to March 15, 2014 and were “net share settled,” meaning that the holders received, for each $1,000 in principal amount of Notes, $1,000 in cash and approximately 131.95 shares of Teradyne common stock (calculated by taking 182.65 shares, being the fixed number specified in the Notes purchase agreement, less 50.7 shares). The 50.7 shares were determined, as specified in the Notes purchase agreement, by dividing the $1,000 principal amount by the $19.74 average trading price of Teradyne’s common stock over the 25 day trading period from February 5, 2014 to March 12, 2014.

Teradyne satisfied the Notes “net share settlement” by paying the aggregate principal amount of $190 million in cash and issuing 25.1 million shares of common stock. On March 13, 2014, Teradyne exercised its call option agreement entered into with Goldman, Sachs & Co. (the “hedge counterparty”) at the time of issuance of the Notes and received 25.1 million shares of Teradyne’s common stock, which Teradyne retired.

From June 17, 2014 to September 17, 2014, the hedge counterparty exercised its warrant agreement entered into with Teradyne at the time of issuance of the Notes. The warrants were net share settled. In 2014, Teradyne issued 21.2 million shares of its common stock for warrants exercised at a weighted average strike price of $7.6348 per share.

~~The interest expense on Teradyne’s convertible senior notes for the three and six months ended July 5, 2015 and June 29, 2014 was as follows:~~

Prepayments consist of the following and are included in prepayments on the balance sheet:


	July 5, 2015		December 31, 2014		April 3, 2016		December 31, 2015
	(in thousands)				(in thousands)
Contract manufacturer prepayments	$	55,674	$	65,972	$	68,746	$	66,283
Prepaid maintenance and other services		6,920		7,343		7,061		8,481
Prepaid taxes		5,124		11,462		5,281		3,781
Other prepayments		12,531		11,042		14,097		12,974

Total prepayments	$	80,249	$	95,819	$	95,185	$	91,519

Deferred revenue and customer advances consist of the following and are included in short and long-term deferred revenue and customer advances on the balance sheet:


	July 5, 2015		December 31, 2014		April 3, 2016		December 31, 2015
	(in thousands)				(in thousands)
Extended warranty	$	43,299	$	43,300	$	46,115	$	46,499
Product maintenance and training		36,836		30,500		31,368		30,616
Customer advances		8,159		8,875		5,347		17,456
Undelivered elements and other		14,407		8,857		14,733		16,701

Total deferred revenue and customer advances	$	102,701	$	91,532	$	97,563	$	111,272

Teradyne generally provides a one-year warranty on its products, commencing upon installation, acceptance, delivery or shipment. A provision is recorded upon revenue recognition to cost of revenues for estimated warranty expense based on historical experience. Related costs are charged to the warranty accrual as incurred. The warranty balance below is included in other accrued liabilities on the balance sheet.


	For the Three Months Ended						For the Six Months Ended						For the Three Months Ended
	July 5, 2015			June 29, 2014			July 5, 2015			June 29, 2014			April 3, 2016			April 5, 2015
	(in thousands)												(in thousands)
Balance at beginning of period	$	7,423		$	6,615		$	8,942		$	6,660		$	6,925		$	8,942
Acquisition		372			—			372			—
Accruals for warranties issued during the period		3,926			5,399			6,287			8,257			3,490			2,361
Adjustments related to pre-existing warranties		(797	)		(302	)		(1,828	)		(442	)		243			(1,031	)
Settlements made during the period		(2,696	)		(2,639	)		(5,545	)		(5,402	)		(3,162	)		(2,849	)

Balance at end of period	$	8,228		$	9,073		$	8,228		$	9,073		$	7,496		$	7,423

When Teradyne receives revenue for extended warranty beyond one year, it is deferred and recognized on a straight-line basis over the contract period. Related costs are expensed as incurred. The extended warranty balance below is included in short and long-term deferred revenue and customer advances on the balance sheet.


	For the Three Months Ended						For the Six Months Ended						For the Three Months Ended
	July 5, 2015			June 29, 2014			July 5, 2015			June 29, 2014			April 3, 2016			April 5, 2015
	(in thousands)												(in thousands)
Balance at beginning of period	$	40,704		$	33,949		$	43,300		$	34,909		$	46,499		$	43,300
Acquisition		699			—			699			—
Deferral of new extended warranty revenue		8,172			11,960			12,376			14,321			6,827			4,204
Recognition of extended warranty deferred revenue		(6,276	)		(5,857	)		(13,076	)		(9,178	)		(7,211	)		(6,800	)

Balance at end of period	$	43,299		$	40,052		$	43,299		$	40,052		$	46,115		$	40,704

Under Teradyne’s stock compensation plans, Teradyne grants stock options, restricted stock units and performance-based restricted stock units, and employees are eligible to purchase Teradyne’s common stock through its Employee Stock Purchase Plan (“ESPP”).

Teradyne grants performance-based restricted stock units (“PRSUs”) to its executive officers with a performance metric based on relative total shareholder return (“TSR”). For TSR grants issued in 2014 and 2015, Teradyne’s three-year TSR performance is measured against the Philadelphia Semiconductor Index. For TSR grants issued in January 2016, Teradyne’s three-year TSR performance will be measured against the ~~Philadelphia Semiconductor Index, which consists of thirty companies in the semiconductor device and capital equipment industries.~~New York Stock Exchange (“NYSE”) Composite Index. The final number of TSR PRSUs that vest will vary based upon the level of performance achieved from 200% ~~of the target shares~~ to 0% of the target shares. The TSR PRSUs will vest upon the three-year anniversary of the grant date. Beginning with PRSUs granted in January 2014, if the recipient’s employment ends prior to the determination of the performance percentage due to (1) permanent disability or death or (2) retirement or termination other than for cause, after attaining both at least age sixty and at least ten years of service, then all or a portion of the recipient’s PRSUs (based on the actual performance percentage achieved on the determination date) will vest on the date the performance percentage is determined. Except as set forth in the preceding sentence, no TSR PRSUs will vest if the executive officer is no longer an employee at the end of the three-year period.

The TSR PRSUs are valued using a Monte Carlo simulation model. The number of units expected to be earned, based upon the achievement of the TSR market condition, is factored into the grant date Monte Carlo valuation. Compensation expense is recognized on a straight-line basis over the three-year service period. Compensation expense is recognized regardless of the eventual number of units that are earned based upon the market condition, provided the executive officer remains an employee at the end of the three-year period. Compensation expense is reversed if at any time during the three-year service period the executive officer is no longer an employee, subject to the retirement and termination eligibility provisions noted ~~above.~~below.

In January 2016, Teradyne granted PRSUs to its executive officers with a performance metric based on three-year cumulative non-GAAP profit before interest and tax (“PBIT”). Non-GAAP PBIT is a financial measure equal to GAAP income from operations less restructuring and other, net; amortization of acquired intangible assets; acquisition and divestiture related charges or credits; pension actuarial gains and losses; and other non-recurring gains and charges. The final number of PBIT PRSUs that vest will vary based upon the level of performance achieved from 200% to 0% of the target shares. The PBIT PRSUs will vest upon the three-year anniversary of the grant date. Compensation expense is recognized on a straight-line basis over the three-year service period. Compensation expense is recognized based on the number of units that are earned based upon the three year Teradyne PBIT as a percent of Teradyne’s revenue, provided the executive officer remains an employee at the end of the three-year period subject to the retirement and termination eligibility provisions noted below.

Beginning with PRSUs granted in January 2014, if the recipient’s employment ends prior to the determination of the performance percentage due to (1) permanent disability or death or (2) retirement or termination other than for cause, after attaining both at least age sixty and at least ten years of service, then all or a portion of the recipient’s PRSUs (based on the actual performance percentage achieved on the determination date) will vest on the date the performance percentage is determined. Except as set forth in the preceding sentence, no PRSUs will vest if the executive officer is no longer an employee at the end of the three-year period.

During the ~~six~~three months ended ~~July~~April 3, 2016 and April 5, 2015, ~~and June 29, 2014,~~ Teradyne granted 0.1 million and 0.2 million ~~and 0.1 million, respectively,~~ TSR PRSUs, respectively, with a grant date fair value of ~~$18.21~~$20.29 and ~~$22.06,~~$18.21, respectively. The fair value was estimated using the Monte Carlo simulation model with the following assumptions:


	For the Six Months Ended						For the Three Months Ended
	July 5, 2015			June 29, 2014			April 3, 2016			April 5, 2015
Risk-free interest rate		0.77	%		0.75	%		0.97	%		0.77	%
Teradyne volatility-historical		28.2	%		36.1	%		27.0	%		28.2	%
NYSE Composite Index volatility-historical								13.1	%		—
Philadelphia Semiconductor Index volatility-historical		19.7	%		24.6	%		—			19.7	%
Dividend yield		1.33	%		1.25	%		1.24	%		1.33	%

Expected volatility was based on the historical volatility of Teradyne’s stock and the NYSE Composite Index for the 2016 grant and Philadelphia Semiconductor Index for the 2015 grant, over the most recent three year period. The risk-free interest rate was determined using the

U.S. Treasury yield curve in effect at the time of grant. Dividend yield was based upon an estimated annual dividend amount of $0.24 per share divided by Teradyne’s stock price on the grant date of $19.43 for the 2016 grant and $18.10 for the 2015 ~~grants and $19.16 for 2014 grants.~~grant.

During the ~~six~~three months ended ~~July 5, 2015,~~April 3, 2016, Teradyne granted ~~1.5~~0.1 million PBIT PRSUs with a grant date fair value of $18.71.

During the three months ended April 3, 2016, Teradyne granted 1.2 million of service-based restricted stock unit awards to employees at a weighted average grant date fair value of ~~$17.26~~$18.47 and 0.1 million of service-based stock options to executive officers at a weighted average grant date fair value of ~~$4.43.~~$5.30.

During the ~~six~~three months ended ~~June 29, 2014,~~April 5, 2015, Teradyne granted ~~1.6~~1.4 million of service-based restricted stock unit awards to employees at a weighted average grant date fair value of ~~$18.12~~$17.14 and 0.1 million of service-based stock options to executive officers at a weighted average grant date fair value of ~~$5.49.~~$4.43.

Restricted stock unit awards granted to employees vest in equal annual installments over four years. Stock options vest in equal annual installments over four years and have a term of seven years from the date of grant.

The fair value of stock options was estimated using the Black-Scholes option-pricing model with the following assumptions:


	For the Six Months Ended						For the Three Months Ended
	July 5, 2015			June 29, 2014			April 3, 2016			April 5, 2015
Expected life (years)		4.0			4.0			5.0			4.0
Risk-free interest rate		1.1	%		1.2	%		1.4	%		1.1	%
Volatility-historical		33.4	%		38.8	%		32.9	%		33.4	%
Dividend yield		1.33	%		1.25	%		1.24	%		1.33	%

Teradyne determined the stock options’ expected life based upon historical exercise data for executive officers, the age of the executive officers and the terms of the stock option grant. Volatility was determined using historical volatility for a period equal to the expected life. The risk-free interest rate was determined using the U.S. Treasury yield curve in effect at the time of grant. Dividend yield was based upon an estimated annual dividend amount of $0.24 per share divided by Teradyne’s stock price on the grant date, of $19.43 for the 2016 grant and $18.10 for the 2015 ~~grants and $19.16 for 2014 grants.~~

Effective January 31, 2014, Michael Bradley retired as Chief Executive Officer of Teradyne. On January 22, 2014, Teradyne entered into an agreement (the “Retirement Agreement”) with Mr. Bradley. Under the Retirement Agreement, Mr. Bradley’s unvested restricted stock units and stock options granted prior to his retirement date will continue to vest in accordance with their terms through January 31, 2017; and any vested options or options that vest during that period may be exercised for the remainder of the applicable option term. In the Retirement Agreement, Mr. Bradley agreed to be bound by non-competition and non-solicitation restrictions through January 31, 2017. Mr. Bradley continues to serve on Teradyne’s Board of Directors. In the three months ended March 30, 2014, Teradyne recorded a one-time charge to stock-based compensation expense of $6.6 million related to the Retirement Agreement.grant.

Changes in accumulated other comprehensive income, ~~(loss),~~ which is presented net of tax, consist of the following:


	For the Three Months Ended April 5, 2015
	Foreign Currency Translation Adjustment		Unrealized Gains (Losses) on Marketable Securities			Retirement Plans Prior Service Credit			Total
	(in thousands)
Balance at December 31, 2014, net of tax of $1,598, $(453)	$	—	$	2,365		$	2,324		$	4,689

Other comprehensive income before reclassifications, net of tax of $704		—		1,799			—			1,799
Amounts reclassified from accumulated other comprehensive income, net of tax of $(169), $(42)		—		(330	)		(74	)		(404	)

Net current period other comprehensive income, net of tax of $535, $(42)		—		1,469			(74	)		1,395

Balance at April 5, 2015, net of tax of $2,133, $(495)	$	—	$	3,834		$	2,250		$	6,084

Reclassifications out of accumulated other comprehensive income to the statement of operations for the three ~~and six~~ months ended ~~July~~April 3, 2016 and April 5, 2015 ~~and June 29, 2014,~~ were as follows:


Details about Accumulated Other Comprehensive Income Components	For the Three Months Ended				For the Six Months Ended				Affected Line Item in the Statements of Operations	For the Three Months Ended				Affected Line Item in the Statements of Operations
	July 5, 2015		June 29, 2014		July 5, 2015		June 29, 2014			April 3, 2016		April 5, 2015
	(in thousands)									(in thousands)
Available-for-sale marketable securities:
Unrealized gains, net of tax of $40, $141, $209, $243	$	231	$	272	$	561	$	448	Interest income
Unrealized gains, net of tax of $(11), $169										$	83	$	330	Interest income
Amortization of defined benefit pension and postretirement plans:
Prior service benefit, net of tax of $42, $42, $85, $85		74		74		147		147	(a)
Prior service benefit, net of tax of $46, $42											80		74	(a)

Total reclassifications, net of tax of $82, $183, $294, $328	$	305	$	346	$	708	$	595	Net income
Total reclassifications, net of tax of $35, $211										$	163	$	404	Net income

The changes in the carrying ~~amounts~~amount of goodwill by ~~segment are~~reportable segments for the three months ended April 3, 2016, were as follows:

Amortizable intangible assets consist of the following and are included in intangible assets, net on the balance sheet:


	July 5, 2015								April 3, 2016
	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Weighted Average Useful Life		Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Weighted Average Useful Life
	(in thousands)								(in thousands)
Developed technology	$	432,656	$	244,514	$	188,142		5.9 years	$	333,947	$	186,118	$	147,829		6.0 years
Customer relationships		155,831		100,500		55,331		7.5 years		110,658		68,114		42,544		7.9 years
Tradenames and trademarks		51,668		16,275		35,393		5.3 years		53,169		20,468		32,701		9.5 years
Non-compete agreement		320		60		260		4.0 years		320		120		200		4.0 years
Customer order backlog		170		170		—		0.3 years
Customer backlog										170		170		—		0.3 years

Total intangible assets	$	640,645	$	361,519	$	279,126		6.6 years	$	498,264	$	274,990	$	223,274		6.8 years

   December 31, 2014
   Gross
Carrying
Amount    Accumulated
Amortization    Net
Carrying
Amount    Weighted
Average
Useful Life
   (in thousands)
Developed technology
   $ 345,513       $ 224,059       $ 121,454       6.2 years
Customer relationships
   146,635       93,998       52,637       7.7 years
Tradenames and trademarks
   30,414       14,205       16,209       9.0 years
Non-compete agreement
   320       20       300       4.0 years
Customer order backlog
   170       170       —         0.3 years







Total intangible assets
   $ 523,052       $ 332,452       $ 190,600       6.8 years

Aggregate intangible asset amortization expense was ~~$15.3~~$20.0 million and ~~$29.1~~$13.8 million, respectively, for the three ~~and six~~ months ended ~~July~~April 3, 2016 and April 5, ~~2015 and $18.3 million and $36.5 million, respectively, for the three and six months ended June 29, 2014.~~2015. Estimated intangible asset amortization expense for each of the five succeeding fiscal years is as follows:


Year	Amortization Expense		Amortization Expense
	(in thousands)		(in thousands)
2015 (remainder)	$	39,932
2016		79,863
2016 (remainder)			$	60,547
2017		71,269		71,899
2018		44,440		45,160
2019		23,591		24,260
2020				10,304
Thereafter		20,031		11,104

The following table sets forth the computation of basic and diluted net income per common share:

~~multiplied by 34.7 million shares. The result of this calculation, representing the total intrinsic value of the convertible debt, was divided by the average Teradyne stock price for the period.~~

~~(2)~~

Convertible note hedge warrant shares were calculated using the difference between the average Teradyne stock price for the period and the warrant price of $7.6650, multiplied by 34.7 million shares. The result of this calculation, representing the total intrinsic value of the warrant, was divided by the average Teradyne stock price for the period. Teradyne’s call option on its common stock (convertible note hedge transaction) was excluded from the calculation of diluted shares because the effect was anti-dilutive. See Note F: “Debt” regarding the convertible note hedge transaction.


	For the Three Months Ended
	April 3, 2016		April 5, 2015
	(in thousands, except per share amounts)
Net income for basic and diluted net income per share	$	49,986	$	32,787

Weighted average common shares-basic		204,271		217,187
Effect of dilutive potential common shares:
Restricted stock units		965		901
Stock options		487		696
Employee stock purchase plan		9		28

Dilutive potential common shares		1,461		1,625

Weighted average common shares-diluted		205,732		218,812

Net income per common share-basic	$	0.24	$	0.15

Net income per common share-diluted	$	0.24	$	0.15

The computation of diluted net income per common share for the three ~~and six~~ months ended ~~July~~April 3, 2016 excludes the effect of the potential exercise of stock options to purchase approximately 0.3 million shares because the effect would have been anti-dilutive.

The computation of diluted net income per common share for the three months ended April 5, 2015 excludes the effect of the potential exercise of stock options to purchase approximately 0.2 million shares because the effect would have been anti-dilutive.

The computation of diluted net income per common share for the three and six months ended June 29, 2014 excludes the effect of the potential exercise of stock options to purchase approximately 0.3 million shares because the effect would have been anti-dilutive.

During the three ~~and six~~ months ended ~~July 5, 2015,~~April 3, 2016, Teradyne recorded ~~a $1.6~~an expense of $1.2 million ~~gain from~~for the ~~decrease~~increase in the fair value of the ~~ZTEC~~Universal Robots contingent consideration ~~liability, partially offset by $1.0 million of acquisition costs related to Universal Robots.~~liability.

During the ~~six~~three months ended ~~July 5, 2015,~~April 3, 2016, Teradyne recorded ~~$0.3~~$0.4 million of severance charges related to headcount reductions of 412 people, primarily in Semiconductor Test. ~~During the six months ended June 29, 2014, Teradyne recorded $0.6 million of severance charges related to headcount reductions of 28 people, primarily in Wireless Test.~~

ASC 715, “Compensation—Retirement Benefits”, requires an employer with defined benefit plans or other postretirement benefit plans to recognize an asset or a liability on its balance sheet for the overfunded or underfunded status of the plans. The pension asset or liability represents a difference between the fair value of the pension plan’s assets and the projected benefit obligation.

Teradyne has defined benefit pension plans covering a portion of domestic employees and employees of certain non-U.S. subsidiaries. Benefits under these plans are based on employees’ years of service and compensation. Teradyne’s funding policy is to make contributions to these plans in accordance with local laws and to the extent that such contributions are tax deductible. The assets of these plans consist primarily of fixed income and equity securities. In addition, Teradyne has an unfunded supplemental executive defined benefit plan in the United States to provide retirement benefits in excess of levels allowed by the Employment Retirement Income Security Act (“ERISA”) and the Internal Revenue Code (“IRC”), as well as unfunded foreign plans.

In the ~~six~~three months ended ~~July 5, 2015,~~April 3, 2016, Teradyne contributed ~~$1.2~~$0.7 million to the U.S. supplemental executive defined benefit pension plan and ~~$0.4~~$0.6 million to certain qualified plans for non-U.S. subsidiaries.

For the three ~~and six~~ months ended ~~July~~April 3, 2016 and April 5, 2015, ~~and June 29, 2014,~~ Teradyne’s net periodic pension (income) cost was comprised of the following:


	For the Six Months Ended												For the Three Months Ended
	July 5, 2015						June 29, 2014						April 3, 2016						April 5, 2015
	United States			Foreign			United States			Foreign			United States			Foreign			United States			Foreign
	(in thousands)												(in thousands)
Service cost	$	1,231		$	510		$	1,109		$	498		$	576		$	207		$	616		$	247
Interest cost		6,571			744			6,438			1,014			3,414			206			3,282			358
Expected return on plan assets		(7,259	)		(410	)		(6,250	)		(475	)		(3,443	)		(5	)		(3,624	)		(195	)
Amortization of prior service cost		67			—			67			—			24			—			33			—
Actuarial (gain) loss		(3	)		—			362			—
Net actuarial gain														(1,193	)		—			—			—
Settlement														—			(239	)		—			—

Total net periodic pension cost	$	607		$	844		$	1,726		$	1,037
Total net periodic pension (income) cost													$	(622	)	$	169		$	307		$	410

In addition to receiving pension benefits, U.S. Teradyne employees who meet early retirement eligibility requirements as of their termination dates may participate in Teradyne’s Welfare Plan, which includes ~~death,~~ medical and dental benefits up to age 65. Death benefits provide a fixed sum to retirees’ survivors and are available to all retirees. Substantially all of Teradyne’s current U.S. employees could become eligible for these benefits, and the existing benefit obligation relates primarily to those employees.

For the three ~~and six~~ months ended ~~July~~April 3, 2016 and April 5, 2015, ~~and June 29, 2014,~~ Teradyne’s net periodic postretirement benefit income was comprised of the following:


	For the Three Months Ended
	April 3, 2016			April 5, 2015
	(in thousands)
Service cost	$	10		$	12
Interest cost		56			59
Amortization of prior service benefit		(150	)		(149	)

Total net periodic post-retirement benefit	$	(84	)	$	(78	)

As of ~~July 5, 2015,~~April 3, 2016, Teradyne had entered into purchase commitments for certain components and materials. The purchase commitments covered by the agreements aggregate to approximately ~~$230.3~~$235.3 million, of which ~~$222.9~~$233.7 million is for less than one year.

Teradyne is subject to various legal proceedings and claims which have arisen in the ordinary course of business. In the opinion of management, the ultimate disposition of these matters will not have a material adverse effect on Teradyne’s results of operations, financial condition or cash flows.

The effective tax rate for the three months ended ~~July~~April 3, 2016 and April 5, 2015 was 12.6% and ~~June 29, 2014 was 22.1% and 16.6%, respectively. The effective tax rate for the six months ended July 5, 2015 and June 29, 2014 was 22.3% and 14.6%~~22.7%, respectively. The effective tax rates for these periods were lower than 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 tax rate for the ~~six~~three months ended ~~July 5, 2015~~April 3, 2016 was ~~increased~~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 partially offset by $1.7~~rate. Discrete tax benefits recorded in the quarter amounted to $2.5 million of which $1.2 million resulted from non-taxable foreign exchange gains, $0.9 million related to marketable securities and $0.4 million from other discrete tax ~~benefits composed of $0.7~~benefits.

The tax rate for the three months ended April 5, 2015 was reduced by a $1.2 million ~~from~~discrete tax benefit related to non-taxable foreign exchange gains and a $0.5 million discrete tax benefit related to disqualifying dispositions of incentive stock options and employee stock purchase plan shares and $1.0 million from other discrete tax benefits. The rate for the six months ended June 29, 2014 was also reduced by $2.9 million of discrete tax benefits composed of $1.2 million from disqualifying dispositions of incentive stock options and employee stock purchase plan shares and $1.7 million of other discrete tax benefits.shares.

On a quarterly basis, Teradyne evaluates the realizability of the deferred tax assets by jurisdiction and assesses the need for a valuation allowance. ~~At July 5, 2015,~~As of April 3, 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 ~~July 5, 2015~~April 3, 2016 and December 31, ~~2014,~~2015, Teradyne had ~~$33.3~~$35.2 million and ~~$30.4~~$33.7 million, respectively, of reserves for uncertain tax positions. The ~~$2.9~~$1.5 million net increase in reserves for uncertain tax positions relates primarily to transfer pricing ~~exposures.~~exposure.

As of ~~July 5, 2015,~~April 3, 2016, Teradyne ~~anticipated~~estimates that it is reasonably possible that the ~~liability for uncertain~~balance of unrecognized tax ~~positions could~~benefits may decrease by approximately ~~$0.5~~$9.1 million ~~over~~in the next twelve months, ~~primarily~~ as a result of ~~the expiration~~a lapse of statutes of ~~limitations~~limitation and ~~settlements with~~the settlement of a tax ~~authorities.~~audit. The ~~potential~~estimated decrease is ~~related~~composed primarily of reserves relating to federal tax credits and transfer ~~pricing exposures.~~pricing.

Teradyne recognizes interest and penalties related to income tax matters in income tax expense. As of ~~July 5, 2015~~April 3, 2016 and December 31, ~~2014, $0.5~~2015, $0.8 million and ~~$0.6~~$0.5 million, respectively, of interest and penalties were included in the reserve for uncertain tax positions. For the three months ended April 3, 2016, expense of $0.3 million was recorded for interest and penalties related to income tax items. For the three months ended April 5, 2015, interest and penalties related to income tax items were not material.

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~~three months ended ~~July 5, 2015~~April 3, 2016 was ~~$6.2~~$2.6 million, or ~~$0.03~~$0.01 per diluted share. The tax savings due to the tax holiday for the ~~six~~three months ended ~~June 29, 2014~~April 5, 2015 was ~~$6.1~~$1.1 million ~~or $0.03~~and the impact of the tax holiday on earnings per ~~diluted share.~~share was not material. The tax holiday is ~~currently expected~~scheduled to expire on December 31, ~~2015. Teradyne is in discussion with the Singapore Economic Development Board with respect to extension of the tax holiday for periods after December 31, 2015.~~2020.

Teradyne has four operating segments (Semiconductor Test, ~~Wireless~~System Test, ~~System~~Wireless Test, and Industrial Automation), which are its reportable segments. The Semiconductor Test segment includes operations related to the design, manufacturing and marketing of semiconductor test products and services. The ~~Wireless Test segment includes operations related to the design, manufacturing and marketing of wireless test products and services. The~~ System Test segment includes operations related to the design, manufacturing and marketing of products and services for defense/aerospace instrumentation test, storage test and circuit-board test. The Wireless Test segment includes operations related to the design, manufacturing and marketing of wireless test products and services. The Industrial Automation segment includes operations related to the design, manufacturing and marketing of collaborative robots. Each operating segment has a segment manager who is directly accountable to and maintains regular contact with Teradyne’s chief operating decision maker (Teradyne’s chief executive officer) to discuss operating activities, financial results, forecasts, and plans for the segment.

Teradyne evaluates performance based on several factors, of which the primary financial measure is business segment income before income taxes. The accounting policies of the business segments in effect are described in Note B: “Accounting Policies” in Teradyne’s Annual Report on Form 10-K for the year ended December 31, ~~2014, unless updated in this form 10-Q, where applicable.~~2015.

Segment information for the three ~~and six~~ months ended ~~July~~April 3, 2016 and April 5, 2015 ~~and June 29, 2014~~ is as follows:


	Semiconductor Test		Wireless Test			System Test			Industrial Automation			Corporate and Eliminations			Consolidated		Semiconductor Test		System Test		Wireless Test			Industrial Automation			Corporate and Eliminations		Consolidated
	(in thousands)																(in thousands)
*Three months ended July 5, 2015:*
*Three months ended April 3, 2016:*
Revenues	$	400,315	$	62,879		$	45,822		$	3,723		$	—		$	512,739	$	340,264	$	53,670	$	20,314		$	16,746		$	—	$	430,994
Income (loss) before income taxes (1)(2)		129,546		6,841			(4,333	)		(1,700	)		1,782			132,136		73,254		9,492		(20,140	)		(7,168	)		1,754		57,192
Total assets (3)		649,087		485,857			95,544			358,276			1,104,043			2,692,807		664,555		90,695		408,466			350,589			1,034,669		2,548,974
*Three months ended June 29, 2014:*
*Three months ended April 5, 2015:*
Revenues	$	421,434	$	68,699		$	35,434		$	—		$	—		$	525,567	$	270,917	$	37,436	$	34,048		$	—		$	—	$	342,401
Income (loss) before income taxes (1)(2)		107,270		14,229			(715	)		—			608			121,392		43,125		1,005		(10,441	)		—			8,749		42,438
Total assets (3)		747,492		638,012			71,644			—			1,173,515			2,630,663		596,477		94,133		465,465			—			1,356,107		2,512,182
*Six months ended July 5, 2015:*
Revenues	$	671,232	$	96,927		$	83,258		$	3,723		$	—		$	855,140
Income (loss) before income taxes (1)(2)		172,671		(3,600	)		(3,328	)		(1,700	)		10,531			174,574
Total assets (3)		649,087		485,857			95,544			358,276			1,104,043			2,692,807
*Six months ended June 29, 2014:*
Revenues	$	683,171	$	89,909		$	73,497		$	—		$	—		$	846,577
Income (loss) before income taxes (1)(2)		141,870		(10,856	)		(267	)		—			(11,228	)		119,519
Total assets (3)		747,492		638,012			71,644			—			1,173,515			2,630,663

Included in the Semiconductor Test segment are charges in the following line items in the statements of operations:


	For the Three Months Ended				For the Six Months Ended				For the Three Months Ended
	July 5, 2015		June 29, 2014		July 5, 2015		June 29, 2014		April 3, 2016		April 5, 2015
	(in thousands)								(in thousands)
Cost of revenues—inventory charge	$	6,409	$	3,713	$	6,940	$	9,918	$	3,685	$	531
Restructuring and other		305		—		305		—		414		—

Total	$	6,714	$	3,713	$	7,245	$	9,918	$	4,099	$	531

Included in the Wireless Test segment are charges in the following line items in the statements of operations:

~~Included in the System Test segment are charges in the following line items in the statements of operations:~~

~~Included in the Industrial Automation segment are charges in the following line item in the statements of operations:~~


	For the Three Months Ended				For the Six Months Ended				For the Three Months Ended
	July 5, 2015		June 29, 2014		July 5, 2015		June 29, 2014		April 3, 2016		April 5, 2015
	(in thousands)								(in thousands)
Cost of revenues—inventory step-up (1)	$	595	$	—	$	595	$	—
Cost of revenues—inventory charge									$	605	$	846

Total	$	595	$	—	$	595	$	—	$	605	$	846

Included in Corporate and Eliminations are charges and credits in the following line items in the statements of operations:

In January 2015, the Board of Directors authorized Teradyne to repurchase up to $500 million of common stock, of which $300 million ~~of which~~was repurchased in 2015. In 2016, Teradyne intends to repurchase ~~in 2015.~~between $100 million and $200 million of common stock. During the three months ended April 3, 2016, Teradyne repurchased 1.5 million shares of common stock at an average price of $18.81, for a total cost of $28.0 million. The cumulative repurchases as of ~~July 5, 2015~~April 3, 2016 totaled ~~6.5~~17.1 million shares of common stock for ~~$128.3~~a total purchase price of $328 million at an average price per share of ~~$19.74 per share.~~$19.17. The total price includes commissions and is recorded as a reduction to retained earnings.

Holders of Teradyne’s common stock are entitled to receive dividends when they are declared by Teradyne’s Board of Directors.

In January ~~2015 and May~~2016, Teradyne’s Board of Directors declared a quarterly cash dividend of $0.06 per share that was paid on March 21, 2016 to shareholders of record as of February 26, 2016. Dividend payments for the three months ended April 3, 2016 were $12.3 million.

In January 2015, Teradyne’s Board of Directors declared a quarterly cash dividend of $0.06 per ~~share.~~share that was paid on March 24, 2015 to shareholders of record as of February 27, 2015. Dividend payments for the three ~~and six~~ months ended ~~July~~April 5, 2015 were ~~$12.8 million and $25.9 million, respectively.~~

In January 2014, Teradyne’s Board of Directors declared an initial quarterly cash dividend of $0.06 per share that was paid on June 2, 2014. Dividend payments for the three and six months ended June 29, 2014 were $11.7$13.0 million.

While Teradyne declared a quarterly cash dividend and authorized a share repurchase program, it may reduce or eliminate the cash dividend or share repurchase program in the future. Future cash dividends and stock repurchases are subject to the discretion of Teradyne’s Board of Directors which will consider, among other things, Teradyne’s earnings, capital requirements and financial condition.

On April 16, 2016, an earthquake in Kumamoto, Japan damaged Teradyne’s facility. The facility, which is used for engineering, production, and support operations, sustained heavy damage. Teradyne is still in the process of assessing the total impact of the damage. The net book value of the inventory and fixed assets at the Kumamoto location is approximately $17 million. With respect to the location, Teradyne has $10 million of earthquake insurance with a deductible of approximately $2.5 million. Teradyne is temporarily transferring some operations to other facilities in Japan and elsewhere while Teradyne’s Kumamoto operations are restored.

Item 2:

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Statements in this Quarterly Report on Form 10-Q which are not historical facts, so called ~~“forward looking~~“forward-looking statements,” are made pursuant to the safe harbor provisions of Section 21E of the Securities Exchange Act of 1934, as amended. Investors are cautioned that all ~~forward looking~~forward-looking statements involve risks and uncertainties, including those detailed in our filings with the Securities and Exchange Commission. See also Part II, Item 1A of this Quarterly Report on Form 10-Q and Part I, Item 1A “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, ~~2014.~~2015. Readers are cautioned not to place undue reliance on these forward-looking statements which reflect management’s analysis only as of the date hereof. We assume no obligation to update these forward-looking statements to reflect actual results or changes in factors or assumptions affecting forward-looking statements, except as may be required by law.

We are a leading global supplier of ~~automatic~~automation equipment for test ~~equipment~~ and ~~collaborative robots.~~industrial applications. We design, develop, manufacture and sell automatic test systems ~~and solutions~~ used to test semiconductors, wireless products, ~~hard disk drives~~data storage and ~~circuit boards~~complex electronics systems in the consumer electronics, wireless, automotive, industrial, computing, communications, and aerospace and defense industries. Our industrial automation products include collaborative robots used by global manufacturing and light industrial customers to improve quality, increase manufacturing efficiency and decrease manufacturing costs. Our automatic test equipment and ~~collaborative robots~~industrial automation products and services include:

We have a broad customer base which includes integrated device manufacturers (“IDMs”), outsourced semiconductor assembly and test providers (“OSATs”), wafer foundries, fabless companies that design, but contract with others for the manufacture of integrated circuits (“ICs”), developers of wireless devices and consumer electronics, manufacturers of circuit boards, automotive suppliers, wireless product manufacturers, storage device manufacturers, aerospace and military contractors, and distributors that sell collaborative robots.

On June 11, 2015, we acquired Universal Robots A/S (“Universal Robots”) for approximately $284 million of cash plus up to an additional $65 million of cash if certain performance targets are met extending through 2018. 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 and increase manufacturing efficiency. Universal Robots is a separate operating and reportable segment, Industrial Automation. The acquisition of Universal Robots provides a growth engine to our business and complements our existing System Test and Wireless Test segments.

In October 2014, we acquired Avionics Interface Technologies, LLC (“AIT”), a supplier of equipment for testing state-of-the-art data communication buses. The acquisition of AIT complements our Defense/Aerospace line of bus test instrumentation for commercial and defense avionics systems. AIT is included in our System Test segment.

We believe our recent acquisitions have enhanced our opportunities for growth. We intend to continue to invest in our business, grow market share in our markets and expand further our addressable markets while tightly managing our costs.

The sales of our products and services are dependent, to a large degree, on customers who are subject to cyclical trends in the demand for their products. These cyclical periods have had, and will continue to have, a significant effect on our business ~~since~~because our customers often delay or accelerate purchases in reaction to changes in their businesses and to demand fluctuations in the semiconductor and electronics industries. Historically, these demand fluctuations have resulted in significant variations in our results of operations. The sharp swings in the semiconductor and electronics industries ~~in recent years~~ have generally affected the semiconductor and electronics test equipment and services industries more significantly than the overall capital equipment sector.

In recent years, this cyclical demand has become an even/odd year trend where demand has increased in even years and decreased in odd years due principally to demand swings in the ~~fourth quarter~~mobility market of ~~2014, we performed~~our Semiconductor Test business. In 2015, the even/odd year trend continued, but had less of an impact on our annual ~~goodwill impairment~~revenue due to the sale in 2015 of testers that were previously leased to customers in 2014. We expect the

even/odd year demand trend in the mobility market to most likely lessen in the future due to slower smart phone unit growth, along with rising device complexity and the reduced impact of parallel test ~~and recorded a goodwill impairment charge of $98.9 million~~ in our ~~Wireless~~Semiconductor Test ~~segment as a result of decreased projected demand attributable to~~business.

On April 16, 2016, an ~~estimated smaller future wireless test market due to reuse of wireless test equipment, price competition~~earthquake in Kumamoto, Japan damaged our facility. The facility, which is used for engineering, production, and ~~different testing techniques. Further reductions~~support operations, sustained heavy damage. We are still in the ~~size~~process of assessing the total impact of the ~~wireless test market may occur, which may result~~damage. The net book value of the inventory and fixed assets at the Kumamoto location is approximately $17 million. With respect to the location, we have $10 million of earthquake insurance with a deductible of approximately $2.5 million. We are temporarily transferring some operations to other facilities in ~~additional goodwill impairment charges, increased risk of excess~~Japan and ~~obsolete inventories, asset write-offs and restructuring charges.~~elsewhere while our Kumamoto operations are restored.

We have identified the policies which are critical to understanding our business and our results of operations. Except for below, there have been no significant changes during the ~~six~~three months ended ~~July 5, 2015~~April 3, 2016 to the items disclosed as our critical accounting policies and estimates in Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2014.~~2015.

We ~~recognize revenues when there is persuasive evidence~~performed our last goodwill impairment test during the fourth quarter of ~~an arrangement, title and risk of loss have passed, delivery has occurred or the services have been rendered, the sales price is fixed or determinable and collection~~2015. We performed step one of the ~~related receivable~~two step impairment test for our Wireless Test and Defense/Aerospace reporting units and the step zero assessment for our Industrial Automation reporting unit. The step one tests resulted in each of the reporting unit’s fair value exceeding its carrying value by at least 20%.

We estimate the fair value of a reporting unit using the results derived from an income approach, a discounted cash flow analysis, and a market approach using the market comparable method which is ~~reasonably assured. Title~~based on revenue and ~~risk~~earnings multiples from comparable companies. Estimating a reporting unit’s fair value requires significant judgment and assumptions including projected future cash flows, revenue, market size, market growth, Teradyne’s market share, market multiples, discount rates and consideration of ~~loss generally pass~~market valuations of comparable companies. These judgments and assumptions reflect our best estimates, but these items involve inherent uncertainties based on market and customer conditions.

The fair value estimate for our Wireless Test reporting unit involves forecasting the size of the wireless test market in future years and our market share which are significant judgments and assumptions due to our ~~customers upon~~significant customer concentration in our Wireless Test segment. Forecasting the size of the wireless test market in future years and our market share includes estimating end product shipment ~~or at delivery destination point.~~ volumes, new wireless technology introductions and customer buying patterns. As of April 3, 2016 and December 31, 2015, our Wireless Test segment had $262.9 million of goodwill.

In ~~circumstances where either title or risk~~the fourth quarter of ~~loss pass upon destination, acceptance or cash payment,~~2014, we ~~defer revenue recognition until such events occur except when title transfer is tied~~recorded a goodwill impairment charge of $98.9 million in our Wireless Test segment as a result of decreased demand attributable to ~~cash payment outside the United States. Outside the United States, we recognize revenue even if we retain a form~~an estimated smaller wireless test market due to reuse of ~~title to products delivered to customers, provided the sole purpose is to enable us to recover the products~~wireless test equipment, price competition and different testing techniques.

Further reductions in the ~~event of customer payment default and the arrangement does not prohibit the customer’s use or resale~~size of the ~~product in the ordinary course of business.~~

~~Our equipment has non-software and embedded software components that function together to deliver the equipment’s essential functionality. Revenue is recognized upon shipment~~wireless test market or ~~at delivery destination point, provided that customer acceptance criteria can be demonstrated prior to shipment. Certain contracts require us to perform tests~~our share of the ~~product to ensure that performance meets the published product specifications or customer requested specifications,~~wireless test market may occur which are generally conducted prior to shipment. Where the criteria cannot be demonstrated prior to shipment, revenue is deferred until customer acceptance has been received. We also defer the portion of the sales price that is not due until acceptance, which represents deferred profit.

For multiple element arrangements, we allocate revenue to all deliverables based on their relative selling prices. In such circumstances, a hierarchy is used to determine the selling price for allocating revenue to deliverables as follows: (i) vendor-specific objective evidence of selling price (“VSOE”), (ii) third-party evidence of selling price (“TPE”), and (iii) best estimate of the selling price (“BESP”). For a delivered item to be considered a separate unit, the delivered item must have value to the customer on a standalone basis and the delivery or performance of the undelivered item must be considered probable and substantiallymay result in ~~our control.~~

Our post-shipment obligations include installation, training services, one-year standard warranties, and extended warranties. Installation does not alter the product capabilities, does not require specialized skills or

tools and can be performed by the customers or other vendors. Installation is typically provided within five days of product shipment and is completed within one to two days thereafter. Training services are optional and do not affect the customers’ ability to use the product. We defer revenue for the selling price of installation and training. Extended warranties constitute warranty obligations beyond one year and we defer revenue in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 605-20,~~“Separately Priced Extended Warranty and Product Maintenance Contracts”~~ ~~and ASC 605-25,~~ ~~“Revenue Recognition Multiple-Element Arrangements.”~~ ~~Service revenue is recognized over the contractual period or as services are performed.~~

Our products are generally subject to warranty and the related costs of the warranty are provided for in cost of revenues when product revenue is recognized. We classify shipping and handling costs in cost of revenues.

~~We do not provide our customers with contractual rights of return for any of our products.~~

The functional currency for all non-U.S. subsidiaries is the U.S. dollar, except for the Industrial Automation segment for which the local currency is its functional currency. All foreign currency denominated monetary assets and liabilities are re-measured on a monthly basis into the functional currency using exchange rates in effect at the end of the period. All foreign currency denominated non-monetary assets and liabilities are re-measured into the functional currency using historical exchange rates. Net foreign exchange gains and losses resulting from re-measurement are included in other (income) expense, net. For Industrial Automation, assets and liabilities are translated into U.S. dollars using exchange rates in effect at the end of the period. Revenue and expense amounts are translated using an average of exchange rates in effect during the period. Translation adjustments are recorded within accumulated other comprehensive income (loss).additional goodwill impairment charges.


	For the Three Months Ended						For the Six Months Ended						For the Three Months Ended
	July 5, 2015			June 29, 2014			July 5, 2015			June 29, 2014			April 3, 2016			April 5, 2015
Percentage of revenues:
Revenues:
Products		85	%		86	%		83	%		84	%		83	%		80	%
Services		15			14			17			16			17			20

Total revenues		100			100			100			100			100			100
Cost of revenues:
Cost of products		35			39			35			39			39			35
Cost of services		6			6			7			7			8			9

Total cost of revenues (exclusive of acquired intangible assets amortization shown separately below)		42			45			43			46			47			44

Gross profit		58			55			57			54			53			56
Operating expenses:
Engineering and development		15			14			17			17			17			21
Selling and administrative		15			15			17			18			18			21
Acquired intangible assets amortization		3			3			3			4			5			4
Restructuring and other		—			—			—			—			—			—

Total operating expenses		33			32			38			39			40			46

Income from operations		26			23			19			15			13			10
Non-operating (income) expenses
Interest income		—			—			—			—			—			(1	)
Interest expense		—			—			—			1			—			—
Other (income) expense, net		—			—			(1	)		—			—			(2	)

Income before income taxes		26			23			20			14			13			12
Income tax provision		6			4			5			2			2			3

Net income		20	%		19	%		16	%		12	%		12	%		10	%

~~Second~~First Quarter ~~2015~~2016 Compared to ~~Second~~First Quarter ~~2014~~2015

Book to bill ratio is calculated as net bookings divided by net sales. Book to bill ratio by reportable segment was as follows:


	For the Three Months Ended				For the Three Months Ended
	July 5, 2015		June 29, 2014		April 3, 2016		April 5, 2015
Semiconductor Test		1.0		1.3		0.9		1.5
System Test						0.9		1.8
Wireless Test		1.3		0.8		1.0		0.8
System Test		1.0		1.1
Industrial Automation		1.4		—		1.1		—
Total Company		1.0		1.2		0.9		1.4


	For the Three Months Ended				Dollar Change			For the Three Months Ended				Dollar Change
	July 5, 2015		June 29, 2014		Dollar Change			April 3, 2016		April 5, 2015		Dollar Change
	(in millions)							(in millions)
Semiconductor Test	$	400.3	$	421.5	$	(21.2	)	$	340.3	$	270.9	$	69.4
System Test									53.7		37.4		16.3
Wireless Test		62.9		68.7		(5.8	)		20.3		34.1		(13.8	)
System Test		45.8		35.4		10.4
Industrial Automation		3.7		—		3.7			16.7		—		16.7

	$	512.7	$	525.6	$	(12.9	)	$	431.0	$	342.4	$	88.6

The ~~decrease~~increase in Semiconductor Test revenues of ~~$21.2~~$69.4 million, or 5%25.6%, was primarily due to ~~lower memory test~~higher product ~~sales. The decrease~~volume in ~~Wireless Test revenue of $5.8 million, or 8%, was primarily driven by lower connectivity test system sales.~~the application processor and image sensor markets. The increase in System Test revenue of ~~$10.4~~$16.3 million, or ~~29%~~43.6%, was primarily due to higher sales in Storage Test of 3.5” hard disk drive testers for cloud storage. The decrease in Wireless Test revenue of $13.8 million, or 40.5%, was primarily driven by lower cellular test system sales due to lower sales to our largest Wireless Test segment customer. As a result of significant customer concentration in our Wireless Test segment, quarterly revenue is subject to fluctuations based on our largest customer’s test capacity plans. The acquisition of Universal Robots, which is our Industrial Automation segment, completed in June 2015, added $16.7 million of revenue in the three months ended April 3, 2016.


	For the Three Months Ended						For the Three Months Ended
	July 5, 2015			June 29, 2014			April 3, 2016			April 5, 2015
Taiwan		26	%		30	%		42	%		30	%
United States								12			14
Japan								11			7
China		18			19			9			13
United States		12			11
Singapore		8			6
Japan		8			2
Philippines		7			4
Europe		6			5			7			6
Korea		5			13			6			13
Singapore								4			5
Thailand								3			2
Malaysia		5			5			3			5
Thailand		4			4
Philippines								2			3
Rest of World		1			1			1			2

		100	%		100	%		100	%		100	%


	For the Three Months Ended						Dollar/Point Change		For the Three Months Ended						Dollar/Point Change
	July 5, 2015			June 29, 2014					April 3, 2016			April 5, 2015
	(in millions)								(in millions)
Gross Profit	$	298.6		$	290.4		$	8.2	$	230.3		$	192.4		$	37.9
Percent of Total Revenues		58.2	%		55.3	%		2.9		53.4	%		56.2	%		(2.8	)

Gross profit as a percent of revenue ~~increased~~decreased by ~~2.9~~2.8 points, ~~as a result~~ of ~~a 4.3 point increase~~which 3.7 points decrease was related to unfavorable product mix ~~and sales of previously leased testers~~ in SOC Semiconductor Test, higher Storage Test sales and lower Wireless Test sales, partially offset by ~~a 1.4 point decrease~~an increase of 1.6 points due to higher ~~excess and obsolete inventory provisions in Storage Test and Semiconductor Test.~~product volume.

We assess the carrying value of our inventory on a quarterly basis by estimating future demand and comparing that demand against on-hand and on-order inventory positions. Forecasted revenue information is obtained from the sales and marketing groups and incorporates factors such as backlog and future revenue demand. This quarterly process identifies obsolete and excess inventory. Obsolete inventory, which represents items for which there is no demand, is fully reserved. Excess inventory, which represents inventory items that are not expected to be consumed during the next twelve quarters for our Semiconductor Test, System Test and Industrial Automation segments and the next four quarters for our Wireless Test segment, is written-down to estimated net realizable value.

During the three months ended ~~July 5, 2015,~~April 3, 2016, we recorded an inventory provision of $14.4 million included in cost of revenues primarily due to $7.7 million related to a downward revision to previously forecasted demand levels for our 2.5” hard disk drive testers in Storage Test and $6.0 million related to product transition in Semiconductor Test. Of the $14.4 million of total excess and obsolete provisions, $7.7 million was related to System Test, $6.4 million was related to Semiconductor Test, and $0.3 million was related to Wireless Test.

~~During the three months ended June 29, 2014, we recorded an inventory provision of $5.0~~$4.3 million included in cost of revenues primarily due to downward revisions to previously forecasted demand levels. Of the ~~$5.0~~$4.3 million of total excess and obsolete provisions, $3.7 million was related to Semiconductor Test, ~~$0.9~~$0.6 million was related to Wireless Test, and ~~$0.4~~$0.1 million was related to System Test.

During the three months ended ~~July~~April 5, 2015, we recorded an inventory provision of $1.4 million included in cost of revenues primarily due to downward revisions to previously forecasted demand levels. Of the $1.4 million of total excess and ~~June 29, 2014,~~obsolete provisions, $0.8 million was related to Wireless Test, $0.5 million was related to Semiconductor Test, and $0.1 million was related to System Test.

During the three months ended April 3, 2016 and April 5, 2015, we scrapped ~~$0.8~~$0.7 million and ~~$2.3~~$0.6 million of inventory, respectively. During the three months ended ~~July~~April 3, 2016 and April 5, 2015, ~~and June 29, 2014,~~ we sold ~~$2.6~~$1.1 million and ~~$2.1~~$1.9 million of previously written-down or written-off inventory, respectively. As of ~~July 5, 2015,~~April 3, 2016, we had inventory related reserves for inventory which had been written-down or written-off totaling ~~$122.8~~$122.9 million. We have no pre-determined timeline to scrap the remaining inventory.


	For the Three Months Ended						Dollar Change		For the Three Months Ended						Dollar Change
	July 5, 2015			June 29, 2014					April 3, 2016			April 5, 2015
	(in millions)								(in millions)
Engineering and Development	$	75.8		$	73.4		$	2.4	$	73.5		$	71.5		$	2.0
Percent of Total Revenues		14.8	%		14.0	%				17.0	%		20.9	%

The increase of ~~$2.4~~$2.0 million in engineering and development expenses was ~~due~~ primarily ~~to increased spending~~from the acquisition of Universal Robots completed in ~~System Test and higher variable compensation.~~June 2015.


	For the Three Months Ended						Dollar Change			For the Three Months Ended						Dollar Change
	July 5, 2015			June 29, 2014						April 3, 2016			April 5, 2015
	(in millions)									(in millions)
Selling and Administrative	$	77.1		$	77.5		$	(0.4	)	$	79.2		$	72.0		$	7.2
Percent of Total Revenues		15.0	%		14.7	%					18.4	%		21.0	%

The ~~decrease~~increase of ~~$0.4~~$7.2 million in selling and administrative expenses was due primarily to ~~lower spending~~additional costs as a result of the acquisition of Universal Robots in ~~Semiconductor Test partially offset by higher variable compensation.~~June 2015.

Acquired intangible assets amortization expense increased due to the Universal Robots acquisition in June 2015.

During the three months ended ~~July 5, 2015,~~April 3, 2016, we recorded ~~a $1.6~~an expense of $1.2 million ~~gain from~~for the ~~decrease~~increase in the fair value of the ~~ZTEC~~Universal Robots contingent consideration ~~partially offset by $1.0 million of acquisition costs related to Universal Robots.~~liability.

During the three months ended ~~July 5, 2015,~~April 3, 2016, we recorded ~~$0.3~~$0.4 million of severance charges related to headcount reductions of 412 people, primarily in Semiconductor Test. ~~During~~

Interest income decreased by $0.2 million due primarily to lower cash and marketable securities balances in 2016. Interest expense increased by $0.5 million due primarily to costs related to the revolving credit facility and realized losses on sales of marketable securities in 2016. In 2015, other (income) expense, net included a $4.8 million gain from the sale of an equity investment.

The increase in income before income taxes in Semiconductor Test was primarily due to higher revenues in the application processor and image sensor markets. The increase in income before income taxes in System Test was primarily due to higher sales in Storage Test of 3.5” hard disk drive testers for cloud storage. The decrease in income before income taxes in Wireless Test was primarily due to lower revenue driven by lower cellular test system sales. In June 2015, we completed the acquisition of Universal Robots, which is our Industrial Automation segment. The loss before income taxes in Industrial Automation in the three months ended ~~June 29, 2014, we recorded $0.6 million of severance charges related~~April 3, 2016, was primarily due to ~~headcount reductions of 28 people, primarily in Wireless Test.~~intangible assets amortization.

The effective tax rate for the three months ended ~~July~~April 3, 2016 and April 5, 2015 was 12.6% and ~~June 29, 2014 was 22.1% and 16.6%~~22.7%, respectively. The ~~increase~~decrease in the effective tax rate is primarily attributable to a projected ~~increase~~decrease in income subject to tax in the United States as compared to lower rate ~~in foreign jurisdictions and an increase in uncertain tax positions for transfer pricing.~~

The decrease in Semiconductor Test revenues of $12.0 million, or 2%, was primarily due to lower SOC product volume, driven by the application processors and microcontrollers markets. The increase in Wireless Test revenue of $7.0 million, or 8%, was primarily due to higher cellular test product volume. The increase in System Test revenue of $9.8 million, or 13%, was primarily due to higher sales in Storage Test due to 3.5” hard disk drive testers for cloud storage.

~~Our revenues by region as a percentage of total net revenues were as follows:~~

Gross profit as a percent of revenue increased by 3.4 points primarily due to an increase of 3.7 points related to product mix and sales of previously leased testers in Semiconductor Test, partially offset by higher warranty costs.

We assess the carrying value of our inventory on a quarterly basis by estimating future demand and comparing that demand against on-hand and on-order inventory positions. Forecasted revenue information is obtained from the sales and marketing groups and incorporates factors such as backlog and future revenue demand. This quarterly process identifies obsolete and excess inventory. Obsolete inventory, which represents items for which there is no demand, is fully reserved. Excess inventory, which represents inventory items that are not expected to be consumed during the next twelve quarters, is written-down to estimated net realizable value.

During the six months ended July 5, 2015, we recorded an inventory provision of $15.9 million included in cost of revenues primarily due to $7.7 million related to a downward revision to previously forecasted demand levels for our 2.5” hard disk drive testers in Storage Test and $6.0 million related to product transition in Semiconductor Test. Of the $15.9 million of total excess and obsolete provisions, $7.8 million was related to System Test, $6.9 million was related to Semiconductor Test, and $1.2 million was related to Wireless Test.

During the six months ended June 29, 2014, we recorded an inventory provision of $15.1 million included in cost of revenues with $9.0 million due to downward revisions to previously forecasted demand levels and $6.1 million related to product transition in Semiconductor Test. Of the $15.1 million of total excess and obsolete provisions, $9.9 million was related to Semiconductor Test, $4.0 million was related to Wireless Test, and $1.2 million was related to System Test.

During the six months ended July 5, 2015 and June 29, 2014, we scrapped $1.4 million and $3.3 million of inventory, respectively. During the six months ended July 5, 2015 and June 29, 2014, we sold $4.5 million and $3.6 million, respectively, of previously written-down or written-off inventory. As of July 5, 2015 we had inventory related reserves for inventory which had been written-down or written-off totaling $122.8 million. We have no pre-determined timeline to scrap the remaining inventory.

~~The increase of $6.8 million in engineering and development expenses was due primarily to increased spending in Semiconductor Test and higher variable compensation.~~

The decrease of $6.4 million in selling and administrative expenses was due primarily to a one-time $6.6 million stock-based compensation charge related to Michael Bradley’s (retired Chief Executive Officer) Retirement Agreement in the six months ended June 29, 2014, partially offset by higher variable compensation.

During the six months ended July 5, 2015, we recorded a $1.6 million fair value adjustment to decrease the ZTEC acquisition contingent consideration, partially offset by $1.0 million of acquisition costs related to Universal Robots.

During the six months ended July 5, 2015, we recorded $0.3 million of severance charges related to headcount reductions of 4 people, primarily in Semiconductor Test. During the six months ended June 29, 2014, we recorded $0.6 million of severance charges related to headcount reductions of 28 people, primarily in Wireless Test.

The effective tax rate for the six months ended July 5, 2015 and June 29, 2014 was 22.3% and 14.6%, respectively. The increase in the effective tax rate is primarily attributable to a projected increase in income

~~subject to tax in the United States as compared to lower rates in~~ foreign jurisdictions as well as ~~an increase in uncertain~~the benefit from U.S. research and development tax positions for transfer pricing. The effective tax rate for the six months ended July 5, 2015 was reduced by discrete tax benefits of $1.7 million composed of $0.7 million from disqualifying dispositions of incentive stock options and employee stock purchase plan shares and $1.0 million of other discrete tax benefits. The effective tax rate for the six months ended June 29, 2014 was reduced by discrete tax benefits of $2.9 million composed of $1.2 million from disqualifying dispositions of incentive stock options and employee stock purchase plan shares and $1.7 million of other discrete tax benefits.credits.

The following table reflects our contractual obligations as of ~~July 5, 2015:~~April 3, 2016:

Our cash, cash equivalents and marketable securities balances decreased by ~~$270.2~~$32.9 million in the ~~six~~three months ended ~~July 5, 2015,~~April 3, 2016, to ~~$1,029~~$975.4 million.

In the ~~six~~three months ended ~~July 5, 2015,~~April 3, 2016, changes in operating assets and liabilities used cash of ~~$24.6~~$67.2 million. This was due to a ~~$104.9~~$44.4 million increase in operating assets and ~~an $80.3~~a $22.8 million ~~increase~~decrease in operating liabilities.

The increase in operating assets was primarily due to a ~~$142.5~~$42.6 million increase in accounts receivable due to higher ~~sales, partially offset by a $23.5 million~~sales.

The decrease ~~in inventories and a $14.1 million decrease in prepayments and other assets. The increase~~ in operating liabilities was due to a $40.6 million increase in other accrued liabilities, a $31.2 million increase in accounts payable due to higher sales, a $23.2 million increase in accrued income taxes, and a $5.7 million increase in customer advance payments and deferred revenue, partially offset by a $18.4$51.1 million decrease in accrued employee compensation due primarily to variable compensation and employee stock compensation ~~awards’~~awards payroll tax payments, a $13.8 million decrease in customer advance payments and ~~$2.0~~deferred revenue, an $8.3 million decrease in accounts payable and $1.3 million of retirement plan ~~contributions.~~contributions, partially offset by a $51.8 million increase in other accrued liabilities.

Investing activities during the ~~six~~three months ended ~~July 5, 2015 used~~April 3, 2016 provided cash of ~~$49.4~~$70.7 million, due to ~~$590.3~~$239.4 million and $73.5 million proceeds from sales and maturities of marketable securities, respectively, partially offset by $221.8 million used for purchases of marketable securities ~~$282.3~~and $20.3 million used for purchases of property, plant and equipment.

Financing activities during the three months ended April 3, 2016 used cash of $42.8 million, due to $28.0 million used for the ~~acquisition~~repurchase of 1.5 million shares of common stock at an average price of $18.81 per share, $12.3 million used for dividend payments and $11.7 million used for payment related to Universal Robots acquisition contingent consideration, partially offset by $9.1 million from the issuance of common stock under employee stock purchase and ~~$46.1~~stock option plans.

In the three months ended April 5, 2015, changes in operating assets and liabilities used cash of $31.1 million. This was due to a $15.6 million increase in operating assets and a $15.5 million decrease in operating liabilities.

The increase in operating assets was due to a $24.7 million increase in accounts receivable due to higher sales, partially offset by a $6.0 million decrease in inventories and a $3.1 million increase in prepayments and other assets. The decrease in operating liabilities was due to a $45.2 million decrease in accrued employee compensation due primarily to variable compensation and employee stock award payroll tax payments, and $1.0 million of retirement plan contributions, partially offset by a $13.9 million increase in other accrued liabilities, a $11.1 million increase in accounts payable due to higher sales, a $4.7 million increase in accrued income taxes and a $1.0 million increase in customer advance payments and deferred revenue.

Investing activities during the three months ended April 5, 2015 used cash of $62.0 million, due to $335.6 million used for purchases of marketable securities and $21.1 million used for purchases of property, plant and equipment, partially offset by proceeds from maturities and sales of marketable securities of ~~$231.4~~$140.2 million and ~~$631.4~~$148.6 million, respectively, proceeds from the sale of an equity investment of ~~$5.4~~$4.8 million, and proceeds from life insurance of $1.1 million related to the cash surrender value from the cancellation of Teradyne owned life insurance policies. The decrease in purchases of property, plant and equipment of ~~$45.3~~$10.1 million was primarily due to higher purchases of testers for customer leasing in the ~~six~~three months ended ~~June 29,~~March 30, 2014.

Financing activities during the ~~six~~three months ended ~~July~~April 5, 2015 used cash of ~~$137.7~~$50.8 million, due to ~~$128.3 million used for~~the repurchase of ~~6.5~~2.4 million shares of common stock for $46.7 million at an average price of ~~$19.74~~$19.40 per share, ~~$25.9~~and $13.0 million used for dividend payments, ~~and $2.3 million used for debt issuance costs related to our April, 2015 revolving credit facility,~~ partially offset by ~~$17.9~~$8.9 million ~~from~~provided by the issuance of common stock under employee stock purchase and stock option ~~plans and $0.9 million from the tax benefit related to employee stock compensation awards.~~plans.

In the six months ended June 29, 2014, changes in operating assets and liabilities used cash of $27.9 million. This was due to a $97.7 million increase in operating assets and a $69.7 million increase in operating liabilities.

The increase in operating assets was due to a $143.1 million increase in accounts receivable due to higher sales, partially offset by a $27.0 million decrease in prepayments and other assets and an $18.5 million decrease in inventories due to higher sales. The increase in operating liabilities was due to a $39.3 million increase in accounts payable due to higher sales, a $37.9 million increase in other accrued liabilities, a $13.8 million increase in customer advance payments and deferred revenue and a $5.5 million increase in accrued income taxes, partially offset by a $20.1 million decrease in accrued employee compensation due primarily to variable compensation and employee stock compensation awards’ payroll tax payments, a $4.3 million convertible note interest payment, and $2.4 million of retirement plan contributions.

Investing activities during the six months ended June 29, 2014 used cash of $80.1 million, due to $523.3 million used for purchases of marketable securities and $91.4 million used for purchases of property, plant and equipment, partially offset by proceeds from maturities and sales of marketable securities that provided cash of $377.4 million and $152.8 million, respectively, and proceeds from life insurance of $4.4 million related to the cash surrender value from the cancellation of Teradyne owned life insurance policies on its retired chief executive officer.

Financing activities during the six months ended June 29, 2014 used cash of $190.3 million. $191.0 million of cash was used for payments on long-term debt and $11.7 million was used for dividend payments, partially offset by $10.6 million from the issuance of common stock under employee stock purchase and stock option plans and $1.7 million from the tax benefit related to employee stock compensation awards.

In January 2014, our Board of Directors declared an initial quarterly cash dividend of $0.06 per share that was paid on June 2, 2014. In the six months ended June 29, 2014, dividend payments were $11.7 million.

~~In January 2015 and May 2015,~~2016, our Board of Directors declared a quarterly cash dividend of $0.06 per share. In the ~~six~~three months ended ~~July 5, 2015,~~April 3, 2016, dividend payments were ~~$25.9~~$12.3 million.

In January 2015, our Board of Directors authorized the repurchase of up to $500 million of common stock of which $300 million ~~of which~~was repurchased in 2015. In 2016, we intend to repurchase ~~in 2015. As of July 5, 2015,~~between $100 million and $200 million. During the three months ended April 3, 2016, we repurchased ~~6.5~~1.5 million shares of common stock at an average price of ~~$19.74,~~$18.81, for a total cost of ~~$128.3~~$28.0 million. The cumulative repurchases under this program as of April 3, 2016 totaled 17.1 million shares of common stock for $328.0 million at an average price of $19.17 per share.

While we declared a quarterly cash dividend and authorized a share repurchase program, we may reduce or eliminate the cash dividend or share repurchase program in the future. Future cash dividends and stock repurchases are subject to the discretion of our Board of Directors which will consider, among other things, our earnings, capital requirements and financial condition.

We believe our cash, cash equivalents and marketable securities balance will be sufficient to pay our quarterly dividend, execute our authorized share repurchase program and meet our working capital and expenditure needs for at least the next twelve months. The amount of cash, cash equivalents and marketable securities in the U.S. and our operations in the U.S. provide sufficient liquidity to fund our business activities in the U.S. We have ~~approximately $455~~$514 million of cash, cash equivalents and marketable securities outside the U.S. that if repatriated would incur additional taxes. Determination of the additional taxes that would be incurred

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. Inflation has not had a significant long-term impact on earnings.

As discussed in Note N: “Stock Based Compensation” in our ~~2014~~2015 Form 10-K, we have a 1996 Employee Stock Purchase Plan and a 2006 Equity and Cash Compensation Incentive Plan (the “2006 Equity Plan”).

The purpose of the 1996 Employee Stock Purchase Plan is to encourage stock ownership by all eligible employees of Teradyne. The purpose of the 2006 Equity Plan is to provide equity ownership and compensation opportunities in Teradyne to our employees, officers, directors, consultants and/or advisors. Both plans were approved by our shareholders.

In January 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-01,“Financial Instruments—Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities.”This ASU provides guidance for the recognition, measurement, presentation, and disclosure of financial instruments. The new pronouncement revises accounting related to equity investments and the presentation of certain fair value changes for financial liabilities measured at fair value. Among other things, it amends the presentation and disclosure requirements of equity securities that do not result in consolidation and are not accounted for under the equity method. Changes in the fair value of these equity securities will be recognized directly in net income. This pronouncement is effective for fiscal years and interim periods within those years beginning after December 15, 2017. We are currently evaluating the impact of this ASU on our financial position and results of operations.

On March 31, 2016, the FASB issued ASU 2016-09,“Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting.” This ASU changes how companies account for certain aspects of share-based payment awards to employees, including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classification in the statement of cash flows. This pronouncement is effective for annual periods beginning after December 15, 2016. Early adoption is permitted. We are currently evaluating the impact of this ASU on our financial position and results of operations.

In February 2016, the FASB issued ASU 2016-02,“Leases (Topic 842).” The guidance in this ASU supersedes the lease recognition requirements in Accounting Standards Codification (“ASC”) Topic 840,“Leases.” The new standard establishes a right-of-use (“ROU”) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than twelve months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. The new standard is effective for annual periods beginning after December 15, 2018, including interim periods within those years, with early adoption permitted. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. We are currently evaluating the impact of this ASU on our financial position and results of operations.

In November 2015, the FASB issued ASU 2015-17,“Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes.” ASU 2015-17 simplifies the presentation of deferred income taxes by eliminating the separate classification of deferred income tax liabilities and assets into current and noncurrent amounts in the balance sheet. The amendments in the update require that all deferred tax liabilities and assets be classified as noncurrent in the balance sheet. This ASU is effective for annual periods beginning after December 15, 2016, and interim periods within those years and may be applied either prospectively or retrospectively to all periods presented. Early adoption is permitted. We early adopted this ASU prospectively in the first quarter of 2016.

On April 7, 2015, the FASB issued ASU 2015-03,“Simplifying the Presentation of Debt Issuance Costs,” which requires debt issuance costs to be presented in the balance sheet as a direct deduction from the carrying value of the associated debt liability, consistent with the presentation for debt discount. ~~The guidance in~~ASU 2015-03 does not specifically address requirements for the ~~new standard is limited to the~~ presentation or subsequent measurement of debt issuance costs ~~and does not affect~~related to line-of-credit arrangements. On August 8, 2015, the ~~recognition and measurement~~FASB issued ASU 2015-15, “Interest—Imputation of Interest (Subtopic 835-30)” clarifying that debt issuance ~~costs. Therefore~~costs related to line-of-credit arrangements could be presented as an asset and amortized over the ~~amortization~~term of ~~such costs should continue to be calculated using~~ the interest method and be reported as interest expense. The standard is effective for our financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within those years. Thisline-of-credit arrangement, regardless of whether there are any outstanding borrowings on the line-of-credit arrangement. We adopted this ASU ~~is expected to~~in the first quarter of 2016. Adoption of this ASU did not have noa material impact on our financial position and results of operations.

In May 2014, the FASB issued ~~Accounting Standard Update (“ASU”)~~ASU 2014-09,“Revenue from Contracts with Customers (Topic 606),” which will replace numerous requirements in U.S. GAAP, including industry-specific requirements, and provide companies with a single revenue recognition model for recognizing revenue from contracts with customers. The core principle of the new standard is that a company should recognize revenue to show the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled to in exchange for those goods or services. ~~On April 1,~~In August 2015, ~~the~~ FASB ~~proposed a deferral of~~issued ASU 2015-14, which deferred the effective date of the new revenue standard by one ~~year, until January 1, 2018. This deferral was approved on July 22, 2015. The~~year. For Teradyne, the standard will be effective in ~~our~~the first quarter of 2018. Early adoption is permitted but not before the original effective date (that is, annual periods beginning after December 15, 2016). The two permitted transition methods under the new standard are the full retrospective method, in which case the standard would be applied to each prior reporting period presented, or the modified retrospective method, in which case the cumulative effect of applying the standard would be recognized at the date of initial application. We have not yet selected a transition method. We are currently evaluating the impact of this ASU on our financial position and results of operations.

For “Quantitative and Qualitative Disclosures about Market Risk” affecting Teradyne, see Part 2 Item 7a, “Quantitative and Qualitative Disclosures about Market Risks,” in our Annual Report on Form 10-K filed with the SEC on February ~~27, 2015.~~29, 2016. There were no material changes in our exposure to market risk from those set forth in our Annual Report for the fiscal year ended December 31, ~~2014.~~2015.

As of the end of the period covered by this report, our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures pursuant to Rule 13a-15(b) promulgated under the Exchange Act. Based upon that evaluation, our

Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were effective in ensuring that material information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, including ensuring that such material information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

During the period covered by this report, there have been no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met.

We are subject to various legal proceedings and claims which have arisen in the ordinary course of business. In the opinion of management, the ultimate disposition of these matters will not have a material adverse effect on our results of operations, financial condition or cash flows.

In addition to other information set forth in this Form 10-Q, you should carefully consider the factors discussed in Part I, “Item 1A: Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, ~~2014,~~2015, which could materially affect our business, financial condition or future results. The risk factors described in our Annual Report on Form 10-K remain applicable to our business.

The risks described in our Annual Report on Form 10-K are not the only risks that we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.

~~We may incur indebtedness.~~The recent natural disaster in Japan could disrupt our operations and adversely affect our results of operations.

On April 27, 2015, we entered into a five-year, senior secured revolving credit facility of $350.0 million. Subject to customary conditions, we may seek to obtain from existing or new lenders incremental commitments underThe recent earthquake in Japan has damaged our building and impacted our operations located in Kumamoto. We are temporarily transferring the credit facility in an aggregate principal amount not to exceed $150.0 million. We have not borrowed any funds under this credit facility. We could borrow funds under this credit facility at any time for general corporate purposes and working capital. Incurring indebtedness, among other things, could:

~~Restrictive covenants in the agreement governing our senior secured revolving credit facility may restrict~~have a significant impact on our ability to ~~pursue~~manufacture our products or sell products to our customers. However, the situation in Kumamoto remains uncertain so the events could have a short-term impact to our business ~~strategies.~~

The agreement governing our senior secured revolving credit facility limits our ability, among other things, to: incur additional secured indebtedness; sell, transfer, license or dispose of assets; consolidate or merge; enter into transactions with our affiliates; and incur liens.in Japan. In addition, our senior secured revolving credit facility contains financial and other restrictive covenants that limit our ability to engage in activities that may be in our long term best interest, such as, subject to permitted exceptions, making capital expenditures in excess of certain thresholds, making investments, loans and other advances, and prepaying any additional indebtedness while our indebtedness under our senior secured revolving credit facility is outstanding. Our failure to comply with financial and other restrictive covenants could result in an event of default, which if not cured or waived, could result in the lenders requiring immediate payment of all outstanding borrowings or foreclosing on collateral pledged to them to secure the indebtedness.

~~We may not fully realize the benefits of our acquisitions or strategic alliances.~~

In June 2015, we acquired Universal Robots. We may not be able to realize the benefit of acquiring Universal Robots or successfully grow Universal Robots’ business. We may continue to acquire additional

businesses, form strategic alliances or create joint ventures with third parties that we believe will complement or augment our existing businesses. We may not be able to realize the expected synergies and cost savings from the integration with our existing operations of other businesses or technologies that we may ~~acquire. In addition, the integration process for~~have to incur significant costs in order to repair our ~~acquisitions may be complex, costly~~building which could have an adverse effect on our financial condition and ~~time consuming and include unanticipated issues, expenses and liabilities. We may have difficulty in developing, manufacturing and marketing the products~~results of a newly acquired company in a manner that enhances the performance of our combined businesses or product lines and allows us to realize value from expected synergies. Following an acquisition, we may not achieve the revenue or net income levels that justify the acquisition. Acquisitions may also result in one-time charges (such as acquisition-related expenses, write-offs or restructuring charges) or in the future, impairment of goodwill, that adversely affect our operating results. Additionally, we may fund acquisitions of new businesses, strategic alliances or joint ventures by utilizing our cash, incurring debt, issuing shares of our common stock, or by other means.operations.

In January 2015, our Board of Directors ~~cancelled our 2010 stock repurchase program and~~ authorized a ~~new~~ stock repurchase program for up to $500 million of common stock, of which $300 million ~~of which~~was repurchased in 2015. In 2016, we intend to repurchase ~~in 2015.~~between $100 million and $200 million. The cumulative repurchases as of ~~July 5, 2015,~~April 3, 2016 totaled ~~6.5~~17.1 million shares of common stock for ~~$128.3~~$328 million at an average price per share of ~~$19.74.~~$19.17.

The following table includes information with respect to repurchases we made of our common stock during the three months ended ~~July 5, 2015~~April 3, 2016 (in thousands except per share price):

We satisfy U.S. federal and state minimum withholding tax obligations due upon the vesting and the conversion of restricted stock units into shares of our common stock, by automatically withholding from the shares being issued, a number of shares with an aggregate fair market value on the date of such vesting and conversion that would satisfy the minimum withholding amount due.

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


Massachusetts		04-2272148
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)

600 Riverpark Drive, North Reading, Massachusetts		01864
(Address of Principal Executive Offices)		(Zip Code)


		Page No.

PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements (Unaudited):

	Condensed Consolidated Balance Sheets as of ~~July 5, 2015~~April 3, 2016 and December 31, ~~2014~~2015		1

	Condensed Consolidated Statements of Operations for the Three ~~and Six~~ Months Ended ~~July~~April 3, 2016 and April 5, 2015 ~~and June 29, 2014~~		2

	Condensed Consolidated Statements of Comprehensive Income for the Three ~~and Six~~ Months Ended ~~July~~April 3, 2016 and April 5, 2015 ~~and June 29, 2014~~		3

	Condensed Consolidated Statements of Cash Flows for the ~~Six~~Three Months Ended ~~July~~April 3, 2016 and April 5, 2015 ~~and June 29, 2014~~		4

	Notes to Condensed Consolidated Financial Statements		5

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		3127

Item 3.	Quantitative and Qualitative Disclosures about Market Risk		4236

Item 4.	Controls and Procedures		4237

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings		4438

Item 1A.	Risk Factors		4438

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		4538

Item 4.	Mine Safety Disclosures		4539

Item 6.	Exhibits		4639


	For the Three Months Ended						For the Six Months Ended
	July 5, 2015			June 29, 2014			July 5, 2015			June 29, 2014
	(in thousands)
Net income	$	102,879		$	101,205		$	135,666		$	102,134

Other comprehensive (loss) income, net of tax:
Foreign currency translation adjustments, net of tax of $0		(6,267	)		—			(6,267	)		—
Available-for-sale marketable securities:
Unrealized (losses) gains on marketable securities arising during period, net of tax of $(1,648), $558, $(944), $1,242		(2,675	)		1,165			(876	)		2,304
Less: Reclassification adjustment for gains included in net income, net of tax of $(40), $(141), $(209), $(243)		(231	)		(272	)		(561	)		(448	)

		(2,906	)		893			(1,437	)		1,856
Defined benefit pension and post-retirement plans:
Amortization of net prior service benefit included in net periodic pension expense and post-retirement benefit income, net of tax of $(42), $(42), $(85), $(85)		(74	)		(74	)		(147	)		(147	)

Other comprehensive (loss) income		(9,247	)		819			(7,851	)		1,709

Comprehensive income	$	93,632		$	102,024		$	127,815		$	103,843


	For the Six Months Ended July 5, 2015
	Foreign Currency Translation Adjustments			Unrealized Gains (Losses) on Marketable Securities			Retirement Plans Prior Service Credit			Total
	(in thousands)
Balance at December 31, 2014, net of tax of $1,598, $(453)	$	—		$	2,365		$	2,324		$	4,689

Other comprehensive loss before reclassifications, net of tax of $0, $(944)		(6,267	)		(876	)		—			(7,143	)
Amounts reclassified from accumulated other comprehensive income, net of tax of $(209), $(85)		—			(561	)		(147	)		(708	)

Net current period other comprehensive loss, net of tax of $0, $(1,153), $(85)		(6,267	)		(1,437	)		(147	)		(7,851	)

Balance at July 5, 2015, net of tax of $0, $445, $(538)	$	(6,267	)	$	928		$	2,177		$	(3,162	)


	For the Three Months Ended
	April 3, 2016			April 5, 2015
	(in thousands)
Net income	$	49,986		$	32,787

Other comprehensive income, net of tax:
Foreign currency translation adjustments		10,271			—
Available-for-sale marketable securities:
Unrealized gains on marketable securities arising during period, net of tax of $1,253, $704, respectively		3,071			1,799
Less: Reclassification adjustment for gains included in net income, net of tax of $11, $(169), respectively		(83	)		(330	)

		2,988			1,469
Defined benefit pension and post-retirement plans:
Amortization of prior service (credit) cost included in net periodic pension and post-retirement expense/income, net of tax of $(46), $(42), respectively		(80	)		(74	)

Other comprehensive income		13,179			1,395

Comprehensive income	$	63,165		$	34,182


	Fair Value		Estimated Useful Life
	(in thousands)		(in years)
Developed technology	$	88,890		4.9
Trademarks and tradenames		21,680		10.0
Customer relationships		9,380		2.0

Total intangible assets	$	119,950		5.6


	For the Three Months Ended
	April 5, 2015
Revenue	$	352,971
Net income		28,374
Net income per common share:
Basic	$	0.13

Diluted	$	0.13


	Location of (Gains) Losses Recognized in Statement of Operations	For the Three Months Ended					For the Six Months Ended
		July 5, 2015			June 29, 2014		July 5, 2015		June 29, 2014
		(in thousands)
Derivatives not designated as hedging instruments:
Foreign exchange contracts	Other (income) expense, net	$	(1,547	)	$	1,122	$	1,878	$	1,869

Total Derivatives		$	(1,547	)	$	1,122	$	1,878	$	1,869


	For the Three Months Ended April 3, 2016
	Foreign Currency Translation Adjustment			Unrealized Gains (Losses) on Marketable Securities			Retirement Plans Prior Service Credit			Total
	(in thousands)
Balance at December 31, 2015, net of tax of $0, $(459), $(622)	$	(8,759	)	$	(1,414	)	$	2,029		$	(8,144	)

Other comprehensive income before reclassifications, net of tax of $0, $1,253		10,271			3,071			—			13,342
Amounts reclassified from accumulated other comprehensive income, net of tax of $11, $(46)		—			(83	)		(80	)		(163	)

Net current period other comprehensive income, net of tax of $0, $1,264, $(46)		10,271			2,988			(80	)		13,179

Balance at April 3, 2016, net of tax of $0, $805, $(668)	$	1,512		$	1,574		$	1,949		$	5,035


	For the Six Months Ended June 29, 2014
	Unrealized Gains on Marketable Securities			Retirement Plans Prior Service Credit			Total
	(in thousands)
Balance at December 31, 2013, net of tax of $794, $(284)	$	1,381		$	2,619		$	4,000

Other comprehensive income before reclassifications, net of tax of $1,242, $0		2,304			—			2,304
Amounts reclassified from accumulated other comprehensive income, net of tax of $(243), $(85)		(448	)		(147	)		(595	)

Net current period other comprehensive income, net of tax of $999, $(85)		1,856			(147	)		1,709

Balance at June 29, 2014, net of tax of $1,793, $(369)	$	3,237		$	2,472		$	5,709


	Wireless Test		Industrial Automation			System Test Group		Total
	(in thousands)
Balance at December 31, 2014	$	262,922	$	—		$	10,516	$	273,438
Goodwill acquired during period		—		226,501			—		226,501
Foreign currency translation adjustment		—		(4,505	)		—		(4,505	)

Balance at July 5, 2015	$	262,922	$	221,996		$	10,516	$	495,434


	For the Six Months Ended						Dollar/Point Change
	July 5, 2014			June 29, 2014			Dollar/Point Change
	(in millions)
Gross Profit	$	491.0		$	457.5		$	33.5
Percent of Total Revenue		57.4	%		54.0	%		3.4


	For the Six Months Ended						Dollar Change
	July 5 2015			June 29, 2014			Dollar Change
	(in millions)
Engineering and Development	$	147.3		$	140.5		$	6.8
Percent of Total Revenue		17.2	%		16.6	%


	Payments Due by Period
	Total		Less than 1 year		1-3 years		3-5 years		More than 5 years		Other
	(in thousands)
Purchase Obligations	$	230,288	$	222,882	$	7,406	$	—	$	—	$	—
Retirement Plan Contributions		111,651		4,145		8,260		8,885		90,361		—
Operating Lease Obligations		62,441		15,326		20,191		12,368		14,556		—
Fair Value of Contingent Consideration		35,595		15,092		15,410		5,093		—		—
Other Long-Term Liabilities Reflected on the Balance Sheet under GAAP (1)		88,446		—		25,354		—		—		63,092

Total	$	528,421	$	257,445	$	76,621	$	26,346	$	104,917	$	63,092


Period	(a) Total Number of Shares (or Units) Purchased			(b) Average Price Paid per Share (or Unit)			(c) Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs		(d) Maximum Number (or Approximate Dollar Value) of Shares (or Units) that may Yet Be Purchased Under the Plans or Programs
April 6, 2015 – May 3, 2015		1,380		$	18.77			1,380	$	427,461
May 4, 2015 – May 31, 2015		1,224		$	20.25			1,218	$	402,816
June 1, 2015 – July 5, 2015		1,504		$	20.77			1,499	$	371,685

		4,108	(1)	$	19.94	(1)		4,096


Exhibit Number		Description

~~2.1~~		~~Share Sale and Purchase Agreement by and among Teradyne Holdings Denmark ApS, Teradyne, Inc., and the shareholders of Universal Robots A/S, dated May 13, 2015 (filed herewith)~~

10.1		~~Credit~~Executive Officer Change in Control Agreement ~~among~~dated February 8, 2016 between Teradyne, Inc.~~, Barclays Bank PLC, as the administrative agent~~ and ~~collateral agent, and the lenders party thereto dated April 27, 2015 filed as Exhibit 10.1 to Teradyne’s Current Report on Form 8-K filed April 27, 2015~~Greg Smith (filed herewith)

10.2		~~Amendment No. 1 to Credit~~Employment Agreement dated ~~as of May 19, 2015, among~~February 8, 2016 between Teradyne, Inc.~~, Barclays Bank PLC, as the administrative agent~~ and ~~collateral agent, and the lenders party thereto~~Greg Smith (filed herewith)

~~10.3~~		~~2006 Equity and Cash Compensation Incentive Plan, as amended, filed as Appendix A to Teradyne’s Notice and Proxy Statement on Schedule 14A filed April 2, 2015~~

31.1		Certification of Principal Executive Officer, pursuant to Rule 13a-14(a) of Securities and Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith)

31.2		Certification of Principal Financial Officer, pursuant to Rule 13a-14(a) of Securities and Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith)

32.1		Certification of Principal Executive Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith)

32.2		Certification of Principal Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith)

101.INS		XBRL Instance Document

101.SCH		XBRL Taxonomy Extension Schema Document

101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF		XBRL Taxonomy Extension Definition Linkbase Document

101.LAB		XBRL Taxonomy Extension Label Linkbase Document

101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document

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